Further to the announcement on March 27, 2020 that GST/HST and Customs
Duties payment deadlines would be extended due to the COVID pandemic, the
Canada Revenue Agency has provided some additional guidance in the form of a
Question and Answer document posted on the Canada Revenue Agency website.
The document deals with the delays granted to payments of tax, but also to questions of the processing of returns, the payment of refunds and the granting of rebates. One of the key things for all taxpayers to remember is that the due dates for the filing of returns has not changed, only the requirement to make payments of tax without incurring interest charges or penalties has changed. Excise taxes and duties are all still due at the ordinary times.
Do not hesitate to contact us if you need further information about the changes to your tax obligations during the COVID Pandemic.
During the week of March 23, 2020, the Canadian and Quebec governments
announced a series of additional tax measures to further strengthen the economy
in the wake of the ongoing COVID-19 pandemic. A number of procedural
announcements relating to statutory deadlines and limitation periods have also
been made by the Canada Revenue Agency (CRA) and Quebec Revenue Agency (Revenu
Québec). A summary of these new measures is provided below. Summaries of
previously announced measures may be accessed here (Canada) and here (Quebec).
Taxation of the Canada Emergency
Response Benefit (CERB)
government announced the introduction of the CERB on March 18, 2020. The CERB
will provide a taxable benefit of $2,000 a month for up to 4 months to support
workers (including self-employed individuals) who lose their income as a result
of the COVID-19 pandemic. Following conflicting reports in this regard, the
government confirmed on March 27, 2020 that the CERB will be taxable for
claimants, but that no income tax withholding will be made on the CERB by the
Enhanced Temporary Wage Subsidy for
On March 18, 2020,
the federal government announced that a temporary wage subsidy (TWS) would be
introduced for eligible employers in an amount equal to 10% of salary and other
remuneration paid to Canadian employees. The stated purpose of the TWS is to
help Canadians remain employed. It improves the cash flow of eligible employers
(which include Canadian-controlled private corporations eligible for the small
business deduction, individuals other than trusts, certain partnerships,
non-profit organizations and registered charities) by allowing them to deduct
the amount of the subsidy from periodic source deduction remittances payable to
the CRA over the coming months. The maximum subsidy was initially set at $1,375
per employee, and $25,000 per employer.
On March 27, 2020,
Prime Minister Trudeau announced that the amount of the TWS will be increased
to 75% (as opposed to 10%) of salary and other remuneration paid to Canadian
employees. It remains to be seen whether the maximum subsidy of $1,375 per
employee and $25,000 per employer will be increased as well.
Further details in
this regard will be provided once they become available.
Postponement of GST/HST Remittances
government is deferring remittances of the following amounts to June 30, 2020:
Goods and Services Tax (GST)/Harmonized Sales Tax (HST) owing in respect of the February, March and April 2020 reporting periods, for monthly filers;
GST/HST owing in respect of the January 1, 2020 through March 31, 2020 reporting period, for quarterly filers; and
GST/HST owing in respect of the previous fiscal year and installments of GST/HST in respect of the current fiscal year, for annual filers whose GST/HST return or installment is due in March, April or May 2020.
This relief measure
does not clearly address the situation of certain registrants, such as those
who file on a quarterly basis but whose fiscal year-end is not December 31.
Such businesses should contact the CRA to confirm whether they benefit from the
measure also does not appear to extend the deadline for filing GST/HST returns.
corporate taxpayers should bear in mind that they may be held jointly and
severally liable to pay any unremitted GST/HST, as well as any interest or
penalties relating thereto.
Postponement of Import GST and
Customs Duty Payments
government has also announced that it is deferring the payment deadline for
import GST and customs duties in respect of March, April and May statements of
accounts until June 30, 2020.
Filing Notices of Objection with CRA
On March 28, 2020,
the CRA announced that the deadline for filing notices of objection due March
18, 2020 or later would be extended until June 30, 2020.
Tax Court of Canada Procedures
On March 23, 2020,
the Tax Court of Canada (TCC) released a Practice Direction
and Order announcing that all sittings and conferences calls scheduled
between March 16, 2020 and May 1, 2020 inclusively are cancelled and that the
Court and its Registry offices will be closed until further notice.
The TCC also
announced that it is suspending, from March 16, 2020 to May 1, 2020, the time
limits provided for in the Tax Court of Canada Rules and any TCC orders and directions
made prior to March 16, 2020.
deadlines for filing notices of appeal from income tax assessments and
reassessments and GST assessments and reassessments continue to apply.
The notices of appeal required to be filed within these statutory deadlines
must be filed electronically or by telecopier. Where no statutory
deadline applies, taxpayers are asked to wait and file their notices of appeal
once the Court resumes its operations.
Postponement of QST Returns and
Bulletin 2020-5 dated March
27, 2020, the Quebec government announced that it would allow businesses to
postpone the filing of Québec Sales Tax (QST) returns and the remittance of QST
due between March 27, 2020 (inclusively) and June 30, 2020. As mentioned above,
it does not appear that the equivalent federal relief measure extends the
filing deadline for GST/HST returns. Given that Quebec taxpayers report GST and
QST on the same return, it is not clear whether any substantial relief will be
afforded to them from a reporting standpoint. Further information regarding the
possible harmonization of the federal and Quebec relief measures is expected in
the coming days.
corporate taxpayers should bear in mind that they may be held jointly and
severally liable to pay any unremitted QST, as well as any interest or
penalties relating thereto.
Acceleration of Tax Credits and Tax
In a press release dated March
27, 2020, Revenu Québec announced that it would accelerate the processing of
tax credits and tax refunds claimed by businesses. No specific timeline has
been announced in this regard.
Filing Corporate Income Tax Returns
and Notices of Objection with Revenu Québec
Revenu Québec also
announced in the above-mentioned press release that the deadline to take
“administrative tax actions” (gestes fiscaux administratifs)
will be extended to June 1, 2020.
The press release
clarifies that this measure applies to corporate income tax returns that would
otherwise be due between March 27 and June 1, 2020. Interest and penalties are
therefore not expected to apply during such period in respect of such returns.
clarification is provided with respect to other administrative tax actions
targeted by this measure. Although it may arguably include the filing of a
notice of objection, absent specific legislative action or further
clarification from Revenu Québec, it is recommended that taxpayers continue to
file such notices by the 90-day statutory deadline to preserve their right to
challenge any notice of assessment or reassessment.
On March 18, 2020, the Canadian government announced economic measures to help stabilize the Canadian economy in response to the COVID-19 pandemic. These measures are intended to provide up to $27 billion in direct support to Canadian workers and businesses. This newsflash will provide a brief summary of the key tax measures that were included with this announcement. Similar measures were announced on March 17, 2020 by the Quebec government. Fasken commentary on the Quebec measures can also be found on our website.
Tax Return Filing Deadlines
With 2019 tax return filing deadlines approaching, the Canada Revenue Agency (“CRA”) will defer the filing due date for the 2019 tax returns of individuals, including certain trusts. For certain individuals (other than trusts), the return filing due date will be deferred from April 30 until June 1, 2020. Self-employed individuals (and their spouses) are unaffected by these measures as the filing due date for 2019 tax returns remains June 15, 2020.
For trusts having a taxation year ending on December 31, 2019, the return filing due date will be extended from March 30, 2020 to May 1, 2020.
Upcoming Income Tax Liabilities
CRA will permit all taxpayers (including businesses) to defer, until after August 31, 2020, the payment of any amounts on account their income tax liabilities that become owing on or after March 18, 2020 and before September, 2020. This relief applies to income tax balances due, as well as instalments on account of such taxes. CRA will not charge interest or penalties on these amounts during this period.
It should be noted that the timing of payment of other Canadian taxes including GST/HST, payroll taxes and non-resident withholding taxes are not deferred.
Suspension of Audit Activity
CRA will not contact any small or medium businesses to initiate any post assessment GST/HST or income tax audits for the next four weeks (ending April 15, 2020) and the CRA will temporarily suspend audit interaction with taxpayers and representatives for the “vast majority of businesses”.
Other Tax Proposals
Unlike the administrative relief described above, some of the measures announced require Parliamentary approval. The Canadian government has proposed to provide a special payment by early May 2020 through the Goods and Services Tax credit (“GSTC”). The proposal is to double the maximum annual GSTC payment amounts for the 2019-20 benefit year. The Minister of Finance (Canada) estimates that the average increase to income for those benefiting from this measure will be approximately $400 for single individuals and nearly $600 for couples.
The Canadian government is also proposing to increase the maximum annual Canada Child Benefit (“CCB”) payment amounts for the 2019-20 benefit year by $300 per child.
Finally, these measures contain a proposal to provide “eligible small employers” a wage subsidy for a period of three months. The announcement states that eligible small employers will include corporations eligible for the small business deduction, as well as non-profit organizations and charities but provides no further specifics. The proposed subsidy is to be equal to 10% of remuneration paid during that period, up to a maximum subsidy of $1,375 per employee and $25,000 per employer. The announcement does not stipulate when the three month period will begin but provides that eligible businesses will be able to deduct the amount of such subsidy from the income tax withholdings that they would otherwise remit in respect of their employees’ remuneration.
Canada’s prime minister indicated that all of the major political parties in Parliament support these measures and will likely reconvene Parliament to approve them in the coming days.
On February 12, 2020, in Canada v Alta Energy Luxembourg S.A.R.L. (2020 FCA 43), the Federal
Court of Appeal (“FCA”) unanimously
held that the general anti-avoidance rule (“GAAR”) did not deny a capital gains exemption claimed by a
Luxembourg holding company under the Convention
between the Government of Canada and the Government of the Grand Duchy of
Luxembourg for the Avoidance of Double Taxation and the Prevention of Fiscal
Evasion with respect to Taxes on Income and on Capital (the “Treaty”) following a disposition of
“taxable Canadian property” that consisted of shares of a wholly-owned Canadian
subsidiary that principally derived its value from “Canadian resource
Although the formation of the Luxembourg holding company
and its subsequent acquisition of the subsidiary’s shares were tax-motivated,
the FCA stated that treaty shopping, in itself, does not trigger the
application of the GAAR. It found that the text, context and purpose of the
relevant Treaty provisions, as
mutually chosen by Canada and Luxembourg, were not frustrated by the avoidance
transactions at issue. It concluded that the tax-free result was therefore
appropriate in the circumstances.
Alta Energy Partners, LLC (“Alta US Holdco”), a Delaware limited liability company, formed Alta
Energy Partners Ltd. (“Alta Canada”)
for the purpose of developing shale oil and natural gas properties in Alberta.
A restructuring was implemented after it was discovered
that the US holding company structure exposed foreign investors to Canadian
income tax. To fix this, ownership of Alta Canada was transferred to a
newly-formed Luxembourg holding company, Alta Luxembourg S.A.R.L. (“Alta Lux”). A year
later, Alta Lux sold the shares of Alta Canada to a third party at a
It was not disputed that the shares of Alta Canada
principally derived their value from Canadian resource property and, as a
result, were “taxable Canadian property”. However, Alta Lux took the position
that the capital gain was not taxable in Canada due to the exemption set out in
Article 13(4) of the Treaty, which provides as follows:
4. Gains derived by a resident of a
Contracting State from the alienation of:
(a) shares (other than shares listed on
an approved stock exchange in the other Contracting State) forming part of a
substantial interest in the capital stock of a company the value of which
shares is derived principally from immovable property situated in that other
taxed in that other State. For the purposes of this paragraph, the term
“immovable property” does not include property (other than rental
property) in which the business of the company […] was carried on; and a
substantial interest exists when the resident and persons related thereto own
10 per cent or more of the shares of any class or the capital stock of a
The Canada Revenue Agency reassessed Alta Lux on the
basis that the Treaty exemption did not apply and raised the GAAR in the
Tax Court of
At the Tax Court of Canada, the Crown argued that the
Treaty exemption did not apply because Alta Canada did not carry on activities
in its shale property, as it was generally set aside for future drilling and
extraction. Failing that, it argued that the exemption should be applied on a
licence-by-licence basis, with
the exemption only qualifying for those sections of the resource reserve that
had drilling and extraction activities.
The Court dismissed these arguments, largely on the
basis of a government position paper that contradicted the Crown’s restrictive
interpretation, and the commercial reality of resource exploration and
development. Accordingly, it held that Alta Lux was entitled to claim the
exemption under Article 13(4) of the Treaty.
With respect to the GAAR, the parties agreed that the
restructuring of Alta Canada under Alta Lux resulted in a tax benefit and was
an avoidance transaction in the sense that it could not be said to have been
reasonably undertaken or arranged primarily for a bona fide purpose other than to obtain a tax benefit. The only
dispute was whether the restructuring resulted in a misuse or an abuse of the Income Tax Act (Canada) (the “Act”) and/or the Treaty.
The Crown argued in the affirmative because Alta Lux (i)
was created for the sole purpose of avoiding Canadian income tax on the capital
gain; (ii) was merely a conduit used to pass on the tax exemption to its
ultimate shareholders who were not entitled to claim Treaty benefits
themselves; and (iii) paid no tax in Luxembourg.
The Court ruled that there was no misuse or abuse of the
Act because, having found that the Treaty exemption applied, the Act operated
as intended (i.e., the Alta Canada
shares were “treaty-protected property” and therefore not taxable in Canada).
The Court also held that the Treaty provisions were not
misused or abused. It stated that there could be no misuse or abuse of the
Treaty exemption in Article 13(4) if Alta Lux was a resident of Luxembourg for
the purposes of the Treaty (which the Crown did not challenge) and all of the
other requirements of the exemption were met. The Court also stated that the
absence of foreign tax paid was not relevant to the GAAR analysis, and there was
no evidence to support the Crown’s claim that Alta Lux was acting as agent (i.e., a conduit) for its ultimate
Federal Court of Appeal
The only issue before the FCA was whether the GAAR
applied to Alta Lux’s use of the Treaty exemption.
The FCA rejected the Crown’s suggestion that there had
been an abuse of the Treaty, on the basis that the purpose of the Treaty
exemption was to encourage entities who have the potential to realize income
and have commercial and economic ties in Luxembourg to invest in Canada.
First, it did not accept that a Luxembourg taxpayer must
make an investment in a Canadian company in order to claim the exemption.
Second, the FCA did not accept that a taxpayer may only access the exemption if
it actually pays tax on the relevant capital gain in its country of residence.
And third, the FCA did not accept that the exemption should only benefit
Luxembourg residents who have commercial or economic ties to Luxembourg.
The FCA held that the object, spirit and purpose of the
Treaty exemption are no broader than its text, such that a Luxembourg entity
will qualify for the exemption if: (a) it is a resident of Luxembourg for
the purposes of the Treaty, (b) it holds a “substantial interest” in the
corporation the shares of which are disposed of, and (c) the value of the
corporation’s shares is principally derived from immovable property (other than
rental property) situated in Canada in which the corporation’s business is
carried on. Alta Lux having met all of these conditions, the FCA dismissed the
Of equal importance, the FCA also commented on the
Crown’s perceived abuse of Alta Lux’s treaty shopping. Although it acknowledged
that the Department of Finance has signalled that it would take steps to curb
this practice, it found that no such steps had been formally taken during the
period in dispute. The FCA further stated that treaty shopping is not, in
itself, abusive. In this regard, it cited with approval the TCC’s decision in MIL (Investments) S.A. (2006 TCC 460,
aff’d by 2007 FCA 236), which said in part that “[t]here is nothing inherently
proper or improper with selecting one foreign regime over another” and “the
shopping or selection of a treaty to minimize tax on its own cannot be viewed
as being abusive”. Instead, “[i]t is the use of the selected treaty that must
be examined.” Having found that Alta Lux used the Treaty (and, in particular,
the exemption under Article 13(4)) as the contracting states had intended, the
FCA Court concluded that the application of the GAAR could not be justified in
Although this decision is nothing short of a resounding
victory for the taxpayer, its long-term practical impact is questionable.
Importantly, this decision was made without reference to
the Multilateral Convention to Implement
Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting
(the “MLI”) and its principal
purpose test (“PPT”), neither of
which were in effect at the time of the transactions in question.
The PPT is a broad anti-avoidance rule which provides
that a benefit under a tax treaty shall not be granted if it is reasonable to
conclude that obtaining the benefit was one of the principal purposes of the
relevant arrangement or transaction, unless it is established that granting the
benefit would be in accordance with the object and purpose of the relevant
provisions of the treaty.
Furthermore, the MLI provides that all “Covered Tax
Agreements” will be amended to include the following text (which expressly
prohibits treaty shopping) in their preamble:
to eliminate double taxation with respect to the taxes covered by this
agreement without creating opportunities for non-taxation or reduced taxation through
tax evasion or avoidance (including through treaty-shopping arrangements
aimed at obtaining reliefs provided in this agreement for the indirect benefit
of residents of third jurisdictions),”. [Emphasis added.]
The MLI became effective for Canada’s tax treaties with
many countries, including Luxembourg, (a) for withholding taxes on January 1,
2020, and (b) for other taxes (including capital gains taxes), for taxation
years beginning on or after June 1, 2020 (which, for calendar year taxpayers,
would be January 1, 2021).
The MLI raises questions about its impact on the outcome of the
FCA’s decision and beyond, including the following:
If the MLI had been in effect
at the time of the Alta Canada sale, would the result have been the same?
If not, what if the Luxembourg
holding company structure had been implemented from the outset?
Will foreign courts and tax
authorities apply the PPT in a consistent manner across a common set of facts?
Although the FCA’s decision may significantly curtail the Minister’s ability to challenge treaty shopping under the GAAR moving forward, the same cannot be said with respect to the PPT. The impact of the MLI, however, may not be known until many years from now, once tax assessments make their way through court systems in Canada and abroad. In the meantime, taxpayers may need to rely on rulings and other administrative positions for guidance.
Suite aux annonces du Budget 2019, l’Agence du Revenu du Canada (« l’ARC ») a lancé un Groupe de travail sur l’immobilier dont la mission est de dissuader le non-respect des règles fiscales dans le marché immobilier. Le gouvernement fédéral a alloué des fonds et des ressources considérables pour examiner les transactions immobilières dans lesquelles les parties n’ont pas respecté les règles de l’art.
Voici le questionnaire (disponible en anglais seulement) de l’ARC envoyé à des personnes et des sociétés sélectionnées dans le cadre du processus de vérification. Le questionnaire est vaste, contient plus de 35 questions et demande au contribuable de fournir une documentation importante.
Ce programme de vérification des transactions immobilières
est spécifiquement ciblé et peut avoir un impact sur :
Les promoteurs et développeurs immobiliers en ce qui concerne le respect des taxes de ventes;
Les contribuables impliqués dans des activités de flips immobiliers;
Les contribuables percevant des commissions dans le secteur immobilier; et
Les contribuables qui déclarent la vente d’une résidence principale.
Compte tenu de ce qui précède, il est primordial de structurer et de planifier vos transactions immobilières en conformité avec la législation fiscale en vigueur. Si vous avez reçu une demande d’information similaire, il est recommandé de demander des conseils et des avis juridiques avant de répondre au questionnaire.
Nicolas Simard possède une vaste expérience en litige fiscal de toute nature concernant l’impôt sur le revenu, les taxes à la consommation ainsi que les divulgations volontaires. Il peut être joint au 514-397-5288.
David H. Benarroch est spécialisé dans de nombreux domaines de la fiscalité, notamment le contentieux fiscal, la conformité fiscale et la planification fiscale.