News of Note

CRA indicates that whether a virtual medical service is rendered at the location of the health professional or of the patient requires a review of the provincial licensing requirements

S. 118.4(2)(a) indicates, respecting references in various provisions to listed types of health-care professionals, that “where the reference is used in respect of a service rendered to a taxpayer,” the reference to an authorized health care professional refers to authorization “pursuant to the laws of the jurisdiction in which the service is rendered.” In the context of services rendered virtually, is this referring to the health care professional’s location at the time of rendering the services, or to the location of the patient at such times? CRA stated:

It is a question of fact whether a virtual medical service is considered rendered at the location of the health care professional, the location of the patient, or both. Many governing bodies regulate virtual medical services performed within their province. This can include licensing requirements for professionals performing virtual medical services within their province, licensing requirements for professionals in their province performing virtual medical services for a patient in another province, licensing requirements for professionals performing virtual medical services from outside their province for an individual within their province, and so on. Each of these requirements must be considered before a determination can be made.

This indicates that CRA does not want to address in the abstract the question of whether health-care professionals are “authorized” if they are licensed in the location where they are sitting at their screens but not where their patient is located, or vice versa, without reviewing the actual licensing rules.

Accordingly, this interpretation does not illuminate the question as to whether a professional working outside Canada can be considered to be rendering services in Canada to Canadian clients for purposes of Reg. 105.

Neal Armstrong. Summary of 29 June 2022 External T.I. 2022-0923441E5 under s. 118.4(2)(a).

Zeifmans – Federal Court of Appeal confirms that its earlier TD Bank decision has been overruled (re prior judicial authorization for s. 231.2(1) demands)

An accounting firm (Zeifmans) unsuccessfully argued before Walker J in the Federal Court that the Minister should have sought prior judicial authorization under s. 231.2(3) of a requirement to provide information (RFI) issued in the course of a CRA audit of three related resident individuals (the “named persons”) who were Zeifmans clients. The RFI set out a detailed list of required information and documents in relation to the named persons and all “entities owned, operated, controlled or otherwise connected to [such] individuals” (the “unnamed entities.”)

In confirming the decision below that no such prior judicial authorization was required, Stratas JA adverted to Toronto Dominion Bank (where the FCA found that a demand to the Bank to disclose the name, address and telephone number of an account holder to whose account a tax debtor had deposited a cheque was invalid as there was no prior judicial authorization under s. 231.2(2)) and stated:

Artistic Ideas, eBay and their progeny correctly interpret section 231.2. To the extent that Toronto Dominion Bank stands for something different from Artistic Ideas, eBay and their progeny, it should not be followed.

He also confirmed the finding below that CRA had not targeted the unnamed entities for investigation (so as to require judicial authorization).

Neal Armstrong. Summary of Zeifmans LLP v. Canada (National Revenue), 2022 FCA 160 under s. 231.2(1).

Income Tax Severed Letters 28 September 2022

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

Abdat – Federal Court finds that CRA reasonably refused remission of tax that had been agreed to be paid pursuant to a settlement agreement

After having reached a settlement with CRA on favourable terms of his Tax Court appeal of net worth assessments, Abdat brought an action against CRA for damages (which later was dismissed). In that context, a retired CRA collections agent - who had been assigned to the file after the initial objection of Abdat to his reassessments, to determine if there was a collection risk - stated on an examination under oath that he had no doubt that the reassessments were ill-founded.

Abdat then brought this application for judicial review of CRA’s refusal to recommend remission, under s. 23 of the Financial Administration Act, of the taxes owing by Abdat from reassessments pursuant to the settlement offer.

In finding that CRA’s decision was intelligible and reasonable (and did not reflect any fettering of the CRA decision-maker’s discretion), so that the application should be dismissed, Grammond J noted that the decision-maker could reasonably rely on the settlement agreement having taken into account concerns expressed by the CRA collections agent, which concerns were already known to Abdat. Grammond J further stated:

It stands to reason that a remission order should not normally be used as an alternative avenue of appeal for a taxpayer who has failed to pursue the remedies available under the Income Tax Act, let alone as a means of overriding a settlement to which the taxpayer has agreed. …

Internal disagreement alone does not prove the outcome of the objection and appeal process to be wrong … .

Neal Armstrong. Summary of Abdat v. Canada (Attorney General), 2022 CF 1316 under Financial Administration Act, s. 23.

Contact Lens King – Federal Court of Appeal finds that a requirement to make supplies pursuant to a prescription did not require obtaining a copy of the prescription

The zero-rating for contact lenses in Sched. VI, Pt. II, s. 9 requires that the contact lenses be supplied under the authority of a prescription by an authorized practitioner, but does not explicitly require that the supplier obtain and retain copies of such prescriptions. LeBlanc JA found, contrary to the Tax Court, found that no such requirement should be inferred. However, he found that the supplier (a U.S. corporation that apparently did not require any confirmation of the prescription other than that implicit in the notion that most customers would not be able to provide the contact lens particulars without having first received a prescription) was required to establish the prescriptions’ “existence by means of sufficient and credible evidence,” which it had not done.

He noted that the supplier, after the reporting periods in issue, had commenced requiring customers to certify that they had the prescription in their possession – and, regarding this customer attestation requirement, stated:

[I]t is not for this Court, in this context, to measure its impact on the burden imposed on the appellant. The question will surely arise in the future.

Neal Armstrong. Summaries of Contact Lens King Inc. v. Canada, 2022 CAF 154 under ETA Sched. VI, Pt. II, s. 9, s. 286(1) and Statutory Interpretation – Inserting Words.

We have translated 8 more CRA interpretations

We have published 8 translations of CRA interpretations released in March of 2004. Their descriptors and links appear below.

These are additions to our set of 2,224 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 18 ½ years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).

Bundle Date Translated severed letter Summaries under Summary descriptor
2004-03-12 4 March 2004 External T.I. 2003-0049831E5 F - Allocation pour l'achat d'ordinateur Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) reimbursement of internet and modem charges not taxable where internet access is essential to performing employment duties
Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(b) monthly home computer allowance was taxable
5 March 2004 External T.I. 2004-0060831E5 F - Congé à traitement différé Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(i) no SDA impact if, after taking leave, an employee responds to early retirement incentives
2004-03-05 10 February 2004 Income Tax Severed Letter 2003-0052621A11 F - Régime de pension étranger Treaties - Income Tax Conventions - Article 18 French social security payments based on years of service in self-employment were not exempted a having been “paid in respect of past employment”
1 March 2004 External T.I. 2003-0017861E5 F - Bien agricole admissible Income Tax Act - 101-110 - Section 110.6 - Subsection 110.6(1) - Qualified Farm or Fishing Property - Paragraph (a) - Subparagraph (a)(iii) farm satisfied the qualified farm property definition on the death of an individual who, with his father, had used it in farming
Income Tax Act - Section 159 - Subsection 159(5) general overview/ election unavailable where s. 70(9) applies
1 March 2004 External T.I. 2003-0060381E5 F - Police d'assurance exonérée Income Tax Act - Section 148 - Subsection 148(9) - Proceeds of the Disposition proceeds must be recognized on termination of policy irrespective of whether an exempt policy
2 March 2004 External T.I. 2003-0042631E5 F - Déductibilité de dépenses Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Income-Producing Purpose life interest in condo to surviving spouse precluded deductibility of condo expenses
1 March 2004 External T.I. 2004-0059151E5 F - Déduction des intérêts Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c) - Subparagraph 20(1)(c)(i) interest generally deductible on money borrowed to acquire preferred shares with a dividend entitlement
26 February 2004 External T.I. 2003-0045471E5 F - Prêt à un actionnaire Income Tax Act - Section 15 - Subsection 15(2.4) - Paragraph 15(2.4)(e) housing loan not excluded if comparable employees would not have received it
Income Tax Act - Section 15 - Subsection 15(1.21) inclusion of home-acquisition loan under s. 15(2) precluded a further inclusion under s. 15(1.21)
Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Incurring of Expense forgiven amount not deductible in computing income

Deegan – Federal Court of Appeal confirms that FATCA-required disclosures do not constitute an unreasonable seizure contrary to the Charter

Woods JA confirmed the rejection by the Federal Court of the position of two American citizens, who had had no significant connection with the U.S. since early childhood, that the information-reporting requirements in ITA Part XVIII (the “Impugned Provisions”) resulted in the unreasonable seizure of financial information belonging to U.S. persons in Canada, contrary to s. 8 of the Charter.

She stated:

The Impugned Provisions … are similar to information automatically provided to the CRA for regulatory purposes (e.g., T4s by employers, T5s by financial institutions, and taxpayers’ annual disclosure of foreign holdings). …

It is difficult to see how a seizure contemplated by the Impugned Provisions significantly intrudes into privacy interests, as the appellants appear to suggest. Accordingly, I see no reason in this case to revisit the comment in Jarvis that the entire ITA is a regulatory statute. …

Quite simply, the Impugned Provisions are an example of international cooperation in the administration of income tax laws. …

Neal Armstrong. Summary of Deegan v. Canada (Attorney General), 2022 FCA 158 under Charter s. 8.

CRA finds that members of a corporate co-op likely were the beneficial owners of the co-op cattle inventory notwithstanding the documentation’s contrary label

As an economic matter, members of a feeder cattle finance cooperative established under the Co-operative Corporations Act used money borrowed on their behalf by the co-op to purchase cattle, and then maintain and feed them until sale and slaughter, so that, for example, they were responsible for all the costs of raising the cattle and maintaining their health. However, to secure such borrowing by the co-op and to provide better insulation from the effects of any member bankruptcy, the documentation of such transactions for the most part treated the co-op as retaining at all times, up to such sale, “all legal, equitable and beneficial ownership in the cattle.”

After indicating that “the definition of inventory in the Act is consistent with the ordinary meaning of the word and that in order to hold inventory for sale a taxpayer must own the inventory,” and that “the primary attributes of beneficial ownership are possession, use, risk and control,” CRA went on to state:

While the determination of who beneficially owns the cattle is a mixed question of law and fact that can only be determined after a complete review of all the terms and conditions of the contracts and agreements between the parties, it is our view that based on the information submitted that the beneficial ownership of the cattle is likely with the Members. The Members would treat the cattle as inventory for income tax purposes.

This is a good example of CRA’s willingness to make its own assessment of the legal substance of arrangements rather than being bound by the parties’ labels.

Neal Armstrong. Summary of 18 July 2022 External T.I. 2021-0887121E5 under s. 248(1) – inventory.

Income Tax Severed Letters 21 September 2022

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

CRA explains the ETA s. 213.2 rules for importing goods free of GST

CRA described ETA s. 213.2 as establishing an import certificate regime allowing registered importers to obtain a CRA certificate permitting them to import - free of GST/HST otherwise imposed at the border – goods owned by a non-resident person for the purpose of providing a storage or distribution service, or performing certain manufacturing or processing services, in respect of those goods prior to their export (with the provision also extending to the importation of goods or raw materials, other than fuels, lubricants and plant equipment, for consumption or absorption directly in the processing of other goods for export.)

CRA confirmed that a Canadian manufacturer could not obtain such a certificate respecting its importation of goods from a registered US supplier given that it was not necessarily receiving the goods for their export or for the purpose of providing a service in respect of them to the non-resident supplier. Thus, the importer was subject both to GST at the border (under Division III) and to the GST charges of the non-resident supplier (under Division II).

Neal Armstrong. Summary of 1 September 2020 GST/HST Interpretation 180336 under ETA s. 213.2(1).