News of Note

Huntingdon, a public real estate company which converted from an income fund on December 31, 2012, is making a cash bid for units of KEYreit, so as to increase its position from approximately 5% to approximately 50% (with the offer conditional on getting up to the 50% level).  In addition to making the bid less expensive, going for less than 100% of the units will let KEYreit continue to qualify as a mutual fund trust and a REIT.  Huntingdon is vague as to its specific plans for its proposed investment.

Neal Armstrong.  Summary of Huntingdon offer for KEYreit under REIT and Income Fund Acquistions – Acquisitions by Corporations.

The HST/GST credit note rule provides that where a registrant receives a credit note for a taxable purchase made by it, any HST or GST included in that credit note will be added to its net tax liability for the reporting period in which it received the credit note to the extent that it had claimed an ITC for the related purchase in its return for that or a preceding reporting period.  The legislative drafter missed the point that ITC claims can be deferred for months or even years following the month in which the original purchase occurred, so that it is quite possible that the related ITCs will not be claimed until a return for a reporting period following that in which the credit note was received.

D'Auray J. has confirmed this legislative gap, so that the registrant got full ITCs for the GST on its original purchases notwithstanding that it subsequently received credit notes for $2.3M of those claims.

Neal Armstrong.  Summaries of Quinco Financial Inc. v. The Queen, 2013 TCC 20 under ETA s. 232(3) and 298(4).

Where an individual transferred a depreciable property with an accrued terminal loss to his spouse at fair market value, then died before being able to claim full CCA on the amount of that loss under the notional depreciable property rule in s. 13(21.1), CRA considers that such residual loss amount is vaporized because none of the release events in ss. 13(21.2)(iii)(A)-(E) applies.

This is questionable.  His wife presumably ceased to be affiliated with him when he died.  It likely follows that he was deemed immediately before that time to cease to own the notional depreciable property (under the "A" release event).  Accordingly, at the end of his last taxation year (i.e., December 31 if you take the calendar year rule in s. 249(1)(b) at face value) he would recognize a terminal loss as he would no longer be deemed to own the notional property at that time.

Neal Armstrong.  Summary of 7 January 2013 T.I. 2012-0452611E5 under s. 13(21.2).

A corporation which suspended interest payments on its debenture during the year is described as issuing T5 slips for "all amounts due and payable in the year including unpaid interest."  If this in fact is what happened, CRA is correct that individuals reporting on a receivable basis would be required to include the full year's interest in their income (but with there being a potential doubtful or bad deduction available under s. 20(1)(l) or (p)).  However if, as is commonly the case for subordinated debentures, there was a right or requirement to suspend the due date for the interest payments (in order to protect more senior debt), then the suspended accrued interest would only be required to be included in income to the extent it was covered by the anniversary date rule in s. 12(4).

Neal Armstrong.  Summary of 20 November 2012 T.I. 2012-0449671E5 under s. 12(4).