News of Note
Federation of Law Societies – B.C. Supreme Court prohibits the application of ss. 237.3 and 237.4, pending the determination of their constitutional scope, to legal advisors
In the underlying constitutional challenge, the Federation sought a declaration that ss. 237.3 and 237.4 were of no force or effect to the extent they applied to legal professionals, in their role as such, based on the reporting requirements in those sections contravening ss. 7 and 8 of the Charter. On this application for an interim injunction, the Federation sought to exempt legal professionals from the operation of ss. 237.3 and 237.4 until the constitutional challenge was determined on the merits.
Before agreeing to grant the injunction, Warren J found that she was:
satisfied that the Federation has established at least two types of irreparable harm that would result if the injunction sought is not granted:
• if confidential or privileged information is disclosed as a result of legislation that is ultimately found to be unconstitutional, individual clients will be irreparably harmed by the loss of professional secrecy, which cannot be undone, and the prospect of that occurring will have a chilling effect on the ability of individual clients to consult with their lawyers fully and freely pending a final determination of the constitutional challenge; and
• the potential for the unconstitutional reporting of confidential and privileged information, and the conflicts of interest between lawyers and their clients that will arise as a result of potentially unconstitutional legislation, would irrevocably damage the solicitor-client relationship and harm the public interest by undermining the public’s confidence in an independent bar.
Neal Armstrong. Summary of Federation of Law Societies of Canada v. Canada (Attorney General), 2023 BCSC 2068 under s. 237.3(2)(c).
We have translated 6 further CRA interpretations released during August and July of 2002. Their descriptors and links appear below.
These are additions to our set of 2,648 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 21 1/3 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|
|2002-08-30||13 August 2002 External T.I. 2002-0143255 F - Par. 70(6)(b)||Income Tax Act - Section 70 - Subsection 70(6) - Paragraph 70(6)(b)||retained income treated as capital for s. 70(6)(b) purposes in subsequent years/ direct payment of spouse’s expenses with express or implied consent is permissible|
|20 August 2002 External T.I. 2002-0145225 F - Contingent Right to Acquire Shares||Income Tax Act - Section 251 - Subsection 251(5) - Paragraph 251(5)(b)||s. 251(5)(b) not applied iteratively, where shareholders have a pro rata right to acquire another’s shares, and a contingent right to acquire those shares not taken up in the 1st round|
|17 September 2002 Internal T.I. 2002-0149147 F - SERVICES MEDICAUX-TEMOIGNAGE||Income Tax Act - Section 118.2 - Subsection 118.2(2) - Paragraph 118.2(2)(a)||physician’s court testimony was not medical services|
|2002-08-02||12 August 2002 External T.I. 2002-0150095 F - Capital Dividend Account||Income Tax Act - Section 89 - Subsection 89(1) - Capital Dividend Account - Paragraph (d)||surrogatum principle not applied to damages received from insurance company for alleged default in paying life insurance proceeds|
|16 August 2002 Internal T.I. 2002-0156577 F - ASSURANCE - INVALIDITE - PARITE||Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(f)||previous contributions could be deducted from subsequent equalization adjustment received|
|2002-07-19||14 August 2002 External T.I. 2001-0116385 F - PARTAGE DE COMMISSIONS||Income Tax Act - Section 56 - Subsection 56(2)||a reasonable portion of mutual fund commissions received by a firm should be allocated to its representative who made the sales|
CRA accommodates the full flow-through of a pension benefit received by the estate to the surviving spouse for s. 60(j) purposes by the estate issuing her a note
Sylvie, who was the surviving spouse and sole heir of Paul elected not to receive a joint and survivor pension under the registered pension plan in which Paul had been a member. In the calendar year following Paul’s death but within the first taxation year of the graduated rate estate, the RPP administrator paid the estate a lump sum of $350,000 less source deductions of $130,000, for a net amount of $220,000. The estate, in turn, paid Sylvie $220,000, plus an additional $130,000 out of other liquid assets of the estate or, alternatively, issued her a demand note for $130,000.
Regarding the potential for s. 104(27) to deem the full $350,000 to be an eligible amount for purposes of s. 60(j), so that Sylvie generally would be entitled to make a timely contribution of that amount to her RRSP, CRA noted:
- This principally required that the entire pension benefit received by Paul's estate have been included in computing Sylvie's income pursuant to s. 104(13), which required that such benefit from Paul's estate have become payable to Sylvie in the same estate year as that of the estate’s receipt of the pension benefit.
- Since Sylvie was Paul’s sole heir, the full pension benefit included in the estate’s income, i.e., $350,000, could be considered payable to her in that year, subject to s. 104(24).
- S. 104(24) would be satisfied if the full $350,000 was paid to her in cash, and also would be satisfied through the estate issuing the demand note “to the extent that the issuance of the note was permitted by the will and … the demand note was unconditional.”
Neal Armstrong. Summary of 3 November 2023 APFF Financial Strategies Roundtable, Q.8 under s. 104(27).
CRA indicates that the additional T3 reporting requirements apply to trusts that were not exempted from filing T3 returns under the old rules and are not within ss. 150(1.2)(a) to (o)
For taxation years ending on or after December 31, 2023, Reg. 204.2(1) will require a trust to provide specified information regarding its trustees and beneficiaries on its T3 return provided that it is not a trust coming within one of the exceptions described in ITA ss. 150(1.2)(a) to (o) (e.g., under para. (a), a trust which on December 31 of the year in question had been in existence for less than three months). However, the preamble to s. 150(1.2) I.T.A., creating an expanded requirement to file T3 returns for taxation years ending on or after December 31, 2023, provides that s. 150(1.2) can only apply to a resident trust that is an express trust, or for civil law purposes, a trust other than a trust that is established by law or by judgment. Must a trust that does not come within the preamble to s. 150(1.2) (for example, a Quebec trust that is established by law or by judgment), but that is not described in any of ss. 150(1.2)(a) to (o), provide the additional information set out in Reg. 204.2(1)?
CRA indicated that such a (non-preamble) trust must provide such additional information provided that it was otherwise required to file a return under s. 150(1) under the old rules (e.g., a trust with tax payable for the year).
Neal Armstrong. Summary of 3 November 2023 APFF Financial Strategies Roundtable, Q.7 under Reg. 204.2(1).
CRA indicates that the transfer of DSU rights to a corporation would cause the plan to cease to qualify, perhaps retroactively
CRA indicated that the rights of an employee under a deferred share unit plan described in Reg. 6801(d) (a "DSU Plan") were not capital property given that an “employee's rights under a DSU Plan generate income from an office or employment” and thus could not be transferred on an s. 85(1) rollover basis to a personal holding company.
In finding that the plan would not qualify for the para. (l) exclusion from the salary deferral arrangement definition after such a transfer, so that the FMV of the DSUs would be included in computing the employee's income in the year of the transfer (to the extent that such value had not already been included), CRA stated:
A transfer to another person would contravene the preamble to paragraph 6801(d), which requires that the agreement be between the corporation and the employee and that it be that employee who may receive amounts under the arrangement. Furthermore … the transfer of the employee's rights in the DSU Plan could indirectly allow the individual to access the value of the individual's rights before one of the times specifically identified in paragraph 6801(d)(i) … which would also contravene the requirements of paragraph 6801(d).
[T]he presence of a transfer that would be at the discretion of the employee and the employer could demonstrate that the parties never intended to meet the criteria required for the plan to qualify as a DSU plan. In such circumstances, the agreement or arrangement would qualify as an SDA from the time of its creation, resulting in the retroactive application of the SDA rules.
Neal Armstrong. Summaries of 3 November 2023 APFF Financial Strategies Roundtable, Q.6 under s. 248(1) – SDA and s. 85(1.1).
Regarding the situation where a partnership held, was the beneficiary of, and paid the premiums for 10 years on, three policies on the lives of each of the three individuals who were its partners and then, pursuant to the partnership agreement, transferred the applicable policy to one of the partners on such withdrawal of “Individual C” from the partnership, CRA indicated:
[W]here the conditions of subsection 98(2) are satisfied, we are generally of the view that subsection 98(2) would override subsection 148(7) so that the partnership's proceeds of disposition of the life insurance policy would be the FMV of the policy.
Suppose that Individual C then donates the policy two years later to a registered charity. CRA indicated that the period of holding of the policy by the partnership would not count for purposes of the rule in s. 248(35), that the FMV of a gifted life insurance policy is deemed to be the lesser of its adjusted cost basis and actual FMV if the holding period by the donor is less than three (or, in some circumstances, 10) years.
Horvath Estate – Alberta Court of King’s Bench declines to canvas the constitutional issue of whether ITA s. 159 is paramount over the Alberta Estate Administration Act
The personal representatives of an insolvent estate proposed to distribute its remaining assets pro rata to all the unsecured creditors as required by the terms of s. 27 of the Estate Administration Act (Alberta). CRA argued that ITA s. 159 created a priority of payment for its claims. In rejecting this position, Leonard J found that this raised the question as to whether s. 159 was paramount over the provincial statute, which was an issue she could not consider since notice of this constitutional question had not been given to the Province of Alberta.
However, she accepted CRA’s alternative submission that the Crown’s debt takes priority over other creditors of equal degree by virtue of the common law prerogative of the Crown to be paid first among claims of equal degree, noting that “there is nothing in the Estate Administration Act that limits the Crown prerogative.”
Neal Armstrong. Summary of Horvath Estate (Re), 2023 ABKB 643 under ITA s. 159(2).
A REIT wished to know whether shares of a U.S. subsidiary, which did not hold any non-portfolio property, qualified as “real or immovable property” for REIT-test purposes. This required that the subsidiary itself satisfy the four numerical REIT tests in paras. (a) to (d) of the REIT definition.
Would the subsidiary satisfy the para. (a) non-portfolio property test? CRA responded:
The condition set out in paragraph (a) of the definition of REIT requires that at each time in the taxation year the total fair market value at that time of all non-portfolio properties that are qualified REIT properties held by the trust is at least 90% of the total fair market value at that time of all non-portfolio properties held by the trust.
In our view, the fact that a particular entity does not hold any non-portfolio property does not preclude the entity from satisfying the condition set out in paragraph (a) of the REIT definition.
Also of interest is 2014-0547491R3, finding that the 75% and 90% revenue tests in para. (b) and (c) of the REIT definition can be satisfied with nil revenue.
Neal Armstrong. Summary of 13 January 2022 External T.I. 2020-0845011E5 under s. 122.1(1) – real estate investment trust – (a).
We have translated 6 further CRA interpretations released during September and August of 2002. Their descriptors and links appear below.
These are additions to our set of 2,642 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 21 ¼ years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).