News of Note
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
Email this ContentA 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.
CRA will consider forms of security other than an LC for assessed taxes and interest
ETA s. 314(2) provides that “the Minister shall accept security, in an amount and a form satisfactory to the Minister … for payment of any amount that [has been objected to].” (ITA s. 220(4.1) more laconically refers to “adequate security.”) After referring to the “Bank Letter of Guarantee or Irrevocable Standby Letter of Credit” as THE acceptable security, CRA acknowledged:
However, if a form of security is being proposed, the Minister will review the proposed security during the course of administering the ETA, and determine whether it is advisable to accept the proposed security.
Neal Armstrong. Summary of 28 February 2019 CBA Roundtable, Q.10 under ETA s. 314(2).
CRA states that deemed payment on death of the last RRIF annuitant is not pension income
Under s. 146.3(6), the last annuitant under a RRIF is deemed, upon death, to have received, immediately before death, an amount out of or under a RRIF equal to the FMV of the property of the fund at the time of the death. The definition of “pension income” in s. 118(7) – (a)(iii) refers inter alia to “a payment out of or under a registered retirement income fund.”
This wording might seem to be a perfect fit, so that a payment deemed by s. 146.3(6) to be paid out of a RRIF might thereby be thought to qualify as pension income. Not so in the view of CRA, who stated:
For an amount to be considered as “a payment out of or under a registered retirement income fund” for the purposes of subparagraph (a)(iii) of the definition of "pension income" in subsection 118(7), the amount must be paid in satisfaction of an obligation between the issuer and the annuitant of a RRIF.
… [A]n amount deemed to be received under subsection 146.3(6) by the deceased last annuitant of a RRIF is not a payment provided out of or under a RRIF. Indeed, when subsection 146.3(6) applies, no payment is actually made by the RRIF's carrier to the deceased last annuitant.
Neal Armstrong. Summary of 11 October 2019 APFF Financial Strategies and Instruments Roundtable, Q. 9 under s. 118(7) – pension income – (a)(iii).
CRA finds that a GST/HST-registered non-resident marketer using services of a Canadian subcontractor was thereby making supplies in Canada
A registered non-resident (NR) does not itself have any presence in Canada but uses a resident (sub)contractor (RC) to provide marketing and soliciting services (in the credit card processing line of business) to a resident Canadian company in consideration for commissions. After referring to the rule in ETA s. 142(1)(g), which deems a supply of a service to be made in Canada if the service is performed in whole or in part in Canada, CRA stated:
Based on the limited information provided, the subcontracted services performed by RC in Canada would result in the supplies of the services by NR being made in Canada pursuant to paragraph 142(1)(g).
Accordingly, NR should charge GST/HST on its commissions.
CRA went on to indicate that the services supplied by RC appeared to be zero-rated. (Note that the exclusion from zero-rating in Sched. VI, Pt. V, s. 7(f) applies to “a service of … soliciting orders for supplies by or to the [non-resident recipient, i.e., NR]” whereas here the solicitation was for supplies by the Canadian customer of NR.)
Neal Armstrong. Summaries of 28 February 2019 CBA Roundtable, Q.8 under ETA s. 142(1)(g) and Sched. VI, Pt. V, s. 7(f).
CRA indicates it can accommodate bifurcating a GST/HST VDP application into wash transaction and Category 2 components
A taxpayer is making a GST/HST voluntary disclosure respecting wash transactions (e.g., the wrong entity in a corporate group claimed input tax credits), so that, without more, the application would fall under Category 1 (complete waiver of interest and penalties). However, if there are other errors as well, CRA will generally split the application into a Category 1 application respecting the wash transaction, and a Category 2 (General program) or Category 3 (Limited program) application for the other errors, “provided there is no indication of tax avoidance, deliberate or wilful default, or carelessness amounting to gross negligence.” Where such elements are present “then the VDP application as a whole will fall under Category 3” (i.e., usually no relief provided other than from a gross negligence penalty).
Neal Armstrong. Summary of 28 February 2019 CBA Roundtable, Q.7 under ETA s. 281.1(2).
CRA discusses required recognition of RRIF minimum amount in post-terminal year of transfer of RRIF to surviving spouse
The deceased, who died in November, bequeathed his RRIF to his surviving spouse, to whom it was transferred in the subsequent year. In 2016-0651711C6 F, CRA indicated that even if the deceased had withdrawn the minimum amount before his death, the amount which could be transferred free of tax was reduced by the minimum amount for the subsequent year under the s. 146.3(6.11) formula.
In this regard, CRA has now indicated that the minimum amount for that subsequent year respecting the RRIF of the deceased would be the age that the deceased would have attained on January 1 of the subsequent year (assuming no election had been made for the prescribed factor under Regs. 7308 (3) and (4) to be based instead on the age of the spouse).
CRA also indicated, in the situation where the death had occurred before the deceased could withdraw the minimum amount for the year of death, but the transfer of his RRIF to the surviving spouse was not made until the following calendar year, then there was no need for the RRIF issuer to pay the minimum amount for the year of death – but that the eligible amount received by the surviving spouse in the subsequent year would be reduced by the minimum amount for that year.
Neal Armstrong. Summary of 11 October 2019 APFF Financial Strategies and Instruments Roundtable, Q. 8 under s. 146.3(6.11).
CRA states that it is responding to requests for pre-VDP no-names discussions promptly
Those considering making an application for relief under the GST/HST voluntary disclosure program may want their advisor to first have a no-names discussion with a CRA official to determine whether they would fall in Category 2 (for which CRA generally goes back only 4 years, and relieves half the interest and all penalties such as the 4% late-filing penalty) or Category 3 (generally no relief, other than for any gross negligence penalty), given the vagueness of the published distinction between the two categories.
These no-names discussions are handled by the Shawinigan National Verification and Collections Centre (NVCC). CRA stated:
Depending on the complexity of the situations, as well as the availability of the applicant and of the VDP officer, it is recognized that it may take several contacts in some situations to fully conclude a pre-disclosure discussion.
…[T]he NVCC is currently responding to requests for call-backs promptly.
Neal Armstrong. Summary of 28 February 2019 CBA Roundtable, Q.6 under ETA s. 281.1(2).
CRA indicates that a taxpayer can make a voluntary disclosure where it twigs to the issue as a result of being charged for HST by a CRA-assessed 3rd party
CRA’s Memorandum on the GST/HST voluntary disclosure program states that a VDP application will not be considered voluntary if “enforcement action … relating to the subject matter of the VDP application has been initiated … against a third party, where the purpose and impact of the enforcement action against the third party are sufficiently related to the present application.” Regarding a situation where an unrelated supplier (Sco) had been supplying goods for resale to its customer (Aco), neither had been charging GST/HST based on what CRA would regard as a misinterpretation of a place-of-supply rule (in ETA s. 144), and Aco discovered this CRA view when CRA assessed Sco, who then charged the GST/HST to Aco, CRA stated:
[I]f Aco and Sco are not related, the application from Aco would likely be considered under VDP. Conversely, if Aco and Sco are related companies, Aco’s application would not be considered as voluntary due to the prior enforcement action (audit) that was conducted against Sco … .
The CRA Memorandum also states that the VDP applicant “will be required to waive their rights to object and appeal in relation to the specific matter disclosed in the VDP application.” CRA clarified that:
[T]he applicant is allowed to file a Notice of Objection in case of disagreement with respect to characterization issues, such as whether a supply is a taxable or exempt supply, or whether a particular supply is deemed to be made inside or outside Canada as a result of the application of the place of supply rule in section 144 ... .
Neal Armstrong. Summary of 28 February 2019 CBA Roundtable, Q.5 under ETA s. 281.1(2).
Income Tax Severed Letters 30 October 2019
This morning's release of three severed letters from the Income Tax Rulings Directorate is now available for your viewing.