News of Note
Olympia Trust – Federal Court of Appeal confirms that trustee for self-directed RRSPs was liable for failure to withhold under s. 116
Email this ContentRyer JA affirmed a finding of Bocock J that a Canadian trust company, which was the trustee for self-directed RRSPs that had purchased shares from non-residents without withholding or receiving s. 116 certificates, was the "purchaser" for s. 116(5) purposes rather than the annuitants, i.e., it was on the hook as the shares were taxable Canadian property. Respecting an alternative argument, that the purchasers for s. 116 purposes were the RRSP trusts themselves, he stated:
[T]he critical element of subsection 116(5) is the paying or crediting of an amount to a Disposing Non-Resident as the purchase price or acquisition cost of the TCP… . This action cannot be taken by a fictional person.
Neal Armstrong. Summary of Olympia Trust Company v. The Queen, 2015 FCA 279 under s. 116(5).
CRA confirms that too many stacked corporations may prevent access to the ETA s. 156 election
When it drafted its definition of closely related corporations, Finance quickly ran out of fingers. For instance, the “qualifying subsidiary” concept includes a child or grandchild but not a great-grandchild. As a result, sufficient stacking of corporations can result in an inability of all group members to make the ETA s. 156 nil consideration election. For example if, in a wholly-owned group, there are two stacks of four corporations beneath a common Holdco, the two bottom corporations will not be able to elect with each other as they are two remote from the Holdco to be closely related to each other.
Neal Armstrong. Summary of 19 June 2015 Interpretation 167422 under ETA s. 128(2).
Income Tax Severed Letters 9 December 2015
This morning's release of 36 severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA accepts that step-brothers are related
Common law partners each had a son by a previous union. CRA considers that the two step-brothers are related given that 252(1)(c) deems the child of a spouse or common-law partner of a taxpayer to be a child of the taxpayer, with the result that the two step brothers are deemed to be children of common parents.
Neal Armstrong. Summary of 3 November 2015 T.I. 2015-0584261E5 F under s. 252(1)(c).
The federal and provincial interest relief provisions may not dovetail
Observations of Michael Lubetsky on the federal and provincial interest relief provisions include:
- CRA offers no guidance regarding interest relief under s. 220(3.1), and the Federal Court jurisprudence has gone both ways, where a taxpayer is reassessed, carries back losses from subsequent taxation years to offset the reassessed amounts and interest runs under s. 161(7) for the entire period up to 30 days after the taxpayer requested the loss carryback
- In practice, CRA simply applies any decision with regard to interest relief under s. 220(3.1) to any related amounts due to an Agreeing Province, and if the taxpayer seeks judicial review of an CRA decision, the review generally does not distinguish between the federal and provincial portions of the interest.
- The above approach is consistent with a non-tax case (Société des acadiens).
- Differences in the Quebec regime include that where Revenue Quebec grants a cancellation of interest that results in a refund to the taxpayer, interest is paid by RQ on the refund for the entire period that the refunded amounts were in its possession, in contrast with the federal regime, where refund interest only starts to accrue 30 days after the taxpayer requests interest relief.
- On the other hand, even though the Quebec statute does not specify any limit on the number of years of interest that RQ can waive, administratively (and questionably), RQ adheres to the same 10-year time limit provided in ITA s. 220(3.1).
- If CRA waives interest on the basis that its reassessment had been unduly delayed for reasons attributable to it, RQ will not follow suit with the Quebec assessment since the delay was not its fault.
- Because the Alberta Corporate Tax Act contains no privative clause akin to ITA s. 165(1.2), a taxpayer may be able to challenge an Alberta interest-relief decision in the context of an ordinary tax appeal rather than instituting judicial review procedures.
Neal Armstrong. Summary of Michael H. Lubetsky, "Interest Relief under the Federal and Provincial Regimes", Tax Litigation, Vol. XX, No. 1, 2015, p. 1182 under s. 220(3.1).
Kutchka – Tax Court of Canada finds that a taxpayer’s “spouse” includes his widow
Graham J found that a transfer from the RRSP of a deceased tax debtor to his surviving spouse qualified as a transfer to his spouse for purposes of s. 160(1), so that she could be assessed for his unpaid taxes. He noted that:
- although dictionary definitions and the legal meaning of spouse “clearly contemplate a relationship between two living people,” its colloquial meaning extended to widows
- some provisions, such as s. 70(6), also use “spouse” in its colloquial sense
- it appeared quite unlikely that Parliament would have intended that transfers by RRSP to a surviving spouse would be exempted from s. 160 given that transfers by will clearly are caught.
He noted that using the colloquial meaning of spouse was not necessarily transferable to other provisions with a different context and purpose.
Neal Armstrong. Summary of Kutchka v. The Queen, 2015 TCC 289 under s. 160(1).
CRA announces that it is grandfathering existing RSUs that are convertible into DSUs even though no ruling was obtained
CRA announced on November 24 at the annual CTF Conference that previously-granted rulings (e.g. 2005-0144541R3) respecting plans which permitted the conversion of three-year bonus units, a.k.a. RSUs (to be exercised within the three calendar years following issuance as per para. (k) of the salary deferral arrangement definition) into deferred share units (governed by Reg. 6801(d)) are being revoked. This announcement referred only to the grandfathering of units which were in ruled-upon plans. In its subsequent written response, CRA stated, respecting “3-year bonus plans and DSU plans that relied on the positions reflected in these published rulings” but for which no ruling was sought, that:
The CRA will continue to apply the positions in [the] published rulings to any units credited on or before November 24, 2015 (including units with unexercised conversion rights on that date), as well as to additional units credited at any time in respect of those units, for example, dividend equivalents and proportional adjustments due to stock splits or corporate reorganizations.
When the above text is read in light of the wording of CRA’s previous oral announcement, it is clear that RSUs that were issued on or before November 24, 2015 under the sort of plan that CRA previously was willing to rule on can be converted into DSUs within the three-year para. (k) period.
Neal Armstrong. 24 November 2015 CTF Annual Roundtable, Q. 2.
CRA appears to have discussed an amendment to the upstream loan rules with Finance
As noted in a previous post, CRA considers that the amount of an upstream loan owing by Canco to a CFA will be included in Canco’s income when the CFA is wound-up. In CRA’s written responses to the 2014 CTF Roundtable questions which were released on
Thursday evening, CRA stated (more crisply than in its oral presentation):
We anticipate that this issue will likely be resolved eventually through legislative amendment.
Neal Armstrong. 24 November 2015 CTF Annual Roundtable, Q. 8.
There are various arbitrary GST distinctions between corporations and partnerships
There are a number of somewhat arbitrary GST distinctions between corporations and partnerships. Partnerships:
- cannot access the s. 186 election to permit a holding partnership to claim input tax credits;
- cannot use the s. 150 election to exempt intra-group supplies even if the partnership is a listed financial institution or is closely related to a listed financial institution;
- do not qualify for the off-set mechanism permitting a large GST remittance obligation of one member of a closely related group to be reduced by the refund position of another group member;
- do not benefit from any analogue to the s. 272 rule deeming the conveyance on a corporate wind-up to not be a supply.
Neal Armstrong. Summaries of Allan Gelkopf, Zvi Halpern-Shavim, "Five Arbitrary Differences between Corporations and Partnerships for GST/HST Purposes", Sales and Use Tax (Federated Press), Vol. XIII, No. 2, 2015, p. 674 under ETA s. 186(1), s. 150(1), s. 228(7), s. 272 and Selected Listed Financial Institution Attribution Method (GST/HST) Regulations, s. 3(c).
SARs are taxed when they vest
It is not clear that stock appreciation rights become taxable under the salary deferral arrangement rules when such SARs vest, given that this would turn on whether the executive is postponing the SARs' exercise in order to avoid immediate tax consequences. However, CRA likely would view the vested SAR as having been constructively received, so that “it seems likely that the SARs would be taxed at the moment they become fully vested” under general principles if not under the SDA rules.
Neal Armstrong. Summary of Kevin Bianchini and Reuben Abitbol, "Taxation of Stock Appreciation Rights", Taxation of Executive Compensation and Retirement (Federated Press),Vol. 24 No. 8, 2015, p.1655 under s. 248(1) - salary deferral arrangement.