Opco is held equally by two unrelated individuals directly and through their respective Holdcos and, on the disability of one, Opco receives disability insurance proceeds and pays them as a special dividend to the healthy shareholder’s Holdco to fund the purchase by it of the other’s Holdco. CRA stated that there were insufficient facts to say much. However, it noted that in the circumstances described in 2015-0613821C6 it could give rulings on the application of the s. 55(2.1)(b) purpose test, and then stated:

Although in certain circumstances the dividend paid by Opco to the holding corporation of the active shareholder may not be considered to have any of the purposes described in paragraph 55(2.1)(b), that determination can only be made after a review of all the facts of a particular situation.

In commenting on the same scenario, Finance made very general comments, such as “The purpose of the payment or receipt of a dividend is determined according to the facts relating to the series of transactions or events of which the payment and receipt of the dividend is a part.”

Neal Armstrong. Summary of 5 October 2018 Financial Strategies and Instruments Roundtable, Q.5 under s. 55(2.1)(b) and of Finance response to Q.5 under s. 55(2.1)(b).

Jean on his decease left proceeds of an insurance policy and non-registered investments (which had been acquired by him out of accumulated savings) under a trust (“Trust”) for the exclusive benefit of his surviving spouse (“Jeanne,” also a Canadian resident), and with two of their children as trustees. Are the dividends and taxable capital gains generated by Trust from its investments in shares listed on a designated stock exchange, and interest on debt obligations, subject to the tax on split income (TOSI) when distributed to Jeanne qua beneficiary where the Trust investments are managed by: the two trustees; an independent third party; or a third child of Jean and Jeanne who is a stock broker?

CRA indicated that:

• The distributed dividends and capital gains qualified for the exclusion from the “split income” definition for dividends and capital gains from shares listed on a designated stock exchange (signifying inter alia that CRA accepted that taxable capital gains designated under s. 104(21) retained their character as stock market gains).
• As for the distributed interest income, it would of course not constitute income from a related business if Trust did not carry on a business.
• On the other hand, if Trust did carry on business then, subject to the next point, CRA after indicating that Jeanne’s children were “source individuals” in respect of her (i.e., related by blood), stated that if in the alternative management scenarios posed “a source individual in respect of Jeanne is actively engaged on a regular basis in the activities of Trust related to earning income from the business, then the portion of the Distribution related to the Interest would come, directly or indirectly, from a related business in respect of Jeanne” – so that, subject to the next point, Jeanne would have been subject to TOSI on the distributed interest” (apparently even in the child as stock broker scenario).
• However, even in the business income scenario, the distributed interest income would be excluded under s. 120.4(1.1)(c)(ii) because “the amount would have been an excluded amount in respect of an individual - Jean – who was, immediately before his death, Jeanne's spouse … if the amount were included in computing Jean's income for his last taxation year” (i.e., any such business would have been carried on by Jean himself rather than by a source individual).

Neal Armstrong. Summaries of 5 October 2018 APFF Financial Strategies and Instruments Roundtable, Q.3 under s. 120.4(1) – split income – (e)(ii)(C), related business – (a)(ii) and s. 120.4(1.1)(c)(ii).

2017-0690331C6 found that a dividend-in-kind by a subsidiary to its parent of a life insurance policy would result in proceeds of disposition to it equal to the greater of the policy’s cash surrender value (CSV) and its adjusted cost basis (ACB), rather than equaling the policy’s higher fair market value (FMV), given that the dividend would not result in consideration being given for the policy. CRA indicated that if the same policy had been transferred in payment of the redemption price for shares, its proceeds would equal the (higher) redemption price.

CRA went on to note that this difference in treatment may reflect an anomalous treatment for a dividend-in-kind, which has been brought to Finance’s attention.

Neal Armstrong. Summary of 5 October 2018 APFF Financial Strategies and Instruments Roundtable, Q.1 under s. 148(7).

A supplier failed to charge HST on sales of unrefined gold. When CRA discovered this, the supplier issued invoices to the purchaser showing the sale particulars and the applicable amount of HST as being unpaid, and following being assessed for this tax by CRA and paying it, sued the purchaser for its payment.

The purchaser relied on the requirement in ETA s. 224 for compliance with the disclosure requirement in s. 223(1) in order for the supplier to have the right to sue the purchaser for unpaid HST. In finding that the post-sale invoices satisfied this requirement, Brown JA stated:

Section 223(1) is silent on when a registrant must give disclosure of the tax payable to a recipient. The overwhelming weight of the jurisprudence, the CRA’s Policy Statement P-116, and the professional commentary have interpreted that statutory silence to mean that a registrant supplier can comply with the s. 223(1) disclosure obligations by delivering an invoice or receipt containing the prescribed information after the supply transaction.

Neal Armstrong. Summary of National Money Mart Co. v 24 Gold Group Ltd, 2018 ONCA 812 under ETA s. 223(1).