Skip to content

Business Income

McGillivray Restaurant Ltd. v. Canada 2016 FCA 99 (Ryer, Dawson, DeMontigny JJ.A.) — control over daily operations is not “control” for ITA purposes

This decision arose from an attempt to split 3 restaurant businesses into two corporations — to increase access to the small business deduction.  That meant making sure the two corporations were not “associated”, such as by the husband’s “de facto” control.  The TCC judge (Boyle) had held that the husband’s effective control over operations meant that the corporations were associated, even though the husband might… Read More »McGillivray Restaurant Ltd. v. Canada 2016 FCA 99 (Ryer, Dawson, DeMontigny JJ.A.) — control over daily operations is not “control” for ITA purposes

Leith v. The Queen 2015 TCC 314 (Graham)–Failure to file a prescribed form is not fatal if CRA says you don’t have to

[4] … It would appear on the face of subsection 8(10) that a failure to file a T2200 with a tax return would be fatal to a claim to deduct expenses pursuant to any of the paragraphs described in subsection 8(10). However, as set out below, I find that this is not the case. [5]             The fact that Mr. Leith did not file T2200’s with his tax… Read More »Leith v. The Queen 2015 TCC 314 (Graham)–Failure to file a prescribed form is not fatal if CRA says you don’t have to

Barejo Holdings ULC v. The Queen 2015 TCC 274 (Boyle) — meaning of “debt” for tax purposes

VI. Conclusions [129]   Having reviewed the Canadian jurisprudence on the meaning of debt and indebtedness, and having reviewed the use of debt and debt-related terms in the provisions of the Act, the Court concludes that the core essential characteristics of debt generally for purposes of the Act are: (i)                an amount or credit is advanced by one party to another party; (ii)             an amount is to be paid or repaid by that… Read More »Barejo Holdings ULC v. The Queen 2015 TCC 274 (Boyle) — meaning of “debt” for tax purposes

C. J. McCarty Inc. v. The Queen 2015 TCC 201 (Lyons J.) — definition of “personal services business” in context of construction 

This case looks at the definition of “personal services business” (which limits corporate tax deductions) in the context of major construction in the oilsands industry. The decision focused on the part of the “personal services business” definition that considers whether the key man behind the corporation “would reasonably be regarded as an officer or employee of the [3rd-party customer] to whom or to which the services… Read More »C. J. McCarty Inc. v. The Queen 2015 TCC 201 (Lyons J.) — definition of “personal services business” in context of construction 

Berger v. The Queen 2015 TCC 153 (C. Miller) — business losses for startups — what constitutes a business?

In this decision, Justice Miller applies the test from the Supreme Court of Canada’s decision in Stewart to conclude that even though this taxpayer incurred losses of $26,540 and $37,866 in 2011 and 2012, with absolutely no revenue in 2011 and only $7500 from a single source in 2012, the taxpayer was carrying on a business and entitled to claim the business losses against other sources of income.… Read More »Berger v. The Queen 2015 TCC 153 (C. Miller) — business losses for startups — what constitutes a business?

Budwal v. The Queen, 2014 TCC 370 (Hogan) — You might reduce a shareholder benefit liability by the amount of your liability under s. 160 for non-arm’s length transfers 

Here is a very interesting argument on s.  160 assessments. Hogan J.  makes this in a footnote in a s.  160 assessment within a corporate context where there was a corresponding s.  15 (1) assessment.    “[FN 2]   The argument is that the benefit under subsection 15(1) of the Act should be reduced by the liability under section 160 of the Act because the appropriation… Read More »Budwal v. The Queen, 2014 TCC 370 (Hogan) — You might reduce a shareholder benefit liability by the amount of your liability under s. 160 for non-arm’s length transfers 

Pyontka c. La Reine 2014 CCI 374 (D’Auray) — If you take part in a fraudulent scheme, you could be liable for tax on the whole fraud, not just your commission 

In this case the evidence showed that the appellant was party to a house flipping scheme. The scheme worked this way: the appellant would buy a property, say for $160,000. He would then sell it within a few months to a third party (also part of the scheme) who would pay an inflated sum, say $320,000. The third party would then go to a financial… Read More »Pyontka c. La Reine 2014 CCI 374 (D’Auray) — If you take part in a fraudulent scheme, you could be liable for tax on the whole fraud, not just your commission 

Neely v. MacDonald, 2014 ONCA 874–Headings in a contract are important for interpreting the contract 

To decide the income tax or HST implications of a contract, tax courts must refer to provincial law. So, it is helpful to follow and keep in mind important statements of principle made by provincial courts. On this topic, see for example, s.  8.1 of the Federal Interpretation Act: “Duality of legal traditions and application of provincial law“8.1 Both the common law and the civil law are… Read More »Neely v. MacDonald, 2014 ONCA 874–Headings in a contract are important for interpreting the contract 

McGillivray Restaurant Ltd. v. The Queen, 2014 TCC (Boyle) – A person who has effective control over daily operations controls the corporation 

This case discusses the tests for deciding whether two corporations are associated based on common control.  It details the factors for considering whether a person has de facto (effective) control as opposed to de jure (based on shareholdings) control. “[44]        However, the Federal Court of Appeal’s 2003 decision in Mimetix Pharmaceuticals appears very clear as it upheld the trial judge with brief oral reasons from Justice Rothstein and concluded she did… Read More »McGillivray Restaurant Ltd. v. The Queen, 2014 TCC (Boyle) – A person who has effective control over daily operations controls the corporation 

Lyrtech RD inc. c. Canada, 2014 CAF 267 (FCA, Scott, Nadon, Boivin) — If you control a trust that controls a corporation, you control the corporation — No refundable SR&ED credits in this case

A public company controlled a trust that controlled an R and D corporation.  The scheme was devised to allow the public company to access research and development tax credits. To qualify for the refundable R&D tax credits, the new subsidiary had to be a “Canadian-controlled private corporation”, as defined in ITA s. 125(7). This meant that the public corporation could not be seen to control… Read More »Lyrtech RD inc. c. Canada, 2014 CAF 267 (FCA, Scott, Nadon, Boivin) — If you control a trust that controls a corporation, you control the corporation — No refundable SR&ED credits in this case

St-Hilaire c. La Reine, 2014 CCI 336 (Favreau) — No ABIL if you agree to the cancellation of your loan in a bankruptcy proposal of a small business corporation

In this case, the taxpayer waived any right to be paid on a debt of a small business corporation, as part of a BIA proposal.  So he lost access to an ABIL, because he did not own the debt at the end of the year, having given up all right to payment at that time.   (The ABIL depends on your owning the debt at… Read More »St-Hilaire c. La Reine, 2014 CCI 336 (Favreau) — No ABIL if you agree to the cancellation of your loan in a bankruptcy proposal of a small business corporation

0742443 B.C. Ltd. v. The Queen, 2014 TCC (C Miller)–Hotels and motels can get the small business deduction but renters of storage space cannot unless they employ more than 5-full time staff

The small business deduction allows low-rate tax for small business corporations. Because it’s designed to encourage small businesses, it’s not allowed to passive investment corporations, which earn rental or investment income from property, unless those businesses employ more than 5 full-time employees.   Justice Miller decided that a corporation that rented storage space was a “specified investment business” and, so, not entitled to the small… Read More »0742443 B.C. Ltd. v. The Queen, 2014 TCC (C Miller)–Hotels and motels can get the small business deduction but renters of storage space cannot unless they employ more than 5-full time staff

9016-9202 Québec Inc. c. La Reine, 2014 CCI (Favreau) — to decide if a corporation is a “personal services business” and disallowed deductions, use common law tests for independent contractors but the intention of the parties doesn’t matter

J. Favreau repeats the law that the intention of the parties is not relevant to deciding whether a corporation is a “personal services business” (to be denied the small business deduction under ITA s. 125(1) because of the definition of “active business carried on by a corporation” in s. 125(7) and to have restricted allowable expenses under ITA s. 18(1)(p))  But the common law tests are relevant: [63]    … Read More »9016-9202 Québec Inc. c. La Reine, 2014 CCI (Favreau) — to decide if a corporation is a “personal services business” and disallowed deductions, use common law tests for independent contractors but the intention of the parties doesn’t matter

Perera v. The Queen, 2014 TCC (Lyons) — Excessive deductions for personal amounts damages credibility for the rest of the expenses; Late filing penalties may be waived if you were sick

Commission salesmen, like Mr. Perera, are allowed extra employment expenses.   “[13]        A commissioned sales employee can make deductions from her or his employment income only if the type of expense is specified under section 8 of the Act.[5] Each subsection stipulates that the employee must be required by her or his employer, under a contract of employment, to pay for the expenses in the year in the… Read More »Perera v. The Queen, 2014 TCC (Lyons) — Excessive deductions for personal amounts damages credibility for the rest of the expenses; Late filing penalties may be waived if you were sick

Elmansour v. The Queen, (2014 TCC D’Auray) — It is hard to live well in Canada without reporting income or offshore assets

Can you immigrate to Canada, support a family of seven, and buy businesses and homes without reporting income or offshore property?  Probably not.   This case offers a good review of the kinds of documents CRA may examine for a net worth assessment: “the CRA auditor obtained further information by issuing requirements for information. I will not mention all the documents that were obtained by… Read More »Elmansour v. The Queen, (2014 TCC D’Auray) — It is hard to live well in Canada without reporting income or offshore assets

Canada v. Lehigh Cement Limited, (2014 FCA Stratas)–It’s OK to have double deductions in Canada to support international borrowing within a multinational group

Lehigh is the Canadian subsidiary of a Belgian multinational, CBR.  In a somewhat complicated set-up, a related US corporation reduced its taxable income by paying Lehigh tax-exempt dividends, which Lehigh then used to repay a debt to a related European lender.  Lehigh got the income for free from the US related party and then paid the income back to Europe as a tax deductible interest expense.  Was… Read More »Canada v. Lehigh Cement Limited, (2014 FCA Stratas)–It’s OK to have double deductions in Canada to support international borrowing within a multinational group

Pilfold Estate v. Canada, (2014 FCA Sharlow) — A corporate registered office on a reserve is not enough for Indian Act exemption

Can “simply having [a] corporate head office on-Reserve, regardless of the nature or location of the business,” be “sufficient to locate any business derived by these corporate entities on-Reserve” so that the income would be exempt under s. 81(1)(a) of the Income Tax Act by reason of section 87 of the Indian Act?  No.   “[6]               … I agree with [Justice Miller of the TCC] that… Read More »Pilfold Estate v. Canada, (2014 FCA Sharlow) — A corporate registered office on a reserve is not enough for Indian Act exemption

Dr. Mike Orth Inc. v. Canada, (2014 FCA Sharlow) – You cannot rely on solicitor-client privilege as an excuse for not proving your case

Can you defend yourself in Tax Court by claiming that you have the evidence but you do not have to disclose it because it relates to advice you got from your lawyer?   No.   This case was about the deductibility of legal fees.  The taxpayers argued “that they could not disclose more particulars of their legal expenses without waiving solicitor and client privilege, which… Read More »Dr. Mike Orth Inc. v. Canada, (2014 FCA Sharlow) – You cannot rely on solicitor-client privilege as an excuse for not proving your case

Doulis v. The Queen, (2014 TCC Lamarre) — You can’t deduct interest you owe for unpaid taxes

Suppose you don’t pay your taxes but keep the money, instead, to invest and earn more taxable income.  Can you deduct the interest you owe for the unpaid tax?  No. Normally, you can deduct interest you owe on “borrowed money used for the purpose of earning income from a business or property”.  (ITA s. 20(1)(c)(i).)  And why not?  We shouldn’t charge you tax on what you… Read More »Doulis v. The Queen, (2014 TCC Lamarre) — You can’t deduct interest you owe for unpaid taxes

Prochuk v. The Queen, (2014 TCC D’Auray)–Active trading in your RSP is not a business

If you trade shares actively in your RSP but later invest outside the RSP in a fund that pays a high annual return, does your RSP trading history allow you to claim a loss on the fund as a “business” loss?  No.   Mr. Prochuk made about $100,000 a year over a 13-year period, trading shares in his RSP account.  He lived on that return.… Read More »Prochuk v. The Queen, (2014 TCC D’Auray)–Active trading in your RSP is not a business

Karam v. The Queen, (2013 TCC D’Arcy) — It’s not how many witnesses you have but how credible you are.  Witnesses can’t overcome documents.

If you have twenty-two witnesses, including an expert, can you still lose your case?  Yes.   It’s not how many witnesses you have but how credible you are.   “[43] I did not find the Appellant to be a credible witness. … on several occasions, the objective evidence before the Court contradicted his oral testimony.” The issue that faced Mr. Karam “was whether the substantial gain… Read More »Karam v. The Queen, (2013 TCC D’Arcy) — It’s not how many witnesses you have but how credible you are.  Witnesses can’t overcome documents.

Vicars v. The Queen, (2013 TCC, V. Miller) — You must have records to challenge a net worth assessment

If the CRA finds your  records unreliable and estimates your business income based on the deposits to your bank accounts and on your personal expenses, such as mortgage payments (called a “net worth assessment”), can you overturn the assessments by claiming you had good records and that your business couldn’t have made so much money, without proving your claims with documents?  No.   This decision… Read More »Vicars v. The Queen, (2013 TCC, V. Miller) — You must have records to challenge a net worth assessment

Brent Kern Family Trust v. The Queen, (2013 TCC Boccok) — The more twists in your tax plan, the more places it can break: tax avoidance plan, using anti-avoidance rule for trusts, fails

This case is a great example of how, in the tortured world of tax avoidance, one taxpayer’s success can wreck another’s tax plan.  Mr. Kern set up the Brent Kern Family Trust to take advantage of an anti-avoidance rule.  This rule, in ITA s. 75(2) prevents high income taxpayers from splitting income with low-income taxpayers (usually family members).  The rule says that, despite the transfer to the trust, any… Read More »Brent Kern Family Trust v. The Queen, (2013 TCC Boccok) — The more twists in your tax plan, the more places it can break: tax avoidance plan, using anti-avoidance rule for trusts, fails

CIBC (2013 FCA, Sharlow) – You can deduct losses from your illegal business

In Canada, our tax laws are strange: We expect to share in your profits from the same businesses that we have our police try to shut down.  But for tax laws, we are your partners, whether your business is illegal or legal. If you make a profit, we share; if you have a loss, you can deduct it from your income from that business or… Read More »CIBC (2013 FCA, Sharlow) – You can deduct losses from your illegal business