News of Note
CRA confirms that Folio S4-F15-C1 applies for purposes of the new accelerated CCA rules
Email this ContentProperties acquired for use in manufacturing or processing activities that are included in Class 29, 43 or 53 generally generate a 100% CCA deduction in the first year. CRA confirmed that its statements in Folio S4-F15-C1 as to the meaning of M&P also apply in this context so that, for example, in the oil and gas context, M&P includes the processing in Canada of natural gas at a straddle plant or at a plant devoted primarily to the recovery of ethane.
Neal Armstrong. Summary of 6 June 2019 CPTS Roundtable, 2019-0816111C6, Q.2 under Class 29.
CRA acknowledges that taxpayers can choose between reasonable alternative formats (e.g. hard or soft) for providing their tax working papers/records
CRA indicated that in Béarence:
The Court found that the taxpayer had provided all the information in its possession and that the CRA could not compel a taxpayer to provide such information in another format.
It then stated:
Taxpayers have access to the information pertaining to their tax obligations and are expected to cooperate with CRA officials and to respond to reasonable requests for information. …
[T]he CRA policy is not at odds with the decision in … Béarence. CRA officials are expected to be reasonable in their requests for the information and documentation.
Neal Armstrong. Summary of 6 June 2019 CPTS Roundtable, 2019-0816111C6, Q.1 under s. 231.2(1).
Finance/CRA’s implied sunset for the COVID-19 lockdowns of June 20 is not pollyannish
I will pretend that this post has something to do with tax.
The new temporary COVID-19 wage subsidy announced by Finance and CRA implicitly assumes that relief is only required until June 20, 2020. The article linked below, which was recommended to professional staff by the Chief of Surgery at a downtown hospital, suggests that indeed it may be possible by then to lift the fairly severe lockdown (referred to as the “hammer”) in places like Ontario - and then shift to something referred to as the “dance.”
https://medium.com/@tomaspueyo/coronavirus-the-hammer-and-the-dance-be9337092b56
Provided that the hammer has been successful in reducing the reproduction rate well below 1 to, say, a rate of 0.3, then the outbreak will be well under control after about 5 weeks. Once the number of active cases is substantially reduced at about that point, there can be a switch over to the dance, which only requires that the reproduction rate be kept to slightly under 1.00. This can be done with milder social distancing (that permits most people to get back to regular work) and doing things like testing and contact tracing to a South Korean standard.
The article is highly critical of the U.S. “mitigation” approach which, it is suggested, will result in millions of unnecessary deaths if it continues to be pursued. (This implies that Trudeau did the right thing in agreeing to partially close the border.)
Neal Armstrong
Income Tax Severed Letters 25 March 2020
This morning's release of two severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Honey Fashion – Federal Court of Appeal requires the CBSA to revisit an adverse decision due to its failure to explain a departure from past practices
In a specialized customs tariff remission context, De Montigny JA agreed with Zinn J of the Federal Court that a decision of the CBSA - to deny a request of a clothing manufacturer (Honey Fashion) to have the name of the importer of record changed from the actual importer to that of Honey Fashion (in order that Honey Fashion could generate remission claims for the importations in question) – should be reversed given that the CBSA decision did not give any explanation as to why it was not following its practice in previous such claims of allowing such a name change. In applying Vavilov, De Montigny JA stated:
A decision maker cannot deviate from earlier decisions or from a longstanding past practice, especially when it is too late for those affected by these decisions to adjust their behaviour accordingly, without providing a reasonable explanation for that departure.
Neal Armstrong. Summary of Canada (Attorney General) v. Honey Fashions Ltd., 2020 FCA 64 under Customs Act, s. 7.1.
CRA publishes a webpage on the COVID-19 employer wage subsidy
Points made by CRA on the three-month Temporary Wage Subsidy for Employers include:
- Eligible employers consist of non-profit organizations, registered charities, and Canadian-controlled private corporations (whose taxable capital employed in Canada for the preceding taxation year, calculated on an associated group basis, is less than $15 million) who had a business number and payroll program account with CRA on March 18, 2020 and who pay salary, wages, bonuses, or other remuneration to an employee.
- The subsidy equals 10% of the remuneration paid between March 18, 2020, and June 20, 2020, to a maximum of $1,375 per employee and of $25,000 per employer (with associated CCPCs not being required to share the $25,000 maximum).
- The subsidy would normally be received by way of set-off against the federal and provincial income tax source deductions otherwise remittable for the related remittance period, but the unused set-off can be carried forward for set-off in future remittance periods (e.g., after the expiration of the program effective June 20) or, if the employer so prefers, it can instead wait until year end and apply for a refund then.
- There is no effect on employee source deductions (this is an employer subsidy).
- The subsidy is included in income (presumably under ss. 12(1)(x)(ii) and (iv)(B).)
Neal Armstrong. Summary of Frequently Asked Questions – Temporary Wage Subsidy for Employers 20 March 2020 CRA Webpage under s. 227(4).
5 more translated CRA interpretations are available
We have published a further 5 translations of CRA interpretations released in December 2010. Their descriptors and links appear below.
These are additions to our set of 1131 full-text translations of French-language Roundtable items and Technical Interpretations of the Income Tax Rulings Directorate, which covers all of the last 9 ¼ years of releases of Interpretations by the Directorate. These translations are subject to the usual (3 working weeks per month) paywall.
CRA has suspended: dealing with Objections; and audits where statute-barring is not imminent
CRA expanded on the comment in the Finance Release on COVID-19 that “For the vast majority of taxpayers, the CRA will temporarily suspend audit interaction with taxpayers and representatives,” stating:
Interaction with taxpayers will be limited to those cases where the legal deadline to reassess a tax return is approaching, and in cases of high risk GST/HST refund claims that require some contact before they can be paid out.
CRA also stated:
Collections activities on new debts will be suspended until further notice, and flexible payment arrangements will be available. …
With respect to objections related to … tax matters [other than re entitlement to benefits and credits] filed by individuals and businesses, the CRA is currently holding these accounts in abeyance. No collection action will be taken with respect to these accounts during this period of time.
Neal Armstrong. Summaries of Coronavirus disease (COVID-19): Collections, audits, and appeals 19 March 2020 CRA Webpage under s. 222(2) and s. 165(3).
Construction PCA – Court of Quebec finds that assessing a late-filing penalty for a s. 85 election does not preclude assessing the election as invalid
The ARQ issued a penalty assessment for the late filing of the Quebec equivalent of amended s. 85(1) election forms – then, when it learned from CRA that no shares had been issued by the transferee at the time of the drop-down and that such shares were only purportedly issued after the fact upon CRA identifying this deficiency, assessed the transferor taxpayer on the basis that the drop-downs had not occurred on a rollover basis (but without cancelling its separate penalty assessment).
Lareau JCQ rejected the taxpayers’ submission that, by issuing the penalty assessments, the ARQ had accepted the late elections and should not have issued further assessments now denying rollover treatment without having cancelled the previous assessment.
Neal Armstrong. Summary of Construction PCA Inc. v. Agence du revenu du Québec, 2019 QCCQ 8876 under s. 85(7).
Grewal – Federal Court finds that an accepted voluntary disclosure that included loans did not stop CRA from later assessing s. 163(2) penalties for failure to include them in income
A voluntary disclosure included a description of various loans and did not volunteer that they gave rise to taxable benefits. After the voluntary disclosure was accepted through reassessments, a subsequent audit of one of the taxpayer’s companies caused CRA to conclude that these loans gave rise to additional income under s. 246(1) of $15M to the taxpayer for years that had been covered by the voluntary disclosure, and CRA not only reassessed for these s. 246(1) benefits, but also included gross negligence penalties of over $3M.
In dismissing the taxpayer’s application for judicial review of the decision to impose the penalties, Shirzad J stated (at paras 37 and 38):
… If taxpayers could re-characterize taxable income or benefits as non-taxable benefits in their applications to the VDP and thereby escape penalties from future audits for having “disclosed” the amounts in this application, it would be contrary to the purpose of the VDP and its public policy rationale, which is meant to promote compliance with Canada’s tax laws … .
[T]o interpret the Information Circular as promising protection from penalties even on the non-taxable amounts disclosed by the taxpayer would put taxpayers applying to the VDP in a better position than the ordinary taxpayers.
Neal Armstrong. Summary of Grewal v. Canada (National Revenue) 2020 FC 356 under s. 220(3.1).