News of Note
Income Tax Severed Letters 27 May 2020
Email this ContentThis morning's release of three severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Express Gold – Federal Court suggests that a taxpayer can bring a mandamus motion if CRA drags out an audit of GST/HST refund claims for ulterior or strategic reasons
ETA s. 229(1) requires that a net tax refund claimed in a return is to be paid “with all due dispatch after the return is filed.” Pentney J found that this provision required that the Minister proceed “with all due dispatch” in determining whether the refund should be paid (i.e., if CRA so chooses, it can apply an “audit first with all due dispatch, then pay” system, rather than a “pay right away, audit later” system, as argued by the registrant.)
Here, the registrant claimed a net refund claim of $9.13 million in its August 2018 return, and then, on December 6, 2018 - which was only two months after having been notified by CRA that that return would be audited and that, in the meantime, no refund would be paid - made an application for a mandamus order to compel the Minister to pay the net refund. This was found not to have been a reasonable time in which to require an audit to be performed.
Pentney J stated:
I have concluded that the Applicant brought its application before a reasonable time for the performance of the [“with all due dispatch”] duty had elapsed, and so I am dismissing the application. In doing so, it is worth underlining that if the Applicant has or obtains evidence that the CRA is acting for an ulterior purpose, or that the audit is being continuously expanded in bad faith, or otherwise not proceeding in a reasonable time-frame, it can bring another motion.
Neal Armstrong. Summary of Express Gold Refining Ltd. v. Canada (National Revenue), 2020 FC 614 under ETA s. 229(1).
GST/HST Severed Letters August 2019
This morning's release of nine severed letters from the Excise and GST/HST Ruilngs Directorate (identified by them as their August 2019 release) is now available for your viewing.
CRA announces that pending a Finance COVID-19 review, it will not require the termination of a deferred salary leave plan if the leave of absence is deferred beyond 6 years
The deferred salary leave plan (DSLP) rules permit the deferral of salary for up to six years before the leave period commences. Finance is addressing issues that have arisen under the DSLP rules, including the effect on health care and other essential workers who are currently needed even if the six-year deadline for taking leave is arriving.
CRA has announced:
Pending completion of the Department of Finance Canada review, the CRA will not require an employer to terminate an individual’s DSLP in the event that the individual defers their leave of absence beyond the six-year maximum deferral period. This administrative position will apply regardless of the reason for deferring the leave. In addition to providing flexibility to health care workers and others providing essential services, it will accommodate, for example, individuals who had planned to travel during their leave but who are now unable to because of travel restrictions.
Neal Armstrong. Summary of 14 May 2020 External T.I. 2020-0848641E5 under Reg. 6801(a)(i) (15 May 2020 External T.I. 2020-0848511E5 F is similar).
Eisbrenner – Federal Court of Appeal finds that the onus of proof rested at all times with the taxpayer
One of the difficulties of the taxpayers in a charitable gift program for the donation by them of entitlements to pharmaceuticals (acquired in a distant land) to a registered charity is that they had no granular evidence that they had indeed acquired beneficial ownership of the supposedly-donated pharmaceuticals. Although they had pled that they had acquired the pharmaceuticals, this was also a pleaded assumption of the Minister in her reply.
One of the taxpayers (through counsel) argued that “he only had to raise a prima facie case, which he submitted was a lower standard than the balance of probabilities,” whereupon the onus of proof shifted to the Minister.
This argument was especially unlikely to persuade Webb JA. After noting that in Sarmadi, he had concluded that “[i]f the taxpayer has, on the balance of probabilities, disproven the particular facts assumed by the Minister, …there is no burden to shift to the Minister to disprove what the Tax Court judge has determined that the taxpayer has proven,” he concluded:
[B]ecause Mr. Eisbrenner pled that he had acquired ownership of certain pharmaceuticals and transferred these pharmaceuticals to the in-kind charity, he had the onus of proving that he owned these particular pharmaceuticals on a balance of probabilities.
Neal Armstrong. Summary of Eisbrenner v. Canada, 2020 FCA 93 under General Concepts - Onus.
6 more translated CRA interpretations are available
We have published a translation of a CRA interpretation released last week and a further 5 translations of CRA interpretations released in September and August 2010. Their descriptors and links appear below.
These are additions to our set of 1,180 full-text translations of French-language Roundtable items and Technical Interpretations of the Income Tax Rulings Directorate, which covers all of the last 9 ¾ 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 June.
| Bundle Date | Translated severed letter | Summaries under | Summary descriptor |
|---|---|---|---|
| 2020-05-20 | 8 April 2020 External T.I. 2016-0668991E5 F - Death of RRSP or RRIF annuitant | Income Tax Act - Section 146 - Subsection 146(8.9) | discretionary s. 146(8.9) deduction is available even where no timely issuance of T4RSP, but no deduction where annuitant with surviving spouse dies after the maturity of the RRSP |
| Income Tax Act - Section 146.3 - Subsection 146.3(6.2) | s. 146.3(6.2) deduction can be less than the formula amount and does not depend on timely receipt of T4RIF – but applies only when the last annuitant of a RRIF dies | ||
| Income Tax Regulations - Regulation 214 - Subsection 214(4) | T4RSP issued to surviving spouse rather than to deceased where transfer of entire refund of premiums to surviving spouse’s RRSP and RRSP is fully distributed | ||
| Income Tax Regulations - Regulation 215 - Subsection 215(4) | T4RIF issued to surviving spouse rather than to deceased where transfer of entire eligible amount to surviving spouse’s RRSP or RRIF, and RRIF is fully distributed | ||
| Income Tax Regulations - Regulation 205 - Subsection 205(1) | issuer required to issue T4RSP or T4RIF within a reasonable time after notification of death received after February filing date | ||
| 2010-09-10 | 7 June 2010 Internal T.I. 2009-0351031I7 F - Faillite changée en proposition | Income Tax Act - Section 128 - Subsection 128(2) - Paragraph 128(2)(g) - Subparagraph 128(2)(g)(iii) | court approval of consumer proposal and individual’s discharge was not a s. 128(2)(g) unconditional discharge, so that individual thereafter could apply unused tuition tax credits |
| 2010-08-27 | 13 August 2010 External T.I. 2010-0359571E5 F - Crédit d'impôt étranger | Income Tax Act - Section 126 - Subsection 126(1) | foreign withholding tax is borne by the copyright holder rather than the Cdn. selling agent |
| 2010-08-13 | 6 August 2010 External T.I. 2010-0364091E5 F - Utilisation d'un véhicule fourni par l'employeur | Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(e) | benefit even if the vehicle is made available for responding quickly to an emergency |
| 23 June 2010 Internal T.I. 2010-0368161I7 F - 84.1 | Income Tax Act - Section 84.1 - Subsection 84.1(2) - Paragraph 84.1(2)(b) | s. 84.1(2)(b) inapplicable to individual’s transfer of ½ of Opco to Holdco (owned by 3 unrelated individuals) for note and non-voting pref | |
| Income Tax Act - Section 84.1 - Subsection 84.1(2.2) - Paragraph 84.1(2.2)(b) | s. 84.1(2.2)(b) group can include a non-voting shareholder | ||
| 4 August 2010 External T.I. 2009-0330501E5 F - Superficial loss | Income Tax Act - Section 251.1 - Subsection 251.1(1) - Paragraph 251.1(1)(b) - Subparagraph 251.1(1)(b)(ii) | X (holding the Opco non-voting shares), and a discretionary trust (holding the Opco voting shares) of which X was a beneficiary, were an affiliated group |
Fowler – UK Supreme Court finds that deeming an employee to be an independent contractor did not oust the Treaty Employment-Income Article
A U.K. domestic income tax provision deemed the diving activities of a South African resident in the North Sea to be the carrying on of a U.K trade, notwithstanding that in fact he was an employee. A majority of the Court of Appeal of England and Wales found that this meant that his earnings were business profits for purposes of Art. 7 of the U.K-South Africa Treaty (rather than employment income under Art. 14) so that they escaped U.K. taxation (as he had no U.K. permanent establishment.)
In reversing this decision, Lord Briggs stated:
Nothing in the Treaty requires articles 7 and 14 to be applied to the fictional, deemed world which may be created by UK income tax legislation. Rather they are to be applied to the real world, unless the effect of article 3(2) is that a deeming provision alters the meaning which relevant terms of the Treaty would otherwise have.
He noted that the UK domestic deeming provision instead only had a limited purpose, which was to give the diver access to more generous deductions from income, and stated that to apply this limited “deeming provision … so as to alter the meaning of terms in the Treaty with the result of rendering a qualifying diver immune from UK taxation would be contrary to its purpose.”
Neal Armstrong. Summary of Fowler v Commissioners for Her Majesty’s Revenue and Customs [2020] UKSC 22 under Treaties – Income Tax Conventions - Art. 3 and Statutory Interpetation – Interpretation Provisions.
Al Saunders Contracting – Federal Court of Appeal finds that s. 6(1)(b)(vii) precludes bifurcation of an unreasonable allowance into a reasonable and unreasonable portion
The Tax Court found that some of the travel allowances paid to employees of the taxpayer were reasonable and, thus, properly excluded from income under s. 6(1)(b)(vii), but that other of the allowances were unreasonable in amount – and excluded the reasonable portion from income. In finding that the Tax Court had thus erred in its latter findings by severing travel allowances into two parts: a portion that was unreasonable; and a portion that was reasonable - so that the reasonable portion was excluded, Dawson JA stated:
I take from the grammatical and ordinary sense of the language of subparagraph 6(1)(b)(vii) that … [a]llowances that exceed what is reasonable are to be included in their entirety in income.
She also noted that when s. 6(1)(b)(vii) was amended in 1991 to take its current form, the Technical Notes confirmed this purpose of the provision.
Neal Armstrong. Summary of Canada (National Revenue) v. Al Saunders Contracting & Consulting Inc. 2020 FCA 89 under s. 6(1)(b)(vii) and Statutory Interpretation - Hansard, explanatory notes etc.
CRA notes the inapplicability of an interspousal rollover where the deceased annuitant’s RRSP had already matured
The deemed income inclusion to the deceased RRSP annuitant under s. 146(8.8) (equalling the FMV of the property in the plan) is potentially reduced under s. 146(8.9), so that if the surviving spouse is the beneficiary, s. 146(8.9) reduces the s. 146(8.8) inclusion, and the spouse is taxed under s. 146(8) on the “benefit” received, which typically is a “refund of premiums” that can be rolled into the spouse’s RRSP under s. 60(l).
When asked whether an amount can be deducted under s. 146(8.9) when the surviving spouse is designated in the contract as successor annuitant of a matured RRSP, CRA indicated, no: for s. 146(8.9) to apply, an amount must otherwise be deemed to be received pursuant to s. 146(8.8) and an amount must qualify as a refund of premium - which is not possible in the case where the annuitant dies after the maturity of the RRSP.
CRA also indicated that when the annuitant of an unmatured RRSP dies and the surviving spouse is named as the sole beneficiary in the contract, the issuer should issue the T4RSP slip in the name of the surviving spouse, instead of in the name of the deceased where the entire refund of premiums is transferred directly under s. 60(l) to an RRSP under which the spouse is the annuitant and, before December 31 of the year following that of death, all the RRSP property is distributed.
Where the RRSP issuer is notified of the death of the annuitant after the due date for filing the T4RSP information return (at the end of February following the year of death “the issuer will be required to file an additional T4RSP … for the deceased annuitant within a reasonable time after being notified of the death.”
Similar interpretations were provided for the comparable RRIF provisions.
Neal Armstrong. Summaries of 8 April 2020 External T.I. 2016-0668991E5 F under s. 146(8.9), s. 146.3(6.2), Reg. 214(4), Reg. 215(4) and Reg. 205(1).
LPIC – Federal Court of Appeal finds that LPIC was not exempt under s. 149(1)(d.5) because its owner, the Law Society, did not provide municipal-type services
Lawyers’ Professional Indemnity Co. did not qualify under s. 149(1)(d.5) as being owned by a “municipal or public body performing a function of government in Canada” because its parent, the Law Society of Upper Canada, although a “public body,” did not satisfy the test of “performing a function of government .”
Mactavish JA, on the basis of a detailed textual and contextual analysis as well as a review of the legislative history, concluded that the 2013 expansion of s. 149(1)(d.5) to encompass something more than just municipalities was intended to include only “entities that while not legally municipalities, nevertheless possess attributes of, and provide services similar to those provided by municipalities.” The Law Society did not so qualify because its “primary focus … is on the regulation of the legal profession in Ontario, and it does not provide the type of services that are typically provided by municipalities or municipal bodies in a localized geographical area.”
Neal Armstrong. Summaries of Lawyers’ Professional Indemnity Company v. Canada, 2020 FCA 90 under s. 149(1)(d.5) and Statutory Interpretation – Interpretation Act – s. 14, Redundancy and Consistency.