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©2015 Ernst & Young LLP. All rightsreserved.This presentation contains information insummary form, believed to be current as ofthe date of publication, and is intended forgeneral guidance only. It should not beregarded as comprehensive or a substitutefor professional advice. Before taking anyparticular course of action contact EY oranother professional advisor to discuss thesematters in the context of your particularcircumstances. We accept no responsibilityfor any loss or damage occasioned by yourreliance on information contained in thispresentation.

Disclaimer

Tax Knowledge Forum – September 2015

Tax KnowledgeForumSeptember 2015

Fraser Gall ─ Moderator

u Fraser is a partner with EY in Toronto and leads the National Tax function which isresponsible for policy, tax knowledge management, communications and practicesupport for the tax practice. He is also president of Ernst & Young ElectronicPublishing Services Inc.

u Fraser was previously the leader of EY’s financial services tax group. He hasextensive experience in many aspects of corporate income tax, including planning,compliance, tax accounting, cross-border issues, and mergers and acquisitions.

Fraser Gall, CPA, CAPartner

Ernst & Young LLP, Toronto

Tel.: +1 416 943 2930 Email: [email protected]


AgendaLegislative update Yves Plante

CRA administrative update Carolyn Hurst

Recent income tax cases Daniel Sandler


Legislative UpdateYves Plante


Yves Plante – Legislative update

u Yves is a senior manager with Ernst & Young Electronic Publishing Services Inc. inToronto and member of its editorial board. He is responsible for the analysis andcommunication of emerging tax issues to clients and EY’s tax practice. Yves is also acontributing author, co-author and assistant editor to numerous newsletters andpublications, including EY’s Guide to Income Tax and EY’s Complete Guide toGST/HST.

u With more than 20 years of experience in Canadian corporate and personal incometax, as well as indirect taxes, compliance and consulting, Yves has developed andpresented seminars and training sessions on various areas of tax and on taxresearch and writing.

Yves Plante, CPA, CA

Senior manager




Legislative update

► Federal bills and legislative proposals

► Federal legislative consultations

► BEPS developments

► Provincial developments

► Upcoming events


Federal budget measures


Proposals Status EY TaxAlert/News

SubstantivelyEnacted?

Bill C-59, Economic ActionPlan 2015 Act, No. 1

Royal assent23 June 2015

EY N 043-15 Yes(7 May 2015)

Draft legislation• Outstanding 2015 federal

budget measures• Canadian exploration

expenses (CEE)measures (1 March 2015)

Legislative proposals(31 July 2015)

TA 2015-44and

TA 2015-17TA 2015-25TA 2015-26TA 2015-27TA 2015-29TA 2015-30TA 2015-33TA 2015-35

No


2015 Federal budgetIncome tax measures

Bill C-59 31 July 2015Draft

Legislation

Subsequentlegislativeproposals

Personal income tax measuresu Tax free savings accountu Home accessibility tax creditu RRIFs − minimum withdrawal factorsu Capital gains exemption − qualified farm or

fishing propertyu RDSPs − legal representationu Penalty for repeated failure to report

incomeu Alternative arguments in support of

assessmentsu Information sharing for collection of non-tax

debtsu Transfer of education credits − effect on

family tax cut

üüü

üü

ü

ü

To come

To come





Legislation


Charitiesu Donations of private corporation shares or

real estateu Investments by registered charities in limited

partnershipsu Gifts to foreign charitable foundations

Business income tax measuresu Small business tax rateu CCA − M&P machinery and equipmentu Agricultural cooperatives − deferral of tax on

patronage dividends paid in sharesu Quarterly remitter category for new

employersu Synthetic equity arrangementsu Tax avoidance of corp. capital gains (s. 55)

ü

üüü

ü

ü

ü

üü





Legislation


International taxationu Withholding for non-resident employersu Streamlining reporting requirements for

foreign assets (no legislative changerequired)

u Captive insuranceu Tax planning by multinational enterprises

(BEPS follow-up)u Automatic exchange of information for tax

purposes

GST/HST and Exciseu Alternative arguments in support of

assessmentsu Information sharing for collection of non-tax

debts

ü

üTo come

To come

To come

To come


Federal NWMMs and bills




Bill C-377 – An Act to amend theIncome Tax Act (requirement forlabour organizations)


N/A Yes(16 October 2013)

Bill C-51 – Anti-terrorism Act,2015


N/A Yes(30 January 2015)

NWMM to amend the Excise TaxAct• Feminine hygiene products

NWWM(Adopted 1June 2015)

N/A No

Federal NWMMs and bills




Bill C-74 – Canada-Quebec Gulf ofSt. Lawrence PetroleumResources AccordImplementation Act

1st reading(House of

Commons)18 June 2015

N/A Yes(18 June 2015)

NWMM to amend the Income TaxAct• Canadian Wheat Board continuance

NWWM(Adopted 17June 2015)

N/A No

Other federal outstanding proposals




Agriculture and Agri-FoodCanada news release• Prescribed regions for livestock

tax deferrals in 2015

List of designatedregions released

(23 July 2015)

N/A No

Regulations amending theincome tax regulations• Graduated late-filing penalty• Foreign spin-off tax deferral• Reporting requirement re

apprentice-related programsand UCCB

• List of foreign universities

SOR/2015-170Published in Canada

Gazette Part II(1 July 2015)

N/A Yes





Agriculture and Agri-FoodCanada news release• Prescribed regions for livestock

tax deferrals in 2014

Final list released(28 May 2015)

N/A No

Draft regulations amending theincome tax regulations• Withholding of income tax on

payments from RDSPs

Published in CanadaGazette Part I(9 May 2015)

N/A No





Legislative proposals (1 March2015)• CEE: environmental studies

and community consultations

Incorporated intothe 31 July 2015

Legislativeproposals

EY TA 2015-17 No

Draft regulations amending theincome tax regulations (19February 2015)• CCA changes for LNG facilities

SOR/2015-117Published in Canada

Gazette Part II(17 June 2015)

EY TA 2015-10 Yes





Finance News Release 2014-183• 2015 automobile deduction limits

and expense benefit rates forbusiness

SOR/2015-122Published in

Canada GazettePart II

(17 June 2015)

N/A Yes

Proposed regulations amendingthe income tax regulations• Mandatory electronic filing −

Prescribed information returns

SOR/2015-140Published in

Canada GazettePart II

(1 July 2015)

N 119-13 Yes





Legislative proposals – FinanceNews Release 2013-093FAPI stub period amendment only– for ITA s. 91(all other amendments are eitherpart of Bill C-43 (2014) or ofenacted Bill C-31 (for ITA s.241(9.5))

Legislativeproposals

(12 July 2013)

TA 2013-31 No

Federal consultations


Topics Status EY TaxAlerts/News

Captive insurance(2015 Federal budget)

Draft legislative proposals released on31 July 2015

EY TA 2015-25EY TA 2015-30

Synthetic equity arrangements(2015 Federal budget)

Draft legislative proposals released on31 July 2015

EY TA 2015-25EY TA 2015-33

Small business deduction: Activeversus investment business(2015 Federal budget)

Consultation opened 21 April 2015(submissions close 31 August 2015)

EY TA 2015-25




Tax planning by multinationalenterprises(2014 Federal budget)

Consultation paper11 February 2014

(submissions closed 11 June 2014)

TA 2014-10TA 2014-15

Treaty shopping (round 2)(2014 Federal budget)

Consultation paper11 February 2014

(submissions closed 12 April 2014)

Implementation deferred29 August 2014

(Awaiting OECD/G-20 BEPS workrecommendations made in Sept. 2014)

TA 2014-10TA 2014-15




Eligible capital property(2014 Federal budget)

Legislative proposals to be released forcomments (confirmed in 2015 federal

budget)

TA 2014-10

Non-profit organizations(2014 Federal budget)

Consultation paper to be released forcomments

TA 2014-10

Joint ventures(2014 Federal budget)

Legislative proposals to be released forcomments

TA 2014-10

Other federal developments

► Tax treaties

► Canada–New Zealand: Entry into force (26 June 2015)

► Tax information exchange agreements (TIEAs)

► Canada–Cook Islands: Signature (15 June 2015)

► Multilateral Competent Authority Agreement (2 June2015)

► Social security agreements

► Canada–India: Entry into force (1 August 2015)


BEPS developments

► No discussion draft released

► Release of public comments received for discussion drafts

► Action 6 – Treaty abuse (22 May 2015) EY INT 132-15

► Action 7 – Artificial avoidance of PE status (15 May 2015)EY INT 124-15

► Action 8 – Transfer pricing: hard-to-value intangibles (4 June2015) EY INT 136-15

► Automatic exchange of financial account information: 3documents released (7 August 2015)


BEPS Developments – Status

Actions DiscussionDraft

Publicconsultation

Report(interim)

Report(final)

1 – Digital economy March 2014 April 2014 Sept. 2014

1 – International VAT guidelines Dec. 2014 Feb. 2015

2 – Hybrid mismatch arrangements March 2014 May 2014 Sept. 2014

3 – CFC rules April 2015 May 2015

4 – Interest deductibility Dec. 2014 Feb. 2015

5 – Harmful tax practices – – Sept. 20146 – Treaty abuse• Revised discussion draft• Follow-up discussion draft• First discussion draft

May 2015Nov. 2014

March 2014

NoneJan. 2015April 2014 Sept. 2014

7 – PE status• Revised discussion draft• First discussion draft

May 2015Oct. 2014

NoneJan. 2015




Publicconsultation

Report(interim)

Report(final)

8-9-10 – Transfer pricingguidelines (TPG) chapter I (incl.,risk, recharacterization, andspecial measures)

Dec. 2014 March 2015

8 – Transfer pricing: intangibles• Hard-to-value intangibles• Cost contribution arrangement

(TPG chapter VIII)

June 2015April 2015

6-7 July 20156-7 July 2015

Sept. 2014

10 – Transfer pricing: other high-risk transactions• Low value-adding intra-group

services (TPG chapter VII)• Cross-border commodity

transactions• Profit splits

Nov. 2014

Dec. 2014

Dec. 2014

March 2015

March 2015

March 2015




Publicconsultation

Report(interim)

Report(final)

11 – Data analysis April 2015 May 201512 – Agressive tax planningarrangements

March 2015 May 2015

13 – Transfer pricingdocumentation and country-by-country (CbC) reporting

Jan. 2014 May 2014 Sept. 2014

Implementationguidance onproposals

(Feb. 2015)

Implementationpackage for CbC

reporting(June 2015)

14 – Dispute resolution Dec. 2014 January 201515 – Multilateral instrumentfor amending tax treaties

– – Sept. 2014


Provincial developments

► Quebec

► Information Bulletin 2015-4 (18 June 2015)

► Technical changes: e-business development tax credit, film productionservices tax credit, damage insurance tax credit, R&D tax credit

► Harmonization: 2015 and 2014 federal budget measures

► Bill 49 re joint management of St. Lawrence Gulf’s petroleumresources (1st reading: 11 June 2015)

► O.C. 586-2015 re tax evasion and non-reported work (15 July2015)



► British Columbia

► Regulation 100/2015 re natural gas tax credit rate increase (5June 2015)

► Regulation 101/2015 re LNG income tax (5 June 2015)

► Regulation 118/2015 re training tax credit prescribed programs (16June 2015)

► Changes to film and television credits re animation productions (26June 2015)



► Manitoba

► Regulation 128/2015 re small business venture capital tax creditexpansion (31 July 2015)

► Nova Scotia► Regulation 269/2015 re the digital animation tax credit details and

eligibility (26 June 2015)

► Ontario► ORPP details released (11 August 2015)


Provincial legislative update – 2015 Budget bills

Jurisdiction Income tax related2015 Budget implementation bills

Status Subst.Enacted

?Alberta An Act to Renew Democracy in Alberta – Bill 1

An Act to Restore Fairness to Public Revenue– Bill 2

Royal assent(29/06/2015)Royal assent(29/06/2015)

Yes

Yes

BritishColumbia

Budget Measures Implementation Act, 2015 –Bill 10

Royal assent(25/03/2015)

Yes

Manitoba The Budget Implementation and Tax StatutesAmendment Act, 2015 – Bill 36

First reading(09/06/2015)

Yes

NewBrunswick

An Act to Amend the New Brunswick IncomeTax Act – Bill 34An Act to Amend the Small Business InvestorTax Credit Act – Bill 35


Yes




Status Subst.Enacted

?Newfoundlandand Labrador

An Act to Amend the Income Tax Act, 2000 –Bill 6An Act to Amend the Income Tax Act, 2000,No. 2 – Bill 12


Yes

Yes

NorthwestTerritories

No personal or corporate income tax changes n/a n/a

Nova Scotia Financial Measures (2015) Act – Bill 108 Royal assent(11/05/2015)

Yes

Nunavut No personal or corporate income tax changes n/a n/aOntario Building Ontario Up Act (Budget Measures),

2015 – Bill 91Royal assent(04/06/2015)

Yes




Status Subst.Enacted?

Prince EdwardIsland

An Act to Amend the Income Tax Act – Bill8


Yes

Quebec No budget implementation bill introduced

Saskatchewan The Income Tax Amendment Act, 2015 –Bill 178


Yes

Yukon Act to Amend the Income Tax Act and theYukon Child Benefit Regulation – Bill 86


Yes


Upcoming events

► Federal

► General election: 19 October 2015

► BEPS

► Final reports in time for 8 October 2015 G20 meeting


Upcoming events

► Alberta

► New budget in fall 2015

► Quebec

► Enactment of outstanding bills (e.g., Bill 13 and Bill 39)

► Taxation review follow-up


CRA Administrative UpdateCarolyn Hurst


Carolyn Hurst ─ CRA administrative update

► Carolyn is a senior manager in EY’s Toronto Transaction Tax practice.

► Carolyn’s focus is structuring and implementing public and private mergers,acquisitions, financings and reorganizations in a variety of industries.

Carolyn Hurst, CPA, CA

Senior Manager




Agenda

► 2015-0581501C6 – Upstream loans

► 2015-0581611C6 – Foreign affiliates – surplusadjustments

► 2015-0581641C6 – Paragraph 111(4)(e) designations andsection 212.3

► 2014-0529371E5 – T1135 reporting for emigrant

► 2013-0484181E5 – Deemed stock option benefit on death


2015-0581501C6 – Upstream loans

Issues

► CRA document deals with whether a deduction isavailable under ITA s. 90(9) in three different scenarios.


2015-0581501C6 – Upstream loans:Scenario 1

Facts

► In 2013, FA made a US$100 loan (“Loan 1”)to Canco.

► FA’s currency for surplus purposes is US$.

► At the “lending time”, FA had exempt surplusand net surplus of US$100.

► In 2014, FA paid a dividend of US$50 at atime it had exempt surplus and net surplusof US$150 (no ITR 5901(2)(b) electionmade).

► Loan 1 is not repaid within 2 years.

► ACB of FA shares is nil.


Canco

FA

Loan 1


Issues

► In 2014, Canco will have an income inclusion for the C$equivalent (assume C$63) of the US$50 dividend.

► Is Canco able to claim a deduction in each of 2013 and2014 under ITA s. 90(9)(a)(i)(A) for the C$ equivalent(assume C$125) at the “lending time” of Loan 1?

► Will Canco be entitled to a deduction in computing its2014 taxable income of C$63 under ITA s. 113(1)(a)?


2015-0581501C6 – Upstream loans:Scenario 1CRA’s position► It is consistent with the object and spirit of the upstream

loan rules to allow taxpayers to take a flexible orderingapproach with respect to surplus.

► In this case, the CRA would consider a last-in, first-outordering approach to give an appropriate result.

► Canco would be entitled to a ITA s. 90(9) deduction inboth 2013 and 2014 in respect of Loan 1.

► There is nothing in ITA s. 90 that impacts the availability ofa deduction under ITA s. 113(1); as such, Canco would beentitled to a deduction of C$63 for the dividend received in2014.



Facts► In 2013, FA made a US$100 loan (“Loan 1”)

to Canco.► FA’s currency for surplus purposes is US$.► At the “lending time”, FA had exempt surplus

of US$100; exempt surplus decreased toUS$60 due to a loss incurred in 2013.

► ACB of FA shares is C$63 as a result ofshare subscription in 2014 (prior todividend).

► In 2014, FA paid a dividend of US$50(C$63) and elects under ITR 5901(2)(b)such that the dividend is deemed to be paidout of pre-acquisition surplus.

► Loan 1 is not repaid within 2 years.


Canco

FA

Loan 1


Issues

► Is Canco able to claim a deduction in each of 2013 and2014 under ITA s. 90(9)(a)(i)(A) of C$125?

► Is Canco able to claim a deduction in computing its 2014taxable income of C$63 under ITA s. 113(1)(d)?



CRA’s position► Facts are less sympathetic than in Scenario 1.

► Absent tax avoidance activity, a ITA s. 90(9) deduction ofC$125 would be available in both 2013 and 2014.► Reduction of surplus resulting from a loss is not an event

contemplated in either ITA ss. 90(9)(b) or (c).

► Measure surplus at the dividend time and not any time in asubsequent year in which an ITA s. 90(9) deduction is claimed tooffset a ITA s. 90(12) inclusion.

► The conditions for making an ITR 5901(2)(b) electionwould be met; the provisions of ITA s. 90 in no way affectthe surplus balances of a foreign affiliate.



Facts

► In 2013, FA made a US$100 loan (“Loan 1”)to Canco.

► At the time of the loan, the ACB of FA sharesis C$63.

► FA made a second loan (“Loan 2”) of US$50in 2014.

► FA’s currency for surplus purposes is US$.

► At the “lending time”, FA had exempt surplusand net surplus of US$100. No additionalsurplus is generated.

► Loan 1 and Loan 2 are not repaid within 2years.


Canco

FA

Loan 1

Loan 2


Issues

► Is Canco able to claim a deduction of C$125 in 2013 and2014 under ITA s. 90(9)(a)(i)(A) in respect of Loan 1?

► Is Canco able to claim an additional deduction of C$63 in2014 under ITA s. 90(9)(a)(i)(D) on the basis that it couldhave made an election under ITR 5901(2)(b) in respect ofLoan 2?


2015-0581501C6 – Upstream loans:Scenario 3CRA’s position► Similar to a question addressed at the 2013 IFA

conference re: claiming a notional ITR 5901(2)(b) electionto substantiate a claim under ITA s. 90(9) (see CRAdocument 2013-0483791C6 - Question 5(a)).

► CRA confirmed that a taxpayer would be entitled to rely onITA s. 90(9)(a)(i)(D) if a ITR 5901(2)(b) election wouldhave been available had the notional dividend been a realdividend.

► Canco would be entitled to a deduction of C$63 under ITAs. 90(9) by virtue of ITA s. 90(9)(a)(i)(D).

► Canco may continue to rely on ITA s. 90(9)(a)(i)(A) inrespect of Loan 1.


2015-0581611C6 – Foreign affiliates –Surplus adjustments

Issue► Whether a deficit in a foreign affiliate that ceases to exist

in an absorptive merger reduces both the surplusaccounts of a merged affiliate and a subsidiary affiliate.



Facts

► FA1 and FA2 merge to form “Merged FA”.

► Upon the merger, FA2 ceases to exist.

► Merger qualifies as a “foreign merger” asdefined in ITA s. 87(8.1).

► Immediately prior to the merger:

► FA1 had exempt surplus of $200

► FA2 had an exempt deficit of $125

► FA3 had exempt surplus of $150

► Shares of FA3 become shares of Merged FAas a result of the merger.


Canco

FA1

FA2

FA3


► ITR 5905(3) ‒ Opening surplus balances of Merged FAequals the total surplus balances of the predecessorcorporations immediately before the merger.

► Reg. 5905(7.2) ‒ Applies when an upper-tier foreignaffiliate has an exempt deficit and any shares of a lowertier foreign affiliate in the same corporate chain areacquired by the corporation or by another foreign affiliateof the corporation. ITR 5905(7.2) results in the reductionof the exempt surplus balance of the lower-tier affiliate,and the reduction of the exempt deficit balance of theupper-tier affiliate.



CRA’s position

► Intended that the adjustment to the deficit of FA2 underITR 5905(7.2) should have effect before the operation ofITR 5905(3).

► The exempt deficit of FA2 would be reduced by $125.

► The exempt surplus of FA3 would be reduced to $25.

► Merged FA's opening exempt surplus is $200.


2015-0581641C6 ‒ Paragraph 111(4)(e)designations and section 212.3

Issue► Whether a designation made pursuant to ITA s. 111(4)(e)

results in the application of the foreign affiliate dumpingrules in ITA s. 212.3.



Facts

► Canco was controlled by a non-resident corporation suchthat it was a foreign controlled corporation resident inCanada (“CRIC”).

► Canco held the common shares of an FA.

► Control of Canco was acquired.

► Following the AOC, Canco made a ITA s. 111(4)(e)designation in respect of the common shares of the FAsuch that Canco was deemed to have disposed of, andreacquired, the FA shares immediately before the AOC.



CRA’s position

► The deemed reacquisition of the FA would constitute an“investment in a subject corporation made by a CRIC” asdescribed in ITA s. 212.3(10)(a).

► The exception described in ITA s. 212.3(18)(a) would notapply given that the CRIC would not be related to itself.

► Conditions in ITA s. 212.3(1)(b) would be met, and (to theextent that ITA s. 212.3(16) would not apply) ITA s.212.3(2)(a) would apply to deem a dividend to be paid bythe foreign controlled CRIC to its old parent.


2015-0581641C6 ‒ Paragraph 111(4)(e)designations and section 212.3CRA’s position

► However, the CRA’s view is that the amount of thedeemed dividend would be equal to nil.

► ITA s. 212.3(2)(a) would be read to conclude that thedeemed reacquisition of the shares of a subjectcorporation by a CRIC would result in no amount of adeemed dividend being paid by a CRIC to a parent.

► The deemed disposition and reacquisition of sharespursuant to ITA s. 111(4)(e) would not constitute a transferof any property by the CRIC for purposes of ITA s.212.3(2)(a), and would not constitute any of the otheramounts referred to in ITA s. 212.3(2)(a).


2014-0529371E5 – T1135 reporting foremigrant

Issues

► Do individuals who emigrate during the year have tocomplete the T1135 based on the calendar year or on theperiod up to the date of emigration?

► Whether or not an individual must report specified foreignproperty that was acquired after emigration but before theend of the taxation year.


2014-0529371E5 – T1135 reporting foremigrant

CRA’s position► CRA will require the emigrant’s specified foreign property

information only for the part of the year during which theindividual is resident in Canada, even though the Actallows the CRA to collect this information for the fullcalendar year.

► Not required to include on Form T1135 information withrespect to property acquired after the date of emigration.

► Where ITA s. 128.1 applies to deem the individual to havedisposed of the property immediately prior to emigrating,the property’s cost amount at the end of the taxation yearwould be recorded as nil.


2013-0484181E5 – Deemed stock optionbenefit on death

Issue

► Whether an election under ITA s. 110(1.1) may be madeby an employer in a situation where ITA s. 7(1)(e) appliesafter 4 March 2010.


2013-0484181E5 – Deemed stock optionbenefit on death

CRA’s position

► CRA now accepts that an election may be made pursuantto ITA s. 110(1.1) to allow a deduction pursuant to ITA s.110(1)(d) where ITA s. 7(1)(e) applies (and the otherconditions of ITA s. 110(1)(d) are met).

► Previously, the CRA stated (docs. 2011-0423441E5 and2009-0327221I7), that the deduction under ITA s.110(1)(d) could not be claimed where the taxable benefitis deemed to have been received by the deceasedemployee under ITA s. 7(1)(e), even if the deceased’sestate or a beneficiary of the estate subsequentlyexercised the option and acquired the securities.


Current casesDaniel Sandler


Daniel Sandler ─ Current cases

► Daniel’s practice at Couzin Taylor LLP focuses primarily on tax litigation, representing clients indisputes with the Canada Revenue Agency and the Ontario Ministry of Finance and before thecourts. Prior to joining Couzin Taylor, Daniel was a law professor at Western University and theUniversity of Cambridge. He has served as a consultant to the OECD, the Auditor-General ofCanada, and the Technical Committee on Business Taxation.

► He has written several books and numerous articles and spoken worldwide on various aspects oftax law and policy.

Daniel Sandler

Partner

Couzin Taylor LLP, Toronto



Recent cases – Agenda


►Demand for UTP working papers ‒ MNR v BP CanadaEnergy Company, 2015 FC 714

►Characterization of car lease payments ‒ GMAC LeasecoCorporation v The Queen, 2015 TCC 146

►Third party penalties ‒ Guindon v The Queen, 2015 SCC 41

►QSBC shares ‒ Pellerin v The Queen, 2015 TCC 130

►Implied waiver ‒ Remtilla v The Queen, 2015 TCC 200

MNR v BP Canada Energy Company,2015 FC 714 – Overview

► Application by MNR under ITA s. 231.7 to compelthe taxpayer, a publicly traded company, to disclose itsUTP working papers


BP Canada – Facts

► Taxpayer is a public corporation and is auditedby the CRA on an annual basis as part of its large fileaudits

► MNR requested taxpayer’s unredacted UTP workingpapers (the “Issues Lists”) in the course of its audit of the2005-2007 taxation years in order to assist in the audit ofthose years and subsequent years

► Taxpayer argued that the Issues Lists set out thesubjective assessment by the taxpayer of its uncertain taxpositions and while the ITA requires self-assessment oftaxes, it does not require self-audit


BP Canada – Issues

► MNR and the taxpayer agreed that the Issues Listsprovides a “roadmap” to target audit resources on issuesof concern

► Can the Minister compel the disclosure of UTPworking papers to assist in future audits?

► Should the Court exercise discretion not to compeldisclosure?

► Is the demand for disclosure unfair to the taxpayer?


BP Canada – Reasons

► Even though the Minister may not need theIssues Lists to conduct its audit, it wanted them toexpedite the audit process (current and future)

► The Issues Lists were prepared by the taxpayer. Theirdisclosure is not a form of “self-audit”

► Even though the Issues Lists were required to beprepared under authority other than the ITA (i.e., as apublic corporation as part of preparing its audited financialstatements), they are an important tax record

► The Issues Lists relate to accountability under the ITA andamounts payable under the ITA


BP Canada – Reasons

► MNR’s conduct did not amount to bad faith.It was made in the course of an audit and there was noevidence of a deliberate attempt to mislead the taxpayer

► The fact that not all taxpayers are required to prepare taxaccrual working papers does not amount to inequitabletreatment of this taxpayer

► The disclosure is necessary so that the CRA can discoverand scrutinize in a timely manner the uncertain taxpositions taken by the taxpayer


BP Canada – Lessons learned

► UTP working papers, like any other document preparedby a taxpayer, may require disclosure to the CRA (subjectto solicitor-client privilege)

► Interesting to see whether the CRA will broaden its policyto request UTP working papers as a matter of course

► Query whether the CRA’s requests will extend to auditor’sUTP working papers

► Taxpayer filed notice of appeal on 3 September 2015


GMAC Leaseco Corporation vThe Queen, 2015 TCC 146 – Overview

► Characterization to the taxpayer of excesskilometre charges received from car lessees on leasetermination and residual value support payments receivedfrom GM at start of lease


GMAC Leaseco – Facts

► Taxpayer is in the automobile leasing business

► Lease payments are based on three components:purchase price, residual value and interest rate

► Residual value affected by various factors, but two keyfactors are maximum permitted kilometres and lease’sterm

► Customer cannot negotiate interest rate or residual value

► At end of lease, if customer returns vehicle, taxpayer willimmediately sell it

► Monthly lease payment (simplified) =(purchase price – residual value) x (1 + interest rate)

# months in term



Excess kilometre charge► Customer has choice of low kilometre lease (20,000 km p.a.) or

standard lease (24,000 km p.a.)

► If customer expects to drive more than “standard”, can “buy”additional kilometres in advance at $0.08 per additional km: thetotal cost reduces the car’s residual value (and thereforeincreases lease payments)

► If customer returns vehicle at end of lease with more mileagethan permitted, customer must pay excess kilometre charge($0.12/km for low km lease; $0.10/km for standard lease)

► Taxpayer treated excess kilometre charge as part of proceedsof disposition of leased vehicle (therefore reducing UCC ofclass)



Residual value support payments► In an effort to increase vehicle leases, GM occasionally agreed to

support higher contract residual values (which would reduce leasepayments) and would pay an amount to the taxpayer at the start oflease as compensation

► In 2006, GM and taxpayer were sister corporations: during thisperiod, residual risk payment based on anticipated differencebetween inflated residual value and actual residual value.Taxpayer continued to bear residual risk and kept entire supportpayment even if customer chose to purchase vehicle

► In 2007, ownership changed such that taxpayer at arm’s lengthwith GM. For this year, taxpayer returned support payment ifcustomer purchased vehicle, and if vehicle returned and sold,there was a “true up payment” (i.e., taxpayer did not bear residualrisk)


GMAC Leaseco – Issues

► Are excess kilometre charges income under ITA s. 9or proceeds of disposition of depreciable property?

► Are residual value support payments income under ITA s.9 or a reduction to the cost (and UCC) of depreciableproperty?


GMAC Leaseco – Reasons

Excess kilometre charge

► Taxpayer argued that payment was compensation for adecrease in value of the returned vehicle and should be treatedon capital account

► While Court agreed that the payment was compensation foranticipated decrease in the value of the vehicle, it was nodifferent from other factors (residual value or up-front purchaseof additional kilometers) that affected the amount of the leasepayment (which was clearly income under ITA s. 9)

► Taxpayer failed to demolish the CRA’s assumption that theexcess kilometre charge exceeded the actual impact of theexcess kilometres on the car’s value at the end of the lease


GMAC Leaseco – Reasons

Residual value support payments

► Taxpayer argued payment was income under ITA s. 12(1)(x) asan inducement to purchase the vehicle, but could elect toreduce cost of vehicles under ITA s. 13(7.4)

► According to the Court, these payments were designed toreplace lost leasing income, and therefore income underITA s. 9

► During wholly-owned period, income in year received

► During arm’s length period, income at end of lease after true-up(because no entitlement to keep all or any of the support paymentuntil vehicle sold)


Guindon v The Queen, 2015 SCC 41 –Overview

► Whether third-party penalties in ITA s. 163.2constitute an offence subject to procedural safeguards ofs. 11 of the Charter

► Whether proceeding is, by its very nature, criminal; or

► Where a “true penal consequence” flows from the sanction


Guindon – Facts

► Taxpayer was a lawyer practising mainly family lawwith no expertise in tax law

► In 2001, taxpayer was approached by promoters of aleveraged donation program (involving donations of timeshare units) to provide a tax opinion (her fee: $1,000)

► Taxpayer was also the president and administrator of aregistered charity, and in that capacity signed charitabledonation tax receipts in respect of the program

► Scheme was a sham – there were no timeshare units andno transfer to the charity. However, 135 tax receiptssigned by taxpayer for total receipted amount of$3,972,775


Guindon – Facts

► CRA assessed penalties under ITA s. 163.2(4)totaling $546,747

► Taxpayer successfully appealed to TCC on basis that ITAs. 163.2 contravened s. 11 of the Charter (Courtconcluded that if the penalty was civil, it did apply)

► FCA allowed Crown’s appeal on basis that failure to servenotice of a constitutional question was fatal to TCC’sjurisdiction

► SCC gave taxpayer leave to appeal and statedconstitutional questions; consequently, Attorney Generalof Canada and provincial attorneys general were givennotice of the SCC proceeding


Guindon – Issues

► Procedural issue: Should the SCC considerconstitutional question notwithstanding that notice of theconstitutional question was not properly given in lowercourts?

► Substantive issue: Does ITA s. 163.2 infringe s. 11 of theCharter (and if so, is the infringement protected by s. 1 ofthe Charter)?


Guindon – Reasons

► Majority concluded that the Court should exerciseits discretion to consider the substantive Charter question;minority disagreed.

► On substantive issue, the majority concluded:► Proceeding under ITA s. 163.2 was administrative and not

criminal in nature: it did not have the hallmarks of a criminalproceeding; its purpose was to promote honesty and detergross negligence (or worse) in the self-reporting income taxsystem

► Fine under ITA s. 163.2 is not a “true penal consequence”: themagnitude of the fine is in keeping with the nature of themisconduct and necessary to serve the regulatory purpose ofcompliance


Guindon – Lessons learned

► The penalty under ITA s. 163.2 certainly has teethand fine can significantly exceed fees earned by thirdparty

► Taxpayer can apply for fairness relief under ITA s.220(3.1)


Pellerin v The Queen, 2015 TCC 130 –Overview

► Whether an infant beneficiary under a trust whosells shares distributed from trust prior to the age of twomeets the 24-month holding period test for QSBC shares


Pellerin – Facts

► Taxpayer born on 8 March 2007 (conceived inJune 2006)

► In October 2008, family trust distributed shares of a SBCthat it had owned for at least 24 months to the taxpayer,who sold them the following day

► In November 2008, family trust distributed shares ofanother SBC that it had owned for at least 24 months tothe taxpayer, who sold them the following day


Pellerin – Issue

► Did the shares meet the test in para. (b) of QSBCdefinition in ITA s. 110.6(1), which requires that throughoutthe 24 months prior to the sale, the shares were notowned by anyone other than the taxpayer or a relatedperson?

► Under ITA s. 110.6(14)(c), a trust is deemed to be relatedto any person “for any period throughout which” theperson was a beneficiary of the trust

► Article 5.1 of the trust deed provided that the beneficiariesincluded the children of Mr. Pellerin “from their birth oradoption”


Pellerin – Reasons

► Jurisprudence interpreting the Civil Code hasheld that legal personality of a child born live and viable isretroactive to the date of conception

► Taxpayer “was retroactively considered a beneficiary,indeed a person, as of his conception for the purposes ofall generally applicable public laws, if that was beneficialfor [the taxpayer]”

► Art. 5.1 of the trust deed cannot be read as inconsistentwith the Civil Code

► Obiter: The “related person” test is determined only at thetransaction date and need not have been maintainedthroughout the 24 months


Remtilla v The Queen, 2015 TCC 200 –Overview

► Whether T1 adjustment requests constitutean implied waiver for the purposes of ITA s. 152(4)(a)(ii)


Remtilla – Facts

► Taxpayers bought and sold stock options► In 2005-2007, reported gains/losses on capital account► In 2008 return, reported significant loss on income

account (2009-2010 losses also reported on incomeaccount)

► Taxpayers filed T1 adjustment requests for 2005-2007with 2008 return altering reporting to income account

► CRA reassessed 2008-2010 taxation years denyinglosses on income account

► In 2012, taxpayers negotiated a settlement for all taxationyears on basis that all years on income account and thenclaimed that reassessments of 2006-2007 statute-barred


Remtilla – Issue

► Did the T1 adjustment requests filed in respect ofthe 2006-2007 taxation years constitute implied waivers?

Note: 2006 and 2007 were years in which the taxpayersreported gains from trading whereas 2005 was a loss year(hence no objection was filed in respect of 2005)


Remtilla – Reasons

► Although there is a prescribed form for a waiver(T2029), another document may be accepted as a waiverprovided that it has all of the prescribed information and isintended by the taxpayer to be a waiver

► The T1 adjustments included all prescribed information

► Taxpayer fully participated in settlement negotiations andwas represented by counsel: “A reasonable personobserving [the taxpayer’s] interactions with the CRA in2009 and in 2012 would infer that he always intended theT1 Adjustment Requests to be acted upon, even after the2006 and 2007 years became statute-barred.”


Update on Supreme Court of Canada Cases

Attorney-General of Canadaet al v. Chambre des notairesdu Quebec et al

Privilege - constitutionality of ss.231.2(1), 231.7, 232(1) readvocates and notaries in Quebec

To be heard 3 November2015.

ConocoPhillips CanadaResources Corp. v. MNR

Judicial review - mailing of notice ofassessment

Materials on application forleave submitted to judges.

Guindon v. The Queen Application of third party penalties Appeal dismissed.

The Jean Coutu Group(PJC) Inc. v. AttorneyGeneral of Canada, et al

Rectification - unintended taxconsequences of transaction

Application for leave toappeal filed.

Johnson v. The Queen GST judicial review - assessmentand collection

Leave to appeal dismissed.

Lyrtech RD Inc. v. The Queen CCPC status - s.251(5)(b) andcontingent rights of trustbeneficiaries

Leave to appeal dismissed.

Update on Supreme Court of Canada Cases

Martin v. The Queen Costs - award in excess of tariff Application for leave toappeal filed.

MNR v. Thompson Privilege - lawyer's accountsreceivable listing

Heard 4 December 2014.

Update on Federal Court of Appeal Cases

0742443 B.C. Ltd. v TheQueen

Business vs property income - boatstorage

To be heard 28 October2015.

1057513 Ontario Inc. v. TheQueen

S. 129(1) dividend refund - filingdeadline

To be heard 28 September2015.

1455257 Ontario Inc. v TheQueen

Motion - whether dissolvedcorporation must be revived tocontinue appeal

Agreement on contents ofappeal book filed 17August 2015.

9016-9202 Quebec Inc. et alv. The Queen

Personal services business -garbage collection workers

Notice of discontinuancefiled 3 June 2015.

9183-4507 Quebec Inc. et alv. The Queen

Jeopardy collection order -piercing of corporate veil

Notice of appeal filed.

The Queen v. Agnico-EagleMines Limited

Foreign exchange gains -conversion of US-denominateddebentures

Requisition for hearingfiled 15 June 2015.

Alceus v. The Queen GST - extension of time to fileobjection to assessment



Baker v. The Queen RRSP strip - s. 146(9) incomeinclusion

Notice of status reviewfiled 29 June 2015.

Bakorp Management Ltd. v.The Queen

S. 187(2) - "day of payment" forinterest calculation

Requisition for hearingfiled 19 August 2015.

BP Canada EnergyCompany v. MNR

s. 231.2 requirement – tax accrualworking papers


The Queen v. BurlingtonResources Finance Companyet al

Transfer pricing - motion to compelCrown to answer discoveryquestions

Requisition for hearingfiled 12 August 2015.

Coast Capital SavingsCredit Union v. The Queen

RRSP strip - whether financialinstitution can base pleadings onsham doctrine


The Queen v. David et al Charitable donation - whetherinflated receipt is a benefit thatnegates a gift

Heard 7 May 2015.

Devon Canada Corporation v.The Queen

Notice of objection - largecorporation rules

Heard 9 June 2015.


The Queen v. Fio Corporation Pre-trial discovery - impliedundertaking rule

Heard 30 April 2015.

The Queen v. Gariepy et al Directors’ liability – effectiveness ofunsigned resignation

Respondent'smemorandum of fact andlaw filed 13 July 2015.

General Motors of CanadaLimited et al v. MNR

Judicial review - retroactive changein calculation method of taxablebenefits

Appeal held in abeyanceuntil 30 October 2015;parties to advise on statusof proposed settlement.

Hedges v. The Queen GST - whether dried marihuanaqualified as a zero-rated supply

Requisition for hearing filed11 June 2015.

Humby et al v. The Queen et al GST - action for damages re CRAcollection actions

To be heard 14 October2015.

Imperial Oil Resources Limitedet al v. Attorney General

Judicial review - whether remissionequivalent to refund of taxoverpayment

Requisition for hearing filed29 April 2015.

Kruger Incorporated v. TheQueen

Foreign exchange contracts -mark to market accounting

Appeal book filed 21August 2015.


Kruger Wayagamack v. TheQueen

Control - de facto, de jure, anddeemed control

Appellant's memorandumof fact and law filed 10August 2015.

Minister of NationalRevenue v. Lee

Compliance order - properidentification of taxpayer


Liu v. The Queen GST - whether taxpayer entitled toGST/HST new housing rebate

Requisition for hearingfiled 10 July 2015.

Marzen Artistic Aluminum Ltd.v. The Queen

Transfer pricing - marketing andsales services

Requisition for hearing filed 6May 2015.

McGillivray Restaurant Ltd. v.The Queen

Small business deduction - de factocontrol of corporation

Requisition for hearing filed27 May 2015.

McKesson CanadaCorporation v. The Queen

Transfer pricing – receivablesfactoring

Request for matter to be heldin abeyance for 90 days filed1 May 2015.

MNR v. McNally Duty to assess "with all duedispatch"



Olympia Trust Company v. TheQueen

S. 116 - whether trustee of self-directed RRSP is "purchaser"

To be heard 2 November2015.

Pareto Corporation et al v.MNR et al

Employee vs. independentcontractor - field sales agents,location scouts and promotionagents


Pépinière A. Massé Inc. v. TheQueen

GST - invoices of accommodation To be heard 14 September2015.

R&D PRO-innovation Inc. v.The Queen

SR&ED - whether food productdevelopment involvedtechnological uncertainty


The Queen v. Repsol CanadaLtd.

CCA - whether LNG terminal andjetty qualify as Class 43 assets.

Agreement on contents ofappeal book filed 12 May2015.

The Queen v. Repsol CanadaLtd. et al

Costs - substantial indemnitycosts for fees incurred afterissuance of settlement offer

Agreement on contents ofappeal book filed 13August 2015.


Revcon Oilfield ConstructorsIncorporated v. MNR

Solicitor-client privilege - taxplanning


SCDA (2015) Inc. [StandardLife] v. The Queen

S. 138(11.3) asset bump - whetherlife insurer carrying on business inBermuda

Amended notice of appealfiled 31 July 2015.

Solutions MindReady R&D Incv. The Queen

CCPC status – whether publiccorporation exercised de factocontrol of R&D corporation

Appeal discontinued.

The Queen v. Superior PlusCorp.

Discovery - motion to compeltaxpayer to produce documentscontaining tax advice

Respondent'smemorandum of fact andlaw filed 21 August 2015.

Szymczyk v. The Queen Estoppel - retroactive change incalculation method of taxablebenefits [related to General Motorsappeal - see above]

Appellant's memorandum offact and law filed 29 May2015.

The Queen v. Tallon Medical expenses - travel to warmclimates in winter to reduce chronicpain

Appeal dismissed.


The TDL Group Corp. v. TheQueen

Interest deductibility - loans fromparent to acquire additionalcommon shares in wholly-ownedUS subsidiary

Appellant's memorandumof fact and law filed 24 July2015.

Recent Tax Alerts

EY TaxAlert No.

Title

2015-36 Recaptured input tax credits to be phased out inOntario

2015-37 CRA changes policy for approval of customizedforms

2015-38 Alberta increases corporate and personal incometax rates

2015-39 Prince Edward Island budget 2015–162015-40 CRA requests tax working papers2015-41 Measure to support the BC mining sector comes

into force


Recent Tax Alerts

EY TaxAlert No.

Title

2015-42 TCC rejects mark-to-market accounting for optioncontracts

2015-43 Quebec: meet the automobile insurance premiumtax remittance deadline

2015-44 Finance releases draft legislation for 2015 budgetand resource-related tax measures

2015-45 More clarification on tax withholding obligations fornonresident employers with frequent businesstravellers to Canada


Recent Tax Alerts

EY TaxAlert No.

Title

2015-46/47 CRA releases annual APA and MAP programreports

2015-48 Newfoundland and Labrador to raise HST by 2%


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