News of Note
Pre-production mine development expenses that qualify under CEE – (g.4) need not qualify under (g.3)
Email this ContentPara. (g.3) of the Canadian exploration expense definition provides that pre-production mine development expenses could qualify if, among other conditions, they were incurred under an agreement entered into before March 21, 2013. Would this requirement be satisfied where a principal-business corporation issued flow-through shares pursuant to a December 31, 2012 flow-through share agreement but incurred the 2013 expenses under the look-back rule pursuant to an agreement which it entered into with a subcontractor in 2013 but after March 21, 2013?
CRA ducked this question by noting that, even if the relevant agreement for purposes of the March 21, 2013 cut-off was the subcontracting agreement, the expenses would qualify under para. (g.4) as having been incurred before 2015.
Neal Armstrong. Summary of 11 October 2017 Internal T.I. 2017-0719181I7 F under s. 66.1(6) – CEE – para. (g.4).
CRA will issue s. 116 certificates based on the draft s. 87(8.5) foreign merger rollover
Draft ss. 87(8.4) and (8.5) in approximate terms provide that on a same-country related-party foreign merger that meets specified conditions, the foreign merging corporations can file a joint election to have shares that are (non-treaty protected) taxable Canadian property be deemed to have been disposed of on a rollover basis on the merger.
CRA will grant s. 116 certificates based on treating this draft legislation as already being in effect, provided that some back-up for the adjusted cost base of the disposed-of shares is provided to it. No share valuation is required. CRA did not mention any concern about one of the foreign corporations no longer being around to make the election.
This CRA response presumably also applies to the same and similar draft s. 87(8.4) and (8.5) rules respecting trust units and partnership interests, respectively.
Neal Armstrong. Summary of 21 November 2017 CTF Annual Conference Roundtable, Q.14 under s. 87(8.5) and s. 116(1).
Abenaim – Tax Court of Canada finds that an amount received by a terminated employee (claiming oppression) exceeding 18 months’ salary was non-taxable
A senior employee who, in the somewhat distant past, had also been a shareholder, received damages following his termination, and pursuant to a court-mediated settlement agreement, that were well in excess of the going rate for compensation in lieu of notice of 18 months, and received a T4 treating the full amount as a taxable retiring allowance. D’Auray J treated the portion of the damages in excess of 18 months’ salary as a non-taxable receipt given her characterization of his claim against his former employer as being grounded principally in oppression as contemplated in the CBCA and her finding that, indeed, he had been oppressed a lot.
Neal Armstrong. Summary of Abenaim v. The Queen, 2017 CCI 223 under s. 248(1) – retiring allowance.
Abdalla – Tax Court of Canada finds that a “poorly worded” CRA-drafted waiver nonetheless was good enough to effect a valid waiver of appeal rights when signed
In rejecting taxpayers’ submissions that they had not given valid waivers of their right to appeal, Rossiter CJ quoted the statement in Saskatchewan River Bungalows, [1994] 2 SCR 490 that:
Waiver will be found only where the evidence demonstrates that the party waiving had (1) a full knowledge of rights; and (2) an unequivocal and conscious intention to abandon them.
In finding that this test was satisfied here, he stated that although the waiver letter drafted by CRA was “poorly worded … if read in its entirety … there is a sufficient and adequate explanation in the letter [such] that a person would have full knowledge of the rights being waived.”
Neal Armstrong. Summary of Abdalla v. The Queen, 2017 TCC 222 under s. 169(2.2).
Interest that is denied under the thin cap rules and recharacterized as dividends is still interest for FAPI and LRIP/GRIP purposes
A portion of the interest paid by CanCo to ForCo, which is a controlled foreign affiliate of the Canadian parent of CanCo, is not deductible pursuant to s. 18(4) and is deemed by s. 214(16) to have been paid as a dividend (with CanCo designating under s. 214(16)(b) which particular payment is deemed to be the dividend.)
CRA noted that, as per its preamble, s. 214(16) only applies for Part XIII purposes, so that s. 214(16) would have no effect on CanCo’s LRIP or GRIP balances nor alter the character of the income received by ForCo as interest for foreign accrual property income purposes.
Neal Armstrong. Summary of 5 October 2017 Internal T.I. 2015-0614021I7 under s. 214(16).
Income Tax Severed Letters 29 November 2017
This morning's release of seven severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Greither Estate – B.C. Supreme Court finds that taking back excess boot cannot be rectified under the BCA provision for correcting “corporate” mistakes
A non-resident estate, whose shares of a Canadian company had stepped-up basis under s. 70(5) but had nominal paid-up capital, was advised by a tax lawyer who had forgotten about s. 212.1. After it had been assessed for withholding tax as a result of transferring its shares of the company to a related company for consideration consisting mostly of a promissory note, it applied for relief pursuant to s. 229 of the B.C. Business Corporations Act to correct this “corporate” mistake.
Meyer J noted the somewhat narrow list of types of corrections in s. 229 and found that “the mistake of not completing the Transaction in the most tax effective manner does not … fall within these subsections.” Although he was not asked to provide relief under the general rectification doctrine, he commented on this anyway, stating:
As stated by the majority … in Fairmont Hotels business and individuals should not be allowed to exploit rectification for the purposes of engaging in retroactive tax planning and as stated by the dissent, “allowing parties to rewrite documents and restructure their affairs based solely on a generalized and all-encompassing preference for paying lower taxes is not consistent with the equitable principles that inform rectification.”
Neal Armstrong. Summary of Greither Estate v. Canada (Attorney General), 2017 BCSC 994 under General Concepts – Rectification.
Aubrey Dan Family Trust – Ontario Court of Appeal confirms that a federal form applied for Ontario purposes without any specific reference on its face to that effect
A purported Alberta trust, that wanted more time to make submissions to CRA that it was not resident in Ontario, provided a related waiver on the prescribed (T2029) federal form. When it was ultimately reassessed for Ontario income tax (with the previously assessed Alberta tax being reversed) it unsuccessfully argued that the waiver was invalid because the T2029 form did not refer to the fact that it was a prescribed form for provincial purposes. The Court of Appeal confirmed the finding of Lederman J below that it was sufficient, for the form to “purport” to be an authorized form for these purposes, to bear the CRA insignia without any reference being made to it being the prescribed form for Ontario purposes.
Neal Armstrong Summary of Aubrey Dan Family Trust v. Minister of Finance, 2017 ONCA 875 under Taxation Act, 2007 (Ontario), s. 158.
Five further full-text translations of CRA technical interpretations are available
The table below provides descriptors and links for five French technical interpretation released in April 2014, as fully translated by us.
These (and the other full-text translations covering the last 3 ½ years of CRA releases) are subject to the usual (3 working weeks per month) paywall. Next week is the “open” week for December.
CRA may rule that an election for a listed Target to cease to be a public corporation can be made after Target’s amalgamation
A corporation cannot make an election under (c)(i) of the public corporation definition to cease to be a public corporation (based on now being closely held) while its shares are still listed. This may be problematic if the stock exchange has not confirmed the delisting of Target until following the amalgamation of Target with Buyco (given that Amalco is tainted as a public corporation if a predecessor was so tainted.)
However, CRA generally is prepared to rule that the election can be made after the amalgamation (and after the delisting has occurred) even though at the time of making the election the Target shares no longer exist.
Neal Armstrong. Summary of 21 November 2017 CTF Annual Conference Roundtable, Q.12 under s. 89(1) - public corporation - (c)(i).