News of Note
Groscki – Tax Court of Canada finds that a director was not liable for failure to obtain a s. 159(2) certificate before his corporation disposed of most of its assets
Email this ContentBocock J appears to have found that a director was not a “legal representative” of a Macao-incorporated corporation that disposed of all of its inventory (being substantially all of its assets) without obtaining a s. 159(2) clearance certificate given inter alia that the director did not do a lot more than directors normally do and, in particular did not act as a liquidator given that there was no liquidation process authorized by the corporation nor any formal authority granted to him to act as a liquidator, de facto or otherwise.
Neal Armstrong. Summary of Groscki v. The Queen, 2017 TCC 249 under s. 159(3).
Farm Credit Canada – Federal Court of Appeal finds that “loan corporation” for GST/HST purposes has a broader meaning than its provincial regulatory meaning
Different types of selected listed financial institutions (SLFIs) are subject to different attribution rules for determining the blended HST rate of tax to which they are ultimately subject. One of these SLFI categories is for “a trust and loan corporation, a trust corporation or a loan corporation.” “Loan corporation” is undefined.
Farm Credit Canada (a federal Crown corporation providing financing assistance to farmers) argued that it was not a “loan corporation” because the quoted phrase above had a well understood meaning given that the provincial legislation regulating trust and loan corporations defined a “loan corporation” as a corporation that was incorporated for the purpose of borrowing money from the public (which Farm Credit Canada did not do) and then lending or investing such money. It preferred another rule for general non-loan corporations that would have given weight to much of its payroll being in low-rate provinces.
Near JA, in rejecting this submission, found that the words “loan corporation” simply mean “a corporation that makes loans.” He also found that this accorded with the rule’s likely policy, which would have contemplated a level playing field between privately-funded loan corporations and those funded with deposits from the public.
Neal Armstrong. Summary of Farm Credit Canada v. The Queen, 2017 TCC 29 under Selected Listed Financial Institution Attribution Method (GST/HST) Regulations, s. 26(1).
CRA has finalized its revised VDP GST/HST Memorandum
CRA has made similar revisions in finalizing its Memorandum on the GST/HST (and excise) voluntary disclosure program as was the case for the ITA Circular, for example:
- The effective date is now March 1, 2018, meaning that applications received on and after that date will be categorized as falling into one of three categories: wash transactions (100% interest and penalty relief); general program (50% interest relief and 100% penalty relief); and limited program (no interest relief and penalty relief only for the gross negligence penalty).
- The limited program is now expressed to apply “where there is an element of intentional conduct on the part of the registrant or a closely related party.” (To show how closely integrated the drafting of the two VDP documents is, “closely related” is an ETA-defined term that was also used in the ITA Circular.)
- However, “generally, applications by corporations with gross revenue in excess of $250 million in at least two of their last five taxation years, and any related entities, will [only] be considered under the Limited Program.”
Neal Armstrong. Summary of 15 December 2017 GST/HST Memorandum 16.5 – Voluntary Disclosures Program under ETA s. 281.1(2).
ConocoPhillips - Federal Court of Appeal finds that CRA has no ability to use the s. 220(2.1) waiver to extend the period for filing a Notice of Objection
S. 220(2.1) provides that “where any provision of this Act… requires a person to file a… document…the Minister may waive the requirement, but the person shall provide the document…at the Minister’s request.” Woods JA has reversed the finding of Boswell J that s. 220(2.1) accords the Minister the discretion to waive the requirement to file a Notice of Objection (respecting a situation where the taxpayer allegedly did not find out about the reassessment in question until after the one-year limitation in s. 166.1(7) to get an extension for filing an Objection had passed).
Woods JA found that this “strict” limitation “is intentional,” and that “the general waiver provision cannot be applied in this manner to override a more specific provision [s. 166.1(7)].”
Neal Armstrong. Summaries of Canada (National Revenue) v. ConocoPhillips Canada Resources Corp., 2017 FCA 243 under s. 220(2.1) and Statutory Construction – Specific v. general provision.
Six further full-text translations of CRA technical interpretations are available
The table below provides descriptors and links for six French technical interpretations released in April and March of 2014, as fully translated by us.
These (and the other full-text translations covering the last 3 2/3 years of CRA releases) are subject to the usual (3 working weeks per month) paywall.
CRA provides examples on the operation of the proposed split-income rules
Various points illustrated by examples prepared by CRA of the operation of the expanded split income proposals include:
- There generally is no limitation under the rules on income-splitting with an over-24 inactive spouse with a significant shareholding in the business in question – for example, paying all the profits as a dividend to such spouse on a separate class of discretionary shares (Example 3B).
- Nor is there any limitation under the expanded rules on Opco paying salary to a child or spouse (other than under the current rules including s. 67) (Example 5B).
- There is a safe harbour for under-25 children who work an average of at least 20 hours per week in the business, but there is a more general exclusion for being actively engaged on a regular, continuous and substantial basis in the activities of the business in the taxation year or in any five prior taxation years. CRA does not consider this more general test to be satisfied where the child worked 600 hours in the four summer months (Example 5A), but considers it to be satisfied where the child is a major actor in a business that does not require a lot of hours per week (Example 9).
- The definition of an excluded share refers inter alia to a test of less than 90% of the business income being from the provision of services. CRA references examples of shares in a portfolio-investment corporations (Example 8) and a rental-property corporation (Example 10) as being excluded shares.
- CRA states that in determining whether a payment is a reasonable return, it “does not intend to generally substitute its judgment of what would be considered a reasonable amount unless there has not been a good faith attempt to determine a reasonable amount.” It gives, as an example, a spouse doing bookkeeping of less than 20 hours per week for the other spouse’s professional firm, and who receives dividends that “while higher that the amount that was paid to the arm’s length bookkeeper,” nonetheless do not violate the quoted standard (Example 11).
Neal Armstrong. Summaries of CRA Guidance on the application of the split income rules for adults under s. 120.4(1) – split income – (c)(ii)(C), reasonable return, excluded shares, excluded business, split income, s. 120.4(1.1)(c).
CRA makes some favourable changes in finalizing its revised Circular on the VDP
Some points of departure in the final version of the Circular on the Voluntary Disclosure Program from the previous draft Circular:
- The effective date is now March 1, 2018, meaning that to fit within the previous more-lenient program, the application, including the taxpayer’s name, must be received before that date. For those needing no-names comfort before proceeding, this means that the real effective date is earlier.
- The “Limited program,” under which there is relief only from gross negligence penalties and prosecution, is now expressed to apply “where there is an element of intentional conduct on the part of the taxpayer or a closely related party” – whereas the draft Circular referred more vaguely to “major non-compliance.”
- CRA however also states (perhaps somewhat in contradiction to the above):
Generally, applications by corporations with gross revenue in excess of $250 million in at least two of their last five taxation years, and any related entities, will be considered under the Limited Program.
- CRA has added a statement (perhaps to demonstrate flexibility - see Stemijon/Elfe Juvenile) that “If [VDP] relief is denied ... relief of arrears interest and any penalties payable may be requested and considered in accordance with the taxpayer relief provisions as described in IC 07-1R1... .
- CRA has deleted a statement that the VDP does not extend to transfer pricing adjustments or s. 247 penalties (although competent authority matters are now explicitly excluded), and now states:
Given the complexity of transfer pricing issues, applications relating to transfer pricing matters will be referred to the Transfer Pricing Review Committee for their consideration under subsection 220(3.1).
Neal Armstrong. Summary of 15 December 2017 Information Circular - IC00-1R6 - Voluntary Disclosures Program under s. 220(3.1).
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”
Webb 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).