News of Note
Globex proposes butterfly spin-off of its Chibougamu mining camp properties
Email this ContentGlobex is proposing a spin-off to its shareholders by way of butterfly reorganization of CIM, a newly-incorporated subsidiary that is proposed to be listed on the TSX-V and that will hold various mining and exploration properties in the Chibougamu mining camp.
Notwithstanding that Globex is a TSX-listed public company, it is proposing (perhaps because it may have engaged in a butterfly reorganization within the previous three years) that CIM will receive a pro-rata portion of each of its three types of property (cash, investment property and business property) in the same fashion as would be required in a private company butterfly.
Neal Armstrong. Summary of Globex spin-off Circular under Butterfly spin-offs.
CRA is non-commital on alternative technique for partnership merger
Interpretation Bulletin IT-471R contemplates that two partnerships can merge by winding-up under s. 98(5) with the former partners then contributing the former partnership property to a single partnership utilizing s. 97(2). CRA has indicated that it is not "impossible" that two partnerships also could be merged on a rollover basis by the first partnership contributing its property to the second partnership utilizing s. 97(2), with the first partnership then being wound up under s. 98(3).
Neal Armstrong. Summary of 4 July 2012 T.I. 2011-0429601E5 F under s. 98(5).
Kossow - Tax Court strikes down another leveraged charitable donation arrangement
Another leveraged charitable gift transaction has been struck down. V.A. Miller J. indicated, based on the reasoning in Maréchaux, that the financing of 80% of the gifts in question with a non-interest-bearing loan with a term of 25 years was itself a sufficient collateral benefit for those "gifts" not to qualify as such for tax purposes (unlike Maréchaux, where the taxpayer also had an effective guarantee that a security deposit made by it would accrete to the loan amount by the loan maturity date).
The description of the evidence in this case (based on a 10-day trial) also indicates more clearly than in Maréchaux the circular and vacuous nature of the background transactions (other than the generation of fees), so that the charity in question in fact received virtually no benefit from the supposed gifts.
Neal Armstrong. Summary of Kossow v. The Queen, 2012 TCC 325 under s. 118.1(1) - "total charitable gifts."
CRA treats the provision of know-how as the supply of intangible personal property rather than a service for HST/GST purposes
CRA has ruled that the provision of know-how by a resident supplier to an unregistered non-resident constituted a supply of intangible personal property that qualified for zero-rating. This is inconsistent with some (but not all) of the income tax jurisprudence characterizing the provision of know-how as a service rather than a licensing or disposition of property.
Although the provision of services to a non-resident also potentially is zero-rated, there are differences in the two zero-rating rules. For example, the supply here (viewed as a supply of intangible personal property) would not have been zero-rated if the non-resident had been registered for HST purposes.
Neal Armstrong. Summary of 14 February 2012 Ruling 99181 under ETA Sched. VI, Part V s. 10.1.
CRA indicates that the office location of the hiring office generally will determine the province in which services are supplied for HST purposes
CRA has stated that where a supplier of services obtains more than one address of its client in the ordinary course of its business, it will be the location of the office of the client which hired the supplier which will determine the province where the service is supplied for HST purposes (assuming rules for the situs of special types of services, such as real estate services, do not apply). In a recently released example, CRA indicated that this rule would apply even where the services supplier (a personnel placement company) entered into a specific contract for each individual that it placed with the client that named only the specific work location for that individual (which might be in a different province from that of the HR people who had hired the personnel company).
Neal Armstrong. Summary of 31 October 2011 Headquarters Letter 132350 under New Harmonized Value-Added Tax System Regulations. s. 13(1).
CRA finds that amounts retained by a Canadian independent agent to pay its fee constitute amounts "credited" by it to the non-resident principal for withholding tax purposes
Canadian withholding tax is exigible on various types of amounts which are paid or "credited" by Canadian residents to non-residents. CRA has indicated that in an arrangment under which a Canadian promoter collects fees from Canadian customers for placing their ads on a US website of an arm's length US publisher (calculated on the basis of $X per 1000 clicks on the customers' ads) and then remits the fees to the US publisher net of the promoter's compensation, CRA will consider the full amount of the fees collected by the promoter to have been paid or credited to the US publisher, notwithstanding that only the net amount is remitted. CRA stated that it would consider the gross amounts of the fees to be collected by the promoter as agent for the US publisher.
CRA went on to indicate that, because it would construe the fees as being for services with their amount based on the quantum of the benefit to the Canadian advertisers (i.e., the number of clicks on their ads), the fees would have been subject to withholding under s. 212(1)(d)(iii)(A) of the Act but for a treaty exemption likely being available to the US publisher - such fees for services would not be royalties under the Canada-US Convention.
Neal Armstrong. Summaries of 7 August 2012 T.I. 2011-0416181E5 under s. 212(1), s. 212(1)(d)(iii) and Treaties - Art. 12.
CRA indicates that vacation days of a contract employee in the US can cause his Canadian employer to have a US permanent establishment
Art. V.9(a) of the Canada-US Convention deems a "Canco," which derives more than 50% of its gross active business revenue from services provided by an employee to US businesses during any 12-month period in which that individual is present in the US for more than 183 days, to be deriving those services through a US permanent establishment (so that the resulting profits are not exempt from US income taxation) - or vice versa in the case of a "USCo" providing services to Canadian businesses through an employee who is present in Canada for more that 183 days in a 12-month period.
When asked about the Canco situation, CRA indicated that it considers days that the employee happens to be present in the US for personal reasons, such as vacations, to count for purposes of this 183-day physical presence test.
Neal Armstrong. Summary of 29 August 2012 T.I. 2012-0433791E5 under Treaties - Art. 5.
HST/GST ruling permits gift certificates for services to require the holder to declare the certificate at booking time
CRA has ruled that a gift certificate for services, such as accommodation at a lodge or the use of a golf course, can include a requirement that, in order to book the service, the certificate-holder must declare that a certificate is being used and to state the number on the certificate.
CRA's decision is slightly more liberal than a strict reading of Policy Statement P-202 would allow. The fourth requirement in P-202 is that a gift certificate "does not require the bearer to do anything to redeem the certificate other than to present it as a means of payment or partial payment for the property or services being acquired."
The decision appears to confirm that CRA's current criteria for gift certificates are encapsulated instead in a frequently recurring passage in its recent letters and rulings on s. 181.2 (see the last block quote in our summary of 19 July 2011 Headquarters Letter 127619).
Scott Armstrong. Summary of 24 October 2011, Ruling Case No. 138563 under ETA - s. 181.2.
CRA rules that an IP address is not an "address" for HST purposes
CRA found that an IP address is not an "address" in the New Harmonized Value-added Tax System Regulations. Therefore, online service providers cannot rely on IP addresses to determine at which provincial rate to charge HST. Pursuant to s. 8(c) of the Regulations, such a provider must therefore charge at the highest possible provincial rate, which is the 15% rate in Nova Scotia. (Nova Scotia is currently set to reduce this rate back to 13%.)
Scott Armstrong. Summary of 23 November 2011, Ruling Case No. 131828 under ETA - New Harmonized Value-added Tax System Regulations.
CRA generally permits claiming of input tax credits for GST/HST purposes on costs that relate to a specific proposed asset acquisitions
CRA has indicated that once a company, which has raised capital on a blind pool basis, has identified a commercial enterprise to acquire in an asset purchase, it generally will be entitled to register and claim input tax credits for GST or HST on its related costs thereafter incurred by it - but not before.
Neal Armstrong. Summary of 5 November 2011 Headquarters Letter 135608 under ETA s. 141.1(3)(a).