News of Note

At the 2019 APFF Provincial Roundtable, Revenu Québec indicated that it is possible to claim the capital loss, realized by a graduated rate estate in its first taxation year and that is subject to the Quebec equivalent of the s. 164(6) carryback election, directly on the deceased's final TP-1 return, where the capital loss is already known at the time the two tax returns are filed.

CRA, for the time being at least, is not budging. It stated:

While there is no provision in the Income Tax Act that prevents the taxpayer's amended T1 Final Return (including the election under paragraphs 164(6)(c) and 164(6)(d)) from being filed before the T3 Return is filed, it is the CRA's administrative practice to assess the T3 Return before the reassessment giving effect to the election can be processed. That practice ensures that the loss claimed and any resulting reduction in tax payable or refund is substantiated.

Relaxing CRA's procedures and any administrative policy in that regard would require a thorough review … . That said, it would be highly unusual for the CRA to allow a loss to be applied to a tax return before the return giving rise to the loss has been assessed.

Neal Armstrong. Summary of 7 October 2020 APFF Roundtable Q. 4, 2020-0852161C6 F under s. 164(6).

One of the requirements for the waiver under s. 204.1(4) or 207.06(1) of the penalty tax for an excess contribution to an RRSP or TFSA, respectively, is that the Minister be satisfied that the excess “arose as a consequence of reasonable error.” When asked about its interpretation of “reasonable error,” CRA first stated that “[f]or the error to be reasonable, it must … be considered by an impartial person to be more likely to occur rather than less likely to occur based on the circumstances of the taxpayer.” (This sounds rather like replacing “reasonable error” by “likely error.”)

It then indicated that ignorance of the contribution requirements generally will not be the basis for a waiver, but that “CRA may consider it appropriate to waive tax arising from a third-party error, depending on the circumstances.”

CRA then gave the following examples of instances where CRA has accepted that there was reasonable error:

• The taxpayer's notice of (re)assessment) indicated an RRSP deduction limit of $0, where in fact the limit was a negative amount, so that the taxpayer may have mistakenly believed that the taxpayer was entitled to the $2,000 allowance …;
• The taxpayer, through no personal fault, had over-contributed due to inaccurate information provided on the RRSP deduction limit statement [or by] the CRA…;
• The taxpayer's RRSP deduction limit had been reduced retroactively, due to events such as the late submission of a pension adjustment or amended pension adjustment, or the late submission of an exempt past service pension adjustment or T215 slip … for exempt past service pension adjustments;
• The taxpayer, a TFSA holder, had made multiple contributions to and withdrawals from his TFSA with the objective of maintaining a TFSA account balance below the contribution limit.

Neal Armstrong. Summary of 7 October 2020 APFF Roundtable Q. 1, 2020-0852131C6 F under s. 204.1(4).

Where a person is the operator of a joint venture for the construction of a multiple-unit residential complex by virtue of having managerial or operational control of the JV and does not have an interest in the real property on which the MURC is situated, CRA indicated that such operator cannot account for the GST/HST tax on the deemed self-supply under ETA s. 191(3) (on substantial completion and first tenant occupancy), and claim the new rental housing (s. 256.2(3)) rebate. Its reasoning:

Based on the … the operator … not hav[ing] an interest in the real property on which the MURC is situated, the operator does not meet the conditions set out in paragraph (a) of the definition of “builder.” The CRA will not administratively accept that a person is a builder of a MURC for GST/HST purposes where the person does not meet the conditions set out in the definition of “builder.”

This effectively indicates that a purported appointment of a construction manager (with no real estate ownership interest) as the operator of a JV for the construction of an apartment building or other MURC is illusory. It would appear that, in CRA's eyes, the manager would not be able to claim input tax credits for the costs incurred by it in the construction process, as the ensuing taxable supply under s. 191(3) that would otherwise enable such ITC claims would not, in CRA’s eyes, be deemed to be made by it.

Neal Armstrong. Summary of 27 February 2020 CBA Roundtable, Q.8 under ETA s. 273(1).

The TFSA rules contemplate that the surviving spouse of a deceased TFSA holder can make an “exempt contribution” of the payment to him or her of the TFSA proceeds (the “survivor payment”) to the survivor’s own TFSA within the “rollover period” (ending on December 31 of the year following the holder’s death). One of the requirements for an exempt contribution is that the survivor payment have been made to the survivor during the rollover period “as a consequence of the individual’s death, directly or indirectly out of or under [the holder’s TFSA].”

CRA found that a bequest of TFSA proceeds to a spousal trust which, in turn, distributed the TFSA proceeds in accordance with the deceased’s will to the surviving spouse would qualify as an indirect transfer as a consequence of death, so that this requirement was satisfied. This turned on s. 248(8)(a), which deems a transfer to be as a consequence of death if it occurs as a consequence of the terms of the will, and of the breadth of “directly or indirectly.”

Neal Armstrong. Summary of 7 October 2020 APFF Roundtable Q. 5, 2020-0851601C6 F under s. 207.01(1) – exempt contribution – (b).