News of Note
CRA confirms that it regards the granting of an emphyteusis as a part disposition of property rather than as a lease
Email this ContentCRA has confirmed its position in 2013-0487791E5 F, where it indicated (reversing 2012-0472101E5 F) that it now considered that the entering into of an emphyteutic lease represents a part disposition of property rather than something analogous to the entering into of a common law lease. Therefore, any "rents" receivable must be recognized as proceeds of disposition at the time of grant rather than as amounts which can be recognized over time as they become receivable (although a s. 40(1) reserve may be available).
Neal Armstrong. Summary of 18 November 2021 External T.I. 2021-0917841E5 F under s. 248(1) – disposition.
CRA rules that the transfer of a portion of the assets and Canadian beneficiaries from an old to a new US pension plan will not result in constructive receipt to the Canadian beneficiaries
S. 56(1)(a) generally requires the recognition of an amount received as or in satisfaction of a pension benefit. A portion of a multi-employer US defined benefit pension plan (a qualified plan under IRC s. 401(a)) was held for the benefit of Canadian-resident participants. CRA ruled that a transfer of a portion of the assets in this plan to a new plan (also qualifying under IRC s. 401(a)) established for the benefit of a portion of the beneficiaries of the old plan, including some of the Canadian beneficiaries, so that they ceased to be participants in the old plan, did not trigger any income inclusion under s. 56(1)(a).
The CRA tags also mentioned Art. XVIII of the Canada-US Treaty, which effectively seems to indicate that even if the amounts transferred directly between the old and new plan were somehow regarded as pensions paid to the Canadian beneficiaries, they would not be subject to Canadian tax if they would not have been subject to US tax if such beneficiaries had been US residents (such transfers indeed were exempt under the Code).
CRA also accepted a representation that the administration of the old plan for the benefit of the Canadian residents was exempted from the resident’s arrangement rules in ss. 207.6(5) and (5.1) by virtue of satisfying the prescribed contribution conditions in Reg. 6804 relating to foreign plans maintained by foreign non-profit organizations, and that the same would apply regarding the Canadian participants and related assets transferred to the new plan.
Neal Armstrong. Summary of 2021 Ruling 2021-0876671R3 under s. 56(1)(a)(i).
Income Tax Severed Letters 5 January 2022
This morning's release of two severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA finds that a co-purchaser of a new rental property can qualify for the new residential rental property rebate (NRRPR), even if his co-purchaser does not
Two unrelated individuals (Individual 1 and Individual 2) agreed to purchase a new condo unit for rental purposes from the builder. However, due to second thoughts, Individual 1 did not close the purchase, so that the condo unit and title thereto were acquired only by Individual 2.
In finding that Individual 2 was entitled to claim the new residential rental property rebate (NRRPR), CRA stated:
[I]n a situation where a group of persons is applying for the NRRPR … [e]ach person would be treated separately … [so that] if one person does not meet all the eligibility requirements, it will not preclude the other person(s) from qualifying for the rebate … .
Cheema, which focused only on who were the named parties to a purchase agreement, may be causing questions that, pre-Cheema, might have seemed straightforward.
Neal Armstrong. Summaries of HST 11 August 2021 GST/HST Interpretation 184857 under ETA s. 256.2(3) and s. 123(1) - recipient.
Christen – Federal Court finds that a voluntary disclosure planned before, but made after, the audit notification could be considered non-voluntary - but annuls the CRA rejection anyway
In May 2015, the plaintiff authorized her law firm to represent her in making a voluntary disclosure of her Swiss assets, and in the summer and fall of 2015, various documents were collected and organized to this end. However, on September 25, 2015, CRA sent a letter to the plaintiff indicating that her 2005 to 2014 taxation years were under audit regarding a failure to declare foreign property. A voluntary disclosure filing made by the plaintiff about four weeks later was rejected by the first and second CRA decision makers on the basis that it was not voluntary.
Walker J found that this decision did not represent an unreasonable exercise of Ministerial discretion under s. 220(3.1). She agreed that it would have been “inequitable and unreasonable” for a voluntary disclosure to have been rejected as being non-voluntary if made one minute after communication of an audit, but noted that this was not the situation before her, stating that “there is an important distinction between the date information is actually disclosed under the VDP and the date the taxpayer makes the decision to investigate the making of a disclosure.”
However, the (second) decision under review was annulled given that the involvement of the first decision maker in the process for the second review decision “was not minimal.” The decision was remitted to the Minister for a fresh determination by an agent with no involvement with the previous decisions.
Neal Armstrong. Summary of Christen v. Canada (Agence du revenue), 2021 CF 1440 under s. 220(3.1).
Our translations of CRA Interpretations go back over 16 years
We have published a further 10 translations of CRA interpretation released in January, 2006 and December, 2005. Their descriptors and links appear below.
These are additions to our set of 1,869 full-text translations of French-language Technical Interpretation and Roundtable items (plus some ruling letters) of the Income Tax Rulings Directorate, which covers all of the last 16 years of releases of such items by the Directorate. These translations are subject to the usual (3 working weeks per month) paywall. You are curently in the "open" week for January.
CRA applies Zomaron to find that fees for marketing credit/debit card processing services to merchants likely were GST/HST exempt
In finding that the “Contractor” (a sales agent) very well might be generating GST/HST exempt “arranging for” fees from the “Company” (a member of a payments network) for marketing the services of the Company to prospective merchants for the processing of credit and debit cards of the merchants’ customers, and completing the merchants’ applications online for submission to the Company for electronic approval, CRA stated:
There is indication that the Contractor has direct involvement and effort in the provision of the Company’s supplies of financial services made to merchants under the merchant agreement. The Contractor has some autonomy to recommend fees and rates to the Company with respect to the merchant agreements. There appears to be a significant degree of reliance by both the Company and the merchant on the Contractor in concluding the merchant agreement and the information substantiates the Contractor’s intention of effecting a supply of a financial service.
This interpretation is similar to 15 June 2021 GST/HST Ruling 196187, and both are based on an acceptance of Zomaron.
Neal Armstrong. Summary of 17 August 2021 GST/HST Interpretation 207227 under ETA s. 123(1) - financial service – para. (l).
CRA indicates that the Treaty Other-Income Articles generally accord Canada the full right to impose Part I tax on CERB payments made to a resident of the other Treaty country
After noting that payments (“CERB Payments”) made pursuant to the Canada Emergency Response Benefit Act (the “CERB Act”) to a non-resident individual were required by ss. 56(1)(r)(iv.1) and 115(1)(a)(iii.22) to be included in computing the taxable income earned in Canada of the non-resident, CRA indicated that the “Other Income” Article of an applicable Treaty will generally apply to the payments and that, similarly to federal employment insurance compensation, it is CRA’s view that the CERB Payments constitute income arising in Canada, so that Canada generally has the right to tax CERB Payments without restriction.
CRA further noted that pursuant to the non-Double-Taxation Article of the relevant Treaty, the non-resident’s country of residence “will be required to provide relief from double taxation either in the form of a credit or of a deduction for the Canadian income taxes paid or accrued in respect of CERB Payments”.
Neal Armstrong. Summaries of 9 July 2021 Internal T.I. 2021-0893981I7 under s. 120(1) and Treaties – Income Tax Conventions – Art. 15, Art. 24.
Income Tax Severed Letters 29 December 2021
This morning's release of two severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA determines the Ontario corporate FTC regarding non-business income tax paid in different countries by prorating the federal FTC based on each country’s relative investment income
Canco earns $100 of investment income in each of foreign Country A and Country B, and incurs a Canadian source loss of $100, so that its net income and taxable income is $100 and its Canadian federal income tax otherwise payable (“FTOP”) at the 15% federal tax rate is $15. The “non-business-income tax” (“NBIT”) paid in each country on such investment income is $10. Canco’s Ontario allocation factor is 1, and the Ontario corporate tax rate is 11.5%.
Canco’s provincial foreign tax credit for each such country turns principally on the determination under s. 34(2) of the Taxation Act, 2007 (“TAO”) of any excess of (A) the NBIT paid to each country, of $10, over (B) the amount deductible by Canco “in respect of the foreign investment income for the year” under ITA s. 126(1).
CRA considered that it would be reasonable to determine the quoted amount on a pro rata basis in proportion to the foreign investment income earned in each country (i.e., half and half, or $7.50 and $7.50) – so that the provincial FTC for each country would be $2.50 (being the Ontario domestic factor of 1, multiplied by the excess of $10 of the NBIT paid to each country over $7.50).
Neal Armstrong. Summary of 17 August 2021 External T.I. 2020-0842981E5 under Taxation Act, 2007, s. 34(2).