News of Note
CRA requires a general partner to obtain a clearance certificates on winding up a limited partnership
Email this ContentCRA implies that if a general partner of a limited partnership that is being wound-up does not obtain a s. 159(2) certificate from CRA, the general partner will be personally liable for any unremitted source deductions of the partnership (to the extent of the value of the distributed property). This proposition that a partnership is a person for these purposes is dubious.
Neal Armstrong. Summary of 11 October 2012 T.I. 2012-0432861E5 under s. 159(2).
CRA considers pass-through trust dividends to be received at the end of the trust's taxation year
S. 104(19) deems a dividend received by a trust which it designates to be a dividend of a beneficiary to have been received by the beneficiary "in" the trust's taxation year. CRA considers that this means that the dividend was deemed to be received by the beneficiary on the last day of the trust's taxation year. This would be relevant if the beneficiary has a different taxation year.
Neal Armstrong. Summary of 14 January 2013 T.I. 2012-0465131E5 under s. 104(19).
CRA considers that the creditor property seizure rule (s. 79.1) does not apply where the creditor gets equity of the debtor
Property seized by a creditor generally is deemed by s. 79.1(6) to have a cost equal to the cost amount of the defaulted debt. CRA has stated that it considers the s. 79.1 rules to only apply where the seized property was held by the debtor, and that they would not apply where the creditor instead receives shares of, or partnership interests in, the debtor. CRA gave no guidance on determining the cost of the shares or partnership interests (it wasn't asked).
Neal Armstrong. Summary of 6 December 2011 TEI Round Table, Q. 14, 2011-0427101C6 under s. 79.1(2).
Income Tax Severed Letters 6 February 2013
This morning's release of 31 letters from the Income Tax Rulings Directorate is now available for your viewing.
Chell - What does director's liability have in common with Catch 22?
Hogan J. found that the taxpayer's management of two business corporations following his resignation as director was enough to make him a de facto director, and therefore liable for the corporations' unremitted source deductions and GST collections.
The taxpayer's "management" of the two businesses mainly related to addressing the unpaid source deductions/GST - such as dealing with CRA on the corporations' behalf, arranging for asset sales, and lining up a prospective client (and keeping CRA apprised of the potential resulting revenue stream). In other words, the two-year limitations period arguably had not expired only because the taxpayer had tried to resolve the prior remittance failures.
If this case is correct, the jurisprudence imposing director's liability for de facto directors seems to have grown beyond the cautiously worded introduction of the concept in Mosier v. The Queen, [2001] GSTC 124, Docket: 96-3504-GST-G (TCC).
Scott Armstrong. Summary of Chell v. The Queen, 2013 TCC 29, under s. 227.1(1).
Stanley Law - GST/HST for legal fees is constitutional!
The Tax Court has unsurprisingly concluded that people charged with offences are not exempted from paying GST/HST on their legal fees because of their s. 10(b) right to counsel and s. 11(d) right to a fair trial. Paris J. found that the appellant failed to provide an "evidentiary foundation" for the proposition that the effect of s. 165(1) of the ETA (the GST/HST charging provision) was to diminish a defendant's rights under ss. 10(b) or 11(d) of the Charter.
Although it is hard to imagine an evidentiary foundation that would lead the Tax Court to exempt defendants from GST/HST, it is also hard to imagine that increasing the cost of legal services through taxation would not diminish a defendant's access to counsel in a borderline situation. There is probably some as-yet-unestablished constitutional principle that taxes of general application are presumptively a reasonable limit on any incidentally affected Charter rights.
Scott Armstrong. Summary of Stanley J. Tessmer Law Corporation v. The Queen, 2013 TCC 27 under Charter s. 11(d).
CRA accepts that non-resident employees providing services remotely to a Canadian establishment are not subject to Canadian source deductions
CRA accepts that the remuneration of a non-resident employee (e.g., a programmer) working from home is not subject to Canadian source deductions notwithstanding that the physical establishment of the employer to which he or she reports remotely and to which the services are provided is situated in Canada: the place of exercise of employment is where the employee is physically present.
Neal Armstrong. Summary of 7 December 2012 T.I. 2012-0440411E5 F under Reg. 104.
Huntingdon unsolicited bid for KEYreit should maintain KEYreit’s REIT status
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.
Lyrtech – Tax Court finds that a discretionary trust was a blocker for de jure control purposes
Favreau J found that the contingent right of each of the beneficiaries of a discretionary trust to receive all the shares of a corporation held by the trustees was too nebulous to qualify as a right to acquire those shares for purposes of s. 251(5)(b). However, that corporation was controlled de facto by the public corporation which was one of the discretionary beneficiaries, so that for that reason it did not qualify as a CCPC.
Neal Armstrong. Summaries of Lyrtech v. The Queen, 2013 CCI 12 under ss. 251(5)(b) and 256(5.1).
Quinco Financial – Tax Court confirms gap in the HST/GST credit note rules
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).