News of Note
Six further full-text translations of Technical Interpretations are available
Email this ContentFull-text translations of the six French technical interpretations that were released between April 1, 2015 and March 11, 2015 are listed and briefly described in the table below.
These (and the other translations covering the last 26 months of CRA releases) are subject to the usual (3 working weeks per month) paywall.
CRA rules that the Alberta carbon tax is subject to GST
CRA has ruled that a natural gas distributor is required to include the Alberta carbon-tax levy (which it is required to collect from its customers) in the value of the consideration for such natural gas supplies for GST purposes – so that effectively the Canadian government is imposing GST on the Alberta carbon tax. Ruling 168521r (re imposing HST on the Ontario tire recycling levies) is somewhat similar.
Neal Armstrong. Summary of 9 February 2017 Ruling 181234 under ETA s. 154(2)(b).
TD Bank – BC Court of Appeal finds that the B.C. Commissioner improperly restricted herself to applying only the published guidelines on extending a return-filing deadline
TD made an unsuccessful submission that because a taxation year ends on the very last instant of the year's last day, a B.C. provision requiring TD to file a return “within 18 months after the end of [its] taxation year” ending on October 31, 2012 was satisfied by delivering its return on May 1, 2014 rather than the previous day. (ITA s. 37(11), for instance, and the relevant federal Interpretation Act provision (respecting excluding the first day, and counting the last day, in a period) have equivalent wording to the relevant B.C. provisions.)
The B.C. authorities had refused TD’s request for a retroactive one-day extension of the filing deadline on the basis (set out in a somewhat related policy statement) that there were no “extraordinary circumstances that [were] beyond the claimant’s control, such as fire, flood, earthquake or a serious illness.” Applying Stemijon, Frankel JA stated, before remitting the extension application for reconsideration:
While it was open to the Commissioner to have regard to Ministry of Finance policy statements, she erred in treating them as the only relevant consideration. … By doing so, she fettered the broad [statutory] discretion given to her…and her decision is, therefore, unreasonable.
Neal Armstrong. Summary of Toronto Dominion Bank v. B.C. (Commissioner of Income Tax), 2017 BCCA 159 under Interpretation Act, s. 27(4) and ITA s. 220(3.2) and s. 37(11).
Finance confirms that the intention of the s. 15(2.17) rule is to limit the imputation of a shareholder loan to Canco to the amount of Canco’s advance
USCo and Canco deposit $100 and $50, respectively, into a cross-border third–party notional cash pool structure under which two affiliated non-residents (LuxCo and UKCo) each have a $60 overdraft. Each of Luxco and UKCo, as the intended borrowers, would be considered to have received a loan from Canco of $50, so that there is a deemed shareholder loan of $100 under s. 15(2.17) even though Canco only advanced $50.
Finance indicated that in these circumstances, the intention of the back-to-back shareholder loan rules is to limit the aggregate amount of loans that Canco is deemed to make under those rules, to the amount that Canco has lent to the immediate funder. This is consistent with the general policy of the rules, which is to ensure that the shareholder loan rules are not avoided to the extent that a Canadian corporation provides debt-funding to its shareholders indirectly through one or more intermediaries.
Neal Armstrong. Summary of 26 April 2017 IFA Finance Roundtable, Q.13 under s. 15(2.17).
Finance states that the B2B s. 212(3.6)(a) rule was intended to potentially apply re common share dividends
Canco pays interest on an interest-bearing loan from its parent, Forco 2, which declares and pays dividends on its common shares held by Forco 1. Was there an intent that s. 212(3.6)(a) would not apply given that there is no obligation in the common share terms to declare any dividends?
Finance indicated that the intention was to capture not only preferred dividends, but also common-share dividends on the basis that a dividend declaration on common shares generates an obligation to pay the dividend. However, whether the rule applied would depend on whether the linkage test was met, which would require consideration of relevant factors such as the timing and quantum of the dividend payments.
Neal Armstrong. Summary of 26 April 2017 IFA Finance Roundtable, Q.12 under s. 212(3.6)(a).
Finance blesses a CRA workaround for dealing with an upper-tier blocking deficit respecting an upstream loan
Forco 2 which has exempt surplus of $1,000, is held by Canco through Forco 1, which has an exempt deficit of $100 (and no pre-acquisition surplus). Forco 2 makes three successive loans of $100 directly to Canco. In policy terms, Canco should be entitled to a full s. 90(9) reserve for all three loans but, under the current wording, the exempt deficit effectively blocks each successive loan.
Finance noted that although the general policy is that Canco should be permitted to receive the loans without a deemed dividend to the extent that actual distributions would produce that result, this particular situation was amenable to the work-around described at 2016 Roundtable Q.5 (i.e., Forco 2 lends to Canco via Forco 1). However, if taxpayers nonetheless have a “live issue,” Finance would be interested in hearing from them.
Neal Armstrong. Summary of 26 April 2017 IFA Finance Roundtable, Q.11 under s. 90(9).
Finance is contemplating relief for where upstream loans no longer are synthetic distributions
The general policy intent of the upstream loan rules is to ensure that a synthetic distribution by way of an upstream loan from a foreign affiliate should produce comparable tax results to an actual distribution. Accordingly, Finance is thinking about devising expanded relieving rules to provide a deemed repayment of an upstream loan upon the occurrence of specified triggering events which effectively eliminate the equivalent of a synthetic distribution. An obvious “poster child” triggering event is a cash sale by Canco of a foreign affiliate that had made a (still-outstanding) upstream loan to it. However, Finance would prefer not to introduce relieving triggering events on a piecemeal basis and, instead, would prefer to do a complete analysis of to what extent relief should extend to more complex situations.
In the meantime, taxpayers have available work-arounds to use in situations such as the poster child rather than requesting ad hoc relief. In this regard, Finance referred approvingly to 2013-0491061R3, which it described as a temporary repayment of a loan, in the course of transactions in which the creditor foreign affiliate ceases to be an FA of the taxpayer, being treated as a permanent repayment and not part of a series of loans and repayments.
Neal Armstrong. Summary of 26 April 2017 IFA Finance Roundtable, Q.10 under s. 90(14).
Foote – Tax Court of Canada finds that a senior stock broker realized gains on a small personal portfolio on income account
The co-head of institutional trading at a full-service brokerage, who engaged in active stock trading in his personal account for the last 10 months of 2009 (with an average hold period of about 50 days), was found by Boyle J to have realized his gains on income account, notwithstanding the relatively small size of his portfolio (starting at $650,000) relative to his employment income, and the fact that he significantly underperformed the stock market. In addition to the active trading, Boyle J was significantly influenced by the taxpayer being involved in trading qua employee (i.e., the brokerage would take short-term positions for its own account, and the taxpayer “gleaned relevant market information as part of his daily job”).
Neal Armstrong. Summary of Foote v. The Queen, 2017 TCC 61 under s. 9 – capital gain v. profit – shares.
CRA notes issues on the GST/HST boundary line between qualified acupuncturist supplies and taxable supplies
The supply by a “practitioner” of acupuncture services was exempted effective February 12, 2014. One complication is that the profession is not provincially regulated in smaller provinces (Manitoba, Saskatchewan, Prince Edward Island, Nova Scotia and New Brunswick). CRA helpfully suggests that those with acupuncture practices in those provinces “contact the regulatory body in any of the regulated provinces to determine if their qualifications are equivalent to those necessary to be licensed or otherwise certified in that province,” so as to determine if they qualify as “practitioners.”
Mixed supply issues may also arise. CRA provides an impractical example of a dual-qualified professional who meticulously invoices for 40 minutes of acupuncture and 20 minutes of massage therapy, and states that it would assume that there were separate supplies of massage therapy (which is not exempted) and of acupuncture. A sale of herbal goods would also not be assimilated to the acupuncture supply (and would not be zero-rated as a grocery supply).
Neal Armstrong. Summaries of GST/HST Technical Information Bulletin B-110 “Application of the GST/HST to the Practice of Acupuncture” April 2017 under ETA, Schedule. V, Pt, II, s. 7, s. 1 – practitioner, Sched. VI. Pt. III, s. 1.
CRA indicates that the transfer of an oil and gas lease was not eligible for the s. 167 GST election
CRA indicated that the transfer of an interest in an individual “lease” of oil and gas property which may be operating under a joint venture agreement likely would not constitute a supply of part of a business for ETA s. 167 purposes given that this would not be associated with the transfer of any other assets and it might represent only one of the assets in a field held by the vendor.
Neal Armstrong. Summary of 3 February 2017 Interpretation 158436 under ETA s. 167(1).