News of Note
Green – Tax Court of Canada finds that a severe anxiety disorder qualified the taxpayer for the disability tax credit
Email this ContentWhether the taxpayer was entitled to the disability tax credit turned on whether her anxiety disorder represented a mental impairment that markedly restricted her ability to perform one or more basic activities of daily living substantially all the time. The particular focus was on whether she satisfied this test re mental functioning as defined in s. 118.4(1)(c.1)(iii) (“adaptive functioning”) OR s. 118.4(1)(c.1)(ii) (“problem-solving, goal-setting and judgment (taken together)”). Monaghan J found that the taxpayer satisfied both tests, respecting her 2015 and subsequent taxation years (but not the prior 5 years, where the effects were less severe).
Respecting the satisfaction of the s. 118.4(1)(c.1)(iii), she stated that the taxpayer’s disorder impaired her abilities respecting “self-care, health, safety, social skills, and common simple transactions in life (i.e., the mental function necessary for daily living) and her independence to do so.”
Respecting the s. 118.4(1)(c.1)(iii) test, Monaghan J stated:
Ms. Green’s behaviour is not illogical, but her choices are affected by her anxiety. … Her anxiety causes a lot of avoidance, procrastination and withdrawal, which assists Ms. Green in coping with her anxieties, but has led to other problems, such as failing school, loss of employment, self-harm activities, reluctance to pursue therapy, and taking on too many projects.
Neal Armstrong. Summary of Green v. The Queen, 2019 TCC 74 under s. 118.4(1)(c.1).
CRA analyses the consequences of the recipient of trust distributions not in fact qualifying as a beneficiary
As a discretionary irrevocable personal family trust, which had non-resident beneficiaries (Y and Y’s spouse (Z)), was approaching the 21-year deemed realization date, its trustees resolved to distribute an equal share of the Trust’s assets to each of Y and Z to the complete exclusion of any other beneficiary (the “vesting”). After the vesting, Y and Z assigned their respective capital interests in the Trust under s. 85(1) to an unlimited liability company (“ULC”).
CRA found that ULC did not become a beneficiary under the Trust (notwithstanding that it was the valid assignee of a beneficiary) as the Trust indenture defined “Beneficiary” to mean Y, Y’s spouse (Z) and Y’s issue, and the trustees were not empowered to vary the Trust or to add new beneficiaries. This meant:
- Taxable dividends paid by the Trust to ULC were includible in the income of Y and Z under s. 104(13), i.e., were subject to Part XIII tax under s. 212(1)(c).
- Similarly, the subsequent transfer of the Trust’s assets to ULC was for the benefit of Y and Z, so that s. 107(2.1) applied to generate fair market value proceeds to the Trust.
- The trustees could not recharacterize, as capital, the taxable dividend income received by the Trust.
- If Y and Z argued that s. 104(13) did not apply to them because no amount was payable to them in the year, CRA would apply s. 56(2) or (alternatively) s. 105(1) to include the dividend amounts in their income – but without any s. 104(6) deduction to the Trust.
Neal Armstrong. Summaries of 8 June 2018 Internal T.I. 2017-0683021I7 under s. 104(13), s. 107(5), s. 56(2) and s. 105(1).
CIBC – Tax Court of Canada finds that Aeroplan Miles were supplied by Aeroplan to CIBC as a GST taxable service
CIBC was charged by Aeroplan for the number of Aeroplan Miles that were credited to the cards of CIBC cardholders. CIBC argued that these fees were (1) consideration for intangible personal property (the Aeroplan Miles) that were supplied by Aeroplan, and (2) that such IPP was exempted from GST as being a supply of “gift certificates.”
CIBC perhaps should have succeeded on the first argument – but did not, because two things went against it. First, the drafting of its agreement with Aeroplan was unhelpful: it stated that the fees were paid for referral and arrangement (i.e., promotional) services of Aeroplan and that all other services of Aeroplan were “incidental.” Second, a key CIBC witness testified that the Aeroplan Program allowed CIBC “to attract more customers.”
Based on his finding that CIBC received a taxable service, it was unnecessary for Visser J to consider the second argument – but he did anyway, and found that the Aeroplan Miles did not qualify as gift certificates, stating:
Parliament intended a gift certificate to be an equivalent to money, and to have attributes similar to money. … Aeroplan Miles … fatally ... do not have a stated monetary value.
Neal Armstrong. Summaries of Canadian Imperial Bank of Commerce v. The Queen, 2019 TCC 79 under ETA s. 123(1) – supply, s. 123(1) – service, s. 181.2.
Income Tax Severed Letters 24 April 2019
This morning's release of four severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Trover – Tax Court of Canada finds that a dividend by a sole director could not be backdated to when there was another director
While Ms. Trover was separated from Mr. Trover, their jointly-owned company (Cove) paid amounts into their joint bank account. That same year, she ceased to be a shareholder and director of Cove, and in the subsequent year Mr. Trover, who was now Cove’s sole director and shareholder, purported to sign a resolution that retroactively treated a portion of the amounts paid into their joint bank account as having been a dividend payment by Cove to her. She had not agreed to this treatment.
In finding that Ms. Trover had not received this amount as a dividend (and in reversing the assessment including that amount in her income), Monaghan J stated:
I accept that practice in the “real world” does not always conform with best practice. … [and] that directors and/or shareholders may make a decision and act upon it, even though they may not record that decision in writing until a later date. But that cannot be said to have happened here. All of the evidence is that the only two relevant people, Mr. and Ms. Trower, never agreed that the transfers would be dividends. The decision was a unilateral one by Mr. Trower. He did not have that power before he became the sole shareholder and director.
Neal Armstrong. Summary of Trower v. The Queen, 2019 TCC 77 under s. 82(1)(a).
CRA shows some flexibility as to allocating out of Canada net premiums
Reg. 403(4), in its application to a non-life insurer whose only permanent establishments are in Canada but which earns net premiums from insuring risks outside Canada (“out of Canada net premiums,” or “OCNP”), requires the insurer to allocate the ONCP to the provinces for the Canadian permanent establishments to which they are “reasonably attributable in the circumstances.”
CRA has indicated some flexibility in applying the quoted phrase. It stated that the phrase “denotes … a direct causal connection … between the OCNP and the PE taking in account all the applicable facts of the case.” However:
[W]here a taxpayer has made an allocation under subsection 403(4) and the taxpayer’s approach is reasonable, the CRA should not require the taxpayer to use a different method of allocation. …
[T]he allocation of the OCNP based on where the policies are underwritten … appears to be a reasonable method. Similarly, allocation of the OCNP on some other basis, such as where the contracts are negotiated or serviced … may also be reasonable … .
Neal Armstrong. Summary of 24 October 2018 Internal T.I. 2018-0741041I7 under Reg. 403(4).
CRA finds that an award received by unionized employees based on an unfair labour practice of their employer was a non-taxable receipt
Before concluding that lump-sum awards that the Labour Board ordered an employer to pay to employees for having committed an unfair labour practice would likely “constitute non-taxable damages that are excluded from income,” CRA noted that the awards were made pursuant to a provision of the applicable Labour Relations Act that was “limited to situations where an employee has not otherwise suffered a loss of income, benefits, etc. as a result of the unfair labour practice.”
Neal Armstrong. Summary of 19 March 2019 External T.I. 2018-0748731E5 under s. 3.
Kyard Capital – Court of Quebec finds that it was unnecessary to waive privilege in order to substantiate the nature of legal services provided
The individual taxpayer (“Fontaine”), who was the president and majority shareholder of a corporation (“Kyard”), was assessed under the Quebec equivalent of s. 15(1) when Kyard paid his fees for defending against an action brought against him by his ex-spouse. He did not disclose to the ARQ the text of the legal accounts on the grounds of privilege. In this regard, Chalilfour JCQ noted that this decision to not waive the privilege made Fontaine’s task more difficult but should not be “fatal,” stating that “Otherwise taxpayers would be required to waive professional privilege.” Cf. Orth.
She then accepted Fontaine’s testimony (without any real documentary corroboration) that the action had been defended as a threat to Kyard’s business - so that he had not received a taxable benefit.
Neal Armstrong. Summaries of Kyard Capital 2007 Inc. v. Agence du revenu du Québec, 2019 QCCQ 1617 under s. 15(1) and s. 6(1)(a).
CRA’s policy re employee discounts on merchandise does not extend to discounted services, e.g., no commissions on insurance
CRA stated that as its “administrative position concerning discounts on merchandise and commissions from personal purchases does not apply to discounts on services,” employees of an insurance broker who acquired insurance coverage for personal purposes (e.g., home or automobile insurance) should generally recognize a taxable benefit equal to the commission customarily charged by their employer for such coverage and which was not charged to them.
Neal Armstrong. Summary of 26 March 2019 External T.I. 2017-0729441E5 under s. 6(1)(a).
6 more translated CRA interpretations are available
We have published a further 6 translations of CRA interpretations released in March 2012. Their descriptors and links appear below.
These are additions to our set of 837 full-text translations of French-language Rulings, Roundtable items and Technical Interpretations of the Income Tax Rulings Directorate, which covers the last 7 years of releases by the Directorate. These translations are subject to the usual (3 working weeks per month) paywall.