News of Note

After finding that a sabbatical leave plan did not satisfy the requirements of Reg. 6801(a) as a deferred salary leave plan (for multiple reasons including the length and timing of the sabbatical leave and provision for notional employer contributions to match the salary amounts that the participating employees elected to defer), CRA went on to discuss the consequences of the leave plan being a salary deferral arrangement:

• The amount of salary that an employee deferred in a particular taxation year together with the amount of any matching notional employer contribution, would constitute a “deferred amount,” to be included in computing the employee’s income for that year pursuant to ss. 6(11) and 6(1)(a).
• The employer receives a s. 20(1)(oo) deduction for the same year as the s. 6(1)(a) inclusion.
• Amounts received by an employee during the sabbatical leave that were previously included in income as deferred amounts are (per s. 6(1)(i)) excluded from the employee’s income on such receipt.
• On the forfeiture of all notional employer contributions on the early termination of participation in the Plan, the amount of the employer contributions (previously included in the employees income) would be deductible by the employee pursuant to s. 8(1)(o). The employer, who would have previously taken a s. 20(1)(oo) deduction, would now have a s. 12(1)(n.2) inclusion. However, the lump-sum received by the employee on early termination would be excluded on receipt under s. 6(1)(i) given the previous inclusion under ss. 6(11) and 6(1)(a).

Neal Armstrong. Summaries of 23 April 2021 External T.I. 2020-0872371E5 under Reg. 6801(a) and s. 6(11).

Vocan supplied assessment reports to insurance companies or law firms regarding individuals injured in motor vehicle accidents. The reports were prepared by independent-contractors assessors, who examined and tested the injured individuals at the Vocan facility.

Vocan submitted that its facility was a health care facility, being “a facility … operated for the purpose of providing medical … care,” so that its supply of the reports was exempted under Sched. V, Pt. II, s. 2 as a supply of an “institutional health care service” rendered to patients of the facility. In finding that the Vocan facility was not a health care facility, Lyons J stated that “'medical care’ is to be interpreted as being connected to the practice of medicine,” whereas the assessments activities were not medical care. Furthermore, she found that any care relationship was between the assessor and the individual, not Vocan and the individual, so that “individuals were not patients of Vocan’s facility.”

Accordingly, the supplies of the reports were not exempted.

Neal Armstrong. Summary of Vocan Health Assessors Inc. v. The Queen 2021 TCC 49 under ETA Sched. V, Pt. II, s. 2.

CRA ruled on what it called a “hybrid” pipeline transaction involving a corporation that held only marketable securities under which:

• The estate exchanges the common shares of the Corporation on a s. 85(1) rollover basis for new Class A common shares and redeemable retractable preferred shares of the Corporation.
• The Corporation’s CDA is accessed by electing under s. 83(2) on an increase in the stated capital of the preferred shares.
• The Corporation redeems the preferred shares in consideration for a note, designates a portion (based on its GRIP account) of the resulting deemed dividend as an eligible dividend and reports a resulting capital loss, which is carried back under s. 164(6).
• The Estate then transfers the Class A Common Shares to a “Newco” formed by it in consideration for Newco common shares.
• The Corporation makes a loan to Newco, which makes a stated capital distribution on its common shares to fund income taxes owing under the deceased’s terminal return.
• At least 12 months later, the Corporation and Newco amalgamate and, thereafter, Amalco makes stated capital distributions at a rate not exceeding 25% per quarter of the initial aggregate paid-up capital of the Amalco common shares.

Neal Armstrong. Summary of 2021 Ruling 2020-0874851R3 under s. 84(2).

We have published a further 10 translations of CRA interpretation released in June and May, 2007. Their descriptors and links appear below.

These are additions to our set of 1,662 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 14 ¼ years of releases of such items by the Directorate. These translations are subject to the usual (3 working weeks per month) paywall.