by Gabrielle M.R. Richards of McCarthy Tétrault LLP
Canada’s 2013 federal budget (Budget 2013) released on March 21, 2013 introduces a number of measures to strengthen the ability of the Canada Revenue Agency (CRA) to address international aggressive tax avoidance and to combat international tax evasion so as to maintain and protect Canada’s tax base. These measures reflect the trend in other countries such as the United Kingdom, where the March 20, 2013 budget announced significant new measures on tax avoidance and tax evasion (including “name and shame”) to increase tax compliance. These measures arrive at a time of increased social activism, media attention and political interest in one’s “fair share” of taxes being paid internationally. Further, revising deficits and falling tax revenues may be a reason for the recent focus by tax administrations on tax abuse. The Forum on Tax Administration (FTA), which actively shares information among G20, OECD and non-OECD countries, has identified compliance with tax laws as a key challenge facing tax administrations in the 21st century.
Coincidentally, on April 4, 2013 the International Consortium of Investigative Journalists (ICIJ) released information gathered from an investigation into the world of offshore money, which investigation revealed a global tax evasion web of named individuals and groups, including 450 Canadians.
The CRA quickly responded to the media coverage of the ICIJ release and
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by Roy Berg and Lisa Handfield of Moodys LLP
This week [May 6, 2013] the IRS released statistics on the number of returns it received in 2010 from US citizens with foreign trusts. The results are startling (you may find the report by clicking here). In all of Canada only 324 returns were filed that report ownership in a non-US trust, which likely means hundreds of thousands of US citizens residing in Canada had not filed the appropriate returns. This is important for two reasons: first, the penalties for not filing are draconian (but waivable); and second, last week the US Government Accountability Office (GAO) issued a report that encouraged IRS to pursue those taxpayers who file late returns using a technique known as “quiet disclosure.”
Background
The US State Department knows of more than 687,000 US citizens residing in Canada but most experts agree that the actual number is several times that number. Many common Canadian retirement and savings vehicles
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by Michael Goldberg of Minden Gross LLP
There are many potential issues and traps that tax practitioners need to navigate to successfully implement and maintain an estate freeze. This is the first article in a series in which I’ll discuss a number of these issues. In particular, I will discuss the following topics:
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by Adam Scherer of Crowe Soberman LLP
“The one constant through all the years, Ray, has been baseball.” – Terrence Mann (Field of Dreams)
Another baseball season approaches, and for the first time in 20 years there is much optimism and excitement surrounding the only Canadian team in Major League Baseball (MLB) – the Toronto Blue Jays.
This optimism stems from some key off-season acquisitions, which bring new blood and more talent to the team. While sports fandom was abuzz with excitement, many media outlets (mostly those south of the border) picked up on that other “constant through all the years”- taxes. They seemingly love to point out that players moving from Miami to Toronto are going to take extreme hits to their wallets.
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Withholding rules can be burdensome for non-resident employers and employees
by Adrienne Woodyard of Davis LLP
Many people hear the term “business travel” and think of the usual perils — jet lag, roaming charges, lost luggage. Potentially more costly are the tax risks that businesses incur when they send their employees into or out of Canada on temporary work assignments.
Non-resident employers will incur Canadian tax-withholding obligations on salary paid to their employees that is attributable to work performed in Canada. It doesn’t matter whether the employees are
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In December 2012, the Tax Executives Institute, Inc. (TEI) raised a number of important income tax administration issues in its annual meetings with the Canada Revenue Agency. The agenda for those meetings (which also included the Department of Finance) is here.
We reprint here one agenda item covering activities by CRA’s Large Case File Managers (“LCFM”) for its relevance to our readers:
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By Stevan Novoselac & John Sorensen of Gowling Lafleur Henderson LLP
In the recent case of Noran West Developments Ltd. v. The Queeni, the Tax Court of Canada (TCC) quashed the appeal because the appellant had waived its right to object or appeal from the reassessment in issue. Noran should serve as a warning to taxpayers to be cautious about limiting their appeal rights during the dispute resolution process.
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by Carla Hanneman and Lyle Teichman of Stikeman Elliott LLP
Equity-based incentive plans have in recent years become a common component of the compensation package for executive employees in Canada. Employers often design the plans in such a way as to enable the employer to claim a tax deduction for the value of the equity-based compensation. In the case of treasury shares issued under stock bonus plans, the Canada Revenue Agency (CRA) has historically taken the position that the value of treasury shares issued under such plans is not deductible by the employer for tax purposes. However, a recent decision of the Tax Court of Canada allowed the employer to deduct the fair market value of treasury shares issued to executive employees under a discretionary stock bonus program.
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by the Osler, Hoskin & Harcourt LLP Tax Group
Canadian tax amendments proposed on August 14, 2012 (the Proposals) could adversely affect common acquisition structures for acquiring Canadian corporations with foreign subsidiaries. Investments in foreign subsidiaries by existing, foreign-controlled Canadian corporations are also affected. This summary provides a brief overview of the Proposals and common examples of where they could potentially apply.
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by Marc Weisman of Torkin Manes LLP
As part of my tax and business law practice, I regularly act as counsel to foreign companies establishing operations in Canada. So, I take careful note of Canada Revenue Agency (the “CRA”) Technical Interpretations that apply to international tax situations.
In Technical Interpretation 2010-0387151E5 dated February 10, 2011, the CRA dealt with the following situation:
- a non-resident of Canada is resident in a country that does not have a tax treaty with Canada;
- the non-resident owns shares in a Canadian resident company (“Canco”) whose only asset is real estate in Canada;
- the shares of the Canco are taxable Canadian property;
- Canco redeems its shares held by the non-resident for fair market value; and
- the non-resident and Canco deal with each other at arm’s length.
At issue was whether Canco’s redemption of the non-resident’s shares is subject to two withholdings: under subsections 212(2) and 116(5) of theIncome Tax Act (Canada) (the “ITA”).
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by Julien Bourgeois of Gowling Lafleur Henderson LLP
In a decision1 released on April 12, 2012, the Tax Court of Canada (“Court“) concluded that even if 70% of the voting shares of a corporation were owned by non-residents, de jure control could still be held by Canadian residents and the corporation could maintain its status as a Canadian-controlled private corporation (“CCPC“). This was possible due to the presence of a unanimous shareholder agreement (“USA“) that restricted the ability of non-resident shareholders to elect a majority of the directors.
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by Marc Weisman & Alison Ronson of Torkin Manes LLP
Viewers of detective dramas know that accused persons refuse to speak without their lawyer present. A visit from a Canada Revenue Agency (“CRA”) auditor may not be quite as dramatic but the consequences can be drastic. Let’s create our own fictional case to see why.
Imagine a client of mine, who we will call “Bart,” owns all of the shares of a corporation that builds and sells condominiums. Ever since his mother “Marge” kicked his father “Homer” out of the house, Bart has been letting his dad stay in one of the unsold, unoccupied condominiums in his newest development. Since Marge has the family car, Bart also gave Homer a company vehicle to keep.
It seems like an ideal situation for all parties: Bart is doing a good deed for his father, Marge has the house to herself and Homer has a free place to stay and free transportation. Unfortunately, one day the CRA calls Bart to tell him that they will be auditing his corporation. Regrettably, Bart fails to inform me of the upcoming audit.
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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.
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By Henry Chong of Gowling Lafleur Henderson LLP
The Canada Revenue Agency (CRA) recently introduced new forms NR301, NR302, and NR303 (collectively the ‘‘NRs’’), which can be completed by a nonresident person, or by a partnership or hybrid entity with nonresident owners, seeking to obtain the benefits of reduced withholding rates on passive income under an income tax treaty. The new forms are part of a change in the CRA’s policy for administering Canada’s nonresident withholding tax regime following the Fifth Protocol to the Canada-U.S. Income Tax Treaty. The new NRs are similar in form to the W-8s in the United States. However, unlike the W-8s, which are part of a regulatory framework for the withholding of taxes in the United States, the NRs were not created by statute or regulation and were not accompanied by any changes to the withholding tax obligations under the Income Tax Act (Canada) (the ‘‘Act’’)1 or regulations. Thus, the purpose of the forms is unclear. They do not appear to have any legal effect other than as a convenient method for setting out and providing the information required to obtain reduced treaty rates under Canada’s withholding tax regime. Whether they evolve into something more may only become apparent with time.
Read the full article: Canada Introduces New Forms to Be Used to Obtain Treaty Benefits, Including by Partnerships and Hybrid Entities
By Marc Weisman of Torkin Manes LLP
The Federal Court of Appeal in Bozzer v. The Queen, 2011 FCA 186 (“Bozzer”), reversing the decision of the Federal Court of Canada (Trial Division), 2010 FC 139, issued a landmark decision on June 2, 2011, changing the landscape for applications for the waiver of interest and penalties under the Tax Act (Canada) (the “ITA”).
The Canada Revenue Agency (the “CRA”) has a policy of “Taxpayer Relief,” under which it may waive interest and penalties in such circumstances as:
- financial hardship or inability to pay,
- actions of the CRA such as processing delays or providing incorrect information, and
- extraordinary circumstances such as illness (see Canada Revenue Agency Income Tax Information Circular IC07-1).
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