News of Note
CRA accepts that the 10-year deferral election under s. 159(6.1) is available for tax on s. 104(5.2) deemed dispositions of resource properties
Email this ContentS. 159(6.1) allows trusts to elect to spread a tax liability, arising as a result of a deemed disposition occurring at a time specified in s. 104(4)(a) to (c) (e.g., under the 21-year deemed disposition rule), over 10 years. CRA accepts that since s. 104(5.2) indirectly references those deemed disposition times, the election can also be used for a liability arising from a deemed disposition of resource properties under s. 104(5.2).
Neal Armstrong. Summary of 29 July 2015 T.I. 2015-0594201E5 under s. 159(6.1).
CRA finds that recording cross-currency swaps on the Security rather than Inventory line of a s. 85(1) election form did not invalidate the election
CRA found that cross-currency swaps with accrued gains, which for redacted reasons were considered to be held on income rather than capital account, qualified as "inventory" under the broad s. 248(1) definition, so that they could be transferred on a rollover basis into subsidiaries under s. 85(1). Including the swaps on the line of the T2057 Schedule for Securities or debt obligations, rather than on the Inventory line, was a merely "clerical" error which did not invalidate the election.
Neal Armstrong. Summaries of 29 January 2015 Memo 2014-0544651I7 under s. 85(1.1) and s. 85(1).
Easy Way Cattle Oilers – Tax Court of Canada finds that failure to timely file a Schedule 31 eliminated the taxpayer’s SR&ED credits
D'Arcy J found that the taxpayer’s late-filing (by six weeks) of Schedule 31 meant that its SR&ED credits for the year in issue were properly denied – even though the information needed to calculate the credits was in its return and on Form 661, which it had filed on a timely basis.
Neal Armstrong. Summary of Easy Way Cattle Oilers Ltd. v. The Queen, 2015 TCC 211, under s. 127(9) – investment tax credit – (m).
Income Tax Severed Letters 2 September 2015
This morning's release of seven severed letters from the Income Tax Rulings Directorate is now available for your viewing.
OceanaGold is proposing to acquire Romarco under s. 85.1
OceanaGold, which is a BC corporation headquartered in Australia, is proposing to acquire all the shares of Romarco (a B.C. corporation with a South Carolina gold property) under a B.C. plan of Arrangement in consideration for OceanaGold shares, so that s. 85.1 should apply (no nominal cash consideration). Although the exchange should qualify as a Code s. 368(a) reorganization, it is believed that Romarco may be a PFIC, and that OceanaGold is not, so that the PFIC rules may apply to the exchange.
There also is a s. 7(1.4) exchange of Romarco stock options for OceanaGold options. Taking into account the OceanaGold shares covered by such options, the Romarco shareholders and optionholders collectively will receive a majority interest in OceanaGold. However, the OceanaGold shares to be issued under the Plan of Arrangement represent only 98.6% of the shares currently outstanding.
Neal Armstrong. Summary of OceanaGold and Romarco Circular under Mergers & Acquisitions – Mergers – Share-for-Share.
CRA accepts that seniors in a Saskatchewan personal care home were “disabled” so that their fees were exempted from GST
ETA, Sched. V, Pt. IV, s. 2 exempts "a supply of a service of providing care, supervision and a place of residence to… individuals with a disability in an establishment operated by the supplier for the purpose of providing such service."
CRA considers that "‘disability’ generally refers to a long-term impairment that restricts an individual in carrying out his or her activities of daily living," and ruled that the fees charged to the senior residents of a Saskatchewan personal care home were exempted on the basis inter alia of a representation that each resident suffered an impairment restricting the conduct of such activities.
Neal Armstrong. Summary of 21 November 2014 Ruling 150099a under ETA, Sched. V, Pt. IV, s. 2.
Sood – Federal Court states that CRA is required to breach a settlement agreement that does not accord with tax law
When the taxpayer brought a Federal Court action to enforce an agreement with CRA for the settlement in his favour of a dispute respecting the new housing HST rebate, Gascon J found that he lacked the jurisdiction to consider the application (as it represented a "collateral attack on the validity of the tax reassessment" in question). After referring to the Galway and Cohen line of cases, he went on to state that "the Agency was required to revoke the settlement agreement since no legal or factual basis supports Mr. Sood’s claim to the provincial new housing rebate."
Neal Armstrong. Summaries of Sood v. M.N.R., 2015 FC 857 under s. 152(1) and Federal Court Act, s. 18.5.
Hatt – Tax Court of Canada finds that a pension contribution which was only currently deductible from income could be carried forward as a non-capital loss
Although s. 111(9) limits the sources which can give rise to a non-capital loss of a non-resident, a loss from Canadian employment is not excluded. A non-resident who had nominal income from a Canadian job from which she was on leave but who generated a significant deduction under s. 147.2(4)(a) by using a retiring allowance (which was taxable under Part XIII rather than Part I) to contribute to her registered pension plan, thereby generated a non-capital loss for that year. After her return to Canada, she deducted this loss.
CRA was offended: s. 147.2(4) does not permit the carry-forward of RPP contributions, and this limitation was "frustrated" by permitting them to in effect be carried forward as non-capital losses.
In the laconic common law tradition, D’Arcy J did not launch into a speech on the primacy of ordinary meaning over unexpressed policy, and merely noted that the statutory words permitted the carryforward.
Although this situation is more common on the GST side, this case illustrates that if CRA gets the bit in its teeth, it may proceed to the Tax Court irrespective of the technical merits.
Neal Armstrong. Summary of Hatt v. The Queen, 2015 TCC 207 under s. 111(1)(a).
CRA apparently accepts that real estate sales can be made through a JV operator for ETA s. 273 purposes where the sales are made in the name of the co-venturers or separate nominee
In P-106, CRA states that a manager who has no co-ownership interest in a real estate joint venture nonetheless can qualify as a "participant" in the JV, so that it generally will be eligible to be designated as the JV "operator" under an ETA s. 273 election, if it "is responsible for the managerial or operational control of the joint venture."
CRA has issued an Interpretation with a detailed description of a JV arrangement where this requirement would be satisfied (with the manager making routine decisions and listed major decisions, e.g., budget approvals, requiring co-owners’ approval), so that the election appeared to be available.
S. 273 is stated to apply to JV-related properties and services supplied or acquired by the operator "on behalf of" the co-venturers. Here, the manager was described as merely managing and supervising sales of new homes, which may imply that nothing more is required in order for such sales to be considered to have been made by the manager on behalf of the co-owners.
Neal Armstrong. Summary of 2 December 2014 Interpretation 164312 under ETA s. 273(1).
CRA will not accept an amended partnership return beyond statute-barred period
S. 152(1.2) provides that many of the provisions respecting assessments including the statute-barring period under s. 152(4) (subject to a waiver being provided under s. 152(4)(a)(ii)) also apply to a "determination," e.g., a determination of partnership income under s. 152(1.4). This means that CRA will not accept an amended partnership return after the three-year determination period under s. 152(1.4) if no waiver was produced within that period.
Neal Armstrong. Summary of 23 April 2015 Memo 2014-0562271I7 under s. 152(1.4).