News of Note
CRA comments on when utilities can be added to rent for CERS purposes and notes CERS/CEWS similarity for computing revenue reduction
Email this ContentThe definition of “qualifying rent expense” for purposes of the CERS (rent subsidy) refers to “rent … including … regular instalments of operating expenses, such as insurance, utilities and common area maintenance expenses, customarily charged to the lessee under a net lease.” In clarifying (so to speak) what this means, CRA stated:
[I]f a net lease requires an amount to be paid to a third party as a regular instalment of operating expenses customarily charged to the tenant under a net lease, this payment may be a qualifying rent expense. Examples of third parties might include property managers or utility service providers.
CRA also confirmed that an eligible entity must compute its qualifying revenue using the same approaches and elections for both the CEWS (wage subsidy) and the CERS for a particular qualifying period.
For example, if Corporations A and B have jointly elected that the qualifying revenue of the affiliated group is to be determined on a consolidated basis under s. 125.7(4)(b) for qualifying period 9 for CEWS purposes (i.e., period 2 for CERS purposes) then, even if Corporation B did not apply for the CEWS for that period, it must determine qualifying revenue on a consolidated basis for that qualifying period in determining its revenue reduction for CERS purposes.
In addition, CRA provided a useful table showing all the upcoming application deadlines for periods 8 to 13 for the CEWS, along with the corresponding periods for the CERS (periods 2 to 6).
Neal Armstrong. Summaries of 23 March 2021 TEI Roundtable, 2021-0879631C6 under s. 125.7(1) – qualifying rent expense – (a)(i)(C)(II), rent subsidy percentage and s. 125.7(2.1).
CRA confirms that auditors must submit unclaimed GST/HST rebates for processing effective the return due date for the audited reporting period
In confirming that ETA s. 296(2.1) requires CRA auditors to allow GST/HST unclaimed rebates as a deduction from assessments of net tax, CRA stated:
Current audit procedures require the auditor to verify the validity of the unclaimed rebate and, if the rebate claim is valid, to send the rebate claim to be keyed into our system and processed with an effective date that is the same as the due date of the registrant's return for the reporting period under audit.
Neal Armstrong. Summary of 27 February 2020 CBA Roundtable, Q.9 under s. 296(2.1).
CRA finds that an Indian who is now working at a home office on the reserve for COVID reasons has become exempt from the resulting employment earnings
CRA’s Guideline 3 exempts from tax all income earned by a status Indian from employment if more than 50% of the duties of the employment are performed on a reserve and the employer or employee lives on a reserve.
Applying this Guideline, CRA found that the employment income of an employee, who previously worked at a location of the employer that was not on a reserve, but is now working from home on a reserve due to the COVID-19 pandemic, has now become tax exempt.
Neal Armstrong. Summary of 4 February 2021 External T.I. 2020-0875231E5 F under Indian Act, s. 87.
CRA indicates that Quebec supplementary maternity benefits subsidized childcare centres are taxable, but may not be subject to EI deductions
CRA indicated that supplementary maternity benefits paid under a plan for Quebec's subsidized childcare centres were taxable income subject to source deductions and T4 reporting, and also were subject to EI deductions unless:
- The total amount of the combined supplement and weekly EI benefits did not exceed the employee's gross regular weekly earnings; and.
- The supplement did not reduce the employee's accrued credits such as for a retiring allowance, unused sick leave or vacation leave.
Neal Armstrong. Summary of 27 August 2020 Internal T.I. 2016-0675801I7 F under s. 6(1)(a).
We have translated 11 more CRA Interpretations
We have published translations of 3 interpretations released by CRA last week, and a further 9 translations of CRA interpretation released in June and July, 2008. Their descriptors and links appear below.
These are additions to our set of 1,483 full-text translations of French-language Roundtable items and Technical Interpretations of the Income Tax Rulings Directorate, which covers all of the last 12 2/3 years of releases of Interpretations by the Directorate. These translations are subject to the usual (3 working weeks per month) paywall.
We have translated the questions released by CRA from the 2020 APFF Roundtable
We have published translations of the 14 questions from the October 7, 2020 (regular) APFF Roundtable that were released last week. Although most of them have been covered in various News of Note posts, for your convenience, they are also summarized and linked in the table below.
CRA finds that a USA stripped away voting control of a parent over its wholly-owned subs so that it was not closely related to them for ETA purposes
In 18 March 2019 Interpretation 186839, all the shareholders of a corporation (the “Corporation”) entered into a unanimous shareholders agreement (USA) that stripped away all the management powers of the board of the Corporation and its subsidiaries, with all those powers instead exercised by majority vote of the shareholders. CRA accepted that included in the powers taken away from the Corporation’s board under the USA was the right to exercise the voting rights attached to the shares of the wholly-owned subsidiaries of the Corporation.
In CRA’s view, this then engaged ETA s. 128(4), which provides that for qualifying voting control purposes, a person is not considered to own shares if another person (other than a closely-related person) has voting rights over those shares described in similar terms to ITA s. 251(5)((b)(i), e.g., a “right under a contract … to control the voting rights attached to the share.” Since the corporation (which was not closely related to any of its shareholders) thus was deemed not to have voting control of its subsidiaries, they were not closely related to it.
CRA was now asked to consider the effect a variation of the above structure under which the USA, as before, removed all powers of the directors of the Corporation with respect to the management of the business and affairs of the Corporation in favour of its shareholders, but did not remove the power of the directors of the Subsidiaries with respect to the management of their business and affairs. However, crucially, in the view of CRA, the decisions made by the shareholders under the USA included the exercise of the voting rights attached to the shares held by the Corporation in its subsidiaries for the purpose of, inter alia, appointing the directors of the subsidiaries. CRA found that, on this basis, ETA s. 128(4) continued to apply as in the first scenario, so that the corporation was not considered to be closely related to its wholly-owned subsidiaries.
Neal Armstrong. Summary of 7 October 2020 APFF Roundtable Q. 14, 2020-0852261C6 F under ETA s. 128(4).
CRA indicates that a s. 55(2) gain from a share can qualify as a gain from an active asset for AAII purposes
The definition of “adjusted aggregate investment income” (whose amount can grind the business limit) excludes capital gains from “active assets” including qualifying shares. Where s. 55(2)(b) or (c) deems a dividend to be a capital gain, it does not go on to deem it to be a gain from the disposition of an active asset even where the dividend or deemed dividend in question arose on such an “active” share.
CRA confirmed that, notwithstanding this gap of sorts, it will consider the s. 55(2) gain to be from an active asset if indeed, the shares in question were active assets.
Neal Armstrong. Summary of 7 October 2020 APFF Roundtable Q. 13, 2020-0852251C6 F under s. 125(7) - adjusted aggregate investment income – (a).
CRA indicates that a taxpayer can make representations at the first level of the process for resolving inter-provincial income allocation issues
When asked to comment on the interprovincial arbitration process for resolving disputes (e.g., as to the presence of a provincial permanent establishment) between Canada (acting for the eight agreeing provinces), and Quebec and Alberta, respecting the allocation of taxable income of a corporation between the provinces, CRA noted that the Memorandum of Understanding to Avoid Corporate Double Taxation signed by the CRA, Alberta and Quebec contemplated an arbitration process that went through four levels, up to referral to the relevant Deputy Commissioner and Assistant Deputy Ministers.
The taxpayer can present its position during the first level of this Protocol. CRA also noted that where an agreement was reached between Canada and Alberta and/or Quebec, the provinces represented by CRA were bound.
Neal Armstrong. Summary of 7 October 2020 APFF Roundtable Q. 12, 2020-0852241C6 F under Reg. 400.
CRA states that an eligible dividend designation must state a dollar amount, and that GRIP variances are addressable under s. 185.1(2)
At 2017-0709021C6 F, CRA accepted that the amount of the dividend paid out of the capital dividend account on a winding-up need not be specifically stated in the applicable resolution. CRA effectively indicated that this accommodation was sui generis, and that it would not allow an eligible dividend designation to state that it was in an amount equaling the lesser of the dividend amount and the general rate income pool ("GRIP") balance at the end of the corporation's taxation year.
The solution to making a designation in a specific dollar amount that was too high was to elect on the excessive dividend amount under s. 185.1(2) to convert it to a non-eligible dividend, so as to avoid the Part III.1 tax. CRA also noted that, administratively, it:
[a]llows … mitigating the effects of an excessive eligible dividend designation by accepting that the election provided for in subsection 185.1(2) can be made by a corporation at the time of filing its income tax return, without having to wait for a notice of assessment of Part III.1 tax to be issued.
Neal Armstrong. Summary of 7 October 2020 APFF Roundtable Q.11, 2020-0852231C6 F under s. 185.1(2).