News of Note
TD – Tax Court of Canada finds that Aeroplan Miles are not gift certificates for GST/HST purposes because their attributes are not similar to money
Email this ContentAn affinity program agreement with Aeroplan allowed TD to add Aeroplan Miles rewards to its credit cards. Graham J found that Aeroplan was making a single supply under the agreement of the Aeroplan Miles rather than, as contended by the Crown, marketing services, given inter alia that “there would have been no commercial efficacy to the Agreement if TD could not provide Aeroplan Miles to its cardholders” and the monthly purchase price was based on the number of Aeroplan Miles purchased.
In finding that the Aeroplan Miles purchased by TD were not gift certificates, but were coupons, so that their purchase was subject to HST, Graham J stated:
[F]or a device to be a gift certificate, it must have the following key characteristics:
(a) The device must have a stated monetary value that either appears on the device’s face or is retrievable electronically.
(b) It must be possible to transfer the device to a third party without additional payment to the issuer.
(c) The bearer must be entitled to apply some or all of the balance of the stored monetary value to the purchase price of goods or services purchased from either the issuer of the device or any other person who can lawfully accept the device as payment.
(d) The device may have some conditions, but any such conditions must not detract from the essential attribute of a gift certificate that it must have attributes similar to those of money.
An Aeroplan Mile had none of these characteristics. It did not have a stated monetary value and thus that value could not be applied towards a purchase. It was not transferrable without paying a fee to Aeroplan. Finally, the need to accumulate more Aeroplan Miles in order to use a single Aeroplan Mile was a significant condition on the device’s use.
Neal Armstrong. Summaries of The Toronto-Dominion Bank v. The King, 2024 TCC 50 under ETA s. 123(1) – supply, s. 181.2 and s. 306.1(1).
We have translated 6 more CRA interpretations
We have translated a further 6 CRA interpretations released in January of 2002. Their descriptors and links appear below.
These are additions to our set of 2,825 full-text translations of French-language Technical Interpretation and Roundtable items (plus some ruling letters) of the Income Tax Rulings Directorate, which covers all of the last 22 1/3 years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
| Bundle Date | Translated severed letter | Summaries under | Summary descriptor |
|---|---|---|---|
| 2002-01-04 | 9 January 2002 External T.I. 2001-0089655 F - AVANTAGE AUTOMOBILE | Income Tax Act - Section 248 - Subsection 248(1) - Automobile - Paragraph (e) - Subparagraph (e)(i) | 6-seat pickup not excluded from 90% test |
| Income Tax Act - Section 6 - Subsection 6(2) | being on-call at home does not diminish the personal benefit from use | ||
| 10 January 2002 External T.I. 2001-0090325 F - UTILISATION DES VEHICULES | Income Tax Act - Section 6 - Subsection 6(2) | commuting in connection with employer requirement to keep vehicle overnight at home was personal use – but not emergency use | |
| 18 January 2002 External T.I. 2001-0092665 F - AUTOMOBILE-VEHICULE PUBLICITAIRE | Income Tax Act - Section 248 - Subsection 248(1) - Automobile | automobile status turns on design, not use (here, only for advertising) | |
| Income Tax Act - Section 248 - Subsection 248(1) - Automobile - Paragraph (e) - Subparagraph (e)(i) | vehicle cosmetically altered for advertising purposes is not thereby used to transport goods or equipment | ||
| 8 January 2002 External T.I. 2001-0094485 F - EMPLOI SUR UN CHANTIER PARTICULIER | Income Tax Act - Section 6 - Subsection 6(6) - Paragraph 6(6)(a) | s. 6(6) applicable to a non-citizen | |
| 21 January 2002 External T.I. 2001-0078735 F - Droit de recevoir une somme | Income Tax Act - Section 54 - Proceeds of Disposition | FMV of contingent right to deferred cash sales proceeds was included in proceeds, with subsequent gain or loss when the contingency was resolved | |
| Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(g) | s. 12(1)(g) inapplicable to contingent right to receive deferred cash sales proceeds to the extent the share consideration declined in value | ||
| Income Tax Act - Section 85 - Subsection 85(1) - Paragraph 85(1)(f) | s. 85(1)(f) applicable to contingent right to receive deferred cash sales proceeds to the extent the share consideration received under s. 85(1) declined in value | ||
| 21 January 2002 External T.I. 2001-0080325 F - FRAIS DE VOYAGE-BIENS LOCATIFS | Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(h) | notwithstanding s. 18(1)(h) jurisprudence, CCRA allows travel expenses incurred for collecting rent, supervising repair work or managing the multiple rental properties |
The Joint Committee comments on design issues for the shift to the 2/3 capital gains inclusion rate
Comments of the Joint Committee on the design issues for implementing the increase in the capital gains inclusion fraction to 2/3 include:
In order to avoid costs, difficulties, uncertainties, or impediments in actually realizing capital gains before June 25, 2024, taxpayers should be permitted to file an election (see s. 110.6(19)) to be deemed to have realized all or a portion of their accrued capital gains before that date.
Alternatively or in addition, and consistent with the change in the inclusion fractions on January 1, 1988 and January 1, 1990, the effective date should be moved to January 1, 2024.
The increased inclusion fraction should not apply to dispositions of property occurring pursuant to legally binding obligations entered into by the taxpayer in writing before April 16, 2024, subject to some limitations.
With a view to avoiding retroactive effects of the increased inclusion fraction:
- Capital gains reserves from pre-June 25, 2024 dispositions should be brought into income at the ½ rate;
- The ½ deduction should be maintained for distributions from hybrid surplus generated from pre-June 25, 2024 dispositions (which might entail drafting for a second category of hybrid surplus).
- Amendments to s. 110(1)(d.1) should include a continuation of the 50% deduction rate for CCPC options exercised prior to June 25, 2024;
- Capital gains realized by a trust or partnership prior to June 25, 2024 should maintain that time stamp when allocated to beneficiaries or members.
Canadian individuals should be able to share their $250,000 safe harbour with private corporations of which they are direct or indirect shareholders.
Examples of trusts negatively impacted by the $250,000 safe harbour not being accorded to them include graduated rate estates, qualified disability and Henson trusts, and alter ego or joint spousal/partner trusts.
Canadians should be permitted to carry forward unused portions of their $250,000 safe harbour room.
Neal Armstrong. Summary of Joint Committee, “Subject: Federal Budget 2024 – Capital Gains Inclusion Rate,” 1 May 2024 Joint Committee Submission under s. 38(a).
CRA indicates that it will follow Gardner (re deducting a sales person’s expenses of occasional travel between her home office and her employer) only on similar facts
Regarding the deductibility of automobile expense incurred by an employee, with a fully remote work arrangement, in connection with an occasional visit to the employer’s office from the home office, CRA stated:
[T]raveling between an employee’s home, including a home office, and a regular place of employment (RPE) is generally considered personal travel … .
… In this case, “regular” means there is some degree of frequency or repetition in the employee’s reporting to that particular location in a given pay period, month, or year. … For example, a work location may be considered to be a RPE of an employee even though the employee may only report to work at that particular location on a periodic basis (e.g., once or twice a month) during the year.
CRA noted that Gardner “held that motor vehicle expenses related to an employee’s travel between their home office and the employer’s principal place of business were deductible employment expenses under paragraph 8(1)(h.1)” but indicated that it had not changed its position except “where it can be established that an employee’s circumstances are factually similar to Gardner and all of the requirements in paragraph 8(1)(h.1) and subsection 8(10) … are met.”
Neal Armstrong. Summary of 29 August 2023 CPAC Roundtable Q. 8, 2023-0983051C6 - Automobile Expenses under s. 8(1)(h.1).
CRA confirms that the simplified method of computing home office expenses cannot be used for 2023 and subsequent taxation years
Regarding the status of the simplified method of calculating home office expenses, CRA stated:
In response to the COVID-19 pandemic, a temporary flat rate method was introduced to provide eligible employees with a simpler way to deduct home office expenses (work-space-in-the-home expenses and office supply and phone expenses). The temporary flat rate method can only be used for the 2020, 2021 and 2022 tax years.
Neal Armstrong. Summary of 29 August 2023 CPAC Roundtable Q. 7, 2023-0983041C6 - Home Office Expenses under s. 8(13).
TPine – Federal Court of Appeal indicates that it is unclear whether revised s. 152(9) precludes CRA from advancing a further argument based on a different transaction
The original Crown Reply had stated that the Minister had assessed TPine’s return to disallow a CCA deduction on the basis that the Class 10 and 16 assets in question were included in the same equipment that TPine had sold and for which it had claimed a cost-of-goods sold deduction. TPine appealed the Tax Court’s allowance of an amendment to the Reply (which the Crown sought to justify under s. 152(9)) to include the alternative basis for the assessment that, if TPine was successful in challenging the CCA denial, the TPine cost-of-goods-sold deduction should be reduced by an equivalent amount.
Webb JA indicated that in interpreting the previous version of s. 152(9), the Federal Court of Appeal “has not allowed the Minister to raise a new argument based on a transaction that did not form the basis on which a taxpayer was assessed” (para. 85). Here, that test was not a barrier to the new pleaded basis of assessment. The central allegation of the Minister was that it was “the same equipment that resulted in the CCA claim and in the deduction for the cost of goods sold” (para. 86). Thus the two alternate assessment bases were joined at the hip: if TPine had sold those assets, it followed “that the claim for CCA was a valid claim and no amount should have been claimed for the cost of goods sold” (para. 88); and if it had not sold the assets, it followed that the cost-of-goods sold deduction should be reduced.
Since s. 152(9) permitted the new pleading even under its more restrictive previous version as judicially interpreted, the same result should follow under the current version of s. 152(9) that applied to this amendment. However, in commenting on the current version of s. 152(9), Webb JA stated (at para. 90):
The principles that the Minister cannot appeal an assessment and the Minister cannot reassess beyond the expiration of the normal reassessment period are still valid principles that would need to be taken into account in determining what alternative basis or argument the Minister may advance. In interpreting and applying the previous version of subsection 152(9) of the Act, this Court has also limited an alternative argument to the same transaction that is in dispute. It is not clear how the amendments would alter this principle.
Neal Armstrong. Summaries of TPine Leasing Capital Corporation v. Canada, 2024 FCA 83 under s. 152(4)(a)(i), s. 152(9) and s. 152(1).
CRA confirms that “meetings” in ss. 8(13)(a)(ii) and 18(12)(a)(ii) refers only to “face to face encounters”
S. 18(12)(a)(ii) provides that no expenses related to a work space in the home can be deducted from income from a business unless the work space is used exclusively for the purpose of earning income from the business and used on a regular and continuous basis for meeting clients, customers or patients of the individual in respect of the business (unless, per s. 18(12)(a)(i), the home work space is the individual’s principal place of business). S. 8(13)(a)(ii) provides a parallel restriction regarding expenses related to a home work space which otherwise were deductible by an employee under s. 8(1)(f) or (i).
Regarding the impact of meeting clients in a home virtually, CRA confirmed its “long-standing position” that the term “meeting”, as used in both provisions “includes only face to face encounters” rather than virtual meetings. However, depending on the facts, the work space expenses might satisfy s. 8(13)(a)(ii) or 18(12)(a)(ii), regarding the work space being the principal place of business or of performance of the employment duties.
Neal Armstrong. Summary of 16 August 2022 Roundtable, 2022-0946251C6 under s. 8(13)(a)(ii).
CRA indicates that capital gains crystallization transactions are not per se GAARable
Regarding transactions (including non-arm’s length transactions) to crystalize accrued capital gains prior to June 25, 2024, CRA, after referring to the proposed amendments to s. 245, stated:
[T]he 2024 Federal Budget does not contain any limits on the eligibility of capital gains for the current inclusion rate where such gains are realized prior to June 25, 2024 and … the delay in the implementation of the increased inclusion rate is a deliberate policy choice. In light of this … where a taxpayer crystallizes an accrued capital gain prior to the increase in the capital gains inclusion rate, the GAAR would generally not apply to redetermine the inclusion rate in respect of the crystallized capital gain.
However, CRA indicated that GAAR scrutiny might be merited where tax benefits were engaged in addition to avoiding the increased inclusion rate, for example, surplus-stripping transactions.
Neal Armstrong. Summary of 29 April 2024 External T.I. 2024-1016011E5 under s. 245(4).
Income Tax Severed Letters 1 May 2024
This morning's release of six severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Marine Atlantic – Tax Court substantially increases a cost award to the taxpayer to punish for “improper” and “offensive” conduct of Crown counsel
The Appellant had complete success at trial regarding the ITC methodology it used for its ferry operation. D’Arcy J now made a costs award to the Appellant (of 60% of its counsel’s fees of $1.3 million, plus disbursements and a gross-up for unrecoverable HST) that reflected a substantial enhancement for the improper conduct of Crown counsel.
First, the Crown had resiled from an agreement to follow the decision on two relevant issues in BC Ferries which, when later decided in 2014, favoured the Appellant’s position. The Crown did not agree to be bound by those findings until the eve of trial – and this delay in following BC Ferries caused the Appellant to incur substantial costs.
Second, the Crown had improperly sought to introduce evidence of a CRA auditor through an affidavit rather than through court testimony. Furthermore, the use of the affidavit in this instance had been found by D’Arcy J in his prior decision to be “trial by ambush” and resulted in “trial days being thrown away.”
Third, the Crown submission on costs challenged the above “trial by ambush” finding. D’Arcy J stated:
This is improper; a party should never use cost submissions to question a finding made by the Court in the related appeal.
Further, the Respondent’s submissions indicate that he is prepared to engage in similar offensive behaviour in the future.
Similarly, the Crown submissions improperly and falsely challenged D'Arcy J’s findings that CRA had inappropriately threatened to impose gross negligence penalties on the Appellant.
Neal Armstrong. Summary of Marine Atlantic Inc. v. The King, 2024 TCC 51 under Rule 147(3).