Reassessment vs Additional Assessment – Large Corporations

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Reassessment vs Additional Assessment – Large Corporations

Rio Tinto Alcan Inc v The Queen, 2014 TCC 288

At issue was whether the actions of the Minister were a “Reassessment” or an “Additional Assessment”, and the effect of each for a large corporation’s appeal/objection to the Minister’s view as to its tax liability.

The Crown argued that the actions it had taken were a reassessment and not an additional assessment.

The Court reviewed the decisions in Parent v Canada, [2003] TCJ No 445 (TCC), Walkem v MNR, 71 DTC 5288 (FC), and Mucien Remillard v The Queen, 2011 TCC 327.  The court also referred to two articles (C. Campbell, Administration of Income Tax 2013, cited by the Supreme Court of Canada in Revenue Agency v Environmental Services AES , [2013] 3 SCR 859 (2013) page 398; B. Russell, ” Assessments, Reassessments and Waivers, 2012 Tax Dispute Resolution Compliance and Administration “, Conference Report (Toronto: Canadian Tax Foundation, 2013) 26: 1-15; and D. Smith “Reassessments, Waivers, Amended Returns and Refunds” Corporate Management Tax Conference 1988, on page 8: 8).

The court held that the distinction between a reassessment and an additional assessment looks at whether there was an increase in the total taxable income of an assessment (indicating a reassessment) or not (an additional assessment).

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Waivers of Limitation Periods in the Income Tax Act

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Waivers of Limitation Periods in the Income Tax Act – Judicial Interpretations and Approaches

Abstract

The Income Tax Act sets various time limited on actions by the Minister and the Taxpayer. These time limits are there to promote a balance between the need for proper administration of the Act in relation to each taxpayer’s affairs and certainty/finality for both the taxpayer and the Minister. One of such time period is the “normal reassessment period” found in section 152. The Act allows for a taxpayer to waive the normal reassessment period, thereby allowing the Minister to reassess the taxpayer beyond this time period.

This paper examines waivers of the normal reassessment period in the context of the Income Tax Act, examines the judicial interpretation and application of such waivers, and provides guidance for judges faced with waiver issue

Get the article here: http://ssrn.com/abstract=2508048

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“Insurable Employment” for Employment Insurance Purposes

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“Insurable Employment” for Employment Insurance Purposes

Sherman v MNR, 2014 TCC 292

At issue was whether a person would be considered to be employed in “insurable employment” as for purposes of the Employment Insurance Act, where the employment was continued under the terms of a settlement agreement but no duties of employment were required.

Justice Boyle held that this question has already been answered definitively by the FCA – Canada v. Verreault, 86 NR 389 (1986); Canada v. Sirois, 243 NR 212 (1999); Serafini v. M.N.R., 89 DTC 653 – and the TCC – Canadian Pacific Ltd. v. M.N.R., [1995] T.C.J. No. 1755; Community Living Huntsville v. M.N.R., 2003 TCC 932; Wronski v. M.N.R., [1999] T.C.J. No. 666 (QL).

The court reminded us that for tax law, form matters (HMQ v. Friedberg, 92 DTC 6031 at 6032), and in this case the settlement agreement stated that the employment continued.  Although the Employment Insurance Act includes the phrase “contract of service” this does not change the analysis where the contract is continued through another agreement.

The court concluded with this comment at paragraph 22:

[22]        The law on the point in issue in this appeal is very clear and has been consistently applied by the courts. I am therefore reminded somewhat of the comments of Cory J. of the Supreme Court of Canada in Alberta Treasury Branches v. M.N.R., [1996] 1 S.C.R. 963, that “agile legal minds can probably find an ambiguity in as simple a request as “close the door please” and most certainly in even the shortest and clearest of the ten commandments”. If I may also paraphrase the comments of Stephen J. in In Re Castioni, [1891] 1 QB 149: On many occasions people try to misunderstand legislation that is easy to understand. In drafting legislation it is not enough to attain a degree of precision which a person reading in good faith can understand, but it is necessary to attain if possible a degree of precision which a person reading it otherwise cannot misunderstand. It is all the better if he cannot pretend to misunderstand.

It may be that the latter comments are not quite appropriate as it is part of the canons of statutory interpretation to both consider related statutes when interpreting words and phrases (so as to interpret them consistently) and to proceed on the basis that the legislator does not speak in vain (and therefore all words must be given meaning, and differences in wording and additional words be given meaning).   The addition of the phrase “contract of service” may well indicate the recognition by the legislators that a person can be employed under other contracts (for example a settlement agreement) but that this is not employment for purposes of employment insurance.

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Commissioned Sales Employee Deductible Expenses

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Commissioned Sales Employee Deductible Expenses

Perera v The Queen, 2014 TCC 280

The court had to determine whether expenses claimed by the taxpayer were deductible as employment expenses, and allowed some of the expenses (

FACTS

The Taxpayer was employed as a commissioned insurance sales representative. Though he had an office at the employers place of business, this was only to bring in clients.  He was expected to work away from the office – either from home of his car – and his T2200 (Declaration of Conditions of Employment Form) stated that he was required to pay his own expenses, work away from the employer’s place of business, pay for a cellphone, and pay other expenses for which he did not receive reimbursement or an allowance.

The taxpayer claimed expenses for: Motor vehicle; Meals, beverages, and entertainment; advertising and promotion; parking costs; supplies; phone, car rental; and travel (on the 407).

ANALYSIS

Justice Lyons reviewed the applicable law.  A commissioned sales employee, where required by the employer under a contract of employment to pay for the expenses incurred in the year in the court of employment, may deduct these expenses only to the extent allowed under Section 8 of the Income Tax Act.

Paragraph 8(1)(f) limits the deductions to the commission income earned – meaning that a loss cannot be created. Other conditions include:

  • The amounts must be expended by the employee in the year and for the purpose of earning income from employment;
  • the employee must be employed in the year in connection with the selling of property or negotiating contracts for the employer
  • the employee must ordinarily be required to carry on the duties of employment away from the employer’s place of business;
  • the remuneration must be wholly or partially through commission; and
  • the employee must not receive a non-taxable travel allowance.

Additional general limitations apply, including that the expense is deductible only if it was:

  • not an outlay, loss or replacement of capital or payment on account of capital;
  • not an outlay or expense that is not deductible pursuant to 18(1)(l) – maintenance of a yacht, camp, lodge, or golf course facility, or recreational, dining, or sporting membership fees or dues;
  • not an amount described in subparagraph 8(1)(f)(vii) in connection with standby charges for a vehicle; and
  • reasonable in the circumstances.

In looking for the purpose of an expense, the court has to look at the objective manifestations of purpose: Symes v Canada, [1993] 4 SCR 695; see also Arthurs v Canada, 2003 TCC 636.  Particularly, in differentiating personal from business purpose, the SCC referred to the comments of professor Brooks:

If a person would have incurred a particular expense even if he or she had not been working, there is a strong inference that the expense has a personal purpose. For example, it is necessary in order to earn income from a business that a business person be fed, clothed and sheltered. However, since these are expenses that a person would incur even if not working, it can be assumed they are incurred for a personal purpose – to stay alive, covered, and out of the rain.

Motor vehicle expenses are permitted by paragraph 8(1)(h.1) where the employee is required to carry on employment duties away from the employer’s place of business, and required to in fact pay for those expenses incurred while traveling for employment purposes.

Supplies expenses are permitted by paragraph 8(1)(i)(iii) when the supplied were consumed directly in the performance of the employment duties and the employee was required to pay for the supplies.

Meals, beverage, and entertainment expenses are affected by paragraphs 8(4), 67.1(1) and (2), and section 67 – The meal must be consumed during a period where the employee was required to be away, for no less than 12 hours, from the municipality where the employer’s establishment to which the employee normally reports to is located; the amount must be reasonable in the circumstances; and the amount allowed is 50% of the lesser of the amount expended or a reasonable amount.

The court also noted that claims for large amounts of personal expenses can cast doubt on the claims for expenses by a taxpayer: Chrabalowski v Canada, 2004 TCC 644.  The court concluded:

  • The cost for clothing and dry-cleaning, though necessary for the taxpayer to be well-groomed, is a personal-appearance expense related to personal choices in preparation for work – therefore non-deductible personal expenses;
  • expenses for vitamins, gym memberships, and spa treatments were admitted to be personal expenses, as were expenses for a vacuum cleaner, magic bullet, driveway sealing, his wife’s clothing, and the full amount of cable, home phone, and internet;
  • Expenses for a printer and laptop are non-deductible capital expenses;
  • claims for motor vehicle expenses are hard to claim without a vehicle log: Glawdecki v Canada, 2010 TCC 650;
  • single meals are personal expenses, and also the T2200 form indicated that the taxpayer was not required to be away from the municipality for more than 12 hours, therefore not deductible pursuant to subsection 8(4);
  • group meals and gift tickets to third parties were conceded to be 50% deductible;
  • Telemarketing expenses paid to a third party and proved by receipt were deductible;
  • All other expenses were not deductible.

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Cost Awards in the Tax Court of Canada

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Cost Awards in the Tax Court of Canada

Henco Industries Limited v The Queen, 2014 TCC 278

Justice Campbell J Miller granted the successful taxpayer lump sum costs in the amount $576,673  (45% of the actual costs incurred of $1,203,770).  The taxpayer was seeing 75% of actual costs ($959,345) while the crown argued either for costs based on tariffs ($27,550) or 20-25% of actual costs.

The court referred to the recent jurisprudence on cost awards in the TCC – Spruce Credit Union v The Queen, 2014 TCC 42Velcro Canada Inc. v The Queen, 2012 TCC 273Peter Sommerer v The Queen, 2011 TCC 212Jolly Farmer Products Inc. v Canada, 2008 TCC 693General Electric Capital Canada Inc. v Canada, 2010 TCC 490, and Dickie v The Queen), 2012 TCC 327 – and stated that Spruce provides a very good summary of the recent trends.

The court is “quite prepared to put side Tariff in favour of a more detailed analysis based on the factors set forth in Rule 147(1)” (para 2), in order to arrive at the estimate the court considers appropriate as a contribution towards a successful party’s solicitor-client costs: Consorzio del Prosciutto di Parma v Maple Leaf Meats Inc., 2002 FCA 417.

In reviewing the factors in Rule 147 the court noted:

  • The taxpayer, though not successful on all issues, was wholly successful on the major substantive issues;
  • The taxpayer had mixed success on the procedural issues, though wholly successful on the major procedural issue;
  • The amount of tax was significant;
  • The issues decided will have relevance beyond the taxpayer’s appeal;
  • The substantive and procedural issues were well-researched, well-presented, and well-argued by the parties;
  • Though not applicable here, a settlement offer is to be given significant weight in a cost award;
  • There was considerable volume of work involved, though not a driving factor in this cost award;
  • There were a number of issues and, though not overly complicated, they were not exactly straightforward;
  • Conduct of the party shortening or lengthening the litigation is only a factor where one party has acted unreasonably in its conduct.

Justice Campell J Miller, in looking at the conduct of the parties, made this observation at paragraph 20:

[20]        With respect to both Parties, they both chose to conduct their litigation in a manner to represent their respective client’s best interest as keenly as possible. None of these accusations flying both ways do either side credit. It smacks more of schoolyard haggling than respectful acknowledgment of how an opponent chooses to run his or her case. For this factor to be determinative, it must be clear, I would respectfully suggest, that a party has acted unreasonably in its conduct. I have not been convinced that either side has so acted. This factor plays no role in my deliberations.

In dealing with disbursements, the court:

  • Thought it appropriate that both parties share equally the cost of the Freedom of Information costs and transcript costs
  • Denied a Canadian Real Estate lawyer’s costs for expert advice, noting that “the Court is not in the habit of receiving a Canadian lawyer’s advice in an expert report with respect to Canadian law” (para 24).

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Income Tax (Federal & Provincial) – HST/GST – International Tax