News of Note
6 more translated CRA interpretations are available
Email this ContentWe have published a translation of an interpretation that was released last week and a further 5 translations of CRA interpretations released in March, 2011. Their descriptors and links appear below.
These are additions to our set of 1,084 full-text translations of French-language Roundtable items and Technical Interpretations of the Income Tax Rulings Directorate, which covers all of the last 8 ¾ years of releases of Interpretations by the Directorate. These translations are subject to the usual (3 working weeks per month) paywall. You are currently in the “open” week for February.
Béton Mobile – Tax Court of Canada includes managerial payroll in what qualified for purposes of the proxy method election
A taxpayer who has made a valid proxy election under s. 37(8)(a)(ii)(B) can calculate its SR&ED expense by totaling up a restricted base of direct qualifying expenses, and then grossing up that total by a percentage amount (the prescribed proxy amount).
Such a taxpayer (BMQ) was successful in including some of the payroll costs of supervisory and managerial personnel in the base payroll expenditures referenced in s. 37(8)(a)(ii)(B)(IV). Lafleur J stated:
[T]he manager or supervisor who manages the conduct of the SR&ED and the employee who analyzes the results will be considered to be directly engaged in SR&ED. The same will be true for such a manager or supervisor with respect to the time he or she devotes to various tasks that have a direct impact on the SR&ED activities, such as planning the experiment, as well as researching the information required for the proper conduct of the SR&ED project. However, more general supervisory or management activities, as well as second or third level management or supervision, will generally not be considered in this regard.
She also went through the numerous projects identified by BMQ (who used mobile concrete mixers to provide concrete at the site of construction or major repair projects) as representing SR&ED, and agreed for some but not others. For example, she found that a successful project arising from a customer request for a rapidly-setting cement-based mortar mix to be used to seal underwater rock used in a bridge pier so qualified, stating that “although BMQ used current technological knowledge or current practices in this project to create the new product, BMQ could not predict whether the objectives could be achieved, or at least, BMQ could be fairly confident that they could be achieved, but without knowing with certainty which solution would be applicable.”
Neal Armstrong. Summaries of Béton Mobile du Québec Inc. v. The Queen, 2019 CCI 278 under s. 37(8)(a)(ii)(B)(IV) and s. 248(1) - SR&ED.
Xia – Federal Court of Appeal confirms a gross negligence penalty for failure to report a share of tips paid by patrons of a casino
In confirming that a slot attendant at a casino, who doubled his income through the receipt of his share of tips received from winning patrons from their non-taxable winnings, was subject to a gross negligence penalty for failure to report the tip income, de Montigny JA stated:
Mr. Xia is an intelligent and well-educated individual, has provided tax and financial advice, has knowledge of the tax benefits and consequences of security funds and life insurance, and yet made no effort to ascertain whether the tip amounts he received from casino patrons had to be reported.
Neal Armstrong. Summaries of Xia v. Canada, 2020 FCA 35 under s. 6(1)(a) and s. 163(2).
White – Tax Court of Canada indicates that you receive nothing when your spouse deposits to your joint account
The taxpayer’s husband transferred $90K in pay cheques to the joint bank account between him and the taxpayer while he had tax debts, as a director for a defunct company, for unremitted GST and source deductions of that company. In finding that these deposits did not constitute a transfer to the taxpayer for purposes of ITA s. 160 (and ETA s. 325), D’Arcy J stated:
[T]he mere placing of funds in a joint bank account does not constitute a transfer. Mr. White … continued to have full access to the funds in the account.
Accordingly, he vacated the s. 160 assessment, and found that the s. 325 assessment could only be made in the smaller amount ($34K) of the transfers that had, in turn, been made from their joint account to the taxpayer’s own bank account.
Neal Armstrong. Summary of White v. The Queen, 2020 TCC 22 under ETA s. 325(1).
Hamilton – Tax Court of Canada finds that an overtime meal allowance qualified under s. 6(1)(b)(vii), but that a nearby location could not be used as a proxy under s. 6(6)(b)(i)
The taxpayer, when working at a remote site for his employer (e.g., providing repair services at a pulp and paper mill) was given a choice of either a living-out allowance of $135.00 daily or a daily meal allowance of $62.50 together with a room (the taxpayer chose the former), and was also provided with an additional overtime meal allowance of $40 which was paid to an employee once he had completed 10 hours of work that day while at the work site.
Campbell J found that the overtime allowance qualified as an exempt “travel” allowance under s. 6(1)(b)(vii), notwithstanding that it was paid regardless of whether an employee was travelling and working remotely, given that in the taxpayer’s circumstances, it in fact was paid in the performance of his employment duties while travelling away from the municipality where he would ordinarily work and away from the employer’s work establishment, and given evidence that the food and room costs in the remote locations were quite high.
The employer also provided the taxpayer with a per‑kilometer allowance based on the distance between a predetermined location (the city hall for Burnaby, where employees such as the taxpayer were based) and the remote work site. In finding that this travel allowance respecting the remote work location could not be excluded from taxable income under s. 6(6)(b)(i), Campbell J stated:
I cannot extend the term “principal place of residence” [in s. 6(6)(b)(i)] to include a pick-up point that is designated by the employer and from which all employees depart. The provision is clear in its intent.
Maybe not so clear. It might be acceptable to base a travel allowance under s. 6(6)(b)(i) based on an approximation or estimate of the number of kilometres between the employee’s principal residence and the remote work site. If so, it is not clear that it should make any difference to base the allowance on a precise measure of the distance between the work site and a location that approximates that of the principal residence.
Neal Armstrong. Summaries of Hamilton v. The Queen, 2020 TCC 23 under s. 6(1)(b)(vii) and s. 6(6)(b)(i).
Tudora – Tax Court of Canada references the principle of judicial comity in following a previous Tax Court decision on the same donation program
After already finding against a taxpayer who had participated in a donation program that had previously been found by Pizzitelli J in Mariano to not work, MacPhee J indicated that this conclusion was confirmed by the principle of judicial comity, which he described as follows:
[U]nder the principles of stare decisis, judges of one Court are not bound by decisions of members of their own Court, but in accordance with the principles of judicial comity, judges should follow the decisions of their colleagues unless there is a cogent reason to depart from a prior decision.
Neal Armstrong. Summaries of Tudora v. The Queen, 2020 TCC 11 under s. 118.1(1) – total charitable gifts and General Concepts – Judicial Comity.
CRA indicates that the s. 86.1(2)(c)(i) U.S.-residence test references central management and control
A U.S. public corporation ('Parentco"), which had two actively-traded classes of common shares, whose respective performance tracked two businesses, wished to spin-off one of the two businesses to the holders of the related tracking shares (the “Original Shares”) as a tax-free distribution for Code purposes. It did so by transferring that business to a newly-incorporated U.S. subsidiary (Splitco) in consideration for Splitco common shares, and then distributing those shares on the Original Shares (with the Original Shares ultimately being cancelled).
In finding that the requirements of ss. 86.1(2)(a) to 86.1(2)(c) for an eligible distribution were met, the Directorate stated, respecting the test in s. 86.1(2)(c)(i) that Parentco and Splitco reside in the U.S. rather than Canada:
The common law principles of central management and control of a corporation must be used in determining the residence of Parentco and Splitco.
It is implicit in this interpretation that the Directorate accepted that the tracking shares were common shares.
Neal Armstrong. Summary of 14 January 2020 Internal T.I. 2018-0785991I7 F under s. 86.1(2).
CRA indicates that a deduction for services donated to an NPO could be offset by imputed barter income
CRA addressed the situation of a non-profit organization (the “NPO”) soliciting in-kind contributions of goods and services from local suppliers, e.g., landscaping services from a landscaper, with the supplier agreeing because it believed that it would benefit from word of mouth advertising and promotion that would result in increased revenues. CRA stated:
[I]f a self-employed landscaper barters landscaping services to a local non-profit organization in exchange for advertising and promotion for their business, the landscaper would be required to include in income the value of the services provided to the non-profit organization. The landscaper would then claim a deduction for advertising and promotion used in the business for the same amount as the total value of the services given up. Additionally, the landscaper could also generally deduct costs of materials, etc., incurred in providing the landscaping services.
Neal Armstrong. Summary of 6 January 2020 External T.I. 2019-0800941E5 under s. 9 – computation of profit.
Income Tax Severed Letters 5 February 2020
This morning's release of four severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Prince – Federal Court of Appeal confirms that a CRA proposal letter is not a judicially-reviewable “decision”
Rennie JA confirmed the decision of Annis J that a CRA “proposal” letter to the taxpayer setting out proposed reassessments for his 2007 to 2016 taxation years and giving him 30 days to provide additional information and representations was not a “decision” that the Federal Court had the jurisdiction to review under the Federal Courts Act. Furthermore, CRA had subsequently reassessed the years in issue and, under ss. 152(8) and 169, such “reassessments [were] valid and binding until set aside by the Tax Court” – so that it was not relevant that, prior to the proposal letter and such reassessments, the taxpayer had requested an internal review of the Minister’s decision not to admit most of the years in question to the voluntary disclosure program.
That previous VDP request was effectively a request for potential relief from penalties and interest, and in this regard Rennie JA noted that CRA had the discretion under s. 220(3.1) to waive such amounts, with such exercise of discretion being “subject to public law scrutiny and remedies in the Federal Court” – so that there was nothing untoward about the taxpayer’s unsuccessful VDP application having been rendered completely moot.
Neal Armstrong. Summaries of Prince v. MNR, 2020 FCA 32 under Federal Courts Act, s. 18.1(3) and ITA s. 152(8).