Travel & Medical Expense Tax Credit – Sas Ansari

Travel Expenses’ Eligibility for the Medical Expense Tax Credit

Canada v Tallong, 2015 FCA 156

At issue was whether the travel, accommodation, and food costs of traveling to a warm climate destination to alleviate negative effects of Canadian winters on her “debilitating condition”, supported by a doctor’s note, is eligible for the medical expense tax credit.

The Federal Court of Appeal interpreted Income Tax Act section 118.2 textually and contextually, holding that medical services to be eligible for the tax credit must be provided to the patient by a person or hospital from a medical service provider.  The warm climate at the destination was not a service that is provided  by a medical service provider and therefore cannot qualify for the credit.

The FCA notes that the Tax Court of Canada level jurisprudence dealing with the medical expense tax credit (paragraphs 118.2(g) and (h)) are inconsistent in their interpretation, with exceptions being made in sympathetic circumstances.  However, the correct approach to interpretation, laid out in Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54, when applied to the provisions, does not allow for an interpretation that would allow for the deduction in these circumstances.

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Revocation of Charitable Status

Revocation of Charitable Status 

Public Television Association of Quebec v MNR2015 FCA 170

The Minister of National Revenue (“MNR”) proposed to revoke the registration of Public Television Association of Quebec’s as a charity pursuant to Income Tax Act (“ITA”) subsection 168(1) for failure to comply with the requirements prescribed in subsection 149.1(1). Specifically, for failure to devote all of its rescues to its own charitable activities (and alternatively, for making gifts to a person other than a qualified donee).

The Appellant brought an appeal pursuant to ITA subsection 172(3). The Federal Court of Appeal (“FCA”) dismissed the appeal on the basis that the ground put forward by the MNR are sufficient for revocation, and the Appellant having failed to show that the MNR’s decision was unreasonable.

What was lacking were details of decisions that demonstrate control and direction in the communications and internal documents, and that the contractual methods of control were in fact exercised (including minutes of board meetings) of the Appellant (see paras 46-54).  In other words, the charity failed to demonstrate that it functioned in reality in the manner that its legal obligations and structure appeared to suggest it functioned.


The FCA began by setting out the statutory framework:

  • Definition of “Registered Charity” in subsection 248(1) – refers to the meaning assigned to  “Charitable Organization” the term in subsection 149.1(1);
  • Definition of “Charitable Organization”in subsection 149.1(1) – requires that all the resources of the organization be devoted to the charitable activities carried on by the organization itself; and
  • Definition of “Qualified Donee” in subsection 149.1(1) – a person that is registered with the MNR and is a registered charity.

The MNR sent notice to the Appellant, under paragraph 168(1)(b), of the intention to revoke its registration for continued non-compliance with the requirements of the ITA for registered charities. This was the first ground of revocation.  The second ground for revocation was for making a disbursement by way of gift to a non-qualified donee pursuant to paragraphs 149.1(2)(ii).

The Appellant’s was audited for its fiscal periods ending in 2005 and 2006, and the auditor concluded that the only activities for the period was the purchase of a program package from a US charity for fairing on certain TV channels (paras 17-18).  The issue revolved around whether the Appellant exercised control and direction over the programs it sponsored/purchased.  The Tax and Charities Appeal Directorate framed the issued in these words (para 22):

In order to comply with the provisions of the Act, a charity must maintain ongoing direction and control over its resources and its charitable activities. This means that the charity must take decisions concerning significant issues related to its ongoing activities and maintain a record of the steps taken, as part of its books and records, to allow the Minister to verify that the charity’s resources have been used for its own activities. Where the charity conducts activities through an intermediary, it should be in a position to establish by credible evidence that the activities are, in fact and in law, carried on by the charity itself. We refer you to the CRA’s Guidance “Using an Intermediary to Carry out a Charity’s Activities within Canada” […]. [emphasis original]

Although the agreement between the Appellant and the US charity stated that the Appellant would retain control and direction over what programs it supported with its funds, the CRA was of the view that the Appellant failed to demonstrate that the provisions of the agreement were in fact followed and respected (para 25):

While a broadcasting agreement and a fundraising agreement exist between PTAQ and Vermont Public Television (VPT), it has not been demonstrated that the provisions of the two agreements were followed and respected. No documentary evidence has been provided to demonstrate that PTAQ is monitoring the cost of the broadcasting activities, the donations received and the fundraising, and that it is ensuring that all of this is, in fact, its own activities. VPT is only informing PTAQ on how much donations were received, what is the cost of the broadcasting and the fundraising. PTAQ does not exercise direction and control over any of these activities. We maintain that all the activities are carried on by VPT and that PTAQ is only used to issue receipts for donations received by VPT from Canadian donors. [emphasis added]

Although a charity can conduct charitable activities through an agent, the charity must “be prepared to satisfy the Minister that it is at all times both in control of the agent and in a position to report on the agent’s activities”, with the onus being on the charity to prove the requisite control and direction – Canadian Committee for the Tel Aviv Foundation v Canada, 2002 FCA 72, paras 27, 28, and 40.  The charity must demonstrate that the agent is carrying on work on the charity’s behalf and must prove that the activities of the agent are that of the charity and not that of the agent – Bayit Lepletot v Canada (Minister of National Revenue), 2006 FCA 128, paras 5 and 6.

What was lacking were details of decisions that demonstrate control and direction in the communications and internal documents, and that the contractual methods of control were in fact exercised (including minutes of board meetings) of the Appellant (see paras 46-54).  In other words, the charity failed to demonstrate that it functioned in reality in the manner that its legal obligations and structure appeared to suggest it functioned.

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Tax Advisor Penalties – Guindon

Tax Advisor Penalties

Guindon v Canada, 2015 SCC 41

For a summary and analysis of the Federal Court of Appeal and Tax Court of Canada decisions see HERE.

This was a decision of a 7 member panel of the Supreme Court of Canada (“SCC”), with the majority dismissing the tax professional’s appeal from the FCA decision (4:3).

The SCC majority held that the provisions of the ITA imposing penalties on tax professionals (planners and preparers) in certain circumstances (Income Tax Act, section 163.2) are administrative, not criminal, in nature.  As such, the provision does not result in the imposition of true penal consequences, with the result that the protections under section 11 of the Charter are not engaged (the person affected d is not a person “charged with an offence”).

The Facts are not repeated here, but can be found HERE.


The majority, after recognizing that the notorious complexity of Income tax law leads to many taxpayer’s relying on advisors, identified the purpose of section 163.2 (and its imposition of monetary penalties) as aiming to prevent tax preparers and planners from making false statement that could then be used by another person for purposes of the ITA.

The preliminary issue relating to the appellant’s failure to give notice of a constitutional questions was felt with by the majority in paragraphs 15 – 40. The majority exercised the court’s discretion to consider the constitutional arguments despite lack of notice.

In addressing the merits of the appeal – whether section 163.2 is criminal in nature – the majority stated that the test of whether or not Charter section 11 is engaged is to be found in R. v. Wigglesworth, [1987] 2 S.C.R. 541, with “additional analytical criteria” in  Martineau v. M.N.R., 2004 SCC 81.  The court must look at whether: (1) the proceeding is in nature criminal , or (2) whether the sanctions imposed results in “true penal consequences” (para 44).

After analyzing the  provision in question against the legal tests (at paragraphs 51 to 88), the majority concluded that section 163.2 is not criminal in process or in consequences. The court stated:

[89] We conclude that the proceeding under s. 163.2  is not criminal in nature and does not lead to the imposition of true penal consequences. We agree with Stratas J.A., writing for the Federal Court of Appeal, that “the assessment of a penalty under s. 163.2  is not the equivalent of being ‘charged with a [criminal] offence.’ Accordingly, none of the s. 11  rights apply in s. 163.2  proceedings”: para. 37.

[90] Finally, we note that even though s. 11  of the Charter  is not engaged by s. 163.2  of the ITA , those against whom penalties are assessed are not left without recourse or protection. They have a full right of appeal to the Tax Court of Canada and, as the respondent pointed out in her factum, have access to other administrative remedies: R.F., at para. 99; see, e.g., ITA , s. 220(3.1).

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Do you need to be given a refund to have a refund?

Do you need to be given a refund to have a refund?

Presidential MSH Corporation v The Queen, 2015 TCC 61

The only issue before the court was what the meaning of “dividend refund” in the context of the Refundable Dividend Tax On Hand (RDTOH) mechanism is.

The Court concluded that the definition was textually and contextually ambiguous, but that the definition that required actual payment of the dividend was the only one consistent with the purpose of the provision and the ITA.

NOTE:  This is one of the many definitional problems that arise within the ITA and have prompted criticism by scholars and practitioners asking that the ITA be revised.  It is this incoherence that, in part, makes tax avoidance possible for those with sufficient means to pay for the services of  smart and creative tax lawyers.


The taxpayer paid dividends in 2004, 2005, and 2006, and claimed a refund under ITA subsection 129(1).  The MNR denied the refunds on the basis that the taxpayer had not filed its tax returns within three years of the respective year ends as required by the provision.  However, despite denying the refund, the MNR deducted the amount of the refunds applied for but denied from the taxpayer’s RDTOH balance.

The taxpayer paid dividends in 2010, 2011, and 2012 and again applies for a refund under ITS subsection 129(1).  The MNR denied the refund claim on the basis that the taxpayer did not have sufficient RDTOH available.  The lack of RDTOH is solely due to the deduction of the refunds claimed but not received by the taxpayer in its earlier application.


The MNR argued that the “dividend refund” is calculated whether a refund is actually made to the taxpayer or not.  This position ignored the words with which paragraph 129(1)(a) begins.

The Taxpayer argued that “dividend refund” is determined by the formula in 129(1)(a), and can either be Nil or undeterminable if no refund is actually made to the taxpayer.


ITA subsection 129(3) defined the term “refundable dividend tax on hand”, and requires that the balance be reduced by “the corporation’s dividend refund for its preceding taxation year”.  The phrase “dividend refund” is defined in paragraph 129(1)(a).  The TCC referred to the decision in Tawa Developments Inc. v. The Queen, 2011 TCC 440, where it was said that a refund claimed but not received does not reduce the taxpayer’s RDTOH.

The TCC considered the ordinary meaning of the word “refund”. The MNR argued that the word was a verb – what the minister may do – while the taxpayer argued that the word referred to an amount returned.  The Court held that neither argument was helpful because neither assisted in determining what words actually make up the definition.   The Court also stated that the “mere inclusion of the word “refund” in the defined term is not enough […] to conclude that the meaning of the definition is clear on an ordinary reading of the paragraph” (para 17).


The TCC determined that the plain and ordinary meaning of paragraph 129(1)(a) is ambiguous, as it “could either indicate that a “dividend refund” is the refund of the amount determined by the formula in the paragraph or that it is simply the amount determined by the formula regardless of whether it is refunded or not” (para 22).


The Court reduced the positions of the parties to the defined term being “amount” as argued by the MNR and “Refund of the amount” as argued by the appellant, and substituted these terms in places where the defined term is found throughout the ITA.  The Court also examined places in the ITA where the defined term was not used to see whether this provided insight into its meaning.  However, the results were inconclusive.

The TCC found that the best place to look for the meaning of the defined term was in the rest of section 129.  The Court went through the use of, or failure to use, the defined term throughout section 129.  In some cases, the use of the term could support either interpretation while in others it supported either the MNR’s or the Appellant’s interpretation:

  • Paragraph 129(1)(b), which would be rendered meaningless if the MNR interpretation is adopted (paras 25-30).
  • Similarly, the use of the term in subsection 129(1.2) would be illogical if the MNR’s interpretation would be adopted (paras 33-34).
  • The use of the MNR’s interpretation is consistent with the way the term is used in subsection 129(2.2) (paras 42-44).
  • The use of the Appellant’s interpretation is supported by subsections 157(3) and (3.1).

The Court concluded that the use of the defined term “dividend refund” is inconsistent throughout the ITA. This inconsistent use makes a contextual interpretation uncertain, leaving the meaning to be determined on a purposive basis.


The TCC looked at the purpose of the provision and definition.

The MNR argued that the three-year limitation period was provided so as to give “finality and fiscal certainty”. The Court agreed with this, but disagreed that finality and certainty are taken to such an end that would deny a delinquent taxpayer from every claiming a refund in respect of RDTOH.  The Court argued that the MNR is in no more uncertain position where a taxpayer does not file a return as compared to where a taxpayer chooses not to pay a dividend – both are required to give certainty to the MNR.

The Court concluded that the RDTOH system is there to promote integration of the corporate and individual taxes and to punish taxpayers who file their returns late.  Both these objectives are achieved by adopting the taxpayer’s interpretation while integration is sacrificed by adopting the MNR’s interpretation.


The interpretation of “dividend refund” that requires the actual payment of the refund to the taxpayer is more consistent with the purpose of the provision and the ITA.

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