News of Note
Hokhold – Federal Court of Appeal finds that a bad debt claim requires the specific identification of which “debt” claims went bad
Email this ContentPartly as a delayed consequence of CRA’s seizure of computers and dental equipment of a dental practice and the misplacing of records when his practice subsequently was closed, the dentist was only able to collect a portion of the revenues that he had included in his 2005 to 2008 returns. However, the Tax Court found that he was not entitled to a bad debt deduction on the basis inter alia that he was unable to identify which specific debts had gone bad. In agreeing with this finding, and before going on to dismiss the appeal, Boivin JA stated:
[I]n order to have a “liquidated money demand, recoverable by action” one must know the identity of the debtor and the amount owed … .
Neal Armstrong. Summary of Hokhold v. Canada, 2018 FCA 163 under s. 20(1)(p)(i).
CRA is considering whether crypto-currencies are “money”
CRA indicated that it “is presently considering its position regarding the GST/HST treatment of Bitcoin and similar crypto-currencies.” As it also noted that it had previously taken the position that Bitcoins do not come within the items specifically listed in the ETA definition of “money,” namely currencies and credit instruments or devices such as cheques, promissory notes, letters of credit and bills of exchange or “other similar instrument,” its consideration of whether payment using crypto-currencies is an exempt financial service likely is focusing on whether crypto-currencies are “money” within the undefined meaning of that word.
Neal Armstrong Summary of 8 March 2018 CBA Commodity Taxes Roundtable, Q.7 under ETA s. 123(1) – money.
CRA indicates that a single Notice of Objection can cover multiple disputed GST assessments
Where CRA issues multiple GST/HST assessments they can be objected to on a single Notice of Objection. The required particulars can be provided in attachments thereto.
Neal Armstrong. Summary of 8 March 2018 CBA Commodity Tax Roundtable, Q.6 under ETA s. 301(1.1).
CRA will change its practices so as to start denying partial ITC claims by orthodontists
Brian Hurd found that an incorporated orthodontic practice was making a single supply of exempt orthodontic health services rather than (as argued by it) two supplies comprised of a zero-rated supply of medical equipment (the orthodontic appliance) and of exempt orthodontic services (e.g., adjustment and maintenance services). (Zero-rating would have generated input tax credits.)
CRA has indicated that, as a consequence, it will be withdrawing its current administrative practice – which was to allow orthodontists to treat 35% of most of their taxable expenses as eligible for input tax credits provided that their invoices to their patients broke out a separate charge for the orthodontic device. (A similar practice respecting dental implants also will go.) However, it will provide advance notice of when this practice is being withdrawn so that “stakeholders … can prepare accordingly.”
Neal Armstrong. Summary of 8 March 2018 CBA Commodity Tax Roundtable, Q.5 under Sched. V. Pt. II, s. 5.
CRA finds that half-siblings are related
The definition of blood relationship in s. 251(6)(a) includes two persons who are the “brother or sister of the other.” Following inter alia Diktakis, CRA found that a sibling includes a half-sibling, so that two individuals who had the same father and different mothers were related to each other.
Neal Armstrong. Summary of 12 July 2018 External T.I. 2018-0755471E5 under s. 251(6)(a).
CRA confirms that it is possible to structure a P3 project so as to defer the applicability of GST/HST until revenues are ascertained
Typically, P3 project construction costs for a hospital, bridge etc. are intended for ITA purposes to be viewed as consideration for the grant of a concession or licence (a Class 14 property) by the public authority to the private operating company to enter onto the premises to operate it and earn a monthly operating fee (see e.g., 2006-0218781R3). On the ETA side, CRA instead views the consideration for the incurring of the construction costs as being included in the subsequent monthly amounts payable by the authority. Provided that the amount of such consideration is not yet ascertainable, GST/HST is not triggered (one month after substantial completion) under ETA s. 168(3)(c) on the value of the supply made to the public authority by virtue of the supply of the hospital etc. and is deferred under s. 168(6) until the monthly amounts become ascertainable.
Neal Armstrong. Summary of 8 March 2018 CBA Commodity Taxes Roundtable, Q.4 under ETA s. 168(6).
Over 650 translations of CRA French-language interpretations are available
The table below provides descriptors and links for six Interpretation released in March and February 2013, as fully translated by us.
These (and the other full-text translations covering all of the 651 French-language Interpretations released in the last 5 1/2 years by the Income Tax Rulings Directorate) are subject to the usual (3 working weeks per month) paywall.
CRA has not accepted the Le Gardeur decision on zero-rating based on a component being zero-rated
Although CRA’s position was that supplies of in vitro diagnostic test kits designed for laboratory use are taxable, the Centre Hospitalier Le Gardeur decision (2007 TCC 425) found that certain in vitro diagnostic test kits were zero-rated pursuant to Sched. VI, Pt. I, s. 2(a). When asked whether CRA accepted this result, it responded that it was awaiting the Patterson Dental decision for clarification of this issue. Four months later, that decision came down and decided that zero-rating for epinephrine did not include a drug containing epinephrine. Although Patterson Dental distinguished rather than overtly disagreed with the earlier decision, perhaps CRA will decide to maintain its pre-Gardeur view.
Neal Armstrong. Summary of 8 March 2018 CBA Commodity Taxes Roundtable, Q.3 under Sched. VI, Pt. I, s. 2(a).
CRA is reviewing the scope of the concept of settlement of property on an inter vivos trust for GST purposes
On Friday, CRA provided its written responses to most of the questions posed to it at the March 8, 2018 CBA Commodity Taxes Roundtable. In our Roundtables Section, we provide the complete text of these written responses together with summaries of the questions posed. The complete text of the questions posed will be posted on the Canadian Bar website in due course for the CBA Section members.
S. 268 of the ETA provides that where a person “settles” property on an inter vivos trust, the person is deemed to have made and the trust is deemed to have received a supply by way of sale of the property for consideration equal to the amount determined under the ITA to be the proceeds of disposition of the property.
CRA indicated that where X settles a trust and then, some years later, contributes (to use a neutral word) further property to the trust, s. 268 will be considered to apply to that subsequent property contribution. However, CRA is still reviewing the issue of whether s. 268 would apply if Y subsequently contributed to the trust, i.e., if is “currently reviewing the issue of whether contributions made by another person (such as Y in the question) would fall within the meaning of the term ‘settles’.”
Neal Armstrong. Summary of 8 March 2018 CBA Commodity Taxes Roundtable, Q.2 under ETA s. 268.
BMO – Tax Court of Canada finds that former s. 39(2) extended to (and carved out) FX gains on s. 39(1) dispositions
BMO used a tower structure for a U.S.$1.4 billion financing of its U.S. subsidiaries in which a subsidiary Nevada LP of BMO applied third-party borrowings made by it (or by BMO and contributed to the LP) to subscribe for common shares of an NSULC subsidiary, which acquired shares in an LLC, which lent the U.S.$1.4 billion to the U.S. subsidiaries. When the tower was unwound approximately five years later, the CRA position would have been that the FX loss realized by the LP on winding up the NSULC would have been reduced under the s. 112(3.1) stop-loss rule by the dividends paid during the five years on the NSULC shares - so that such loss would only partially offset the FX gain realized by BMO (directly and “through” the LP) on repayment of the U.S.$1.4 billion third-party borrowing. However, BMO had forestalled this result by instead having the NSULC pay its dividends as preferred share stock dividends. CRA accepted that this worked technically, but applied the general anti-avoidance rule on the basis that it was an abusive avoidance of s. 112(3.1).
Graham J found that there was no “tax benefit,” so that GAAR did not apply, because the loss of the LP on the disposition of the NSULC shares was not a loss from the “disposition of a share” as required by s 112(3.1) and instead was deemed by s. 39(2) to be a loss from the “disposition of currency.” Thus, he found that the pre-August 2011 version of s. 39(2) extended to dispositions of capital property, rather than being restricted to the settlement of foreign-currency obligations. Points made by Graham J included:
- Unlike s. 39(3), s. 39(2) stated that it applied “notwithstanding” s. 39(1), which was explained by s. 39(2), unlike s. 39(3), extending to dispositions (s. 39(1) turf) rather than only to obligation settlements.
- S. 39(2) went on to deem the capital gains and losses thereunder to be from the disposition of foreign currency – which presumably was motivated by a concern that they otherwise would be considered to have the character of any property that was actually disposed of.
Neal Armstrong. Summary of The Bank of Montreal v. The Queen, 2018 TCC 187 under s. 39(2).