News of Note
Critical illness policies can be transferred free of capital gains tax
Email this ContentA corporate owner of a critical illness insurance policy can transfer it free of capital gains tax as insurance policies are excluded from capital gains treatment and there is no provision explicitly taxing such a policy’s disposition.
Neal Armstrong. Summary and translation of 2015-0588941C6 F under 9 October 2015 APFF Roundtable on Financial Strategies and Instruments, Q. 1.
CRA notes that transfer adjustments to increase to sales prices (but not reduce purchases) increase gross revenue for Reg. 402 purposes
CRA considers that an upward adjustment under s. 247(2) to a Canadian resident’s sales proceeds – but not a downward adjustment to its purchase price for goods – increases its gross revenue for provincial income allocation purposes.
Neal Armstorng. Summary of 1 September 2015 Memo 2013-0507381I7 under Reg. 402(3).
CRA addresses the status of mutual funds with limited windows for unit redemption
Since 1991, CRA has had a policy of considering units of a trust to be redeemable on demand for purposes of the unit trust test in s. 108(2)(a) where a provincial securities commission policy treats the units as redeemable on demand for securities’ laws purposes – even where the securities legislation accepts a right to redeem only twice a year as satisfying this condition. It is not clear how useful this position is given that most or all REITs and income funds do qualify as mutual funds for securities law purposes and, therefore, are not able to qualify as mutual funds whose units are redeemable on demand for such purposes.
Neal Armstrong. Summary of 16 November 2015 T.I. 2015-0595041E5 under s. 108(2)(a).
Income Tax Severed Letters 16 December 2015
This morning's release of nine severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Effective January 1, 2016, Appeals files will be sent back to Audit if information requested by Audit is now provided
Points on the Appeals process made by Anne-Marie Levesque, Assistant Commissioner, Appeals at the Annual CTF Conference include:
Q.3: CRA has changed its practice so that an appeals officer can consider a request for interest or penalty relief at the same time as considering the objection – but only a decision letter will be given at that stage so as to not invalidate the objection.
Q.4: Effective January 1, 2016, if an appeals officer is provided with information which had been requested by but not provided to the auditor, the appeals officer will be required to send the file back to the auditor for review of the additional information to determine whether it changes the initial audit determination.
Q.5: There have been quite a number of cases where the appeals officer has disagreed with a valuation report, and asked for another valuation, or overturned the reassessment. Appeals also has overturned reassessments notwithstanding a GAAR Committee recommendation to apply the GAAR (so that it is worthwhile making submissions to Appeals to overturn a GAR Committee adverse opinion) – and, conversely, Appeals can raise the GAAR even if Audit did not raise it. Appeals does not go through the GAAR Committee, and can apply the GAAR on its own.
Neal Armstrong. Answers of Anne-Marie Levesque, Assistant Commissioner on Appeals Procedures.
CIBC – Tax Court of Canada responds favourably to the dilemma of asserting that a damages payment was legally necessary without waiving privilege for the legal advice on that point
Issues in the appeal of CIBC respecting whether it could deduct the Cdn.$2.9 billion it paid to settle the Enron-related actions against it included whether the settlement amount should have been reimbursed to it by subsidiaries whose conduct may have been the primary basis for the actions.
Rossiter CJ rejected arguments that CIBC had waived solicitor-client privilege by putting its legal knowledge in issue including its position that “its most significant Enron-related liability exposure for the entire CIBC group of entities was created by the parent bank’s (CIBC’s) own conduct, and…not that of its subsidiaries or affiliates,” stating that merely indicating that legal advice informed its position did “not amount to putting its reliance on legal advice in issue in these appeals.” Moreover, the voluntary disclosure by CIBC of some privileged documents did not amount to waiver of the remainder of the privileged communications as the Crown had not shown that such disclosures were misleading in any way.
However, the report of a consultant hired in the Enron litigation by U.S. counsel to advise on damages and related strategy was not privileged, and numerous documents prepared in connection with the Enron litigation were no longer covered by litigation privilege, as the Enron litigation was finished, and it was quite different from the current tax litigation.
Large numbers of Crown discovery requests which CIBC tried to reject on the grounds of irrelevancy were accepted. Rossiter CJ stated:
This particular motion seems in large part to be the result of obstruction by CIBC...[which] I...do not believe...is the proper way to litigate, and there are certainly consequences to that strategy that the Court should and will consider.
Neal Armstrong Summaries of CIBC v. The Queen, 2015 TCC 280, under s. 232(1) – solicitor-client privilege, Tax Court Rules 82(2), 84, 95(1), 86(1).
CRA considers that psychotherapy services are not GST-exempt
Supplies of various listed regulated health care services by “practitioners” are exempted from GST. CRA accepts that a regulated Traditional Chinese Medicine practitioner qualifies as a practitioner for these purposes. However, supplies of psychotherapy services by someone who qualifies only as a psychotherapist are not exempted.
Neal Armstrong. Summaries of Excise and GST/HST News - No. 97 under ETA, Sched. V, Pt. II, s. 1 – practitioner, s. 7, Sched. VI, Pt. I, s. 2, Pt. II, s. 37, ETA s. 225.2(2).
684761 B.C. Ltd. – Tax Court of Canada confirms CRA’s ability to issue additional assessments without voiding previous reassessments
CRA reassessed the taxpayer within the normal reassessment period, and then issued a “Notice of Additional Assessment” assessing penalties under ss. 163(1) and (2) beyond the normal reassessment period. The taxpayer argued that CRA had inappropriately “bifurcated one assessment process into two distinct products” - and the additional assessment was in substance a reassessment so that it displaced the previous reassessment. In rejecting this submission, Rip J noted that the subsequent assessment was indeed an additional assessment, and rather than being esoteric, it was one of the tools available to CRA.
Neal Armstrong. Summary of 684761 B.C. Ltd. v. The Queen, 2015 TCC 288, under s. 152(4).
Bywater Investments – Full Federal Court of Australia finds that companies whose directors in offshore meetings “exercised no independent judgment in the discharge of their offices” were resident in Australia
The Full Australian Federal Court accepted the findings of the primary judge below that company directors, who met outside Australia, “exercised no independent judgment in the discharge of their offices but instead merely carried into effect [an Australian accountant’s] wishes in a mechanical fashion,” so that the companies were resident in Australia.
Given that the tests of residence for corporations and trusts are now aligned in Canada, the courts in Fundy Settlement and Boettger would have reached the same conclusion. The case illustrates that someone with real authority should attend the directors’ (or trustees’) meetings in the targeted jurisdiction.
Neal Armstrong. Summary of Bywater Investments Ltd. v. Commissioner of Taxation, [2015] FCAFC 176, aff’g sub nom. Hua Wang Bank Berhad v. Commissioner of Taxation [2014] FCA 1392 under s. 2(1).
The Supreme Court will consider the correctness of the Juliar rectification doctrine in Fairmont Hotels
In Fairmont Hotels, the Ontario Court of Appeal followed Juliar in finding that a continuing (non-specific) intention to avoid an inappropriate tax result was a sufficient basis for rectification. This contrasted with the approach in Harvest Operations and Graymar (both in Alberta), suggesting that the rectification "fix" should accord with a specific plan that was in place at the closing.
The Supreme Court has now granted leave in Fairmont Hotels. It has also granted leave in Jean Coutu.