News of Note
Enns – Tax Court of Canada applies judicial comity principle to find that a widow is a spouse of her deceased husband
Email this ContentAt issue was whether a widow receiving funds from the RRSP of her deceased spouse was a “spouse” for purposes of s. 160(1)(a), so that s. 160 could be applied regarding his tax debt. In similar circumstances, Kiperchuk had briefly found (without the “spouse” issue having been specifically raised) that a widow was not a spouse of her deceased husband, whereas in Kuchta, Graham J, after a thorough analysis of that precise issue, had concluded the opposite.
Russell J indicated that, in light inter alia of the principle of judicial comity, he would follow the same Kuchta approach (notwithstanding that Kuchta might be technically a nullity as it had been decided by a substituted judge – see High-Crest). S. 160 applied.
Neal Armstrong. Summary of Enns v. The King, 2023 TCC 28 under s. 160(1)(a).
CRA announces that credit card surcharges are exempt from GST/HST
CRA has published its position that a credit card surcharge (generally, a charge made by the merchant to customers in consideration for agreeing to let them use their credit card rather than another means of payment) will generally be exempted from GST/HST under para. (i) of the financial services definition (which pertains to certain services relating to credit card transactions.)
Neal Armstrong. Summary of GST/HST Info Sheet GI-200, Application of the GST/HST to Credit Card Surcharges, March 2023 under ETA s. 123(1) – financial service - para. (i).
We have translated 7 more CRA interpretations
We have published a translation of a CRA interpretation released last week and a further 6 translations of CRA interpretations released in September and August of 2003. Their descriptors and links appear below.
These are additions to our set of 2,424 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 2/3 years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
CRA confirms that there can be multiple operators for a JV for purposes of the GST JV election
Can a joint venture made under a single written agreement have multiple operators for different elements of the joint venture, for example a development manager and a property manager, with the phases (in a multi-phase development project) overlapping, for purposes of the ETA s. 273 election? CRA responded:
It is possible for participants in a joint venture to elect to have multiple operators with each operator having responsibility for a distinct element of the joint venture. Further, it is possible for such elections to overlap and run concurrently.
[However] it may be possible to have multiple participants elected as operators at the same time under the same agreement for GST/HST purposes if and only if the duties and obligations of each operator deal with discrete parts of the joint venture in the agreement or are distinct and clearly delineated in the agreement, without any overlapping parts or duties and obligations.
Neal Armstrong. Summary of 7 April 2022 CBA Roundtable, Q.11 under ETA s. 273(1).
CRA notes the requirement to allocate an up-front lease prepayment to subsequent exempt and taxable lease intervals, thereby triggering subsequent collection obligations
Homes in a new residential subdivision may be supplied under long-term leases, especially on First Nations lands. The “buyer” might acquire a home under a 99-year lease or sublease for a single lump sum (which might not be related to any lease intervals during the term) or for an upfront payment coupled with periodic charges.
At the time of the upfront payment made at the lease’s inception, how is the lessor to determine known whether the long-term lessee will commence to engage in short-term rentals at a future juncture and, thus, whether it should charge GST/HST on a portion of the up-front payment?
In answering, CRA implicitly assuming that there would be periodic charges in addition to the up-front charge, so that throughout the term of the lease of, say, 99 years, there would be recurring “lease intervals” for purposes of s. 136.1(1). It then indicated that where a home leased to the lessee was exempted under Sched. V, Pt. 1, s. 6 (i.e., generally, it was for occupancy as a place of residence of the lessee for over one month) or 6.1 (where there was an exempt sublease), the portions of the upfront payments that were “attributable” to such lease intervals would be exempted – whereas the portion of the upfront payment attributable to any subsequent lease intervals where the use became taxable would be subject to GST/HST.
CRA did not proffer any suggestions on the practical difficulties a landlord would face in monitoring whether such short-term taxable use (e.g., in an Airbnb operation) had commenced or in collecting GST/HST on a portion of the upfront payment which had long since been made.
CRA also noted that such a change in use could trigger the change-in-use provisions in s. 206.
Neal Armstrong. Summary of 7 April 2022 CBA Roundtable, Q.10 under ETA s. 136.1(1).
CRA reaffirms that a cash-basis taxpayer can receive an amount when it is received through a third party
When is an amount regarded as received by an eligible entity which has made an election under s. 125.7(4)(e)(i) to use the cash method in determining its qualifying revenues for CEWS purposes, where the amount is received by a third party before being paid to the eligible entity?
CRA indicated that in this regard it would apply the principle in IT-433R, subpara. 3(a) that the meaning of the term "received" is broad enough to consider a taxpayer to have received an amount where it “was received by a person authorized to receive it on behalf of the taxpayer” – and further stated that “a person entitled to receive an amount on behalf of a taxpayer for CEWS purposes may include a person who is entitled to receive the amount for a taxpayer by inter alia an agreement or by statute.”
Neal Armstrong. Summary of 23 January 2023 External T.I. 2020-0865161E5 F under s. 125.7(4)(e)(i).
CRA announces that UHTA returns will not attract late-filing penalties or interest if received by October 31, 2023
CRA has announced:
The application of penalties and interest under the UHTA for the 2022 calendar year will be waived for any late-filed underused housing tax (UHT) return and for any late-paid UHT payable, provided the return is filed or the UHT is paid by October 31, 2023.
This transitional relief means that although the deadline for filing the UHT return and paying the UHT payable is still April 30, 2023, no penalties or interest will be applied for UHT returns and payments that the CRA receives before November 1, 2023.
Although CRA has published quite a number of UHT Notices, they mostly deal with basic points. Preferably, CRA will address some of the more obvious issues before October (rather than lying in wait until taxpayers have filed), including the following:
- Must a registered owner of a 200-unit condo project file a separate return for each condo, or can it rely on the jurisprudence under s. 32 of the Interpretation Act and file one return for all the condos - keeping in mind that the stipulated penalty is $10,000 per late-filed return, absent relief?
- Must such a return (or returns) be filed even where the condo tower was only partially constructed on December 31 (there being no explicit requirement that a residential property be habitable)?
- Can a nominee corporation with $1 of share capital rely on the direct and indirect ownership and control of that one itty-bitty share to access the substantive exemption for specified Canadian corporations –even if, viewed as the trustee of a bare trust, such trust would not qualify as a specified Canadian trust?
- Does the reference to “indirect” ownership override the tax jurisprudence that a shareholder does not own the property of the corporation?
- Does “control” refer only to de jure control?
- Is a trust a person, so that, as a beneficiary, it could preclude a trust as qualifying as a specified Canadian trust? For example, if a mooted specified Canadian trust has an RRSP as a beneficiary, would the beneficiary be the annuitant, the trust company trustee - or the RRSP viewed as a person that was a trust (which would not qualify as an excluded owner, and would taint the trust)? Similarly, what if a beneficiary is an estate?
- Similarly, is a trust a person so as to taint a mooted specified Canadian partnership of which it is a partner?
- Are contingent beneficiaries treated as beneficiaries for purposes of the specified Canadian trust definition – for example, a trust specifies various Canadian citizens as beneficiaries, but the trustees are accorded the discretion to expand the beneficiaries to any other family members, some of whom are not citizens or permanent residents?
- Will CRA apply its position under the ITA that partnership property is not owned by the partners – and similarly where a non-citizen/non-permanent resident is the beneficiary of a trust whose corpus includes shares of a mooted specified Canadian corporation?
Neal Armstrong. Summary of 27 March 2023 CRA News Release, Underused Housing Tax penalties and interest waived, under UHTA, s. 48(1).
CRA provides detailed back-up manual steps for determining whether a vacation property is in an eligible area for UHTA exemption purposes
CRA has provided an online tool for determining if a residential property is located in an eligible area of Canada (i.e., a sufficiently rural area) for the purposes of the vacation property exemption from underused housing tax (you simply enter the postal code, and get an answer). For those “rare situations” where this tool does not give the answer, CRA has published a Notice that sets out 18 detailed steps for determining through a visual inspection of Statistics Canada’s GeoSearch map whether the property is located in an eligible area.
Neal Armstrong. Summary of Underused Housing Tax Notice UHTN14 Exemption for Vacation Properties: Manual Place-search Instructions, 23 March 2023 under Underused Housing Tax Regulations, s. 2(2).
CRA finds that there was no self-supply (only engagement of the change-in-use rules) on conversion of a commercial unit to additional residential units in a MURC
On January 1, 2019, NewCo acquired a building with 30 residential rental units and one commercial unit (rented to a convenience store) and then, a year later, terminated the commercial unit lease, and hired a construction company to convert the unit into four residential units, with first occupancy in December 2020.
If such conversion of the commercial unit constituted a conversion to residential use per ETA s. 190, this would have resulted in there being deemed to be a self-supply of the converted property under s. 191 for its FMV with a correlative GST/HST remittance obligation. On the other hand, if s. 190 did not apply, then the change-in-use rule in s. 206(4) would merely trigger GST/HST equal to the converted property’s “basic tax content” (simplistically, the GST/HST, if any, that had been payable on the acquisition of the commercial unit, assuming no decline in FMV since then).
In finding that s. 190(1) would not apply, CRA noted that the s. 190(1) preamble requires that a person begins to hold or use real property as a residential complex – whereas here, the person (NewCo) held a single residential complex both before and after the transaction (merely expanding the size of its residential complex). Similarly, the requirement in s. 190(1)(b) that the person (NewCo) begin to hold or use real property as a residential complex was not satisfied. Thus, the more favourable rule in s. 206(4) applied.
Neal Armstrong. Summary of 7 April 2022 CBA Roundtable, Q.9 under ETA s. 190(1).
Income Tax Severed Letters 29 March 2023
This morning's release of three severed letters from the Income Tax Rulings Directorate is now available for your viewing.