Canada: Bobby Solhi Quoted By Bloomberg Tax On Tax Credits For Legal Fees
Last Updated: April 6 2018

Bobby Solhi of TaxChambers LLP is quoted by Bloomberg BNA International Tax Monitor on the ONEnergy Inc. decision.

Below is an excerpt of the featured article for Bloomberg:

Canadian Court Broadens Access to Tax Credits for Legal Fees

  • Allows credits for legal fees in winding down of business
  • Ruling overturns Tax Court's narrow interpretation of Excise Tax Act

By Peter Menyasz

Canada's Federal Court of Appeal ruled that ONEnergy Inc. is entitled to claim tax credits on legal fees spent to recoup C$14.7 million ($11.4 million) in excess payments to executives of a failed subsidiary firm.

The ruling indicates Canadian courts may be willing to take a more relaxed approach to requiring a direct connection between expenses and a taxpayer's business activities when determining access to tax credits for the expenses, tax lawyer Joel Nitikman told Bloomberg Tax.

There is a strong enough connection between litigation to establish overpaid compensation and the commercial activity of the closing-down business, Look Communications Inc., to justify claiming input tax credits for the goods and services tax and harmonized sales tax, Justice Wyman W. Webb said March 19 in the court's 3-0 ruling, overturning a decision by the Tax Court of Canada. The amount of the legal fees hasn't been determined.

"There is a connection between the termination of Look's commercial activity and the legal services acquired in relation to the litigation against the former executives that would be sufficient to permit Look to claim the input tax credits," Webb said.

ONEnergy's operation of Look Communications in Quebec and Ontario proved unsuccessful, and it announced in December 2008 that it would close the business and sell the assets. Look's board of directors had set aside funds for severance and bonus payments to executives, but shareholders filed suit in Ontario to block what they identified as C$14.7 million in excess payments.

Look claimed input tax credits on its legal fees in contesting the suit, but the Tax Court found the connection between the litigation and winding down wasn't enough to justify the claim. But the appellate court said it was a "palpable and overriding error" deeming the legal services as "personal," as the only logical source of the payments was the sale of spectrum, part of winding down the business.

"If the registrant is acquiring a property or a service in connection with the acquisition, establishment, disposition, or termination of a commercial activity, that person will not lose the entitlement to claim an input tax credit solely because that person is not making any taxable supplies at the time that such property or services is acquired," it said.

Ruling Broadens Access to Tax Credits

The ruling is surprising because the Court of Appeal generally doesn't overturn the Tax Court in fact-based situations, Nitikman, a tax partner in the Vancouver office of Dentons Canada LLP, said March 22.

"The Federal Court of Appeal has almost turned it into a legal test of how you discern whether things are closely connected," Nitikman told Bloomberg Tax.
That suggests the Tax Court may need to take a broader view of what is connected to the business rather than drawing the "fine distinctions" it made in the ONEnergy case, he said.

It also suggests previous cases should have been resolved differently, including the Tax Court's September 2017 rejection of a Vancouver swimming instructor's claim for input tax credits on legal bills totaling C$176,000 ($138,000) to fight sexual assault allegations that threatened his business, he said.

Bobby Solhi, a tax partner with TaxChambers LLP in Toronto and a GST/HST specialist, agreed March 22 that the appellate' court's ruling broadens the interpretation taken by Canadian courts of Section 141.1(3) of the Excise Tax Act.

"A registrant can claim input tax credits for certain expenses even after it has ceased business operations, so long as the expense is sufficiently connected to the source of the funds and made in connection with the termination of the commercial activity," Solhi told Bloomberg Tax.

ONEnergy didn't respond to a request for comment.

The Canada Revenue Agency doesn't comment on ongoing court cases.

The case is ONEnergy Inc. v. The Queen (No. A-415-16).

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Press Releases from this Firm
Recent Content from this Firm
By David Piccolo
By Sunita Doobay, B.A., LL.B., LL.M. (NYU), TEP
By Sunita Doobay, B.A., LL.B., LL.M. (NYU), TEP
By TaxChambers LLP
By TaxChambers LLP
By TaxChambers LLP
By Vern Krishna
By TaxChambers LLP
By TaxChambers LLP
By Vern Krishna
Tools
Print
Font Size:
Translation
Channels
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions