News of Note
CRA finds that payments made for loyalty points that had been applied to receive free services without a fixed dollar amount, did not generate ITCs
Email this ContentAco sells taxable goods under its brand to a network of independent dealers managed by Bco, and also to Bco for sale by it or for resale to such network. Cco provides loyalty points to Aco or (through Aco) Bco or (through Aco and Bco) to the dealers. Such points entitle the retail customer to a 10% discount on widgets purchased at the applicable retail outlet of Bco or a dealer upon redeeming one loyalty point for each widget purchased. Aco reimburses Bco for 85% of the discount provided and (where the retail sale occurs at a dealer) Bco pays over the reimbursement so received by it to the dealer.
Instead of receiving a discount on widget purchases, the customer may be able to choose to redeem points for a free service provided by Bco or the dealer, the cost of which would be reimbursed by Aco directly to Bco or indirectly (via Bco) to the dealer.
CRA indicated that the ETA s. 181 coupon rules would to some extent apply, so that:
- On the acceptance of the points (viewed as “coupons”) by Bco or the dealer as part consideration for the taxable supply of the widgets, they are deemed to have collected tax equal to the GST/HST that would have been collected had the points not been collected (i.e., equal to the tax fraction of the points’ value).
- When Aco pays an amount to Bco respecting the points redeemed by Bco, s. 181(5) would allow Aco an input tax credit (ITC) for the amount of tax embedded in such redeemed “coupons.”
- However, additional information would be required to determine whether Aco would also be entitled to ITCs when making payments to Bco for points redeemed in turn by a dealer.
- Similar consequences would attend the redemption of loyalty points by a customer in exchange for a free service provided by Bco or the dealer – except that, regarding Aco’s payment to Bco respecting the points redeemed by Bco, no ITC would be generated to Aco: s. 181(5)(c) would not be met, i.e., the coupon does not entitle the recipient of the supply by Bco or the dealer to a reduction of the price of the taxable supply by a fixed dollar amount specified in the coupon, and instead the recipient of the service, on redeeming the points, opts in lieu of a fixed dollar amount off the price of widgets for a free service, the value of which varies depending on the location where the service is performed.
Neal Armstrong. Summary of 7 April 2022 CBA Roundtable, Q.19 under ETA s. 181(5).
CRA rules that a Canadian sub providing computer and admin/ marketing support services to its non-resident parent would not cause the parent to carry on business in Canada
CRA ruled that the provision of various services by Canco to its immediate foreign parent and to other non-resident members of the group would not by themselves cause those members to carry on business in Canada. These services consisted of various “computer services” including hosting the group website on a Canadian servicer and handling email and time and billing systems and central network management services, as well as “other support services” including accounting, financial, anti-money laundering, compliance, administrative support, information resources management and marketing services. Canco would not have the authority to execute or deliver any contract, agreement or instrument in the name of, or on behalf of, or to act as agent of, its parent or any other non-resident member of the group.
Neal Armstrong. Summary of 2021 Ruling 2019-0800191R3 under s. 2(3)(b).
CRA finds that an employer’s lump sum contribution to an employee life and health trust in relation to future hires was non-deductible
An employer discontinued providing health and welfare benefits for employees hired after a certain date pursuant to the terms of a collective bargaining agreement. In consideration for this discontinuance, it agreed to make contributions to a trust to fund certain designated employee benefits as described in s. 144.1(1) for the New Hires.
CRA indicated that, in order for this lump sum contribution to satisfy the requirements of s. 144.1(6)(b) for a deduction, it was required to have been “directly attributable to specific active employees” and stated that “[w]here a contribution is made in respect of new or future hires comprised of unidentified individuals, most of whom are not yet employees of the employer, this requirement would not be met and the contribution would not be deductible under subsection 144.1(6).”
Neal Armstrong. Summary of 14 March 2023 External T.I. 2022-0925831E5 under s. 144.1(6)(b).
CRA indicates that idle forest land could cause a property to not qualify as a qualified farm or fishing property
Can the “used principally” requirement in s. 110.6(1.3)(a)(ii)(A)(II) (potentially relevant to a property qualifying as a “qualified farm or fishing property” for capital gains deduction purposes) be met where an individual owns a 70 acre parcel of land of which 25 acres is workable farmland and 45 acres is forest?
CRA indicated that where in a particular year, more than 50% of a particular property is being used for some purpose other than farming (or fishing) or is otherwise vacant or idle, generally speaking, such non-farming use would result in the entire property not being considered as being used principally in the business of farming in Canada for the year. However, if the unusable portion was not suitable for any use, then it may be excluded from the “used principally” determination.
Neal Armstrong. Summaries of 13 June 2023 External T.I. 2021-0891701E5 under s. 110.6(1.3)(a)(ii)(A)(II) and s. 248(1) - property.
Income Tax Severed Letters 9 August 2023
This morning's release of four severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Az-Zahraa Housing Society – Federal Court finds that CRA had fettered its statutorily-accorded discretion by strictly adhering to its published guidelines
A non-profit society received assistance from a government organization (BC Housing) towards its goal of providing affordable accommodation to lower-income renters by selling some of its condo units to BC Housing, with BC Housing then providing those units to the society on a rent-free basis. The Minister’s delegate denied the society’s application to be designated as a municipality pursuant to s. 259(1) (which would have entitled it to GST rebates under s. 259(4)) on the ground that the above government assistance was not government “funding” as required in the CRA published information sheet as to when it would grant a “municipality” designation.
Before ordering that this denial of designation be remitted to a fresh CRA delegate for redetermination, Grammond J stated:
This is an obvious case of fettering of discretion. Section 259 … simply does not lay out any criteria for the exercise of the Minister’s power to designate an entity as a municipality. By refusing to consider circumstances that fell outside the four corners of the information sheet, the Minister’s delegate essentially treated the latter as if it superseded the broad discretion granted by section 259… .
As the Minister’s delegate fettered her discretion, the decision is unreasonable.
Neal Armstrong. Summary of Az-Zahraa Housing Society v. Canada (National Revenue), 2023 FC 842 under ETA s. 259(1) – municipality.
CRA indicates that joint tenants of a newly-constructed residence are each responsible for the GST/HST on 100% of the property’s FMV
Two individuals (the “Owners”) acquired a residential property as joint tenants and contracted for a laneway house to be constructed on the property and leased out.
CRA found that since each Owner, as a joint tenant, was considered at common law to own the entire property, and given that the self-supply rule in ETA s. 191(1) applied to the whole residential complex and not to an interest therein and the rule does not provide for the division of the tax payable on the deemed supply among multiple joint-tenant builders, each co-owner was subject to tax on the FMV of the whole building. However, where one joint tenant accounted for such tax payable on the self-supply, such accounting and the remittance of any resulting positive amount of net tax by that joint tenant would discharge the liability of the other joint tenant, and only one of the Owners was required to report and remit the GST/HST deemed to have been collected on the fair market value of the newly constructed laneway house.
Neal Armstrong. Summaries of 23 March 2023 GST/HST Ruling 244917 under ETA s. 273(1) and s. 191(1).
CRA rules that a charity’s facility used to provide short-term accommodation to clients of its program was not a residential complex
A government-funded registered charity used a facility to provide a program which involved clients staying at the facility for, on average, less than 30 days. There were no lease agreements with them.
CRA ruled that the facility was not a residential complex on the basis that the accommodation provided to the clients was not of “residential units” as defined in ETA s. 123(1). Accordingly, a transfer of the facility in connection with a reorganization would be exempted under Sched. V, Part V.1, s. 1.
Neal Armstrong. Summary of 24 March 2022 GST/HST Ruling 222713 under s. 123(1) – residential unit.
We have translated 7 more CRA interpretations
We have translated a CRA interpretation released on July 12, 2023 and 6 translations of CRA interpretations released in March of 2003. Their descriptors and links appear below.
These are additions to our set of 2,546 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 20 1/3 years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
CRA rules that a long-term care facility does not supply home care services for HST purposes
An individual (X) in a long-term care facility in Ontario (the “Centre”) that was funded by an Ontario local health integration network, required additional care, which was provided by the Service Provider in the form of personal care, behaviour management, oral care and feeding.
ETA Sched, V, Pt. II, s. 13(c) indicated that the services of the Service Provider were exempted if they were provided by it in in addition to home care services rendered by a government-funded supplier – a requirement which was argued to be satisfied by the services of the Centre to X. In rejecting this submission and in connection with ruling that such services of the Service Provider were taxable, CRA stated:
While the supply made by the Centre may include elements that are home care services, the supply also includes accommodation, meals and nursing services. The supply made by the Centre is beyond the scope of the definition of “home care service”. Therefore, the supply rendered to [X] at the Centre is not a supply of publicly funded home care services.
Neal Armstrong. Summary of 4 May 2023 GST/HST Ruling 196193 under Sched, V, Pt. II, s. 13(c).