News of Note
CRA finds that licence fees received from a registrant for worldwide rights to use copyright were fully subject to GST/HST
Email this ContentA registered resident individual who carried on a business of producing videos entered into an agreement with a Canadian “Web Publisher” under which the individual granted the Web Publisher the worldwide right to distribute and reproduce the videos in consideration for a percentage of the revenues generated. The Web Publisher posted the videos on a platform and was paid a percentage of the resulting advertising revenues.
In finding that all the consideration paid by Web Publisher to the individual was subject to GST/HST pursuant to ETA s. 142(1)(c), which deems a supply of intangible personal property to be made in Canada if it may be used in whole or in part in Canada, CRA stated:
[T]he rights are granted on a worldwide basis, without any restrictions on where they may be used, from which we conclude that they may be used in Canada.
Thus, by licensing to Web Publisher, the individual’s supply was subjected to GST/HST, whereas if the individual had dealt directly with the platform and it was a non-resident which was not registered under the regular registration provisions, the individual’s supplies would have been zero-rated.
Neal Armstrong. Summary of 26 June 2024 GST/HST Ruling 179543 under s. 142(1)(g).
Pyxis Real Estate – Ontario Court of Appeal finds that capital dividends were agreed to be paid in amounts that overlooked a CDA deficit: no rectification
A plan was implemented for successive capital dividends to be paid up a chain of corporations so that the individual who was the ultimate shareholder could have a tax-free receipt of $1.4 million. However, to accomplish this objective, the successive payments should have started with the payment of a $1.7 million capital dividend by the “bottom” corporation, given that an intermediate corporation in the chain had a CDA deficit of $0.3 million (which the accountants had overlooked).
In allowing the Attorney General’s appeal from the granting of an order rectifying the corporate documents so as to direct a capital of $1.7 million, Nordheimer JA stated):
[T]he [Fairmont] test requires that the executed documents fail to accurately record the parties’ agreement. The agreement here was for a $1.4 million tax-free capital dividend to be paid. … The fact that the agreement did not result in the intended fiscal objective of being tax-free, or tax neutral, is not a basis for granting rectification.
Neal Armstrong. Summary of Pyxis Real Estate Equities Inc. v. Canada (Attorney General), 2025 ONCA 65 under General Concepts – Rectification.
CRA finds that s. 152(4)(b)(vii) does not apply to extend the period for adjusting the income computation of a trust that filed as a s. 94 trust
A s. 94(3) trust reported a capital gain from the disposition of the shares of a foreign affiliate in its 2020 T3 return. In finding that s. 152(4)(b)(vii) did not authorize CRA to reassess the trust within three years of the expiry of the normal reassessment period to adjust the proceeds of disposition, the Directorate indicated:
- The relevant scoping condition in s. 152(4)(b)(vii) – that the assessment was “to give effect to the application of section 94” - meant “to cause section 94 to apply.”
- In this regard, s. 94 does not provide rules for computing the trust’s income which instead, in the case of capital gains, are set out in subdivision C of Part I.
- Accordingly, “a reassessment to adjust the proceeds of disposition of the foreign affiliate’s shares held by the Trust would not give effect to the application of section 94” so that s. 152(4)(b)(vii) could not apply to extend the normal reassessment period.
However, CRA stated:
Clause 152(4)(b)(iii)(B) may, however, have application depending on the circumstances.
S. 152(4)(b)(iii)(B) allows for the extended reassessment period where the assessment
is made
(A) as a consequence of a “transaction” (as defined in subsection 247(1)) involving the taxpayer and a non-resident person with whom the taxpayer was not dealing at arm’s length, or
(B) in respect of any income, loss or other amount in relation to a foreign affiliate of the taxpayer
The above CRA statement regarding s. 152(4)(b)(iii)(B) seems to imply CRA uncertainty as to whether a capital gain from an FA sale would be an “other amount in relation to” the FA. It also is noteworthy that there was no mention of s. 152(4)(b)(iii)(A), i.e., a sale of an FA may not be a transaction “involving” a person (the FA) with whom the taxpayer is relevantly not dealing at arm’s length.
Neal Armstrong. Summary of 28 October 2024 Internal T.I. 2024-1029911I7 under s. 152(4)(b)(vii).
The Joint Committee recommends that the s. 116 certificate system be administered in a less cumbersome and aggravating manner
Recommendations of the Joint Committee to the Compliance Programs Branch on the administration of s. 116 include:
- That CRA develop a system automatically generating a comfort letter (for extending the 30-day remittance deadline until the processing of the application).
- That CRA adopt the position that, where the purchaser reasonably believes that the non-resident vendor has applied for a 116 certificate, it can continue to hold the withheld funds in trust beyond the remittance deadline until CRA has completed its review (unless otherwise notified by CRA).
- That CRA update the standard comfort letter language to provide that, at the request of the non-resident vendor, the purchaser may remit all or a portion of the amount withheld to CRA as a payment on account of the non-resident vendor’s Part I tax liability associated with the related disposition, with such remittance reducing pro tanto any potential s. 116(5) liability of the purchaser.
- That CRA adopt the position that a non-resident vendor can pay the actual amount of tax owing (rather than 25% of the gain) in order to receive a s. 116 certificate (the vendor’s payment of the actual amount of Canadian tax owing should be considered to be acceptable security respecting the disposition).
- That CRA (departing from 2019-0798861C6) confirm that the excluded disposition rule in s. 150(5)(b) will be satisfied where all Part I tax owing in respect of the TCP disposition is paid in connection with the issuance of a s. 116 certificate (so that no Canadian return filings - or filings in relation to a limited partnership - is required).
- That, where CRA has determined that the subject property is not TCP, it issue a s. 116 certificate on that basis, rather than a letter stating that it cannot issue a certificate because the property is not TCP (the certificate could be issued on the basis that no Canadian income tax is owing on the disposition) releases the purchaser from liability.
Neal Armstrong. Summary of Joint Committee, “Section 116 of the Income Tax Act,” 24 January 2025 Joint Committee submission to the Assistant Commissioner of the Compliance Programs Branch of CRA under s. 116(5).
Income Tax Severed Letters 5 February 2025
This morning's release of six severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Bell Canada – Federal Court of Appeal finds that Ontario electricity suppliers made single supplies of electricity notwithstanding separate regulatory and delivery charges
Bell Canada was required as a result of ETA s. 236.01 and the related regulation to recapture 100% of the input tax credits that it claimed in respect of the 8% Ontario HST that it paid on the consideration for the supplies to it in Ontario of electricity. The suppliers to it of such electricity were required by Ontario regulations to itemize charges on their invoices to show four categories of items: electricity, delivery, regulatory charges and debt retirement charge. Bell Canada submitted that, rather than receiving a single supply of electricity, it received multiple supplies of electricity, delivery services and regulatory services, so that the electricity component (subject to recapture) was reduced.
In rejecting this submission, the Tax Court applied the O.A. Brown test to find that there was single supplies of electricity, stating that “[i]n substance and reality, the alleged separate supplies of the delivery services and regulatory services are integral parts, integrants or components of the overall supply of electricity.”
In affirming this finding, Boivin JA distinguished Kevin Davis Dentistry, which gave effect to the expressed Parliamentary intent to “provide for different tax treatment of supplies of orthodontic appliances and orthodontic service” whereas, here, the Ontario regulations did “not amount to as clear an indicator of Parliament’s intent as the GST Act did in Kevin Davis Dentistry”.
Neal Armstrong. Summary of Bell Canada v. Canada, 2025 FCA 27 under ETA s. 123(1) – supply.
CRA provides a new Memorandum on the specialized IPP place-of-supply rules
CRA has published a new GST/HST Memorandum on the specialized rules respecting the place of supply of intangible personal property (IPP).
It gives, as an example of IPP relating to tangible personal property, an option to acquire TPP.
Those rules turn on the ordinary location of the TPP. It notes that as per Schedule IX, Pt. I, s. 4, the mutual agreement of the supplier and recipient as to the ordinary location of the TPP is determinative even where the property is actually located at a different place.
It notes that given the expansive definition of real property as it relates to the common law provinces, when it comes to the rules governing the place of supply of IPP relating to real property, there will be very few examples of such IPP. One example given is supplies of a vacation club membership relating to a number of vacation resorts.
It indicates that where real property is both situated in Canada and outside Canada, the proportion of the supply of the IPP that relates to the real property that is situated in Canada is considered to be made in Canada, while the proportion of the supply of the IPP that relates to the real property that is situated outside Canada is considered to be made outside Canada. This adoption of a bifurcated approach to the place of supply of the IPP appears to reflect an acceptance of Intrawest.
Neal Armstrong. Summaries of GST/HST Memorandum 3-3-5-1 “Place of Supply in a Province Specific Rules for Intangible Personal Property” January 2025 under New Harmonized Value-added Tax System Regulations, s. 22(1), s. 22(2), s. 9, s. 10, Schedule IX, Pt. I, s. 4, ETA s. 142(2).
We have translated 7 more CRA interpretations
We have translated a CRA interpretation released last week and a further 6 CRA interpretations released in February of 2001. Their descriptors and links appear below.
These are additions to our set of 3,097 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 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 |
|---|---|---|---|
| 2025-01-29 | 28 November 2024 External T.I. 2024-1026331E5 F - Section 87 of the Indian Act | Other Legislation/Constitution - Federal - Indian Act - Section 87 | reserve residents generally can exempt their employment earnings by agreeing to perform over half of their duties from home |
| 2001-02-02 | 16 January 2001 External T.I. 2000-0009685 F - avantage - usage par l'actionnaire | Income Tax Act - Section 15 - Subsection 15(1) | no s. 15(1) benefit where aircraft of corporation is used for the personal benefit of its sole shareholder, who bears the cost and expenses |
| 25 January 2001 External T.I. 2000-0049565 F - PAIEMENTS FORFAITAIRES RETROACTIFS | Income Tax Act - 101-110 - Section 110.2 - Subsection 110.2(1) - Qualifying Amount | retiring allowance could qualify if paid pursuant to settlement agreement of an action, and could be specified portion if related to prior year’s lost income | |
| 22 January 2001 External T.I. 2000-0012025 F - cotisations sociales | Income Tax Act - Section 126 - Subsection 126(7) - Non-Business-Income Tax | Belgian social security contributions imposed on Belgian director’s fees (treated as self-employed earnings for Belgian purposes) were non-business-income taxes | |
| 24 January 2001 External T.I. 2000-0028895 F - Contingent de versement/perte | Income Tax Act - Section 149.1 - Subsection 149.1(1) - Disbursement Quota | investment of amount or depreciation in the investment is not the expending of an amount | |
| 17 January 2001 External T.I. 2000-0041375 F - REMBOURSEMENT DE PRIME/ENFANT INFIRME | Income Tax Act - Section 146 - Subsection 146(8.1) | s. 146(8.1) election and s. 60(l)(ii) transfer re bequest of RRSP to adult disabled child’s RRSP | |
| 23 January 2001 External T.I. 2000-0045445 F - DETTE D'UN ACTIONNAIRE - FIDUCIE | Income Tax Act - Section 251 - Subsection 251(1) - Paragraph 251(1)(b) | where Opco makes a loan to a wholly-owned trust, the shareholder of Opco does not deal at arm’s length with the trust | |
| Income Tax Act - Section 15 - Subsection 15(2) | where Opco makes a loan to a wholly-owned trust, the loan is included in the trust’s income assuming that an Opco shareholder did not deal with it at arm’s length with Opco |
Raiche – Court of Quebec finds that a suspended Quebec police officer had not severed his Quebec ties when he started living (except when in Quebec) with his son in Ontario
Raiche started living with one of his two sons in Petawawa Ontario when, in November 2015, he was suspended from his employment with the Quebec police force in connection with a criminal investigation of him. The suspension continued until his retirement at age 65 in September 2017. Jacques JCQ found that Raiche had not severed his residential ties with Quebec, given inter alia that he maintained significant ties with Quebec including owning two residential properties there which he did not rent out, including his home, which continued to hold all his furniture, and was used as the address for much of his correspondence and deliveries, and a home that he provided free of charge to his second son, significant continued voluntary support to his separated spouse there, frequent visits to Quebec, and continued holding of for example a Quebec driver’s licence and Quebec health card. Although acquitted of the criminal charges in 2018, he did not “return” to Quebec until 2020 after the completion of the ARQ audit of him.
In concluding that the taxpayer was resident in Quebec on December 31 of each of 2015 to 2018, Jacques JCQ stated:
Despite his presence in Ontario, Quebec constituted the only element in Mr. Raiche's life presenting a character of permanence and durability between 2015 and 2018. He settled there and maintained his ordinary mode of life with his network of social relations.
Neal Armstrong. Summary of Raiche v. Agence du revenu du Québec, 2024 QCCQ 7814 under s. 2(1).
CRA indicates that reserve residents generally can exempt their employment earnings by agreeing to perform over half of their duties from home
A status Indian performs his duties for an off-reserve employer (e.g., the federal government) more than 50% of the time from his reserve home pursuant to a telecommuting agreement. CRA indicated that this would satisfy Guideline 3, which exempts all employment income earned by a status employee resident on a reserve where more than 50% of the employment duties are performed there provided that there is a “formal hybrid work arrangement” (which need not be a written agreement “provided that the details of the arrangement are agreed and clearly understood by both the Employee and the employer”) requiring the employee to perform those duties (as to over 50%) at the agreed location (the reserve home) - whereas if the employee merely performs his “duties on a reserve for reasons of convenience,” such performance will not count towards the 50% rule. Furthermore, the 50% rule is inapplicable “where it is reasonable to consider that one of the principal reasons for the existence of an agreement mandating work at home on a reserve” is to access this rule.
This requirement that a hybrid work arrangement be non-tax motivated and “formal” likely is not legally sustainable, but perhaps is being “imposed” to encourage the payroll departments of off-reserve employers to be cautious in accommodating claims by reserve residents that they perform the majority of their duties from home.
Neal Armstrong. Summary of 28 November 2024 External T.I. 2024-1026331E5 F under Indian Act, s. 87.