News of Note
GST/HST Severed Letters March 2020
Email this ContentThis afternoon's release of two severed letters from the Excise and GST/HST Rulings Directorate (identified by them as their March 2020 release) is now available for your viewing.
GST/HST Severed Letters February 2020
This afternoon's release of one severed letter from the Excise and GST/HST Rulings Directorate (identified by them as their February 2020 release) is now available for your viewing.
GST/HST Severed Letters January 2020
This afternoon's release of one severed letter from the Excise and GST/HST Rulings Directorate (identified by them as their January 2020 release) is now available for your viewing.
CRA indicates that an employer and employee can agree, on or before termination of employment, to defer a retiring allowance for a year or years
Respecting a terminated employee electing to receive a retiring allowance in the subsequent calendar year, CRA referred to its position in Folio S2-F1-C2 that an employee can choose, on or before termination of employment, to receive a lump sum in instalments, thereby deferring income recognition under s. 56(1)(a)(ii) until the times of receipt, and stated:
This position applies equally where payment of the lump sum is deferred to a subsequent year, provided that the individual chooses the deferred option on or before termination of employment.
Summary of 7 April 2020 External T.I. 2019-0832241E5 under s. 56(1)(a)(ii).
CRA considers that the sale of digital content generates gross income from property rather than services for TOSI purposes
One of the requirements to be an “excluded share” for purposes of the tax on split income (TOSI) is that less than 90% of the business “income” (i.e., revenue) of the corporation for its last taxation year “was from the provision of services.” Where a corporation produces and “sells” training videos as digital downloads from its website, are its resulting revenues considered as income from the provision of services for TOSI purposes? CRA responded:
[W]e are prepared to accept that payment for the right to download a digital product that traditionally would have been sold to the customer as a tangible property, will generally be treated as a sale of intangible property and not a provision of a service unless the facts and circumstances dictate otherwise.
CRA went on to indicate that payments for after-sales service, for “pure technical assistance” and for services rendered by a supplier under a guarantee, are considered to be income from the provision of services.
Neal Armstrong. Summary of 13 March 2020 External T.I. 2019-0833181E5 under s. 120.4(1) - excluded share – (a)(i).
Penate – Tax Court of Canada finds that sexual harassment by customers and no evidence of diversion of GST/HST collections established a due diligence defence
The taxpayer, Ms. Penate, was the sole director and shareholder of a roofing company that fell behind in its GST/HST remittances. Campbell J found:
There is no evidence that any GST/HST remittances were diverted to assist with the business activities. It was simply a matter of not being able to collect from many contractors as a female-run subtrade unless Ms. Penate agreed to return sexual favours for payment of the Company’s completed subcontracts.
Campbell J stated that these constituted “exceptional circumstances and facts” which allowed her to conclude that the taxpayer could avail herself of the due diligence defence – so that the appeal was allowed.
Neal Armstrong. Summary of Penate v. The Queen, 2020 TCC 63 under ETA s. 323(3).
GST/HST Severed Letters December 2019
This morning's release of four severed letters from the Excise and GST/HST Rulings Directorate (identified by them as their December 2019 release) is now available for your viewing.
Income Tax Severed Letters 22 July 2020
This morning's release of four severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA ruled to permit the immediate receipt of cash on a pipeline so as to fund death taxes
CRA relaxed its longstanding position and accepted that, upon the sale of shares that had been stepped up on death under s. 70(5) to a Newco in a pipeline transaction, the estate could immediately receive cash derived from the surpluses of the company that had been indirectly held by the deceased taxpayer in order to fund the taxes payable under s. 70(5). Thus, it was not necessary to wait a year before accessing such cash derived from such surpluses.
CRA also provided an interest deduction ruling on a transaction in which Opco pays a preferred stock dividend on its common shares whose amount does not exceed its accumulated profits, and then uses a bank loan to redeem such preferred shares (which is described as entailing the replacement of the capital represented by the preferred shares by the bank loan).
Neal Armstrong. Summaries of 2019 Ruling 2018-0789911R3 F under s. 84(2) and s. 20(1)(c)(i) and of Éric Hamelin, “Post Mortem Pipeline: The CRA Relaxes Its Position,” Tax for the Owner-Manager, Volume 20, Number 3, July 2020, p. 6 under s. 84(2).
CanLII – Tax Court of Canada finds that law society funding received by CanLII was consideration for taxable supplies of its services
CanLII was a not-for-profit corporation providing an open-access virtual law library that had all of its operating budget (of around $3 million per annum) funded by its sole member, being the Federation of Law Societies of Canada (Federation), which collected matching fees from 14 Canadian law societies. CanLII collected GST on the payments from the Federation, and claimed input tax credits on its taxable purchases. The Minister disallowed these ITCs on the basis that CanLII provided its service for no consideration (i.e., to its readers) and, therefore, provided an exempt supply pursuant to Shed. V, Pt. V, s. 10.
Lamarre ACJ found that CanLII instead was making a taxable supply for which the amounts collected from the Federation were the consideration. She first noted that the ETA definition of “consideration” included any amount that is payable for a supply “by operation of law.” Given that the Federation became legally obligated to pay a “levy” for a year to CanLII once such levy and the corresponding levies on the provincial law societies, had been approved by its council, “the levy was paid by operation of law for the supply of the virtual library,” i.e., “[t]here was an obligation on the Federation to pay and payment was not discretionary as argued by the [Crown].”
Accordingly, the Sched. V, Pt. V, s. 10 exemption was inapplicable, and CanLII was entitled to its denied ITC claims.
Neal Armstrong. Summaries of Canadian Legal Information Institute v. The Queen, 2020 TCC 56 under ETA Sched. V, Pt. V, s. 10 and s. 123(1) - consideration.