News of Note
GST/HST Severed Letters May 2019
Email this ContentThis morning's release of 11 severed letters from the Excise and GST/HST Rulings Directorate (identified by them as their May 2019 release) is now available for your viewing.
Income Tax Severed Letters 6 November 2019
This morning's release of three severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Stark International – Tax Court of Canada finds that a use test could be applied by looking beyond the property’s immediate intended use
In order to be Class 43 depreciable property, oil processing equipment of the taxpayer had to qualify as property acquired by the taxpayer to be used directly or indirectly by it in Canada primarily in processing goods for sale - and a similar test applied in determining whether the equipment was “qualified property” for investment tax credit purposes. In the case of some of the equipment, its initially contemplated use (which in fact occurred) was to purify oil for 10 months at the Bruce nuclear power station. This did not qualify as processing “for sale” because the oil in question at all times was oil of the customer rather than being sold to it. Nonetheless, the use test of processing for “sale” was satisfied because the taxpayer’s intention on completion of this contract was to use the equipment for purifying (i.e., processing) dirty oil that it acquired for the purpose of sale in its purified form.
The ITC “qualified property” test (which was easier to work with, because it had an explicit purpose test) was also satisfied.
In finding that safety equipment did not qualify, Sommerfeldt J stated:
While safety is a commendable and essential objective of any oil processing business, safety equipment is used for the purpose of promoting and ensuring safety, rather than for the purpose of processing oil for sale.
Neal Armstrong. Summary of Stark International Inc. v. The Queen, 2019 TCC 248 under Sched. II, Class 29.
CRA states that it seeks Justice opinions solely on its own initiative
A year ago, Alex MacLean indicated that Justice counsel are getting increasingly involved at an earlier stage, to make sure that CRA assessments are legally defensible.
In a question as to whether taxpayers can request that the (GST/HST) Technical Guidance Section seek a legal opinion or guidance from Justice at the audit stage, CRA responded that “the decision to seek a legal opinion is made solely by TGS or by TGS in consultation with the relevant HQ Program.”
Neal Armstrong. Summary of 28 February 2019 CBA Roundtable, Q.17 under ETA s. 296(1).
CRA accepts ONEnergy, including that “either” ETA s. 141.1(3) or 141.01(2) can be satisfied
ONEnergy found that a company that had already sold all its business could claim input tax credits for the GST/HST on its legal fees in successfully suing its executives for having paid themselves inflated bonuses and option termination payments out of the sales proceeds. In this regard, Webb JA found that ETA s. 141.1(3), which provides for an ITC where the service (or property) is acquired in connection with the disposition or termination of a commercial activity, is more specific than s. 141.01(2), so that a person will not lose its entitlement to claim an ITC solely because it was not making any taxable supplies at the time the service (or property) was acquired.
CRA implicitly accepted ONEnergy (including making a brief reference to “either” s. 141.1(3) or 141.01(2) being satisfied), but stated that the “Domestic Compliance Programs Branch may find that the conditions of subsection 141.1(3) are not met in particular situations where the specific facts are different than those in ONEnergy.”
Neal Armstrong. Summaries of 28 February 2019 CBA Roundtable, Q.16 under ETA s. 141.1(3)(a).
CRA indicates that amounts can be transferred from one RESP to another
In response to a challenge to an indication in the CRA website that it is possible to transfer amounts in a RESP to another RESP with a different subscriber and the same beneficiary, CRA stated:
Such a transfer will be possible subject to the terms of the arrangement with the promoter. The provisions applicable to RESPs allow the transfer of amounts from one RESP to another. In fact, subsection 146.1(6.1) provides special rules for transfers of property from one RESP to another.
Neal Armstrong. Summaries of 11 October 2019 APFF Financial Strategies and Instruments Roundtable, Q.10 under s. 146.1(6.1) and s. 204.9(5)(e).
CRA declines to provide guidance on determining the monthly FMV of GP services to an ILP
ETA ss. 272.1(8) and (3) effectively indicate that management or administrative services rendered by a general partner to an investment limited partnership (ILP) are taxable based on the fair market value of such services rendered in each month (or other billing period). CRA did not provide specific guidance on how such FMV was to determined, and stated:
The CRA recognizes that there are various methods that may be used and the appropriateness of any valuation methodology used in a particular case is a matter of valuation principles and practice. …
[T]he FMV of a supply of a management or administrative service may not necessarily always correspond to the consideration paid for such a service. …
General partners can use whichever method they would like to determine FMV. However … [t]he CRA is under no obligation to accept the value used by the general partner if it is determined to be over or under valued but it will consider the general partner’s FMV determination … .
Neal Armstrong. Summary of 28 February 2019 CBA Roundtable, Q.15 under ETA s. 272.1(3)(b).
CRA indicates that it is applying GST/HST new rental property rebates as it is assessing developers for self-assessment tax
CRA indicated that its current procedures reflect ETA s. 228(6), which deems a developer’s net tax remittance for the reporting period in which there has been a self-supply by it of a newly-constructed residential complex, to have been paid to the extent of the new residential rental property rebate (NRRPR) amount claimed. Thus:
[T]he NRRPR should not be delayed as it would have been verified by the initial auditor and would not require a second review by our refund integrity or rebate processing programs. However, we are aware of some unintended results that may arise with our existing audit procedures and we will be reviewing these procedures to determine where improvements can be made.
CRA also reiterated its position that s. 296(2.1) only applies where a registrant has failed to claim (rather than claimed) a rebate – so that, for example, s. 296(2.1) could apply to require CRA to grant the NRRPR where it has assessed a developer for failure to self-assess.
Neal Armstrong. Summaries of 28 February 2019 CBA Roundtable, Q.14 under s. 228(6) and s. 296(2.1).
CRA finds that an adjustment for municipal taxes and the assignment of tenant leases form part of a single supply of a sale of an office tower
A vendor transfers an office tower without a s. 167 election being made. Where the Statement of Adjustments provides for a reimbursement to the vendor at closing for the portion of prepaid property taxes relating to the post-closing period, CRA would regard this as an increase to the sale price for the office tower rather than as a non-taxable reimbursement of the taxes paid as agent for the purchaser, so that generally no GST/HST would be charged under ETA s. 221(2).
Similarly, the assignment by the vendor of the tenant leases would be considered to form part of the single supply of the building where none of the purchase price was allocated to the leases.
Neal Armstrong. Summaries of 28 February 2019 CBA Roundtable, Q.12 under ETA s. 221(2) and General Concepts – Agency.
CRA finds that a JV operator (with a proprietary interest) of a new apartment project is the one to claim the NRRP rebate
Provided that the designated operator for a joint venture to construct a multiple unit residential complex has a beneficial interest in the project, so that it can qualify as the project “builder,” CRA was generally amenable to the proposition that such operator is the one to claim the new residential rental property rebate under ETA s. 256.2(3) where there is a deemed self-supply by it under s. 191(3) (generally, at the time of first occupancy).
Neal Armstrong. Summaries of 28 February 2019 CBA Roundtable, Q.11 under ETA s. 256.2(3) and s. 123(1) – builder.