Tax & Trade Blog

Section 254 of the ETA allows the purchaser of a new residential unit to claim a partial GST/HST Rebate (often called a New Housing Rebate – “NHR”).  The NHR was intended to off-set GST/HST payable on new housing, back to the point where the GST/HST actually paid on the purchase of new housing equates, more-or-less, with the expected former federal sales tax (“FST”) component of comparable housing.  The NHR was designed to ensure that the GST did not pose a barrier to affordable housing. 

The NHR is only available where the builder makes a supply by sale to a person, which makes that person a “particular individual” for purposes of the NHR rules (s. 254(2)(a)). The particular individual (or their relation) generally must be first to occupy the new home as their primary residence (s. 254(2)(d)(i)).  Each buyers of a new home (i.e. each particular individual) must meet each NHR requirement (s. 262(3)).  Where new home ownership structures are slightly complicated, meeting these requirements can become tricky. 

This was the issue in Crooks v. The Queen (2016 TCC 52). 

The concept of claiming input tax credits (“ITC”) for private businesses that provide both taxable and exempt services has recently been explored by the TCC (see for example: Sun Life (2015 TCC 37) and BC Ferry Services (2014 TCC 305)).  For real property, those businesses must determine the extent to which its property is used in making taxable or exempt supplies, and claim ITCs in line with that amount.  Although the same general principles apply with respect to public service bodies (“PSB”), PSBs can generally only claim ITCs in respect of real property where 50% or more of its property is used in making taxable supplies.  However, PSBs can make an election to have the same general proportional allocation rules apply.  In the recent decision of University of Calgary (2015 TCC 321) (with an identical decision reached in University of Alberta (2015 TCC 336)), the TCC considered PSBs that made such an election.  

As a general rule, non-resident employers who send their employees to Canada to perform various tasks for them are required to withhold tax in respect of the employees earnings while in Canada, and remit same to the Canada Revenue Agency (CRA).  Employees, are then required to file Canadian income tax returns to recover those taxes, if meeting certain tax treaty tests for determining taxability of those earnings in Canada.

Perhaps not surprisingly, these rules have made sending US employees to Canada an extremely cumbersome process for US employers, with full technical compliance with these rules perhaps honored more in the breach that the observance.

Thankfully, the CRA has instituted a brand new program addressing this situation, aimed at certifying non-resident employers, and then allowing a stream-lined process for sending US employees to Canada.   The program will apply for all payments made to US employees after 2015, and offers possible relief from the withholding tax requirements referred to above, upon certification.

The discovery process allows litigating parties to collect and consider all pertinent facts, to use those facts to assess the strengths and weaknesses of their case and to otherwise prepare for trial.  A general exception to the requirement to disclose relevant documentation and information during the discovery process relates to documents or information that are “privileged”. 

The recent decision of the Chief Justice of the Tax Court of Canada in CIBC v. The Queen (2015 TCC 280) is an excellent review of the strict rules surrounding privilege in this context, and a cautionary tale for litigants taking an overly obstructionist approach to the principles of full and proper disclosure.

Rules regarding cost awards and settlement offers are important tools to promote settlement in the context of general civil litigation and are generally seen as an important tool to minimize use of scarce court resources. 

In tax cases, settlement offers have historically tended not to play as important a role, which is perhaps attributable to the fact that tax appeal outcomes tend to be mostly binary in nature (i.e. a complete success or complete failure).  This differs markedly from most other civil litigation where the quantum of damages is often the central contested issue.  Furthermore, Canada’s Tax Court Rules have historically only considered settlement offers as one of many factors to be considered when making a costs award, without setting out more definite implications of settlement offers for awarding costs.

This may be changing under new Tax Court Rules 147(3.1) and (3.2) which grant a party “substantial indemnity” costs after the date of its offer to settle (defined to be 80% of solicitor and client costs in Rule 147(3.5)), if judgment is as or more favourable than the offer. 

Although these rules have recently operated in favour of successful appellant taxpayers (see for example: Sunlife (2015 TCC 171) and Repsol Canada Ltd. (2015 TCC 154))  the TCC’s cost award in Standard Life (2015 TCC 138) serves as a warning to taxpayers that they may be liable for significant costs, where a settlement offer from the Crown has been rejected.