News of Note
CRA indicates that worker’s compensation received by an estate was includible in its income
Email this ContentCRA indicated that since s. 56(1)(v) requires an income inclusion for "compensation received under an employees’ or workers’ compensation law … of a province in respect of an injury,” compensation received by the estate of an injured (and then deceased) worker pursuant to the Ontario Workplace Safety and Insurance Act was includible in its income (although there was a deduction in computing taxable income pursuant to s. 110(1)(f)(ii).) However, CRA noted:
[A]s compensation payments are not considered salary, wages, or other remuneration, they are not subject to the withholding of income tax, Canada Pension Plan contributions, and Employment Insurance premiums, irrespective of the recipient.
Neal Armstrong. Summaries of 11 March 2024 External T.I. 2022-0939331E5 under s. 56(1)(v) and s. 153(1)(a).
We have translated 6 more CRA interpretations
We have translated a further 6 CRA interpretations released in January of 2002. Their descriptors and links appear below.
These are additions to our set of 2,812 full-text translations of French-language Technical Interpretation and Roundtable items (plus some ruling letters) of the Income Tax Rulings Directorate, which covers all of the last 22 ¼ years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
CRA finds that cardholder points did not represent an expense incurred by the taxpayer until the cardholder redeemed them
The taxpayer encouraged the use of its credit card by agreeing that cardholders would earn points based on the dollar amount of eligible purchases charged to their credit cards. Those points could then be redeemed for rewards. The taxpayer, in turn, had agreements with a related party and with various third parties (the “participants”) that, consequent upon a cardholder redemption, the taxpayer would pay an agreed amount to the applicable participant to acquire the applicable reward for delivery to the cardholder. Points expired only in very limited circumstances.
Before finding that the taxpayer could not recognize an expense as the rewards were earned (as an expense had not yet been “incurred”), and that the applicable deductions were deferred until the points were redeemed, CRA stated:
[T]he courts have held that an expense will not be considered to have been incurred unless the taxpayer has an obligation to pay money to someone … [and] that a legal obligation to pay under contract does not exist until all contractual preconditions to which the payment relates are fulfilled.
Here, it was only on redemption of the points that a cardholder selected the particular reward - and it was only then that both the amount of the reward and the participant who would supply it (and, therefore, the party whom the taxpayer would ultimately be required to pay an amount to) became known. Thus, when the points were earned, there was no identifiable debt owing to an identifiable creditor who could make a legally enforceable claim against the taxpayer in respect of the points. CRA stated:
Concluding otherwise would lead to inappropriate results in many situations, given that it is common commercial practice for parties to contract for the provision of goods or services, the fulfillment of which necessitates expenses to be incurred in the future.
Neal Armstrong. Summary of 25 October 2023 External T.I. 2022-0927891E5 under s. 18(1)(a) – incurring of expense.
Persaud – Tax Court of Canada applies “the presumption of consistent application” to find that “resident” has the same meaning in s. 118(6)(b) as elsewhere
The taxpayer paid the $18,700 cost of the hospitalization and rehabilitative care of his father (Dennis), a Guyanese resident, who had a heart attack while in Canada on a visitor’s visa for a two-week stay.
Bocock J found that the taxpayer could not claim the s. 118.2 medical expense deduction because Dennis did not satisfy the requirement in s. 118(6)(b) of being “resident in Canada at any time in the year.” Bocock J noted that the quoted phrase was used 17 times in the Act including in the charging provision (s. 2(1)) and applied “the presumption of consistent application” to find that Dennis was required to have been ordinarily resident in Canada, which he was not.
Neal Armstrong. Summary of Persaud v. The King, 2024 TCC 42 under s. 118(6)(b).
CRA finds that excess-value charges on UK-source pension payments imposed by HMRC did not qualify as foreign income tax, or reduce pension income
At the time of a “benefit crystallization event” (e.g., retiring or turning 75) for a pension plan member, the UK tax authority (HMRC) imposed a “lifetime allowance charge” on 25% of the amount by which the total value of the member’s pension entitlements exceeded a threshold amount (recently, £1,073,100). HMRC considered that the charge was not a tax on income, so that a Canadian-resident member would not benefit from the exemption under Art. 18 of the Canada-UK Treaty.
In finding that the charge, even though collected by way of deduction against pension payments made to the Canadian-resident pension plan member, did not qualify for a foreign tax credit, CRA stated:
While the Charge is a charge to tax, it is not computed on income or profits, nor is it similar to the tax imposed under Part XIII of the Act. Rather, the Charge is computed on the basis of the size of a taxpayer’s pension scheme … [net of] the “lifetime allowance” … .
CRA went on to find that such deduction did not have the effect of reducing the pension income of the member pursuant to s. 56(1)(a)(i).
Neal Armstrong. Summaries of 18 November [sic] 2024 External T.I. 2021-0917031E5 under s. 126(7) – non-business income tax and s. 56(1)(a)(i).
Encore Cellular – Tax Court of Canada finds that a Canadian buyer could not generate ITCs under ETA s. 178.8 on goods bought from non-residents without showing they had borne GST
The taxpayer claimed that it was entitled to input tax credits (ITCs) pursuant to s. 178.8 respecting cellphone and other goods which it had acquired, for resale in Canada by it, from non-registrant, non-resident suppliers. After noting that the general purpose of s. 178.8 was to potentially generate ITCs to a Canadian purchaser where the non-resident supplier bore non-creditable GST on the goods’ importation, and stating that s. 178.8 “only deems tax to have been paid or payable to the extent that tax was in fact paid or payable on importation,” MacPhee J rejected the taxpayer’s ITC claim given inter alia that it had not rebutted CRA’s “assumption that no GST/HST was paid upon importation,” i.e., that the non-resident suppliers had not borne GST on the goods’ importation.
Neal Armstrong. Summaries of Encore Cellular Inc. v. The King, 2024 TCC 35 under ETA s. 178.8(2) and s. 180.
Income Tax Severed Letters 17 April 2024
This morning's release of three severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Hargreaves Property – English Court of Appeal explains the “well established” concept of beneficial ownership, and equates it with beneficial entitlement
Whether the UK taxpayer (“Hargreaves”) was liable for failure to withhold UK tax on interest paid by it to a non-arm’s length UK company (“Houmet”) turned on whether, under a domestic UK tax provision, Houmet was “beneficially entitled” to such income. As part of a UK tax avoidance plan, Houmet purchased the interest coupon and the related principal one or two days before the due date, and was required to pay essentially all of the amount received by it from Hargreaves on the due date to the person from whom it had been assigned the coupon and principal.
In finding that Houmet had no beneficial entitlement to the interest, Falk LJ first stated (at paras. 49, 52 and 54):
[T]he concept of beneficial ownership is well established … . In essence, it means ownership for the benefit of the person in question … .
[C]onsistent with the fundamental requirement of ownership for the benefit of the person in question, or "ownership with benefits", a person who is the legal owner of property will not be its beneficial owner if they do not in fact have any of the benefits of ownership, such that they hold only a "mere legal shell". …
[T]he concept of "beneficial entitlement" should be construed with regard to the authorities that consider the concept of beneficial ownership. In broad terms, therefore, it can be construed as "entitlement with benefits". If the person in question would, in truth, have none of the benefits that entitlement would ordinarily bring, they will not be beneficially entitled.
Before dismissing Hargreaves’ appeal, she referred to the following findings:
Hargreaves was unable to establish that, viewed realistically, the transactions conferred any benefit of an entitlement to the interest. There was no evidence to suggest that Houmet could have used the funds received for any other purpose [other than to pay for the assignment to it], or that it could benefit from them in any other manner. … Further, Houmet's involvement was entirely ephemeral … . There is no suggestion that Houmet was either at risk as to the amount that might be paid, such that it might not be put in funds to pay for the assignment to it, or that it might be able to benefit from the receipt being higher than anticipated.
Neal Armstrong. Summary of Hargreaves Property Holdings Ltd v Revenue And Customs [2024] EWCA Civ 365 under General Concepts – Ownership.
CRA indicates that an exceptional COVID-related withdrawal from a Chilean pension plan qualified as an exempted pension under the Canada-Chile Treaty
The Chilean government, in response to the pandemic, adopted an exceptional measure in 2020, permitting the withdrawal of up to 10% of the pension savings in the individual pension accounts managed by the Chilean pensions authority. CRA noted that such a withdrawal could qualify as a superannuation or pension benefit for Canadian purposes (and, therefore, apparently as a “pension” payment for purposes of the Canada-Chile Treaty) notwithstanding being an exceptional single foreign-source payment. It then indicated that if it so qualified and was paid to a Canadian resident, it would only be taxable in the state in which it arose (Chile), so that the recipient would be entitled to a taxable-income deduction under s. 110(1)(f)(i).
Neal Armstrong. Summary of 12 December 2023 External T.I. 2021-0881541E5 under Treaties – Income Tax Conventions – Art. 18.
We have translated 6 more CRA interpretations
We have translated a further 6 CRA interpretations released in February of 2002. Their descriptors and links appear below.
These are additions to our set of 2,806 full-text translations of French-language Technical Interpretation and Roundtable items (plus some ruling letters) of the Income Tax Rulings Directorate, which covers all of the last 22 years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
| Bundle Date | Translated severed letter | Summaries under | Summary descriptor |
|---|---|---|---|
| 2002-02-01 | 7 December 2001 Internal T.I. 2001-0108597 F - Crédit d'impôt emploi étranger Art. 122.3 | Income Tax Act - Section 122.3 - Subsection 122.3(1) - Paragraph 122.3(1)(b) - Subparagraph 122.3(1)(b)(i) | contract can be with a related person |
| Income Tax Act - Section 248 - Subsection 248(1) - Business | there is a business if profit generated even if the activity was not undertaken primarily for the purpose of earning a profit | ||
| 6 December 2001 Internal T.I. 2001-0110047 F - Revenu d'emploi organisation intern. | Income Tax Act - Section 126 - Subsection 126(3) | organization that brought together states, government agencies and non-governmental organizations did not qualify as an intergovernmental organization | |
| 2002-01-18 | 29 January 2002 External T.I. 2000-0053605 F - REVENU DES PECHEURS | Income Tax Act - Section 9 - Nature of Income | factors for allocating catch between individual holding fishing licence and his fishing corporation |
| 11 February 2002 External T.I. 2001-0092975 F - MOMENT DE L'INCLUSION DANS LE REVENU | Income Tax Act - Section 9 - Timing | retroactive fee increases were not income until that date that the Order in Council ordering their payment took effect | |
| 6 February 2002 External T.I. 2001-0100565 F - CHANGEMENT D'USUAGE ET PERTE FINALE | Income Tax Act - Section 13 - Subsection 13(7) - Paragraph 13(7)(a) | change to personal use of assets on cessation of proprietorship could trigger terminal loss/ no application of s. 13(7)(a) if they are not used at all after the cessation | |
| Income Tax Act - Section 45 - Subsection 45(1) - Paragraph 45(1)(a) | change to personal use of assets on business termination engages ss. 45(1)(a) and 13(7)(a), but not if all use ceases | ||
| 7 February 2002 External T.I. 2002-0118535 F - REMBOURSEMENT DE PRIMES - ENFANT MINEUR | Income Tax Act - Section 146 - Subsection 146(1) - Refund of Premiums - Paragraph (b) | financial dependence condition can be established even where child not living with parent |
Neal H. Armstrong editor and contributor