News of Note
CRA indicates that a GST/HST election to render memberships taxable is inferred if GST/HST is charged
Email this ContentSched. V, Pt. VI, ss. 18 and 17 describe a GST/HST exemption for a supply of a membership in a professional organization or a public sector body in qualifying circumstances – unless an election is made (on Form GST 124 or GST23, respectively) for s. 18 or 17 to not apply to the supply. CRA stated:
In general, the CRA would accept that an election was made under section 17 or 18 even though the organization did not complete the required form, if the organization has always acted as though it had made the election in question.
Unsurprisingly, CRA stated that a fresh election is not required for each membership supply, and explained that the signed election is regarded as having a continuing effect respecting all future supplies until the election is revoked by completing Part D of the form.
Neal Armstrong. Summary of 28 February 2019 CBA Roundtable, Q.2 under ETA Sched. V, Pt. VI, s. 17.
CRA entertains discretionary extension of the TFSA rollover period
The s. 207.01(1) definition of “exempt contribution” sets out key requirements for the transfer of the TFSA of a deceased to a surviving spouse to occur on a rollover basis, including that the survivor’s contribution be made during the “rollover period” ending on December 31 of the calendar year following the year of death, or “at any later time that is acceptable to the Minister.”
CRA effectively confirmed that a Ministerial extension of the rollover period also extended the required period for the survivor to receive the payment from the deceased’s TFSA. CRA did not comment on when such discretion would be exercised, which was better than saying something like, it would only be exercised in “exceptional” circumstances.
Neal Armstrong. Summary of 11 October 2019 APFF Financial Strategies and Instruments Roundtable, Q.7 under s. 207.01(1) - “exempt contribution” – (b).
CRA states that backdated ETA s. 211 elections are accommodated only in “exceptional” circumstances
An important planning issue for a public service bodies (e.g., a charity or municipality) is whether to make an ETA s. 211 election which, for example, may permit it to generate additional input tax credits, but may also impose additional GST/HST costs on it or its customers.
In response to a suggestion that it was CRA policy that “if a public service body has been charging GST/HST on supplies of real property that would otherwise be exempt, and has been accounting for that tax and claiming input tax credits (ITCs) in its net tax calculations and remittances as if the s. 211 election had been filed on time, then the CRA will normally accept a late-filed section 211 election,” CRA stated:
[A] decision on whether to accept a backdated effective date for a section 211 election falls within the purview of the Domestic Compliance Programs Branch … [which] will only consider the backdating of a section 211 election in exceptional circumstances. Exceptional circumstances include, but are not limited to, situations where a PSB has obtained inaccurate written information from the CRA. The acceptance of a late-filed section 211 election will be determined on a case-by-case basis.
Neal Armstrong. Summary of 28 February 2019 CBA Roundtable, Q.1 under ETA s. 211(1).
CRA notes the absence of rollover treatment when an annuity is purchased out of a foreign pension plan
S. 147.4(1) effectively provides a rollover where an individual acquires ownership of an annuity contract in satisfaction of the individual’s entitlement to benefits under a registered pension plan. However, s. 147.4(1) does not apply to annuities purchased from foreign pension plans, so that a retiree - whose former non-resident employer determined to wind-up a foreign pension plan by using funds in the plan to purchase annuity contracts for each retired member – was required under s. 56(1)(a)(i) to include the full fair market value of the annuity in income in the wind-up year.
Neal Armstrong. Summary of 12 September 2019 External T.I. 2019-0802301E5 under s. 56(1)(a)(i).
6 more translated CRA interpretations are available
We have published a further 6 translations of CRA interpretations released in July and June, 2011. Their descriptors and links appear below.
These are additions to our set of 987 full-text translations of French-language Roundtable items and Technical Interpretations of the Income Tax Rulings Directorate, which covers all of the last 8 1/3 years of releases of Interpretations by the Directorate. These translations are subject to the usual (3 working weeks per month) paywall. Next week is the “open” week for November.
Gervais Auto – Court of Quebec confirms that a 10% interest rate on an unsecured loan was unreasonably high
The taxpayer financed its inventory of used automobiles held for resale through unsecured loans totaling $6 million from its shareholders, bearing interest at 10% p.a. When the ARQ reviewed the deductibility of the interest, the taxpayer provided a letter from its accountants (Deloitte) that concluded, based on Moody’s metrics, that an interest rate for such loans should fall in the range of 7.89% to 12.39%. The ARQ reassessed to deny the claimed interest in excess of 7.89%.
After referring to the Quebec equivalent of s. 67, and in finding that the taxpayer had not met its burden of establishing that such assessments were incorrect, Allen JCQ stated:
How can the plaintiff challenge the presumption of correctness of the notices of assessment where the 7.89% rate, considered to be reasonable and adopted by the defendant, falls within the range that its own expert considered to be a reasonable rate based on the current rates in the market for obligations with similar considerations and risks during the period in litigation?
Doubtless, the rate of 7.89% corresponds to the lowest rate in the range, but it nonetheless is within that range and cannot be considered to be prima facie unreasonable.
Neal Armstrong. Summary of Gervais Auto Inc. v. Agence du revenu du Québec, 2019 QCCQ 5894 under s. 20(1)(c).
CRA finds that the 5-year excluded business exception does not restart on the business incorporation
Para. (b) of the “excluded business” definition of the tax on split income (TOSI) rules includes in an excluded business of a specified individual for a taxation year a business in which she was “actively engaged on a regular, continuous and substantial basis” (“Involved”) in “any five prior taxation years.” CRA followed the guidance in Finance’s Explanatory Notes and found that the five year test could be satisfied where the specified individual was Involved in the business for, say, three years while it was conducted by her spouse as a sole proprietorship, and for a further three years after it was rolled by him into a newly-incorporated Opco. In other words, it was the same business for TOSI purposes throughout the six years.
Accordingly, after she retired, she could receive a s. 104(19)-designated Opco dividend qua beneficiary of a family trust without being subject to the TOSI.
Neal Armstrong. Summary of 19 August 2019 External T.I. 2019-0814181E5 under s. 120.4(1) – excluded business – para. (b).
CRA finds that there was a loss of the TOSI excluded business exception when a specified individual went on extended mat leave
A specified individual, who holds only 5% of the shares of Aco but has been “actively engaged on a regular, continuous and substantial basis” (“Involved”) in the active business of Aco (which is run by her husband) for 2017 through 2019, so that the dividends received by her on her shares of Aco were excluded amounts and, thus, not subject to the tax on split income. If throughout 2020 she were absent from any work because of a maternity leave or temporary (or permanent) disability, would her dividends still be excluded amounts?
CRA indicated that, indeed, the excluded business exception from TOSI would be unavailable in 2020 because she had no involvement in the business. CRA implicitly found that she could not rely in that year on para. (b) of the excluded business definition - which includes in an excluded business of a specified individual for a taxation year a business in which she was Involved in “any five prior taxation years” - because she had only been so Involved for a total of three prior taxation years.
CRA went on to indicate that the reasonable return exception might be available, noting that any application of this exclusion would be:
based on the specific criteria applicable in the circumstances, including the work performed, the property contributed, the risks assumed, the total amounts paid or payable and such other factors as may be relevant.
Neal Armstrong. Summary of 11 October 2019 APFF Roundtable, Q.18 under s. 120.4(1) – excluded business – para. (b).
Stockton – Federal Court of Australia finds that a US teen who came to Australia for nine months on a “working holiday visa” was a non-resident
The taxpayer was a US citizen who, in her “gap year” after high school, came to Australia for nine months on a “working holiday visa.” She stayed at numerous different houses in various locales in Australia, mostly secured through AirBnB, and had had two periods of employment, totaling about seven months At the time she left Florida for Australia, she had her own room in the family home, which was retained for her while she visited Australia, and she returned to it after her travels.
In finding that the taxpayer was not resident in Australia under general principles, Logan J stated:
… Here, the only habit or pattern in Ms Stockton’s choice of accommodation was that of opportunism antithetical not just to settling in any one locale but to settling anywhere at all in Australia while she was here. … Ms Stockton’s association with Australia during the 2017 income year was only ever casual.
Neal Armstrong. Summary of Stockton v Commissioner of Taxation [2019] FCA 1679 under s. 2(1).
CRA refers to Stewart as the leading case on “business”
The bigger the question, the shorter the answer. When asked to comment on the meaning of “business” in the Act, CRA provided a response a significant portion of which read:
… Stewart considered how to determine whether or not there is income from a source for the purpose of section 9. In that context, it provided guidance that can also be used to determine whether or not a business exists.
Because Parliament and the courts have given "business" a very broad meaning, the CRA does not intend to give specific guidance.
It may be recalled that in Stewart, Iacobucci and Bastarache JJ. stated:
"Equating the term 'business' with the phrase 'reasonable expectation of profit' does not accord with the traditional common law definition of business, which is that 'anything which occupies the time and attention and labour of a man for the purpose of profit is business'."
Neal Armstrong. Summary of 11 October 2019 APFF Roundtable, Q.17 under s. 248(1) – business.