Published by the Tax Law Group
McCarthy Tétrault FRANÇAIS VOL.3,
Tax Update

"Earnings" and Single-Member LLCs: Where Do We Start?
Regulations to the Income Tax Act (Canada) (Act) contain rules with respect to the computation of the earnings of a foreign affiliate of a Canadian-resident taxpayer, which is relevant in calculating the surplus accounts of the foreign affiliate. Historically, the Canada Revenue Agency (CRA) has taken the position that the earnings of a limited liability company (LLC) with only one member should be computed in accordance with Canadian tax rules. However, in at least one audit, the CRA International Audit Division has taken the position that an LLC with a single member that is resident in and carrying on an active business in the US should compute its earnings under US tax rules. It appears that the CRA's recent audit position stems from a concern with the possible inflation of the surplus accounts of single-member LLCs. This position appears to be inconsistent with the definition of "earnings" as set out in Regulation 5907(1).

Anti-Discrimination and the Canada-UK Tax Treaty
Saipem UK Limited v. the Queen is the first Canadian case wherein the Tax Court of Canada has decided with respect to the anti-discrimination provisions contained in a Canadian tax convention, being Article 22 of the Convention Between the Government of Canada and the Government of the United Kingdom of Great Britain and Northern Ireland (Treaty).