News of Note
2143569 Ontario – Ontario Superior Court finds that a registered recital of the current beneficial owner does not eliminate the Ontario land transfer tax deferral on a previous inter-affiliate transfer
Email this ContentThe land transfer tax exemption in s. 3(9) of the Ontario Land Transfer Tax Act for inter-affiliate transfers of beneficial ownership takes the form of an application for a deferral of that tax with the tax then being conditionally eliminated after three years upon the satisfaction of specified conditions including that there has been no registration of a conveyance or instrument evidencing that disposition.
The Ministry of Revenue unsuccessfully took the position that the registration on title by the local City of a development agreement, which simply recited who was the current beneficial owner of the property, evidenced the fact that there had been a previous transfer (in an inter-affiliate transaction) of the beneficial ownership to that corporation. Lofchik J stated that "evidence of ‘the’ disposition would at the very least have to identify the entity disposing of the property," so that a bare recital of the current beneficial owner was not enough to oust the exemption.
Neal Armstrong. Summary of 2143569 Ontario Inc. v. Minister of Revenue, 2014 ONSC 4628 under Land Transfer Tax Act, s. 3(11)(a).
CRA considers rentals of recreational properties and of regular rental properties to be “similar” use
CRA somewhat generously considers that where insurance proceeds from the destruction of a year-round rental property are used to acquire chalets which will be rented out, the chalets generally will satisfy the requirement in s. 44(5)(a.1) of the involuntary-disposition replacement property rollover rules that their intended use is "a use that is the same as or similar to the use to which the taxpayer … put the former property." The wording used seems to imply that the replacement of rental properties of different types (e.g., apartments, shopping centres or office buildings) could satisfy this test.
Neal Armstrong. Summary of 13 November 2014 T.I. 2014-0535041E5 F under s. 44(5).
It may be negligent to advise the payment of assessed taxes to cut off interest
A non-resident corporation, which was assessed following many years of not filing T2 returns, was advised to pay the assessments, and then "successfully" objected to the assessments by establishing that its income was Treaty-exempt.
CRA now has informed the advisers that it is precluded by s. 164(1) from refunding this overpayment of tax because the corporation did not file its T2 returns for the years in question within three years from the ends of those years, i.e., by paying taxes which were not owing as a substantive matter, the corporation supposedly has lost the ability to get that money back!
Neal Armstrong. Summary of 5 November 2014 T.I. 2014-0538901E5 under s. 164(1).
CRA suggests that s. 55(5)(f) designations are unnecessary
CRA stated that its long-standing practice "is to apply subsection 55(2) only to the excess of the taxable dividend paid on a share over the safe income on hand attributable to that share, when issuing an assessment based on subsection 55(2)." Accordingly when a corporate shareholder receives a dividend in excess of SIOH and does not make s. 55(5)(f) designations to carve the dividend up into safe income and taxable dividends, CRA will only apply s. 55(2) to the portion of the dividend in excess of SIOH - so that, by implication, the shareholder is permitted to do the same on a self-assessment basis.
Neal Armstrong. Summary of 16 June 2014 STEP Roundtable Q. 7, 2014-0522991C6 under s. 55(2).
Techtronic Industries – Quebec Superior Court finds the place of supply of goods for QST purposes was the customer destination rather than place of their legal delivery into FedEx’s hands
Although in broad brush terms, the situs of sales of goods for GST/HST purposes is governed by the place of legal delivery, this result is overridden by Sched. IX, Pt. II, s. 3 of the interprovincial place-of-supply rules, which deems the place of supply to be in the province of the customer, notwithstanding that legal delivery occurs in the province of the supplier, where the goods are shipped by a common carrier retained by the supplier. Accordingly, under the equivalent Quebec rule, a supply of goods was deemed to occur in Quebec where the goods were delivered FOB the Toronto distribution centre but with the Ontario supplier retaining the "common carrier" (FedEx) for shipment to the Quebec destination.
Neal Armstrong. Summary of Techtronic Industries Canada Inc. v. Agence du revenu du Québec, 2014 QCCQ 7394 under ETA, Sched. IX, Pt. II, s. 3.
CRA will not provide relief where the lack of congruence between the 3-year late PLOI election and 2-year Part XIII refund deadlines bites
A potential anomaly arises because a late PLOI election to eliminate Part XIII tax on a s. 15(2) loan can be made by the Canadian lender (the "CRIC") within 3 years from its filing due-date for the year the loan was made whereas, if it actually was bone-headed enough to remit the Part XIII tax, a s. 227(6) refund application must be made within 2 years after the end of the calendar year in which the Part XIII tax was paid – so that a scenario, in which the CRIC was precluded from getting a refund of the retroactively eliminated Part XIII tax, theoretically could arise.
Neal Armstrong. Summary of 7 November 2014 T.I. 2014-0542061E5 under s. 227(6).
CRA indicates that a non-commercial arrangement (low rent to a relative) is not subject to the transfer-pricing rules
Where a non-resident individual not carrying on business in Canada leases a Canadian property to a related resident individual at less than fair market value rent, there will be no Part XIII tax exigible on imputed rent in excess of that paid because "the transfer pricing rules in section 247… would generally not be applied to adjust the amount of rent under the circumstances." However, municipal taxes (but not utilities) paid by the tenant will be treated as amounts or credited to the non-resident for the use of the property.
Although rents from a rental property which is not a source of income are not required to be reported for Part I purposes by a resident recipient, rents from such a property nonetheless are subject to Part XIII tax when paid to a non-resident.
Neal Armstrong. Summary of 3 October 2014 Memo 2014-0532051I7 under s. 212(1)(d).
CRA narrows the portion of reinsurance premiums paid to related non-residents which it considers to be taxable loading for GST/HST purposes
Since 2005, financial institutions have been required to self-assess GST or HST on various ITA-deductible expenses incurred outside Canada relating to their Canadian activities. Until recently (see Firth), CRA had been taking the position that a very substantial portion of reinsurance premiums paid by Canadian insurers to affiliated non-resident reinsurers represented taxable "loading," i.e., giving rise to an obligation to self-assess HST or GST under the above rules (as also expanded in 2010) if not already charged.
Finance indicated in November 2014 that its policy intent was that the Canadian insurers be taxable only on the portion of related-party financial services that are largely administrative in nature and not on amounts that are fundamentally financial in nature. CRA has now published revised policies in Notice 287 which ostensibly accord with this intent. In approximate terms, loading is largely restricted to the administrative component, so that amounts paid to reinsurer over and above the best estimate of losses (to reflect the transfer of risk) are excluded, as are ceding commissions and expense allowances for Canadian services of the Canadian primary insurer. There also is a safe harbour (treating all the reinsurance premiums as exempt) where there is arm's length pricing for separate properly-scoped "service level agreements" between the Canadian primary insurer and non-resident affiliates.
Neal Armstrong. Summary of GST/HST Notice 287 "CRA Administrative Positions on the Application of the Import Rules for Financial Institutions to Reinsurance Contracts" under ETA – s. 217 – loading.
CRA considers that directors of a corporate GP face potential exposure for unremitted source deductions of the LP
CRA applied Laxton to indicate that where there has been a failure of an LP to remit source deductions or GST, the resulting liability generally will be that of the general partner, so that its directors face potential liability under ITA s. 227.1 or ETA s. 323.
Neal Armstrong. Summary of 4 December 2014 Memo 2014-0531251I7 under s. 227.1(1).
CRA considers that the EU does not qualify as a state government for FTC purposes
CRA does not consider that taxes withheld by an EU organization, on pensions paid by it to a former employee who now has retired to Canada, are eligible for a foreign tax credit. The EU "is an international organization and … would not be considered a government of a country other than Canada," whereas s. 126(1) requires that the tax be paid to such a government. (CRA did not explicitly address a potential argument that the EU is a collection of governments of countries other than Canada so that, on a look through basis and reading s. 126(1) in the plural, the credit is available - although it likely would not have been receptive.)
The credit under s. 126(3) for taxes paid on income from employment with a qualifying international organization such as the EU also is not available because this instead is pension income.
Neal Armstrong. Summaries of 30 October 2014 T.I. 2013-0500491E5 under s. 126(1), s. 126(3) and s. 110(1)(f)(i).