News of Note
Northview Apartment REIT intends to effect a tax-deferred spin-off using the s. 107.4 rollover [corrected]
Email this ContentIt is proposed that the unitholders of Northview Apartment REIT receive mostly cash from Starlight and KingSett funds for their REIT units. However, the purchasing funds will not end up with all the assets of the REIT. The two purchasers will acquire a portion of the assets after they have been suitably packaged into partnerships, with the REIT intending to push out the resulting capital gains (presumably with an eye on avoiding issues under s. 132(5.3)) using the capital gains refund mechanism.
Furthermore, some of the real estate will have first been packaged into a “High Yield Fund,” that is intended to qualify as a REIT and that effectively will be distributed to those unitholders who are interested in receiving units of that fund in lieu of full cash proceeds for their units. This will be accomplished by the REIT settling the new unit trust (the High Yield Fund) with $1,000 in cash, distributing $1,000 of cash to the REIT unitholders, selling its units of the High Yield Fund to the REIT unitholders for $1,000 in cash, and then effecting a s. 107.4 transfer of a holding LP for the real estate in question from it to the High Yield Fund. Those unitholders who have elected to receive only cash then will have their High Yield Fund units redeemed for $7.06875 per unit, in addition to having their REIT units redeemed for $29.18125 per unit. Those who want to retain the High Yield Fund units will not have those units redeemed, so that they only receive cash for their REIT units – and in effect receive their High Yield Fund units on a tax-deferred basis.
The High Yield Fund will need cash to accomplish the above. It is expected to complete the Offering, of up to $430,000,000 of units concurrently with the completion of the (Alberta) Arrangement.
Full Pt. XIII.2 tax will be withheld from the redemption proceeds paid to non-resident unitholders.
Neal Armstrong. Summary of Northview Apartment REIT Circular under Mergers & Acquisitions – REIT/Income Fund /LP Acquisitions – LP Acquisitions of Trusts.
We have translated over 1200 CRA interpretations
We have published a translation of a CRA interpretation released last week and a further 5 translations of CRA interpretations released in June 2010. Their descriptors and links appear below.
These are additions to our set of 1,204 full-text translations of French-language Roundtable items and Technical Interpretations of the Income Tax Rulings Directorate, which covers all of the last 10 years of releases of Interpretations by the Directorate. These translations are subject to the usual (3 working weeks per month) paywall.
| Bundle Date | Translated severed letter | Summaries under | Summary descriptor |
|---|---|---|---|
| 2020-06-17 | 2 June 2020 External T.I. 2020-0847081E5 F - Compte de frais médicaux – période de report | Income Tax Act - Section 248 - Subsection 248(1) - Private Health Services Plan | during COVID-19, unused HCSA credits can be carried forward for up to an additional 6 months |
| 2010-06-25 | 11 June 2010 External T.I. 2010-0354881E5 F - Traitement fiscal de la FNACC | Income Tax Act - Section 20 - Subsection 20(16) | ceasing to use a class of depreciable property to generate income results in a terminal loss under ss. 45(1)(a) and 20(16) |
| Income Tax Act - Section 45 - Subsection 45(1) - Paragraph 45(1)(a) | application of s. 45(1)(a) to film production that ceased to generate income, resulting in a terminal loss under s. 20(16) | ||
| 2 June 2010 External T.I. 2010-0354951E5 F - Bien de remplacement-disp. involontaire | Income Tax Act - Section 44 - Subsection 44(5) - Paragraph 44(5)(a.1) | rental building did not qualify as a replacement property to an expropriated parking lot because of different physical attributes | |
| 2010-06-18 | 7 June 2010 External T.I. 2009-0331731E5 F - CII et crédit de taxe sur le capital du Québec | Income Tax Act - Section 13 - Subsection 13(7.2) | Quebec ITCs or capital tax credits reduce the LP’s UCC at end of its October 31 fiscal period following the calendar year in which its partners claimed those credits |
| 4 June 2010 External T.I. 2009-0324801E5 F - catégorie 43 | Income Tax Regulations - Schedules - Schedule II - Class 43 | potential inclusion of moulds and cranes, but not forklift truck | |
| 9 June 2010 External T.I. 2009-0342081E5 F - Associé déterminé | Income Tax Act - Section 248 - Subsection 248(1) - Specified Member | trust member of partnership can be actively engaged through the activities of its trustee | |
| Income Tax Act - 101-110 - Section 104 - Subsection 104(1) | s. 104(1) imputes the activities of the trustee to the trust for “specified member” purposes |
Menasse – Court of Quebec declines to follow a TCC judgment on the same transactions given the very brief reasons given
The appellants were assessed for unremitted GST and QST and to deny claimed input tax credits and input tax refunds. Their appeal of the GST assessments was dismissed from the bench, with brief reasons for judgment being provided.
In rejecting the ARQ’s submission that it was contrary to judicial comity and an abuse of process for the same transactions to now be appealed to the Court of Quebec (and before going on to grant the appellants’ appeals in part), Choquette JCQ stated:
The judgment of the TCC deals very summarily with the evidence adduced, and its analysis, just as summarily, does not allow the Court to conclude that the same factual and legal framework prevails in these proceedings.
These circumstances are not sufficient to conclude that there was an abuse of process … .
Neal Armstrong. Summary of Menasse v. Agence du revenu du Québec, 2020 QCCQ 1829 under General Concepts – Judicial Comity.
CRA rules that an Ontario palliative care hospice operated by a charity and funded mainly by donations qualified for enhanced GST/HST rebates
CRA ruled that a registered charity receiving a portion of its operating funding from the Ontario Ministry of Health and Long-Term Care (MOHLTC), through the Local Health Integration Networks (LHIN), but relying mainly on donations, to operate a palliative care hospice, qualified for the enhanced 83% federal and 87% Ontario public service body rebates. It reasoned that stipulated requirements for ”chronic care” - such as that the residents be in receipt of “therapeutic care” each day - were not required to be met by such a facility because “palliative care differs from chronic care.”
The minority funding received by the hospice from its LHIN pursuant to an “Accountability Agreement” was sufficient to satisfy the requirements in ETA ss. 259(2.1)(b) and (c) that it receive more than nominal “qualifying (government) funding” and that it be “authorized” by the Province.
Neal Armstrong. Summaries of 24 July 2019 GST/HST Ruling 162099 under ETA s. 259(1) – facility supply and s. 259(2.1)(c).
CRA states that it will follow Fortnum in “factually similar” situations
S. 118.5(1)(b) accords a tuition credit to “a student in full-time attendance at a university outside Canada in a course leading to a degree” subject to exclusions for inter alia fees “paid in respect of a course of less than three consecutive weeks duration.” In the face of conflicting authority, Smith J found jn Fortnum that this requirement was satisfied by a summer session for an MBA program at an Indiana university that consisted of 10 or 11 consecutive courses each of which was of one or two weeks’ duration. When asked about the implications of this decision, CRA first indicated that “the court applied the three consecutive week requirement to the summer semester as a whole, rather than to each individual course in the semester,” and then stated:
Our interpretation of subparagraph 118.5(1)(b)(i) … as explained in paragraph 2.10 of … S1-F2-C2 … has generally not changed as a result of … Fortnum. … [T]his case was heard … under the Informal Procedure … [and] do[es] not have precedential value.
Notwithstanding this, the CRA will consider a course of less than 3 consecutive weeks duration to satisfy the requirement in subparagraph 118.5(1)(b)(i) in situations factually similar to Fortnum.
CRA provided no guidance on what it would regard as “factually similar.”
It is hard to know what to make of the statement in s. 18.28 of the Tax Court of Canada Act that Informal Decisions ”shall not be treated as a precedent for any other case” given that General Procedure cases also may not be followed (as happened in BCS), Well-reasoned decisions of either type are accorded substantial deference. The only ones paying much attention to s. 18.28 are at CRA when dealing with a decision that might require reworking their published positions.
Neal Armstrong. Summary of 3 July 2019 Internal T.I. 2019-0791521I7 under s. 118.5(1)(b)(i).
CRA finds that CECRA loans do not disqualify a s. 149(1)(o.2)(ii) corporation nor lead to deregistration of an RPP
S. 149(1)(o.2)(ii)(C) stipulates that a s. 149(1)(o.2)(ii) corporation has “borrowed money solely for the purpose of earning income from real property or an interest [therein].” Reg. 8502(i) provides that a registered pension plan (RPP) shall not borrow money, subject to what CRA correctly describes as “two very narrow exceptions.”
The CECRA program contemplates the making of loans to commercial landlords to partially fund their providing rent relief to qualifying tenants, followed by forgiveness of such loans on December 31, 2020 if the landlord has complied with the program terms. CRA states:
- Participating in the CECRA with respect to commercial property held by a pension real estate corporation will not contravene the borrowing restriction in clause 149(1)(o.2)(ii)(C).
- Although participating in the CECRA by an RPP will contravene the narrower borrowing restriction in paragraph 8502(i), the CRA will exercise its discretion to not revoke the registration of an RPP for failure to comply with this condition.
Neal Armstrong. Summaries of 15 June 2020 External T.I. 2020-0850981E5 under s. 149(1)(o.2)(ii)(C) and Reg. 8502(i).
CRA is not ruling on whether entities are excluded from CEWS access by being public institutions
In indicating that it could not provide a ruling as to whether a registered charity was excluded from being an “eligible entity” for “CEWS” (wage subsidy) purposes by virtue of being a public institution, CRA stated:
[D]ue to the large number of enquiries that our Directorate is receiving in the context of the COVID-19 pandemic, we will not be providing any advance income tax ruling regarding the qualification of a specific entity as a public institution for the purpose of the CEWS.
Neal Armstrong. Summaries of 3 June 2020 External T.I. 2020-0846831E5 under s. 125.7(1) – eligible entity – (c), and s. 149(1)(c).
CRA reiterates that, during COVID-19, unused HCSA credits can be carried forward for up to an additional 6 months
Members of a health care spending account (“HCSA”) may not be able to use the credits allocated to the HCSA before they expire which, in accordance with IT-529, can generally be carried forward only for a period not exceeding 12 months. CRA has provided a second technical interpretation, similarly worded to the first, indicating that, in this context:
[A]n HCSA that qualifies as a PHSP and which has unused credits expiring between March 15 and December 31, 2020, can temporarily permit the carry forward of those unused credits for a reasonable period to allow plan members to access services that were otherwise restricted during the COVID-19 outbreak. A carry-forward period of up to six months would generally be considered reasonable and would not, in and of itself, disqualify the HCSA from being a [private health services plan].
Neal Armstrong. Summary of 2 June 2020 External T.I. 2020-0847081E5 F under s. 248(1) – private health services plan.
Income Tax Severed Letters 17 June 2020
This morning's release of four severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA indicates that an NPO cannot subsidize fees to it members with facility-use fees charged to non-members – but isn’t tainted by potential liquidating distribution to members until used
The Societies Act enacted in B.C. in 2015 contemplated a “member-funded society” that is funded primarily by its members to carry on activities for their benefit, e.g., sports clubs, golf courses and professional associations, and that is permitted to distribute assets to its members if the society winds up. S. 2(2) of the Act provides: “A society must not have, as one of its purposes, the carrying on of a business for profit or gain, but carrying on a business to advance or support the purposes of a society is not prohibited by this subsection.”
The ETA definition of a non-profit organization provides (similarly to the definition in ITA s. 149(1)(l)) that a qualifying NPO must be “organized solely for a purpose other than profit” and that “no part of [its] income is payable to, or otherwise available for the personal benefit of, any … member.” Respecting the first quoted requirement, CRA stated:
Per Policy Statement P-215, an “entity may carry on an income-generating activity and still qualify as a non-profit [organization]. To qualify, the income-generating activity must be carried on, and the resulting income must be used by the entity, to achieve its declared non-profit objectives.” A society would need to ensure that the business is not its purpose, but a means to an end, and is not carried on for profit.
Respecting the last sentence in the above passage, CRA did not explain how a business can be “a means to an end” (i.e., presumably, generating funds for its non-profit objects) while at the same time not being “carried on for profit.”
Respecting the second quoted requirement, CRA stated:
[I]f the facility of a member-funded society is used by non-members and the income resulting from the non-members’ fees is used to subsidize the members’ fees … income of the entity is considered to be payable to, or otherwise available for the personal benefit of, its members and the entity would not qualify as [an NPO].
However, CRA indicated that the potential for the society to distribute its property to its members does not adversely affect its NPO status prior to the decision to wind up.
CRA stated that a supply of memberships in the society for a fee would not be exempted under Sched. V, Pt. VI, s. 17 where such memberships are “in professional associations that give the right to practice a profession or to use a title … as these benefits exceed the allowable benefits listed in paragraphs (a) to (f)” of s. 17.
Neal Armstrong. Summaries of 21 August 2019 GST/HST Interpretation 195314 under ETA s. 123(1) – NPO and Sched. V, Pt. VI, s. 17.