News of Note
CRA accepts that seniors in a Saskatchewan personal care home were “disabled” so that their fees were exempted from GST
Email this ContentETA, Sched. V, Pt. IV, s. 2 exempts "a supply of a service of providing care, supervision and a place of residence to… individuals with a disability in an establishment operated by the supplier for the purpose of providing such service."
CRA considers that "‘disability’ generally refers to a long-term impairment that restricts an individual in carrying out his or her activities of daily living," and ruled that the fees charged to the senior residents of a Saskatchewan personal care home were exempted on the basis inter alia of a representation that each resident suffered an impairment restricting the conduct of such activities.
Neal Armstrong. Summary of 21 November 2014 Ruling 150099a under ETA, Sched. V, Pt. IV, s. 2.
Sood – Federal Court states that CRA is required to breach a settlement agreement that does not accord with tax law
When the taxpayer brought a Federal Court action to enforce an agreement with CRA for the settlement in his favour of a dispute respecting the new housing HST rebate, Gascon J found that he lacked the jurisdiction to consider the application (as it represented a "collateral attack on the validity of the tax reassessment" in question). After referring to the Galway and Cohen line of cases, he went on to state that "the Agency was required to revoke the settlement agreement since no legal or factual basis supports Mr. Sood’s claim to the provincial new housing rebate."
Neal Armstrong. Summaries of Sood v. M.N.R., 2015 FC 857 under s. 152(1) and Federal Court Act, s. 18.5.
Hatt – Tax Court of Canada finds that a pension contribution which was only currently deductible from income could be carried forward as a non-capital loss
Although s. 111(9) limits the sources which can give rise to a non-capital loss of a non-resident, a loss from Canadian employment is not excluded. A non-resident who had nominal income from a Canadian job from which she was on leave but who generated a significant deduction under s. 147.2(4)(a) by using a retiring allowance (which was taxable under Part XIII rather than Part I) to contribute to her registered pension plan, thereby generated a non-capital loss for that year. After her return to Canada, she deducted this loss.
CRA was offended: s. 147.2(4) does not permit the carry-forward of RPP contributions, and this limitation was "frustrated" by permitting them to in effect be carried forward as non-capital losses.
In the laconic common law tradition, D’Arcy J did not launch into a speech on the primacy of ordinary meaning over unexpressed policy, and merely noted that the statutory words permitted the carryforward.
Although this situation is more common on the GST side, this case illustrates that if CRA gets the bit in its teeth, it may proceed to the Tax Court irrespective of the technical merits.
Neal Armstrong. Summary of Hatt v. The Queen, 2015 TCC 207 under s. 111(1)(a).
CRA apparently accepts that real estate sales can be made through a JV operator for ETA s. 273 purposes where the sales are made in the name of the co-venturers or separate nominee
In P-106, CRA states that a manager who has no co-ownership interest in a real estate joint venture nonetheless can qualify as a "participant" in the JV, so that it generally will be eligible to be designated as the JV "operator" under an ETA s. 273 election, if it "is responsible for the managerial or operational control of the joint venture."
CRA has issued an Interpretation with a detailed description of a JV arrangement where this requirement would be satisfied (with the manager making routine decisions and listed major decisions, e.g., budget approvals, requiring co-owners’ approval), so that the election appeared to be available.
S. 273 is stated to apply to JV-related properties and services supplied or acquired by the operator "on behalf of" the co-venturers. Here, the manager was described as merely managing and supervising sales of new homes, which may imply that nothing more is required in order for such sales to be considered to have been made by the manager on behalf of the co-owners.
Neal Armstrong. Summary of 2 December 2014 Interpretation 164312 under ETA s. 273(1).
CRA will not accept an amended partnership return beyond statute-barred period
S. 152(1.2) provides that many of the provisions respecting assessments including the statute-barring period under s. 152(4) (subject to a waiver being provided under s. 152(4)(a)(ii)) also apply to a "determination," e.g., a determination of partnership income under s. 152(1.4). This means that CRA will not accept an amended partnership return after the three-year determination period under s. 152(1.4) if no waiver was produced within that period.
Neal Armstrong. Summary of 23 April 2015 Memo 2014-0562271I7 under s. 152(1.4).
CRA finds that re-immigration step-down election under s. 128.1(6)(c) is available for shares which formerly were taxable Canadian property
The election in s. 128.1(6)(c) typically permits an individual who previously was subject to the departure tax under s. 128.1(6)(b) to adjust downwards the departure proceeds of disposition and the adjusted cost base of those properties on return to Canada. CRA also considers that the election is available to the individual respecting shares of a corporation that, at the time of emigration, were taxable Canadian property for which the individual deferred the departure tax by posting security under s. 220(4.5) and that now, at the time of immigration, no longer are taxable Canadian property.
Neal Armstrong. Summary of 30 July 2015 T.I. 2013-0494871E5 under s. 128.1(6)(c).
CRA finds that corporate partners cannot avoid income inclusions under the thin cap rules by selling their interests to non-resident affiliates before year end
Ss. 12(1)(l.1) and 18(7) provide for the inclusion in a Canadian corporate partner’s income of a proportionate share of "deductible" partnership interest expense on debt subject to the thin cap rules. S. 96(1) only requires the computation of income (and of deductions such as interest) for a partnership which has "taxpayers" as members.
Someone argued that where the two Canco partner sell their interests to two non-resident sisters who are not "taxpayers," so that none of the partnership income for the year is allocated to taxpayers, no s. 96(1) computation is required so that the partnership has no "deductible" interest for the year – with the result that there is no income inclusion to them under s. 12(1)(l.1).
After noting that each partner’s "specified proportion" of the partnership debt is based on its share of partnership income for the previous year, CRA rejected the above argument on the basis that s. 96(1.01)(a) deemed each Canco to continue to be a member of the partnership at the year end for s. 96(1) purposes.
Neal Armstrong. Summary of 28 June 2015 T.I. 2015-0567811E5 under s. 12(1)(l.1).
Income Tax Severed Letters 26 August 2015
This morning's release of eight severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Humane Society – Federal Court of Appeal confirms revocation of registration of a charity whose recorded expenses included substantial personal expenditures
Ryer JA found that "the obligation of a charitable organization to maintain adequate books and records is foundational" so that the mixing of substantial personal expenses of an officer into the recorded expenses of the organization was a reasonable basis for a decision to revoke its registration.
Neal Armstrong. Summaries of Humane Society of Canada for the Protection of Animals and the Environment v. M.N.R., 2015 FCA 178 under s. 168(1)(e), s. 172(3)(a.1) and s. 189(7).
Remtilla – Tax Court of Canada finds that a T1 adjustment request was a waiver keeping the year in question open
When the taxpayer realized a large loss from options trading in 2008, he decided to report it on income account and filed a T1 adjustment request for his smaller 2005 loss and 2006 and 2007 gains from option trading (previously reported on capital account) to be adjusted to income account. After negotiations, CRA assessed all the years as on income account. The taxpayer objected to the assessments of 2006 and 2007 as being statute-barred notwithstanding his agreement to this treatment in the settlement agreement with CRA.
V. Miller J. dislikes sharp practice. She found that the T1 adjustment request was itself a waiver that kept the 2006 and 2007 years open given that it together with the accompanying letter contained all the necessary information and that "a reasonable person observing Mr. Remtilla’s interactions with the CRA in 2009 and in 2012 would infer that he always intended the T1 Adjustment Requests to be acted upon."
Neal Armstrong. Summary of Remtilla v. The Queen, 2015 TCC 200, under s. 152(4)(a)(ii).