CAE Appeals TCC Decision on $250M Government Loan
Scitax Bulletin #78
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CAE Appeals TCC Decision on $250M Government Loan
• Argues loaned funds should neither count as taxable income and nor reduce SR&ED ITCs
• Factum filing tagged "CONFIDENTIAL"
Scitax bulletin #77 (September 2021) reported on a Tax Court of Canada decision that significant portions of a $250M loan provided to Canadian aerospace company CAE Inc. by the federal government are partly taxable as income on grounds that the terms of the loan were not "strictly commercial". The TCC further ruled that since some funds from the loan were used to pay for R&D that was claimed as SR&ED, the company's SR&ED ITCs would also be reduced.
This decision is (or should be) distressing not just to CAE, but to any other Canadian company that has received (or is receiving) loans from Canadian governments.
Not unexpectedly, last week (March 14, 2022) CAE filed an appeal of this TCC decision to Canada's Federal Court of Appeal (FCA).
What is surprising is that as of today (March 21, 2022) CAE's factum document is marked "Confidential", thus obscuring it from public scrutiny. The factum is a document that sets out the arguments that CAE will put forward at trial in support of the appeal. While the exact reasons for the document's designation as confidential are not entirely clear, it seems to follow an FCA Court Order in February that appears to require there to be a "confidential" and a "public" version of all documents in the file for the appeal. (The same had been done in the Tax Court.)
It may be that – each for their own reasons – all parties concerned may welcome the opportunity to keep this matter at least partly confidential. For example, there may be details of the SR&ED work in the file that contain proprietary information.
Clearly, it's not a good news story for CAE, which faces a substantial tax hit if they lose.
Neither is it good news for the Canadian Federal Government which is likely to face some tough questions about how the government structured these types of "incentive" loans in relation to its own taxation policies. If CAE loses this appeal, Ottawa may find itself in a position of either amending the tax laws (which would be unfair to CAE) or having the CRA enforcing a wide-ranging "claw-back" of SR&ED investment tax credits, and imposing an unexpected income tax blow to the very companies it has been trying to help. And that blow could hit well just about every sector of the economy – not just technology businesses.
Finally, we wonder why there is still no official English language translation of this very important ruling available on the Tax Court of Canada website (see below for a link to our Google translation).
Here is a screen shot from the FCA website highlighting the "CONFIDENTIAL" notation on the file.
Learn More
Scitax bulletin #77 that discusses the Tax Court Canada's decision on CAE in Sep 2021
http:
Tax Court Canada Ruling CAE Inc., 14-Sep-2021 (WARNING: Google Translate of French Original)
https:
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Scitax Advisory Partners LP is a Canadian professionalservices firm with specialist expertise in all aspects of planning, preparing and defending Scientific Researchand Experimental Development (SR&ED) tax credit claims.
We offer a multi-discipline team of engineers, chartered public accountants and tax lawyers to ensure that your SR&ED issues are covered from every angle.
While we normally work in concert with our client's existing accountants, our affiliated tax-dedicated chartered public accounting firm – Cadesky Tax – is an expert resource for advice on any taxation matter such as may arise either during the planning and preparation of your claim or while dealing with CRA afterwards.
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