News of Note
We have translated 10 more CRA interpretations
Email this ContentWe have published a further 10 translations of CRA interpretation released in June and May, 2007. Their descriptors and links appear below.
These are additions to our set of 1,662 full-text translations of French-language Technical Interpretation and Roundtable items (plus some ruling letters) of the Income Tax Rulings Directorate, which covers all of the last 14 ¼ years of releases of such items by the Directorate. These translations are subject to the usual (3 working weeks per month) paywall.
| Bundle Date | Translated severed letter | Summaries under | Summary descriptor |
|---|---|---|---|
| 2007-06-15 | 29 May 2007 Internal T.I. 2006-0217401I7 F - 110(1)d): Moment de la conclusion de la convention | Income Tax Act - 101-110 - Section 110 - Subsection 110(1) - Paragraph 110(1)(d) - Subparagraph 110(1)(d)(ii) - Clause 110(1)(d)(ii)(A) | where options previously granted were not exercisable until an employer “Exercise Notice,” the stock option agreement was made at such notice time |
| Income Tax Act - Section 7 - Subsection 7(5) | not giving exercise notice to employees who are not shareholders (so that they cannot exercise their options) may engage s. 7(5) | ||
| 2007-06-08 | 30 May 2007 External T.I. 2006-0218101E5 F - Interaction entre 125.4(1) et 256(1.2)c) | Income Tax Act - Section 256 - Subsection 256(1.2) - Paragraph 256(1.2)(c) | s. 256(1.2)(c) does not affect the determination of de facto control |
| Income Tax Regulations - Regulation 1106 - Subsection 1106(2) | s. 256(1.2)(c) does not inform the definition of prescribed taxable Canadian corporation | ||
| 28 May 2007 External T.I. 2007-0219801E5 F - Paiement de soutien aux enfants | Income Tax Act - Section 74.1 - Subsection 74.1(2) | child assistance payment is transferred to a minor child is subject to s. 74.1(2) attribution | |
| 4 June 2007 Internal T.I. 2007-0229251I7 F - Montants reçus pour aide personnelle à domicile | Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | no income to parental caregiver in situations similar to Pellerin | |
| 9 May 2007 External T.I. 2006-0189931E5 F - Renonciation à une fiducie par un conjoint | Income Tax Act - Section 69 - Subsection 69(1) - Paragraph 69(1)(b) | renunciation of interest in spousal trust not a disposition to the family beneficiaries | |
| Income Tax Act - Section 248 - Subsection 248(1) - Disposition | extinguishment of trust interests on their renunciation is a disposition of the renounced interest, but resulting variation of trust to accelerate distribution entitlements is not | ||
| Income Tax Act - 101-110 - Section 104 - Subsection 104(4) - Paragraph 104(4)(a) | variation of spousal trust, following renunciation by spouse, to accelerate distribution entitlement of residuary beneficiaries would not engage s. 104(4) until distribution | ||
| Income Tax Act - Section 70 - Subsection 70(6) | variation of spousal trust, following renunciation by spouse, to accelerate distribution entitlement of residuary beneficiaries would not deny s. 70(6) rollover | ||
| 5 June 2007 Internal T.I. 2007-0237291I7 F - Disposition d'une police d'assurance-vie | Income Tax Act - Section 148 - Subsection 148(7) | s. 148(7) applicable to gift of policies by partners to a limited partnership | |
| 30 May 2007 External T.I. 2006-0200271E5 F - Bien agricole et résidence principale | Income Tax Act - Section 40 - Subsection 40(4) | s. 45(3) election did not extend time that farm house was a principal residence, once the occupant went to nursing home | |
| Income Tax Act - Section 45 - Subsection 45(3) | no change of use when occupant of residence moved into a nursing home | ||
| Income Tax Act - 101-110 - Section 110.6 - Subsection 110.6(1.3) - Paragraph 110.6(1.3)(c) | principally references over 50% of use | ||
| 11 May 2007 External T.I. 2006-0214351E5 F - Transfert d'un droit de propriété | Income Tax Act - Section 40 - Subsection 40(2) - Paragraph 40(2)(b) | where duplex co-owned by husband and wife, the one unit occupied by them can be designated as a principal residence – but this changes when daughter moves into the 2nd unit | |
| Income Tax Act - Section 248 - Subsection 248(1) - Property | an occupied unit in a co-owned duplex can be designated as a principal residence | ||
| 2007-06-01 | 24 May 2007 External T.I. 2006-0209081E5 F - Withholding Source Deductions - Trustee Fees | Income Tax Act - Section 248 - Subsection 248(1) - Office | fees if trustees of REIT based partly on the number of meetings they attended were from an office |
| Income Tax Regulations - Regulation 100 - Subsection 100(1) - Remuneration | fees received by REIT trustees including per-meeting fees were salary and wages subject to source deductions and T4 reporting | ||
| 2007-05-25 | 22 May 2007 External T.I. 2007-0228611E5 F - Crédit pour la création d'emplois pour apprentis | Income Tax Act - Section 127 - Subsection 127(9) - Eligible Apprentice | year means 12 months/”contract” for apprentice can be the collective agreement |
4431472 Canada – Federal Court sets aside a CRA decision not to reassess on the basis that it was unclear whether it was a final decision
A Canadian corporation (“443 Inc”) filed its tax returns on the basis that distributions received by it from a trust were distributions of fee income (the “GAM fees”). However, it changed its view and filed amended returns for those years requesting that CRA reassess and issue refunds based on the GAM fees not being income from a source. CRA did not reassess those returns.
Subsequently, CRA assessed the sole individual shareholder of 443 Inc. on the basis that the GAM fees were includible in his income under s. 56(2). He appealed those reassessments to the Tax Court.
443 Inc. sought judicial review of a decision whereby the Minister appeared to make a “final” determination not to proceed with the processing of the amended tax returns of 443 Inc. Pamel J set this decision aside on the basis that it in fact was unclear whether what was decided was (1) an outright refusal to exercise the Minister’s discretion to reassess 443 Inc, so as to issue the requested refunds, or (2) a “finalization” of her earlier proposal to postpone her decision on processing the amended returns until the issue as to whether the GAM fees were income was judicially determined.
In explaining the significance of the distinction between these two alternatives, Pamel J had earlier noted the statement in IT-335R2 regarding s. 56(2) that “it is normally the … CRA … practice not to assess the same income twice." He indicated that if indeed the Minister had made a final determination not to reassess (i.e., the 1st alternative), so that the effect was to clearly impose double taxation (i.e., inclusion of the GAM fees in the hands both of 443 Inc. and its shareholder), “the reasonable corollary decision would be for Minister to take a consistent position in respect of [the shareholder’s] appeal of his reassessments” (i.e., it would be “reasonable” for the Minister to reverse the s. 56(2) reassessments for those years.
Pamel J stated that he would “not order that the matter be returned to the CRA for redetermination at this time,” so that, for the time being, the matter was left to the parties to see if a resolution was possible.
Neal Armstrong. Summary of 4431472 Canada Inc. v. Attorney General of Canada 2021 FC 812 under s. 164(1).
Gélinas – Court of Quebec finds that a Montreal site qualified as a special work site for a 3 ½ year project
The taxpayer, who had purchased a house in Richmond, Quebec in 1999 to reside there with his family, worked for his employer (“GPH”) as a project engineer regarding the construction or expansion of factories. Although normally, on such projects, the client of GPH would pay the accommodation costs of the GPH employees who worked on the project, that was not the case for a project for one of the clients in the Montreal area (about 90 minutes from Richmond), which started in 2014 and lasted for 3 ½ years.
GPH agreed to cover the costs of an apartment in the Montreal area, which the taxpayer’s wife and son moved into, but not their daughter. GPH also paid the taxpayer an allowance of $25 per day for travel to clients and restaurant expenses, plus $37.50 for each trip between the Longueuil apartment and the Richmond house.
In finding that these amounts were not includible in the taxpayer’s income pursuant to the Quebec equivalents of ITA ss. 6(6)(a)(i) and (b)(i), Lapierre JCQ stated:
[T]he fact that the wife and one of the children of the couple also lived in the Longueuil apartment is not very important … .
… Mr. Gélinas returned to his Richmond home frequently, either on weekends or at least once a month for maintenance and insurance requirements. In addition, Mr. Gélinas maintained his relationships with health care professionals in Richmond or its immediate area, and continued to maintain other activities of his personal life there.
Neal Armstrong. Summary of Gélinas v. Agence du revenu du Québec, 2021 QCCQ 4841 under s. 6(6)(a)(i).
Deans Knight – Federal Court of Appeal finds that the object and spirit of s. 111(5) is abused on an arm’s length acquisition of “actual” (albeit, not de jure) control of a Lossco
The non-capital losses of $90M, and other tax attributes of the taxpayer, were effectively sold to arm’s length investors pursuant to transactions under which:
- The existing shareholders of the taxpayer exchanged their shares for shares of a “Newco” (“New Forbes”) under a Plan of Arrangement
- A private company “facilitator” (Matco) entered into an “Investment Agreement” with the taxpayer and New Forbes pursuant to which Matco (principally in consideration for $3M in cash) acquired a debenture of the taxpayer that was convertible into shares representing 79% of its equity shares but only 35% of its voting shares.
- The taxpayer then transferred its assets (including the proceeds of issuing the debenture) and its liabilities to New Forbes.
- Matco then identified a mutual fund management company which wanted to effect a public offering of shares of the taxpayer and use the proceeds (of $100M) for a new bond trading business to be carried on in the taxpayer.
- The subscription price for the newly-issued common shares under this offering caused the securities of the taxpayer held by New Forbes and Matco to appreciate which, in the case of Matco, effectively was its fee.
- New Forbes sold its remaining shares of Lossco to Matco for a pre-agreed price of $0.8M.
Woods JA set the stage by stating:
[I]t must be remembered that the GAAR is intended to supplement the provisions of the Act in order to deal with abusive tax avoidance. I see nothing inconsistent with the conclusion that the object, spirit and purpose of subsection 111(5) takes into account different forms of control even though the text of the provision is limited to de jure control.
In finding that Mateo acquired “actual control” (albeit, not de jure control) of the taxpayer, she indicated that the Investment Agreement provided “severe restrictions on the actions” that New Forbes and the taxpayer could take including prohibiting the taxpayer from “engag[ing] in any activity other than related to a Corporate Opportunity” (e.g., the offering) and required that “New Forbes shall use commercially reasonable efforts to satisfy (or cause the satisfaction of) its obligation to cooperate with Matco in the implementation of a Corporate Opportunity” (para. 101).
As “the Investment Agreement resulted in New Forbes and the Respondent handing over actual control of the Respondent to Matco,” there was an abuse of s. 111(5), and the tax benefit of the taxpayer’s tax attributes were properly denied by CRA.
Neal Armstrong. Summary of Canada v. Deans Knight Income Corporation, 2021 FCA 160 under s. 245(4).
CRA applies Ensite in determining whether assets are “used in the course of carrying on business”
One of the requirements for the continuity rule in s. 127.5(4.2) to apply where there has been an acquisition by an eligible entity of assets from a seller with whom the eligible entity did not deal at arm’s length is that (per s. 125.7(4.1)(b)(i)) “immediately prior to the acquisition, the fair market value of the acquired assets constituted … all or substantially all of the fair market value of the property of the seller used in the course of carrying on business.”
CRA indicated that it was appropriate to apply the Ensite test that “[i]f the withdrawal of the property would have a decidedly destabilizing effect on the corporate operations, the property would generally be considered to be used in the course of carrying on a business.” Accordingly: regarding a situation where the seller (BCo) transferred the “Division Assets” to ACo and retained other assets (the “Other Assets”):
[W]here the Other Assets were employed and risked in BCo’s business such that their withdrawal would have a decidedly destabilizing effect on BCo’s operations, such assets must be considered when ascertaining whether, immediately prior to the acquisition by ACo, the fair market value of the Division Assets constituted all or substantially all of the fair market value of the property of BCo used in the course of carrying on business under subparagraph 125.7(4.1)(b)(i).
Neal Armstrong. Summary of 8 June 2021 External T.I. 2020-0864051E5 under s. 125.7(4.1)(b)(i).
Alexion – Federal Court of Appeal indicates that, post-Vavilov, Courts should no longer “cooper up” administrative decisions under review
The Patented Medicine Prices Review Board found that the appellant (Alexion) had priced a drug (Soliris) excessively given that the list price was higher than the price in one of the seven countries used for comparison purposes. This decision represented a departure from the Board’s guidelines, yet the Board’s reasons for explaining its decision were inadequate (and “obfuscated” on a key point.)
Before quashing the Board’s decision and remitting the matter to it for redetermination, Stratas JA stated:
Before Vavilov, the Supreme Court instructed us to do our best to try to sustain the outcomes reached by administrators. Accordingly, to that end, reviewing courts could pick up an administrator’s pen and write supplemental reasons supporting the administrators’ outcomes. This sometimes put reviewing courts in the invidious and uncomfortable position of acting as a ghostwriter for administrators, coopering up their decisions. …
Vavilov recognizes the shortcomings in the former law and fixes them. It now requires us to ask if there is a sufficient reasoned explanation in support of the Board’s decision. If there is not, the decision is unreasonable and must be quashed.
Neal Armstrong. Summary of Alexion Pharmaceuticals Inc. v. Canada (Attorney General), 2021 FCA 157 under Federal Courts Act, s. 18.1(2).
Income Tax Severed Letters 4 August 2021
This morning's release of three severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA confirms that the s. 87(2)(g.6) and s. 125.7(4.1) continuity rules can be read together
In January 2018, ParentCo acquired all the shares of TargetCo which, until the spin-off described below carried on a single business (the “TargetCo Business”) in Canada. On December 31, 2019, the TargetCo Business was spun-off to a “Newco” subsidiary of ParentCo using conventional s. 55(3)(a) spin-off mechanics, and on January 1, 2020, ParentCo and Newco amalgamated as described in s. 87(1) to form Amalco.
CRA confirmed that the continuity rules in ss. 125.7(4.1) and (4.2) can be applied in conjunction with the continuity rule in s. 87(2)(g.6) (deeming Amalco to be a successor of its predecessors for s. 125.7 purposes provided that one of the main purposes of the amalgamation was not to generate a CEWS or CERS payment). Accordingly, in respect of a particular qualifying period of Amalco, "pursuant to subsection 125.7(4.2) Amalco would be able to include in calculating its qualifying revenue for its prior reference period, the amount of the qualifying revenue of TargetCo for the prior reference period that is reasonably attributable to the TargetCo Business Assets,” given that, by assumption (and as described in greater detail in the letter), the main purpose test and the requirements stipulated in s. 125.7(4.1) in respect of a particular qualifying period would be satisfied.
Neal Armstrong. Summary of 12 April 2021 External T.I. 2020-0863701E5 under s. 125.7(4.1).
Daville Transport – Tax Court of Canada provides for an apportionment of trans-border supplies of fuel and maintenance services for GST/HST purposes [corrected link]
The taxpayer (DTI) used its trucks, and independent contractors as drivers (to whom it paid a per-trip fee), to transport freight in Canada and the U.S. DTI was found by Russell J to bear the costs of the diesel fuel for the trips through the use by the drivers on its behalf of cards (enabling the participating Shell or other station to receive payment out of a prepaid balance made by DTI) and to bear the costs of maintenance of the trucks. He further found that charges made by DTI at the end of each trip to the drivers of $0.76 per mile for fuel, and $0.08 per mile for vehicular maintenance, were consideration for an on-supply by DTI to the drivers of fuel and maintenance services.
After finding that such fuel and diesel supplies were not zero-rated supplies by DTI of “freight transportation service” (which instead were being supplied by the drivers), Russell J found that, given that 69% of the fuel purchases were acquired by DTI at service stations outside Canada and immediately on-supplied to the drivers, it followed (under s. 142(2)(a)) that there was no GST/HST on 69% of the fuel immediately on-supplied by DTI to the drivers.
Regarding the application of s. 142(2)(g) to the maintenance services supplied by DTI to the drivers, Russell J found that, since the evidence was that “95% of DTI’s maintenance/repair expenses was for maintenance/repair provided, i.e., supplied in the U.S.” to it, it followed the 95% on the on-supplies of repair services to the drivers were not “made in Canada” and, thus, not subject to GST/HST. Accordingly, 95% of the maintenance on-supplies of DTI were made by it outside Canada, and were not subject to GST/HST.
S. 142(2)(g) only deems a supply of a service (subject to carve-outs) to be made outside Canada if the service is “to be performed wholly outside Canada.” Implicitly, this case considered it to be inappropriate to regard DTI as making a single supply of maintenance services to a driver who drives both inside and outside Canada, so that the Canadian portion of that single supply taints the service - and instead regarded the U.S. and Canadian services as separate supplies. This is consistent with the Intrawest approach.
Neal Armstrong. Summaries of Daville Transport Inc. v. The Queen, 2021 TCC 47 under Sched VI, Pt. VII, s. 1(1) – freight transportation service, s. 142(2)(a) and s. 142(2)(g).
We have translated 10 more CRA interpretations
We have published a further 10 translations of CRA interpretation released in July and June, 2007. Their descriptors and links appear below.
These are additions to our set of 1,652 full-text translations of French-language Technical Interpretation and Roundtable items (plus some ruling letters) of the Income Tax Rulings Directorate, which covers all of the last 14 years of releases of such items by the Directorate. These translations are subject to the usual (3 working weeks per month) paywall. You are currently in the “open” week for August.