News of Note
Bell Telephone – Tax Court finds that Bell Canada received single supplies of electricity from its Ontario electricity suppliers so that their full charges were subject to provincial ITC recapture
Email this ContentBell Canada was required as a result of ETA s. 236.01 and the related regulation to recapture 100% of the input tax credits that it claimed in respect of the 8% Ontario HST that it paid on the consideration for the supplies to it in Ontario of electricity. The suppliers to it of such electricity (the “Local Distributors”) were required by law to itemize charges on their invoices to show four categories of items: electricity, delivery, regulatory charges and debt retirement charge. Bell Canada submitted that, rather than receiving a single supply of electricity, it received multiple supplies of electricity, delivery services and regulatory services, so that the electricity component (subject to recapture) was reduced.
In rejecting this submission, D’Arcy J stated (at paras. 123-125):
In substance and reality, the alleged separate supplies of the delivery services and regulatory services are integral parts, integrants or components of the overall supply of electricity. The supply to the Local Distributors of the transmission services and the regulatory services is work of a preparatory nature to the supply of the electricity. Similarly, the costs that the Local Distributors incur in distributing the electricity relates to work of a preparatory nature to the supply of electricity. As … noted in City of Calgary, such supplies are parts or components of the single overall supply of electricity.
Neal Armstrong. Summary of Bell Telephone Company of Canada v. The King, 2023 TCC 45 under ETA s. 236.01(1) – specified provincial input tax credit.
CRA applies constructive receipt doctrine to direct payment from one UK pension plan to another
After a UK resident (under age 55) became resident in Canada, the commuted value of the individual’s member benefits under a UK defined-benefit pension plan was transferred directly to a UK self-invested personal pension plan (SIPP) of which the individual was the sole beneficiary.
In finding that such commuted value was to be included at the time of the transfer in the individual’s income pursuant to s. 56(1)(a)(i), CRA stated that “the Individual is considered to have constructively received the benefit on the basis that, by virtue of the Transfer, the benefit has been set apart for the Individual” - and found, in the alternative, that s. 56(2) would apply to include the commuted value in the individual’s income on the basis that the individual had directed or concurred in the payment of an amount to a third party (the UK SIPP) and that amount, had it been paid to the individual, would have been included under s. 56(1)(a)(i). This would also mean that the individual had made a “contribution” to the UK SIPP plan.
Neal Armstrong. Summary of 7 November 2022 External T.I. 2022-0926091E5 under s. 56(1)(a)(i).
We have translated 6 more CRA interpretations
We have published a further 6 translations of CRA interpretations released in July of 2003. Their descriptors and links appear below.
These are additions to our set of 2,438 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 19 ¾ 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 |
|---|---|---|---|
| 2003-07-11 | 13 June 2003 External T.I. 2002-0156435 F - ASSURANCE DE MALADIES REDOUTEES
Also released under document number 2002-01564350.
|
Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) - Subparagraph 6(1)(a)(i) | taxable benefit from critical illness coverage if it is incidental to life insurance coverage |
| Income Tax Act - Section 248 - Subsection 248(1) - Group Term Life Insurance Policy | group life insurance policy that includes critical illness coverage is not a "group term life insurance policy" | ||
| Income Tax Act - Section 148 - Subsection 148(9) - Disposition - Paragraph (e) | critical illness benefit paid under a life insurance policy is proceeds of disposition | ||
| 27 June 2003 External T.I. 2003-0019095 F - RACHAT DE SERVICES PASSES
Also released under document number 2003-00190950.
|
Income Tax Act - Section 147.2 - Subsection 147.2(4) - Paragraph 147.2(4)(c) | overview of ss. 147.2(4)(b) and (c) | |
| 25 June 2003 External T.I. 2003-0024465 F - PARTIE XI.1 BIENS NON-ADMISSIBLES
Also released under document number 2003-00244650.
|
Income Tax Act - Section 207.1 - Subsection 207.1(1) | no discretion in CCRA to waive the tax under s. 207.1 | |
| 2003-07-08 | 7 July 2003 External T.I. 2001-0091415 F - Income & Losses from Bus. or Prop. Sec. 9 ITA
Also released under document number 2001-00914150.
|
Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(a) | prepaid crypt fees of funeral home were includible under s. 12(1)(a) |
| Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(m) | prepaid crypt fees of funeral home were ineligible for s. 20(1)(m) reserve | ||
| 26 June 2003 External T.I. 2003-0021595 F - Distribution of Corporate Property
Also released under document number 2003-00215950.
|
Income Tax Act - 101-110 - Section 107 - Subsection 107(2.1) | illustration of application, by virtue of s. 107(2.001) election, of s. 107(2.1) to distribution of CCPC shares | |
| Income Tax Act - Section 84 - Subsection 84(2) | s. 84(2) inapplicable to s. 107(2.1) wind-up of trust holding a Portfolioco followed by an inter vivos pipeline transaction re Portfolioco | ||
| Income Tax Act - Section 55 - Subsection 55(1) - Safe-Income Determination Time | s. 107(2.1) wind-up of trust holding a Portfolioco would trigger a safe-income determination time if with a view to an inter vivos pipeline transaction with a s. 88(2) wind-up of Portfolioco | ||
| 16 July 2003 Internal T.I. 2003-0024617 F - DEDUCTIBILITE DES COTISATIONS CSST
Also released under document number 2003-00246170.
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Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(e) | estimated workers’ compensation premium liabilities were currently deductible |
Emergis – Federal Court of Appeal respects the separate entity concept in according a s. 20(12) deduction regarding a tower structure
Emergis financed a U.S. acquisition through a tower structure under which:
- it made an interest-bearing loan to a subsidiary Canadian partnership (“USGP”);
- USGP funded such interest payments out of dividends received from a wholly-owned Nova Scotia ULC (“NSULC”);
- NSULC, in turn, received dividends out of the exempt surplus of a wholly-owned LLC; and
- the LLC received s. 95(2)(a)-recharacterized interest on the acquisition-financing loan made to the successor by amalgamation to the U.S. acquisitionco of Emergis.
Emergis’ 99.9% effective share of the interest deduction of USGP for the loan largely offset its interest income from that loan and, in addition, it claimed the s. 112(1) deduction for its effective share of the dividend income from NSULC. From a U.S. perspective, the interest on the loan owing by USGP was deductible interest paid by a U.S. corporation (USGP) to a Canadian resident (Emergis), and was subject to U.S. withholding tax.
In reversing the finding below that Emergis could not deduct such tax pursuant to s. 20(12) because such tax could (in accordance with the exception at the end of s. 20(12)) “reasonably be regarded as having been paid by a corporation [Emergis] in respect of income from a share … of a foreign affiliate [the LLC],” Webb JA and Goyette JA indicated:
- The text of s. 20(12) was” insufficient to displace the general rule that the assets and income of a corporation are not the assets and income of its shareholders”, i.e., s. 20(12) did not provide “that NSULC’s income from its LLC shares should be treated as the income of Emergis, and hence as the income on which Emergis paid the taxes to the US Government”.
- The interest on which Emergis paid the U.S. withholding tax was calculated as a percentage of the principal of the loan and “was not based on the income from the shares of LLC” nor was it “a distribution or allocation of income earned directly or indirectly by Emergis from the shares of LLC”.
Neal Armstrong. Summaries of Emergis Inc. v. Canada, 2023 FCA 78 under s. 20(12) and General Concepts - Ownership.
GST/HST Severed Letters December 2023
This morning's release of two severed letters from the Excise and GST/HST Rulings Directorate (identified by them as their January 2023 release) is now available for your viewing.
Davis Dentistry – Federal Court of Appeal finds that the single-supply doctrine should not be applied to orthodontic supplies
Davis Dentistry had claimed input tax credits (ITCs) on the basis that a portion of its supplies to each orthodontic patient was of a zero-rated supply of the orthodontic appliance, and that only the balance of what was supplied was an exempt healthcare service, whereas CRA had disallowed its ITC claims on the basis that under the single-supply doctrine, as enunciated in O.A. Brown, there was a single supply of exempt orthodontic services.
In dismissing the Crown’s appeal, Woods JA stated that “Parliament’s intent must override O.A. Brown where legislative intent is clear as it is in the provisions applicable in this case.” Indicators of such intent included:
In the case of a supply of orthodontic appliances and orthodontic services, which are typically supplied together, the fact that one has zero-rated status and the other has exempt status strongly suggests that this was intentional and that a supply of an orthodontic appliance is intended to be zero-rated even when accompanied by orthodontic services. …
It is highly unlikely that Parliament would explicitly provide that any supply of an orthodontic appliance is zero-rated if the intention is that the supply is restricted to the wholesale level.
Thus, the single-supply doctrine should be applied as an interpretive aid, rather than as a blunt instrument.
Neal Armstrong. Summary of Canada v. Dr. Kevin L. Davis Dentistry Professional Corporation, 2023 FCA 76 under ETA Sched. VI, Pt. II, s. 11.1.
CRA finds that employment income does not arise in the U.S. for Treaty purposes to the extent the duties are performed in a Canadian home office
A portion of the employment duties of a cross-border employee (with a hybrid work arrangement) was exercised from Canada in the year but the individual made contributions under the U.S. Federal Insurance Contributions Act (“FICA contributions”). In finding that the FICA contributions made in respect of the duties exercised in Canada would not be eligible for a foreign tax credit, the Directorate referenced the rule in Art. XXI:2(a) requiring that the tax be paid on income “arising” in the U.S. and indicated that generally it would regard only that proportion of the employment income that corresponded to the days in which the employee was performing duties of employment while “physically present” in the U.S. as compared to the days of physical presence in both jurisdictions while performing those duties, would satisfy this “arising” test.
The Directorate took the same approach to the deductibility of contributions made to a 401(k) plan by such an employee having regard to a requirement under Art. VIII:10 that the contributions be attributable to services “performed” by the individual in the U.S., so that the deductible amount of the 401(k) contributions for a year generally would be the proportion thereof based on the relative number of working days the individual was physically present in the U.S. The Directorate also noted that Art. VIII:11 essentially limited the 401(k) deduction to the individual’s RRSP contribution room.
Neal Armstrong. Summaries of 11 April 2023 Internal T.I. 2023-0964101I7 under Treaties – Income Tax Conventions – Art. 24, Art. 8.
Income Tax Severed Letters 12 April 2023
This morning's release of four severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA indicates that a PSB rebate for purchased real estate can be deducted from the GST/HST remittance for the purchase by filing the rebate and purchase returns together
A (GST/HST-registrant) public service body which acquires real property not primarily in the course of its commercial activities is required pursuant to s. 228(4)(b) to report the GST/HST on the acquisition on a separate real estate return (GST60).
CRA indicated, however, that provided that the GST60 return is filed together with the return (e.g., GST 66) in which a PSB rebate is claimed for the GST/HST payable on the real estate acquisition then, pursuant to ETA s. 228(6), the PSB may reduce the GST/HST otherwise remittable with the GST60 return by the claimed rebate amount.
Although CRA noted that in the above circumstance, where a separate (GST60) return was required to report the acquisition, an ITC for the GST/HST on that purchase could not be recovered by filing the regular (GST34) and special (GST60) returns together given that s. 169(4)(b) would require the GST60 return to be filed first before the ITC claim could be made.
Neal Armstrong. Summary of 7 April 2022 CBA Roundtable, Q.12 under ETA s. 228(6).
Hootsuite – Supreme Court of BC finds that the purchase of Amazon cloud infrastructure services was not subject to BC PST
Hootsuite, which provided its customers with an online social media management system, did not itself have the servers and storage facilities to host its platform, and instead accessed those of Amazon Web Services (“AWS”). The Ministry of Finance assessed BC provincial sales tax on the basis inter alia that Hootsuite’s access to AWS software allowing it to access the remote AWS hardware virtually constituted the provision to Hootsuite of software. The PSTA definition of software referenced the delivery, accessing, or the right to use, a software program.
In finding that there was no use by Hootsuite of “software,” Thomas J stated:
[T]he fundamental nature of … [this] product is to provide an on-demand computer infrastructure service. As such, the products are not subject to PST.
Furthermore:
[T]he key distinction between “software” and a “software program” for the purposes of the PSTA is that a “software program” requires the purchaser to utilize the software as an “application”; that is, the user must be able to interact with the software and create an output based in part on those interactions with the program.
Applying this distinction, there was no use by Hootsuite of a “software program” because the AWS programs were opaque to it rather than something it interacted with.
A similar analysis indicated that technical support provided by AWS through an online chat feature provided through a web interface (the “Console”), which was opaque to Hootsuite, did not entail the use by Hootsuite of a “software program” – and, in any event, the fundamental nature of what was being provided here was AWS technical expertise rather than software.
The Ministry also assessed on the basis that the above technical support service, as well as Hootsuite’s access to dedicated telecommunication service in the U.S. allowing AWS to maximize the efficiency of its virtual hardware, constituted a taxable communication service. Thomas J found that these services came within an exemption in the Regulations for telecommunication services that were “merely incidental” to a contract for non-taxable services.
Neal Armstrong. Summaries of Hootsuite Inc. v British Columbia (Finance), 2023 BCSC 358 under the Provincial Sales Tax Act, (B.C.), s. 1 – software, telecommunication service.