News of Note
CRA indicates that the HST rebate for books is unavailable for audio books where a printed version does not exist
Email this ContentThe participating provinces provide point-of-sale rebates for “printed books.” CRA considers that this rebate is available for audio books provided that there is already a pre-existing printed version of the book.
Neal Armstrong. Summary of 8 March 2018 CBA Roundtable, Q.23 under Deduction for Provincial Rebate (GST/HST) Regulations – Sched.1 – s. 1.
We have 666 translations of CRA French-language interpretations!!
Well, 670 actually. The table below provides descriptors and links for six 2012 APFF Roundtable Interpretations as well as for an earlier interpretation (included somewhat out of sequence), all as fully translated by us.
These (and the other full-text translations covering all of the French-language Interpretations released in the last 5 2/3 years by the Income Tax Rulings Directorate) are subject to the usual (3 working weeks per month) paywall.
Making an s. 95(12) election may permit a Canadian to benefit from having active business income in its cell of a cell company
The tracking interest rules in the 27 July 2018 draft legislation can apply inter alia to cell companies for which each cell is a class of shares that tracks to specified property or activities, and each is insulated from the liabilities of all the other cells of the corporation. (LLC membership agreements can be drafted to produce a somewhat similar effect.)
In the absence of an s. 95(12) election, the general effect of s. 95(10) is that foreign accrual property income (FAPI) is allocated (pursuant inter alia to Reg. 5904) to the Canadian cell holder taking into account its dividend entitlement. This “base rule can create FAPI computational issues when there is insufficient information on some cells, create CFA status when it would not arise if the cell was a separate corporation, or cause a Canadian to pick up a pro rata share of the corporation's FAPI whether or not it arises from the Canadian's cell.”
These issues can be addressed or alleviated by making the s. 95(12) election to effectively deem the relevant cell to be a separate corporation. One of the potential advantages of making this election that is not mentioned in the Explanatory Notes is that the Canadian’s cell may earn active business income and disproportionately low FAPI, so that the FAPI pickup of the Canadian may be lowered if it comes exclusively from the Canadian’s cell.
Neal Armstrong. Summaries of Nathan Boidman, “Canada Targets Conduits and Tracking Shares,” Tax Notes International, September 17, 2018, p. 1223 under s. 95(9) and s. 95(12).
CRA has officially released its 2018 STEP Roundtable answers
Although most of the CRA responses to questions posed at the May 29, 2018 STEP Roundtable have already been commented on by us, we are providing the following table (with descriptors, and links to the responses officially released this week under the Severed Letter Program) for convenience of reference.
LPIC – Tax Court of Canada finds that LPIC is not exempt under s. 149(1)(d.5) because its owner (the Law Society) merely regulates lawyers rather than governing Ontarians
Whether LPIC, which was a subsidiary of the Law Society of Upper Canada, qualified as a tax exempt, turned on whether the Law Society satisfied the condition in s. 149(1)(d.5) of being a “public body performing a function of government in Canada.”
The Law Society got through the first part of the quoted phrase because it satisfied the “three-part English test” for being a “public body,” which was that “the entity must have a duty to the public, it must be subject to a significant degree of government control and it must not use any of its profit for the personal benefit of its members.” However, it failed the “function of government” test. D’Arcy J stated:
The Law Society performs its various functions in the course of regulating the legal profession, not in the course of governing people located in Ontario.
Neal Armstrong. Summary of Lawyers' Professional Indemnity Company v. The Queen, 2018 TCC 194 under s. 149(1)(d.5).
CRA suspends its proposal to impose advantage tax, where RRSP or TFSA fees are paid by the annuitant or holder, pending a Finance review
In 29 November 2016 CTF Roundtable Q. 5, 2016-0670801C6, CRA indicated that the payment of fees for investment management of an RRSP, RRIF or TFSA by the plan annuitant or holder typically would now be considered as an “advantage” giving rise to tax under s. 207.05(1) equal to 100% of the fee amount (noting inter alia under the hypothetical arm’s length test in s. 207.01(1) – advantage - (b)(i) that it would not be “commercially reasonable for an arm’s length party to gratuitously pay the expenses of another party”) - but that it would defer applying this new position until January 1, 2018 (subsequently extended by 2017-0722391E5 to January 1, 2019).
Hot on the heels of releasing its new Folio on Advantages, CRA has now stated:
[W]e will be deferring implementation of the position pending completion of a review of the issue by the Department of Finance Canada.
Neal Armstrong. Summary of 28 September 2018 External T.I. 2018-0779261E5 under s. 207.01(1) - advantage - (b)(i).
Income Tax Severed Letters 3 October 2018
This morning's release of 19 severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA finds that repairing a fire-damaged condo qualifies as a service re the occupancy or use of the condo
ETA Sched. V, Pt. I, s. 13 exempts a supply of property or a service by a condo corp to the owner of a condo unit “if the property or service relates to the occupancy or use of the unit.” CRA found that this exemption applies where, after a fire in a condo unit, the condo corp pays a contractor to perform restoration work, funded out of insurance proceeds. Accordingly, the condo corp would not be entitled to an input tax credit for the GST/HST charged to it by the contractor
Neal Armstrong. Summary of 8 March 2018 CBA Roundtable, Q.21 under Sched. V, Pt. I, s. 13.
Chi - Federal Court gives an individual who failed to produce foreign bank statements following a compliance order another chance to avoid imprisonment
An individual (Chi) failed to supply bank statements for three accounts at a Hong Kong HSBC bank branch pursuant to a s. 231.2(1) requirement and also pursuant to a subsequent compliance order issued under s. 231.7.
LeBlanc J found Chi to be in contempt. After noting that there were mitigating factors calling for a milder sentence than in other cases, he ordered Chi to pay a fine of $2,000, legal costs of $3,500, and provide the HSBC bank statements (or documented evidence that they were not available) all within 30 days, failing which Chi would be subjected to 15 days’ imprisonment.
Neal Armstrong. Summary of Canada (National Revenue) v. Chi, 2018 FC 897 under s. 231.7(4).
Discretionary family trusts may increase the impact of the passive income rules
Under the passive income proposals as implemented, the $500,000 small business limit for a taxation year of a Canadian-controlled private corporation is reduced to nil if the CCPC together with any associated corporations earned over $150,000 of passive income (“adjusted aggregate investment income”) in their taxation years ending in the preceding calendar year. A beneficiary of a discretionary family trust is deemed under s. 256(1.2)(f)(ii) to own all of the shareholdings of the trust, and if a minor is a beneficiary of a trust, ss. 256(1.3) and 256(1.2)(f)(ii) or (iii) generally will look through the trust and the minor to deem the minor’s parents to own the shares held by the trust as though the parents were beneficiaries. These and other association rules may cause the small business deduction to be lost. For example, an adult child’s corporation might be associated with those of the parents due to a testamentary trust.
Neal Armstrong. Summary of Michael Goldberg, "The Passive Investment Rules and Their Associates", Tax Topics (Wolters Kluwer), No. 2426, September 6, 2018, p. 1 under s. 125(5.1).