News of Note
SAE – Court of Appeal of England and Wales broadly defines “college”
Email this ContentThe ETA definition of a “university” includes a “college affiliated with” a qualifying university. Patten LJ defined the word “college” broadly as “a group of people organised as an institution usually (but not necessarily) in the field of education,” before going on to find that a corporation providing training in audio and digital media technologies and whose students in courses validated by Middlesex University were considered by MU to be members of MU nonetheless did not qualify as a college “of” MU, as required by the UK VAT legislation.
Neal Armstrong. Summary of SAE Education Ltd v. Revenue and Customs Commissioners, [2017] EWCA Civ 1116 under ETA s. 123(1) – university.
ING –Court of Appeal of England and Wales finds that the provision of non-peripheral services by a bank to its depositors transformed it into a financial supplier
Under the European VAT jurisprudence, a mere borrowing or share issuance by a company is not considered to be a supply by it, so that VAT on inputs relating to the borrowing or issuance are not denied on that ground as being in relation to the supply of a financial serviced (see BLP and Kretztechnik).
An ING company unsuccessfully argued that its activity of taking deposits from its customers should benefit from this jurisprudence. Arden LJ accepted the finding below that the services provided by ING to its depositors (including 24-hour access to their deposits through internet banking) were more than merely “peripheral” to the borrowing represented by the deposits. As it was engaged in an exempt banking business, its related inputs did not generate VAT deductions.
Although the BLP proposition, that a borrowing does not constitute a supply by the borrower to the lender, might seem obvious, this proposition does not appear to be accepted by CRA. The confusion stems in part from the inclusion in the financial services definition (which likely only becomes relevant once there is first a determination that there is a supply) of “borrowing” and the “issue … of a financial instrument.” (The VAT provisions are broadly similar. See also ETA s. 185(1).) The ING case may illustrate that, even if the narrow view of supply under the VAT jurisprudence were accepted in Canada, there are circumstances where a borrower nonetheless can be making a supply of a financial services to the lender if it provides related non-“peripheral” services that are in the financial services world.
Neal Armstrong. Summaries of ING Intermediate Holdings Ltd v HMRC, [2017] EWCA Civ 2111 under ETA s. 123(1) – supply, s. 153(1) and General Concepts – Substance.
Six further full-text translations of CRA technical interpretations are available
The table below provides descriptors and links for the French technical interpretation released last week and five technical interpretations released in January and February of 2014, as fully translated by us.
These (and the other full-text translations covering the last 47 months of CRA releases) are subject to the usual (3 working weeks per month) paywall.
CRA indicates that the eligibility of a gain for the capital gains deduction is lost when it is distributed by a lower-tier to upper-tier trust
S. 104(21), which indicates that, in specified circumstances, taxable income distributed by a trust can be designated as being a taxable capital gain of the recipient beneficiary from a disposition, states that it does not apply for purposes of s. 110.6.
CRA considers that this means that where Trust 1 has realized a capital gain from the disposition of qualified small business corporation shares, and distributes that capital gain to a second beneficiary trust (Trust 2), and makes a s. 104(21) designation, the resulting deemed capital gain of Trust 2 is not also deemed to be a capital gain from the disposition of QSBC for capital gains exemption purposes. This, in turn, means that Trust 2 cannot make a s. 104(21.2) designation respecting that capital gain where it is distributed by it, in turn, to its individual beneficiaries, so that they cannot benefit from the capital gains deduction.
Neal Armstrong. Summary of 6 December 2017 External T.I. 2016-0667361E5 F under s. 104(21.2).
CRA clarifies the operation of the transitional rule for the narrowing of the principal residence exemption for trusts
An estate that qualified as a graduated rate estate with a fiscal period of July 1, 2016 to June 30, 2017, sold the principal residence of the deceased in the first half of 2017. The adult son lived in the home during 2017 before the sale and was a specified beneficiary of the estate as described in the principal residence definition.
CRA confirmed that under the s. 40(6.1) transitional rule, any portion of the gain that accrued after December 31, 2016 would not be eligible for sheltering by the principal residence exemption and would be taxable.
Neal Armstrong. Summary of 16 June 2017 External T.I. 2017-0698181E5 under s. 40(6.1).
CRA finds that a non-resident corporation is carrying on business in Canada by virtue of being the legal employer of an employee seconded to Canada
A non-resident employee of a non-resident corporation (NRCo) will work for a year at a Canadian government department while remaining on the NRCo payroll as an NRCo employee. The Department would reimburse NRCo for the employee’s salary and benefits (with no mark-up thereof). In finding that NRCo would be required to file a T2 return by virtue of carrying on business in Canada, CRA stated:
[A] non-resident employer that sends an employee to Canada to exercise employment duties for the employer for one year would generally be rendering services in Canada. As such … NRCo would be carrying on business in Canada.
… We are not aware of any exceptions to the requirement to file a T2 where the non-resident corporation has no profit from the business carried on in Canada.
The reimbursement payments also would be subject to Reg. 105 withholding, and NRCo would be required to remit Canadian income tax withholdings (but likely not EI or CPP) on the employee’s remuneration.
Neal Armstrong. Summaries of 27 November 2017 External T.I. 2017-0731441E5 under s. 150(1)(a), Reg. 105(1) and Reg. 102(1).
CRA finds that a provincial professional association did not collect fees from members as agent for the national professional association
A provincial professional association (the “Association”) was itself a member of a national professional association (the “Society”). CRA found that member fees paid to the Association were not exempted under ETA Sched. V, Pt VI, s. 18 since membership in the Association was not required to maintain a professional status recognized by statute. It noted that persons could offer similar services in the province in question without being a member of the Association.
The Association, in turn, paid fees to the Society. Although these fees appeared to be stated in the Society by-laws to be paid “on behalf of” Society members, CRA found that the fees did not represent Society membership fees that the Association was collecting as agent for the Society given that “the bylaws of the [Society] provide no liability to the individual members to pay membership dues to [Society].”
Neal Armstrong. Summaries of 18 October 2017 Ruling 173963r under Sched. V, Pt VI, s. 18 and General Concepts – Agency.
CRA finds that an Ontario long-term care home qualified for enhanced GST/HST rebates
Elim Housing found that a B.C. long-term care facility, whose residents mostly had dementia, severely impaired mobility, complex medical issues and a life expectancy of between three months and three years, was making "facility supplies," so that it was eligible for the enhanced 83% federal public service body rebate. In response to this decision, CRA effectively reversed an earlier ruling and ruled in 138196 that an Ontario nursing home that was operated by a registered charity qualified for the federal 83% PSB rebate as well as the Ontario 87% PSB rebate. CRA has now provided essentially the same rulings for an Ontario (government funded) “long-term care home,” that sounds generally similar to the nursing home ruled upon in 138196.
Neal Armstrong. Summaries of 26 September 2017 Ruling 126881 under ETA s. 259(1) – facility supply.
Gervais – Federal Court of Appeal confirms that a basis averaging scheme to transfer half of a capital gain to the taxpayer’s wife was an abusive circumvention of the attribution rules
The taxpayer’s wife (Mrs. Gendron) purchased 1.04M preferred shares from the taxpayer (Mr. Gervais) at a cost of $1.04M (with Mr. Gervais electing out of s. 73 rollover treatment) and was gifted a further 1.04M shares (having a $1M accrued capital gain) on a s. 73 rollover basis, so that her cost of the gifted shares was $0.04M. The transactions were reported on the basis that on the immediately following sale of those shares to a third party for $2.08M, the effect of basis averaging under s. 47 was that there was a $0.5M capital gain attributed back to Mr. Gervais on the gifted shares, and the other $0.5M capital gain was "hers," so that she could claim the capital gains exemption.
In agreeing with the CRA approach of adding “her” $0.5M capital gain to Mr. Gervais’ return, Noël CJ stated that the above result was:
contrary to the object, spirit and purpose of subsections 73(1) and 74.2(1), the purpose of which is to ensure that a gain (or loss) deferred by reason of a rollover between spouses or common-law partners be attributed back to the transferor. … Because the rollover provided for in subsection 73(1) deferred this accrued gain [of $1M] in its entirety, the whole of the gain realized on the sale to [the third party] had to be attributed back to Mr. Gervais when regard is had to the object, spirit and purpose of subsection 74.2(1).
Neal Armstrong Summary of Gervais v. The Queen, 2018 FCA 3 under s. 245(4).
Blott – Tax Court of Canada finds that giving a spouse access to a joint account was not payment to her
A securities dealer employee claimed a deduction for salary to his wife of $12,000 per annum for her administrative support. In addition to finding that this claim was non-deductible on more usual grounds (e.g., a negative T2200), C Miller J found that there had been no expenditure, stating:
… There are no cheques to Ms. Thériault. Mr. Blott’s income went into the joint account and Ms. Thériault could simply access it. Is there any amount paid to Ms. Thériault in such circumstances? I conclude there is not. … I do not see how anything has been paid or expended to Ms. Thériault. She has received nothing more than what she already had.
Neal Armstrong. Summaries of Blott v. The Queen, 2018 TCC 1 under General Concepts – Payment and Receipt and s. 8(1)(i)(ii).