News of Note

Chaudhry – Tax Court of Canada indicates that the Justice website version of the ITA essentially is its official version

Bocock J roundly rejected an argument that a reassessment must be assumed to have been made without legislative authority unless the Justice lawyer has tabled an official copy of the ITA obtained from the Clerk of the Senate, as required by ss. 4 and 5 of Publication of Statutes Act. He appears to have instead found that the consolidation of the Act appearing on the Justice website constitutes an official version of the Act of which judicial notice can be taken, except potentially to the extent that a party has submitted that there is something about the consolidation that needs to be corrected pursuant to s. 31(2) of the Legislation Revision and Consolidation Act.

Neal Armstrong. Summary of Chaudhry v. The Queen, 2016 TCC 28, under General Concepts – Evidence.

CRA confirms that a FITL does not increase the s. 88(1)(d) bump

The starting point for computing the s. 88(1)(d) “bump” on the winding-up of a subsidiary into its parent is the excess of the adjusted cost base of its shares over its net tax equity, which is reduced under s. 88(1)(d)(i)(B) by any “obligation of the subsidiary to pay any amount.” CRA has confirmed that a future income tax liability as shown on the balance sheet of the subsidiary is not such an obligation, simply stating that a FITL is not “a legal obligation to pay an amount.”

Neal Armstrong. Summary of 2015-0617771E5 F under s. 88(1)(d)(i).

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Neal Armstrong.

CRA acknowledges that remuneration of an employee resident in Country X from Canadian offshore drilling work generally will be Treaty-exempt (if for under 183 days) where the non-resident employer is resident in Country B, even if that remuneration is deductible respecting a deemed PE of that employer

Art. 15, para. 2 of most Treaties indicates that employment income of a non-resident employee of a non-resident employer from the exercise of employment in Canada for less than 183 days in any 12-month period will be Treaty-exempt provided that the remuneration is not borne by a permanent establishment in Canada of the non-resident employer. In 2009-0319951I7, CRA indicated that it is the country of residence of the employee (“Country X”) rather than of the employer (“Country B”) which determines which country’s treaty should be applied in determining whether the non-resident employer has a PE in Canada for Art. 15 purposes.

CRA has now quite openly acknowledged that in most instances this means that the employer (“B Co”) will not be considered for these purposes to have a Canadian PE, even if under the treaty between its country of residence (Country B) and Canada it is considered to have a Canadian PE because, for example, it is engaged in offshore drilling activity which is deemed to be a Canadian PE. CRA states:

[O]n a purposive reading, one would expect that Canada (i.e. where the PE is located) should be able to tax Mr. X’s remuneration for employment exercised through the PE since BCo is allowed a deduction from the profits taxable in Canada attributable to the PE for the remuneration. However, we doubt that, when applying subparagraph 2(c) of Article 15 of the Canada-State X treaty, it was intended that Canada or State X should look for a definition in a treaty between Canada and a third country [i.e., Country B] to find out if the remuneration can be taxed in Canada.

Neal Armstrong. Summary of 20 July 2015 Memo 2012-0457671I7 under Treaties - Art. 15.

Income Tax Severed Letters 10 February 2016

This morning's release of 12 severed letters from the Income Tax Rulings Directorate is now available for your viewing.