News of Note
CRA states that substantially renovating the personal-use portion of a rental property (without changing floor areas) generally would not engage the change-of-use rules
Email this ContentCRA considers a real estate property that has not been partitioned to be a single property. Thus, for example, if a duplex containing two identical units with unit 1 used for personal purposes and unit 2 being rented out, has a reversal of use, so that unit 1 starts to be rented out and unit 2 to be used for personal purposes, the change of use rules would not apply, because the rental-property use of this single property stays at 50%. When asked what would happen if unit 2 then was substantially renovated so that its relative value increased, CRA stated that this:
would not in itself have the effect of changing the relation between the use regularly made by the taxpayer of the property for gaining or producing income and the use regularly made of the property for other purposes. Our comments would be different if the renovation had the effect of changing the relative area of each unit.
Neal Armstrong. Summaries of 2 February 2017 Quebec CPA Individual Taxation Roundtable, Q.1.4, 2016-0674831C6 Tr under s. 45(1)(c) and s. 4(1)(a).
CRA considers that a gifted home can qualify for the HBTC
CRA considers that the acquisition of a first home by way of gift (e.g., from parents) rather than as a purchase does not preclude access to the first-time home buyer’s tax credit.
Neal Armstrong. Summary of 2017 Quebec CPA Roundtable, Q.1.8, 2016-0674851C6 Tr under s. 118.05(1) – qualifying home – para. (a).
CRA implies that income on which the SBD is deliberately not claimed is subject to a punitive rate of corporate tax
It was suggested to CRA that a Quebec CCPC that was not eligible for the Quebec small business deduction might choose not to claim the federal SBD because, although this would increase its combined corporate tax from 22.3% to 26.9%, all its income could then be distributed as eligible dividends.
CRA demurred, indicating that not claiming the SBD would not have the effect of increasing the amount of taxable income which was eligible for the general rate reduction of 13% under s. 123.4(2): such taxable income is reduced by the amount of income eligible for the SBD, irrespective of whether it is claimed. This seems to suggest that the income on which the SBD could have been, but was not, claimed would be subject to corporate income tax of around 40%.
Neal Armstrong. Summary of 2017 Quebec CPA Roundtable, Q.1.1, 2016-0674221C6 Tr under s. 123.4(1) – full rate taxable income.
Income Tax Severed Letters 15 March 2017
This morning's release of eight severed letters from the Income Tax Rulings Directorate is now available for your viewing.
The amalgamation or winding-up of a sub vapourizes its losses for Ontario CMT purposes
The eligible losses of a subsidiary for Ontario corporate minimum tax purposes disappear when it is amalgamated with, or wound-up into, its parent.
Neal Armstrong. Summaries of 26 October 2016 Internal T.I. 2016-0625041I7 under Taxation Act 2007 (Ont.), s. 58(4.1), s. 58(5).
Eligible losses for Ontario CMT purposes are not affected by changes in the Ontario allocation factor
A corporation that becomes subject to Ontario corporate minimum tax (e.g., as a result of acquiring an Ontario permanent establishment) will be required to determine its eligible losses as if it had been subject to CMT in previous taxation years. There is no provision in the Taxation Act to adjust eligible losses to reflect changes in a corporation’s Ontario allocation factor.
Neal Armstrong. Summary of 15 November 2016 Internal T.I. 2016-0656351I7 under Taxation Act 2007 (Ont.), s. 58(2).
Corporations on IFRS should use “total comprehensive income” as their starting point for determining adjusted net income for Ontario CMT purposes
Where a corporation uses IFRS, it should use “Total comprehensive income” as a starting point in determining its adjusted net income/adjusted net loss (ANI/ANL) for Ontario corporate minimum tax purposes provided that the consolidation and equity methods of accounting are not used. However, some items reported in the “Statement of Comprehensive Income” may need to be removed in arriving at its ANI/ANL. “For example, adjustments for unrealized mark-to-market gains/losses on assets that are not required to be included in computing income for income tax purposes are not included in ANI/ANL for CMT purposes.”
Neal Armstrong. Summary of 14 November 2016 Internal T.I. 2015-0600281I7 under Taxation Act 2007 (Ont.), s. 54(2)(a).
Bad drafting of spousal trusts can sometimes be handled
Drafting that provides for the payment of income to or “for the benefit” of a spouse likely does not taint a spousal trust.
A disclaimer should result in the disclaiming beneficiary being treated as never having had the property or interest in question, so that it should be possible for a disclaimer of a bad potential entitlement to untaint an otherwise tainted spousal trust. A contrary view expressed in Gilbert Estate was incorrect.
Purposes coming within the Pemsel charitable heads include a trust for one’s poor relations or needy employees, for research that increases and disseminates knowledge and for the support of the arts.
Neal Armstrong. Summaries of Elie Roth, Tim Youdan, Chris Anderson and Kim Brown, "Classification of Trusts for Income Tax Purposes", Chapter 2 of Canadian Taxation of Trusts, (Canadian Tax Foundation), 2016, including under s. 70(6)(b) and s. 149.1(1) – charitable foundation.
Further full-text translations of severed letters from July 2015 are available
Full-text translations of six technical interpretations released in French between July 29, 2015 and June 30, 2015 are now available - and are listed and briefly described in the table below.
These (and the other translations covering the last 20 months of CRA releases) are subject to the usual (3 working weeks per month) paywall.
| Bundle Date | Translated severed letter | Summaries under | Summary descriptor |
|---|---|---|---|
| 2015-07-29 | 4 November 2014 External T.I. 2014-0521211E5 F - Cartes-cadeau d'une chaîne de supermarchés | Income Tax Act - Section 67.1 - Subsection 67.1(1) | 50% limitation applicable to gift cards exchangeable at supermarket |
| 5 November 2014 External T.I. 2014-0521891E5 F - Résidence principale et copropriété | Income Tax Act - Section 40 - Subsection 40(4) | overview of s. 40(4) rule | |
| General Concepts - Ownership | whether a tacit co-ownership agreement is respected is a private law issue | ||
| 5 November 2014 External T.I. 2014-0529991E5 F - Avantage pour automobile-personne liée | Income Tax Act - Section 6 - Subsection 6(2) | standby charge computed based on cost to auto owner which is related to employer | |
| Income Tax Act - Section 251 - Subsection 251(2) - Paragraph 251(2)(b) - Subparagraph 251(2)(b)(i) | control of non-share corp references who can appoint board | ||
| 2015-07-22 | 24 June 2015 External T.I. 2015-0575911E5 F - Benefit to shareholder or conferred on a person | Income Tax Act - Section 15 - Subsection 15(1.4) - Paragraph 15(1.4)(c) | benefit only conferred on one shareholder (the husband) if wife of one of four sibling shareholders receives benefit |
| Income Tax Act - Section 246 - Subsection 246(1) | benefit conferred on spouse of individual shareholder of parent | ||
| Income Tax Act - Section 56 - Subsection 56(2) | benefit conferred on spouse of individual shareholder of parent | ||
| 2015-07-15 | 11 June 2015 External T.I. 2014-0522641E5 F - Usufruct | Income Tax Act - Section 73 - Subsection 73(3) | creation of usufruct between father and son entails transfer of trust interest, not farm property |
| Income Tax Act - 101-110 - Section 108 - Subsection 108(7) | creation of usufruct between father and son, resulting in deemed trust, did not entail property transfer to the deemed trust | ||
| Income Tax Act - 101-110 - Section 110.6 - Subsection 110.6(1) - Qualified Farm or Fishing Property | termination of usufruct between father and son on farmland, which was a deemed trust, did not entail disposition of qualified farm property | ||
| 2015-06-30 | 2 June 2015 External T.I. 2015-0570071E5 F - Attribution Rules Trust | Income Tax Act - Section 74.4 - Subsection 74.4(2) | application of s. 74.4(2) to family trust with minor beneficiaries after s. 51(1) freeze in favour of second family trust with same minor beneficiaries |
Sifto – Tax Court of Canada finds that a taxpayer-accepted agreement with the U.S. competent authority re a VDP-adjusted transfer price binds CRA even if it had not yet audited the taxpayer
CRA accepted a voluntary disclosure by Sifto Canada that it had undercharged on its sales of rock salt to a U.S. affiliate, and reassessed accordingly. Sifto Canada and its U.S. parent then applied to the Canadian and U.S. competent authorities for there to be a correlative downward adjustment in the income of the consolidated U.S. group based on the higher transfer price. The two competent authorities agreed to this, and CRA then entered into a letter agreement with Sifto Canada where it agreed with the adjustment.
Only then did CRA audit Sifto Canada, which resulted in it reassessing Sifto Canada on the basis that the transfer prices should have been even higher. CRA argued that the competent-authority agreement did not represent an agreement on the transfer price and that, in any event, it would be improper for it to implement an agreement which it did not view as according with the ITA.
Owen J rejected these arguments, and found that the above multi-party arrangements had resulted in binding agreements as to the transfer prices, and that such an agreement between the competent authorities in accordance with the Treaty had paramountcy over the ITA provisions.
Neal Armstrong. Summaries of Sifto Canada Corp. v. The Queen, 2017 TCC 37 under Treaties, Art. 9, s. 247(2) and s. 115.1(1).