News of Note
GST/HST Severed Letters December 2022
Email this ContentThis morning's release of eight severed letters from the Excise and GST/HST Rulings Directorate (identified by them as their December 2022 release) is now available for your viewing.
Income Tax Severed Letters 5 April 2023
This morning's release of three severed letters from the Income Tax Rulings Directorate is now available for your viewing.
3792391 Canada – Tax Court of Canada confirms that s. “215(6) is devoid of any requirement that the payer have knowledge that the payee is a non-resident”
The taxpayer was assessed under s. 215(6) for failure to withhold and remit Part XIII tax on rents paid by it in its 2011 to 2016 taxation years to its ultimate lessor, Ms. Trimarchi, who lived in Italy (and who had acquired the property subject to the lease before the years in issue from some apparently-resident siblings). St-Hilaire J stated that “subsection 215(6) is devoid of any requirement that the payer have knowledge that the payee is a non-resident” Although the taxpayer was able to point to some minor indicators suggestive of Canadian residence of Ms. Trimarchi (e.g., a Canadian bank account to receive the rent payments, a Canadian SIN, and a Montreal address shown on some documents), the preponderance of the evidence (presented by the Crown, even though the onus was not on it) suggested that Ms. Trimarchi was a non-resident.
Regarding the penalty imposed under s. 227(8), she agreed that a due diligence defence was available, but stated:
The Appellant has not proven that it has exercised reasonable care to ensure compliance with its obligations. … Counsel submitted that the Appellant was justified in not taking steps to ensure compliance because it had no reason to believe that Sebastiana Trimarchi was a non-resident. Unfortunately, that is not enough to meet the standard of a high degree of diligence.
The assessments under ss. 215(6) and 227(8) were confirmed.
Neal Armstrong. Summaries of 3792391 Canada Inc. v. The King, 2023 TCC 37 under s. 215(6) and s. 227(8).
GST/HST Severed Letters November 2022
This afternoon's release of six severed letters from the Excise and GST/HST Rulings Directorate (identified by them as their November 2022 release) is now available for your viewing.
Enns – Tax Court of Canada applies judicial comity principle to find that a widow is a spouse of her deceased husband
At issue was whether a widow receiving funds from the RRSP of her deceased spouse was a “spouse” for purposes of s. 160(1)(a), so that s. 160 could be applied regarding his tax debt. In similar circumstances, Kiperchuk had briefly found (without the “spouse” issue having been specifically raised) that a widow was not a spouse of her deceased husband, whereas in Kuchta, Graham J, after a thorough analysis of that precise issue, had concluded the opposite.
Russell J indicated that, in light inter alia of the principle of judicial comity, he would follow the same Kuchta approach (notwithstanding that Kuchta might be technically a nullity as it had been decided by a substituted judge – see High-Crest). S. 160 applied.
Neal Armstrong. Summary of Enns v. The King, 2023 TCC 28 under s. 160(1)(a).
CRA announces that credit card surcharges are exempt from GST/HST
CRA has published its position that a credit card surcharge (generally, a charge made by the merchant to customers in consideration for agreeing to let them use their credit card rather than another means of payment) will generally be exempted from GST/HST under para. (i) of the financial services definition (which pertains to certain services relating to credit card transactions.)
Neal Armstrong. Summary of GST/HST Info Sheet GI-200, Application of the GST/HST to Credit Card Surcharges, March 2023 under ETA s. 123(1) – financial service - para. (i).
We have translated 7 more CRA interpretations
We have published a translation of a CRA interpretation released last week and a further 6 translations of CRA interpretations released in September and August of 2003. Their descriptors and links appear below.
These are additions to our set of 2,424 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 19 2/3 years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
CRA confirms that there can be multiple operators for a JV for purposes of the GST JV election
Can a joint venture made under a single written agreement have multiple operators for different elements of the joint venture, for example a development manager and a property manager, with the phases (in a multi-phase development project) overlapping, for purposes of the ETA s. 273 election? CRA responded:
It is possible for participants in a joint venture to elect to have multiple operators with each operator having responsibility for a distinct element of the joint venture. Further, it is possible for such elections to overlap and run concurrently.
[However] it may be possible to have multiple participants elected as operators at the same time under the same agreement for GST/HST purposes if and only if the duties and obligations of each operator deal with discrete parts of the joint venture in the agreement or are distinct and clearly delineated in the agreement, without any overlapping parts or duties and obligations.
Neal Armstrong. Summary of 7 April 2022 CBA Roundtable, Q.11 under ETA s. 273(1).
CRA notes the requirement to allocate an up-front lease prepayment to subsequent exempt and taxable lease intervals, thereby triggering subsequent collection obligations
Homes in a new residential subdivision may be supplied under long-term leases, especially on First Nations lands. The “buyer” might acquire a home under a 99-year lease or sublease for a single lump sum (which might not be related to any lease intervals during the term) or for an upfront payment coupled with periodic charges.
At the time of the upfront payment made at the lease’s inception, how is the lessor to determine known whether the long-term lessee will commence to engage in short-term rentals at a future juncture and, thus, whether it should charge GST/HST on a portion of the up-front payment?
In answering, CRA implicitly assuming that there would be periodic charges in addition to the up-front charge, so that throughout the term of the lease of, say, 99 years, there would be recurring “lease intervals” for purposes of s. 136.1(1). It then indicated that where a home leased to the lessee was exempted under Sched. V, Pt. 1, s. 6 (i.e., generally, it was for occupancy as a place of residence of the lessee for over one month) or 6.1 (where there was an exempt sublease), the portions of the upfront payments that were “attributable” to such lease intervals would be exempted – whereas the portion of the upfront payment attributable to any subsequent lease intervals where the use became taxable would be subject to GST/HST.
CRA did not proffer any suggestions on the practical difficulties a landlord would face in monitoring whether such short-term taxable use (e.g., in an Airbnb operation) had commenced or in collecting GST/HST on a portion of the upfront payment which had long since been made.
CRA also noted that such a change in use could trigger the change-in-use provisions in s. 206.
Neal Armstrong. Summary of 7 April 2022 CBA Roundtable, Q.10 under ETA s. 136.1(1).
CRA reaffirms that a cash-basis taxpayer can receive an amount when it is received through a third party
When is an amount regarded as received by an eligible entity which has made an election under s. 125.7(4)(e)(i) to use the cash method in determining its qualifying revenues for CEWS purposes, where the amount is received by a third party before being paid to the eligible entity?
CRA indicated that in this regard it would apply the principle in IT-433R, subpara. 3(a) that the meaning of the term "received" is broad enough to consider a taxpayer to have received an amount where it “was received by a person authorized to receive it on behalf of the taxpayer” – and further stated that “a person entitled to receive an amount on behalf of a taxpayer for CEWS purposes may include a person who is entitled to receive the amount for a taxpayer by inter alia an agreement or by statute.”
Neal Armstrong. Summary of 23 January 2023 External T.I. 2020-0865161E5 F under s. 125.7(4)(e)(i).