News of Note
ETA s. 156 elections can be filed, viewed and modified through My Business Account
Email this ContentAt the time of writing in January 2015, CRA anticipated that electronic filing of the ETA s. 156 nil consideration group elections would be available through "My Business Account" (MyBA) in mid April 2015. Registrants will then be able to view, through MyBA, section 156 elections that they have filed, either electronically or by using the paper Form RC4616, as well as those filed by another group member on their behalf. Once a section 156 election has been filed either electronically or on paper, the election can be modified through MyBA.
CRA points out that where a specified member wishes to revoke an existing election, care must be taken to ensure that the elections between the other specified members remain in effect. The problem arises because every pair combination of named memers appearing in Part A of the form (RC4616) would be considered to have revoked their election. The solution is to file separate Forms RC4616 (electronically or on paper) specifically revoking only the targeted elections.
Neal Armstrong. Summaries of 29 January 2015 Interpretation 167061 under ETA s. 156(4), s. 156(3).
CRA finds that a commitment fee earned by the assignor of a loan is consideration for the loan made by the assignee for HST purposes
Exempt financial services include (in para. (g) of the ETA definition of financial service) the lending of money and (in para. (l)) agreeing to provide an otherwise-listed financial service. Somewhat curiously, CRA considered a commitment fee paid to a lender to be exempted under para. (g) rather than (l) notwithstanding that the loan agreement had been assigned to a third party by the time the loan advance occurred. The key (or pretext) for this may be ETA s. 133, which provides that the entering into of an agreement to supply property shall be deemed to be a supply at that time of the property.
Neal Armstrong. Summary of 29 January 2015 Ruling 93176 under ETA s. 123(1) – financial service – para. (g).
Alexander College - Tax Court of Canada considers that a private college does not qualify as a “recognized degree-granting institution” for GST purposes
The ETA states that a "’university’ means a recognized degree-granting institution or an organization that operates a college affiliated with, or a research body of, such an institution."
A private for-profit B.C. college with a two-year arts program provided "associate degrees," which were recognized as degrees under the Degree Authorization Act (B.C.). It thus qualified as a university on a literal reading of the definition.
Lyons J nonetheless found that it did not so qualify (so that its tuition fees were subject to HST) on the grounds that:
- income tax cases (e.g., Zailo) treated associate degrees as not being real degrees
- it was prohibited under the Degree Authorization Act from calling itself a university, which suggested that it was not "recognized" as an "institution" by the B.C. government
- the exempting provision (Sched. V, Pt. III, s. 7) also exempts "public colleges," and the definition itself assimilates affiliated colleges to "university," which suggests that "university" is intended to refer to something more than a mere private college.
Neal Armstrong. Summary of Alexander College Corp. v. The Queen, 2015 TCC 238 under ETA s. 123(1) - university.
CRA confirms that a penalty for failure to file a T1135 becomes statute barred when the Part I return for the year has become statute-barred
CRA has confirmed its position that, as a s. 216 return is a distinct return from a normal Part I return, it has its own normal reassessment period. However, the same does not apply to the imposition of penalties under s. 162(7) for failure to file T1135 returns, as the income from foreign properties in question is required to be reported on a normal Part I return rather than on a distinct return – so that such a penalty must be reassessed within the normal reassessment period for that return.
Neal Armstrong. Summary of 15 September 2015 Memo 2015-0572771I7 under s. 152(4).
CRA finds that no source deductions are required on payments to non-resident employees of third parties
On a literal reading, the source deduction Regulations apply to any payment of remuneration made by an employer to an employee, and are not restricted to remuneration paid to the employer’s own employees (see also Philp).
CRA stated that "that no withholding tax is required… where there is no employer/employee relationship." Accordingly, payments made by a Canadian manufacturer directly to the non-resident employees of non-resident dealers, based on the volume of sales warranties that were sold on customer purchases through those employees of the manufactured products, were not subject to Canadian source deductions (although T4A slips would be required to be issued). The payments also were not subject to withholding under s. 212(1)(d)(iii) given the exclusion therein for "a payment made for services performed in connection with the sale of property or the negotiation of a contract."
Neal Armstrong. Summary of 24 September 2015 T.I. 2013-0495611E5 under Reg. 100(1) – remuneration and s. 212(1)(d)(iii).
CRA confirms that s. 60 deductions do not reduce foreign source income for FTC purposes
S. 126(1)(a) generally denies a foreign tax credit for non-business income taxes paid to a country’s government to the extent that the taxpayer does not have (non-business) income sourced in that country. A CRA ruling dealt with a Canadian-resident individual who contributed to a 401(k) plan while employed in the U.S. He will now collapse the plan and contribute all or part of the withdrawn amount (which will be subject to U.S. withholding tax and to a sort of penalty tax of 10% of the withdrawn amount under Code s. 72) to his RRSP, and claim a s. 60(j) deduction for this contribution.
CRA ruled that for purposes of s. 126(1)(b)(i), his U.S.-source income will be the gross amount included in his income under s. 56(1)(a)(i), without deduction for his claim under s. 60(j). Thus, he potentially can receive a full FTC for the U.S. withholding and penalty tax even though his net U.S.-source income might be nil. Although this might seem contrary to IPL, the key may be s. 4(2), which provides that s. 60 deductions do not reduce income from a particular source.
Neal Armstrong. Summary of 2015 Ruling 2015-0572541R3 under s. 126(1) and s. 60(j).
Joint Committee comments on charitable gifting rules
The Joint Committee has made submissions on the proposed charitable gifting rules in draft ss. 38.3 and 38.4, pointing out various anomalies, ambiguities and oddly narrow policy choices.
Income Tax Severed Letters 14 October 2015
This morning's release of three severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Telus – Ontario Superior of Court of Justice orders rectification to reorganize a corporate structure to reflect what it was thought to be at the time of making a tax election
A multi-tier alignment election made by Telus respecting a two-tier partnership structure held by it, to continue with the January 31 fiscal year ends of the two partnerships, was subsequently discovered by Telus to be invalid because it had overlooked a minority interest of one of the partnerships in a third partnership. If at the time Telus had known about this problem, it would have caused the partnership holding the minority interest to transfer it on a rollover basis to the partnership’s corporate subsidiary.
In granting the Telus application to correct this error by ordering this transfer to occur on a retroactive basis, Hainey J rejected the Crown submission that it was impermissible to use rectification to order a transaction that was not even remotely contemplated at the time, and stated following Juliar and Fairmont that "the Applicants had a specific and continuing intention throughout to file a valid Election." He stated in the alternative, and following TCR, that if rectification was not available, he could "rely on the equitable jurisdiction of this court" to make the same order.
Neal Armstrong. Summary of Telus Communications Inc. v. A.G. of Canada, 2015 ONSC 6245 under General Concepts – Rectification.
Establishing a “specific intent” should not be necessary in rectification cases
Joel A. Nitikman suggests that the proposition appearing in some of the western cases that, in order for rectification to be available, there must have been a specific intent to have implemented the requested transactions, is inconsistent with the established proposition that rectification can be used to remedy negligence: generally the negligence will be a failure to even think about a particular tax issue so that the supposedly-required specific intent will be lacking.
Neal Armstrong. Summary of Joel A. Nitikman, "Rectification: Specific Intent? General Intent? What is the Test? – Part II", Tax Topics, Wolters Kluwer, No. 2274, October 8, 2015, p.1 under General Concepts – Rectification.