Tag Archives: Minister of National Revenue

Be Careful with Sensitive Tax Information!

The Federal Court’s recent decision in Atlas Tube Canada ULC v MNR[1] showcases an important advantage that lawyers bring to multi-disciplinary teams working on corporate transactions, namely solicitor-client privilege.  The case instructs that, wherever appropriate, arrangements should be made to protect communications and other documents as legal advice.   We recommend consulting with a tax lawyer to determine where and how this can be achieved.

The case concerned a due diligence report (the “Report”) prepared by an accounting firm for Altas Tube Canada ULC (“Altas”) in respect of a  transaction that occurred in 2012.

In the course of auditing Altas for its 2012 taxation year, the Minister of National Revenue (the “Minister”) relied on subsection 231.1(1) of the Income Tax Act (the “Act”) to request a copy of the Report. Atlas refused and the Minister applied to the Federal Court for a compliance order under subsection 231.7(1) of the Act.

At the time the Report was commissioned, Atlas’s U.S. parent corporation was in the process of acquiring two corporations. The purpose of the Report was to describe and explain the tax attributes of the target corporations.

The Federal Court observed that paragraph 231.7(1)(b) of the Act requires that before issuing a compliance order for a document, a court must be satisfied that the document is not protected from disclosure by solicitor-client privilege. Holding that, among other things, the Report was not protect by solicitor-client privilege, the Federal Court decided in favor of the Minister.

The Federal Court relied on the test for solicitor-client privilege set out in Solosky v Canada[2], which established that a communication will be subject to solicitor-client privilege if it is a communication (i) between solicitor and client; (ii) seeking or giving legal advice; and (iii) intended to be confidential by the parties.

Reviewing the evidence, the Federal Court found that while the Report was commissioned for two purposes – the business purpose of assessing whether to proceed with the acquisition and the legal purpose of determining how to structure the transaction – ultimately the business purpose was dominant. The Federal Court concluded that the legal purpose was merely ancillary.

In addition, the Federal Court noted that Redhead established that solicitor-client privilege can extend to communication with a third party where the communication is “in furtherance of a function essential to the solicitor-client relationship or the continuum of legal advice provided by the solicitor”[3], but cannot be extended to communications in which a third party such as an accountant provides an opinion.  The Federal Court found that the Report included an explanation of material tax exposures, an assessment of the probability that filing positions would be challenged, and an evaluation of whether appropriate reserves had been taken.  In other words, the Report provided accounting opinions and as result could not draw upon Redhead’s extension of solicitor-client privilege.

Finding that the legal advice provided in the Report was ancillary to the Report’s business purpose and finding that the Report provided an accounting opinion, the Federal Court concluded that the Report was not protected by solicitor-client privilege.  Accordingly, the Federal Court was able to issue a compliance order requiring Atlas to provide the Report to the Minister.

This case serves as a reminder that, wherever appropriate, arrangements should be made to protect communications and other documents as legal advice.  Taxpayers involved in corporate transactions including sensitive tax information should consult with their tax lawyer to determine what can be protected and how to do so.

[1] 2018 FC 1086.

[2] [1980] 1 SCR 821.

[3] Redhead Equipment Ltd v Canada, 2016 SKCA 115, at para 45.


Cameco Corporation Wins Monumental Sham / Transfer Pricing Tax Case


The Tax Court of Canada has ruled in favour of Cameco in its massive tax dispute with the Minister of National Revenue.  The Court held that the Minister was wrong to include $483.4 million earned by Cameco’s Swiss subsidiary in the mining giant’s income for its 2003, 2005, and 2006 taxation years and ordered the amounts be reversed out.  Also, approximately $98 million and $183.9 million were added back in computing Cameco’s resource profits for its 2005 and 2006 taxation years, respectively.

Had the Court upheld the reassessments, Cameco would have been liable for $11 million in taxes, plus interest and penalties, for those years.  Further, subsequent taxation years with the same issues would have resulted in Cameco being liable for a staggering $2 billion in taxes, plus interest and penalties.

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Tax Court: arrears interest after GAAR assessment accrue from the taxpayer’s balance-due day

Tax Court confirms that arrears interest on taxes resulting from GAAR assessment accrue from the taxpayer’s balance-due day

In Quinco Financial Inc. v. R. (2016 TCC 190), the Minister of National Revenue had assessed Quinco under section 245 (the “GAAR”) of the Income Tax Act (Canada) (“ITA”) to deny certain claimed capital losses.  Arrears interest on the resulting tax due was also assessed, which the Minister computed from Quinco’s “balance-due day”.  The “balance-due day” is the deadline by which a taxpayer is required to pay to the Receiver General certain amounts payable under the ITA for a particular taxation year.  For a corporate taxpayer, it is either two or three months after the end of the particular taxation year, depending on the circumstances.

Quinco took the position that it should not be liable for arrears interest on the assessed tax debt for the period prior to the assessment date.  It proffered numerous arguments to support its position. The most interesting argument was that, although a GAAR assessment requires a determination of the tax consequences reasonably necessary to deny the tax benefit, it does not permit or extend to the recharacterization of the transaction for any other tax purposes; therefore, a taxpayer’s liability for interest does not arise until the date of the reassessment.

Justice Bocock rejected this argument and explained that an assessment under the GAAR,

“whether alone or in conjunction with another technical omission or non-compliant act, is not an assessment divorced from the other provisions of the Act.”

Here, the assessment was raised utilizing the GAAR, but the assessment “insinuated itself into Part I of the Act to reassess the taxpayer otherwise in the normal course.”  Justice Bocock held that subsection 161(1) arrears interest accrues on any tax payable determined under the GAAR from the balance-due day until the GAAR assessment issuance date (and onwards until payment of the tax payable).