CALL US TODAY
(416) 864 - 6200
  • Home
  • Recent blog posts

Tax & Trade Blog

  • Home
    Home This is where you can find all the blog posts throughout the site.
  • Categories
    Categories Displays a list of categories from this blog.
  • Tags
    Tags Displays a list of tags that have been used in the blog.
  • Bloggers
    Bloggers Search for your favorite blogger from this site.
  • Archives
    Archives Contains a list of blog posts that were created previously.
Recent blog posts

When a corporation finds itself in the midst of huge potential tax liability, that is often not the end of the story for the various parties involved. Directors may find themselves pursued for civil director’s liability for any taxes, interest or penalties remaining unpaid by the corporation, and directors, officers, employees and other involved parties may also find themselves being pursued by the CRA for possible criminal offences, and being charged criminally pursuant to section 327(1)(c) of the Excise Tax Act (the “ETA”). Criminal charges will generally follow any situation where the CRA is of the view that the corporation by dishonest means, sought to evade payment or remittance of the GST/HST and/or repurposed the funds to serve its own uses. In these instances, the CRA will be looking to the operating minds of the corporation, and any other persons (e.g., directors, officers, employees, agents, aiding and abetting parties) having a hand in the criminal activities (the “Underlying Parties”).

If convicted, the Underlying Parties are subject to their own fines, and could also face both a fine and imprisonment.

While the CRA often has a very low threshold for what it considers “criminal activity”, a recent Nova Scotia Provincial Court (the “NSPC”) decision appears to confirm that a person’s “suspicious conduct” alone may be insufficient to ground a criminal conviction for “tax evasion”.

Last modified on
Hits: 3349
0

When an aircraft that is owned by a corporation primarily for business purposes is used by an employee or shareholder for personal purposes, the resulting benefit is taxable and must be included in computing the income of the employee or shareholder.

Over the past few years the Canada Revenue Agency (“CRA”) has been increasingly auditing not only the owners of corporate aircraft, but also their employees and shareholders for the GST/HST and income tax treatment of the personal use of corporate aircraft. Many of these audits have resulted in reassessments under which the CRA has assessed or increased the taxable benefits attributable to the employees and shareholders while also deducting a corresponding portion of operating expenses and denying input tax credits to the corporation.

The CRA’s policy on the taxation of corporate aircraft used for personal purposes used to be clearly outlined in interpretive bulletin IT160R3. Under IT160R3, the applicable taxable benefit was generally assessed at the cost of a first class airline ticket for a regularly scheduled flight to the same destination.

That said, since IT160R3 was cancelled on September 30, 2012, the CRA has not yet finalized a clearly articulated policy on the personal use of corporate aircraft. A draft CRA interpretation has however been released which if adopted would dramatically change the way that these taxable benefits have historically been calculated.

Under the new proposed CRA interpretation, where an employee or shareholder of a corporation can control access and use of the corporate aircraft for personal use, the applicable taxable benefit to the employee or shareholder would be calculated as the sum of an attributable “Operating Benefit” and an “Available For Use Benefit” as follows:

  • Operating Benefit: Proportionate share of the calendar year operating costs (i.e. variable & fixed costs) of an aircraft (excluding depreciation, capital cost allowance & interest); plus
  • Available For Use Benefit: Pro-rated share of the original capital cost of the aircraft based on a prescribed rate of interest and the number of flying hours for personal use versus the number of flying hours for business use during the calendar year.

Since this new draft interpretation was released the Canadian Business Aviation Association (“CBAA”) has been in talks with the CRA to address its concerns over the new proposed CRA interpretation. To illustrate the potential impact of the new interpretation, the CBAA has used theexample of an aircraft with an original capital cost of $30 million, annual operating costs of $1 million, and a 6% prescribed rate of interest, that is flown for 80 hours of business use and 20 hours of personal use by a single employee or shareholder. 

Under the CRA’s new proposed interpretation a total of $560,000 would need to be included in the income of the employee or shareholder as a taxable benefit: 20% of $1,000,000 ($200,000) plus 20% of 6% of $30,000,000 ($360,000).

Under this hypothetical scenario, no corporate deduction would be available for the available for the “Available For Use Benefit” portion which is meant to approximate the opportunity cost to the corporation of the capital used to purchase the aircraft, which the CRA believes is a personal benefit to the employee or shareholder. The “Operating Benefit” portion on the other hand should be deductible in the hands of the corporation to the extent that an employee receives the benefit as part of their employment agreement with the corporation. However, this “Operating Benefit” portion would likely not be deductible where it is received by an individual in his/her capacity as a shareholder.

While the CRA’s proposed interpretation has not yet been finalized, this proposal appears to have already spooked the corporate aircraft industry. In fact, the CBAA has estimated that uncertainty surrounding the taxation of the personal use of corporate aircraft has led to between $300-500 million in new corporate aircraft purchases being put on hold.

On the substantive application of income taxes and the GST to these situation, the CRA’s aggressive auditing in this area has yet to be fully tested in the courts, and there is substantial reason to believe that it is far too aggressive in the circumstances.


Have you been audited by the CRA for corporate aircraft use
? If so contact us here.

Want a PDF Copy of this Blog?

Last modified on
Hits: 3822
0

Over the past several years, the CRA Audit Division has directed more attention to businesses that use Employment Agencies for their staffing needs. We understand that many businesses dealing with Employment Agencies, Temporary Labour, Staffing Agencies, or other similar entities, have already been contacted by CRA Auditors looking to confirm their eligibility for Input Tax Credits (ITCs).

Last modified on
Hits: 6915
0

Given the tight tax timelines under the Income Tax Act (“ITA”) and the Excise Tax Act (“ETA”), it is not uncommon for tax appeal deadlines to be inadvertently missed. While it is possible to obtain an extension under certain circumstances, there are strict deadlines that must be adhered to in order to do so.

In the recent decision in Canada (National Revenue) v. ConocoPhillips Canada Resources Corp., 2017 FCA 243 (“ConocoPhillips”), the Federal Court of Appeal (“FCA”) confirmed that the Minister of National Revenue (the “Minister”) has no authority to grant an extension to the deadline for filing a Notice of Objection if an extension is not sought within one year of the expiration of the general deadline for doing so.

Last modified on
Hits: 3534
0

While there is no specific definition of what constitutes a Foreign Trade Zone (“FTZ”), this terms generally refers to a specific location within a country that is officially designated as eligible for tariff and tax exemptions with respect to the purchase or importation of raw materials, components, or finished goods. These materials and goods can generally be stored, processed or assembled in the FTZ for re-export without having to pay any domestic taxes or duties. If these materials or goods are distributed into the domestic market, duties and taxes will apply, but will generally be deferred until the time of entry into the domestic market.  

Over the past few years, the Canadian government has tried to position Canada as a desirable destination for foreign investment. To this end, tariffs have been eliminated on essentially all manufacturing inputs, including machinery, equipment, and other inputs used in the industrial manufacturing sector.

According to the Canadian government, this initiative has made Canada the first country in the G-20 to offer a tariff-free zone for industrial manufacturers. Furthermore, since this a nationwide initiative, the federal government has promoted this tariff elimination as essentially making Canada one large FTZ for firms importing manufacturing inputs.

Last modified on
Hits: 17997
0

Given the tight timelines under the Excise Tax Act (“ETA”) it is not uncommon for tax appeal deadlines to seemingly come and go. Fortunately, sometimes even when it appears that a deadline has been missed an extension may be granted or it may not have actually expired due to procedural missteps by the Canada Revenue Agency (“CRA”).

Last modified on
Hits: 4632
0

On December 13, 2017, the CRA released GST/HST Memorandum 16-5 outlining its new GST/HST Voluntary Disclosure Program (“GST/HST VDP”) (IC00-1R6, Voluntary Disclosures Program which was released around that same time outlines the new Income Tax VDP). The new GST/HST VDP is a marked departure from the present VDP that it will replace as of March 1, 2018.

Last modified on
Hits: 4497
0

In a recent blog titled “Can I go to jail for tax evasion”, we discussed how the CRA has been increasingly seeking jail time for people engaged in tax fraud or tax evasion. In fact, relatively recently a Toronto man was sentenced to five years in jail for filing false GST/HST returns.

The recent decision in (British Columbia (Director of Civil Forfeiture) v. Sanghera, shows that not only can those who commit tax evasion face jail time, but they can also have their assets seized by the government under civil forfeiture statutes.

To date, civil forfeiture statutes have been enacted in the following eight Canadian provinces: Alberta, British Columbia, Manitoba, New Brunswick, Nova Scotia, Ontario, and Quebec.

These civil forfeiture statutes allow the government to seize and transfer ownership of property without compensation when the property is suspected of having been acquired through an illegal act or suspected of being used to commit an illegal act.

Last modified on
Hits: 5201
0

With all of the concerns that businesses engaged in the import/export of products in the United States and Canada face (increased global competition, currency fluctuations and product quality), one of the least considered but most important involves the often confusing world of customs compliance.

While it is inevitable that errors or omissions may occur in customs compliance, errors can be expensive. To avoid customs assessments, and attendant interest and penalties (not to mention potential prosecution), constant vigilance of one's customs obligations is required.

Last modified on
Hits: 7336
0

Whenever a person imports commercial goods into Canada they are required to pay the GST at the border at the time of importation pursuant to Division III of Part IX of the Excise Tax Act (the “ETA”).   This GST rate is currently set at 5%. 

Those who are insufficiently familiar with Canada’s GST/HST system may find themselves treating this tax as a hard cost, or charging the GST/HST to Canadian customers and then keeping it as a form of reimbursement for the tax previously paid at the border.  Neither approach is correct.  

Last modified on
Hits: 12184
0

In Masa Sushi Japanese Restaurant Inc. v. The Queen, 2017 TCC 239 (“Masa Sushi”), the Tax Court of Canada (“TCC”) confirmed that lawyers are the only representatives that are authorized to represent tax appellants in court under General Procedure tax appeals.

Last modified on
Hits: 4735
0

If the CRA believes that taxpayers have knowingly failed to report income or remit GST and other taxes owing they will often bring concurrent criminal tax evasion charges in addition to simply re-assessing a taxpayer. In this scenario, the protections afforded to taxpayers in the criminal tax evasion matter – the burden of proof being on the Crown to prove the charges beyond a reasonable doubt – are not present in the tax appeals.  Similarly, unlike in the criminal context, the burden of proof in tax appeals is on the taxpayer, who must demolish the CRA’s assessment and any relevant assumptions of fact. 

Given the differing standards in criminal versus civil proceedings, criminal acquittals typically have little, if any, impact on a subsequent civil proceeding. The CRA is therefore often successful in tax appeals before the Tax Court of Canada (“TCC”) even after a taxpayer has been acquitted in a criminal prosecution based on the same fact pattern.

Samaroo v. The Queen, 2016 TCC 290 (“Samaroo”) is an exception to the general rule.

Last modified on
Hits: 4174
0

Posted by on in Tax Law

Subsection 223(1)of the Excise Tax Act (ETA) requires registrants to disclose sufficient information to their customers in respect of their customers’ GST/HST liabilities by indicating on any invoices/receipts issued to customers the net-of-tax price and the GST/HST thereon or if prices are on a tax-included basis, noting this on invoices/receipts issued to customers. 

Where a sales contract is silent with respect to the obligation to pay the GST/HST, disputes often arise as to whether the quoted price is tax-extra or tax-included. 

A recent case is a good example of the general disposition of Courts to conclude that where contracts are silent, GST/HST will generally still be payable!

Last modified on
Hits: 8392
0

Posted by on in Tax Law

Section 224 of the Excise Tax Act (ETA) allows a supplier who has remitted GST/HST collectible from, but as yet unpaid by, a recipient, to sue the recipient for the tax remitted as if it were a debt owed to the supplier.  

There has been little case law or helpful interpretative materials from the CRA on this provision.

A recent case seems to clarify that where a supplier fails to charge and collect the GST/HST initially, the two-year limitation period on such a claim runs from the time that the supplier pays same to the CRA when assessed for the unremitted GST/HST.

Last modified on
Hits: 7736
0

A taxpayer who ceases to be GST/HST registrant can be hit with a hefty tax bill due to subsection 171(3) of the Excise Tax Act (the “ETA”), which in effect triggers a deemed disposition, which with other provisions in the ETA, forces the person ceasing to be a registrant to self-assess GST/HST on the fair market value of any remaining property.

This is an often over-looked consequence of the wind-up of commercial activities, and is aimed at putting such a business on the same footing as any other person acquiring property for non-commercial activities: to effectively have acquired that property on a fully GST/HST paid basis.

A recent case illustrates this concept, as well as the trouble that can come with pre-mature cancellation of one’s GST/HST registration number (which does not necessarily equate to ceasing to be a “registrant”).

Last modified on
Hits: 7942
0

It is not uncommon for the CRA to issue administrative policies or directives that provide CRA auditors and the public with direction on how the Excise Tax Act (ETA) or Income Tax Act (ITA) should be applied to certain industries/situations. While people may believe that following these directives means they are following the law, these directives are simply the CRA's view of how the law should be applied. Accordingly, they can sometimes be a source of false comfort, and not accurately reflect the law. Such was the case in the recent Tax Court of Canada (TCC) decision of Dr. Brian Hurd Dentistry Professional Corporation v. The Queen, 2017 TCC 142 (Brian Hurd) where the Court found the CRA GST policy statement was wrong and misleading.

Last modified on
Hits: 5328
0

In Canada, legal costs are generally awarded to the successful litigant in a tax appeal (or in most civil cases for that matter) based on actual costs incurred, but are often a mere fraction of the actual costs that a litigant has incurred. As such, the first thing that many taxpayers contemplate when deciding whether to appeal a CRA assessment is whether or not it is worth it, particularly where it appears likely that the costs of a tax appeal will probably exceed the amount of tax in dispute.

While the decision on whether or not to appeal a tax assessment should be made on a case by case basis, the Tax Court of Canada (“TCC”) in Ike Enterprises Inc. v. The Queen, 2017 TCC 160 (“Ike Enterprises”) recently confirmed that in appropriate circumstances, a taxpayer can be awarded legal costs that exceed the amount of tax in dispute. In fact, the CRA was ordered to pay costs equal to approximately 140% of the amount in dispute!

Last modified on
Hits: 3608
0

Under section 323 of the Excise Tax Act (“ETA”), directors of a corporation are personally liable for a corporation’s unremitted GST/HST. There is no definition of “director” in the ETA, but section 323 has been found to apply to individuals who are formally registered as directors (i.e. de jure directors) and individuals who are not formally registered as directors but in effect carry out the same duties and make the very same decisions as directors (i.e. de facto directors).

The Canada Revenue Agency’s (“CRA”) formal policy on Directors’ Liability, including its position on de jure vs. de facto directors, is outlined in IC89-2R3. However, the ETA itself does not provide any guidance on when an individual who has formally resigned from de jure directorship ceases to be a de facto director for the purposes of section 323 liability. As such, whether or not a director who has resigned but continues to be involved in corporate activities can be deemed a de facto director of a corporation is a factually complicated issue that the Tax Court of Canada (“TCC”) has frequently been asked to answer.

The relatively recent decision in Koskocan c. La Reine, 2016 CCI 277 (“Koskocan”) stands for the proposition that it is possible for a former director to remain involved in a business (and even perform some tasks that one may associate with a de jure director) without rising to the level of a de facto director.  

Last modified on
Hits: 5575
0

With US President Donald Trump hinting that he may withdraw his country from the North American Free Trade Agreement (“NAFTA”), many are starting to consider what the effects that such a withdrawal would have on goods and services crossing North American borders.

What has not been widely reported is the expected effect on business immigration (e.g., US and/or Mexican nationals seeking temporary entry into Canada for business or investment purposes).

Chapter 16 of NAFTA currently allows citizens of the US and Mexico (i.e. who are not Canadian residents) to enter Canada as a “business visitor” for temporary business or investment purposes, and stay in Canada for up to six months – all without a “work permit”. To qualify under these business visitor provisions, a traveller must be entering Canada for the purposes of engaging in qualifying activities (which include conferences, trade-shows, conventions, and business meetings for taking orders or negotiating contracts for goods or services for certain enterprises).  (For a complete list of permissible activities, click here).

So what happens if NAFTA disappears overnight?

Some other options would still be available for business travellers needing to enter Canada temporarily.

Last modified on
Hits: 3785
0

During a tax appeal it is quite common for a tax appellant and the CRA to disclose information and to formally agree on certain facts. For example, at the outset of most tax appeal trials the parties often prepare a document commonly referred to as a “Statement of Agreed Facts” or “Partial Statement of Agreed Facts” that outlines the facts that the parties agree on. 

The Tax Court of Canada (“TCC”) decision in Athabasca University v. The Queen, 2016 TCC 252 (“Athabasca”) is a perfect example of why it is imperative that no concessions or agreement of facts be made without a careful analysis of the potential implications that this could have on the ultimate issues in dispute in the tax appeal.

Last modified on
Hits: 3680
0

Toronto Office

10 Lower Spadina Avenue, Suite 200, Toronto, Ontario, M5V 2Z2 Canada
Phone: (416) 864-6200| Fax: (416) 864-6201

Client Login

To access the Millar Kreklewetz LLP secure client file transfer system, please log in.