News of Note
Income Tax Severed Letters 14 February 2024
This morning's release of 11 severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Total Energy – Tax Court of Canada finds that an acquisition of an insolvent public company with losses by a SIFT trust was an abuse of s. 111(5)
In September, 2007, most of the equity of an insolvent public corporation (“Biomerge”) was acquired by the company (“Nexia”) of two individuals involved in acquiring and selling loss companies, resulting in Nexia holding all of non-voting common shares of Biomerge (representing 80% of its equity) and 45% of its voting common shares. The individuals then identified an income fund (“Total”) which was becoming subject to tax under the “SIFT” rules. In May 2009, a plan of arrangement was implemented under which the Total units were exchanged for new common shares of Biomerge, the existing voting common shares of Biomerge were largely cashed-out, and Total was wound-up into Biomerge (now, “New Total”) pursuant to s. 88.1(2). The former Total unitholders held 99.8% of the New Total equity.
In following Deans Knight in finding that these transactions were an abuse of s. 111(5), Pizzitelli J stated:
[T]he reality of what happened here is that a willing seller in the business of selling tax attributes of failed companies takes the reins of such a company and markets and sells them to a willing unrelated buyer for use against their income. If these are not the type of transactions Parliament sought to stop by the enactment of the loss streaming rules in s.111(5) and parallel provisions, I don’t know what are.
In rejecting the New Total position based on there being no rules, similar to the corporate loss-streaming rules in s. 111(5), relating to the streaming of losses of trusts, he noted inter alia that the transaction entailed the acquisition of a corporate lossco that effectively was merged with the corporate operating subsidiary of Total and that the subsequent introduction of s. 256(7)(c.1) “serves to clarify the policy as well as provide automatic denial of such losses rather than resorting to the GAAR.”
Neal Armstrong. Summaries of Total Energy Services Inc. v. The King, 2024 TCC 12 under s. 245(4) and s. 248(10).
We have translated 6 more CRA interpretations
We have translated a 6 further CRA interpretations released during April of 2002. Their descriptors and links appear below.
These are additions to our set of 2,739 full-text translations of French-language Technical Interpretation and Roundtable items (plus some ruling letters) of the Income Tax Rulings Directorate, which covers all of the last 21 3/4 years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
Bundle Date | Translated severed letter | Summaries under | Summary descriptor |
---|---|---|---|
2002-04-12 | 19 March 2002 External T.I. 2002-0120785 F - Allocation de retraite - 212(13)(d) | Income Tax Act - Section 215 - Subsection 215(2) | s. 215(2) applicable to retiring allowance paid by US employer where it invoiced the sister Canadian corporation, as the predecessor employer, therefor |
Income Tax Act - Section 212 - Subsection 212(1) - Paragraph 212(1)(j.1) | s. 212(1)(j.1) applicable to the extent that the retiring allowance paid by the US employer to the non-resident retired employee is invoiced to the predecessor affiliated employer in Canada | ||
24 April 2002 External T.I. 2001-0095755 F - TÉLÉTRAVAIL | Income Tax Act - Section 8 - Subsection 8(13) | telework arrangement, even if voluntary, and some time spent in the employer office, can satisfy s. 8(13) requirements/ time spent on the road does not satisfy the “primarily” requirement | |
4 April 2002 External T.I. 2001-0103735 F - Fiducie exclusive au conjoint et ass.-vie | Income Tax Act - 101-110 - Section 110.6 - Subsection 110.6(14) - Paragraph 110.6(14)(g) | s. 110.6(14)(g) inapplicable to shares held by spousal trust on the spouse’s death | |
Income Tax Act - 101-110 - Section 110.6 - Subsection 110.6(15) - Paragraph 110.6(15)(a) | the spouse beneficiary of a Quebec spousal trust owns the shares owned by that trust | ||
Income Tax Act - Section 248 - Subsection 248(3) - Paragraph 248(3)(e) | s. 248(3)(e) deems the spouse beneficiary of a Quebec spousal trust to own shares of that trust | ||
Income Tax Act - Section 70 - Subsection 70(5.3) | s. 70(5.3) applicable to s. 104(4)(a)(i) disposition | ||
15 April 2002 External T.I. 2002-0128145 F - 84.1(2)(a.1) of the Act | Income Tax Act - Section 84.1 - Subsection 84.1(2) - Paragraph 84.1(2)(a.1) - Subparagraph 84.1(2)(a.1)(ii) | where old common exchanged for new common shares and prefs with s. 85(1) election equal to the pref FMV, the s. 110.6 deduction will be traced under s. 84.1(2)(a.1)(ii) only to the prefs | |
24 April 2002 External T.I. 2001-0111185 F - DISPOSITION PARTIELLE D'UNE PARTICIPATION | Income Tax Act - Section 248 - Subsection 248(1) - Disposition | reclassification of LP units into three classes of alphabet units did not entail a disposition | |
Income Tax Act - Section 97 - Subsection 97(2) | creation of 3 classes of units which tracked the 3 types of partnership property was not a disposition and did not engage s. 97(2) | ||
Income Tax Act - Section 43 - Subsection 43(1) | all the partner’s units were a single property, so that the disposition of one type of unit engaged s. 43(1) | ||
Income Tax Act - Section 248 - Subsection 248(1) - Property | all units of three classes constituted a single property to the limited partner | ||
22 April 2002 External T.I. 2002-0117135 F - Appl. de 107.4(1)a) à une fiducie du CcQ | Income Tax Act - 101-110 - Section 107.4 - Subsection 107.4(1) - Paragraph 107.4(1)(a) | s. 107.4(1)(a) applicable on transfer by individual to Quebec trust of which he is a the sole beneficiary | |
Income Tax Act - 101-110 - Section 107 - Subsection 107(4.1) | s. 107(2.1) applicable to distribution by personal trust of property to beneficiary other than the settlor |
CRA indicates that it generally will not make a designation of a municipality under the ETA retroactive to the extent this changes the tax status of supplies already made
A registered charity (Corporation A) which has been making exempt supplies of accommodation to residents of housing sites and long-term care facilities as well as providing housing management services to the Province and to Corporation B regarding units owned by them has applied to be designated as a municipality for GST/HST purposes.
CRA noted that such change in status (although generating enhanced rebates for non-creditable expenses) would cause some of the supplies made by Corporation A to cease to be exempted by virtue of the exclusion in Sched. V, Pt. VI, s. 2(n), for example, the supplies of its management services, and the optional supplies of laundry and cable services. CRA then stated:
Retroactive determinations will generally not be granted where the retroactive determination would change the tax status of supplies that have already been made. The effects of a municipal determination discussed herein would only apply as of the effective date of the municipal determination.
Neal Armstrong. Summary of 15 June 2023 GST/HST Interpretation 222419 under ETA s. 123(1) – municipality – (b) and Sched. V, Pt. VI, s. 2(n).
Cassidy – Federal Court reverses CRA’s declining to provide significant interest relief due to its failing to engage with the taxpayer’s financial hardship request
The taxpayer requested interest relief under s. 220(3.1) primarily based on his inability to pay due to his divorce, the 2008 economic downturn, and the COVID-19 pandemic. The decision of the CRA reviewing officer to provide only very limited relief was found by Fothergill J to be unreasonable because the officer failed to engage with those submissions, so that the application for judicial review was allowed.
Neal Armstrong. Summary of Cassidy v. Canada (Attorney General), 2024 FC 174 under s. 220(3.1).
CRA has released the final version of the 2 November 2023 APFF Roundtable
We have translated the complete 2 November 2023 APFF Roundtable as released by CRA yesterday in final form (which did not vary significantly from the preliminary version that was provided in November). For your convenience, the table below provides links to the questions, and to the summaries that we prepared in November.
Joint Committee comments on the short-term rental rules
Comments of the Joint Committee on the proposed rules in s. 67.7 denying the deduction of expenses for non-compliant short-term rentals include:
- The wording of non-compliant amount does not reflect the different timing for various deductions and instead simply refers to “outlays made, or expenses incurred, in the taxation year.”
- It would seem inappropriate to include bad debt expenses in the non-compliant amount since the effect is to impose tax on more than the revenues collected.
- It would seem appropriate to add the limitation that the short-term rental definition refers to short-term rentals by the taxpayer to address, for example, situations where the taxpayer leases the property on a long-term basis, but the tenant subleases it on a short-term basis.
- Most, if not all, municipalities and provinces, that have restrictions for short-term rentals use 30 consecutive days, not the 90 consecutive days used in the “short-term rental” definition.
- Quaere whether it was really necessary to provide no time limit on CRA assessments under s. 67.7.
- Non-residents who are not subject to Part I tax have a tax advantage over Canadian residents regarding the taxation of non-compliant short-term rentals.
Neal Armstrong. Summaries of Joint Committee, “Subject: Proposed section 67.6 of the Income Tax Act”, 5 February 2024 Joint Committee Submission under s. 67.7(1) - non-compliant amount, short-term rental, s. 67.7(2) and s. 67.7(4).
Income Tax Severed Letters 7 February 2024
This morning's release of 15 severed letters from the Income Tax Rulings Directorate is now available for your viewing.
9154 – Court of Quebec finds that the ARQ contravened its role by assessing a taxpayer for QST on a property transfer while continuing to collect QST as if the taxpayer was still owner
The ARQ assessed the appellant (9154-6093) for its failure to collect and remit QST on its transfer of a condo unit to the couple who were its shareholders for stated consideration. Alcindor JCQ accepted that the transfer was made to them for the purpose of obtaining mortgage financing on the unit and that they acquired the unit as nominees for 9154-6093 (so that no QST was payable), stating:
[D]espite the assignment, 9154-6093 rented Unit 54 to third parties, declared the income from such rentals, and collected the taxes and remitted them to Revenu Québec. …
Just before the sale of the Unit in October 2019 [the shareholders] retroceded the building to 9154-6093, which collected and remitted the GST and QST [on the sale] … to Revenu Québec.
She further stated that in light of this reporting of the 2019 sale:
[A]llowing Revenu Québec to recover QST on the 2009 transaction means that 9154-6093 is remitting QST twice on the same housing unit. … [T]his runs counter to both Revenu Québec's role and tax policy in this regard.
Neal Armstrong. Summary of 9154-6093 Québec Inc. v. Agence du revenu du Québec, 2023 QCCQ 10241 under General Concepts – Ownership.
GST/HST Severed Letters September 2023
This morning's release of four severed letters from the Excise and GST/HST Rulings Directorate (identified by them as their September 2023 release) is now available for your viewing.