News of Note
CRA indicates that where a GST/HST rebate claimant has underclaimed, it can request an assessment of the claim
Email this ContentWhere a public sector body subsequently realizes that it claimed an inadequate rebate respecting a particular transaction for a particular claim period, ETA s. 262(2) prohibits it from filing a second PSB rebate claim in a subsequent claim period for the missed amount in respect of that same matter (i.e., unlike input tax credits, unclaimed rebates cannot be carried forward), and it is also prohibited from filing a second rebate application for the same claim period under ETA s. 259(6). However, CRA states:
CRA could exercise its discretion and reassess the prior rebate claim to add the amount to the PSB rebate claim for the correct claim period.
Alternatively, an applicant can file an objection to the assessment of its initial rebate application requesting that a missed amount be allowed and/or an adjustment be made for a misstated amount.
If the time limit for objecting has passed, the person can write in and ask for a reassessment of the rebate claim for the particular claim period. …
Furthermore, if an auditor is assessing net tax for the claim period in question, an allowable unclaimed rebate amount for that period must be applied against the assessment of net tax.
If this is missed by the auditor when assessing the person, then CRA can apply the eligible unclaimed rebate amount where an objection has been filed by the person.
Neal Armstrong. Summaries of 22 June 2017 Interpretation 180966 under ETA s. 262(2), s. 296(2), s. 296(2.1), s. 261.4(1)(c) and s. 297(4).
A cross-border butterfly used a 4-party exchange
CRA has now published a ruling issued four years ago on a relatively simple cross-border butterfly of a Canadian spin business (already packaged into a subsidiary of DC) by DC to TC, an indirect subsidiary of Foreign SpinCo, before Foreign SpinCo was distributed up the chain for inclusion in the assets of New Foreign PubCo, which would then be dividended by the current parent (Foreign PubCo) to its public shareholders. Ironically, DC was the product of a prior amalgamation of two corporations carrying on the Canadian spin and keep businesses, respectively.
Rather than using the usual 3-party exchange in order to avoid the application of s. 55(3.2)(h) (see Desjardins and Diksic), here a 4-party exchange was contemplated, i.e., including both the immediate non-resident parent (Foreign SpinCo Sub) and non-resident grandparent (Foreign SpinCo) of TC in a circular exchange of consideration. In the context of this 4-party share exchange, the increase in the paid-up capital in respect of the shares of TC issued to Foreign Spinco Sub occurred "by virtue of the disposition" of the special shares of DC by its foreign parent to TC. Accordingly, s. 212.1(1)(b) (now, s. 212.1(1.1)(b)) applied to grind the PUC of the shares issued by TC to an amount equal to the PUC of the DC special shares.
The butterfly ruling was conditional on the Foreign SpinCo shares never deriving 10% or more of their fair market value from the TC shares or DC special shares.
As in, for example, 2014-0530961R3, there was provision for a second stage transfer of cash by DC to TC if (contrary to expectation, as it was anticipated that, after applying the usual consolidated look through rules, including to foreign subsidiaries, there would be only business property) that was required to satisfy the requirements under the butterfly rules for a pro rata distribution of property of DC.
Neal Armstrong. Summary of 2013 Ruling 2012-0459781R3 under s. 55(1) – distribution.
Burlington Resources Finance – Tax Court of Canada states that taking discovery questions “under advisement” should stop
CRA disallowed, in full, under s. 247(2)(a), the deduction by Burlington of guarantee fees paid to its U.S. parent. Justice brought a motion respecting 1200 of their questions posed in the examination for discovery, on the basis that Burlington had either improperly refused to answer, or not fully answered, the questions. Part of the concern of Burlington’s U.S. parent was that it had voluminous boxes of documents stored in various departments which had been largely indexed by each department, but with no central indexing system being available. The overall approach of D’Auray J was reflected in her comment that:
I am not persuaded that the costs, time, and effort involved for Burlington to respond to any relevant questions would be disproportionate, given the amount of money involved which according to the Respondent is close to $100 million, the importance of the case and the complexity of the issues. Proportionality must not defeat the purposes of discovery… .
However, in what might be a significant concession to Burlington, she stated:
Where Burlington is ordered to answer questions, it will not need to search beyond the indexes. In other words, a truly unguided rifling through 12,000 boxes would not be required.
Approximately 1700 questions were taken “under advisement.” D’Auray J stated:
In my view, the practice of using the quasi-objection “under advisement” needs to stop. It is not a response contemplated by section 107 of the Rules.
Neal Armstrong. Summary of Burlington Resources Finance Company v. The Queen, 2017 TCC 144 under Tax Court of Canada Rules (General Procedure), s. 95(2), s. 107(1).
CRA finds that a holding LP for a commercial real estate LP was not engaged in a commercial activity for GST purposes
CRA found that a limited partnership, whose only asset was an interest in a real estate development limited partnership, was engaged only in the making of exempt financial services.
Neal Armstrong. Summary of 19 May 2017 Interpretation 178323 under s. 123(1) – financial service – para. (d).
Income Tax Severed Letters 16 August 2017
This morning's release of three severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Cameco - Federal Court finds that s. 231.1(1)(d) does not accord CRA an unfettered right to interview taxpayer personnel
Cameco appealed transfer-pricing assessments to the Tax Court. CRA then audited subsequent years, where essentially the same issues arose, and applied to the Federal Court for an order compelling Cameco to submit 25 listed employees of it and subsidiaries to CRA interviews.
McVeigh J rejected this application. First, CRA essentially was reading the requirement in s. 231.1(1)(d) - that personnel at the audited premises “answer all proper questions relating to the administration…of this Act” – out of context. S. 231.1(1)(d) was subject to the requirement in the s. 231.1(1) mid-amble that it must relate to the matters (principally respecting the audit of books and records) referenced in s. 231.1(1)(a) and (b).
Second, the Tax Court rules contained various procedural safeguards respecting the examination of the taxpayer’s personnel. In the context of the earlier years being under appeal, CRA’s requested interviews would have represented an end run around the Tax Court rules.
Neal Armstrong. Summary of Cameco Corp. v. Canada (National Revenue), 2017 FC 763 under s. 231.1(1)(d), Tax Court Rules, Rule 95 and Statutory Interpretation - Redundancy.
Seven further full-text translations of CRA technical interpretations/Roundtable items are available
Full-text translations of a further three items from the October 10. 2014 APFF Roundtable, and of three technical interpretation released on December 3, 2014, are listed and briefly described in the table below. In addition, last week CRA released a technical interpretation (2017-0683511E5 F, respecting the use of s. 55(3)(a) to distribute cash otherwise than from safe income likely being abusive) which we published in French and translated form several months ago.
These (and the other translations covering the last 32 months of CRA releases) are subject to the usual (3 working weeks per month) paywall.
CRA considers that a trade union under s. 8(1)(i)(iv) need not be certified
S. 8(1)(i)(iv) provides for deductibility from employment income of annual dues paid to maintain membership in a trade union. CRA considers that a trade union is “an association whose primary purpose is to collectively negotiate with an employer to further the working conditions of its members” and that “an association does not have to be certified trade union in order to be considered a trade union” including, in this case, an association where management automatically become members of the association when hired by the employer.
Neal Armstrong. Summary of 5 May 2017 External T.I. 2016-0681161E5 under s. 8(1)(i)(iv).
Grenon – Federal Court of Appeal finds that a refund of tax paid to a taxpayer after reversal of a jeopardy order should bear interest
A taxpayer, who appealed a $200 million reassessment to the Tax Court, then received a jeopardy order requiring him to pay the assessed tax notwithstanding that it was still under appeal. He made a partial payment – but then the jeopardy order was reversed on consent.
Webb JA found that the taxpayer was entitled to interest on the refund to him of the partial payment. He was influenced by the fact that if this amount had not been requested to be repaid and the taxpayer’s appeal was successful, the taxpayer would be entitled to refund interest, whereas if he was unsuccessful, the Crown would collect interest on the partial repayment amount that in fact was made.
Neal Armstrong. Summary of Grenon v. Canada (National Revenue), 2017 FCA 167 under s. 164(1.1).
CRA rules on double German profit transfers (under “PTAs”)
Under an “Organschaft,” a German parent and its German subsidiary can enter into a profit transfer agreement (PTA) in which the subsidiary agrees to annually transfer its entire profit determined in accordance with German (statutory) GAAP to the parent. In 26 May 2016 IFA Roundtable Q. 6, 2016-0642081C6, CRA confirmed that, at least in the simple case of a parent wholly-owning a subsidiary with a single class of shares, the annual profit transfers will be deemed to be dividends under s. 90(2) and, thus, not foreign accrual property income to the direct or indirect Canadian parent of the German parent.
Last week, CRA released a ruling, that was requested in 2015, and which might have been the provenance of the 2016 IFA announcement. It dealt with double (i.e., back-to-back) PTA transfers from German grandchild to German child to German parent (all of them, CFAs). The ruling letter includes some helpful background on the German PTA regime.
Neal Armstrong. Summaries of 2016 Ruling 2015-0617351R3 under s. 90(2) and s. 87(8.1).