Tax & Trade Blog

One thing that usually goes undiscussed when contemplating appeals to the Tax Court of Canada (“TCC”) is what happens if a taxpayer loses.

One thing that CAN happen is a “costs award” against the taxpayer, which is where a TCC judge orders the taxpayer to pay a portion of the Department of Justice (“DOJ”) costs in defending the appeal – which puts a significant premium on understanding one’s “chances of success” BEFORE filing the appeal!

Unexpected Costs

Voluntary disclosures (“VDs”) are permitted for Canadian tax purposes under the Canada Revenue Agency’s (the “CRA”) Voluntary Disclosures Program (the “VDP Program”), and their importance is highlighted by a recent case where the CRA reached back into history to assess a taxpayer prior tax exposure.

CRA Power to Reassess Beyond Limitation Periods

Typically, the CRA can reassess a taxpayer within four years for GST/HST matters and three years for income taxes:  see paragraph 298(1)(a) of the Excise Tax Act (the “ETA”);  see subsection 152(3.1) of the Income Tax Act (the “ITA”).

Businesses engaged exclusively in commercial activities get full input tax credits (“ITCs”) enabling them to recover all the GST/HST they pay in the course of their business activities.  Organizations engaged exclusively in “exempt” activities (financial services, healthcare, educational-related institutions) get no ITCs, meaning that GST/HST is a hard cost in their business. 

In between the two are businesses that carry on BOTH commercial and exempt activities, and in order to determine the ITCs these businesses are eligible to claim, a “fair and reasonable” allocation method has to be used.  A recent decision of the Tax Court of Canada (the “TCC”) in Marine Atlantic Inc. v. The King (2023 TCC 95) explores what that really means.

A recent Federal Court of Appeal (“FCA“) decision in Pillon v. Canada (2024 FCA 24) highlights the difficulties that Tax Debtors will face if trying to avoid GST and income tax debts.  Both the Excise Tax Act (“ETA”) and the Income Tax Act (“ITA”) have extremely powerful collections tools allowing the Canada Revenue Agency (“CRA”) to assess certain non-arm’s length persons (think spouses, children, relatives, close friends and associates) that have been transferred a Tax Debtor’s property for less than fair market value (“FMV”).  These rules can even apply to corporate shareholders receiving dividends from delinquent corporations.

The recent decision of the Tax Court of Canada (“TCC”) in Refind Environment Inc. v. The King (2024 TCC 2) is a poignant reminder of the importance of filing deadlines.

In Refind, the TCC dismissed an application for an extension of time to file a Notice of Objection against assessments under the Excise Tax Act (“ETA”) because the Registrant was one (1) day late in filing their application for an extension of time to the Minister of National Revenue (the “Minister”)!

A great new year’s resolution for Directors of a Canadian private corporations is to brush up on GST/HST and income tax compliance!  The reason is that where a corporation incurs a tax debt for GST, HST or income tax source withholdings, the directors of those corporations can be held personally liable.  For GST/HST purposes, this potential liability encompasses virtually all the net tax obligations of the corporation!  

A recent case demonstrates the high standard directors need to uphold, even when imposed with incredibly difficult situations in which the government has played a hand.

A common theme of our direct selling blogs is that direct selling businesses should pay close attention to the wording of their key documents (compensation plans, contracts, and policies and procedures, etc.) to ensure that plan participants are properly characterized as independent contractors and not as employees.

While not in a direct selling context, a recent decision at the Tax Court of Canada serves as a cautionary tale for businesses that fail to examine the details of their documents – their workers may be characterized contrary to their intentions!

The Tax Court of Canada recently released its decision in Windsor Elms Village for Continuing Care Society v. The King (2023 TCC 58), which dealt with the application of the GST/HST self-supply rules to a long-term care facility for seniors. The decision illustrates the complexity of the self-supply rules under the Excise Tax Act (“ETA”), especially in the context of mixed use or exempt use real estate transactions.