2015-0576281I7 Recognition of a nominee/agency relationship

Principal Issues: Comments provided to GST/HST Ruling Directorate with respect to the recognition of a nominee/agency relationship.

Position: General comments.

Reasons: Case law and previous positions.

Author: Gagnon, Danny
Section: 152(1) ITA, 2130 Civil Code of Quebec

                                                                                July 8, 2015

Excise and GST/HST Rulings Directorate               Income Tax Rulings Directorate
Excise Duties and Taxes Division                            Business and Employment Division
Attention : Ken Syer                                                 Danny Gagnon, CPA, CA, M. Fisc.
Manager
                                                                                 2015-057628

Recognition of a nominee/agency relationship

This is in response to your e-mail of March 10, 2015, asking our comments with respect to questions from the XXXXXXXXXX.  We also acknowledge our related phone conversation and e-mail on March 17, 2015 (Labelle/Gagnon). Specifically, we have been asked for our comments in relation to the following questions:

1.    Does Canada Revenue Agency (“CRA”) require taxpayers to disclose nominee relationship (under the Civil Code of Quebec) and agency relationship (under common law) (both referred to as “Relationship”) when they file an income tax return under Part I of the Income Tax Act (“Act”)?

2.    If yes, is there a publication indicating such a requirement?

3.    If yes, does the Act provide for the filing of these documents with the income tax return?

Our Comments:

As a general rule, the CRA cannot ignore legally valid documents entered into by parties to a transaction and the legal rights that they create in order to assess the tax consequences of such transactions. The Supreme Court of Canada, has indicated the following general principle in Shell Canada Ltd. v. Canada, [1999] 3 S.C.R. 622, at paragraph 39: in the absence of a specific provision in the Act to the contrary or a sham, the taxpayer’s legal relationships must be respected. On this basis, it would appear that CRA may be bound by a Relationship if there are documents supporting the relationship in question. Furthermore, taxpayers must self‑report in their income tax return in accordance with the legal rights created by the Relationship.

However, the CRA will generally recognize the existence of a Relationship for income tax purposes only if:

*     the Relationship exists under the common or civil law,
*     the Relationship does not flow from some ex post facto arrangement,
*     the Relationship is not a sham,
*     the Relationship is disclosed to the CRA at the appropriate time (and pertinent documents are forwarded to the CRA at that time), and
*     the facts with respect to the particular situation corroborate the existence of the Relationship.

These requirements have been shared by CRA with stakeholders through publishers in technical interpretations issued by our Directorate.

There is no specific provision in the Act requiring taxpayers to send documents supporting a Relationship when filing their income tax return. However, taxpayers may send such documents with an income tax return. In addition, the documents should be sent when needed by the CRA.

For your information, unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency’s electronic library. A severed copy will also be distributed to the commercial tax publishers, following a 90-day waiting period (unless advised otherwise to extend this waiting period), for inclusion in their databases. The severing process will remove all material that is not subject to disclosure.

We trust these comments will be of assistance to you.

Michel Lambert, CPA, CA, M. Fisc.
Manager
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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