rules, tools and tips for the tax "dating" scene

LAIRD & COMPANY GAVIN LAIRD

Rules, Tools & Tips for the “Tax” Dating Scene:

Select Tax Timing Issues for Canadian Tax Practitioners

1

Outline: Caveats Background Rules Tools Tips Questions

Rules, Tools and Tips -

For the “Tax” Dating Scene

2

Background Timing affects everything Select topics covered today:

The dispute process Dealing with arbitrary assessments Dating documents Reassessments beyond the normal

reassessment period/waivers Other timing problems and potential

fixes including: Elections (including flow through

shares) Rectification/Recision orders



3

Caveats: As a tax litigator, I often see the world

through slightly more litigious eyes than many tax practitioners

People bring me their problems to solve and therefore I tend to anticipate more problems than may occur

Hopefully you will never need the ‘tools and tips’ provided today



4

Tax Disputes in a nutshell: A problem arises:

Usually by reassessment, sometimes by an ‘additional assessment’

A Taxpayer (including an Estate) has an opportunity to object [90 days + up to one year extension]

Rule 1: ALWAYS OBJECT Objections are often handled by

accountants Objections may be very sparse and should

ask for a copy of the audit file (exception = large corporations)

There is usually a one-year extension of time open for late objections

Rule 2: ALWAYS SEEK AN EXTENSION OF TIME IF POSSIBLE

Rules, Tools and Tips –


5

Going to Tax Court Whether bypassing the appeals division

(after 90/180 days for IT/GST) or Going to Tax Court after a confirmation,

RULE 3, don’t miss the client’s window of time to go to the Tax Court of Canada (generally 90 days, BUT 30 days for some motions watch out)

RULE 4 try for an extension of time if necessary – but don’t lose the client’s right to fight.



6

Tips for Objections and Appeals Don’t agree to assist if you don’t know the

timing Always check timing first Be careful not to rely upon oral

representations by the CRA



7

Tools if you find yourself ‘out’ of time Sometimes it is simply too late: an

objection or appeal has been missed and the year and 90 days appears to have passed without an extension request

Sympathy will not assist your client TOOL #1 – Mailing Fights Instead, ask the Minister to verify mailing

of the relevant notice. By putting mailing at issue, there is a chance the Minister will not be able to prove mailing and the time issue will be bypassed

The Minister has tools (registered mail = sufficient proof of mailing) that assist the Minister in proving mailing.

However, if the Minister can’t prove mailing, then the Minister cannot rely upon the ‘clock’ having run



8

Tool #2: Aallcann Wood Suppliers is a decision by former Chief Justice Bowman of the TCC

In the absence of a binding loss determination by the Minister, it is open for the TP to challenge the Minister’s calculation of loss for a particular year in another year in which the loss impacts on the taxes assessed.

Cited with strong approval by the Federal Court of Appeal in Canada v. Interior Savings Credit Union, 2007 FCA 151

In short, perhaps a ‘closed’ year can be addressed in an ‘open’ year



9

Arbitrary Assessments: Whether under the ITA or ETA, the

Minister can raise ‘arbitrary’ assessments The Minister often raises these

assessments in a non-filing context

RULE 5: Always file an objection to the arbitrary as well as any adjustment requests TIP: many accountants appear to advise taxpayers that if they file their returns the previous assessment will be corrected. This is not always true. If no objection is filed then the ‘window’ to dispute the arbitrary assessment technically closes.

TOOL: A Federal Court mandamus challenge for the Minister’s failure to assess with all due dispatch may resolve this issue (or at least draw in higher level officials to assist with making the decision to process the filed returns).



10

Dating of Documents

RULE 6: Never backdate a document Backdating is fraud and it can be

prosecuted Dating something effective as an at earlier

date to reflect something that occurred is normally acceptable (legal efficacy is a different issue).

It is very important that the reader is not mislead into thinking the earlier effective date is actual the date of signing.

Example: Effective May 10, 2014 Signed May 10, 2015.



11

Tips and Tools For Alleged Backdating of Documents Sometimes the Minister will take the

position that a document has been backdated Bekesinski v. the Queen (2 decisions)

Invite the Minister to have the document tested (RCMP/Border Services)

Look for third party corroboration (lawyers office/filing with Victoria? Etc…)

Make sure you know you invariable practices and that your clients know how serious these issues are

In the alternative, perhaps a legally ineffective document `unwinds’ a deal with different tax impacts (example of retroactive bare trust for share sale turned asset sale and GST period shift).



12

Reassessments Beyond the Normal Reassessment Period – 152(4) The normal reassessment period is three

years for most income tax matters (there are exceptions) and four years for GST

Rule 7: Do NOT sign waivers that are unrestricted in their scope

Tips: Make sure any waivers are limited in

their scope Consider not signing a waiver

(respectfully disagree with an unending audit)

Try to work with the CRA but if it is clear that audit is headed downhill, sometimes it is better to ‘crystalize’ the Minister’s errors so that efforts to reassess on alternative grounds are potentially blocked 152(9).



13

Tools for 152(4) assessments The Minister often raises assessments

beyond the normal reassessment period The standard for doing so requires a

‘misstatement’ that was wilful or attributable to carelessness or neglect

The case law in this area appears to be raising the bar on the onus issue: Vine Estate v. Canada , 2015 FCA 125

Make sure the Minister enunciates what the basis of the reassessment beyond the normal reassessment period was, doesn’t change that basis, and can prove that basis.

Make sure you clients: 1. Give you everything (failure to

disclose is carelessness and neglect); and

2. Review their returns (no matter how impractical this may be)

Ideally, confirm this in writing



14

Other Timing Issues Elections, Beyond Penalties Some timing issues are not subject to

penalties for late elections but rather are ‘closed’.

For example, the renounced expenses available for flow through share items are legislatively only available if the investor claims those amounts in the required timeline

In short, this can lead to a very bad result: no deduction, reduced ACB, double tax and the core element of the investment lost.

Similarly, other elections such as CDA elections can sometimes be overcome by unforeseen timing problems (such as reassessment of amounts thought to be capital in nature after the fact with broader consequential impacts)



15

Tip: if the system seems unfair from a policy perspective, there usually is a fix For example, if the ACB of flow through

shares has been confirmed by the Minister as reflecting renunciation and cannot be attacked (152(8)), then this should assist the Minister in allowing the otherwise permitted deduction.

TOOL: Rectification and Remission orders are beyond the scope of today’s talk but are useful tools if the ‘form’ is a mistake For example, CDA elections are routinely

rectified. More complicated problems may also be the subject of rectification or remission orders, for example, Pallen Trust in the 75(2) context: 2015 BCCA 222



16

Thanks very much Questions?



17

Laird & CompanyTax & General Litigation

www.lairdlaw.ca

T: 604-460-0051F: 604-460-0053

Gavin Laird: [email protected]



18

rules, tools and tips for the tax "dating" scene

Business