News of Note
Tax Court finds that GAAR did not apply to a surplus strip
Email this ContentMcClarty, 2012 TCC 80, concerned transactions that had the effect of distributing assets of a family holding company to a family trust, and permitting that distribution to be realized by the trust as a capital gain rather than as a dividend - so that the property could then be distributed to the minor children without being subject to the "kiddie tax" under s. 120.4. Angers, J. found that none of the transactions were avoidance transactions under the general anti-avoidance rule because they all had a primary purpose of protecting assets from a potential suit. Not surprisingly, Angers J also found that the words "in any manner whatever" in s. 84(3) did not authorize CRA to treat preferred shares that in fact were redeemed in the hands of an affiliated corporation as if they had been redeemed in the hands of the family trust (which had owned those shares earlier in the series of transactions).
Scott Armstrong. Summary under ITA s. 245(3) and ITA s. 84(3).
CRA issues negative HST rulings on (a) contract-subcontract relationships between financial service providers and (b) the sale of a brokerage business
In a recent headquarters letter, CRA found that commissions earned by a "managing general agent" for agreeing with an insurance company to arrange for the sale of policies to individual policy holders did not qualify as an exempt financial service for HST purposes because the master agent dealt with the individuals clients through subcontractors (various insurance agents) rather than directly with the clients. Even more startling is that CRA found that where an insurance agent had sold its business to another agent, the deferred commissions which the purchaser now was entitled to receive became subject to HST because the purchaser itself was not the person who earned the commissions through the provision of financial services. Both interpretations do not make sense from a policy perspective (and are also questionable on technical grounds) and could have significant negative consequences for other financial service providers, such as mutual fund managers.
Neal Armstrong. Summary under ETA s. 123(1) - "financial service".