News of Note
CRA has published a new GST/HST Memorandum on Public Colleges. Quite a number of the points are similar to those made in the new Memoranda on Universities (20-3) and on School Authorities - Elementary and Secondary Schools (20-1), and are not repeated here.
Respecting the ETA definition of a “public college,” CRA indicates that:
- accepting mature students who do not have a high school diploma is consistent with being a “post-secondary” college or technical institute
- the requirement to cater to the “general public” is interpreted to refer to “a significant segment of the general public,” and “as long as a post-secondary college or post-secondary technical institute offers a variety of courses to the general public, it may be acceptable for a portion of the courses or programs offered to be limited to a narrow segment of the public.”
- furthermore, “funding to support job training activities is generally used by an organization to provide specific educational services over a limited time period and therefore does not relate to the ongoing provision of educational services to the general public.”
We have published a further 5 translations of CRA interpretations released in March and February, 2011. Their descriptors and links appear below.
These are additions to our set of 1,089 full-text translations of French-language Roundtable items and Technical Interpretations of the Income Tax Rulings Directorate, which covers all of the last 9 years of releases of Interpretations by the Directorate. These translations are subject to the usual (3 working weeks per month) paywall.
Adou - Court of Quebec finds that a 3-year departure from Quebec entailed a 3-year cessation of ordinary residence
Unusually, the ARQ assessed the taxpayer (a somewhat recent immigrant) to deny that he was a resident of Quebec at the end of a particular year (2013) – he had claimed significant child care credits based on being a Quebec resident. He had left Montreal in September 2013 for Sudbury, followed by Toronto, with his spouse and two young children to take up intermittent studies and employment there (with his spouse getting a job in Toronto). He returned to Montreal for several months in 2014, and then returned to Montreal permanently in 2016, where he pursued more studies and got a permanent full-time job in 2017.
Breault, J.C.Q. found that the taxpayer’s “customary lifestyle and ordinary mode of living, on December 31, 2013, was in the Province of Ontario” in light of the taxpayer having severed most of his connections with Quebec (e.g., his apartment and family both moved), and also noted:
[His] visits to Quebec (during the relevant period) … were clearly only temporary and limited in nature. They were much more a matter of a short stay to take advantage of a vacation period or occasional leave than a necessary presence to devote himself to duties or obligations related to important or even secondary elements of residence in Quebec.
Neal Armstrong. Summary of Adou v. Agence du revenu du Québec, 2020 QCCQ 131 under s. 2(1).
Dreger – Tax Court of Canada finds that a distribution from a deceased father’s fund to his surviving children was a related-person transfer
The taxpayers were the named beneficiaries of a life income fund held by their late father. In reliance on Kiperchuk (which found a taxpayer not to be related to her deceased husband respecting a transfer following his death) they argued that the resulting distributions to them were from an arm’s length person, so that s. 160 did not apply to them respecting their deceased father’s tax debts. In rejecting their appeals, D'Arcy J stated:
I agree with [Kiperchuk] that under the relevant provincial law the statutory status of marriage was ended by death. However, the relationship of father and child is not a statutory relationship; it is a factual relationship. … [T]he Appellants are [still] the children of …[their father].
Neal Armstrong. Summary of Dreger v. The Queen, 2020 TCC 25 under s. 251(6)(a).
A Blackstone LP and a U.S. shale company transferred their investment in a Canadian subsidiary (Alta Canada), that was to develop a shale formation in northern B.C., to a Luxembourg s.à r.l (Alta Luxembourg – which, in turn, they held through an Alberta partnership). About two years after the acquisition by Altas Canada of the exploration licences, it was sold to Chevron Canada at a significant gain. In the Court of Appeal, the Crown conceded that the gain of Alta Luxembourg was exempted from Canadian capital gains tax by virtue of the exclusion in Art. 13(4) of the Canada-Luxembourg Treaty which provided that the Alta Canada shares were not deemed immovable property (and thus not subject to Canadian capital gains tax) on the basis that the exploration licences were property of Alta Canada “in which the business of the company … was carried on.” However, it in effect argued that pure Treaty shopping was an abuse under s. 245(4).
Webb JA rejected the particular Crown arguments in this regard -- that the object, spirit and purpose of Art. 13(4) required that:
- Alta Luxembourg be an “investor” (he stated that “There is nothing to suggest that the underlying rationale for the exemption is that it would only be available to a resident of Luxembourg who invests in the particular corporation … .”)
- there be a potential to realize income in Luxembourg, whereas here the gain was offset by variable interest payable by Alta Luxembourg to the Alberta partnership (he stated “There is no basis to find that the rationale for the definition of ‘resident’ would suggest that any criteria other than the criteria included in the definition of resident in Article 4, should be used … .”)
- the exemption be accessed only by persons who have some commercial or economic ties to Luxembourg (he stated that “There is no distinction in the Luxembourg Convention between residents with strong economic or commercial ties and those with weak or no commercial or economic ties.”)
I agree with … MIL … that the object, spirit and purpose of the relevant provisions of the Luxembourg Convention is reflected in the words as chosen by Canada and Luxembourg.
Neal Armstrong. Summary of Canada v. Alta Energy Luxembourg S.A.R.L., 2020 FCA 43 under s. 245(4).
Suppose that the deceased wholly owned a Canadian corporation (Opco), with nominal capitalization, which has more recently capitalized a US subsidiary (US FA) with debt and equity totalling $100,000. The deceased’s will provided discretion to the executor as to the distribution of the estate property in something other than equal shares to his four children, one of whom is a non-resident (NR son).
Leaving aside potential outs, the normal tax arising from the deemed disposition on death is supplemented by a deemed dividend from Opco to NR son of $100,000 (the FMV of property transferred by Opco to US FA). This occurs at the dividend time (per s. 212.3(4)), which is one year after Opco capitalized US FA.
Potential “outs” include:
- The purpose test in s. 212.3(26)(c)(iii) may not be satisfied if the discretionary power was not granted to the executor to avoid the s. 212.3 rules, so that NR son may not, in fact, be deemed to own 100% of the voting shares of Opco and, thus, may not be deemed to control Opco on the death of the deceased.
- The three events (the capitalization of US FA, the inclusion of a non-resident in the will, and the death) could be separated by a long period of time and not linked by any grand strategy and, therefore, might not form a series.
- Opco’s investment (if a loan) in US FA might be elected to be a pertinent loan or indebtedness.
- The “more closely connected business activity” exception in s. 212.3(16) is another possibility.
Neal Armstrong. Summary of Henry Shew, “Foreign Affiliate Dumping and Estates with Non-Resident Beneficiaries,” Canadian Tax Focus, Vol. 10, No. 1, February 2020, p.9 under s. 212.3(26).
CRA provided standard loss-shifting rulings on transactions in which three losscos in the group annually shift losses to a single newly-incorporated Lossco, which is then sold at FMV to a Profitco in the group whose ownership is redacted, with such Lossco immediately wound-up into the Profitco under s. 88(1.1). The annual un-winding of the loss shifting structures used daylight loans rather than being done on a cashless basis. The interest-bearing loans, whose proceeds were used by the new Lossco to subscribe for preferred shares of Newcos, were made to Lossco on a limited recourse basis, i.e., recourse was limited to such preferred shares.
Creditworthy reps were made on a consolidated basis, i.e., there is a rep that “The borrowing capacity of Parentco and its subsidiaries significantly exceeds the maximum amount … required to complete the Proposed Transactions … .”
Neal Armstrong. Summary of 2017 Ruling 2017-0706211R3 under s. 111(1)(a).
Nadon JA confirmed that s. 171(2) gave the Tax Court the discretion to bifurcate the issues in an appeal and deal with one of those issues as requested by the parties in a letter to the Tax Court.
Neal Armstrong. Summary of Patel v. Canada, 2020 FCA 27 under s. 171(2).
Productions GFP – Federal Court declines request for judicial review of a CAVCO reversal of a preliminary ruling
The appellant (“GFP”) requested a preliminary opinion from the Canadian Audio-Visual Certification Office (CAVCO) as to the eligibility for the Canadian film or video production tax credit of a proposed production that would be in the form of a quiz contest but where the points would not matter and the focus would be on the participants being funny. CAVCO responded quickly that the synopsis provided to it indicated that the production did not seem to be ineligible, but reserved a final decision based on its review of an episode when produced. Two years later, after GFP had produced quite a number of episodes and CAVCO had reviewed some of them, it communicated its preliminary determination (later confirmed) that the Production had the features of a “game, questionnaire or contest” and was, therefore, excluded under Reg. 1106(1)(b)(iii).
In dismissing GFP’s application for judicial review, Pentney J stated:
… [I]t is clear that the opinion provides only a preliminary indication, based solely on the information provided by the producer, and that the final decision is based on an assessment of the actual production itself. …
There is nothing in the evidence to suggest that the decision was not made in good faith, that it constituted an abuse of power or that it otherwise violates the objectives of the legislation. …
… I accept that in view of the architecture of the system … those who want a certificate must spend money to embark on a production, with no guarantee that they will receive the benefit of a tax credit.
Neal Armstrong. Summary of Productions GFP (III) Inc. v. Canada (Attorney General), 2019 FC 1613 under Reg. 1106(1) – excluded production - (b)(iii).