News of Note

Hôpital Santa Cabrini – Federal Court of Appeal finds that a hospital which contracted for the services of nurses employed by a personnel-services agency was not receiving an exempt supply of nursing services

Boivin JA affirmed the finding of Archambault J below that a hospital which paid outside personnel-services agencies to receive the services of salaried nurses employed by the agencies was not thereby receiving an exempt supply of nursing services under Sched. V, Pt II, s. 6 given that the nurses were providing their services under the direction and control of the hospital rather than of managers at the agencies – and, in fact, delegation by the hospital of its responsibility for patient care would have been contrary to the Quebec Occupational Health and Safety Act.

This essentially confirms the CRA policy in Excise and GST/HST News - No. 89.

Neal Armstrong. Summary of Hôpital Santa Cabrini v. The Queen, 2016 CAF 207 under ETA, Sched. V, Pt II, s. 6, ITA, s. 180(3), General Concepts - Illegality.

Joint Committee makes submissions on the draft small business deduction rules

The Joint Committee has made various submissions to Finance respecting the proposed small business deduction rules including respecting potential pitfalls and deficiencies regarding the assignment of the business limit among associated corporations, the CRA discretion to add an amount to specified corporate income, the absence of a de minimis safe harbour in the designated member definition and the zeroing (rather than limiting) of specified partnership income where a partnership earns some non-arm’s length income. and inappropriate inflexibility in the specified partnership business limit definition.

The Joint Committee also submitted that proposed life insurance policy amendments should not have retroactive effect to transfers of policies that were undertaken on a non-arm’s length basis prior to March 22, 2016.

25 August 2016 Joint Committee submission on small business deduction and life insurance policy transfers.

CRA rules that where CFAs hold commercial properties needed for their regulated active businesses through individual property subsidiaries of a Holdco proportionately owned by them, the property rents are s. 95(2)(a)(i) income

A group of regulated non-resident subsidiaries (the “Regional FAs”) of Canco have held commercial estate as part of and in support of their regulated active businesses. In order to diversify risk, it is proposed that: the existing real estate as well as further real estate acquisitions will be held in individual “Property Cos;” the holdings in all the Property Cos will (subject to exceptions) be held in a single holding company (“FA Holdco”); and the Regional FAs will (where permitted) hold pro rata portions of the shares of FA Holdco rather than direct interests in the Property Cos or in the underlying commercial real estate.

CRA ruled that the income of the Property Cos (to the extent of the percentage interest therein of the Regional FAs held directly or “via” FA Holdco) will be deemed active business income under s. 95(2)(a)(i). Although the ruling letter is laconic, this presumably is based on the proposition that the properties held through the Property Cos are directly related to the active business activities of the Regional FAs because they support the regulatory requirements for those businesses in some manner, and would have given rise to active business income in the hands of the Regional FAs if they instead had continued to be held directly.

Neal Armstrong. Summary of 2016 Ruling 2015-0604451R3 under s. 95(2)(a)(i).

Granofsky – Tax Court of Canada finds that a taxpayer’s counsel can consent in writing to reassessment of the taxpayer

S. 169(3) provides that Minister may at any time reassess, with the consent in writing of “the taxpayer.” D’Auray J found that this requirement can be satisfied through a signature of the taxpayer’s counsel acting within the scope of her mandate (and went on to find that, in the case before her, counsel had the mandate).

Neal Armstrong. Summary of Granofsky v. The Queen, 2016 TCC 181 under s. 169(3).

Income Tax Severed Letters 24 August 2016

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