Category Archives: Analysis

Analysis, Canada

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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Analysis, Canada, Cross-border (Canada/US)

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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Analysis, Canada, Ontario

No need to delay rectification applications: Ontario Superior Court

The recent decision of the Ontario Superior Court of Justice in Slate Management Corporation v. Attorney General of Canada[1] indicates that applicants do not have to wait for the Supreme Court of Canada’s (“SCC”) pending judgments in two high profile rectification cases before seeking rectification orders. Continue reading »

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Analysis, British Columbia, Canada, Ontario, Quebec

Panama Papers data leak will prompt more tax audits targeting wealthy Canadians

A huge data leak from a Panama-based law firm has exposed billions in secret, offshore transactions involving multiple political leaders around the world and approximately 350 Canadians with offshore tax haven investments.

Previous leaks of offshore activities have led the Canada Revenue Agency (CRA) to engage in multiple tax audits targeting wealthy Canadians, such as clients of the LGT Bank, the Swiss HSBC Bank, and recently clients of one international accounting firm, just to name a few. This time should be no different. CRA was already instructed to get the leaked data in Panama Papers.

Many OECD-participating countries have engaged in a fight against tax evasion, treaty shopping and base erosion and profit-shifting (BEPS). Combined with the upcoming exchanges of financial information between countries starting in 2017 and 2018, Canada’s “new” offshore tax compliance section since 2013 and the offshore tax informant program (OTIP) rewarding whistleblowers, wealthy Canadians and businesses engaged in aggressive tax planning are more likely than ever to be audited.

In addition, the 2016 Federal budget proposed a plan to “improve tax compliance, prevent underground economic activity, tax evasion and aggressive tax planning,” requiring an investment of $444.4 million over five years to be used by the CRA for:

  • hiring additional auditors and specialists
  • developing robust business intelligence infrastructure
  • increasing audit activities
  • improving the quality of investigative work that targets criminal tax evaders

The expected additional revenue from such measures is $2.6 billion.

To most Canadians, these measures may sound perfectly legitimate. But many taxpayers in the province of Québec will hear a familiar tune that evokes unpleasant memories.

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Analysis, Canada

Tax Residency of Trusts in Canada: Application of the Central Management and Control Test Post-Garron

Canadian and provincial income taxes are assessed on worldwide income on the basis of a taxpayer’s residence. Subsection 104(2) of the Income Tax Act (the “Tax Act”) provides that a trust is deemed to be an “individual” for purposes of the Tax Act. Consequently, trusts that are resident in Canada or deemed to be resident in Canada will be taxed on their worldwide income as opposed to only their Canadian source income. Despite the tax implications accompanying a taxpayer’s residency status, the Tax Act provides little in the way of guidance for determining the residency of a trust. As a result, Canadian courts have been tasked with making this determination.

Central Management and Control

In 2009, Garron Family Trust (Trustee of) v. R.[1] changed the long-standing approach to determining the residency of trusts in Canada.[2] The test set out in Garron provides that the residency of a trust is where the central management and control of the trust actually takes place.[3] The court clarified that the assessment into who has central management and control is a question of fact to be examined on a case by case basis. In concluding that the central management and control of the Summersby and Fundy trusts (the “S&F Trusts”) resided with the beneficiaries, the court considered several factors, including:

  • Whether the evidence or lack of evidence demonstrated an active or passive role taken by the trustee in its management of the trust;
  • The true controlling minds behind investment decisions and management of the S&F Trusts’ assets;
  • The use of a protector mechanism to exert control over the trustee;
  • The beneficiaries’ demonstrated interest in the trustee’s management of the S&F Trusts;
  • The trustee’s expertise in managing trusts; and
  • The trustee’s knowledge of the transactions it had been asked to approve.

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