News of Note
407 ETR – Federal Court of Appeal affirms that Ontario government charges to the 407 Highway operator for OPP patrol services were for an HST-exempt supply of a “municipal service”
Email this ContentWebb JA affirmed the finding of D’Arcy J that charges of the Ontario government to the private operator of the 407 Highway for OPP patrol services were exempted from HST as a “municipal service.” He stated that the plain meaning of this expression referred to services of a type that “would normally be provided by a municipality” – and it did not matter that in this particular instance such services in fact were not provided by a municipal authority or by the province acting as a municipal authority.
Neal Armstrong. Summary of Canada v. 407 ETR Concession Co. Ltd. v. The Queen, 2017 FCA 220 under ETA Sched. V, Pt. VI, s. 21.
CRA confirms that unrestricted net capital loss deductibility under s. 111(2) applies only in the terminal year and the immediately preceding year
CRA has provided an intelligible translation of the convoluted language in s. 111(2):
[I]f, in the year of death, a taxpayer has a net capital loss or any unused net capital losses carried forward from prior years, the special rules in subsection 111(2) … allow the deduction of such losses (less the amount of any capital gains exemption claimed …) up to the amount of the taxpayer’s available income from all sources for the year of death and the immediately preceding year.
In response to a taxpayer who, like Oliver Twist, wanted MORE, the Directorate stated:
Parliament intended for this concession to apply only in the year of death and the immediately preceding year. Accordingly, if there is a balance of unused net capital losses remaining after applying the unused net capital losses against all sources of income in the year of death and immediately preceding year … such unused net capital losses are not transformed into a non-capital loss that can be carried back to another taxation year other than as described above.
Neal Armstrong. Summary of 21 November 2017 External T.I. 2017-0690651E5 under s. 111(2).
The U.S. (s. 871(m)) characterization, as a dividend, of a principal or derivative payment by a Canadian issuer to a Canadian investor, is irrelevant to T5 reporting
CRA has confirmed that the fact that payments made under a note or derivative by a Canadian issuer to a Canadian investor are treated under Code s. 871(m) as dividend equivalent payments that are subject to U.S. withholding tax should not affect how the same payments are characterized for purposes of T5 reporting by the Canadian issuer.
Neal Armstrong. Summary of 24 October 2017 External T.I. 2016-0653441E5 under Reg. 201(1)(a).
CRA indicates that the qualifying costs of medically-assisted dying can potentially qualify for the METC
CRA indicated that the qualifying costs of medically-assisted dying where there is compliance with the detailed procedures set out in the Criminal Code and provincial rules would qualify for the medical expense tax credit. By implication, the costs of going abroad for the procedure might not qualify.
Neal Armstrong. Summary of 21 November 2017 CTF Annual Conference CRA Roundtable (Official Response), Q.16 under s. 118.2(2)(a).
CRA rules that the s. 80 rules prevailed in a CCAA compromise over the contingent amount (s. 143.4) rules
Under a CCAA Plan, unpaid interest of a corporation that had accrued in the current and prior years would be forgiven. Once the Plan was approved, s. 143.4(4) would require there to be an accounting at the end of the year of the Plan implementation for an income inclusion equal to the prior years’ forgiven interest. Furthermore, there would be a denial of current years’ interest under s. 143.4(2). However, CRA found that, given that s. 80 applied in the same year, and in light of the rule of statutory construction according prevalence to the more specific provision and the rule against double-taxation in s. 248(28), ss. 143.4(2) and (4) would not also apply.
Neal Armstrong. Summary of 2016 Ruling 2016-0661071R3 under s. 143.4(4).
Income Tax Severed Letters 13 December 2017
This morning's release of five severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA states that the existence of a Quebec joint venture will be determined under common law principles
After listing general guidelines that might assist in distinguishing joint ventures and partnerships in the common law provinces, CRA stated:
The joint venture relationship is not recognized in Quebec civil law. Nevertheless, Quebec civil law does not prohibit the formation of a joint venture. Therefore, where an arrangement in Quebec is, according to the common law guidelines outlined above, a joint venture and not a partnership, it will generally be regarded as a joint venture for GST/HST purposes.
This is more accommodative to recognizing a joint venture in Quebec than what was stated in P-171R (which referred to Quebec joint ventures being recognized "in very restricted circumstances.")
CRA also indicated that “a registered social worker who is in good standing with their provincial regulatory body [and] is hired by a hospice to give a presentation to its personal support workers on providing assistance to palliative care patients in coping with their illnesses” would not be considered to be making a qualifying health care supply as this does not represent direct care services. This is reminiscent of CRA’s first-order supply doctrine (e.g., in 8394 and Memorandum 8.3).
Neal Armstrong. Summaries of Excise and GST/HST News No. 103, December 2017 under ETA s. 273(1) and Sched. V, Pt II, s. 1 - qualifying health care supply.
Masa Sushi – Tax Court of Canada finds that a corporation can only be represented in a General Procedure action by counsel (no CPAs or officers)
Rule 30(2) of the Tax Court of Canada Rules (General Procedure) provides that:
Where a party to a proceeding is not an individual, that party shall be represented by counsel except with leave of the Court and on any conditions that it may determine.
Graham J found that this rule would be ultra vires (as being beyond the scope of what was contemplated by s. 17.1(1) of the Tax Court Act), if it were interpreted as permitting a corporation, with the Court’s leave, to be represented by a non-lawyer (in this case, a CPA). Accordingly, he found that Rule 30(2) should be “read down” to provide that a corporation may only be represented by counsel.
He also indicated that the concept of a corporation appearing “in person” was nonsensical, stating:
A human can be physically present in court. A corporation, being a creation of law with no physical substance, cannot.
Accordingly, corporations cannot appear in Court through an officer. Again, representation by counsel is required.
Neal Armstrong. Summary of Masa Sushi Japanese Restaurant Inc. v. The Queen, 2017 TCC 239 under Rule 30(2).
Elfe Juvenile Products – Quebec Superior Court finds that the rigid GST/QST policy of not cancelling interest below 4% on wash transactions is unlawful
The CRA published policy is that it “will consider” cancelling the interest in excess of 4% for a failure to collect and remit GST/HST in a “wash transaction,” i.e., one where the purchaser is entitled to full input tax credits. Moore JCS found that the equivalent ARQ policy was not good enough. In annulling a decision of the ARQ to only cancel interest down to the 4% level in a wash transaction (that was not covered under a voluntary disclosure), and in sending the decision back for reconsideration by the ARQ, he stated:
[T]he Agency felt unable to cancel more than the interest portion indicated in … the Interpretation Bulletin of 4% of the uncollected sales tax.
Based on the Interpretation Bulletin, the Agency has placed itself at odds with this direction from Stemijon: "A policy can help or guide the exercise of discretion under a statute, but it cannot compulsorily dictate how this discretion is exercised."
The Agency did not consider the possibility of limiting the interest to 3%, 2% or 1% of the uncollected sales tax, or of cancelling it completely, as authorized by section 94.1 of the Tax Administration Act.
This decision is … unreasonable.
Neal Armstrong. Summary of 1092072 Ontario Inc. (carrying on business as Elfe Juvenile Products) v. ARQ, 2017 QCCS 5369 under ETA s. 281.1(1).
The Rulings Directorate has a services standard of providing an ATR within about 4 ¼ months, excluding delays for taxpayer information
Some points made by Costa Dimitrakopoulos (the new Director General) and Lori Carruthers on the Directorate's ATR service include:
- The Directorate’s services standard is for 85% of Advance Tax Ruling requests to be resolved within 90 business days of receipt of all essential information (or, it would appear from other remarks, within 90 business days of receipt of the request, but excluding the days that the ball is in the representative’s court to provide missing information). The Directorate met its service standard in 2015-16 (at 87%), but fell short this last year (at 78%). (90 business days equates to about 4 ¼ months.)
- Over the last five years, the Directorate has been experiencing a steady decline in ATRs except for an unexpected upswing in 2015-2016. In 2012-2013, it had about 175, and in 2016-2017, about 129.
- The Directorate provides input on draft legislation to Finance during drafting sessions.
- The Directorate’s most significant discovery when it reviewed the ATR programs of other countries was that some countries will not give ATRs on their anti-avoidance rules, and this became a significant topic of discussion in the Directorate’s external and internal consultations. The upshot was that the Directorate will continue entertaining ATR requests on the anti-avoidance rules including the impending MLI principal purpose test.
- External consultations revealed that the pre-rulings consultation service was not being used very much, primarily because it requires much of the same information as an ATR request, and also because it is not available on a no-names basis.
- The next revision to the Information Circular will include a draft template for ruling requests and also guidelines respecting rulings on questions of fact, and refusals to rule where there is no uncertainty.
Neal Armstrong. 20 November 2017 CTF Conference - Costa Dimitrakopoulos and Lori Carruthers on "Advance Tax Rulings - 2017 and Beyond."