News of Note

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).

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).

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).

Whether s. 94 applied to two factually non-resident trusts with beneficiaries who were the resident children of a non-resident contributor (Mr. X) turned on whether all the contributions by Mr. X were made at a “non-resident time.” CRA noted that a special version of this test applied to contributions made before June 23, 2000. That test (which Mr. X satisfied) was that he was non-resident in Canada for the period commencing 18 months before the trust year end for the year of the contribution and ending 60 months after the contribution. As all the contributions were pre-June 23, 2000 contributions that satisfied this test, the trusts were not caught by s. 94.

Neal Armstrong. Summary of 26 July 2018 Internal T.I. 2018-0768281I7 under s. 94(1) – non-resident time.