WHAT THE COURT HEARS
The Tax Court of Canada has authority to hear cases on matters arising under a number of Acts (see Jurisdiction).
Court decisions have a bearing on all citizens - here are some of the issues determined by the Court.
Disability Tax Credit (Credit for Mental or Physical Impairment)
The Income Tax Act provides that persons suffering from severe and prolonged mental or physical impairment are entitled to a credit that they may deduct from the tax they would otherwise have to pay. The Court hears many cases in which it must determine whether the nature of the impairment claimed by an appellant is such that the credit may be deducted.
Support Payments
Until April 1997, all support payments (whether for children or spouses) were taxed in accordance with the “inclusion-deduction” system - taxable in the hands of the recipient and deductible in the hands of the payor. In the aftermath of the Thibaudeau decision, the government amended the Income Tax Act in such a manner that child support payments now generally fall outside the “inclusion-deduction” system, while other forms of support payments are still covered by these rules. The Tax Court of Canada must determine the nature of support payments as well as the tax treatment that should be accorded to such payments.
Net Worth Assessments
The Canada Customs and Revenue Agency (CCRA) may conduct net worth assessments where it is of the opinion that a taxpayer's records are inaccurate or unreliable. The assumption of the CCRA is that the increase in the net worth of a taxpayer from one year to the next constitutes the basis for the computation of the taxpayer's income for that year. The Tax Court of Canada must consider the validity of such net worth assessments and determine whether a taxpayer may properly be assessed on the basis of such an assessment.
Business Expenses
Under the Income Tax Act, income from employment and income from business are treated differently. The most significant differences in their treatment lie in the types of deductions that are permitted from each source of income. Where deductions from employment income are very limited in their scope, the Income Tax Act permits the deduction of all expenses incurred in the conduct of a business. These expenses, however, must clearly have been made or incurred for the purpose of gaining or producing income from the business. Expenses incurred for personal benefit may not be deducted.
Employment Insurance Act - employee vs. independent contractor
Benefits under the Employment Insurance Act are available to persons who have completed the required amount of hours of “insurable employment”. The concept of “insurable employment” is one that is essentially rooted in an employment relationship as opposed to one where a person is hired as an independent contractor. Where an employment relationship exists, the general rule is that both the employer and employee must contribute to the Employment Insurance Fund. The Tax Court of Canada must examine the work relationship between parties to determine whether a person is engaged in “insurable employment” or as an independent contractor.
General Anti-Avoidance Rule
It is a recognized principle in tax law that tax minimization is a legitimate activity. Tax avoidance, however, is not permitted under the Income Tax Act - more specifically at section 245 of that Act. Pursuant to this provision, the Court may review transactions whose sole purpose is stated by the Crown to be the avoidance of tax. In applying this rule, the Court must consider a number of factors such as the business, investment or family purpose of the transaction, the clear wording of the Income Tax Act, and whether there is a misuse or abuse of the Income Tax Act.
Input Tax Credits
Input tax credits are credits that may be claimed by registrants under the Excise Tax Act for the goods and services tax (GST) that they are liable to pay on taxable inputs used in the course of commercial activity. The Court must determine whether claimants for input tax credits are registrants under the Act, whether their inputs may be considered taxable supplies and whether these supplies were contributed in the context of commercial activity. The Tax Court of Canada must also determine whether applicants may claim full input tax credits, apportioned input tax credits or notional input tax credits.
Single vs. Multiple Supply
Occasionally, the Court must determine whether goods and/or services that are supplied together constitute a single supply or separate supplies for the purposes of the goods and services tax. This determination is important because supplies that are provided separately from one another may be subject to different tax treatments. In determining whether goods or services constitute a single supply or multiple supplies, the Court must examine a number of factors, including the interdependence between supplies - whether the goods and services constitute a composite whole or whether they may be said to be distinct, independent supplies.