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GAAR is in a state of flux. This paper reviews selected issues and provides technical observations on the potential impact of changes to GAAR, as set out in the consultation paper and budget 2023. [ABSTRACT FROM AUTHOR]

The authors' objective with this paper is to introduce the excessive interest and financing expenses limitation to readers who may not be fully familiar with these rules. In this paper, the authors provide context for the introduction of the rules and then discuss the scope of the rules, the computation of the interest and financing expenses limitation, the carryforward of restricted interest and financing expenses, the treatment of excess capacity, and the additional relief that may be available under the group ratio rules. [ABSTRACT FROM AUTHOR]

This paper begins by discussing the origin of the global minimum tax under the pillar 2 initiative, when in the 1990s the Organisation for Economic Co-operation and Development raised concerns about harmful tax competition and undertook initial efforts to address this international tax phenomenon. No/low-tax regimes were at the heart, and a prerequisite element, of all harmful tax competition. Over time, many subsidiary elements of harmful tax competition were addressed, but its key element survived, including the 2015 base erosion and profit shifting action plan. In 2019, a pillar 2 global minimum tax was officially announced to address the tax challenges arising from the digitalization of the economy. After a brief discussion of the intentions of Canada, the European Union, and the United Kingdom to implement a global minimum tax, and of US opposition to this tax, the authors provide an overview of the global minimum tax elements and computations. In particular, this paper discusses the pros and cons of making a GloBE loss election, transfer-pricing aspects of global minimum tax computations, treatment of US limited liability companies and investment tax credits, and compliance challenges. [ABSTRACT FROM AUTHOR]

A divisive reorganization, such as a spinoff, can create stakeholder value. A spinoff may be undertaken for risk reduction, cost savings, management focus, or capital raising. Whatever the motivation, the transaction occurs frequently in Canadian and US public markets. The authors focus on tax-deferred spinoffs by Canadian and US public corporations. They describe the basic steps of a spinoff in each country and then identify and summarize the restrictions imposed by each country's tax law. Although each country's spinoffs are broadly similar in effect, a US spinoff uses fewer and more rational steps than a Canadian butterfly but faces tighter restrictions. One major difference explored in detail is that, unlike Canada, the United States requires a corporate business purpose for the transaction, and the legal form of transactions may be recast pursuant to their economic substance. In the context of a Canadian butterfly, the authors discuss the role of economic substance in Canadian tax law. They also comment on a public consultation paper of the Department of Finance (Canada) that proposes to amend the general anti-avoidance rule to introduce an explicit economic substance rule. [ABSTRACT FROM AUTHOR]

This paper provides a high-level overview of select indirect tax issues that many practitioners are likely to encounter in the course of their practice. The central focus of this paper is on goods and services tax /harmonized sales tax (GST/HST) issues. It includes a review of the following topics: 1) "financial services" in the GST/HST context, including an update of two recent decisions in this area; 2) common GST/HST audit issues affecting real property transactions, including recently enacted legislation; 3) the importance of documentation and written agreements in GST/HST matters; 4) the recently enacted rules affecting online sales of goods, services, and intangible property to Canadian consumers; 5) joint venture issues; 6) the most commonly used GST/HST elections in corporate transactions, including common pitfalls; 7) the rules governing "investment limited partnerships" and potential GST/HST consequences for such entities; and 8) the new GST/HST rules governing the cryptocurrency sector. [ABSTRACT FROM AUTHOR]

The authors' introductory remarks highlight some statistics about the number of deals in 2022, the size of the transactions, and the commercial trends in recent transactions. In the context of these recent trends, structuring transactions in 2022 was a complex puzzle that required an understanding of the commercial objectives and over 100 years of evolution in Canadian tax policies. This paper addresses some of the most common issues that have emerged in recent transactions, such as the use of earnouts and how they should be treated in the context of share transactions. The authors also address issues associated with payments made to non-residents of Canada, prior to or at closing, and how they impact the negotiation of the terms between purchasers and sellers. The authors explore how unclear policies and older administrative guidance may result in onerous responsibilities on the sellers, purchasers, and/or investors involved, especially where there may not be an applicable limitation period. The paper also addresses some of the repercussions of the 2022 federal budget and exchangeable share structures. If it can be acknowledged that the issues addressed in this paper are complex and non-exhaustive, the authors hope to offer a path of reflection or an alternative framework of interpretation that could simplify how parties could address these issues from a pragmatic perspective. [ABSTRACT FROM AUTHOR]

Ceasing to be resident in Canada, and commencing residence in a foreign jurisdiction, gives rise to both tax and lifestyle considerations. While the minimization of Canadian departure tax and tax liabilities is important, so too are the former resident's access to health care, testamentary freedom, personal safety, civil liberties, and general quality of life. This paper examines the tax and non-tax tradeoffs when substituting Canadian residency for residency in popular foreign destinations. We conclude by arguing that Canada should not follow the lead of other countries in adopting tax holidays and fast-tracked immigration status for wealthy foreign investors. [ABSTRACT FROM AUTHOR]

Innovation is widely understood to be a key force in supporting a nation's standard of living and driving improvements to that standard of living. However, in the absence of government support for innovation, much less research and development occur on their own. That is why nearly all members of the Organisation for Economic Co-operation and Development (OECD) have well-developed innovation support mechanisms that include both direct (grants and incentives) and indirect (generally income tax credits) tools designed to drive incremental investment by the private sector in innovation. It is widely understood that these private investments support additional technological advancement that would likely not occur without such investment and that ultimately leads to higher levels of employment and higher standards of living. However, not all countries achieve the same bang for their buck in terms of the return on government investment in innovation. Indeed, some countries have a much better track record than does Canada in multiplying the effects of every government dollar invested in innovation. This paper explores some of the potential reasons why Canada lags behind other OECD nations in driving investment by businesses in research and development, known as business enterprise research and development. The paper also examines Canada's flagship innovation support tool, the Canadian scientific research and experimental development program; the important role that it plays in Canada's specific industrial context; and why it is an essential component in driving business innovation given the Canadian industry mix. The author describes key aspects of the evolution of the program and how claimants can best take advantage of the program in the most frictionless way. [ABSTRACT FROM AUTHOR]

The author discusses basic concepts of intellectual property as they are understood in Canadian income tax law. The paper aims to provide a backdrop to the base erosion and profit shifting (BEPS) initiatives and two-pillar solution that are being implemented in Canadian legislation and that are expected to challenge traditional notions of intellectual property. Specific examples of patents, trademarks, and copyrights are discussed in order to illustrate the challenges. A contrast is also made between traditional transfer-pricing approaches and BEPS concepts. [ABSTRACT FROM AUTHOR]

Subsection 55(2) is a broad specific anti-avoidance rule that prevents taxpayers from converting accrued capital gains into deductible intercorporate dividends. The safe-income exception is an important carve-out from this rule. For decades, the Canada Revenue Agency's administrative positions dealing with the calculation of safe income were rooted in an accounting concept of retained earnings, even though the courts cast doubt on this approach. In 2015, section 55 was amended in several respects, with certain wording changes to the safe-income exception. In this paper, the author argues that these changes do not effect a substantive change to the safe-income exception. The author also explores several other cases and issues that relate to the safe-income exception. [ABSTRACT FROM AUTHOR]

In this paper the authors (1) review the meaning of the term cost, certain related terms used in the Act, and a selection of provisions of the Act that use the various relevant terms; (2) identify certain current issues related to these concepts; (3) discuss the concept of cost in the context of cross-border transactions in which compensatory shares are issued; (4) discuss particular challenges in utilizing the concept of cost in the context of partnership interests; and (5) discuss inadequacies with the use of the concept of cost in the context of the application of the tax shelter rules to partnership interests. [ABSTRACT FROM AUTHOR]

The baby boomers are aging, setting the stage for one of the largest intergenerational wealth transfers in human history. Practitioners have a role in assisting clients to ensure that the objective of transferring wealth to children and grandchildren is achieved in as tax-efficient and effective a manner as possible. In Canada, most taxpayers' wealth is in the form of real estate and publicly traded securities or, in the case of business owners, the businesses themselves. This paper discusses tax and non-tax considerations affecting transfers of assets to the next generation. [ABSTRACT FROM AUTHOR]

The author demonstrates, through examples and through discussion supported by economic modelling and empirical evidence, the effects of carbon prices and other fiscal policies on efforts to green the economy. Global and national goals and targets are considered, along with the outcomes that may be reasonably expected from the policies in place today. There follows a more detailed analysis of the impacts of carbon-pricing policies on three major industrial sectors: oil sands, electricity, and, to a lesser degree, hydrogen. The author considers the effects of long-term policy uncertainty, of the output-based allocations of emissions credits, and of investment tax credits, and finds significant variations in the optimal emissions-abatement strategies of oil sands firms depending on the policy parameters and the long-term certainty of the policy. It is also found that the incentives for clean electricity provided by Canadian policies are very different from those provided by Albertan policies, and the author highlights a result from previous work that shows how climate change policies have made low-emissions blue hydrogen cheaper than the higher-emissions alternative. [ABSTRACT FROM AUTHOR]

The authors explore the details of investment by Canadian pension funds and exempt entities, which, despite the challenges posed by the COVID-19 pandemic, have collectively managed assets exceeding US $1.58 trillion. Such funds often employ diversified approaches that span jurisdictions, asset classes, and investment vehicles, seeking to manage risk and ensure sustainable returns. The authors focus on the intricacies of cross-border investments by Canadian pension funds and other exempt entities, and they provide a comprehensive overview of the most frequently applied provisions of the Income Tax Act (ITA) and the Internal Revenue Code (IRC), shedding light on the strategies used to optimize investment returns and highlighting common tax issues and traps. In addition, they include a comprehensive overview of the intricate web of Canadian indirect tax implications faced by tax-exempt investors and the investment funds in which they participate. Two brief case studies illustrate the complexities of cross-border private credit investments within the context of relevant Canadian and US tax regimes. [ABSTRACT FROM AUTHOR]

Following in the footsteps of the Organisation for Economic Co-operation and Development's strategies to curb base erosion and profit shifting, in April 2022, the Department of Finance released legislative proposals to address hybrid mismatch arrangements implemented by multinational enterprises. The authors provide a primer on the draft rules for hybrid mismatch arrangements to help readers understand these complex rules and their implications for multinational enterprises. They also illustrate the application of these legislative proposals to some common structures that will be affected. [ABSTRACT FROM AUTHOR]

One of the key priorities of the federal government has been to increase the scope of transactions that are subject to mandatory reporting requirements and impose harsher penalties for non-compliance in order to align the existing mandatory disclosure rules in Canada's domestic tax legislation with the recommendations contained in the Organisation for Economic Co-operation and Development's base erosion and profit shifting (BEPS) action 12 final report. The authors discuss the August 9, 2022 draft legislative proposals to expand the mandatory disclosure rules for reportable transactions and to introduce a new mandatory disclosure rule for notifiable transactions and a new reporting requirement for uncertain tax treatments. In addition to discussing the draft legislative proposals, the authors discuss the consequences of non-compliance, select interpretative and technical concerns with the legislative proposals, potential risk mitigation strategies, and privilege issues. [ABSTRACT FROM AUTHOR]

The scope of documentary disclosure in GAAR cases has been the subject of a continual round of motions before the Tax Court of Canada and appeals to the Federal Court of Appeal. Are practitioners going in circles or moving forward? Is there consistency in the jurisprudence? Are the issues now settled? What is in issue in GAAR litigation? Do the courts require the assistance of the parties in ascertaining the underlying rationale of a specific provision? Is the object, spirit, and purpose of a statutory provision a matter of evidence and proof or a question of law? How far should the scope of discoverable materials extend in GAAR appeals? The panellists address from opposing perspectives these questions, which have been debated for more than two decades. Their discussion provides an overview of the Tax Court of Canada Rules on the scope of documentary disclosure in GAAR cases and reviews the principles--and the divisions--that have emerged from the jurisprudence. The panellists also discuss whether alternative approaches exist and what the future may hold in this context. [ABSTRACT FROM AUTHOR]

The authors discuss the recently passed qualifying disbursements rules--a new set of rules that fundamentally affect how Canadian registered charities are permitted to fund charitable work internationally and domestically through noncharities. The authors conclude that the new regime improves on the previous rules but that, because of its overbroad prohibition on directed gifts and because of new reporting requirements that present security risks, it does not implement the full suite of changes that the charitable sector hoped for. The authors also examine and comment on the implications of the proposed increase to the disbursement quota rate. [ABSTRACT FROM AUTHOR]

The authors argue that recent budgetary allocations and new legislative proposals indicate that monitoring taxpayer compliance through audit and information gathering is a government priority. They outline the legislative basis for the Canada Revenue Agency's broad audit powers, as judicially interpreted by the courts. They also consider the limits on those powers, and they identify areas where the scope of the powers remains unresolved. [ABSTRACT FROM AUTHOR]

The authors analyze recent transactions with a focus on raising funds in capitalintensive industries. Topics include hybrid notes, tangible equity units, triangular amalgamations, and structures to refresh Canadian development expense and cumulative Canadian oil and gas property expense pools. [ABSTRACT FROM AUTHOR]