News of Note
CRA confirms that the Bill C-208 amendments applied to dispositions occurring on and after Royal Assent (June 29, 2021) and not before
Email this ContentDid the amendments to s. 84.1 pursuant to Bill C-208 (did not contain a coming into force provision) apply to dispositions of shares that occurred in the 2021 taxation year but prior to the day of Royal Assent (June 29, 2021)?
CRA noted the presumption in Gustavson Drilling [1977] 1 S.C.R. 271 that “statutes are not to be construed as having retrospective operation unless such a construction is expressly or by necessary implication required by the language,” and found that there was no such “necessary implication” in the Bill, so that the amendments “apply only to dispositions that occur on or after … June 29, 2021.”
Neal Armstrong. Summaries of 15 December 2021 External T.I. 2021-0907881E5 under s. 84.1(2)(e) and Statutory Interpretation –Retroactivity/Retrospectivity.
CRA indicates that s. 55(5)(e)(i) now permits a s. 55(3)(a) split-up between siblings where either the dividend recipient or payer is a QSBC
S. 55(5)(e)(i) deems siblings to deal with each other at arm’s length for s. 55 purposes. Bill C-208 (a Private Member’s bill) amended s. 55(5)(e)(i) to add an exception from this rule effectively “where the dividend was received or paid” as part of a series by a corporation whose shares were qualified small business corporation shares or family farm or fishing corporation shares. Regarding the meaning of the “or” italicized above, CRA stated:
A strict reading of subparagraph 55(5)(e)(i) indicates that either the dividend payer or the dividend recipient has to be a corporation (herein referred to as “such corporation”) the shares of which are qualified small business corporation shares or shares of the capital stock of a family farm or fishing corporation, and not both … .
It is difficult to deduce the rationale that requires only one of the dividend payer or dividend recipient to be such corporation. However a textual, contextual and purposive interpretation of subparagraph 55(5)(e)(i) does not allow us to override its wording … .
CRA added:
[P]aragraph 55(3)(a) is restricted in its application to subsection 84(3) dividends in order to facilitate bona fide internal reorganizations and is not intended to provide taxpayers with a tool to create or multiply ACB.
Neal Armstrong. Summary of 23 March 2022 External T.I. 2021-0921261E5 under s. 55(5)(e)(i).
CRA states that supplies by a financial institution of crypto cannot be zero-rated unless it acquired the crypto directly from its “issuer”
CRA confirmed that, given the addition of “virtual payment instruments” (“VPI”) to the ETA definition of a “financial instrument,” supplies of crypto made to Canadian-resident recipients are exempt supplies, irrespective of whether the supply is by the miner or an investor.
Regarding whether supplies of VPI by financial institutions to non-resident persons are zero-rated, CRA noted that Sched. VI, Pt. IX, s. 1(e) specifically excludes from zero-rating a supply of a financial service made by a financial institution to a non-resident, where the service relates to a financial instrument (other than an insurance policy or a precious metal) that was acquired, otherwise than directly from a non-resident issuer, by the financial institution acting in its capacity as principal. CRA concluded that, therefore, there would be no zero-rating where a particular supplier of a VPI had acquired that VPI “otherwise than directly from a non-resident issuer of the VPI.”
CRA did not explain when or how crypto can be considered to be “issued” to anyone, and perhaps it considers this to be possible.
Neal Armstrong. Summary of 25 March 2021 CBA Commodity Taxes Roundtable, Q.4 under ETA s. 123(1) – financial service – (d), and Sched. VI, Pt. IX, s. 1(e).
Rattai – Federal Court of Appeal finds that misrepresentation can be established by the taxpayer’s admission rather than by a copy of his false return
In reversing the Tax Court in its finding that a gross negligence penalty was not payable by the taxpayer because his return that was in evidence was incomplete, Monaghan JA noted that the taxpayer had admitted to the misrepresentation (claiming fictitious losses) in his Notice of Appeal. She agreed with the Crown’s position that while the Crown “bears the burden of establishing the relevant facts on a balance of probabilities, neither the Act nor the jurisprudence dictates that a copy of the return is required to meet that burden.”
Neal Armstrong. Summaries of Canada v. Rattai, 2022 FCA 106 under s. 163(2) and General Concepts – Evidence.
CRA releases the official version of most of the 2021 APFF Roundtable
CRA has published its official versions of 18 of the 2020 APFF Roundtable questions. We did not notice any substantive changes from the preliminary answers given by it in October 2021. At that time, we provided our translations of those answers, but only summaries of the questions. We are now providing full-text translations of the questions as well.
Q.12 (regarding the characterization of 3rd-party rents for a portion of a manufacturing facility) remains unanswered. Q.13 (regarding allocation and attribution issues respecting the sale of a cottage held in co-ownership) still has only the preliminary answer.
For your convenience, the Table below links to the translated questions and to our summaries thereof.
Income Tax Severed Letters 8 June 2022
This morning's release of 21 severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Investissements 3,38 – Court of Quebec finds that a lender’s gain from selling a foreclosed home was a business profit
A closely-held corporation (“3.38”) run by a retired notary (Blouin) made a mortgage loan to an individual who, a year after the second advance under the loan, defaulted, with 3.38 then foreclosing and, five months later (after having done some minor work on the home) selling it at a gain, representing 32% of the sales proceeds.
In finding that 3.38 had been carrying on a money-lending business, notwithstanding that it had only made two loans prior to this one, Davignon JCQ noted inter alia the rebuttable presumption in Marconi that a corporation’s activities constitute a business, the high level of risk evidenced by the 15% interest rate charged on the loan and the commercial experience of Blouin. Before further concluding that “3.38 clearly acquired the Building in the ordinary course of its business of lending money,” so that its gain on sale was income from that business, Davignon JCQ stated:
The very short period of time during which the taxpayer owned the Building clearly testifies to the animating intention at the time of its acquisition. It was never its intention to hold it as an investment, but simply to use it to recover its debt, seeing in it a business opportunity to make a profit.
Neal Armstrong. Summary of Investissements 3,38 inc. v. Agence du revenu du Québec, 2022 QCCQ 2534 under s. 9 – capital gain. v. profit – real estate.
CRA stretches the meaning of “pay” to mean “repay,” so as to avoid a requirement to repay an NRRP Rebate that was never claimed
A builder constructs a new residential condominium complex containing 300 units. Although most are sold, it rents 10 units to individuals pursuant to 1-year leases on January 1, 2021. However, on January 15, 2021, it sells the units (with the closing on February 15, 2021) so that the third-party purchaser becomes the landlord. The builder does not claim the new residential rental property (“NRRP”) Rebate respecting any of the 10 rental units in its January 2021 return (as such rebate would be required to be immediately repaid under s. 256.2(10) as the units’ purchaser did not acquire for personal use).
On a literal reading of s. 256.2(10), the builder is required to pay an amount equal to the NRRP Rebates to which it would have been entitled had it not sold the 10 units (even though, in fact, it never claimed or received the rebates) given that the operative phrase in s. 256.2(10) is “entitled to claim” the NRRP Rebates. However, CRA inferred inter alia from the reference in the Explanatory Notes to s. 256.2(10) establishing a requirement to “repay” the rebate (s. 256.2(10) itself instead uses the word “pay”) that the requirement to “repay” the rebates only arose when the rebates had actually been received, so that there was an amount to pay back:
In conclusion, subsection 256.2(10) would only apply if the person claimed a New Residential Rental Property Rebate and within the first year, no longer qualified for that rebate.
Neal Armstrong. Summary of 25 March 2021 CBA Commodity Taxes Roundtable, Q.3 under ETA s. 256.2(10).
CRA indicates it will assign a second appraiser on an appraisal appeal, who generally reviews the original appraisal rather than preparing a 2nd
CRA seemed to confirm that where a builder appeals a CRA assessment made under ETA s. 191(3) that challenged the FMV used by the builder at the time of first occupancy:
- CRA Appeals will refer the valuation issue to a second CRA appraiser, rather than the original appraiser;
- it will not generally ask the second appraiser to prepare a second appraisal (so that, by implication, the second appraiser generally will only review the first appraisal and, perhaps, supplement it); and
- there is no policy that the original appraiser cannot have contact with Appeals.
Neal Armstrong. Summary of 25 March 2021 CBA Commodity Taxes Roundtable, Q.2 under ETA s. 191(3).
We have translated 8 more CRA interpretations
We have published a further 8 translations of CRA interpretation released in December and November of 2004. Their descriptors and links appear below.
These are additions to our set of 2,063 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 17 ½ 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 |
|---|---|---|---|
| 2004-12-03 | 3 November 2004 Internal T.I. 2004-0083791I7 F - Paragraphe 44.1(2) | Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Start-Up and Liquidation Costs | business did not commence with zoning application that was not actively pursued |
| Income Tax Act - Section 44.1 - Subsection 44.1(8) | pre-condition of carrying on business not satisfied / general overview provided | ||
| Income Tax Act - Section 44.1 - Subsection 44.1(1) - Eligible Small Business Corporation | shares were not of an eligible small business corporation given that only business activity was desultory zoning application | ||
| 16 November 2004 Internal T.I. 2004-0092521I7 F - Frais médicaux - époux | Income Tax Act - Section 118.2 - Subsection 118.2(1) | expenses of other spouse incurred in year prior to their becoming spouses or common-law partners cannot be claimed | |
| 28 April 2004 Internal T.I. 2004-0066991I7 F - Paiement incitatif | Income Tax Act - Section 248 - Subsection 248(1) - Property | property “includes practically any type of economic interest” | |
| Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Income-Producing Purpose | per MacIntyre, life insurance premiums are not deductible from business income | ||
| Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(x) | incentive payments received from broker to purchase an exempt life insurance policy were received “in the course of earning income from … property” (the policy) | ||
| 2004-11-19 | 16 November 2004 External T.I. 2004-0064821E5 F - 88(1) Bump | Income Tax Act - Section 88 - Subsection 88(1) - Paragraph 88(1)(c.3) - Subparagraph 88(1)(c.3)(i) | example of situation where the acquisition of shares of parent by vendor would not be within s. 88(1)(c.3)(i), but would fall within s. 88(1)(c.3)(ii) |
| Income Tax Act - Section 88 - Subsection 88(1) - Paragraph 88(1)(c.3) - Subparagraph 88(1)(c.3)(ii) | acquisition by Buyco of Target shares before its acquisition of control accommodated through restrictive interpretation of s. 88(1)(c.3)(ii) | ||
| Income Tax Act - Section 88 - Subsection 88(1) - Paragraph 88(1)(c) - Subparagraph 88(1)(c)(vi) - Clause 88(1)(c)(vi)(B) - Subclause 88(1)(c)(vi)(B)(I) | where Buyco acquired Target shares before acquiring control of Target, Vendor would be a person described in s. 88(1)(c)(vi)(B)(I) | ||
| 10 November 2004 External T.I. 2004-0092561E5 F - 85(1), 248(1) "Disposition" | Income Tax Act - Section 85 - Subsection 85(1) | no disposition on common-for-common exchange | |
| Income Tax Act - Section 248 - Subsection 248(1) - Disposition | no disposition to the extent that there is a dirty s. 95 exchange of old common shares for identical new common shares | ||
| 10 November 2004 External T.I. 2004-0077831E5 F - Biens à usage personnel | Income Tax Act - Section 9 - Capital Gain vs. Profit - Collectibles | collection of items of personal interest accumulated over 35 years, with some trading, and then auctioned off, likely were capital property | |
| Income Tax Act - Section 45 - Subsection 45(1) - Paragraph 45(1)(a) - Subparagraph 45(1)(a)(i) | offering personal collection on an auction site did not constitute a change of use | ||
| Income Tax Act - Section 46 - Subsection 46(3) | selling off personal collection one-by-one on auction site did not engage s. 46(3) | ||
| 27 October 2004 External T.I. 2004-0080901E5 F - Cotisation professionnelle-frais de traduction | Income Tax Act - Section 8 - Subsection 8(1) - Paragraph 8(1)(i) - Subparagraph 8(1)(i)(i) | costs of translating documents re the taxpayer’s foreign professional training did not qualify | |
| 2004-11-12 | 10 November 2004 External T.I. 2004-0096991E5 F - Shareholders' agreement | Income Tax Act - Section 256 - Subsection 256(1.4) - Paragraph 256(1.4)(a) | Aco, owned by X, is associated with Zco, owned equally by X and Y, where the shareholders’ agreement provides that either can acquire the other’s shares on the latter’s disability |
| Income Tax Act - Section 251 - Subsection 251(5) - Paragraph 251(5)(b) - Subparagraph 251(5)(b)(i) | s. 256(1.4)(a) applied to a right to acquire the other’s shares even though it was reciprocal |