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Editor: Alan Macnaughton, University of Waterloo
([email protected])
Volume 4, Number 3, August 2014
T1135 Filing Required for Certain
Intercompany Debts
T1135 filing requirement exists in this situation. An examination of the relevant legislation, however, reveals a different answer.
The requirement to file form T1135 is set out in section
233.3. The loan is reportable as specified foreign property
(SFP) unless it is excluded by paragraph (k) of the definition
of that term, which states that SFP does not include indebtedness of a non-resident corporation that is a foreign affiliate
for the purpose of section 233.4 (which sets out the rules
concerning the requirement to report information related
to foreign affiliates of the taxpayer on form T1134). Thus,
the question is whether Forco is a foreign affiliate of Canholdco for this purpose.
If one were to simply apply the general rules set out in
section 95, Forco would indeed qualify as a foreign affiliate
of Canholdco. Canholdco’s “equity percentage” in Forco
is the sum of the amounts calculated in paragraphs (a) and
(b) of the definition of that term in subsection 95(4). The
paragraph (a) amount, which is the direct equity percentage, is 0 percent, since Canholdco does not hold any shares
directly in Forco. The paragraph (b) amount (the indirect
equity percentage) is 100 percent (derived by multiplying
the equity percentage of Canholdco in Canopco [100 percent] by the direct equity percentage of Canopco in Forco
[100 percent]). Thus, Canholdco has a 100 percent equity
percentage in Forco, and Forco is therefore a foreign affiliate
of Canholdco for the purposes of subsection 95(1).
Paragraph 233.4(2)(a), on the other hand, states that for
the purposes of section 233.4 (and by extension the SFP
definition in section 233.3), a taxpayer’s indirect equity
percentage in a foreign corporation is to be calculated excluding any shares held indirectly through a corporation
resident in Canada. The effect is that the indirect equity
percentage of Canholdco in Forco becomes 0 percent.
Adding the direct equity percentage of 0 percent, the equity
percentage also becomes 0 percent; accordingly, Forco is
not a foreign affiliate of Canholdco for the purposes of
section 233.4. In the context of the T1134 filing requirement, this modification to the calculation of Canholdco’s
equity percentage in Forco is relieving in nature, since it
prevents both Canholdco and Canopco from having to file
multiple T1134 forms to report information in respect of
the same foreign affiliate. In the context of T1135 reporting,
however, this modification means that Canholdco cannot
rely on the paragraph (k) exception from the SFP definition
in section 233.3 to avoid the reporting of the loan.
Canadian corporations with loans to (or other similar financial arrangements with) foreign companies may be
surprised to learn that such loans can trigger the requirement
to file form T1135 (“Foreign Income Verification Statement”). The penalty for not filing form T1135 is usually
$2,500 (subsection 162(7) of the Act); but in circumstances
where there is gross negligence and the failure to file has
exceeded 24 months, the penalty can rise to 5 percent of
the cost amount of the debt (subsection 162(10.1)).
Consider a three-tiered structure in which Canholdco
owns 100 percent of Canopco, which in turn owns 100 percent of Forco. Assume that Canholdco makes a loan to
Forco in an amount exceeding $100,000. The issue is
whether this loan triggers a requirement for Canholdco to
file form T1135. Taxpayers relying exclusively on the instructions on form T1135—which state that a taxpayer
does not need to report indebtedness owed by “a foreign
affiliate corporation”—might incorrectly conclude that no
In This Issue
T1135 Filing Required for Certain Intercompany Debts
CRA Rulings and TIs Now Free on the Web
FATCA Comes to Canada: The Basics
Americans in Canada: Amnesty Improvements
Section 160: CRA’s Collection Power Broadened?
Sale of Real Property in Quebec by Non-Residents
Vente d’un bien immeuble au Québec par un
non résident
Release of Taxpayer Information to Police
Release of Taxpayer Information to Police:
Possible Legal Conflicts
Voluntary Disclosure Accepted, but Penalties
Still Assessed
Interest Deductibility Tests: Canada Versus the US
CRA To Force GST/HST Registration
TCC: Transfer-Pricing Structure Unsupportable
Spouse Trust: Problems and Solutions
V-Day Surplus Stripping an Abuse of Section 84.1
Dépouillement de surplus au jour de l’évaluation
et abus de l’article 84.1
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©2014, Canadian Tax Foundation
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In addition to the situation outlined above, the requirement to report indebtedness owed by a non-resident corporation also encompasses loans made to foreign sister
companies and parents. Until recently, however, such loans
were discouraged by virtue of the interaction of subsection
15(2) and paragraph 214(3)(a), which together deemed
such loans to be dividends, and thus subject to Canadian
withholding tax, if they remained outstanding for more
than two year-ends. With the recent introduction of the
PLOI (pertinent loan or indebtedness) election in subsection 15(2.11)—the making of which allows these types of
loans to remain outstanding indefinitely—it is conceivable
that these types of loans may become much more common,
and thus even more T1135 reporting may be required.
Finally, as noted in the introduction, the potential requirement for T1135 reporting does not apply only to
formal loan arrangements. Companies that are involved in
cash-pooling structures should also consider the legal nature
of those relationships, because they may also result in deposits in foreign entities or loans to non-residents that may
need to be reported on form T1135.
current than publishers’ monthly CD products). In the days
following CRA releases, summaries of some of the documents are posted. These summaries range from a few
sentences to a few paragraphs and often allow the user to
click through to the actual document. Diagrams are sometimes provided to help users understand fact situations and
transaction details. (To see an example, go to the right-hand
navigation bar and choose “Income Tax Act,” “41-60,” and
“Section 55”; a diagram illustrating CRA document no.
2013-0491651R3 appears at the bottom of the page.)
Expanding the site to cover all rulings and technical interpretations regardless of date would be worthwhile, as
would more instances of organization by topic in addition
to section number of the Act. (The website has made a start
on topic-based organization with 34 items listed under
“General Topics” on the right-hand side of the page.)
Sarah Netley
Collins Barrow Durham LLP
Courtice, ON
[email protected]
Mark Dumalski
Deloitte LLP, Ottawa
[email protected]
FATCA Comes to Canada:
The Basics
Bill C-31, which became law in June, has added several
provisions to the Act that require Canadian financial institutions to implement procedures to enable identification of
US reportable accounts. Information about these accounts
must be reported to the CRA. Canada has agreed to automatically exchange this information with the United States
pursuant to article XXVII of the Canada-US treaty. The United
States is expected to use this information to identify Canadians who are non-compliant US persons, such as US citizens
who have not been submitting US tax returns and FBAR
(“Report of Foreign Bank and Financial Accounts”) filings.
These additions to the Act implement the intergovernmental agreement (IGA) signed by the United States and
Canada on February 5, 2014 in respect of the Foreign Account Tax Compliance Act (FATCA). FATCA is US legislation
that was enacted in 2010 and took effect on July 1, 2014.
New part XVII of the Act (sections 263 to 269) requires
some Canadian financial institutions to report to the CRA
certain information with respect to accounts held by certain
US persons. Such institutions generally include not only
banks but also investment entities such as funds, insurance
corporations, and trusts.
Generally, a US reportable account of a Canadian financial
institution is an account held by one or more specified US
CRA Rulings and TIs Now
Free on the Web
CRA income tax rulings and technical interpretations
issued since October 2012 are now posted on the website
taxinterpretations.com as part of a suite of tax information.
Such documents are otherwise available only as part of
subscriptions to the tax services of commercial publishers.
(The documents are not available under the Access to Information Act because publishers pay for the documents;
section 68(a) of that statute provides an exception for material available for purchase by the public.)
On taxinterpretations.com, specific documents can be
located through the website’s search function; also, a user
can go to the right-hand navigation bar, click on “Income
Tax Act,” and then access documents relating to a particular
section number. Users can also sign up, free of charge, for
“News of Note” in order to receive an e-mail notification
when documents are posted.
Rulings and technical interpretations are posted to the
website on the same morning that they are released by the
Income Tax Rulings Directorate, making the site just as
current as the websites of private publishers (and more
Volume 4, Number 3
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August 2014
persons or by a non-US entity with one or more specified
US persons that exercise control over the entity. A specified
US person (as defined in the IGA) generally includes US
• the name, address, and US federal taxpayer identifying
number of each specified US person who has the account or who exercises control over the entity;
• the account number;
• the name and transit number of the Canadian financial
institution; and
• the account balance or value at the end of the relevant
calendar year or appropriate reporting period.
citizens or residents; privately owned corporations controlled by US citizens or residents; and US partnerships,
trusts, and estates. Common accounts excluded from the
reporting requirements are RRSPs, RRIFs, PRPPs, RPPs,
TFSAs, RDSPs, RESPs, and DPSPs.
Pursuant to new section 265, Canadian financial institutions must implement due diligence procedures to identify
US reportable accounts. Separate procedures apply to preexisting accounts and to new accounts. For all new account
openings, Canadian financial institutions must determine
whether an account holder is a specified US person. Under
the IGA, opening a new account does not require the account
holder to provide proof of citizenship (such as a passport
or birth certificate). However, account holders may be
required to provide self-certification that they are not US
persons for US tax purposes.
For existing accounts, the requirements are generally less
onerous—the financial institution does not have to contact
all of its existing clients to obtain this information. Instead,
such procedures for low-value pre-existing individual accounts (in excess of $50,000 but $1 million or less) involve
searching electronic records for US indicia (such as US
citizenship or birth) by June 30, 2016. Despite US indicia,
low-value pre-existing individual accounts are not US reportable accounts if the account holders establish that they
are not US citizens or US residents for tax purposes by
meeting one of the exemptions outlined in the IGA.
High-value pre-existing individual accounts (in excess
of $1 million as of June 30, 2014 or any subsequent year)
are subject to enhanced review procedures. If electronic
records do not contain sufficient information, paper records
must also be searched for US indicia by June 30, 2015. Canadian financial institutions may elect to treat a high-value
pre-existing individual account as not being a US reportable
account if the account holder meets one of the exemptions
outlined in the IGA.
Pre-existing individual accounts under $50,000 as of
June 30, 2014 are generally not US reportable accounts.
This exemption is significant. However, the monetary
threshold is subject to certain aggregation rules in the IGA
(for example, an individual account could be combined
with a joint account).
The following information is generally required to be
provided to the CRA in respect of each US reportable
account:
Volume 4, Number 3
A joint account held by a US person and one or more
Canadians is considered a US reportable account. This
means that all of the information listed above will have to
be reported, including information pertaining to Canadian
joint account holders who are not US persons. Further, the
balance of a joint account is attributable in full to each of
the account holders under the aggregation rules.
Canadian financial institutions are required to file annual
information returns with respect to each US reportable
account beginning in 2015. Canadian financial institutions
are not required to obtain US federal taxpayer identifying
numbers until January 1, 2017.
The key question, of course, is when the IRS will begin
using the flood of information that is expected to be received
under FATCA from governments and financial institutions
all over the world.
Melissa Wright
Cassels Brock & Blackwell LLP, Toronto
[email protected]
Americans in Canada:
Amnesty Improvements
Commencing on July 1, 2014, a new version of the US
offshore voluntary disclosure program (OVDP) came into
effect, making it easier for US citizens to become compliant
in their US personal filings. Of much wider appeal, however,
is the release of updated streamlined filing compliance
procedures, which fall outside the OVDP. There are now two
subcategories in those procedures: (1) the streamlined foreign offshore procedure (SFOP) and (2) the streamlined
domestic offshore procedure (SDOP).
The new version of the OVDP, like its predecessor, is
expected to be used primarily for situations involving complex tax matters, potential criminal charges, or a need for a
very high level of certainty. The SFOP, in both its new version
and its previous version, waives most penalties and allows
many Americans living in Canada to get up to date on their
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available. Individuals may be eligible for the SDOP if they
have filed a tax return for each of the most recent three
years but (1) they have failed to report income from a
foreign financial asset, and (2) the failure resulted from
non-wilful conduct. If a taxpayer uses the SDOP, a mandatory 5 percent penalty on the highest aggregate balance or
value of the taxpayer’s foreign financial assets is assessed.
However, the taxpayer will not be subject to accuracy-related
penalties, information return penalties, or FBAR penalties.
A submission under either the SFOP or the SDOP must
include (among other items) the three most recent years of
US tax returns (only amended returns are accepted for SDOP
applicants) and the six most recent years of FBAR filings.
Finally, some individuals may have previously filed their
income tax returns and reported foreign income appropriately, but may have missed filing a prescribed form
related to foreign investments. These individuals are now
to be directed to additional amnesty programs (other than
OVDP, SDOP, and SFOP), which are titled “Option 3” and
“Option 4.”
For more information, readers should consult the following IRS publications: IR-2014-73 (“IRS Makes Changes
to Offshore Programs; Revisions Ease Burden and Help
More Taxpayers Come into Compliance”); FS-2014-7
(“Offshore Income and Filing Information for Taxpayers
with Offshore Accounts”); and FS-2014-6 (“IRS Offshore
Voluntary Disclosure Efforts Produce $6.5 Billion; 45,000
Taxpayers Participate”).
filings with less onerous compliance requirements than the
OVDP imposes. Specifically, participants are not subject to
failure-to-file and failure-to-pay penalties, accuracy-related
penalties, information return penalties, or FBAR (“Report
of Foreign Bank and Financial Accounts”) penalties.
The SFOP revisions relax the rules in four primary ways:
1)The IRS has eliminated the requirement that a taxpayer could not have unreported tax liability greater
than $1,500 in a year.
2) The risk assessment process has also been eliminated.
Previously, individuals who may have done some tax
planning, owned a company, or had some other
characteristic that the IRS deemed potentially indicative of tax avoidance may not have used the process
out of fear that their submission would be deemed
high-risk and therefore subject to greater scrutiny
and penalties.
3) The non-residence component has been relaxed.
Previously, participants could not have resided in the
United States since January 1, 2009. The SFOP revisions essentially make the procedures available to
those who have resided in the United States for up
to two of the previous three years. Specifically,
a) if the taxpayer is a US citizen, he or she must not
have had a US abode, and must have been physically outside the United States for at least 330
days, in at least one of the last three years, and
b) if the taxpayer is a permanent resident (that is, a
green-card holder), he or she must not have been
“substantially present” in one of the last three
years. (This test is a calculation of physicalpresence days in the United States over a moving
three-year period.)
4) Those who have previously filed income tax returns
but understated foreign revenue, and did not submit
a prescribed foreign reporting disclosure, may now
use the procedures. (Amended returns were not
previously allowed.)
Joseph Devaney
Video Tax News, Edmonton
[email protected]
Yun (Felix) Lin
Yun Lin Professional Corporation, Edmonton
[email protected]
Section 160: CRA’s Collection
Power Broadened?
Taxpayers will be required to provide a reason for the
non-compliance, and the IRS must be satisfied that the noncompliance was “non-willful.” According to the IRS, “[n]onwillful conduct is conduct that is due to negligence,
inadvertence, or mistake or conduct that is the result of a
good faith misunderstanding of the requirements of the
law.”
For a taxpayer who is not eligible for the SFOP because he
or she resided in the United States for each of the last three
years, a modified version of the procedures—the SDOP—is
Volume 4, Number 3
Suppose that a husband has transferred (without consideration) the family home to his wife, who has been working
in the family business for years without compensation. If
the CRA pursues the wife for the husband’s unpaid tax under
section 160 of the ITA, a common defensive strategy has
been to argue that a constructive trust exists—essentially,
that the gift of the home (in part or in full) is compensation
for past unpaid work. In Kardaras v. The Queen (2014 TCC
135) and Pliskow v. The Queen (2013 TCC 283), the TCC
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weakened this argument by holding that it does not have
jurisdiction to rule on a constructive trust. Thus, fair compensation over the years is, now more than ever, a more
effective way of transferring value to a spouse.
Under section 160, a transferee of property may be assessed for the tax liability of the transferor to the extent
that the FMV of the transferred property exceeds the FMV
of the consideration given for the property. If the transferee
has an unjust enrichment claim against the transferor, a
constructive trust could be imposed on the property, thereby
reducing the FMV of the transferred property. This argument has often been used in family situations, and in a
number of cases the TCC has accepted it as the basis for
reducing the amount of a section 160 assessment. Darte v.
The Queen (2008 TCC 66), for example, dealt with a section
160 assessment in respect of a transfer of a rental property
between common-law partners. The taxpayer argued that
the transferor had been unjustly enriched by her provision
of materials and labour in respect of renovations done on
the property. Webb J acknowledged that he could not grant
a finding of constructive trust as a remedy, but he found
that the transferee had a right to apply to a court of equity
for a declaration of her beneficial ownership in the property
under a constructive trust. The transferee surrendered this
right when the property was transferred to her: the surrender
of the right was the consideration that she gave for the
property. Accordingly, the court reduced the amount of
her section 160 assessment by the FMV of the right.
Kardaras and Pliskow may signal a change in the court’s
approach. In both cases, assessments were issued under
section 325 of the ETA, the parallel provision to section
160 of the ITA. Pizzitelli J held that the TCC did not have
jurisdiction to rule on a constructive trust. He reasoned
that a finding of constructive trust requires analyses of the
entire relationship between the parties involved, including
each party’s contribution to the relationship, the terms of
marriage agreements, and other factors that are relevant to
the division of property. In neither case was there enough
evidence before the TCC to enable it to determine whether
or not a constructive trust should be awarded. Presumably,
those matters would have to be decided by a provincial
court; but a provincial court does not have the power to
overturn an ETA section 325 or an ITA section 160 assessment. As a result, the two decisions seem to bar the use of
the constructive trust argument in defence of assessments
under those sections.
However, Kardaras and Pliskow may be distinguishable
from Darte and Savoie v. The Queen (93 DTC 552 (TCC)),
in which a constructive trust was found to reduce the FMV
Volume 4, Number 3
of the transferred property. On the facts in both Kardaras
and Pliskow, there was clearly no constructive trust, which
suggests that perhaps the TCC did not lack jurisdiction but
rather lacked evidence to find a constructive trust. Given
that Pizzitelli J framed the issue as one of jurisdiction, the
question remains open: when such evidence is present, will
the TCC still decline jurisdiction?
Ken Jiang
Thorsteinssons LLP, Vancouver
[email protected]
Sale of Real Property in Quebec
by Non-Residents
When a non-resident individual disposes of real property
in Quebec, the rules under the Quebec Taxation Act (QTA)
can differ from those under the Income Tax Act (ITA). In
particular, recapture of capital cost allowance (CCA) will
occur under the QTA only if the real property has been used
to carry on business in Quebec. Also, the two statutes involve
different procedures for obtaining clearance certificates
protecting the purchaser.
A real property located in Quebec is considered a taxable
Canadian property (TCP) under the ITA and a taxable
Quebec property (TQP) under the QTA. A non-resident
individual disposing of such property and realizing a capital
gain is subject to tax in Quebec and federally.
On the disposition, recapture is also possible if CCA has
been claimed. For federal tax purposes, a non-resident
individual can claim CCA only if (1) he or she carries on a
business in Canada or (2) if he or she elected under ITA
section 216 to pay tax under ITA part I on his or her net
property/rental income rather than a 25 percent tax on his
or her gross property income under ITA part XIII.
The situation described in point 2 above cannot occur
for Quebec tax purposes because Quebec has no equivalent
to part XIII tax; non-resident individuals are liable to tax
only on capital gains realized on the disposition of taxable
Quebec property, on income from employment, or on
income from business carried on in Quebec (QTA section
26). Thus, recapture can occur only if the vendor has carried on business in Quebec.
Rules also differ for federal and Quebec tax purposes
with respect to the procedure for the vendor to remit any
tax owing and obtain clearance certificates absolving the
purchaser of any liability under the tax statutes (ITA section
116 and QTA sections 1097 to 1102.5). It is essential that
the vendor obtain such certificates because the purchaser’s
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total liability for federal and Quebec unpaid tax could be
greater than the vendor’s liability. The purchaser’s liability
could be as much as 37.875 percent of the proceeds of disposition for non-depreciable property (25% [ITA subsection
116(5)] + 12.875% [QTA section 1101]) and 80 percent
of the proceeds of disposition for depreciable property (50%
[ITA subsection 116(5.3)] + 30% [QTA section 1102.2]).
For federal tax purposes, if the TCP is a depreciable property, the vendor must file two different forms in order to
obtain the certificate. Form T2062 is used to declare the
capital gain and to remit to the CRA an amount equal to
25 percent of the capital gain. Form T2062A is used to
report recapture of CCA or terminal loss and remit to the
CRA an amount that is acceptable to the minister pursuant
to ITA subsection 116(5.2). The CRA’s view is that an acceptable amount is equal to ITA part I tax on the recapture
(using federal progressive rates).
For Quebec tax purposes, however, when a non-resident
individual has disposed of or will dispose of a depreciable
TQP and wants to obtain a certificate of compliance, he or
she must file only one form (TP-1102.1) to declare a capital
gain, recapture, or terminal loss. The amount to be remitted
with TP-1102.1 should be a reasonable amount pursuant
to QTA section 1102.1. In our view, this amount should
normally correspond to QTA part I tax and thus be estimated
at Quebec progressive rates on the recapture and the taxable
portion of the capital gain.
The rules are simpler when past CCA claims are not an
issue. If the property is not a depreciable property for federal
tax purposes, the vendor must report a capital gain or capital
loss to the CRA on form T2062, using a rate of 25 percent
to determine the amount to be remitted. The capital gain
or capital loss for such property is reported to Revenu
Québec on form TP-1097. The tax rate used for remitting
purposes is 12.875 percent.
Notamment, il y aura une récupération de la déduction
pour amortissement (DPA), en vertu de la LIQ, seulement
si le bien immeuble a été utilisé dans l’exploitation d’une
entreprise au Québec. En outre, les deux lois prévoient
des procédures différentes pour l’obtention des certificats
de conformité qui protègent l’acheteur.
Un bien immeuble situé au Québec est considéré
comme un bien canadien imposable (BCI) en vertu de la
LIR et un bien québécois imposable (BQI) en vertu de la
LIQ. Un particulier non résident qui réalise un gain en
capital en disposant de ce bien immeuble est assujetti à
l’impôt fédéral et à l’impôt québécois.
Lors de l’aliénation du bien, une récupération de la
DPA est également possible si une telle déduction a été
réclamée. Aux fins de l’impôt fédéral, un non-résident
peut demander la DPA uniquement (1) s’il exploite une
entreprise au Canada, ou (2) s’il choisit, conformément à
l’article 216 LIR, de payer l’impôt en vertu de la partie I
de la LIR à l’égard de son revenu de location net, plutôt
qu’un impôt de 25 pour cent sur son revenu de location
brut en vertu de la partie XIII de la LIR.
La situation décrite au point (2) ci-dessus n’est pas
possible aux fins de l’impôt du Québec puisque la LIQ ne
possède pas d’équivalent à l’impôt de la partie XIII de la
LIR; les particuliers non résidents ne paient un impôt
qu’à l’égard du gain en capital réalisé lors de l’aliénation
d’un BQI, de revenus tirés d’un emploi ou de revenus
tirés d’une entreprise exploitée au Québec (article 26
LIQ). Ainsi, une récupération de la DPA n’est possible
que si le vendeur a exploité une entreprise au Québec.
Les règles de la LIR et de la LIQ diffèrent également
quant aux procédures de paiement des impôts dus par le
vendeur et d’obtention des certificats de conformité
dégageant l’acheteur de toute responsabilité en vertu des
lois fiscales (article 116 LIR et articles 1097 à 1102.5
LIQ). Il est essentiel que le vendeur obtienne ces
certificats puisque, en leur absence, l’acheteur pourrait
devoir payer des impôts totaux supérieurs aux impôts dus
par le vendeur. Les impôts dont l’acheteur pourrait être
responsable peuvent s’élever à 37,875 pour cent du
produit de disposition d’un bien non amortissable (25 %
[paragraphe 116(5) LIR] + 12,875 % [article 1101 LIQ ]),
et 80 pour cent du produit de disposition d’un bien
amortissable (50 % [paragraphe 116(5.3) LIR] + 30 %
[article 1102.2 LIQ ]).
Aux fins fiscales fédérales, si le BCI est un bien
amortissable, le vendeur doit produire deux formulaires
différents pour obtenir le certificat. Le formulaire T2062
sert à déclarer le gain en capital et à remettre à l’ARC un
Amélie Guimont and Jean-Benoit Thivierge
PricewaterhouseCoopers LLP
Quebec City
[email protected]
[email protected]
Vente d’un bien immeuble au
Québec par un non résident
Lorsqu’un particulier non résident aliène un bien
immeuble au Québec, les règles en vertu de la Loi sur les
impôts du Québec (LIQ) peuvent différer de celles
prévues dans la Loi de l’impôt sur le revenu (LIR).
Volume 4, Number 3
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montant correspondant à 25 pour cent du gain en
capital. Le formulaire T2062A sert à déclarer la
récupération de la DPA ou la perte finale et à remettre à
l’ARC un montant jugé acceptable par le ministre en
vertu du paragraphe 116(5.2) LIR. De l’avis de l’ARC, un
montant acceptable correspond à l’impôt, en vertu de la
partie I de la LIR, sur la récupération de la DPA (selon les
taux progressifs de l’impôt fédéral).
Aux fins fiscales québécoises, lorsqu’un particulier
non résident a aliéné ou se propose d’aliéner un BQI
amortissable et souhaite obtenir un certificat de
conformité, il doit produire un seul formulaire
(TP-1102.1) pour déclarer un gain en capital, une
récupération de la DPA ou une perte finale, selon le cas.
Le montant à remettre avec le formulaire TP-1102.1
devrait être un montant raisonnable conformément à
l’article 1102.1 LIQ. À notre avis, ce montant devrait
normalement correspondre à l’impôt de la partie I de la
LIQ et être ainsi établi selon les taux progressifs de
l’impôt du Québec sur la récupération de la DPA et la
portion imposable du gain en capital.
Les règles sont plus simples lorsque la DPA n’entre pas
en jeu. Si le bien n’est pas un bien amortissable aux fins
de l’impôt fédéral, le vendeur doit déclarer un gain en
capital ou une perte en capital à l’ARC sur le formulaire
T2062, en utilisant un taux de 25 pour cent pour
déterminer le montant à remettre. Le gain ou la perte en
capital à l’égard de ce type de bien est déclaré à Revenu
Québec sur le formulaire TP-1097. Le taux utilisé pour
établir le montant à remettre est de 12,875 pour cent.
except as otherwise expressly permitted under section 241.
An exception is provided in paragraph 241(3)(a), which
permits disclosure in respect of criminal proceedings that
have been commenced by the laying of charges under an
act of Parliament. Paragraph 241(4)(a) permits disclosure
for the purposes of administration and enforcement of the
Act and federal statutes involving payroll taxes. Thus, the CRA
previously could not share taxpayer information with law
enforcement authorities in non-tax matters until a charge
had been laid.
Subsection 241(9.5) allows a CRA official to provide
taxpayer information to a law enforcement officer of an
appropriate police organization—domestic or foreign—if
the official has reasonable grounds to believe that the information affords evidence of an act or omission committed
in or outside Canada that, if committed in Canada, would
be an offence under specified provisions of the Criminal
Code or the Corruption of Foreign Public Officials Act.
According to the technical notes, the requirement of “evidence” means that mere suspicion is not enough. The
specified offences include bribery and corruption of public
officials; sexual assault; kidnapping; money laundering;
terrorism or criminal organization offences; and the trafficking, production, and import and export of drugs.
The subsection was introduced in response to an October
14, 2010 recommendation of the OECD that member states
establish, in accordance with their legal systems, an effective
legal and administrative framework and provide guidance
to facilitate reporting by tax authorities of suspicions of
serious crimes (including money laundering and terrorism
financing) arising out of the performance of their duties to
the appropriate domestic law enforcement authorities. The
OECD stated that tax crimes, money laundering, and other
financial crimes, which thrive under weak inter-agency
cooperation, can threaten the strategic, political, and economic interests of developed and developing countries. The
2010 recommendation is one of many put forward by the
OECD to combat financial crimes.
One problem with the new provision is the absence of
judicial oversight, even if the information is to be disclosed
to a foreign police organization; a similar provision in the Tax
Administration Act (Quebec) (section 69.0.0.12) requires
that Revenu Québec employees obtain judicial authorization
to disclose taxpayer information in such circumstances.
Although the minister of finance has indicated that the
administration of the new measures will be closely controlled within the CRA, it remains to be seen what policies
will be put in place to ensure that the provision is applied
Amélie Guimont et Jean-Benoit Thivierge
PricewaterhouseCoopers S.E.N.C.R.L./s.r.l.
Québec
[email protected]
[email protected]
Release of Taxpayer
Information to Police
New subsection 241(9.5) of the Act, enacted with the rest
of Bill C-31 in June 2014, allows a CRA official to disclose
taxpayer information to police when the official has reasonable grounds to believe that the information will provide
evidence of certain serious crimes.
Subsection 241(1) prohibits a CRA official (or other
representative of a government) from knowingly providing
or communicating taxpayer information to any person
Volume 4, Number 3
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August 2014
in a manner consistent with its intended purpose and restricted to circumstances where reasonable cause exists.
not to incriminate oneself is set out in section 13 of the
Charter, providing information to the CRA is not optional.
Filing a tax return is legally required for many, and of course
there is no provision allowing illegally obtained income to
be excluded from one’s return. Further, pursuant to her
authority under the Act, the minister may examine the
books and records of a taxpayer in the context of an audit,
demand that a taxpayer provide any document for any
purpose related to the administration of the Act, and take
other actions as permitted by the Act—and the taxpayer is
subject to the sanctions in section 231.7 of the Act for
remaining silent or otherwise not complying. Information
so obtained that may be self-incriminating is permitted to
be shared under the new subsection.
A second Charter challenge may be possible on the ground
that the CRA’s obtaining of information from the taxpayer
without a warrant, followed by supplying that information
to the police without court supervision at that stage, may
constitute unreasonable search and seizure under section 8
of the Charter.
Note, however, that any Charter challenge must take
into account the application of the “reasonable limits” clause
in section 1 of the Charter, which contemplates that any
rights guaranteed in the Charter (such as those against
self-incrimination and unreasonable search and seizure) are
subject to “such reasonable limits prescribed by law as can
be demonstrably justified in a free and democratic society.”
It is possible that the prevention of the serious offences
listed in subsection 241(9.5) of the Act could justify limiting those rights.
Melanie Kneis
Ernst & Young LLP, Toronto
[email protected]
Release of Taxpayer Information
to Police: Possible Legal Conflicts
New subsection 241(9.5), which is described in Melanie
Kneis’s article above, may conflict with other components
of the Canadian legal system. The subsection gives CRA
officials a broad power to disclose taxpayer information,
whether or not it is related to a tax issue, to “an appropriate
police organization.” The test to be applied is whether, in
the CRA’s view, it has “reasonable grounds” to believe that
the information will afford evidence of an act or omission
in or outside Canada that if committed in Canada would
be an offence listed in that subsection.
Any disclosure of taxpayer information by the CRA to the
police must not contravene the Privacy Act, which governs
the collection, use, and disclosure of “personal information”
by “government institutions.” Under section 8(2)(b) of the
Privacy Act, however, a government institution may disclose
personal information without the consent of the individual
“for any purpose in accordance with any Act of Parliament . . . that authorizes its disclosure.” Given that the
specific authority to disclose is now provided for in subsection 241(9.5) of the Act, it appears that the general
requirements for disclosure under the Privacy Act are met.
However, if a taxpayer wanted to make a complaint to the
privacy commissioner in a particular case, he or she might
do so on the basis that the CRA did not have “reasonable
grounds” to disclose in that situation.
A more significant issue is the scope of “reasonable
grounds.” In oral evidence given on May 7, 2014, the Ontario Provincial Police told the Standing Senate Committee
on National Finance that pre-charge taxpayer information
would be very useful if, “[f ]or instance, someone . . . is
declaring $50,000 in income but living in a million-dollar
house.” Those circumstances might be reasonable evidence
of tax evasion, but they are dealt with in other ways and
need no further statutory authority. However, the example
does not seem to constitute reasonable evidence for the
offences listed in subsection 241(9.5).
Another question is whether the sharing of information
in this way could be challenged under the Canadian Charter
of Rights and Freedoms. In particular, although the right
Volume 4, Number 3
Nicole K. D’Aoust
Wilson & Partners LLP, Toronto
[email protected]
Voluntary Disclosure Accepted,
but Penalties Still Assessed
Taxpayers applying under the CRA’s voluntary disclosure
program rely on the presumption that if all requirements
of the program are met, any penalties otherwise payable
under the Act will be waived. However, Canada (National
Revenue) v. Sifto Canada Corp. (2014 FCA 140) suggests
that this is not always the case. More detailed facts are
expected to be disclosed in future court proceedings.
Sifto Canada sold rock salt to a related US corporation
in its 2004, 2005, and 2006 taxation years. In 2007, it
submitted an application under the voluntary disclosure
program concerning the transfer price of rock salt for those
8
August 2014
years. In 2008, the minister accepted the disclosure as
meeting the requirements of the program. The minister
subsequently agreed with Sifto on the correct transfer price
applicable to those years, based on a mutual agreement on
the price reached by the Canadian and American tax authorities. The agreements settled Sifto’s tax liabilities for the years
at issue. Later, for undisclosed reasons, the minister changed
her mind and informed Sifto of her intention to issue assessments based on a different transfer price and to assess
penalties. The penalties were assessed under subsection 247(3).
The facts set out above, and not much more, were revealed in the FCA’s decision on the Crown’s attempt to
strike out a judicial review application by Sifto in the FC.
As the FCA stated,
business or property. Subparagraph 20(1)(c)(ii) allows the
deduction of interest on an amount payable for property
acquired for the purpose of gaining or producing income
from the property or from a business.
Generally, the income-earning purpose tests in both
subparagraphs have been interpreted to mean that the
borrowed funds must be directly and currently traced to an
income-earning use (Interpretation Bulletin IT-533, “Interest
Deductibility and Related Issues,” October 31, 2003; Bronf­
man Trust v. The Queen, [1987] 1 SCR 32). Thus, taxpayers
A and B should be able to deduct the interest expense generally for Canadian tax purposes if the loan was used to fund
the purchase of machinery or as working capital to be used
in taxpayer B’s business. The interest could also be deductible if taxpayer B used the loan to purchase shares of taxpayer C. However, the entire interest expense could be
denied (subject to subsection 20.1(1)) if taxpayer B disposed
of all its business assets and did not redeploy the funds in
an eligible use, because the debt can no longer be currently
traced to a business. Interest deductibility could also be lost
if taxpayer C never has paid and never will pay dividends to
its shareholders because taxpayer B did not have a reasonable
expectation of earning income at the time it made the investment in taxpayer C (Swirsky v. Canada, 2014 FCA 36).
Under the equivalent US federal income tax rules, including section 163 of the Internal Revenue Code, interest
deductibility in the corporate context turns not on the use
of the funds but rather on a mainly substantive assessment
of the characterization of the instrument as debt or equity.
The case law on this issue focuses on the intention of the
parties to create a debtor-creditor relationship and the ability
of the debtor to repay the debt (Estate of Mixon v. United
States, 464 F. 2d 394 (5th Cir. 1972) and In Re Lane, 742
F. 2d 1311 (11th Cir. 1984)). Therefore, even if taxpayer B
sells all of its business assets or if taxpayer C does not pay
dividends, the interest could nonetheless be deductible
(subject to specific limitations and anti-avoidance provisions in the Code).
That conclusion will change, however, if the loan is not
respected as indebtedness. This outcome could occur if
taxpayer B is overleveraged at the time the loan was extended; if the terms of the debt were not commercially
reasonable; or if taxpayer A did not enforce the terms of
the debt instrument over the term of the loan (for example,
if interest and principal payments were not made by taxpayer B when prescribed in the agreement, and taxpayer A
did not enforce its creditor remedies). In these instances,
the instrument could be recharacterized as equity and any
The record contains no explanation for the Minister’s decision to reassess as she did, and no explanation for the
imposition of the penalties in the face of the accepted
voluntary disclosure. That is because the proceedings in
the Federal Court have not progressed to the point where
an explanation is required.
The FCA had to decide whether Sifto’s application for
judicial review was “so clearly improper as to be bereft of
any possibility of success.” Sharlow J, writing for the FCA,
dismissed the Crown’s appeal and allowed two court actions
by Sifto to proceed: the appeal to the TCC for removal of
the subsection 247(3) penalties, and the application to the
FC for judicial review of the minister’s decisions under
the voluntary disclosure program. However, Sharlow J suggested that the judicial review application be deferred until
the penalties are either confirmed or cancelled by the TCC.
Francis Hally
Dentons Canada LLP, Montreal
[email protected]
Interest Deductibility Tests:
Canada Versus the US
Suppose that taxpayer A makes a loan to taxpayer B; is the
interest on the loan deductible for tax purposes? The answer
depends on whether deductibility is tested under Canadian
tax rules or US tax rules.
The two relevant Canadian tax provisions for determining interest deductibility are subparagraphs 20(1)(c)(i) and
(ii). Subparagraph 20(1)(c)(i) permits a taxpayer to deduct
amounts payable in the year as interest on borrowed money
that is used for the purpose of earning income from a
Volume 4, Number 3
9
August 2014
amounts paid thereon might not be treated as interest that
is deductible—a result that may have unintended consequences for both the payer and the recipient.
registered at the time the CRA took steps under these rules
to effect a registration), it will have to bring a formal application for judicial review to the FC.
The CRA’s previous difficulties in registration compliance
do not seem to be greatly reduced under the new legislation,
because the new rules do not address the main challenge—
identifying non-compliant businesses. The main strategies
are still matches, leads, projects, and pursuing previously
identified non-filers.
Also, the previous law appeared to provide the CRA with
all necessary legal powers. Under ETA subsection 123(1),
which has not been amended, a “registrant” is a person that
is registered or that is required to be registered. Therefore,
a non-compliant business (a business that should be registered but is not) was and is required to comply with all the
statutory obligations.
Clara Pham and Frank Simone
KPMG LLP, Toronto
[email protected]
[email protected]
CRA To Force GST/HST
Registration
New subsections 241(1.3) to (1.5) of the ETA (enacted with
other 2014 budget measures in Bill C-31) empower the
CRA to unilaterally register a person who has not registered
for GST/HST but, in the CRA’s view, is required to do so.
The budget states that these amendments will strengthen
GST/HST registration compliance and help the CRA to
combat the underground economy.
Generally, a business making more than $30,000 annually
in taxable supplies is required to be registered pursuant to
ETA subsection 240(1). Once a business becomes a registrant,
it is required to comply with various statutory obligations,
including charging, collecting, and remitting GST/HST in
respect of any taxable supplies; filing periodic GST/HST
returns; and maintaining books and records supporting
those filings.
Under the new provisions, the CRA will first send a
“notice of intent” to a non-registrant. If that person has
not applied for registration within 60 days of the notification, the CRA is allowed to register and assign a GST/HST
registration number to the person. It is unclear whether
the CRA will issue an assessment for unpaid tax at the same
time that it sends the notice of intent, or whether it will
delay the assessment until the GST/HST registration number
has been assigned.
The CRA will advise the non-registrant of the unilateral
registration and the effective date of the registration, which
is not to be earlier than 60 days after the date of the notice
of intent. The registration date is important because no ITCs
can be claimed for GST/HST paid on inputs that were incurred
prior to registration. It is unclear whether the CRA will allow
the non-registrant to claim ITCs on any tax paid on its inputs
that were incurred prior to the CRA’s unilateral registration.
When a business objects to an assessment, it can appeal
to the TCC. However, if a business objects to the CRA’s
unilateral decision to register it, no appeal right is provided.
Thus, if an aggrieved person disagrees with the CRA (perhaps on the basis that it was not legally required to be
Volume 4, Number 3
Jenny Siu
Millar Kreklewetz LLP, Toronto
[email protected]
TCC: Transfer-Pricing Structure
Unsupportable
Marzen Artistic Aluminum Ltd. (2014 TCC 194) reminds
Canadian taxpayers that contractual arrangements between
entities may be subject to transfer-pricing adjustments if
one of the entities lacks substance and provides minimal
value. Penalties may also be imposed when a taxpayer has
not made reasonable efforts to determine arm’s-length
transfer prices.
At issue were the non-arm’s-length marketing service
fees paid by the taxpayer (Marzen) to its wholly owned
Barbados subsidiary (SII) in the 2000 and 2001 taxation
years. Marzen and SII entered into a marketing and sales
service agreement (MSSA) under which Marzen agreed to
pay SII a monthly fee equal to $100,000 or 25 percent of
gross sales initiated by SII, whichever was greater. In computing its income for 2000 and 2001, Marzen deducted
$4.2 million and $7.8 million, respectively, for fees paid to
SII under the MSSA. In the same years, SII, which paid nominal tax in Barbados, paid dividends to Marzen in the amount
of $2.0 million and $5.3 million, respectively. Marzen received these dividends tax-free because they were paid out
of SII’s exempt surplus.
The first issue before the court was whether the price
paid under the MSSA was equal to the price that would be
paid between two arm’s-length parties. Sheridan J determined that the sole value of SII appeared to be represented
10
August 2014
by the role played by its director. Aside from a possibly
“game-changing” idea to focus sales on a specific market in
California, the evidence indicated that the director did not
provide substantive services. Therefore, Sheridan J concluded
that an arm’s-length party would not have paid the inflated
fees that Marzen paid for the basic services that SII provided.
Other than the attractive tax advantages that resulted from
the MSSA, SII was an empty shell that functioned merely
as a flowthrough entity.
The taxpayer’s expert witness argued that even if the
marketing fees could not be justified on the basis of SII’s
services alone, they could be justified as a joint payment
for the services of SII and the taxpayer’s US subsidiary as an
“amalgam.” The court disagreed, saying that this was contrary to the 1995 OECD transfer-pricing guidelines, which
require an entity-by-entity assessment. Instead, the comparable uncontrolled price method was used to determine
that a reasonable arm’s-length party would have paid SII no
more than the price paid for the management and administrative services provided by the director. As a result, only
a small portion of the fees was deductible.
The second issue before the court was whether Marzen
was subject to a penalty under subsection 247(3) of the Act
because the $5 million threshold for imposing the penalty
was met in the 2001 taxation year. At trial, the taxpayer
revealed that it had determined the percentages and formulas in the MSSA without consulting professional advisers
or comparable businesses. Sheridan J concluded that the
documentation provided to the CRA in respect of the transferpricing arrangements did not factually meet the reasonableness standard in the Act; therefore, the taxpayer was subject
to a penalty to the extent that the threshold was met. The
court’s conclusion supports the CRA’s administrative position as recently published in Transfer Pricing Memorandum
TPM-05R (“Requests for Contemporaneous Documentation”), which states that penalties are warranted when
taxpayers provide inadequate or insufficient contemporaneous documentation in a transfer-pricing audit.
The transfer-pricing structure in Marzen can be contrasted with that in Alberta Printed Circuits Ltd. (2011 TCC
232). In that case, the court denied the CRA’s reassessment
of setup fees paid by the taxpayer to its related Barbados
company (APCI). The evidence indicated that APCI provided specialized setup and information technology services,
and its director was actively involved in developing technical
software and training local workers. If the evidence had
proved to the court’s satisfaction that SII or its director had
provided some value (such as marketing analysis, consumer
research, or other services) or assumed some business risk
Volume 4, Number 3
in return for the marketing fees, the taxpayer would have
had a more supportable transfer-pricing structure.
Shaira Nanji
Dentons Canada LLP, Toronto
[email protected]
Spouse Trust: Problems
and Solutions
One way to avoid any gain on the deemed disposition on
death of capital property owned by the taxpayer is to set
up a spouse trust in a will. However, the spouse trust must
meet the many conditions in subsection 70(6) in order to
qualify for the rollover. Proper pre-mortem planning is the
best approach; if that fails, post-mortem planning solutions
may be available.
One condition in subsection 70(6) is that the spouse or
the common-law partner (“the conjugal partner”) be entitled to all income from the trust. This condition raises
three issues.
1) If it is discovered after death that there is another
income beneficiary, the problem can be solved by
having that beneficiary disclaim the income interest.
The gift is then void ab initio—meaning that the
gift is treated as if it had never happened.
2) If it is planned that shares of a private corporation
are to be an asset of the spouse trust, it may be wise
to draft the will so as to create the trust out of the
residue of the estate. During the executor’s year, the
executor of the estate will be able to use dividends
on the shares to pay estate liabilities (such as funeral
expenses) or monetary gifts to persons other than
the spouse. However, if the will is drafted such that
the shares are a specific bequest to the spouse trust,
such payments may taint the trust because the money
will benefit someone other than the spouse.
3) If it is planned that the ultimate tax bill due upon
the death of the spouse will be paid from the proceeds of a life insurance plan on his or her life,
consider providing for the creation of a second trust
to fund the premiums. Making premium payments
from the existing spouse trust will taint the trust
because the beneficiary of the policy is a party other
than the spouse.
Another condition in subsection 70(6) is that only the
conjugal partner can encroach on the capital of the trust.
An implication is that subsection 70(6) does not forbid
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August 2014
giving the trustees the power to encroach, as long as it is
for the benefit of the conjugal partner. Doing so may be
desirable because it would allow, for example, the paying
out to the conjugal partner during his or her lifetime any
capital dividends received by the trust on shares that it owns
because, pursuant to subsection 108(3), capital dividends
are considered capital of the trust, not income. Be aware,
however, that if a charity is a capital beneficiary of the trust
after the spouse’s death, an encroachment clause may adversely affect charitable tax credits of the deceased spouse.
Since the receiptable amount is the present value of the
amount to be donated on the spouse’s death, no receipt can
be issued because the possibility of encroachment makes
the amount left to be donated uncertain.
Such a power to encroach on capital should not include
the power to make loans to others on non-commercial
terms, which is considered an impermissible encroachment
on capital (see Balaz v. Balaz, 2009 CanLII 17973 (ONSC)).
If this power has been given, the post-mortem planning
step of making an application under provincial dependants’
relief legislation to eliminate the power may be an appropriate remedy.
Yet another condition for a trust to qualify as a spouse
trust is that the property must vest indefeasibly in the trust
within 36 months after the death of the taxpayer (unless a
longer period has been allowed by the minister). This
condition might not be met if, as is frequently the case, the
deceased taxpayer owns shares that are subject to a buy-sell
provision under a unanimous shareholders’ agreement that
gives the other shareholders a pre-emptive right to acquire
those shares upon the death of a shareholder. Amending
the shareholders’ agreement to delete the offending clause
may be an easy solution, depending on the relationship
between the shareholders. The shareholders can also consider a right of first refusal upon death (or a combination
of a put and call), which may not offend the vesting rule.
as pleaded by the minister. Nevertheless, the decision may
provide comfort to tax practitioners in the context of pipeline transactions, since the court held that nothing in
section 84.1 prevents bumping the PUC by the gain realized
on the death of a taxpayer.
Lionel Leroux acquired common shares of Oka Inc.
prior to V-day and held them until his death in 1982, after
which the appellants inherited the shares. After subsequent
purchases, the appellants owned common shares having an
aggregate FMV of $617,466, an ACB of $361,658, and PUC
of $25,100.
From 2004 to 2008, the appellants engaged in the following transactions with a view to disposing of their common
shares in Oka: (1) they incorporated Newco, which received
a loan from Oka; (2) they exchanged their common shares
for preferred shares of Oka, making an election at FMV
under subsection 85(1), which triggered a capital gain of
$255,808; (3) Newco bought their preferred shares of Oka
and issued in consideration class A (which had full ACB and
PUC) and class B preferred shares (which had a low PUC
because of section 84.1); (4) caused Newco to redeem its
class A (no tax consequences) and class B preferred shares
(triggering a deemed dividend of $265,506 and a capital
loss of $269,618, a portion of which was applied against
the gain previously realized); and (5) wound up both Oka
and Newco.
The series of transactions was intended to allow the appellants to realize a deemed dividend of $265,506 and a
small net capital loss instead of a deemed dividend of
$592,366 and a capital loss of $336,558, which would have
resulted had Oka purchased the appellants’ shares for cancellation. The minister assessed the appellants on the latter,
higher amount of deemed liquidation dividend pursuant
to subsection 84(2). The basis of the assessment was that
Newco’s redemptions of its shares amounted to a distribution of funds or property by Oka in favour of its shareholders
on the winding up, discontinuance, or reorganization of
its business.
Hogan J held that the minister’s argument with respect
to subsection 84(2) was untenable: no distribution occurred
when Newco purchased shares of Oka because no loss in
value of Oka occurred. In particular, the funds lent to
Newco were replaced by a receivable on Oka’s balance sheet.
He also found that no winding up, discontinuance, or reorganization of Oka’s business occurred at the time of the
purported distribution because Oka’s activities were maintained afterward.
With respect to GAAR, Hogan J held that subsection 84(2)
is not a general rule against surplus stripping; there is no
Colleen D. Ma
Dunphy Bokenfohr LLP, Calgary
[email protected]
V-Day Surplus Stripping an
Abuse of Section 84.1
Descarries v. The Queen (2014 TCC 75; informal procedure)
held that GAAR applied to an internal reorganization intended to strip out the value accrued as at December 31,
1971 (V-day) on a tax-free basis. However, the abused
provision was held to be section 84.1, not subsection 84(2)
Volume 4, Number 3
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August 2014
general underlying policy to the effect that any distribution
by a corporation must be made by way of a dividend. The
application of subsection 84(2) should be limited to a
distribution that occurs upon the winding up, discontinuance, or reorganization of a corporation’s business.
Hogan J disposed of the appeal by applying GAAR on
the basis of an abuse of section 84.1, even though this
argument was not pleaded at trial. He noted that the tax
professional carefully determined the figures that would
allow the appellants to trigger offsetting capital gains and
losses (including appropriate ACB and PUC values). This
planning frustrated the object and spirit of the provision,
which was evident from the fact that section 84.1 does not
recognize the accrued V-day value in ACB in order to prevent
tax-free surplus stripping. Thus, pursuant to GAAR, the tax
consequences of the series of transactions were recharacterized as a deemed dividend of $525,422 and a capital loss
of $269,614.
actions ordinaires dans Oka : 1) ils ont constitué une
nouvelle société (Nouvelle), qui a reçu un prêt d’Oka;
2) ils ont échangé leurs actions ordinaires contre des
actions privilégiées d’Oka en effectuant un choix à la
JVM en vertu du paragraphe 85(1), ce qui s’est traduit
par un gain en capital de 255 808 $; 3) Nouvelle a
acheté les actions privilégiées qu’ils détenaient dans Oka
en contrepartie de l’émission d’actions privilégiées de
catégorie « A » (qui avaient leurs pleins PBR et capital
versé) et de catégorie « B » (dont le capital versé était peu
élevé du fait de l’application de l’article 84.1); 4) ils ont
fait en sorte que Nouvelle rachète ses actions privilégiées
de catégorie « A » (sans conséquence fiscale) et de
catégorie « B » (produisant un dividende réputé de
265 506 $ et une perte en capital de 269 618 $ dont une
partie a été appliquée en diminution du gain
précédemment réalisé); et 5) ils ont procédé à la
dissolution d’Oka et de Nouvelle.
La série d’opérations visait à permettre aux appelants
de réaliser un dividende réputé de 265 506 $ ainsi
qu’une petite perte en capital nette, plutôt qu’un
dividende réputé de 592 366 $ et une perte en capital de
336 558 $ qui auraient découlé de l’achat par Oka de
leurs actions à des fins d’annulation. Le ministre a établi
une cotisation à l’égard de ce dividende réputé de
592 366 $, sur la base d’un dividende de liquidation
réputé conformément au paragraphe 84(2). Le ministre a
fondé la cotisation sur le fait que le rachat des actions par
Nouvelle équivalait à une distribution des fonds ou des
biens d’Oka en faveur de ses actionnaires lors de la
liquidation, de la cessation de l’exploitation ou de la
réorganisation de son entreprise.
Le juge Hogan a déterminé que l’argument du
ministre relativement au paragraphe 84(2) était
indéfendable : aucune distribution n’avait eu lieu lorsque
Nouvelle avait acheté les actions d’Oka parce qu’Oka
n’avait subi aucune perte de valeur. Notamment, les
fonds prêtés à Nouvelle avaient été remplacés par une
créance dans le bilan d’Oka. Le juge a aussi déterminé
qu’il n’y avait pas eu de liquidation, de cessation de
l’exploitation ou de réorganisation de l’entreprise d’Oka
au moment de la distribution alléguée parce que les
activités d’Oka se sont poursuivies.
En ce qui a trait à la RGAE, le juge Hogan a conclu
que le paragraphe 84(2) n’est pas une règle générale
visant à contrer le dépouillement des surplus; il n’y a pas
de politique générale sous-jacente voulant que toute
distribution effectuée par une société doit l’être au
moyen d’un dividende. L’application du paragraphe
Antoine Desroches
Norton Rose Fulbright Canada LLP, Montreal
[email protected]
Dépouillement de surplus au
jour de l’évaluation et abus
de l’article 84.1
Dans la décision Descarries c. La Reine (2014 CCI 75;
procédure informelle), la CCI a conclu que la RGAE
s’appliquait à une réorganisation interne visant à
dépouiller la valeur accumulée au 31 décembre 1971
(jour de l’évaluation) en franchise d’impôt. Cependant,
la CCI a conclu que la disposition utilisée de manière
abusive était l’article 84.1 et non le paragraphe 84(2)
comme plaidé par le ministre. Néanmoins, la décision
peut rassurer les fiscalistes eu égard à la stratégie du
pipeline, puisque la Cour a conclu que rien dans l’article
84.1 n’empêche de majorer le capital versé d’un montant
égal au gain réalisé lors du décès d’un contribuable.
Lionel Leroux a acquis les actions ordinaires d’Oka Inc.
(Oka) avant le jour de l’évaluation et les a conservées
jusqu’à son décès en 1982, à la suite duquel les appelants
ont hérité des actions. Après des achats ultérieurs, les
appelants possédaient des actions ordinaires dont la JVM
totale s’élevait à 617 466 $, le PBR à 361 658 $ et le
capital versé à 25 100 $.
De 2004 à 2008, les appelants ont conclu les
opérations suivantes avec l’intention de disposer de leurs
Volume 4, Number 3
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August 2014
ce qui ressort de manière évidente dans le fait que l’article
84.1 ne reconnaît pas la valeur accumulée au jour de
l’évaluation dans le PBR pour empêcher le dépouillement
des surplus en franchise d’impôt. Par conséquent, en
conformité avec la RGAE, les conséquences fiscales de la
série d’opérations ont été requalifiées comme un
dividende réputé de 525 422 $ et une perte en capital de
269 614 $.
84(2) devrait être limitée à une distribution qui survient
lors de la liquidation, de la cessation de l’exploitation ou
de la réorganisation de l’entreprise d’une société.
Le juge Hogan s’est prononcé sur l’appel en
appliquant la RGAE sur la base d’une utilisation abusive
de l’article 84.1, même si cet argument n’a pas été plaidé
lors du procès. Il a fait remarquer que le fiscaliste avait
soigneusement déterminé les chiffres qui allaient
permettre aux appelants de réaliser des gains et des pertes
en capital qui s’annuleraient (y compris les valeurs
appropriées de PBR et de capital versé). Cette planification
allait à l’encontre de l’objet et de l’esprit de la disposition,
Volume 4, Number 3
Antoine Desroches
Norton Rose Fulbright Canada S.E.N.C.R.L./s.r.l.,
Montréal
[email protected]
14
August 2014
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For the August 2014 issue, we thank Timothy Fitzsimmons, editorial adviser,
and the following contributing editors:
Halifax:
•Sean Glover ([email protected])
•Dawn Haley ([email protected])
Quebec City:
•Amélie Guimont ([email protected])
Montreal:
•Stephanie Jean ([email protected])
•Alexandre Laturaze ([email protected])
Ottawa:
•Mark Dumalski ([email protected])
Toronto:
•Nicole K. D’Aoust ([email protected])
•Melanie Kneis ([email protected])
Winnipeg:
•Greg Huzel ([email protected])
•Sheryl Troup ([email protected])
Edmonton:
•Tim Kirby ([email protected])
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•Nicolas Baass ([email protected])
• Bernice Wong ([email protected])
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•Trevor Goetz ([email protected])
•Matthew Turnell ([email protected])
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ISSN 1925-6817 (Online). Published quarterly.
Volume 4, Number 3
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August 2014