News of Note
Income Tax Severed Letter 19 December 2012
Email this ContentThis morning's release of six severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Canadian-resident shareholders of ASX-listed CGA are offered s. 85(1) rollover treatment on merger under Australian Scheme of Arrangement with B2Gold
Canadian-resident shareholders of CGA, an Australian public mining company, are being offered s. 85 rollover treatment on the acquisition of all the shares of CGA by TSX-listed B2Gold under an Australian "Scheme of Arrangement." (No s. 85.1 rollover is available for dispositions of shares of non-resident companies.) CGA Australian shareholders who don’t want to open up an international brokerage account for B2Gold shares are allowed to elect to instead receive the net proceeds on a subsequent sale of "their" B2Gold shares by a nominee (Haywood Securities), if they otherwise would have received 1000 or fewer B2Gold shares.
Neal Armstrong. Summary of CGA Mining Limited Scheme Booklet under Cross-Border Acquisitions - Outbound.
CRA treats construction services provided in exchange for a development permit as being made for nil consideration for GST/HST purposes
A subdivision developer who pays a development levy of a municipality will be considered to have made an exempt supply for HST/GST purposes of cash in consideration for an exempt municipal service. However, its provision of municipal improvements such as roads generally will be treated as the making of a taxable supply for nil consideration rather than in consideration for the (presumably valuable) permit, so that no GST or HST is payable by the municipality.
Although this result makes policy sense, it is somewhat at odds with the general tax treatment of barter exchanges as occurring at the fair market value of the exchanged property or services (see for example, Bernick).
Neal Armstrong. Summary of 31 July 2012 Interpretation Case No. 103548 under ETA – s. 153(1) and Sched. V, Part VI, s. 20.
NRT Technology - Tax Court dusts off the REOP tests for application in a loss streaming case
The reasonable expectation of profit doctrine has been largely defunct since Stewart and Walls in the context in which it was originally most often applied by CRA (businesses financed as tax shelters and non-hobby farming losses). However, the criteria developed in the pre-Stewart cases for determining the existence of "REOP" (e.g., Tonn) were applied by Campbell Miller J to find that a loss business of a purchased corporation (which presumably was wound-up into the taxpayer, although he doesn't say) was not carried on with a REOP, as explicitly required in the statutory words of s. 111(5)(a) (and, in fact, the business was essentially dormant following the acquisition). Accordingly, the losses could not be utilized.
Neal Armstrong. Summary of NRT Technology Group v. The Queen, 2012 TCC 420 under s. 111(5)(a).
CRA finds NEX is a stock exchange based on Black's Law Dictionary and "commercial point of view"
In finding that NEX of the TSX Venture Exchange is a "stock exchange located in Canada" (and therefore included under paragraph (b) of the definition of "recognized stock exchange" in s. 248(1)), CRA relied on the Black's Law Dictionary definition of "stock exchange" and on the conclusion that the Canadian Securities Administrators would be likely to consider the exchange to be a stock exchange (which would imply that NEX is a stock exchange "from a commercial point of view").
Scott Armstrong. Summary of 11 September 2012 Memorandum 2012-0454321I7 under s. 248(1) - recognized stock exchange.
Amendment to s. 87(4) does not affect the exemption from s. 116 certificate requirement
IT-474 indicates that there is no requirement to apply for a s. 116 certificate on a statutory amalgamation involving the disposition of shares which are taxable Canadian property. This policy still applies notwithstanding that, following on the March 2012 Budget, s. 87(4) was amended to provide that, on such an amalgamation, the shares of the amalgamated corporation are deemed to be taxable Canadian property for a period of only five years following the amalgamation.
Neal Armstrong. Summary of 11 October 2012 T.I. 2011-0429021E5 under s. 116(1).
Income Tax Severed Letters 12 December 2012
This morning's release of nine letters from the Income Tax Rulings Directorate is now available for your viewing.
Service provider is not carrying on business in Canada for GST/HST purposes notwithstanding place where contracts may be made
In determining whether a company is carrying on business in Canada, the place where it concludes contracts for the sale of its products or services likely is not a touchstone if its business is not one of trading property. CRA appears to agree. It has indicated that a web based provider of services was not carrying on business in Canada notwithstanding that the place of making of the contracts may have been Canada, it solicited Canadian orders and its employees came to Canada on an irregular basis.
Neal Armstrong. Summary of 20 August 2012 Interpretation Case No. 140855 under ETA - s. 240(1).
GST/HST Headquarters Letters August 2012
This afternoon's release of 12 GST/HST Headquarters Letters is now available for your viewing.
Michael C. Durst suggests that the OECD draft discussion on transfer pricing for intangibles will combat income shifting through the mere transfer of cash to purchase or develop intangibles
The former director of the IRS's advance pricing agreement program has suggested that the the OECD Discussion Draft on Transfer Pricing for Intangibles combats the fallacy that it complies with the transfer pricing rules for income to be shifted to low tax jurisdictions through "the mere transfer of cash" to the affiliates there, i.e., they use cash to purchase intangibles for their fair market value or contract to pay the fair market value of contract services to develop intangibles for their account.
Neal Armstrong. Summary of Michael C. Durst, "OECD's Fight Against Income Shifting - and for Its Global Role," Tax Notes International, 3 December 2012, p. 933 under Treaties -Art. 9.