News of Note
CRA construes the GST/HST damages rule (s. 182) narrowly
Email this ContentSection 182 provides that where a supplier under an agreement for a taxable supply receives an amount as a result of a breach or termination of the agreement, this payment is deemed to be inclusive of GST/HST, and the payor generally is entitled to an input tax credit for the included GST/HST.
In a ruling dealing with a damages payment received by a company which was not paid the remaining instalments on equipment it was constructing, CRA stated that section 182 did not apply because the supplier did not receive that payment as a consequence of the breach or termination of the agreement - so that the payor of the damages was not entitled to an input tax credit for GST. On the facts described, this finding seems to be incorrect. Perhaps there was a lack of understanding of basic contract law principles on the part of CRA, or perhaps there was something redacted from the ruling that would justify this conclusion.
Neal Armstrong. Summary of 8 March 2012 Ruling 137942 under ETA s. 182(1).
CRA finds that an online retail business is not carried on in Canada for GST/HST purposes notwithstanding the place of contracting is in Canada
CRA has ruled that a non-resident selling on-line books over the internet to Canadian residents whom it solicited in Canada was not carrying on business in Canada notwithstanding the place of the contracts was in Canada.
Neal Armstrong. Summary of 29 March 2012 Ruling Case No. 137186 under ETA s. 240(1).
CRA indicates that trailer fees are GST/HST exempt only if the dealer is not providing on-going client services in order to earn the fees
CRA has ruled that trailer fees received by dealers from the investment manager for an investment fund (presumably, a mutual fund) will be considered to be exempt consideration for having facilitated the sale of shares in the fund only if the dealer does not provide any post-sale servicing of the investor's account in order to earn the trailer fees, e.g., regularly contacting the client to review the appropriateness of this investment, and reviewing alternatives. Although this may sound like a statement that trailer fees are exempt only if the investment dealer is not doing a good job, in fact this statement may not be problematic as the trailer fees will be earned by the dealer based on the level of continued investment in the fund irrespective of the level of post-sale service provided by the dealer.
Neal Armstrong. Summary of 15 March 2012 Ruling 132880-2 under ETA s. 123(1) - financial service.
CRA reviews taxable benefit exemptions for fitness and recreation facilities
CRA has clarified its position in Guide T4130 that the provision to employees of fitness and recreation facilities (whether in-house or external) will not give rise to a taxable benefit provided that the facilities are available to all employees: "all your employees" means all employees in the firm, not all employees in a specific department (even where the facilities were provided to reduce sickness and injury resulting from the nature of the work performed in that department).
T4130 also sets out an exemption where it can be shown that the provision of the facilities is principally for the employer's benefit rather than the employee's. CRA has stated that this means that the benefit to the employer must be direct (i.e. relating to a high fitness standard inherent to the specific job) rather than indirect (i.e. relating only to general productivity gains associated with health and fitness).
Scott Armstrong. Summary of 26 July 2012 T.I. 2011-0431681E5 under s. 6(1)(a).
Globex proposes butterfly spin-off of its Chibougamu mining camp properties
Globex is proposing a spin-off to its shareholders by way of butterfly reorganization of CIM, a newly-incorporated subsidiary that is proposed to be listed on the TSX-V and that will hold various mining and exploration properties in the Chibougamu mining camp.
Notwithstanding that Globex is a TSX-listed public company, it is proposing (perhaps because it may have engaged in a butterfly reorganization within the previous three years) that CIM will receive a pro-rata portion of each of its three types of property (cash, investment property and business property) in the same fashion as would be required in a private company butterfly.
Neal Armstrong. Summary of Globex spin-off Circular under Butterfly spin-offs.
CRA is non-commital on alternative technique for partnership merger
Interpretation Bulletin IT-471R contemplates that two partnerships can merge by winding-up under s. 98(5) with the former partners then contributing the former partnership property to a single partnership utilizing s. 97(2). CRA has indicated that it is not "impossible" that two partnerships also could be merged on a rollover basis by the first partnership contributing its property to the second partnership utilizing s. 97(2), with the first partnership then being wound up under s. 98(3).
Neal Armstrong. Summary of 4 July 2012 T.I. 2011-0429601E5 F under s. 98(5).
Kossow - Tax Court strikes down another leveraged charitable donation arrangement
Another leveraged charitable gift transaction has been struck down. V.A. Miller J. indicated, based on the reasoning in Maréchaux, that the financing of 80% of the gifts in question with a non-interest-bearing loan with a term of 25 years was itself a sufficient collateral benefit for those "gifts" not to qualify as such for tax purposes (unlike Maréchaux, where the taxpayer also had an effective guarantee that a security deposit made by it would accrete to the loan amount by the loan maturity date).
The description of the evidence in this case (based on a 10-day trial) also indicates more clearly than in Maréchaux the circular and vacuous nature of the background transactions (other than the generation of fees), so that the charity in question in fact received virtually no benefit from the supposed gifts.
Neal Armstrong. Summary of Kossow v. The Queen, 2012 TCC 325 under s. 118.1(1) - "total charitable gifts."
CRA treats the provision of know-how as the supply of intangible personal property rather than a service for HST/GST purposes
CRA has ruled that the provision of know-how by a resident supplier to an unregistered non-resident constituted a supply of intangible personal property that qualified for zero-rating. This is inconsistent with some (but not all) of the income tax jurisprudence characterizing the provision of know-how as a service rather than a licensing or disposition of property.
Although the provision of services to a non-resident also potentially is zero-rated, there are differences in the two zero-rating rules. For example, the supply here (viewed as a supply of intangible personal property) would not have been zero-rated if the non-resident had been registered for HST purposes.
Neal Armstrong. Summary of 14 February 2012 Ruling 99181 under ETA Sched. VI, Part V s. 10.1.
CRA indicates that the office location of the hiring office generally will determine the province in which services are supplied for HST purposes
CRA has stated that where a supplier of services obtains more than one address of its client in the ordinary course of its business, it will be the location of the office of the client which hired the supplier which will determine the province where the service is supplied for HST purposes (assuming rules for the situs of special types of services, such as real estate services, do not apply). In a recently released example, CRA indicated that this rule would apply even where the services supplier (a personnel placement company) entered into a specific contract for each individual that it placed with the client that named only the specific work location for that individual (which might be in a different province from that of the HR people who had hired the personnel company).
Neal Armstrong. Summary of 31 October 2011 Headquarters Letter 132350 under New Harmonized Value-Added Tax System Regulations. s. 13(1).
CRA finds that amounts retained by a Canadian independent agent to pay its fee constitute amounts "credited" by it to the non-resident principal for withholding tax purposes
Canadian withholding tax is exigible on various types of amounts which are paid or "credited" by Canadian residents to non-residents. CRA has indicated that in an arrangment under which a Canadian promoter collects fees from Canadian customers for placing their ads on a US website of an arm's length US publisher (calculated on the basis of $X per 1000 clicks on the customers' ads) and then remits the fees to the US publisher net of the promoter's compensation, CRA will consider the full amount of the fees collected by the promoter to have been paid or credited to the US publisher, notwithstanding that only the net amount is remitted. CRA stated that it would consider the gross amounts of the fees to be collected by the promoter as agent for the US publisher.
CRA went on to indicate that, because it would construe the fees as being for services with their amount based on the quantum of the benefit to the Canadian advertisers (i.e., the number of clicks on their ads), the fees would have been subject to withholding under s. 212(1)(d)(iii)(A) of the Act but for a treaty exemption likely being available to the US publisher - such fees for services would not be royalties under the Canada-US Convention.
Neal Armstrong. Summaries of 7 August 2012 T.I. 2011-0416181E5 under s. 212(1), s. 212(1)(d)(iii) and Treaties - Art. 12.