UMMAT TAX LAW PC

Happy Holidays and Season's Greetings! Wishing all of you well.

Spotlight on older but important decision: Priority Foundation v. Minister of National Revenue: Court Ruling on Document Disclosure Under Federal Courts Rules By: Amit Ummat and Alisha Butani In Priority Foundation v. Minister of National Revenue 2023 FCA 207 (“Decision”), the Court was tasked with deciding whether the Respondent was required to tender documents requested by the Appellant under Rule 317 of the Federal Courts Rules, SOR/98-106 (“FCR”). The Court ruled in favor of the Appellant ordering the Respondent to tender the withheld documents to the Appellant and the Registry because they were relevant to the subject appeal and producible under Rule 318 of the FCR. Rule 317 and 318 of the FCR At the outset, it is essential to briefly explain Rules 317 and 318 of the FCR. Rule 317 grants a party the right to request from a tribunal ‘material relevant’ to the appeal. The relevance of the material is determined by reference to the Notice of Appeal, with the Court required to interpret the pleading “holistically and practically”, focusing on the essential character of the issues rather than on technicalities or form (Decision at Paragraph 18). Once a request is made under Rule 317 of the FCR, Rule 318(1) of the FCR requires that the request material be provided within 20 days, unless the party required to disclose objects to the request under Rule 318(2) of the FCR.   When a Court is tasked with determining whether an objection under Rule 318(2) of the FCR is appropriate, the Court has three objectives it considers:   1.     “meaningful review of administrative decisions, which the reviewing court will be unable to engage in without being satisfied that the record before it is sufficient to proceed with the review;    2.     procedural fairness; and    3.     the protection of any legitimate confidentiality interests while ensuring that court proceedings are as open as possible” Girouard v. Canadian Judicial Council, 2019 FCA 252, [2019] F.C.J. No. 1160 at para. 18. Background The Minister issued a notice of intention to revoke the Appellant’s registration (“NIR”) as a charity under subsection 168(1) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp) (“Act”). Following the expiry of thirty (30) days from the date the NIR was mailed, the Respondent published the NIR in the Canada Gazette. The Appellant contended that this action by the Respondent was unlawful under paragraph 168(2)(b) of the Act. The Appellant requested under Rule 317 of the FCR for the Respondent to provide a certified copy of the following documents to it and the Registry:   “1. All materials produced by, referenced, consulted, or relied upon by the Minister in deciding to issue its notice of intention to revoke the appellant’s registration; Please read the article here: https://lnkd.in/gvJ297HA

We stand up for our clients.

Tax Court of Canada Rules There is no Accountant-Client Privilege Coopers Park v. HMK 2024 TCC 122 In Coopers Park Real Estate Development Corporation v. H.M.Q., 2024 TCC 122, the Tax Court of Canada addressed a significant legal issue regarding solicitor-client privilege in the context of a tax appeal. The Court ruled in favor of the Respondent, requiring the Appellant to, inter alia, disclose documents it had claimed were protected by solicitor-client privilege. Ultimately, the Appellant was unable to meet the evidentiary burden necessary to substantiate its claim.   What is the underlying issue in the tax appeal? The underlying tax appeal involves the application of GAAR, which seeks to deny the Appellant over $68 million in losses, expenditures and credits claimed for the taxation years 2007 to 2009. Following the discovery proceedings, the Respondent brought forward a motion to challenge the solicitor-client privilege claims the Appellant made over certain documents.   What is solicitor-client privilege? Solicitor-client privilege protects communications between a lawyer and their client that are intended to be confidential by the parties and pertain to the seeking or giving of legal advice. The Court in... Read the rest of the article here: https://lnkd.in/g4Z2UxEX

We work very hard to achieve successful outcomes for our tax dispute clients.

What constitutes a notice of objection and why does the CRA not clearly and unambiguously state appeal rights and procedures when issuing reassessments? In a very recent FCA decision, the Court answered the first question and further highlighted the problematic nature of the CRA's general and unclear statements in reassessments regarding objection rights. [15] The Supreme Court of Canada emphasizes the importance of removing barriers that impede access to justice: Hryniak v. Mauldin, 2014 SCC 7 at para. 1. Many taxpayers simply cannot afford to engage tax professionals to assist them in dealing with the CRA. Yet, in this case, rather than clearly informing the appellant about the critical importance of the timely filing of a notice of objection, her notices of reassessment included general statements about where to find more information about her reassessment and objecting to it, and how to contact the CRA. While I attribute no ill will to the CRA or its representatives, simply put, that does not reflect the stakes. I am certain the CRA can and should do better. https://lnkd.in/gRJPcJRS

Navigating Canada’s New Capital Gains Transition Rules: A Comparison of the Department of Finance’s June and August Draft Legislation By Amit Ummat and Alisha Butani In the Federal Budget released on April 16, 2024, the Government of Canada proposed increasing the capital gains inclusion rate. For corporations and trusts, the rate was proposed to increase from 50% to 66.67%. And similarly, for individuals, the rate on capital gains realized in a year exceeding $250,000.00 was proposed to increase from 50% to 66.67%. On June 10, 2024, the Department of Finance released draft legislation (“June Proposal”) to implement these changes commencing on and after June 25, 2024. The June Proposal was subject to criticism from tax practitioners, particularly regarding Canadian Controlled Private Corporations (“CCPCs”) potentially being subject to inequitable tax treatment when it realized capital gains depending on its year-end. In response to the public feedback, the Department of Finance revised the June Proposal, releasing an updated version on August 12, 2024 (“August Proposal”). The June Proposal and August Proposals (collectively, “Proposals”) are largely similar, however, there are notable nuanced amendments and additions in the August Proposal. This article aims to compare the transitional year rules provided in the Proposals. At the outset of this Article, providing a brief definition of Capital Dividend Account (“CDA”) is essential. CDA is part of a mechanism designed to achieve integration by generally allowing the untaxed portion of capital gains to flow through CCPCs without being subject to an additional layer of tax. If a CCPC has a CDA balance at the end of a tax year, it may choose to distribute this surplus to its shareholders as tax-free capital dividends. The June Proposal contained transitional rules to specify how taxpayers that have a net capital gain/loss in the period from the beginning of the year to June 24, 2024 (“First Period”) and a net capital gain/loss in the period from June 25, 2024, to the end of the year (“Second Period”) are to determine the capital gain inclusion rate. The formula proposed was: (1/2 × A + 2/3 × B) ÷ (A + B), where A is the net capital gain/loss of the taxpayer from dispositions in the First Period, and where B is the net capital gain/loss of the taxpayer from dispositions in the Second Period (“Formula”). The result of the Formula is that a taxpayer is subjected to a blended rate of the capital gain inclusion rates of 50% and 66.67%, based on the proportion of net gains/losses realized in the First Period and Second Period. The single blended inclusion rate faced criticism from tax practitioners because... https://lnkd.in/gMFsVh2S

Overview of Federal Court’s Ruling in Mattina v. Canada (National Revenue) 2024 FC 1210 By: Amit Ummat and Alisha Butani In Mattina v. Canada (National Revenue) 2024 FC 1210, the Canadian Federal Court (the “Court”) was tasked with deciding whether the Applicant’s notice of application was “so clearly improper as to be bereft of any possibility of success” (paragraph 10 of Case). Background In July 2021, the Minister of National Revenue (the “Minister”) issued Notices of Reassessment to the Applicant for their 2013, 2014 and 2017 tax years and in November 2021, the Minister issued a further Notice of Reassessment to the Applicant for their 2013 tax year (collectively, “Reassessments”). The Applicant objected to the Reassessments and filed Notices of Objection pursuant to section 165 of the Income Tax Act, RSC 1985 c 1 (5th supp.) (the “Act”) in October and December 2021, respectively (“Objections”). The Canada Revenue Agency (“CRA”) assigned the Objections to a CRA Appeals Officer in November 2022. The Applicant and the CRA Appeals Officer engaged in discussions throughout 2023, with the Applicant stating that in one meeting he was informed that a revised recommendation letter would be forthcoming. However, on October 2023, the Applicant was informed that the CRA Appeals Division had referred the Objections backed to the CRA Audit Division (“Referral”). The Referral was made “due to the substantial amount of information received at the objections state … [and] to the substantial amount of ‘new’ information provided at the objection stage, the fact that the Appeals Division of the CRA does not perform audit work, and that the Referral was ‘mandatory’” (paragraph 7 of Case). The Applicant took issue with the Referral and filed an application for leave and... READ ARTICLE HERE: https://lnkd.in/g6x4ZjAS

Notice to the Profession: The Tax Court of Canada will no longer sit in Hamilton. The Court has cited ongoing security concerns for the public, the Court employees, and the Court's members. https://lnkd.in/eSFrpgEF

Navigating Jurisdictional Boundaries: Implications of Recent SCC Decisions on Tax Disputes By: Amit Ummat and Alisha Butani On June 28, 2024, the Supreme Court of Canada (“SCC”) released concurrent judgments in Dow Chemical Canada ULC v. Canada 2024 SCC 23 (“Dow Chemical”) and Iris Technologies Inc. v. Canada 2024 SCC 24 (“Iris Technologies”). These decisions offered clarity regarding the jurisdictional boundaries between the Federal Court of Canada (“FC”) and the Tax Court of Canada (“TCC”) in tax disputes as delineated by their respective enabling statues. This clarity is valuable for potentially simplifying the process for future disputes, especially those concerning transfer pricing adjustments and procedural elements of a tax assessment. Dow Chemical Dow Chemical Canada ULC, a Canadian resident corporation, (“Dow Canada”) sought a favorable transfer pricing adjustment under subsection 247(10) of the Income Tax Act R.S.C., 1985, c. 1 (5th Supp.) (“Income Tax Act”) for a loan agreement transaction with a Swiss affiliate. The Minister of National Revenue (“Minister”) reassessed Dow Canada by applying the transfer pricing rules in subsection 247(2) of the Income Tax Act, leading to a substantial increase in Dow Canada’s income for the 2006 tax year. The Minister also denied the downward transfer pricing adjustment. Disagreeing with the Minister’s decision, Dow Canada initiated legal proceedings in both the TCC and the FC, requesting the FC proceedings be held in abeyance. The TCC held it had jurisdiction.... read article here: https://lnkd.in/gcU7MKHf