News of Note
Fiducie Famille Gauthier - Federal Court of Appeal finds that the fair market value of shares should not exclude recently-incurred reorganization expenses
Email this ContentIf you purchase a company for $2.6 million, and then immediately incur $200,000 in professional fees to reorganize the company, followed by a transfer of the securities of the company in an internal reorganization, is it appropriate to consider that the securities have a fair market value of $2.8 million on the internal transfer? The Fiducie Gauthier case - which dealt with the reverse situation where approximately $200,000 of reorganization expenses are incurred before transferring securities in a non-arm's length transfer, and then selling them in an arm's length sale for $2.8 million - arguably provides some support for the proposition that the fair market value of shares may reflect recently-incurred reorganization expenses.
Neal Armstrong. Summaries of Fiducie Famille Gauthier v. The Queen, 2012 FCA 76, aff'g 2011 TCC 318 under s. 84.1(1) and General Concepts - Fair Market Value - Shares.
CRA gets granular on how close grassroots exploration can be to an existing mine
In order for expenses of exploring a potential mineral resource to qualify as Canadian exploration expense under para. (f) of the definition of that term, they must not relate to a mine in the the mineral resource or to a potential expansion of the mine. CRA has apparently ruled that a proposed exploration program would qualify provided (among other conditions) that the activities are not undertaken within 1.2 kilometers of the mine shaft for a former mine on care and maintenance.
Neal Armstrong. Summary of 2012 Ruling 2011-0422761R3 under s. 66.1(6) - CEE, para. (f).
CRA corrects error in GST/HST Policy Statement re discounted gift certificates
In the version of Policy P-202 which was outstanding up until April of this year, CRA stated that one of the characteristics of a gift certificate (which is treated for GST and HST purposes similarly to money) is that the consideration for its purchase "is given in the amount of the stated value." This previous requirement that the gift certificate not be purchased at a discount from its face amount has now been corrected by CRA.
In particular, CRA has acknowledged that vouchers purchased on-line from a "Groupon" type of vendor still qualify as gift certificates even though they are purchased at a discount from their face amount and the participating merchants have agreed to honour the vouchers at their face amount. This position now is also reflected in the revised version of P-202.
Neal Armstrong. Summary of 19 July 2011 HQ Letter 127619 under ETA s. 181.2.
CRA rules that magnetic membership cards qualify as gift certificates for HST/GST purposes
CRA has ruled that membership cards for access to a social networking website which are sold through retail stores and then activated at the stores by scanning a magnetic strip and entering a scratch-away PIN number, qualify as gift certificates for GST and HST purposes. This position that a gift "certificate" can include a magnetic card is now reflected in the revised version of Policy Statement P-202, which was released in April 2012.
Scott Armstrong. Summary of 11 August 2011 Headquarters Letter 127020 at ETA s. 181.2.
CRA considers that nursing homes do not qualify for the 83% GST rebate
CRA considers that a public institution operating a nursing home (in this case, one focusing on Alzeimer's residents) did not qualify for the higher 83% GST rebate available to qualifying operators of "qualifying facilities" (as opposed to a 50% rate) given that the level of "active" physician involvement in the care services was significantly short of that traditionally provided in hospitals. Examples of qualifying facilities included "those that offer a high level of therapeutic care, cancer clinics, day surgery clinics and community health centres that render primary care services."
Neal Armstrong. Summary of 20 May 2011 HQ Letter 115028 under s. 259(1) - "facility supply".
HST/GST: CRA finds mortgage broker services to be exempt notwithstanding associated credit assessment and processing services - but warns that trailer fees may not be exempt
CRA has indicated that the fees earned by a mortgage broker from mortgage lenders (and, in some instances, from the borrowers) were exempt financial services for HST and GST purposes. The services of the mortgage broker included credit monitoring and administrative/processing services, which were sufficient to cause the similar services provided by a web-based loan broker described in the post below to be taxable supplies (see also 19 July 2011 HQ Letter Case 125864). However CRA noted that the mortgage broker had a high degree of responsibility and involvement in making the loans occur.
Although it was not asked to comment on trailer commissions, it went out of its way to warn that "a renewal commission payable in future years may not be [exempt]."
Neal Armstrong. Summary of 27 May 2011 HQ Letter 129882 and 14 July 2011 HQ Letter 132388 under s. 123(1) - financial service.
HST/GST: CRA confirms the potential bite of new exclusions from financial services
When various financial industry participants expressed alarm at the scope of various amendments to the definition for HST and GST purposes of financial service, which appeared to substantially narrow this category of exempt supply, the Minister of Finance issued a press release on March 26, 2010 reassuring the participants that the intent was only to "restore the situation that existed prior to [certain] court decisions" (principally Canadian Medical Protective Association).
This has not stopped CRA from relying on the new provisions to justify a narrow interpretation of what is exempt. CRA has indicated that a service of arranging for banks to provide loans to customers of a manufacturer and its dealers was not an exempt "financial service" because the service provider was providing credit management services (excluded under new para. (r.3) of the definition) and preparatory services such as customer assistance and document processing (excluded under new para. (r.4)).
Neal Armstrong. Summary of 29 July 2011 HQ Letter 82567 under s. 123(1) - financial service.
Envision - Supreme Court grants leave to appeal
The Envision decision considered whether the statutory amalgamation rules in s. 87 could be avoided by effecting a transfer, on the amalgamation, of property of one of the amalgamating corporations to a subsidiary, and on what the consequences of an amalgamation are if s. 87 does not apply.
Scott Armstrong. See: 21 June SCC Press Release; and the current summary of the Federal Court of Appeal decision in Envision Credit Union v. The Queen, 2012 DTC 5055 [at 6842], 2011 FCA 321, under s. 87, s. 13(21) - UCC - E.
Brookfield proposes spin-off of non-resident commercial real estate partnership
Brookfield Asset Management Inc. is proposing a spin-off to its shareholders of units of a non-resident partnership (BPY) that will hold its commercial real estate portfolio, so that following the distribution the public will hold 10% of BPY on a fully-diluted basis and Brookfield will continue to hold approximately 90% (including through exchangeable units of a subsidiary Bermuda LP).
The spin-off is taking the form of a taxable dividend (no vote required), rather than a paid-up capital distribution under s. 84(2) or 86.
Neal Armstrong. See summary of Preliminary prospectus of Brookfield Property Partners L.P..
Argent Energy Trust files updated IPO prospectus
Argent Energy Trust has filed an amended preliminary prospectus. Its proposed structure for carrying on a US energy business is similar to Eagle Energy, except that it will use a corporate structure (i.e., investing in a Canadian holding corporation which will hold a US Opco, as well as investing in notes of the US Opco) rather than a hybrid structure (i.e., holding units and interest-bearing notes of a Canadian sub trust that is a corporation for US tax purpose which, in turn, holds a Delaware LP that is disregarded for US tax purposes).
Scott Armstrong. See summary of IPO of Argent Energy Trust.