(q)-(vv)

Paragraph 20(1)(q) - Employer’s contributions to RPP or PRPP

Administrative Policy

14 March 2017 External T.I. 2016-0627311E5 F - Deduction of contribution to an IPP or RCA

non-deductibility if supplementary benefits do not merely proportionately top-up IPP benefits

CRA considered a plan that provides supplementary benefits to in individual pension plan to be a salary deferral arrangement rather than a retirement compensation arrangement if the benefits provided for are unreasonable – which CRA will consider to be the case unless the terms of the supplemental plan are substantially the same as those of the IPP and the supplementary benefits merely provide the employee with a supplement for the benefits that would be provided under the IPP but for the defined benefit limit.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Salary Deferral Arrangements a mooted RCA providing supplementary pension benefits must be similar to the IPP which it supplements 253

18 November 2014 External T.I. 2012-0457981E5 - Restorative payment to registered plan

employer restorative payment to RRSP or RPP to compensate for tort

Employer accidentally missed contributing, to a group RRSP or defined contribution pension plan, the Employer's portion on behalf of an employee for a time period, and will now make a restorative payment to the accounts of the employee under the Plans to compensate for the lost income from the missing contributions. Does a taxable benefit result? CRA responded:

Where a payment made by an employer into a registered plan of an annuitant is reasonable compensation for an employee's financial loss and the payment is the result of a wrongdoing or tort in the administration of the plan…the payment would not be viewed as employment income to the employee. …[N]either the employer nor the employee are considered to have made a contribution or paid a premium to the registered plan as a consequence of the payment of damages and therefore, there is no corresponding deduction available under paragraph 20(1)(q) or paragraph 60(i).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 204.1 - Subsection 204.1(2.1) employer restorative payment to RRSP or RPP to compensate for tort 77
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) employer restorative payment to RRSP or RPP to compensate for tort 109
Tax Topics - Income Tax Act - Section 60 - Paragraph 60(i) employer restorative payment to RRSP or RPP to compensate for tort 153

IC 72-13R8 "Employees' Pension Plans"

Paragraph 20(1)(r) - Employer’s contributions under retirement compensation arrangement

Administrative Policy

2018 Ruling 2017-0720901R3 - Use of a Surety Bond by RCA

contributions (including re Pt XI.3 tax) for funding surety bond fees, currently deductible

A Company determined that, rather than securing a non-registered supplemental employee retirement plan (“SERP”) for its senior employees using letters of credit, there would be lower fees to instead arrange for surety bonds to be delivered to the trustee for the security arrangements by insurance companies. In addition, “surety bonds will not reduce the Company’s borrowing capacity (in contrast to LOCs).”

This entails essentially following the same arrangements as where LCs are used. Every time a surety bond is required to be issued, renewed or replaced, the Company will be required to pay the surety fee to the trustee under a new trust, and the Company will make a corresponding payment to the Receiver General equal to the surety fee on account of the refundable tax payable under Part XI.3. The trustee will, in turn, pay the surety fee to the insurance company for such issuance, renewal or replacement of a surety bond.

CRA ruled that the amounts paid to the trustee by the Company and the amounts remitted to the Receiver General by the Company, will constitute contributions made to the retirement compensation arrangement, and will be deductible by the Company to the extent permitted by s. 20(1)(r) for the taxation year in which they are made.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 207.5 - Subsection 207.5(1) - Refundable Tax - Paragraph (a) use of surety bonds rather than LCs to secure SERP benefits 483

Articles

Jim Kahane, Uros Karadzic, Simon Létourneau-Laroche, "A Fresh Look at Retirement Compensation Arrangement: A Flexible Vehicle for Retirement Planning", Canadian Tax Journal (2013) 61:2, 479 – 502.

Services requirement (pp. 486-7)

Consistent with contributions to other pension arrangements, employer contributions to an RCA are deductible in the year they are paid. [fn 28: Paragraph 20(1)(r).] Retirement benefits are taxable to the employee at the time of receipt. [fn 29: Paragraph 20(1(x).]

It should be noted that the deduction is permitted only for contributions made with respect to services rendered by an employee or a former employee. Accordingly, even though the definition of an RCA allows contributions to be made by a person not dealing at arm's length with the employer, [fn 30: Subsection 248(1)..."retirement compensation arrangement."] such contributions would not be deductible unless the employee had rendered services to that person. [fn 31: CRA document no. 2007-0259851I7, January 10, 2008.]

Past services included (p. 487)

…It seems to be acceptable to the CRA that a deduction is available with respect to past services, including services rendered prior to the year in which the RCA is established, provided that the contributions are reasonable and there is an employer-employee relationship. [fn 33: CRA document no. 2004-0082991E5, January 5, 2005.]

Paragraph 20(1)(v.1)

Administrative Policy

8 June 1994 Internal T.I. 5-941462 -

Mine tailings may be ore from a mineral resource such that income from processing tailings may qualify for the resource allowance.

Paragraph 20(1)(z) - Cancellation of lease

See Also

Vauban Productions v. The Queen, 75 DTC 5371, [1975] CTC 511 (FCTD), aff'd 79 DTC 5371, [1979] CTC 262 (FCA)

Under a lease, the lessor retains residuary rights to the leased property. It was found that under the circumstances of the case, where there had not been an absolute transfer of distributorship rights to films from the taxpayer to the C.B.C., the taxpayer was to be regarded as leasing film rights.

Administrative Policy

30 May 1991 Ruling 3-910967 -

"In a situation where a lessee has constructed a building on land leased under a long-term lease and the lease provides that the building becomes part of the land, possession of which reverts to the lessor upon the termination of the lease, a payment made by the lessor to cancel the lease may appropriately be viewed as in part a payment to cancel the lease of the land (the property that is the subject of the lease) and in part a payment for early possession of the building. In our opinion, it would be appropriate to apportion the payment into its two components on the basis of the relative values of the land and the building. Accordingly, that portion which relates to the cancellation of the lease of the land would be deductible in accordance with the provisions set out in paragraph 20(1)(z) … ."

Articles

Atlas, "Income Tax Issues in Real Estate Leasing", under "Lease Cancellation", 1989 Corporate Management Tax Conference, p. 3:27

It is not clear whether s. 20(1)(z) is applicable where the lessor has only a leasehold interest, or where the lease-cancellation payment is made in order to acquire vacant possession of real estate inventory.

Paragraph 20(1)(z.1) - Idem [Cancellation of lease]

Administrative Policy

29 May 1990 T.I. S-9748 (October 1990 Access Letter, ¶1456)

Where the taxpayer makes a lease cancellation payment to tenants in order to obtain vacant possession of a building which is to be demolished so that a new building can be erected on the site, 3/4 of the portion of the lease cancellation payment which relates to the building generally will be deductible by the taxpayer in the year the building is demolished, and the portion of the lease cancellation payment referrable to the underlying land will be deductible over the remaining term of the previous lease under s. 20(1)(z).

22 May 1990 T.I. (October 1990 Access Letter, ¶1457)

The restrictions in Regulation 1100(11) are not applicable to the deduction of a terminal loss.

Paragraph 20(1)(aa) - Landscaping of grounds

Cases

Toronto College Park Ltd. v. The Queen, 94 DTC 6172 (FCTD)

The taxpayer, which owned a new commercial building, paid for the landscaping of a public park adjoining the building. Simpson J. first noted (p. 6175) that "ownership of land is not a condition precedent to the deductibility of landscaping expenses". Simpson J. went on to state (p. 6176) that "landscaping under the Act involves alterations to the earth's surface achieved by manipulating or reforming that surface to provide a more attractive and accessible environment" and concluded that the taxpayer was permitted to deduct expenditures for earth and growing things, pathways and sidewalks, and reflecting pools and fountains, but was not permitted to deduct the cost of movable surface items such as statues.

Words and Phrases
landscaping

Qualico Developments Ltd. v. The Queen, 84 DTC 6119, [1984] CTC 122 (FCA)

S.20(1)(aa) only provides for the deduction of landscaping costs that otherwise would be non-deductible by virtue of ss.18(1)(a), (b) or (h). It thus does not authorize the deduction of landscaping costs that form part of the cost of land inventory and which accordingly would be deductible from income in the year of sale of the inventory. To depart from the normal rule that inventory costs are deductible only in the year of sale would distort the scheme of the Act.

Differing views were expressed as to whether unsold inventory could be said to have been "used" for the purpose of gaining income.

See Also

Forest Products Terminal Corp. Ltd. v. Minister of Municipal Affairs of the Province of New Brunswick (1986), * A.P.R. (NBQB)

A consortium of private stevedoring companies was held to operate a forest products terminal under such direction of the National Harbour Board as to make them an arm of the Board and not liable for assessment under the Assessment Act (N.B.) for using or occupying the terminal.

Administrative Policy

22 November 1991 T.I. (Tax Window, No. 13, p. 16, ¶1609)

In order for an amount paid for landscaping around a structure to be deductible, the payor must be the owner of the property at the time the landscaping is done. Accordingly, if a partnership acquires the property after completion of the landscaping, the partnership will not be entitled to the deduction even if part of the purchase price for the property is allocated to landscaping.

Articles

Atlas, "Income Tax Issues in Real Estate Leasing"

"it is doubtful that a taxpayer who has only a leasehold interest in a building would qualify for a deduction under this provision."

Paragraph 20(1)(bb) - Fees paid to investment counsel

Cases

Canada v. Rio Tinto Alcan Inc., 2018 FCA 124

deduction was available for advisory fees respecting proposed acquisitin or divestiture of a whole company

The taxpayer (“Alcan”), a Canadian public company listed on the TSX and NYSE and in Europe, incurred fees (mostly of investment dealers, law firms and a French lobbying and public relations firm in connection with its decision to make a hostile bid for a French public company (“Pechiney”) and the subsequent making and completion of that bid late in 2003. In 2004, the taxpayer determined to effect a butterfly spin-off of a portion of its (laminated products) assets, which resulted in the receipt by its shareholders of shares of a new public company (“Novelis”) in January 2005.

Pelletier JA confirmed the distinction between fees relating to acquisition and divestiture transactions of Alcan that were “incurred as part of Alcan’s decision-making process” (“oversight expenses”) and fees that “were incurred in the course of putting into effect Alcan’s decision once it had been made” (“implementation costs”) (para. 105). Accordingly, he confirmed Hogan J’s finding that the substantial portion of investment dealer fees incurred by the Alcan board that represented input to its decision to launch a hostile bid for a French public company (i.e., 65% of the Morgan Stanley fee and 35% of the Lazard Frères fee) was currently deductible, whereas the balance of the fees relating to assistance in the bid was a capital expenditure (and, thus, an addition to the adjusted cost base of the acquired shares).

In finding that the oversight expenses paid to the investment dealers would also have been deductible under s. 20(1)(bb), he rejected the Crown’s submissions that such fees were “commissions” and that they were not in respect of a “specific security” because they were in respect of all the Pechiny or Novartis shares, stating (at paras 89-90, and 96-97):

… In my view, neither “specific shares” nor “certaines actions” excludes the possibility that the provision applies to a sale of all of the shares of a particular issuer. Within the universe of all securities available to be purchased by an investor, all of the shares of particular issuer are “certaines actions” or “some shares” to the extent that they are less than the whole of all shares which an investor might purchase. They are also “specific shares” in the sense that they can be identified with precision.

To the extent that the Minister argues that paragraph 20(1)(bb) only applies to a purchase of some shares of an issuer, she should be able to identify some statutory purpose which would justify a distinction between advice related to the purchase of some shares of an issuer as opposed to advice with respect to the purchase of all the shares of that issuer. She has not done so. …

He also rejected the Crown's submission that s. 40(1)(a) should prevail over s. 20(1)(bb) as the more specific provision, stating (at para. 97) that "paragraph 40(1)(a) is no more specific than paragraph 20(1)(bb)."

Words and Phrases
commission specific shares
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Expenditure v. Expense - Oversight or Investment Management dealer and professional fees incurred by a public board in determining to make a bid, as contrasted to implementation, were currently deductible 336
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(g) takeover bid circular was not a financial report 154

See Also

Rio Tinto Alcan Inc. v. The Queen, 2016 TCC 172

investment dealer fees re advisability of making hostile takeover were fully deductible

The taxpayer, a Canadian public company listed on the TSX and NYSE and in Europe, incurred fees (mostly of investment dealers, law firms and a French lobbying and public relations firm (“Publicis”)) in connection with its decision to make a hostile bid for a French public company (“Pechiney”) and the subsequent making and completion of that bid late in 2003. In 2004, the taxpayer determined to effect a butterfly spin-off of a portion of its (laminated products) assets, which resulted in the receipt by its shareholders of shares of a new public company (“Novelis”) in January 2005.

Before turning to s. 20(1)(bb), Hogan J found that 35% of the $8.2 million fee paid to Lazard Frères related to work leading to advice to the taxpayers’ board of directors respecting whether, and on what terms, an offer should be made for the Pechiney shares and, therefore, was fully deductible under s. 9, whereas the balance relating to the negotiation and revision of the offer, was a capital expenditure (which CRA accepted was part of the cost of the Pechiney shares). The same approach indicated that 65% of the $26 million fee paid to Morgan Stanley (including respecting a fairness opinion) was fully deductible, as well as indicating that fees of Lazard Frères respecting the divestiture options incurred up to the time of board approval of the butterfly spin-off were fully deductible, and thereafter incurred on capital account.

In finding that the portion of the fees paid to Morgan Stanley and Lazard Frères respecting the Pechiney transaction, that related to the work leading up to advsing the board on wether and on what terms to launch the bid, was also deductible under s. 20(1)(bb), Hogan J first found that the fees were not “commissions,” as they were fixed and not established as a function of a percentage of sales (para. 146) and, furthermore, the two dealers were not acting as agents (para. 152). In also rejecting a Crown argument that advice on a bid for all the shares of Pechiney did not qualify as advice on the purchase of "specific" shares (referred to more broadly in the French version as "some" shares), Hogan J stated (at para. 159):

...Parliament used the expressions “specific shares” and “certaines actions” to exclude generic investment advice such as a recommendation that 10% of an investor’s savings be invested in preferred shares. In summary ... a deduction would be available where the investment advice is clear and concerns shares of a particular issuer.

Similarly, respecting the divestiture-related fees of Lazard Frères incurred up to board approval of a butterfly spin-off, these related to advice and approaches to potential third-party purchasers of the shares through which the laminated products business was held as well as to the ultimate sale (on a rollover basis) of the shares of that laminated products company to Novelis in consideration for the acquisition of (subsequently redeemed) preferred shares of Novelis, and the calculation of the Lazard Frères success fee did not represent a percentage of the value of those shares – so that those fees also were deductible under s. 20(1)(bb) as well as under s. 9.

Words and Phrases
commission
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Legal and other Professional Fees investment dealer fees incurred respecting the advisability of making hostile takeover were fully deductible under s. 9 393
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(cc) legal fees incurred in securing regulatory approval for a hostile bid related to the bidder's business of earning income from shares and interaffiliate sales 170
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(g) takeover bid circular costs did not qualify 96
Tax Topics - Income Tax Act - Section 14 - Subsection 14(5) - Eligible Capital Expenditure fees incurred in order to acquire shares were excluded/butterfly expenses excluded as taxpayer was not in the business of implementing corporate reorganizations 343
Tax Topics - Income Tax Act - Section 169 - Subsection 169(2.1) raising general question of deductibility of fees and listing s. 20(1)(e) did not satisfy s. 165(1.11) 228
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(e) failure to advance evidence showing allocation of fees to share consideration 131
Tax Topics - Income Tax Act - Section 40 - Subsection 40(1) - Paragraph 40(1)(a) - Subparagraph 40(1)(a)(i) expenses incurred in butterfly spin-off recognized as disposition expenses 61
Tax Topics - Statutory Interpretation - French and English Version finding common meaning of 2 versions of s. 20(1)(bb) 102

Wickham Estate v. The Queen, 2015 DTC 10125 [at 102], 2014 TCC 352 (Informal Procedure)

payments to (otherwise) retired investment manager deductible

In 2005, the BC Supreme Court appointed a retired investment manager ("Sanders"), as committee of Ms. Wickham, who was mentally infirm. Sanders used securities advisers at HSBC to assist him in managing her portfolio for which HSBC charged a separate annual fee of 0.75% of her portfolio. In 2010, the Public Trustee determined that his remuneration as committee for the period from 13 May 2008 to 31 May 2010 should be $19, 425 for income management and $25,783 for asset management; however, he charged only $40,000, which was paid to him in 2011 before her death in 2011.

The Minister denied her deduction of the fees on the basis that his services, which included arranging for home and health care, were personal in nature; and that in any event they did not qualify under s. 20(1)(bb) as he was not carrying on a business.

After stating (at para. 19) that "since the management services provided by Mr. Sanders related to capital assets held by Ms. Wickham, the fees would be non-deductible capital expenditures unless otherwise provided," Paris J found that the fee were deductible under s. 20(1)(bb). The Public Trustee's letter authorizing Sanders' compensation specified that the payment was for asset and income management, and its amount was based on the performance and size of the portfolio - that is, any other help he gave to the deceased did not relate to his compensation. Sanders' "principal business" was investment management because managing the deceased's assets and investments was his only business at the time (para. 22-23).

However, as about 20% of the $1.8 million portfolio was in a RRIF, deduction of 20% of the fee was denied under s. 18(1)(u).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Expenditure v. Expense - Oversight or Investment Management pro rata denial based on portfolio portion invested in RRIF 65
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(u) pro rata denial based on portfolio portion invested in RRIF 40

Vatcha v. MNR, 91 DTC 653 (TCC)

In finding subscription fees for various investment publications to be non-deductible, Dussault TCJ. stated (p. 655):

"General subscription fees for an investment publication listing and analyzing hundreds and thousands of corporations and securities is not, in my view paying 'an amount to a person for advice as to the advisability of purchasing or selling a specific share or security of the taxpayer'. In my opinion, what Parliament contemplated in enacting such a provision is a person-to-person relationship between a client seeking ... advice with respect to [a] specific share or security and the 'advisor'. Moreover, to be deductible the amount must be paid for the advice itself and not as a subscription fee for a publication."

Re Magna Training Centre (1987), 62 OR (2d) 540 (S.C.O.)

A training centre used by a manufacturing company for its workers was therefore "used" as part of its manufacturing business.

Charron v. MNR, 87 DTC 98, [1987] 1 CTC 2135 (TCC)

Taxpayers who each purchased an undivided interest in a MURB and were charged a fee by the syndicator of the MURB for its services in finding, evaluating and recommending the investment in the MURB were entitled to the deduction under s. 20(1)(bb) on the ground that the terms "security" and "valeur mobilière" "have the meaning given them in the securities legislation in the three [relevant] Canadian provinces". Because under such legislation the syndication of interests in MURBs constituted the selling of securities, the fee paid to the syndicator was in respect of the advisability of purchasing securities, and the principal business of the syndicator consisted of making such advice.

Bardsley Trust v. MNR, 82 DTC 1659, [1982] CTC 2642 (T.R.B.), rev'd on consent [see 83 C.T.J. 1013]

Two individual trustees of a trust had developed extensive expertise in the financial field as shareholders or employees of private companies but were not engaged principally in the business described in ss.20(1)(bb)(iii) and (iv). Remuneration paid to the trustees by the trust accordingly was non-deductible.

No. 579 v. MNR, 58 DTC 734, 21 Tax ABC 21

Fees paid by a trust to two individual trustees (a solicitor and the vice-chairman of one of the principal American banks) were not deductible by the trust under s. 11(13) of the pre-1972 Act because their principal business was not advising others as to the advisability of purchasing or selling specific securities.

Administrative Policy

25 August 2014 External T.I. 2014-0526891E5 - Investment counselling fees for RDSP

fees paid by RDSP holder not deductible

In indicating that investment counselling fees paid in respect of securities of an RDSP are not deductible if they are paid by the RDSP holder, CRA stated:

One of the requirements for a deduction under paragraph 20(1)(bb)...is that the amount must be paid either for advice for purchasing or selling a specific share or security of the taxpayer or for services in respect of the administration or management of shares or securities of the taxpayer. Accordingly, this requirement would not be satisfied if the amount was paid by someone other than the owner of the shares or securities.

6 May 2014 CALU Roundtable, 2014-0523321C6 - 2014 CALU Conference

segregated fund not a "security"

After quoting authorities on the meaning of "security," including a statement in Canadian & Foreign Securities Co. v. M.N.R., [1972] C.T.C. 391 at 395, 72 DTC 6354 at 6356 (F.C.T.D.) referring to "instruments for the payment of money," the questioner submitted that "segregated funds should be considered ‘securities' within the popular sense or commercial meaning of the term." CRA responded:

A segregated fund policy is a contract of insurance and … is not a share or security of the taxpayer. Consequently … paragraph 20(1)(bb) … does not apply to fees paid by a taxpayer in respect of the advisability of the acquisition or disposition of segregated fund policies, or for the administration or management thereof as the requirements of that paragraph are not met.

Words and Phrases
security

14 February 2011 External T.I. 2010-0381561E5 - Deductibility of Trustee Fee

Where the trustee pays, on behalf of the trust, fees for advice as to the advisability of purchasing or selling securities in respect of the administration or management of the shares or securities in respect of the administration or management of the shares or securities held by a trust, to another person described in paragraph 20(1)(bb) of the Act, any reimbursement by the trust to the trustee for such fees may be deductible to the trust under paragraph 20(1)(bb) of the act provided the requirements in paragraph 20(1)(bb) of the Act are otherwise fully satisfied.

23 March 2007 External T.I. 2006-0207071E5 - Investment Counsel Fees

A performance fee break (based on percentage increases in the fair market value of the portfolio that was being managed) might be deductible, depending on the circumstances, under s. 9 in computing income from a business or property, or be deductible under s. 20(1)(bb).

18 July 2006 Internal T.I. 2006-0170871I7 - Investment banker fees

A bidder, who did not yet own all the shares of a particular corporation and obtained the services of an investment banker on a commission basis to acquire the remainder of the shares, would not be entitled to claim a deduction under s. 20(1)(bb) with respect to the commission paid by it. That expense would be added to the adjusted cost base of the acquired shares.

6 February 2002 External T.I. 2001-010560 -

S.20(1)(bb) is applicable to taxpayer seeking to buy or sell, or obtain services, and not to a corporation whose issued and outstanding shares were being sold. Accordingly, s. 20(1)(bb) would not be available to provide a deduction to a corporation in respect of expenses incurred in response to a takeover bid.

8 January 1997 Memorandum 963477

"Since the duties of the Public Trustee appear to exclusively involve the handling of a taxpayer's assets rather than the management of shares or securities, generally, the provisions of paragraph 20(1)(bb) of the Act are not met."

11 July 1995 T.I. 951746 (C.T.O. "Fees Paid to Investment Counsel")

"The preamble of paragraph 20(1)(bb) of the Act specifically excludes amounts paid as commissions. Accordingly... a transaction fee related to a specific number of trades and not expressly for services in respect of the administration or management of shares or securities of the taxpayer would not be deductible ...".

22 April 1992 External T.I. 5-921033 -

Because both legal and beneficial ownership of securities for which advice or services have been provided, must belong to the taxpayer claiming the deduction, the annuitant of an RRSP cannot claim a deduction for mortgage administration fees paid by him in respect of the RRSP under s. 20(1)(bb), although administration fees which relate to the overall direction in management of the affairs of the plan trust may be deductible under s. 18(1)(a).

10 January 1992 Memorandum (Tax Window, No. 17, p. 17, ¶1773)

An interest in a building is not a "security".

6 November and 18 December 1990 T.I. (Tax Window, Prelim. No. 2, p. 18, ¶1048)

Where a client of a brokerage house is charged an all-inclusive monthly or annual amount, it is incumbent upon the client to determine the amount of the fee that meets the requirements of s. 20(1)(bb) by demonstrating the fair market value of any investment advisory or portfolio management services that are included. Because a full-service broker's usual commission would ordinarily entitle the client to some advice, the elimination from a periodic

fee of an amount in respect of commissions based on rates charged by discount brokers would not provide a reasonable basis for estimating the value of the investment advisory portfolio management services.

87 C.R. - Q.13

There is no conflict between IT-238R2, paragraph 7 and IT-124R5, paragraph 2.

81 C.R. - Q.22

Although it is not RC's policy that fees paid to an individual can never be deducted under s. 20(1)(bb), the provision is applied strictly.

IT-238R2 "Fees Paid to Investment Counsel"

Paragraph 20(1)(cc) - Expenses of representation

See Also

Rio Tinto Alcan Inc. v. The Queen, 2016 TCC 172

legal fees incurred in securing regulatory approval for a hostile bid related to the bidder's business of earning income from shares and interaffiliate sales

The taxpayer, a Canadian public company listed on the TSX and NYSE and in Europe, incurred substantial legal fees in connection with its decision to make a hostile bid for a French public company (“Pechiney”). Hogan J found that (mostly legal) fees of under around $17 million incurred in obtaining regulatory approvals (e.g., of competition, securities and (French) defence authorities) were deductible under s. 20(1)(cc), stating (at para. 178):

...[T]he Pechiney transaction directly enhanced the Appellant’s business since the Pechiney shares were used by the Appellant in the course of carrying on its business. The evidence shows that, after the Appellant acquired new entities such as Pechiney, it soon earned income from sales to those entities, from management fees, from other service fees and from dividends. While dividends are generally considered to be income from property, that characterization is not inconsistent with a finding that the Appellant used the Pechiney shares in the course of carrying on a business. [Then citing s. 125(7) "specified investment business" definition and Canadian Marconi].

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Legal and other Professional Fees investment dealer fees incurred respecting the advisability of making hostile takeover were fully deductible under s. 9 393
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(bb) investment dealer fees re advisability of making hostile takeover were fully deductible 515
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(g) takeover bid circular costs did not qualify 96
Tax Topics - Income Tax Act - Section 14 - Subsection 14(5) - Eligible Capital Expenditure fees incurred in order to acquire shares were excluded/butterfly expenses excluded as taxpayer was not in the business of implementing corporate reorganizations 343
Tax Topics - Income Tax Act - Section 169 - Subsection 169(2.1) raising general question of deductibility of fees and listing s. 20(1)(e) did not satisfy s. 165(1.11) 228
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(e) failure to advance evidence showing allocation of fees to share consideration 131
Tax Topics - Income Tax Act - Section 40 - Subsection 40(1) - Paragraph 40(1)(a) - Subparagraph 40(1)(a)(i) expenses incurred in butterfly spin-off recognized as disposition expenses 61
Tax Topics - Statutory Interpretation - French and English Version finding common meaning of 2 versions of s. 20(1)(bb) 102

Industries Perron Inc. (anciennement 3654419 Canada Inc.) v. The Queen, 2012 DTC 1072 [at 2836], 2011 TCC 433, aff'd 2013 FCA 176

The International Trade Commission and the US Department of Commerce made preliminary anti-dumping rulings in 2001 against the taxpayer respecting the importing of lumber to the US. The taxpayer would not be permitted to sell its lumber in the US without a cash deposit or bond based on the preliminary rulings' estimated dumping margin of 12.58%. The taxpayer accumulated a $3,576,088 "allowance for countervailing and antidumping duties," $2,371,500 of which it invested in term deposits with the Royal Bank of Canada ("RBC"). RBC then issued a letter of credit to a US insurance company, which guaranteed payment of part of the duties.

After finding that the amount of the allowance was not deductible by virtue of s. 18(1)(a) and (e) (because the amount of the duties was not fixed until the final rulings in 2002), Angers J. concluded that term deposits with RBC were not deductible under s. 20(vv). He stated (at para. 27):

Although the funds used for the acquisition of the term deposits were mortgaged [through the letter of credit] and the use of the funds was restricted by the Royal Bank, they were still the appellant's property. Even if the appellant claims that it paid the amount of the term deposits to the Royal Bank, in fact, in only mortgaged them and even if it committed to only dispose of them with the Bank's consent, this does not amount to a transfer of property.

Administrative Policy

21 January 2016 CPA Personal Income Tax Roundtable Q. 7, 2016-0625731C6 F - Fees related to a voluntary disclosure

VDP fees deductible if re business

After noting that “CRA considers that expenses of making a voluntary disclosure…would generally not be made or incurred by the taxpayer for the purpose of gaining or producing income from a business or property,” CRA stated (TI translation):

[W]here a taxpayer earns income from a business, the expenses of making a voluntary disclosure that relates to that business could be deductible as expenses of making representations to a government under paragraph 20(1)(cc).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 60 - Paragraph 60(o) professional fees incurred after a voluntary disclosure is accepted commence to be deductible 143

22 May 2014 Ponoka Liason Meeting Roundtable, 2014-0528451C6 - Cost of Making Voluntary Disclosure

costs of voluntary disclosure incurred by business

This was a follow-up query on 2012-0437831E5, indicating that voluntary disclosure costs were not deductible, as they were neither incurred to earn income from business or property, nor in relation to an objection or appeal. After confirming this position, CRA stated:

However, where a taxpayer earns income from a business, the cost of making a voluntary disclosure relating to that business may be deductible as a cost of representation pursuant to paragraph 20(1)(cc).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Legal and other Professional Fees costs of voluntary disclosure incurred by business 74
Tax Topics - Income Tax Act - Section 60 - Paragraph 60(o) costs of voluntary disclosure incurred by business 74

20 June 2007 Internal T.I. 2007-0233551I7 - Deductibility of Transaction Costs

Auditor fees incurred in connection with a proposed conversion of a corporation into an income fund which did not proceed were not deductible under s. 20(1)(cc) as no report was actually issued to a securities commission or other public body.

12 May 2000 Internal T.I. 2000-0001737 - EXPENSES OF REPRESENTATION

In response to an inquiry respecting the deductibility under s. 20(1)(cc) of legal costs incurred by farmers, in connection with making representations to the Ontario Municipal Board, supporting the rezoning of their farm property from rural to agricultural status, CRA stated:

In our view, the Ontario Municipal Board is a municipal or public body performing a function of government. Therefore, legal fees paid, in connection with making representations to the Ontario Municipal Board, relating to a business carried on by a taxpayer, would be deductible in the year paid under paragraph 20(1)(cc) of the Act. Paragraph 20(1)(vv)

16 November 1994 Memorandum 941467 (C.T.O. "Film Rights") (see also 3 November 1994 Memorandum 941171)

Representation costs respecting the obtaining of a five-year CRTC licence would represent part of the capital cost of acquiring such an asset and are not deductible under s. 20(1)(cc).

29 October 1991 Memorandum (Tax Window, No. 12, p. 13, ¶1557)

The costs incurred in obtaining an advance income tax ruling which are deductible include legal and accounting fees incurred to prepare the ruling request, the cost of attending interviews with rulings officers, and the fee charged by Revenue Canada for the ruling, but do not include transaction costs which would have been incurred even if no ruling had been requested.

13 June 1991 T.I. (Tax Window, No. 4, p. 24, ¶1307)

Expenses incurred by a taxpayer in making representations to the Copyright Board will be deductible provided the representations relate to a business carried on by the taxpayer. Expenses of appealing a decision of the Copyright Board to the Federal Court of Appeal will not be deductible under s. 20(1)(cc), although in certain circumstances they may be deductible under s. 9(1).

IT-99R4 "Legal and Accounting Fees"

IT-477 "Capital Cost Allowance - Patents, Franchises, Concessions and Licences"

Re: Deductibility of representation expenses incurred in order to obtain a licence, permit, franchise or patent.

Paragraph 20(1)(dd) - Investigation of site

Cases

Brooke Bond Foods Ltd. v. The Queen, 84 DTC 6144, [1984] CTC 115 (FCTD)

Sums expended for the preparation of plans and specifications for a proposed building to be erected on a site whose suitability for a building had already been well established, were non-deductible.

Queen & Metcalfe Carpark Ltd. v. MNR, 74 DTC 6007, [1973] CTC 810 (FCTD), aff'd [1976] CTC xvi (FCA)

A company in the business of acquiring various properties and leasing them out for rental use was held to be earning business income rather than property income (notwithstanding that its "rental income was income from the property itself rather than ... payment in substantial measure for services") in light inter alia of its corporate objects. A proposed structure on a site which it planned to rent to tenants was therefore intended to be used in connection with its business, i.e., renting out a property is a "use" of property. However, with the exception of a $500 fee for a feasibility study, the expenditures in question did not broadly relate to the physical characteristics of the site, or other criteria of suitability such as "zoning, limitation on use created by registered instruments, traffic flows, convenience and present and potential markets."

See Also

Parker Brothers Textile Mills Limited v. The Queen, 2007 DTC 610, 2007 TCC 74

A fee which was found, on the evidence, to have been paid by the taxpayer to a consultant for investigating possible sites for a relocated manufacturing facility of the taxpayer was deductible under s. 20(1)(dd) notwithstanding that a related company actually acquired the site, constructed the building and leased the premises to the taxpayer. Hershfield J. stated (at para. 31):

"It is clear that what triggers the subject deduction is the cost of investigating the suitability of a site for the planned use of a hypothetical building that may never be built. If it matters not whether a building is ever built, how can it be said that the operation of a section depends on who builds it?"

Administrative Policy

86 C.R. - Q. 28

Investigation expenditures may not be deductible after a decision is made to acquire the asset or abandon the project.

Paragraph 20(1)(ee) - Utilities service connection

Cases

The Queen v. Guaranteed Homes Ltd., 78 DTC 6510, [1978] CTC 636 (FCTD)

The "place of business" of a company in the business of constructing houses for resale did not include each of the 77 lots being developed by it in a residential subdivision project but, at most, included only a field office which it used for the project. Amounts paid to an independent construction company to connect services to each of the 77 lots accordingly did not qualify under s. 20(1)(ee). In addition "in order for the taxpayer to be permitted [the deduction]...the person to whom the money is paid for the purpose of making the service connections must be the person who supplies the electricity, gas, telephone service, water or sewers for the supply of which connections are made." The independent construction company did not so qualify.

Locations of other summaries Wordcount
Tax Topics - Statutory Interpretation - Comparison of Provisions 53

See Also

Richcraft Homes Ltd. v. The Queen, 95 DTC 657 (TCC)

Rip TCJ. followed the Guaranteed Homes case in finding that the costs of installing sanitary and storm sewers in a housing subdivision development were not currently deductible.

Paragraph 20(1)(gg)

Cases

Bastion Management Ltd. v. The Queen, 95 DTC 5238 (FCA)

physical trades not in ordinary course of futures trader's business

The taxpayer, which was a trader in commodity futures, purchased 15,000 ounces of gold and 500,000 ounces of silver shortly before its year-end and, at the same time, sold futures contracts for corresponding quantities of gold and silver at the same prices, for delivery after its year-end. Shortly after its year-end, it sold the gold and silver and liquidated the futures contracts.

Linden J.A. found that the trial judge's finding that the taxpayer was a commodity futures trader, whose business did not ordinarily include the buying and selling of commodities in their physical form, was "unimpeachable" after referring to the statement in re Bradford Roofing Industries Pty., Ltd., (1966) 84 WN. (Pt. 1) (N.S.W.) 276 at 285 that, regarding the phrase "in the ordinary course of the business", the "requirement is that the transaction must fall into place as part of the undistinguished common flow of the company's business, that it should form part of the ordinary course of the company's businesses carried on, calling for no remark and arising out of no special or particular situation".

Locations of other summaries Wordcount
Tax Topics - Statutory Interpretation - Purpose 80

Gay Lea Foods Co-operative Ltd. v. The Queen, 94 DTC 6285 (FCTD)

The taxpayer participated in a price support program created by the Canadian Dairy Commission under which the Commission would purchase butter from participating producers, including the taxpayer, in times of high production and would sell the butter back to the producers in times of low production. Because the taxpayer did not have property in butter that the Commission was holding for re-sale to the taxpayer, such butter was not eligible for the inventory allowance.

Plaza Pontiac Buick Ltd. v. The Queen, 94 DTC 6058 (FCA)

not held for sale if in the meantime being leased

An inventory allowance was not available to a car dealership in respect of leased automobiles notwithstanding the option of the taxpayer (but not its customers) to consider the leased car sold upon the expiry of the leased term. In order to be "held for sale", the automobiles had to be held for sale throughout the leased term. In addition, the words "converged into" in their context denoted a physical change in form rather than a change in function.

GSW Appliances Ltd. v. The Queen, 93 DTC 5502 (FCTD)

Inventory which the taxpayer conveyed, effective the beginning of its 1977 taxation year, to its parent pursuant to the winding-up of the taxpayer and which immediately thereafter was sold by its parent to a third corporation, did not qualify as inventory held at the commencement of that taxation year "for sale". At that time the inventory was already committed for sale to the third corporation and there were no indications that that sale would not be completed.

The Queen v. Mattabi Mines Ltd., 89 DTC 5357 (FCTD), aff'd 92 DTC 6252 (FCA)

After making particular reference to the meaning of "incorporated into" and "processed into," Teitelbaum J. accepted the submission of the Crown that inventory described in s. 20(1)(gg) does not include tangible property that is currently consumed in the production of goods. Reagents used to produce ore concentrate, which themselves ended up in the tailings or froth which was removed in the concentration process rather than in the ore concentrate, were not eligible for the allowance.

Brault-Clement Inc. v. The Queen, 86 DTC 6277, [1986] 2 CTC 1 (FCTD), aff'd 92 DTC 6010 (FCA)

The taxpayer was found to be the mandatary of the Quebec Minister of Revenue, and it followed by agreement of counsel that monthly remittances of taxes made by the taxpayer based on the amount of its tobacco purchases were not included in the cost amount of its tobacco inventories. [C.R.: Agency]

Brault-Clement Inc. v. The Queen, 86 DTC 6277, [1986] 2 CTC 1 (FCTD), aff'd 92 DTC 6010 (FCA)

The taxpayer was found to be the mandatary of the Quebec Minister of Revenue, and it followed by agreement of counsel that monthly remittances of taxes made by the taxpayer based on the amount of its tobacco purchases were not included in the cost amount of its tobacco inventories. [C.R.: Agency]

The Queen v. Boehringer Ingelheim (Canada) Ltd., 85 DTC 5443, [1985] 2 CTC 211 (FCTD), aff'd 87 DTC 5442, [1987] 2 CTC 245 (FCA)

Inventories which were physically transferred from one company ("Ciba-Geigy") to the defendant in stages during the months of December 1976 and January 1977 pursuant to the defendant's agreement to purchase the inventories on January 1, 1977, and which were insured by the defendant from December 1, 1976 forward, were found to have been acquired by the defendant as at the beginning of its taxation year commencing on January 1, 1976, and were eligible for the inventory allowance.

There is no requirement in s. 20(1)(gg) that eligible inventories have been included in the closing inventories of the taxpayer for the preceding taxation year.

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Tax Topics - Income Tax Act - Section 10 - Subsection 10(2) 42

Saskatchewan Wheat Pool v. The Queen, 85 DTC 5034, [1985] 1 CTC 30 (FCA)

Although Canadian Wheat Board grains acquired by the Saskatchewan Wheat Pool for later shipment to the Board's terminal elevators arguably became part of the Pool's inventory, notwithstanding the Board's ownership of the grains, because the Pool was at risk for most quality and quantity variations in the grains, the conditions of s. 20(1)(gg)(ii) were not met because the contractual relationship between the Board and the Pool was not that of buyer and seller.

See Also

Fraser v. London Sports Car Centre Ltd., [1984] BTC 409 (HC), aff'd [1985] BTC 547 (C.A.)

Sports cars that were supplied to a motor vehicle dealer subject to reservation of title by the supplier, were brought into account in computing the dealer's profits for accounting purposes, and thus were included in "the value of its trading stock" for the purpose of obtaining stock relief under section 37 of the Finance Act 1976. Nicholls J., could "see nothing in the phrase 'its trading stock' ... to suggest that if, unusually, a trader does not own the stock with which it trades that stock cannot be as much part of its trading stock as the stock of which it is the absolute owner."

Words and Phrases
trading stock

Paragraph 20(1)(hh) - Repayments of inducements, etc.

Administrative Policy

1993 A.P.F.F. Round Table, Q.15

There is no repayment for the purposes of s. 20(1)(hh) when shares are converted to a debt security and the parties are in essentially the same situation before and after the conversion. There also is no repayment of the debt if it is assumed by another taxpayer in connection with the transfer to that other taxpayer of the assets for which the loan was contracted.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Payment & Receipt 65

Paragraph 20(1)(ss)

Administrative Policy

2003 Ruling 2003-00503030 - AT-RISK BENEFIT AND ENVIRONMENTAL TRUST

investor-funded LP will enter into a JV with a mining co pursuant to which it will fund a QET respecting a mine to be reopened
Background

Xco, whose principal business is mineral exploration and mining, and which owns the “Mine,” is wholly-owned by a listed public corporation (“Parentco”). The Province is not currently requiring either Xco or Parentco to carry out any material reclamation works on the Mine.

Proposed transactions

A limited partnership (the “Partnership”) has been formed to secure funds, which it will raise from accredited investors subscribing for Partnership units, to assist in the reopening of the Mine. The general partner’s shareholders and directors deal at arm’s length with Xco and the limited partners. The Partnership will enter into a joint venture (“JV”) agreement with Xco, which will provide for most Mine related expenditures to be made pursuant to the JV Agreement and provide for the formation of a reclamation trust (the Reclamation Trust”) to satisfy all the reclamation obligations imposed respecting the Mine. Under the JV Agreement, Xco will be the initial JV operator (with exclusive authority to make all decisions relating to day-to-day operations, but with major JV decision decided by majority decision of a JV committee with equal Xco and Partnership representation, and with the Partnership representative to have the casting vote for all major decisions until the completion of the Mine reopening). During the term of the JV:

(a) the Partnership will be entitled to a share, that varies depending on the total cash contribution of the Partnership to the Reclamation Trust described below, of the net gross revenue of the Mine production during the term; and

(b) Xco will be entitled to the share of the net gross revenue of the production of the Mine not allocated to the Partnership.

The JV Agreement provides that the operator will provide an indemnity (on typical industry terms) to the non-operator (the Partnership) respecting any liability resulting from any acts or omissions of the operator respecting the Mine.

Under the terms of the JV, the Partnership will make a cash contribution to the Reclamation Trust, for which it is a co-beneficiary with the Mine operator (Xco) and the Province, in order to satisfy reclamation obligations of up to a specified dollar amount.

A put/call agreement will be entered into between the Partnership and Parentco. The exercise price for the call right of Parentco is based on 10-day weighted average closing price for its shares ending prior to the exercise of its call and in aggregate will reflect the amount of contributions made by the Partnership to the Reclamation Trust. The put price is based on the appraised value of Partnership units.

Rulings

Provided that the Reclamation Trust is a "qualified environmental trust" as defined in s. 248(1), the contribution by the Partnership to the Reclamation Trust will be deductible in computing its income pursuant to s. 20(1)(ss).

The call and put rights will not by themselves result in a reduction of the "at-risk amount" of the Limited Partners as that term is defined in subsection 96(2.2) of the Act.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 211.6 - Subsection 211.6(1) - Qualifying Environmental Trust reclamation trust for re-opened mine partly funded by investor partnership 159