News of Note

CRA finds that a cross-border cash pool entailed a series of loans and repayments

Canco (along with other members of the group) was part of a “physical” cash pooling arrangement with a non-resident affiliate (Finco) under which funds were automatically transferred to and from Finco by way of daily cash sweeps, with interest being computed on the resulting balances owing either way. Due to fluctuations in Canco’s position, it was both a net lender and a net borrower for various periods during the taxation years in question. The only question posed was whether the daily cash sweeps were to be considered to be a series of loans or other transactions and repayments. After noting the restrictive interpretations accorded to this phrase in Attis, Uphill and Meeuse, CRA nonetheless concluded:

[T]he Cash Pooling Arrangement appears to be structured in a manner that results in automatic daily cash sweeps which produce a “rolling forward” of the inter-company loans from Canco to Finco. If that is the case, we believe that a respectable argument could be made that the automatic daily cash sweeps constitute a series of loans or other transactions and repayments and as such, the exception under subsection 15(2.6) should not apply as it would otherwise result in a perpetual deferral of the inclusion under subsection 15(2).

Neal Armstrong. Summary of 27 February 2018 Internal T.I. 2017-0682631I7 under s. 15(2.6).

Davis – Tax Court of Canada finds that an individual who was well advanced in his steps to return to Canada had a “habitual abode” in the U.S.

An engineer who, after having been employed in the U.S. for 10 years in what turned out to be his final job, started preparing to return to Canada after being laid off at the end of 2012. In addition to his home in Massachusetts, he had a rural home in Nova Scotia, which he visited frequently from the time of its 2009 purchase and where he would see his “platonic” girlfriend. Family was in Alberta.

Given Bocock J’s finding that the taxpayer was a dual resident of Canada, the question as to whether the taxpayer was taxable in Canada on his receipt of the proceeds out of his 401(k) plan on May 6, 2013 turned on which country he was resident in on that day under the tie-breaker rule in Art. IV(2) of the Canada-U.S. Treaty. This question could not be resolved by the centre of vital interest, so that Bocock J turned to the taxpayer’s “habitual abode” on May 6, 2013 and stated:

Mr. Davis’ residency in Canada before May 9, 2013 was preparatory to disengaging from the U.S. and permanently ceasing to be a resident after May 9, 2013. Before May 9, 2013, Mr. Davis … habitually lived in the U.S.

Neal Armstrong. Summary of Davis v. The Queen, 2018 TCC 110 under Treaties – Income Tax Conventions - Art. 4.

Income Tax Severed Letters 20 June 2018

This morning's release of five severed letters from the Income Tax Rulings Directorate is now available for your viewing.

CRA accommodates backdating a GST/HST registration by over six years in order to claim ITCs

A not-for-profit corporation registered for GST/HST purposes effective March 18, 2016, then got this registration backdated somewhat to January 1, 2016 – and then subsequently filed returns for the previous six years (2010 through 2015) and requested that its registration be further backdated to April 1, 2010 in order that it could claim input tax credits for tax paid since April 1, 2010. The Rulings Directorate was accommodating, stating that:

In order to backdate its registration, [Corporation A] could show it was a registrant during the period in question by proving it was not a small supplier; in other words, it was required to be registered.

The Directorate did not reference any limitation on claiming ITCs from before the four-year period referenced in ETA s. 225(4)(b).

Neal Armstrong. Summary of 19 March 2018 Interpretation 183900 under ETA s. 240(1) and s. 225(4)(b).

CRA has published its 2018 IFA Roundtable responses

Except as noted in the previous post, there do not appear to be any significant departures or elaborations in the official 2018 IFA Roundtable Answers published last week by the Rulings Directorate from those provided orally at the Conference. Accordingly (with the same exception) we have not generated further posts on these responses – but, for convenience of reference, provide the table below linking to the official responses and (for the nine questions that had interpretive content) our summaries thereof and our descriptors.

Topic Descriptor
16 May 2018 IFA Roundtable Q. 1, 2018-0748181C6 - New U.S. GILTI Tax Treaties - Income Tax Conventions - Article 29 Treaty does not fetter the right of the US to impose GILTI tax with reference to Canadian subs’ income
Treaties - Income Tax Conventions - Article 26 Cdn competent authority will not recognize claims that GILTI tax is contrary to Art. VII
16 May 2018 IFA Roundtable Q. 2, 2018-0749181C6 - Principal Purpose Test in MLI Treaties - Multilateral Instrument - Article 7 - Paragraph 7(1) CRA will not provide quick and crisp PPT guidance
16 May 2018 IFA Roundtable Q. 3, 2018-0749171C6 - Interaction s.91(5) s.93.1(2)(d)(i) Income Tax Act - Section 91 - Subsection 91(5) appplication of s. 91(5) to LP shareholder of FA
Income Tax Regulations - Regulation 5900 - Subsection 5900(3) corporate-owned LP treated transparently to avoid a surplus anomaly re s. 91(5) dividend
Income Tax Act - Section 93.1 - Subsection 93.1(2) - Paragraph 93.1(2)(d) - Subparagraph 93.1(2)(d)(i) s. 93.1(2)(d)(i) limit does not reflect acquisition-debt interest deduction of LP
16 May 2018 IFA Roundtable Q. 4, 2018-0748171C6 - Penalties for Non-Residents Income Tax Act - Section 247 - New - Subsection 247(4) potential extension/waiver where incorrect (no PE) claim for Treaty relief
Income Tax Act - Section 220 - Subsection 220(3) a non-resident who incorrectly claimed a no-PE Treaty exemption can apply for penalty relief
16 May 2018 IFA Roundtable Q. 5, 2018-0745501C6 - Meaning of “merged or combined” in 40(3.5)(c)(i) Income Tax Act - Section 40 - Subsection 40(3.5) - Paragraph 40(3.5)(c) - Subparagraph 40(3.5)(c)(i) suspended loss on the sale of CFA to Subco was not de-suspended on s. 88(3) wind-up of CFA
Income Tax Act - Section 88 - Subsection 88(3) s. 88(3) wind-up of CFA formed a new corporation
16 May 2018 IFA Roundtable Q. 6AB, 2018-0748191C6 - MAP Program, APAs
16 May 2018 IFA Roundtable Q. 7, 2018-0750261C6 Income Tax Act - Section 39 - Subsection 39(2) “sustaining” a s. 39(2) loss on a USD obligation requires more than locking-in the equivalent Canadian-dollar amount
16 May 2018 IFA Roundtable Q. 8, 2018-0749481C6 - Update on Entity Classification Income Tax Act - Section 248 - Subsection 248(1) - Corporation French SLP a corp
Income Tax Act - Section 96 French SLP established as an SECS viewed as corp/grandfathering relief re LLPs/LLLPs
16 May 2018 IFA Roundtable Q. 9, 2018-0748151C6 - T1134s & Country by Country Reporting Income Tax Act - Section 233.4 - Subsection 233.4(4) comparison of T1134 and CbC reporting
16 May 2018 IFA Roundtable Q. 10, 2018-0748161C6 - Proposed New Filing Deadline T1134 Income Tax Act - Section 233.4 - Subsection 233.4(4) CRA may provide filing extensions when the T1134 filing deadline has been accelerated

CRA indicates that a French limited partnership was a corporation

At the 2018 IFA Roundtable, CRA noted that it had declined to rule that a specific French SLP (Société de Libre Partenariat) was a partnership for ITA purposes. Although it had separate legal personality (and the general partner had unlimited liability unlike the general partner of a Delaware LLP or LLLP), that was not sufficient to render it a corporation. However, there was no legal authority to support an effective entitlement on the part of the members to share profits and losses earned through the entity: the computation of earnings at the SLP entity level, with a distribution mechanism for its members akin to the declaration and payment of dividends, was found to be very relevant.

In the published response, CRA noted that the particular SLP was a “Fonds Professionnel Spécialisé” – established as a “société en commandite simple” (“SECS” - usually translated simply as a "limited partnership," or sometimes as a "standard limited partnership") – and stated that:

A SECS is considered to be a “société commerciale” under French law, as is also the case for a “société en nom collectif”, “société à responsabilité limitée” and a “société par actions”.

In Quebec, SENCs are general partnerships which have been judicially found to not have separate legal personality but to have their own patrimony (so that partners do not own the partnership property). The above reference in the same breath to (French) SENCs as to SECSs likely is not a concern given French SENCs' apparent lack of legal personality, whereas the French limited partnership was considered by CRA to have separate legal personality.

This pronouncement is a further warning that a foreign entity that is termed a limited partnership may be viewed by CRA as a corporation.

Neal Armstrong. Summary of 16 May 2018 IFA Roundtable Q. 8, 2018-0749481C6 under s. 96.

CRA, changing its mind, concludes that two Canadian sisters can be closely related for GST/HST purposes through multiple stacked NR corporations above them

When it previously looked at this question, CRA considered that a “qualifying subsidiary” includes a child or grandchild but not a great-grandchild. As a result, it concluded that sufficient stacking of corporations can result in an inability of all group members to make the ETA s. 156 nil consideration election. For example if, in a wholly-owned group, there are two stacks of four corporations beneath a common non-resident Holdco, the two "grandchild" Canadian-resident corporations, but not the two" bottom" Canadian-resident great-grandchild corporations, would be able to elect with each other, as they are too remote from the Holdco to be closely related to each other.

CRA has now revisited the same question and concluded that the “qualifying subsidiary’ definition can be applied iteratively so that, in the above example, the two bottom Canadian corporations would be closely related to each other. It also confirmed that it does not matter that their relationship is through non-resident parent corporations.

Neal Armstrong. Summary of 12 February 2018 interpretation 167422R under ETA s. 156(1) – qualifying group.

CRA finds that a “fee” charged by a an auto dealer for assigning a credit agreement to a lender was part of the GST/HST exempt consideration for the assignment

An auto dealer, which sold conditional sales contracts or credit agreements arising from its sales to customers to a lender, would also be paid a separately-stated fee by the lender. CRA stated:

A fee received by the Dealer from a lender for the assignment of a conditional sales contract or credit agreement forms part of the consideration received for the assignment of the contract, and therefore would not be subject to the GST/HST as the assignment of the contract is an exempt supply.

Neal Armstrong. Summary of 24 January 2018 Ruling 156434 under ETA s. 123(1) – financial service – para. (d) and s. 123(1) – debt security.

Six further full-text translations of CRA interpretations are available

The table below provides descriptors and links for six Interpretation released in July 2013, as fully translated by us.

These (and the other full-text translations covering all French-language Interpretations released in the last 4 3/4 years by the Income Tax Rulings Directorate) are subject to the usual (3 working weeks per month) paywall.

Bundle Date Translated severed letter Summaries under Summary descriptor
2013-07-31 4 April 2013 External T.I. 2012-0444581E5 F - Frais de garde - hébergement en famille d'accueil Income Tax Act - Section 63 - Subsection 63(3) - Child Care Expense sport school camp expenses do not include accommodation expenses paid to a host family
2013-07-24 13 June 2013 External T.I. 2013-0487931E5 F - Repas fournis gratuitement Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) free meals provided to child care workers in accordance with employer policy aimed at effect on children were taxable
10 June 2013 External T.I. 2013-0489101E5 F - Ajout à un édifice - choix en vertu de 1101(5b.1) Income Tax Regulations - Regulation 1101 - Subsection 1101(5b.1) separate class election could be made for a building addition
4 June 2013 Ministerial Correspondence 2012-0455101M4 F - Entreprises de prestation de services personnels Income Tax Act - Section 125 - Subsection 125(7) - Personal Services Business overview of, and description of policy rationale for, PSB rules and affirmation of Revenu Québec guidelines re employee/independent contractor distinction for IT workers
12 June 2013 External T.I. 2013-0480231E5 F - Crédit pour la condition physique Income Tax Act - Section 118.03 - Subsection 118.03(1) - Eligible Fitness Expense weekly ski lessons with use of ski lift qualified
24 May 2013 External T.I. 2013-0487581E5 F - Nature d'un bien acquis pour la revente Income Tax Act - Section 10 - Subsection 10(1.01) cost includes costs incurred to bring the inventory item to its current condition and location/meaning of adventure

Archambault – Court of Quebec invalidates a director’s assessment because the preceding corporate judgment proceeding had the wrong address

The Quebec equivalent of ITA s. 227.1(2)(a) in s. 24.0.1(a) of the Quebec Tax Administration Act) requires as a precondition to assessing a director for unremitted corporate source deductions or QST that “the notice of execution of a seizure of movable property in respect of the corporation is returned unfulfilled in whole or in part following a judgment rendered under section 13 [of the TAA]” (subject to an alternate procedure applying). Bourgeois JCQ found that this precondition was not satisfied where the certificate and judgement issued under s. 13 as well as the writ of execution referred to the home address of the taxpayer rather than the registered address of the corporation (being the home address of the other director, whom the ARQ knew to be a deadbeat). The taxpayer’s appeal was allowed.

Neal Armstrong. Summary of Archambault v. Agence du revenu du Québec, 2018 QCCQ 3291 under s. 227.1(2)(a).