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Income tax

Shares of corporation were not shares of “eligible corporation” and did not qualify as investment for registered retirement savings plans

Taxpayer agreed to purchase 150,000 class B shares of corporation for $1.00 each Taxpayer opened RRSP account and transferred amount of $117,139.00 to that account Taxpayer directed RRSP to purchase 117,000 shares at $1 per share for total purchase price of $117,000 for her RRSP account. Corporation’s only activities in 2001 were purported purchase of Barbadian corporation’s shares and purchase of $200,000 in marketable securities, and only activities in 2002 were purported purchase and disposition of Barbadian corporation’s shares, and purchase of other long term investments. Minister reassessed taxpayer under Income Tax Act (Can.), finding RRSP investment was not qualified investment and including $117,000.00 in taxpayer’s income. Taxpayer appealed. Appeal dismissed. Class B shares of corporation were not qualified investment. Corporation had 91 per cent of its assets invested in shares of Barbadian corporation which was not related eligible corporation. Taxpayer did not show that fair market value of shares issued from treasury was less than what she agreed to pay for. Taxpayer recognized that she did not conduct any due diligence concerning corporation and she did not recall consulting investment advisor concerning investment. Documents showed that taxpayer’s RRSP acquired shares although exact date of acquisition was subject of disagreement -- Shares of corporation were not shares of “eligible corporation” within meaning of s. 5100(1) of Income Tax Regulations (Can.). Shares of Barbadian company represented over 93 per cent of corporation’s assets. Principal purpose of the business carried on by corporation in Canada was to derive income from property or from deriving gains from disposition of property, so that it did not use all or substantially all of its property in “qualifying active business.” As Barbadian corporation was incorporated under laws of Barbados, received International Business Licence from government of Barbados and filed its tax returns for the 2001 and 2002 taxation years reporting that it was resident of Barbados, it was not “Canadian corporation” and, therefore, was not “eligible corporation”, as defined in s. 5100(1) of Regulations, and its shares were not shares of related eligible corporation. Class B shares were not qualified investment pursuant to s. 4900(12) of Regulations as they were not shares of small business corporation. Business carried on by corporation was “specified investment business”, principal purpose of which was to derive income from property without having more than five full-time employees. Determination of whether particular investment is qualified investment for RRSPs is complex and perilous exercise out of reach for vast majority of Canadian taxpayers Impossible for taxpayer to make determination at time of acquisition of shares due to lack of information available.
Chiasson v. R. (Apr. 21, 2016, T.C.C. [Informal Procedure], Réal Favreau J., 2014-3217(IT)I) 265 A.C.W.S. (3d) 259.

Employment Insurance


That parties agreed to characterize contract as contract for services was not determinative of nature of contract

Insurance company hired individual as agent under Agent Contract in April 2012 and was terminated in November 2012. Company issued 2012 T4A in name of individual, reporting amount of $7,084.91 in self-employed commissions. In 2012 income tax return, individual declared gross commission income from self-employment of $7,084, and reported he incurred $7,098 in expenses to earn this income; individual declared net loss of $14. Individual appealed decision of Minister finding that he did not hold insurable employment. Appeal allowed. Individual was considered employee under art. 2085 of Civil Code of Quebec and held insurable employment. Fact that parties agreed to characterize contract as contract for services was not determinative of nature of contract. First, this was contract of adhesion; individual did not have opportunity to discuss whether he wanted to be independent contractor or employee. Second, individual was in vulnerable position given that he had been unemployed for several months at hiring. There was higher level of micromanagement than one would expect from most employers. Individual felt compelled to justify his absence from office; individual’s business card showed no indication that he was independent contractor or agent; any ordinary person would assume individual was employee of company. Individual did not represent several insurance companies, although company claimed he was free to do so; this was red herring. Company told agents how they should behave on internet, how to talk to people, how to dress to meet potential clients, what kind of pen to use for signing applications, how to deal with objections face to face and on phone, how to conclude sale, how to develop relationship over year, and when to send birthday cards. Company exercised control over every aspect of agents’ work and corrected mistakes when any were found. Fact that individual paid weekly rent of $18 for use of computer was red herring; fact that agents were given large degree of autonomy in performing their duties was normal. Company executives were not just coaches; they were there to supervise, assist, and give direction. It was obvious from testimony of company witnesses that they knew they were not supposed to say agents were being supervised, that meetings were mandatory, and that agents were not free to do whatever they wished. Evidence showed company had power of direction and control over agents who hired assistant. Code did not expressly preclude employee from employing assistant or that someone who would otherwise be employee could not be one because he hired assistant.
Mazraani v. Minister of National Revenue (Apr. 12, 2016, T.C.C. [Employment Insurance], Pierre Archambault J., 2013-3484(EI)) 264 A.C.W.S. (3d) 1078.


Income tax

Imposition of gross negligence penalty upheld on appeal

As result of introduction from his long-time friend, taxpayer had Fiscal Arbitrators organization prepare his 2009 tax return in such way as to claim very large fictitious business losses, which would result in refund of taxes for 2006 through 2009 taxation years. Canada Revenue Agency (CRA) disallowed losses and imposed gross negligence penalty pursuant to s. 163(2) of Income Tax Act (Can.). Taxpayer appealed imposition of penalties. Appeal dismissed. Taxpayer’s 2009 tax return contained false statements, as he never owned or operated business. Taxpayer did not knowingly make false statements since he was not aware of what was in his return. Taxpayer did make, or participate in, assent to, or acquiesce in making of, false statements amounting to gross negligence. Taxpayer was not so lacking in education, intelligence or experience as to claim ignorance. There were ample warning signs that should have aroused taxpayer’s suspicions, such as not knowing organization, paying exorbitant fee to organization, lack of explanations by organization regarding preparation of return, and large magnitude of refund. False statements were blatant and readily detectable, had taxpayer looked at return. Taxpayer did not make genuine effort to comply with law or to respond to CRA’s letters. Taxpayer chose to remain blissfully ignorant and place his complete trust in organization, which amounted to wilful blindness.
Daszkiewicz v. R. (Feb. 12, 2016, T.C.C. [General Procedure], Rommel G. Masse D.J., 2013-492(IT)G) 263 A.C.W.S. (3d) 527.

Employment Insurance


“Placement or employment agency” in Employment Insurance Act (Can.) given same meaning as in s. 34(1) of Canada Pension Plan Regulations

Appellant corporation was in business of providing various social services workers to temporarily work with group homes, schools and families to temporarily so clients could meet their staffing needs. Workers were paid by corporation based on set hourly amount without regard to what corporation was paid by its clients, and did not pay fee to corporation. Ruling was made under Employment Insurance Act (Can.) that one of corporation’s workers was engaged in insurable employment on basis that corporation was “placement or employment agency.” Corporation appealed. Appeal dismissed. Although there was no definition of “placement or employment agency” in Act or its regulations, it was given same meaning as in s. 34(1) of Canada Pension Plan Regulations. Accordingly, corporation’s argument, that it was not placement or employment agency because it was not paid fee by its workers, failed. With exception of lack of fixed hours, and of right of corporation to assign work hours to worker, corporation’s control over its workers, which included control of worker by corporation’s clients, was consistent with terms of employment under contract of service. Corporation placed its worker with its clients to provide services to them, corporation paid worker for her services, and worker performed those services under clients’ direction and control, so appeal was dismissed.
Wholistic Child and Family Services Inc. v. Minister of National Revenue (Feb. 9, 2016, T.C.C. [Employment Insurance], Patrick Boyle J., 2014-2870(EI), 2014-2871(CPP)) 263 A.C.W.S. (3d) 232.


Goods and Services Tax

Services provided by facilities were “personal services” falling within definition of “homemaker services”

CH Ltd. and CT Ltd. were for-profit operators of residences for seniors (facilities). CH Ltd. and CT Ltd. entered into agreements with health authority for provision of services to facility residents. On assessment, claims by CH Ltd. and CT Ltd. for refunds of GST paid in error were denied. CH Ltd. and CT Ltd. claimed for refunds of GST paid in error on supplies of homemaker services provided by third-party contractors in course of operating facilities. Appeals allowed in part. Plain and ordinary meaning of “personal service” would clearly encompass services assistance with activities of daily living such as were provided to residents of both facilities due to their age, infirmity or disability. There was little ambiguity in words “personal service” and ordinary meaning of those words must play dominant role in their interpretation. “Personal service” in definition of “homemaker service” was not restricted to services similar in nature to examples that followed term “household or personal service” in definition provided in Excise Tax Act. Use of specific examples after general term in legislation does not restrict meaning of general term to cases similar to specific examples. Presumption is that in using specific examples, Parliament intended extension of meaning of general term to things that would ordinarily have been seen as not falling within general term. Use of word “or” between “household” and “personal” in term “household or personal service” supports view that Parliament intended to distinguish between household and personal services and intended to include services beyond those ordinarily considered household services. Fact that exemption for homemaker services falls within Part II of Schedule V of Act, which deals with health care services, is further contextual support for conclusion that assistance provided to elderly or infirm persons with activities of daily living would be included in concept of “personal service”, and would support conclusion that examples used in definition of “homemaker service” were included because they might not otherwise be considered as health care services. Contracts between third-party contractors and facilities clearly provided for supply of services including care services, hospitality services and housekeeping services. Services in issue were provided to residents in their place of residence, regardless of whether they were provided inside their units or rooms in other areas of premises. Since services provided by facilities were “personal services” falling within definition of “homemaker services”, it would follow that program under which health authority paid for those personal care services would be program in respect to homemaker services. Subparagraph 13(1)(b)(ii) of Act does not require that sole purpose of program under which funding is provided to fund homemaker services. It was only necessary to show connection between provincial continuing care program and provision of homemaker services by third-party contractors. Personal care services at facilities were funded as part of continuing care program partly administered by health authority. Health authority was administering government program in respect of homemaker services.
Courtyard Terrace Assisted Living Residence Ltd. v. R. (Nov. 5, 2015, T.C.C. [General Procedure], B. Paris J., File No. 2011-3419(GST)G, 2011-3420(GST)G) 259 A.C.W.S. (3d) 788.



Motion to exclude lawyers’ testimony was dismissed

Company terminated taxpayer’s employment by sending notice of termination in accordance with employment contract. Parties reached settlement agreement and signed confidentiality clause. Taxpayer included confidential settlement amount on his tax return as retiring allowance. Taxpayer commenced appeal objecting to minister’s assessment confirming imposition of confidential settlement amount as retiring allowance. Taxpayer sought to include testimony of lawyers, who acted for parties during signing of settlement agreement, alleging it was necessary for court to determine true nature of payment made by company to taxpayer. Company brought motion pursuant to s. 65 of Tax Court of Canada Rules for order forbidding lawyers from testifying on existence and terms of settlement agreement, and that if testimony was allowed, hearing be conducted in camera. Motion granted in part. Motion for request for in-camera hearing was granted, but motion to exclude testimony was otherwise dismissed. Discussions between lawyers prior to settlement were not protected by professional secrecy, and lawyers were not precluded from testifying. Taxpayer established two overarching public interests which prevailed over interest in favour settlement negotiations. Overarching public interests were preservation of Canadian tax base and taxpayer’s right to fair trial. Based on contract and circumstances under which settlement agreement was reached, clauses of agreement did not show that parties intended to exclude exceptions to privilege laws. It was implicit at time parties signed agreement that they were aware that terms of agreement could be brought to attention of public authority. Court could not conclude that parties clearly intended to preserve confidentiality in situation when considering exceptions to settlement privileges. Section 151.21 of Code of Civil Procedure could not prevent intended testimony.
Abenaim c. R. (Jul. 24, 2015, T.C.C. [General Procedure], Johanne D’Auray J., File No. 2012-2005(IT)G) 258 A.C.W.S. (3d) 444.

Employment Insurance


Taxpayer was independent contractor

Minister determined that A was engaged by appellant business owner in insurable and pensionable employment from Jan. 1 until Nov. 14, 2012. Owner brought appeal. Appeal allowed. Subjective intention of parties not determinative on its own, but owner’s intention clear from actions, notably not taking source deductions, issuing cheques that were sometimes marked “contract” and issue of tax slips on subcontractor basis. A’s testimony self-serving as he wished to claim employment insurance benefits. A worked under conditions for many years without questioning status. A deducted business expenses on his tax returns. A was experienced painter who did not require supervision. A had considerable freedom to take time off in middle of a job and refused to work overtime. Control factor favoured interpretation that A was independent contractor. A chose to use own tools, although owner’s tools available. Lack of assumption of risk and opportunity for profit favoured employment. Key factor was loose relationship between parties.
Abhar v. Minister of National Revenue (Jun. 26, 2015, T.C.C. [Employment Insurance], Judith M. Woods J., File No. 2014-1926(CPP), 2014-1927(EI)) 254 A.C.W.S. (3d) 854.
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