News of Note

In the final version of his response to a question dealing with tax accrual working papers, Gordon Parr expanded his comments respecting solicitor-client privilege to include the bolded text below (as compared to the answer orally presented at the annual CTF conference):

A taxpayer may claim that the tax accrual working papers include information that is subject to solicitor-client privilege. The CRA cannot compel production of privileged communications, but a taxpayer has the right to waive privilege. The taxpayer’s list of uncertain tax positions that relates to the tax reserves in the taxpayer’s financial statements is considered to be part of the taxpayer’s books and records and is not a privileged document unless otherwise demonstrated.

This perhaps makes it clearer that CRA would acknowledge that it would be appropriate to redact any portion of the “list” that summarized tax advice received from a law firm.

Neal Armstrong. Summaries of 27 November 2018 CTF Roundtable Q. 11, 2018-0779971C6 under s. 231.1(1) and s. 232(1) – solicitor-client privilege.

Although most of these responses were commented on by us in late November after they were presented orally in more abbreviated form at the annual CTF Conference, for convenience of reference the Table below provides the descriptors and links for the final versions of the answers that were published last week.

A reorganization was implemented so that a family company (“KT Holdings”) that indirectly carried on a tire business became held equally by holdcos for each of the five children. Whereas previously the small business deduction was not enjoyed, now each holdco generated the $500,000 deduction through loans being made to generate $500,000 in interest income from KT Holdings that was converted into active business income under s. 129(6)(b). In a planning memo prepared by KPMG, the multiplication of the small business limit was the only identified objective that required the use of holdcos.

Graham J considered that estate planning for the five children was likely a main reason for the separate existence of the holdcos “in general.” However, as the child for the particular holdco {“Jencal”) that was before him did not testify, he could not make any finding that estate planning was a main reason for the separate existence of Jencal. Accordingly, he confirmed the application by CRA of s.256(2.1) to deem Jencal to be associated with KT Holdings, so that s. 125(5.1) applied to reduce the small business limit available to Jencal to nil.

Neal Armstrong. Summary of Jencal Holdings Ltd. v. The Queen, 2019 TCC 16 under s. 256(2.1).

ETA Sched. V, Pt. IV, s. 2 exempts “a supply of a service of providing care, supervision, and a place of residence to children, underprivileged individuals, or individuals with a disability in an establishment operated by the supplier for the purpose of providing such services.”

CRA has published a new GST/HST Memorandum on this exemption. Points made include:

• An establishment is “operated” by a supplier when it has “management and control of the establishment on a day‑to‑day basis” - as to which indicative factors would include authority over making operational decisions in the establishment and control of day‑to‑day operations. (CRA presumably interprets the operator concept similarly in other contexts, e.g., the exemption under Sched. V, Pt. II, s. 2 respecting the operator of a health care facility.)
• A supply of a service of arranging for a third party to supply the indicated items would not qualify, e.g., a provincial government contracts with a corporation to provide care, supervision, and a place of residence to a young adult with a disability and that corporation, in turn, arranges for a third party to provide the services.
• Individuals’ provision of foster care is not considered to be a commercial activity and, thus, is not subject to GST/HST on general principles; however, supplies of services such as assessment, placement, and monitoring services regarding residential foster care are not exempt under Sched. V, Pt. IV, s. 2.
• There will be considered to be a single supply described in Sched. V, Pt. IV, s. 2 notwithstanding that it comprises elements (e.g., meals) that would not be exempted if supplied alone and ancillary elements such as recreational services provided that the particular elements are not provided on an optional basis for an additional charge.

Neal Armstrong. Summary of GST/HST Memorandum 21-2 “Residential Care Services” January 2019 under ETA Sched. V, Pt. IV, s. 2.