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CRA Creates New Offshore Compliance Advisory Committee

The CRA continues its efforts to strengthen tax compliance in Canada.

Following the CRA’s recent announcement of its efforts to crackdown on international tax evasion, the CRA announced the creation of a new Offshore Compliance Advisory Committee. From the CRA’s news release:

… The Offshore Compliance Advisory Committee (OCAC) will be composed of seven independent experts with significant legal, judicial and tax administration experience.

The members will provide input to the Minister and the CRA on additional administrative strategies for offshore compliance to build on the Budget 2016 investment.

The OCAC’s first meeting will be in spring, 2016, and its initial areas of focus will include:

  • Strategies to help alleviate and discourage offshore non-compliance;
  • Administrative policies being used by other tax administrations to address this global issue
  • Advice to the CRA in moving forward with its measurement of the tax gap;
  • Additional strategies and practices related to promoters of tax schemes; and
  • Potential ways to improve the CRA’s criminal investigation functions.

The OCAC will be chaired by Dr. Colin Campbell. Dr. Campbell is currently Associate Professor of Law at Western University and a published author on tax matters. The Committee’s Vice-Chair is Kimberley Brooks, Associate Professor of the Schulich school of Law at Dalhousie University. Ms. Brooks, a member of the Canadian Tax Foundation Board of Governors and a member of the International Fiscal Association, practiced law in Toronto and the United Kingdom.

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CRA Creates New Offshore Compliance Advisory Committee

CRA Provides Update on Efforts to Combat Tax Evasion

Following the release of the “Panama Papers” and the Canadian federal government’s budget announcement that additional resources will be directed to the CRA to collect existing tax debts and combat tax evasion, the CRA has provided an update on its “crack down on tax evasion and tax avoidance”.

The CRA stated that the first jurisdiction that will be investigated is the Isle of Man, which the CRA had identified as the recipient of CDN$860 million of electronic funds transfers by approximately 800 taxpayers. Additional jurisdictions and financial institutions will be included in a second investigative project starting in May 2016.

The CRA also announced several other aspects of its program including the hiring of new auditors/specialists, a focus on tax schemes targeted to wealthy taxpayers, investigations of high-risk multinational corporations, use of investigative tools and technology, larger investigation teams, international collaboration, and the formation of an independent advisory committee on tax evasion and aggressive tax planning.

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CRA Provides Update on Efforts to Combat Tax Evasion

Tax Court Introduces Common Books of Authorities Project

The Tax Court has implemented a new common books of authorities program for its Toronto courtrooms that will eliminate the need for taxpayers to print copies of certain frequently-cited (and lengthy) authorities. The pilot project will apply only to general procedure appeals in which both parties are represented by counsel.

Parties will not be required to include in their book of authorities those cases that are included in the Court’s list of 27 commonly-cited decisions (i.e., those on statutory interpretation, source, onus of proof, capital/income, GAAR, CPP/EI, etc.). However, the Court will require the parties to include in their book of authorities printed copies of the passages from those cases on which they intend to rely (rather that the entire decision). A list of the cases included in the Court’s common books of authorities is detailed on the Court’s Notice to the Public and the Profession (March 31, 2016).

The Tax Court stated that this pilot project may be expanded to other cities in the future.


Tax Court Introduces Common Books of Authorities Project

CRA: Drones Depreciable at 25%

Aerial drones appear to have many commercial uses. If you use a drone in your business, you may be able to deduct capital cost allowance in respect of the drone.

In CRA Document 2016-0633111E5 “CCA Class of a Drone” (March 11, 2016), the CRA provided its views on the correct classification of a drone for the purposes of the capital cost allowance (“CCA”) provisions of the Income Tax Act.

Under the CCA provisions of the Act, a taxpayer may deduct an amount in respect of the cost of certain property used in a business. The classes of property and the applicable allowance rates are described in section 1100 and Schedule II of the Income Tax Regulations.

The CRA stated that, where the cost of a property qualifies for inclusion in the classes of property described in Schedule II, the specific class of the property is determined by reference to the specific functions of the property and the circumstances of its usage.

The CRA stated that “drone” is not defined in the Act or Regulations, but that the CRA understands that an aerial drone is a type of unmanned aircraft. The CRA also stated that the Canadian Aviation Regulations “describe aerial drones as a type of aircraft” (ed. note: we were unable to find a reference to “drone” in the Canadian Aviation Regulations, but the definition of “unmanned air vehicle” appears to include aerial drones).

Accordingly, in the CRA’s view, an aerial drone would be included in Class 9(g) (“an aircraft”) of Schedule II of the Regulations, which has a CCA rate of 25 percent of the undepreciated capital cost of the property in the class.


CRA: Drones Depreciable at 25%

Kruger: Appeal Allowed … Crown Awarded Costs

How should the Tax Court award costs where the taxpayer’s appeal was allowed but no changes were made to the assessment at issue?

This unusual situation was considered by the Tax Court in Kruger Incorporated v. The Queen (2016 TCC 14).

In the main appeal (2015 TCC 119, under appeal to the Federal Court of Appeal (A-296-15)), the Tax Court had allowed the taxpayer’s appeal on the basis that certain foreign exchange option contracts should be valued in accordance with subsection 10(1) of the Income Tax Act (see our previous post here). However, success in the appeal was divided because certain of the taxpayer’s other foreign exchange option contracts were to be valued on a realization basis, as assessed.

The Tax Court asked the parties to provide submissions on costs.

The taxpayer asked for costs on the basis that the appeal had been allowed. The Crown asked for costs on the basis that the result of the proceeding was substantially in its favour as to the amounts in issue and the determination of the issue.

Interestingly, after the Court’s decision allowing the appeal, the parties discovered that the underlying assessment would not change. The Tax Court called this an “anomaly”.

The Tax Court stated that, despite its decision allowing the appeal, the Crown was the successful party. The case law on costs cautions against awarding amounts based on the success of particular arguments (see, for example, General Electric Capital Canada Inc. v. The Queen (2010 TCC 490)). However, the Tax Court noted that this was not a case in which a party won a Pyrrhic victory, as each party had been successful to different degrees.

The Court considered the factors listed in section 147 of the Tax Court of Canada Rules (General Procedure), including the amounts in issue, the volume of work, the complexity of the matter, and the conduct of the parties. The Court noted that two of the Crown’s witnesses were of significant assistance to the Court.

The Court concluded that no rule prohibits a judge from distributing costs between the parties, although this is not encouraged. In this case, it was appropriate to recognize the Crown’s success.

The Court awarded costs to the Crown in respect of two witnesses, and 50 percent of all other costs. In the Court’s view, this was an unconventional but reasonable award.

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Kruger: Appeal Allowed … Crown Awarded Costs

Tax Court Establishes Motion Days in Toronto

The Tax Court of Canada has established a pilot project for regular motion days in Toronto for the period of February to September 2016. The Court will review the initiative in September 2016. The project may be expanded to other cities.

The first motion day is scheduled for Monday February 22, 2016, followed by Monday March 21 and Tuesday March 29. Subsequently, motions will be scheduled every first and third Monday through to the end of September. If the motion day falls on a statutory holiday, the motion day will be scheduled the following week.

The Court also reminded the public and counsel of the Court’s practice for the requirements and scheduling of motions under the General Procedure, as described in the Court’s Practice Note No. 2 (amended).

Tax Court Establishes Motion Days in Toronto

CRA Ends Political Activities Audit Program for Charities

On January 20, the CRA announced that its controversial political activities audit program for charities has been wound-down.

From the CRA news release:

The results of the political activities audit program have shown substantial compliance with the rules regarding charities’ involvement in political activities. In light of these outcomes, the political activities program will be concluded once the remaining audits have been finalized.

Our Government’s commitment to openness and transparency includes providing more information on the regulation of charities to the public and the charitable sector in a timely manner and in ensuring the engagement of the sector. In order to achieve this, Minister Lebouthillier also announced that the CRA will publish an annual report to provide the public with more information about its activities and its contribution to an effective regulatory framework for registered charities.

Minister Lebouthillier is committed to engaging with key stakeholders and has asked CRA’s Charities Directorate to find ways to further clarify the rules governing a registered charity’s involvement in political activities. Details of the consultations will be made public as they become available.

See our previous posts on the political activities audit program here and here.

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CRA Ends Political Activities Audit Program for Charities

Yes, Those Emails are Tax Phishing Scams

We were alerted today that some individuals had received fake emails informing the recipient that he/she had received an Interac email money transfer (i.e., a surprise refund).

The emails arrive with the subject line “INTERAC e-Transfer from Canada Revenue Agency System” and appear to emanate from Interac, Dentons, or canadiantaxlitigation.com.

Those emails are a scam. If you receive one of these emails do not click any links in such emails, and do not confirm or provide any personal data. 

Several concerned individuals forwarded sample emails to us:

From: “notify@payments.interac.ca” <admin@canadiantaxlitigation.com>

Date: October 29, 2015 at 2:56:31 PM EDT

To: name@email.com

Subject: INTERAC e-Transfer from Canada Revenue Agency System

<>Dear Tax Payer,

<>Canada Revenue Agency has sent you an INTERAC e-Transfer (previously INTERAC Email Money Transfer).

<>Amount: $741.28
<>Sender’s Message: A message was not provided
<>Expiry Date: 30 October 2015

<>Action Required:
<>To deposit your money, click here: http:/www.cra-arc.gc.ca/confirm/interac/services/REF=IDREFCASE741.28

<>2015 Canada Revenue Agency (CRA) Support

Please see our previous post on fraudulent tax scams here and here.

The CRA’s Security page is available here.

These email tax scams should be reported to the Canadian Anti-Fraud Centre.

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Yes, Those Emails are Tax Phishing Scams

NHL Team Denied Deduction for Road Meals?

We noticed these recent items regarding the U.S. IRS denial of a 100% deduction by the NHL Boston Bruins hockey club in respect of the team’s provision of meals to employees during road trips.

In Canada, section 67.1 of the Income Tax Act limits the deduction of meals and entertainment to 50% of the lesser of the actual cost or a reasonable amount. There are several exceptions to this general rule (see subsection 67.1(2)), including exceptions for meals provided in the ordinary course of a business of providing meals and entertainment for compensation, fund-raising events, meal costs billed directly to a client, meals provided to employees at remote work locations, or holiday parties. If an exception applies, the taxpayer may deduct 100% of the cost.

We are reminded of the Canadian case of Pink Elephant Inc. v. The Queen (2011 TCC 396), in which the taxpayer was successful in establishing that the exception for meals provided in the course of a business of providing meals for compensation applied in respect of the taxpayer’s provision of meals during its information technology training seminars.

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NHL Team Denied Deduction for Road Meals?

CRA Publishes Reminder on Charities’ Political Activities

Political activities have been a hot topic for the CRA’s Charities Directorate in the last few years.

In the CRA’s 2015 Program Update, the Charities Directorate stated that its recent political activity audit included 60 charities, with various results (i.e., education letters, compliance agreements, revocations, etc.).

Generally, a registered charity may not engage in partisan political activities, but a modest amount of political activities are permitted (i.e., those political activities that are non-partisan and connected and subordinate to the charity’s purposes). As a general guideline, a registered charity cannot devote more than 10 percent of its total resources to political activities (the CRA applies slightly different percentages to small charities).

Political activities were revisited again recently when the Charities Directorate published an “Advisory on partisan political activities”, which stated:

Since we are in an election period, we remind registered charities that they are prohibited from devoting any of their resources to partisan political activities. A partisan political activity is one that involves the direct or indirect support of, or opposition to, any political party at any time, whether during an election period or not, or a candidate for public office.

Given the time and resources spent by the CRA educating the charitable sector on the subject, most or all charities should not be surprised to see this latest update from the CRA.

However, a surprising part of the Advisory may be the following statements:

Charities that use the Internet or social media to post information should ensure the information does not contain partisan political statements. Also, the information should not link to statements made by a third party that support or oppose a candidate or political party.

When a charity invites comments on its website, blogs, or on social media, it should monitor them for partisan political statements and remove, edit, or moderate such statements within a reasonable time.

Charities should be aware of the CRA’s views on social media and political activities, and during the 2015 federal election charities should be careful to ensure that any invited comments on a charity’s website, blog, Facebook page or Twitter account do not conflict with the CRA’s views on partisan political activities.

Charities may wish to consult their professional advisers if there are any questions about compliance with the Income Tax Act and the CRA’s views.

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CRA Publishes Reminder on Charities’ Political Activities