News of Note
CRA comments on the situation of a registrant selling through a distribution platform operator who insists on being a billing agent for GST/HST purposes
Email this ContentA registered individual who sold coins and monetary collectibles through a distribution platform operator was informed by the operator, after the introduction of the s. 211.23 distribution platform operator rules, that it would now be accounting for the GST/HST as a billing agent on the individual’s behalf, for all sales of taxable goods made within Canada through its platform – to which the individual protested that such an arrangement was not authorized or necessary.
CRA confirmed that “GST/HST registered vendors who make sales of goods through a distribution platform still remain responsible for charging, collecting and remitting the GST/HST on their sales under the regular GST/HST rules.” Depending on the facts, the billing agent election under s. 177(1.11) might be available, and (if available) whether such an arrangement was to be made was a “business decision” of the parties.
Neal Armstrong. Summary of 30 August 2023 GST/HST Interpretation 244795 under ETA s. 177(1.11).
CRA rules that the transfer of land to and from a builder to secure the contract price for home construction was not subject to GST
ETA s. 134 provides that where, under an agreement in respect of a debt or obligation, a person transfers property for the purpose of securing payment of the debt or performance of the obligation, the transfer is deemed not to be a supply, and where, on payment of the debt or performance of the obligation, the property is retransferred, the retransfer is also deemed not to be a supply.
An individual transferred title to his lands (which included a detached dwelling) to a builder, who paid off the existing mortgage on the lands with new mortgage financing, demolished the existing home and built a new one, and conveyed the lands back to the individual on being paid the full contract price plus GST.
CRA ruled that, as s. 134 deemed the transfer and retransfer not to be supplies, the individual had been charged GST on the portion of the contract price that related to the lands, in error.
Neal Armstrong. Summary of 15 November 2023 GST/HST Ruling 245913 under ETA s. 134.
We have translated 6 more CRA interpretations
We have translated a further 6 CRA interpretations released in January of 2002 and December of 2001. Their descriptors and links appear below.
These are additions to our set of 2,831 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 ½ 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 |
|---|---|---|---|
| 2002-01-04 | 2 January 2002 External T.I. 2001-0094555 F - Subsidies and Assistance Payments | Income Tax Act - Section 13 - Subsection 13(7.1) | government assistance to subsidize the interest costs on a loan applied for expansion purposes did not reduce UCC under s. 13(7.1) |
| 2001-12-21 | 3 January 2002 External T.I. 2001-0109425 F - REER TITE D'UNE SOCIETE EN FAILLITE | Income Tax Regulations - Regulation 4900 - Subsection 4900(1) - Paragraph 4900(1)(b) | share of now-bankrupt corporation can continue to be held by RRSP |
| Income Tax Regulations - Regulation 4900 - Subsection 4900(14) | Reg. 4900(12) share continues as qualified investment following bankruptcy | ||
| 9 January 2002 External T.I. 2001-0075825 F - CII-LIQUIDATION | Income Tax Act - Section 88 - Subsection 88(1) - Paragraph 88(1)(e.2) | parent has an s. 12(1)(t) inclusion in its year beginning after the winding-up if the sub claimed winding-up year ITCs respecting depreciable property which it sold before wind-up | |
| Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(t) | application of s. 12(1)(t) to parent in the year following the s. 88(1) wind-up of sub | ||
| 8 January 2002 External T.I. 2001-0084115 F - SOMMES RECUES D'UN SYNDICAT | Income Tax Act - Section 3 - Paragraph 3(a) | amounts received from union by members for making a referral of a non-employee leading to certification application, are not from a source | |
| 7 January 2002 External T.I. 2001-0089585 F - AUTOMOBILE DETENUE EN COPROPRIETE | Income Tax Act - Section 6 - Subsection 6(2) | standby based on corporation’s cost where it purchases a co-ownership interest in the automobile | |
| Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(k) | no s. 6(1)(k) benefit where timely expense reimbursement by employee | ||
| 21 December 2001 External T.I. 2001-0091615 F - PART-SOCIETE DE PERSONNES AGRICOLE | Income Tax Act - 101-110 - Section 110.6 - Subsection 110.6(1) - Qualified Farm or Fishing Property - Paragraph (a) | farm acquired by a family partnership from a farmer was not held by it for 24 months so that interests in the partnership did not qualify as qualified farm property |
GST/HST Severed Letters October-December 2023
Williams Moving – B.C. Court of Appeal chooses to itself correct the bankruptcy proposal which CRA had misinterpreted
A drafting error (involving an inappropriate duplication of text) in the proposal which was approved by the creditors of an insolvent company (Williams Moving) and by the B.C. Supreme Court resulted in CRA subsequently concluding that debts owing by Williams Moving to related companies had been forgiven pursuant to the proposal, so that it reassessed to apply s. 80 to Williams Moving. Following the reassessment, Williams Moving applied for a judicial order to correct the error.
Wilcock JA, after referring to authorities on the interpretation of “patently inconsistent provision in a contract,” concluded that “the most common‑sense reading of the Proposal, and that which does the least violence to its words, is to read out the duplicated text so as to resolve the inconsistency in the [relevant] definition” thereby excluding the debts owing to the related companies from the debt forgiveness.
In finding that the chambers judge had not erred in denying rectification of the written terms of the proposal, Wilcock JA noted (at para. 68) the finding in Fairmont that “rectification requires the parties to show an antecedent agreement with respect to the term or terms for which rectification is sought” and stated:
[I]t is difficult to see how it can be said that the creditors would have understood the Proposal to be anything other than what was presented to them. …
There was insufficient evidence of a common understanding amongst the appellant and its creditors on the matter in dispute … .
However, the chamber judge had failed to exercise her discretion under s. 187(5) of the Bankruptcy and Insolvency Act (“BIA”) to vary the court order giving effect to the proposal, even having regard to Rule 92 under the BIA, which provided that “the court may correct any clerical error or omission in it, if the correction does not constitute an alteration in substance.” In finding that it was appropriate on this appeal to now exercise such discretion, Wilcock JA stated:
I am satisfied the duplicated text appeared in the version of the Proposal accepted by creditors as a result of a clerical error which the Court may correct. The correction does not constitute an alteration in substance. It will not prejudice creditors or third parties … [nor] is [it] a collateral attack upon a [CRA] decision that should be challenged elsewhere.
Neal Armstrong. Summary of Williams Moving & Storage (B.C.) Ltd. v. Canada (Minister of National Revenue), 2024 BCCA 160 under General Concepts – Rectification.
DAC – Tax Court of Canada finds no abuse in avoiding CCPC status by continuing to BVI
With a view to its imminent disposition of the shares of a subsidiary, the taxpayer continued to the British Virgin Islands, with the result that it ceased to be a Canadian-controlled private corporation (CCPC) and became a private corporation that was not a CCPC (its central management and control remained in Canada). CRA assessed on the basis that the resulting non-application of s. 123.3 (imposing refundable tax) and s. 123.4 (denying the general rate reduction on aggregate investment income) was an abuse of those provisions and of s. 250(5.1).
In finding no abuse of s. 123.3, D’Arcy stated:
Parliament has chosen, for policy reasons, to have different sets of rules for different corporations. …
Prior to being continued in the British Virgin Islands, the Appellant was on one side of the dividing line [a CCPC] and, after it was continued, it was on the other side of the dividing line [a non-CCPC]. …
[T]he Appellant’s choice to be taxed as a non-CCPC did not abuse section 123.3 since Parliament only intended it to apply to a corporation’s investment income that is taxed under the regime for CCPCs.
After indicating that the absence of a rate reduction under s. 123.4 for aggregate investment income reflected that it was subject to a low rate of tax once distributed as dividends, D’Arcy J noted that there was no abuse regarding the s. 123.4 rate reduction, since the rate reduction it enjoyed for its taxable capital gain reflected the unavailability of a dividend refund.
Finally, the application of s. 250(5.1) accorded with its rationale, which was “to equate the place of continuance of a corporation with its place of incorporation”.
Neal Armstrong. Summaries of DAC Investment Holdings Inc. v. The King, 2024 TCC 63 under s. 245(4), s. 123.3, s. 123.4(1) – full rate taxable income – (b)(iii) and s. 250(5.1).
CRA applies s. 13(7)(e)(ii) to the purchase of a depreciable property from a non-arm’s length non-resident corporation with no tax nexus to Canada
A non-resident corporation (“US Corp”) sold trademarks at a sales price in excess of their adjusted cost base to a non-arm’s length Canadian resident corporation (Canco). Canco took the position that, as US Corp was a non-resident corporation which was not liable for tax in Canada, it was not a “taxpayer” under the Act in light of Oceanspan, so that it could not be considered to have a “capital property” (whose definition references a taxpayer), as required for the application of s. 13(7)(e)(ii). Accordingly, s. 13(7)(e)(ii) did not apply to reduce the step-up in the capital cost of the trademarks (which were Class 14.1 property) to it.
The Directorate rejected this position and found that s. 13(7)(e)(ii) was also applicable where the non-arm’s length transferor was a non-resident. In distinguishing Oceanspan (which entailed the purported generation of non-capital losses by a non-resident corporation while it was not subject to Canadian tax), it stated:
In the current situation, the object and purpose of subparagraph 13(7)(e)(ii) is to establish the resident purchaser’s capital cost of depreciable property acquired from a non-arm’s length transferor for CCA purposes. The purpose is not to determine the tax liability of the non-resident transferor corporation.
Neal Armstrong. Summary of 4 March 2023 Internal T.I. 2023-0994501I7 under s. 13(7)(e)(ii).
Income Tax Severed Letters 8 May 2024
This morning's release of three severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA indicates that it is prepared to ignore reasonable absences for injury, illness, or birth in applying the actively-engaged TOSI test
Regarding the requirement in s. 120.4(1) – “excluded business” – that a specified individual be actively engaged on a regular, continuous, and substantial basis in the activities of the business in either the taxation year, or any five taxation years of the specified individual, s. 120.4(1.1)(a) deems an individual to be so engaged in a taxation year if the individual works in the business at least an average of 20 hours per week during the portion of the year in which the business operates. When asked regarding the impact on this test if the employment is interrupted by injury, illness or the birth or adoption of a child, CRA stated:
[T]he period of time during which a specified individual was on leave will not, in and of itself, preclude the individual from meeting the requirements of an excluded business. For example, if a specified individual was on a medical leave beginning in March of 2022 and returned in September of 2022, the CRA would be prepared to disregard the 6 month temporary absence in determining if the individual was (or was deemed to be) actively engaged on a regular, continuous and substantial basis in the activities of the business. The CRA would be prepared to take this approach only in cases where the leave in question is reasonable and in line with leave taken in an arm’s length situation for similar reasons (e.g. when an individual is unable to work due to injury, illness, or the birth/adoption of a child), and where the specified individual can reasonably be expected and has demonstrated an intent to return to work on the expiration of the leave period.
Neal Armstrong. Summary of 21 February 2023 CPAC Roundtable Q. 12, 2022-0947201C6 under s. 120.4(1.1)(a).
Litman – Tax Court of Canada finds that a laneway house built atop an unsevered garage qualified as a new residential complex for HST rebate purposes
Mr. Litman built a laneway house on top of a detached garage on his property in Ottawa, without severing it, and claimed the new housing rebate. In finding that this qualified under ETA s. 256(2)(a) as the construction of a residential complex which was a single unit residential complex for use as the primary place of residence of a relation (his mother), St-Hilaire J stated that:
The laneway house is detached from the main house and it forms a new residential complex where, prior to its construction, there was none. In addition, I see nothing in the definition of residential complex that requires that the laneway house be held under separate title to meet the requirements of that definition.
Neal Armstrong. Summary of Litman v. The King, 2024 TCC 58 under ETA s. 256(2).
Neal H. Armstrong editor and contributor