News of Note
Trieste - Federal Court of Appeal confirms interpretation of habitual-abode tie-breaker test
Email this ContentThe third "tie breaker" rule under the Canada-US treaty for determining an individual's residence refers to the individual's country of "habitual abode." Dawson JA found no palpable error in Lamarre J's finding that a U.S. citizen who spent only 69 days out of 623 in the US had his habitual abode in Canada. Following a review of the OECD commentaries and the Vienna Convention, Lamarre J in the Tax Court had concluded that the test of habitual abode in a jurisdiction turned on whether the individual "resided there habitually, in the sense that he regularly, customarily or usually lived [there]."
Scott Armstrong. Summary of Trieste v. The Queen, 2012 FCA 320, aff'g 2012 DTC 1125 [at 3133], 2012 TCC 91 under Treaties - Article IV.
Individual LLC members are in effect subject to 25% branch profits tax
Where a US LLC with qualifying US members carries on a branch business through a Canadian permanent establishment, CRA considers that the branch earnings are computed by the LLC, with the LLC paying the reduced rate of branch profits tax available under Art. X(6) of the Treaty (i.e., 5%, or nil if the $500,000 exemption has not been utilized) based on the share of the branch profits that are considered to be derived by its qualifying corporate members. Among other things, this means that the share of its branch profits that are considered to be derived by an individual member is subject to full (25%) branch profits tax - notwithstanding that the individual would not be subject to branch profits tax if he or she carried on the Canadian business directly.
Furthermore, the LLC is considered to have only one $500,000 cumulative exemption that must be shared among its corporate members (and associated companies).
Neal Armstrong. Summary of 23 October 2012 T.I. 2012-0440101E5 under Treaties - Art. 10.
Income Tax Severed Letter 19 December 2012
This morning's release of six severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Canadian-resident shareholders of ASX-listed CGA are offered s. 85(1) rollover treatment on merger under Australian Scheme of Arrangement with B2Gold
Canadian-resident shareholders of CGA, an Australian public mining company, are being offered s. 85 rollover treatment on the acquisition of all the shares of CGA by TSX-listed B2Gold under an Australian "Scheme of Arrangement." (No s. 85.1 rollover is available for dispositions of shares of non-resident companies.) CGA Australian shareholders who don’t want to open up an international brokerage account for B2Gold shares are allowed to elect to instead receive the net proceeds on a subsequent sale of "their" B2Gold shares by a nominee (Haywood Securities), if they otherwise would have received 1000 or fewer B2Gold shares.
Neal Armstrong. Summary of CGA Mining Limited Scheme Booklet under Cross-Border Acquisitions - Outbound.
CRA treats construction services provided in exchange for a development permit as being made for nil consideration for GST/HST purposes
A subdivision developer who pays a development levy of a municipality will be considered to have made an exempt supply for HST/GST purposes of cash in consideration for an exempt municipal service. However, its provision of municipal improvements such as roads generally will be treated as the making of a taxable supply for nil consideration rather than in consideration for the (presumably valuable) permit, so that no GST or HST is payable by the municipality.
Although this result makes policy sense, it is somewhat at odds with the general tax treatment of barter exchanges as occurring at the fair market value of the exchanged property or services (see for example, Bernick).
Neal Armstrong. Summary of 31 July 2012 Interpretation Case No. 103548 under ETA – s. 153(1) and Sched. V, Part VI, s. 20.
NRT Technology - Tax Court dusts off the REOP tests for application in a loss streaming case
The reasonable expectation of profit doctrine has been largely defunct since Stewart and Walls in the context in which it was originally most often applied by CRA (businesses financed as tax shelters and non-hobby farming losses). However, the criteria developed in the pre-Stewart cases for determining the existence of "REOP" (e.g., Tonn) were applied by Campbell Miller J to find that a loss business of a purchased corporation (which presumably was wound-up into the taxpayer, although he doesn't say) was not carried on with a REOP, as explicitly required in the statutory words of s. 111(5)(a) (and, in fact, the business was essentially dormant following the acquisition). Accordingly, the losses could not be utilized.
Neal Armstrong. Summary of NRT Technology Group v. The Queen, 2012 TCC 420 under s. 111(5)(a).
CRA finds NEX is a stock exchange based on Black's Law Dictionary and "commercial point of view"
In finding that NEX of the TSX Venture Exchange is a "stock exchange located in Canada" (and therefore included under paragraph (b) of the definition of "recognized stock exchange" in s. 248(1)), CRA relied on the Black's Law Dictionary definition of "stock exchange" and on the conclusion that the Canadian Securities Administrators would be likely to consider the exchange to be a stock exchange (which would imply that NEX is a stock exchange "from a commercial point of view").
Scott Armstrong. Summary of 11 September 2012 Memorandum 2012-0454321I7 under s. 248(1) - recognized stock exchange.
Amendment to s. 87(4) does not affect the exemption from s. 116 certificate requirement
IT-474 indicates that there is no requirement to apply for a s. 116 certificate on a statutory amalgamation involving the disposition of shares which are taxable Canadian property. This policy still applies notwithstanding that, following on the March 2012 Budget, s. 87(4) was amended to provide that, on such an amalgamation, the shares of the amalgamated corporation are deemed to be taxable Canadian property for a period of only five years following the amalgamation.
Neal Armstrong. Summary of 11 October 2012 T.I. 2011-0429021E5 under s. 116(1).
Income Tax Severed Letters 12 December 2012
This morning's release of nine letters from the Income Tax Rulings Directorate is now available for your viewing.
Service provider is not carrying on business in Canada for GST/HST purposes notwithstanding place where contracts may be made
In determining whether a company is carrying on business in Canada, the place where it concludes contracts for the sale of its products or services likely is not a touchstone if its business is not one of trading property. CRA appears to agree. It has indicated that a web based provider of services was not carrying on business in Canada notwithstanding that the place of making of the contracts may have been Canada, it solicited Canadian orders and its employees came to Canada on an irregular basis.
Neal Armstrong. Summary of 20 August 2012 Interpretation Case No. 140855 under ETA - s. 240(1).