The Most Important Tax Cases of the Year

Transcription

1 Tax Issues for General Practitioners Law Society of Upper Canada September 16, 2016 The Most Important Tax Cases of the Year Martin A. Sorensen, Bennett Jones LLP

2 The Most Important Tax Cases of the Year "If [a US Supreme Court Justice is] in the doghouse with the Chief, he gets the crud. He gets the tax cases." -- Harry Blackmun, Associate Justice of U.S. Supreme Court ( ) "I love tax cases!" -- Justice Marshall Rothstein, Supreme Court of Canada ( ) 2

3 Top 10 Cases of the Year 10 R & S Industries v. The Queen (FC) Federal Court or Tax Court? Tax appeal or judicial Review? Time limit? What time limit? 9 Hall v. The Queen (TCC) Corporate directors and due diligence when honesty hurts Ontario Inc. v. The Queen (FCA) Dissolved companies tell no tales (and also can t pursue tax appeals) 7 Mariano v. The Queen (TCC) Another donation scheme goes down, with a dollop of sham and costs on the side 6 Remtilla v. The Queen (TCC) Beware waivers of normal reassessment period, esp. when playing settlement games! 5 TDL Group Co. v. The Queen (FCA) Interest deductibility, redux 4 Fairmont Hotels Inc. v. A.G. (Canada) (ONCA) Tax-related rectification on the brink or full steam ahead? 3

4 #3 McGillivray Restaurant Ltd. v. HMQ (FCA) What does control mean for income tax purposes? De jure control vs. de facto control Why is it important? Is the corporation a Canadian-controlled private corporation (CCPC)? Is the corporation associated with others? Does corporation have to share tax benefits? Other 4

5 #3 McGillivray Restaurant Ltd. v. HMQ (FCA) De Facto Control Look beyond the share register but how far? What kind of control is relevant? Control over the board? Operational control? Financial control? Previously, cases suggested that concept could include many different types of control FCA clarifies that inquiry rooted in control over board of directors Welcome news for small business owners! 5

6 #2 A.G. v. Chambre des notaires du Québec (SCC) and M.N.R. v. Thompson (SCC) CRA has broad powers to compel persons to provide information/documents Failure to do so can result in compliance order, penalties or even jail Requirements issued not just to taxpayers, but third parties as well including lawyers Statutory exclusion for privileged materials, but not accounting records these must be produced 6

7 #2 A.G. v. Chambre des notaires du Québec (SCC) and M.N.R. v. Thompson (SCC) Are ITA provisions constitutional? QCA said no, FCA said yes SCC held solicitor-client privilege a principle of fundamental justice and cannot be interfered with unless absolutely necessary SCC held ss (1) and were not applicable to notaries/lawyers acting as legal advisers Accounting records exception unconstitutional 7

8 #1 ARQ v. Groupe Enico Inc. (QCA) A landmark decision awarding the plaintiffs $3 million in damages, including $1 million for punitive damages The claim was for abusive assessment and collection action arising from an audit by Revenu Quebec (ARQ) of a Group Enico initiated by a tip from disgruntled former employee ARQ's audit ruined Group Enico and its owner, Archambault 8

9 #1 ARQ v. Groupe Enico Inc. (QCA) Bad behaviour: A preliminary audit assessment of $80,000 grew to about $450,000 based on the auditor's belief that Archambault provided Enico with unreported cash ARQ lost a month of Enico's payroll remittances and assessed Enico to seize those amounts ARQ proceeded to seize bank accounts and other funds 9

10 #1 ARQ v. Groupe Enico Inc. (QCA) More bad behaviour: ARQ seized so much from Enico that at one point it owed Enico $290,000 Enico made a bankruptcy proposal that ARQ refused to accept unless Enico paid in full or dropped appeals Court found that auditor bonuses were tied to amounts assessed and auditor had created fictitious entries to prop up assessment Assessment ultimately reduced to small fraction of original amount 10

11 #1 ARQ v. Groupe Enico Inc. (QCA) Taxpayer ultimately forced into bankruptcy Taxpayer and shareholder sued ARQ and was awarded damages Damages of $4 million awarded to Enico and Archambault by trial court, incl. punitive damages Damage award lowered to $3 million by Quebec Court of Appeal (damages to Enico upheld, but damages to Archambault largely erased) 11

12 #1 ARQ v. Groupe Enico Inc. (QCA) Extreme set of facts, but likely not unique Considerable press and attention Tax authorities can be held accountable Potential implications for common law provinces Other cases in the pipeline unlikely to be the last word 12