News of Note
CRA concludes that no adjustments are made to an eligible entity's Statement of Executive Compensation for NEOs filed pursuant to NI 51-102 for CEWS repayment purposes
Ss. 125.7(14) and (14.1) could require exchange-listed eligible entities to repay all or part of the CEWS they had received based inter alia on the excess of their executive remuneration over the 2019 base level.
CRA concluded that the “executive remuneration” (as defined in para. (a) of the definition in s. 125.7(1)) of an eligible entity was the total amount of compensation that is reported in the eligible entity's Statement of Executive Compensation for Named Executive Officers filed pursuant to National Instrument 51-102 without adjustment - so that, contrary to the eligible entity’s submission to CRA, this amount could include compensation for more than five Named Executive Officers.
Neal Armstrong. Summary of 17 January 2025 Internal T.I. 2024-1029791I7 F under s. 125.7(1) – executive remuneration.
Galea – Privy Council finds that whether an activity qualifies as “carried on with a view to profit" turns on the taxpayer’s subjective intention
Whether the taxpayer could deduct his 92% share of the losses incurred by a Mauritius partnership (of which he was the dominant partner) from his other sources of income turned on whether the partnership was carrying on a “business,” whose definition in the Mauritian Income Tax Act 1995 relevantly referred to "any trade … or undertaking, or any other income earning activity, carried on with a view to profit." The partnership employed six people to manage its 200 acres of mountainous terrain and generate revenues from organizing annual hunts for deer on the lands (as well as from sales of live monkeys).
Before the Board, both parties agreed that, based on Grieve, [1984] 1 NZLR 101, Backman, and Ingenious Games (no mention was made of Stewart or Paletta), the question as to whether the activities of the partnership were carried on “with a view to profit” turned on the taxpayer’s subjective intention, and that the aim to make a profit need not be the sole or main aim and it could be ancillary.
Dame Philippa Whipple found that the Supreme Court of Mauritius had committed an error of law in deciding against the taxpayer on the basis that the expression "with a view to profit," although not referring to immediate profit, meant “an activity carried on with a reasonable expectation of making a profit in [the] near future.” Furthermore, she found that the panels below had not taken issue with the credibility of the taxpayer, who had testified that he had an intention of making a profit (although, in fact, the partnership had sustained significant and continued losses for the 10 years under review). Accordingly, the taxpayer's appeal was allowed.
Neal Armstrong. Summary of Galea v The Assessment Review Committee & Anor (Mauritius) [2025] UKPC 17 under s. 3(a) – business.
Income Tax Severed Letters 9 April 2025
This morning's release of four severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA provides instances where it may require the production of personal bank statements
After CRA was given the example of auditors auditing a private company and asking for the personal banking records of all the shareholders, CRA listed the following as situations where it may require personal banking information, which it considers itself authorized to do pursuant to s. 231.1(1):
- Where it conducts an indirect verification of income, in which case it must obtain the personal banking records of the shareholders of the closely held corporation, as well as their spouses and common law partners, and all contributing members of each household unit.
- Where it is unable to rely on accounting records due to weak internal controls or the absence of segregation of duties.
- When inconsistencies are noted between the apparent lifestyle of the taxpayer and the reported income.
- In order to verify transactions between the corporation and the shareholder.
Neal Armstrong. Summary of 2024 Alberta CPA Roundtable, Q.8(a) under s. 231.1(1).
CRA indicates that it has no statutory authority to postpone collection of source deductions
CRA indicated that the Income Tax Act, Employment Insurance Act and Canada Pension Plan Act contain no equivalent provisions to s. 314(2) or 315(3) of the Excise Tax Act regarding the collection of source deduction trust funds, so that there is no statutory authority providing for the postponement of collection action on amounts owing for such amounts. However, CRA Collections has the administrative authority to withdraw any collection actions, such as garnishment, upon entering into a payment arrangement with the taxpayer.
Neal Armstrong. Summaries of 2024 Alberta CPA Roundtable, Q.3 under ITA s. 222(2) and ETA s. 315(3).
Total Energy – Federal Court of Appeal confirms that the use of losses of an insolvent public company by a SIFT trust was an abuse of s. 111(5)
In September 2007, a company (“Nexia”), which traded in loss companies, acquired all of non-voting common shares of an insolvent public corporation (“Biomerge”) (representing 80% of its equity) and 45% of its voting common shares. In May 2009, a plan of arrangement was implemented under which the units of an income fund (“Total”), which was becoming subject to tax under the “SIFT” rules, were exchanged for new common shares of Biomerge, the existing voting common shares of Biomerge were largely cashed-out, and Total was wound-up into Biomerge (now, “New Total”) pursuant to s. 88.1(2). The former Total unitholders held 99.8% of the New Total equity.
In confirming the decision below that these transactions were an abuse of s. 111(5), Stratas JA indicated that:
- It was immaterial that Deans Knight did not deal with trust conversions, as the “object, spirit, and purpose of s. 111(5) does not change depending on the facts of the particular case nor on the status of the acquiror.”
- It was also immaterial that s. 256(7)(c)(i) (dealing specifically with a transaction of this type) was added only subsequently (“Deans Knight … did not look at other provisions enacted after s. 111(5) in order to determine the object, spirit, and purpose of s. 111(5).”
- The Tax Court had appropriately found “that this particular series of transactions frustrates the object, spirit, and purpose of s. 111(5), which is [quoting Deans Knight] ‘to prevent corporations from being acquired by unrelated parties in order to deduct their unused losses against income from another business for the benefit of new shareholders’."
Neal Armstrong. Summary of Total Energy Services Inc. v. Canada, 2025 FCA 77 under s. 245(4).
We have translated 8 more CRA interpretations
We have translated two CRA interpretations released last week and a further 6 CRA interpretations released in November and October of 2000. Their descriptors and links appear below.
These are additions to our set of 3,159 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 24 ½ years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
CRA considers that the specified corporate income carve-out may be avoided by earning active business income through rather than from a private corporation
A real estate broker carried on his practice through a wholly-owned corporation (A Co), which received all of its commissions, net of service charges, from a real estate brokerage firm (Realty Co). Realty Co was 25% owned by a holding company of the individual, and was otherwise owned by unrelated persons. Was such commission income of A Co excluded pursuant to s. 125(1)(a)(i)(B) from its active business income by virtue of being described in (a)(i)(A) of the “specified corporate income” (SCI) definition?
Given that (a)(i)(A) of the SCI definition was satisfied (the shareholder of A Co held an indirect interest in Realty Co.), this question turned on the application of (a)(i)(B) of that definition, which tested whether “all or substantially all” of the active business income of A Co for the year was from the provision of services or property to persons (other than the private corporation, i.e., Realty Co) with which it dealt at arm’s length. CRA indicated that this turned on the factual question of whether “A Co is receiving all or substantially all of its commission income from the provision of real estate services to clients with which it deals at arm’s length, and not Realty Co,” i.e., was A Co providing its services to Realty Co or to arm’s length clients?
This response perhaps implies that the SCI carve-out could be avoided with the appropriate structuring.
Neal Armstrong. Summary of 23 January 2025 External T.I. 2024-1030091E5 under s. 125(7) – SCI – (a)(i)(B).
CRA notes that a supplementary disability plan for the company’s majority shareholder and another executive might not qualify as a s. 6(1)(a)(i) group plan
A corporation, which already provided a group health and disability plan to all its employees, created a supplementary disability insurance plan for two of its executive employees, one of whom was the majority shareholder.
CRA indicated that if there was “a higher level of benefits for the employee who is the majority shareholder compared to the level of benefits for the other employee in the group, such a policy would probably not be considered a component of a group insurance plan, but rather an individual disability insurance policy.” Accordingly, even if the executives received their benefit from the employer payment of the premiums qua employee rather than shareholder, the exemption pursuant to s. 6(1)(a)(i) from the taxability of that benefit under s. 6(1)(a) would not be available to the executives.
Neal Armstrong. Summaries of 19 February 2025 External T.I. 2018-0744821E5 F under s. 6(1)(a)(i) and s. 15(1).
GST/HST Severed Letters December 2024-February 2025
This morning's release of nine severed letters from the Excise and GST/HST Rulings Directorate (identified by them as their December 2024, January 2025, and February 2025 releases) is now available for your viewing.