News of Note
Ferlaino – Tax Court of Canada requires the exercise price of employee stock options to be translated at the exercise-date spot rate
The former Director of Taxes at a large Canadian corporation argued unsuccessfully before Smith J that the computation of his s. 7(1)(a) benefits on exercising options on the shares of the listed U.S. parent should depart from the norm by translating his exercise price using the much higher exchange rate at the time of option grant, rather than the rate (of around par) at the time of exercise.
Fowler v. HMRC Commissioners - First-Tier Tribunal finds that “treatment is the meaning:” employment income deemed by U.K. domestic legislation to be from carrying on a “trade” was therefore deemed by Art. 3(2) to be “business profits” for Treaty purposes
A U.K. domestic income tax provision (“s. 15 ITTOIA”) deemed the diving activities of a South African resident in the North Sea to be the carrying on of a U.K trade, notwithstanding that in fact he was an employee. The diver successfully argued that this meant that Art. 3(2) of the U.K-South Africa Treaty (which, in the standard OECD form, provided that any term not defined in the Treaty “shall, unless the context otherwise requires, have the meaning that it has …under the law of [the U.K.]”), deemed his earnings to be business profits for purposes of Art. 7 of the Treaty, so that they escaped U.K. taxation (as he had no permanent establishment in the U.K.) Brannan J stated:
It is the clear purpose of section 15 ITTOIA to re-characterise what would otherwise be the exercise of employment duties as the carrying on of a trade. In so doing, in my view, section 15 ITTOIA has the meaning that the activities of an employed diver in the UK Continental Shelf constitute trading activities and that the income therefrom must be trading income and, consequently, business profits within Article 7 – the treatment is the meaning.
Thus, Art. 3(2) applied notwithstanding that the domestic provision in question was blatantly a deeming provision rather than a definition and merely deemed the underlying activity to be a trading activity rather than explicitly deeming the resulting income to be “profits” of an enterprise.
Brannan J also stated:
If a Contracting State changes its domestic law after the conclusion of a double tax treaty in such a way as to reallocate income from one article to another...that could contravene the requrements of good faith imposed by Article 31(1) of the Vienna Convention... .
That issue did not arise here as the domestic deeming provision was enacted well in advance of the Treaty in order to give a break (through greater deductions) to divers, whose activities were dangerous.
Neal Armstrong. Summary of Fowler v. HMRC Commissioners,  UKFT 0234 (TC) under Treaties – Art. 3.
CRA confirms that gifts made by will of the deceased can no longer be treated as gifts by a surviving spouse
Until recently, there was a CRA administrative practice to accept the allocation of gifts made under the will of a deceased to the return of a surviving spouse. As a result of the recent amendments respecting estate gifts (including the proposed January 15, 2016 amendments) this policy will not apply where the death occurred after 2015.
Neal Armstrong. Summary of 21 January 2016 Quebec CPA Personal Income Tax Roundtable, Q. 8, 2016-0624851C6 Tr under s. 118.1(1) - “total charitable gifts.”
CRA considers that professional fees incurred after acceptance of a voluntary disclosure commence to be deductible
S. 60(o) accords a deduction for fees incurred “in preparing, instituting or prosecuting” an income tax objection (or appeal). CRA considers that this does not provide a deduction for fees incurred in making a voluntary disclosure. However, from the moment the voluntary disclosure is accepted, further fees incurred in defending the taxpayer’s position vis-à-vis CRA qualify under s. 60(o).
Neal Armstrong. Summaries of 21 January 2016 Quebec CPA Personal Income Tax Roundtable, Q. 7, 2016-0625731C6 Tr under s. 60(o) and s. 20(1)(cc).