1. Jurisdiction of the Tax Court and Federal Court: Taxpayers beware
Dow Chemical Canada ULC v. Canada, 2024 SCC 23
Iris Technologies Inc. v. Canada, 2024 SCC 24
The Tax Court of Canada has exclusive jurisdiction to determine the correctness of a tax assessment, which involves a non-discretionary determination of a taxpayer's tax liability. The Federal Court has exclusive jurisdiction to review discretionary decisions of the Minister, except where Parliament has expressly provided otherwise.
In Dow Chemical, the Supreme Court of Canada concluded that the Minister's decision to deny a downward transfer pricing adjustment was a discretionary decision and that only the Federal Court had jurisdiction.
In Iris Technologies, the Supreme Court of Canada concluded that the essential nature of the taxpayer's judicial review was an attack on the correctness of the assessment and that only the Tax Court had jurisdiction. While the Federal Court had jurisdiction to deal with the allegation that the Minister acted with an improper purpose, no such facts were alleged in its application.
For more information about this case, please see this McCarthy Tétrault article.
2. No abusive tax avoidance where alternative transactions would have allowed similar tax results
3295940 Canada Inc., 2024 FCA 42
Miscau held shares of generic drug company (Opco) that was to be sold to a third party. Miscau held its share through the taxpayer (3295), a holding company. Since the adjusted cost base of the shares of 3295 was higher than the adjusted cost base of the shares of Opco, Miscau wanted to sell 3295 directly to realize a lower capital gain. The third party was not interested in purchasing 3295. Miscau entered into transactions in order to replicate the lower capital gain it would have realized if it had sold 3295 directly.
The Federal Court of Appeal concluded that a circumvention of subsection 55(2) on a cross-redemption of shares (resulting in the reduction of the capital gain on a subsequent sale) did not result in abusive tax avoidance. Specifically, the Federal Court of Appeal relied on the availability of alternative transactions that would have allowed similar tax results.
The Supreme Court of Canada denied leave to appeal on November 21, 2024.
For more information about this case, please see this McCarthy Tétrault article.
3. Break fees are income as inducement payments
Glencore Canada Corporation v. Canada, 2024 FCA 3
In 1996, Falconbridge Limited (Glencore's predecessor) offered to acquire publicly traded shares of Diamond Fields Resources Inc. The merger agreement provided for a commitment fee of $28 million payable upon entering into the merger agreement and a break fee of $73 million that was not payable unless a competing offer was accepted. A competing offer was accepted, and Falconbridge was paid a non-completion fee (break fee) of $73 million.
The Federal Court of Appeal concluded that: (1) the break fee was not business income under subsection 9(1) because there was no linkage to revenue as it was not in the business of acquiring mines and was linked to acquiring...
