by Marc Weisman of Torkin Manes LLP

In the last two or three years, the Canada Revenue Agency (“CRA”) has been aggressive in its pursuit of corporate taxpayers and their directors for unremitted payroll withholding taxes and goods and services taxes. As part of our tax practice, we have acted for more than 200 corporate and individual taxpayers in these situations, so we take careful note of court decisions that have a bearing on this field.

In a recent case (Dupont Roofing & Sheet Metal Inc. 2011 DTC 5031), the Federal Court of Canada surprisingly ruled that the CRA is not required to issue a notice of assessment before it enforces collection on unremitted payroll withholding taxes.

By Eric Koh of Gowling Lafleur Henderson LLP

On July 22, 2011, the Supreme Court of Canada (“SCC”) concurrently released two decisions relating to the taxation of interest income of an Indian from a financial institution located on an Indian reserve.  The majority decisions in Bastien Estate v. Canada (“Bastien”)¹ and Dube v. Canada (“Dube”) ² establish and develop an analytical framework for determining whether personal property, both tangible and intangible, is situated on a reserve and exempt from taxation by virtue of section 87 of the Indian Act (the “Exemption”).  More importantly, the respective decisions set new precedents in a couple of important areas.

by Douglas J. Powrie and Stephanie Wong of Borden Ladner Gervais LLP

The Canadian courts have recently considered appeals of several cases in which the Crown has invoked the general anti-avoidance rule (GAAR) to challenge tax avoidance transactions. In Lehigh Cement, the Crown was unable to apply the GAAR because it could not meet its burden of establishing the taxpayer’s abusive tax avoidance in the context of planning that had interest paid (free of withholding tax) to an arms-length bank in respect of principal owed to an affiliated corporation. In Collins & Aikman, the Crown was similarly unable to meet its burden in seeking to apply the GAAR to

By: Stevan Novoselac and John Sorensen of Gowlings

Introduction

In early June, 2010, the Canada Revenue Agency (“CRA”) released its long awaited administrative policy on gaining access to taxpayer information and documents.  The policy reaffirms the CRA’s position that is entitled to virtually unrestricted access to taxpayer’s information and documents, subject only to solicitor-client and litigation privilege.  As a result, obtaining tax advice from accountants, without involving tax lawyers, puts the confidentiality of the advice, and all of the related information and documents, in jeopardy.

Background

The Income Tax Act (Canada) (“Act”) requires taxpayers to maintain “books and records” to enable taxes payable to be ascertained and to determine other amounts that should have been deducted, withheld or collected.  The Act also confers extremely broad powers on the CRA to access taxpayer information and documents, subject only to the protection of solicitor-client or litigation privilege. 

The CRA first discussed its intention to draft an administrative policy on access to taxpayer information and documents at the Canadian Tax Foundation national conference in 2004 and periodically updated the tax community on the progress of the policy.  As early as 2004, the Canadian Institute of Chartered Accountants (“CICA“) wrote to the Minister of National Revenue (“Minister”) urging that CRA access to accountant’s and auditor’s working papers be restricted to “exceptional and well-defined circumstances”, because untrammeled access would have a chilling effect on communications between taxpayers and their advisors.  The CICA’s position was that if the CRA can pry into taxpayers’ private communications with their advisors, taxpayers will be reluctant to seek advice.  This may deprive corporations and ultimately their shareholders of valuable advice, which jeopardizes the integrity of financial reporting, the audit function and corporate governance.

The New Policy

A pre-publication draft of the new CRA policy was released for comments in late 2008.  Unfortunately, the most troubling proposals in the draft remain in the final policy.  For example, both the draft and final policies state that CRA personnel are authorized to request relevant documents during an inspection, audit or examination for any purpose related to administering or enforcing fiscal statutes, where “any purpose” includes “acquiring information for the purpose of substantiating the taxpayer’s position on a specific issue, and identifying audit issues and concerns with regards to tax at risk.” 

Further, both versions of the policy state that CRA officials are authorized to inspect, audit, review or examine both “the books and records of a taxpayer” and any document of the taxpayer or any other person that relates or may relate to the information in a taxpayer’s books and records.  The phrase “any document” includes accountants’ and auditors’ working papers, including “working papers created by or for an independent auditor or accountant in connection with an audit or review engagement, advice papers, and tax accrual working papers (including those that relate to reserves for current, future, potential or contingent tax liabilities).”  Tax accrual workpapers are essentially a roadmap through all of the “soft spots” in a taxpayer’s tax return, prepared for the purpose of calculating reserves for uncertain tax filing positions.  In the draft version of the policy, the CRA acknowledged that tax accrual workpapers may be requested by auditors to expedite the audit and focus the examination on the most significant issues.  Although this language does not appear in the final version, it is obvious that the reason any tax authority seeks to obtain tax accrual workpapers is to have a guided tour of the taxpayer’s tax planning.