Author: Christopher Steeves

Christopher Steeves

About Christopher Steeves

Christopher Steeves is the Leader of Fasken Martineau's Tax practice group and is based in Toronto.

MLI Implementation in Canada

new-york-690868_1920On May 28, 2018, nearly a year after Canada became a signatory to the OECD’s Multilateral Instrument (“MLI”), a notice of ways & means motion has been tabled by the Minister of Finance (Canada) in the House of Commons signalling the Canadian government’s intention to introduce legislation to ratify the MLI.  On June 20, 2018, Bill C-82, which will enact the MLI, received first reading in the House of Commons. The MLI has been signed by 78 countries including Canada.

When the MLI is ratified by Canada and the other signatories, existing bilateral tax treaties may be modified to apply certain agreed to minimum standards  on treaty abuse and improving dispute resolution that were endorsed by participating countries under the OECD /G20 Base Erosion and Profit Shifting (BEPS) Project.

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The ONLY Way to Keep Tax Planning Confidential

Solicitor-client privilege is a constitutionally-entrenched right that protects communications between a lawyer and his or her client. The foundation of such privilege is to encourage full and frank disclosure between lawyers and their clients for the purpose of providing legal advice.  A lawyer cannot be compelled to disclose information shared by his or her client and only the client can waive privilege.  In the tax planning context, protecting the confidentiality of taxpayer information is important to ensure that a taxpayer’s tax position is not unfairly prejudiced by legal requirements to provide subjective analysis or information to taxing authorities where such analysis or information was communicated or created for purposes of providing tax advice.  Further, to better ensure taxpayer compliance under a self-reporting tax system, the confidentiality of communications with one’s tax lawyer is protected to encourage full and complete disclosure of the facts necessary to provide tax advice.

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Transfer Pricing Developments

Transfer pricing issues continue to be an important focus for multinational enterprises (“MNEs”) and tax authorities.  This post summarizes some of the significant developments in Canada that have arisen so far in 2016 and what to look forward to in the coming months.  In particular, we highlight a decision of the Federal Court of Appeal, Canada’s implementation of the OECD Base Erosion and Profit Shifting (BEPS) Action Plan and some significant transfer pricing cases that are working their way through the Tax Court of Canada. Continue Reading »

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Stock Option Taxation Update

The newly elected federal Liberal government ran on the promise of several personal income tax reforms. The majority of the personal income tax reforms promised by the Liberals focus on addressing income inequality between high-income earners and the middle class – as evidenced by the proposed high-income tax bracket, the reduction in the Tax Free Savings Account contribution limit, the removal of family income splitting, and an over-haul of the current tax treatment of stock-options.

Currently, the rules relating to employee stock option taxation in Canada, generally provide for no tax payable at the time that options are granted and only result in the employee recognizing 50% of the benefit or gain arising from the exercise of the qualifying stock options issued by public companies. This amount is taxed in the year of such exercise. Stock options issued by a Canadian-controlled private company (CCPC), provided certain conditions are met, are eligible for a further benefit in that the tax payable by the employee is deferred until the employee disposes of the shares acquired through the stock option. The result is a “capital-gains” like tax treatment of the increase in the value of the shares. This treatment is implemented by way of a deduction from employment income rather than taxing the stock options as a capital gain.

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Hybrid entity classification following the Anson decision

For many years, both the Canada Revenue Agency (CRA) and Her Majesty’s Revenue and Customs (HMRC) have treated limited liability companies (LLC) formed under Delaware law as hybrid entities, in that a LLC has been “opaque” for the purposes of domestic tax law despite being generally disregarded or treated as a partnership for United States tax purposes.

Hybrid entities, including LLCs, are due to be somewhat of a hot topic next month because, as part of its Base Erosion and Profit Shifting (BEPS) project, the OECD is due to present its recommendations to the G20 Finance Minister in relation to “Action 2: Neutralizing the effects of hybrid mismatch arrangements”. However, over the summer the United Kingdom Supreme Court has stepped into the fray in its decision in Anson v. Commissioners for Her Majesty’s Revenue and Customs ([2015] UKSC 44).

This decision emphasizes that entity classification for international tax purposes is highly dependent on the facts and the governing law applicable to the entity, despite guidance from tax authorities that prefers to apply a “one size fits all” approach.  As discussed below, the Anson decision may create renewed interest and support for taking a tax position that diverges from the traditional opaque characterisation of a US LLC.

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