News of Note

A securitization trust (“CFI”) used a concurrent lease structure under which it became the concurrent (head) lessee of automobiles from automobile dealer and sublessor of the automobiles to the dealership customers, and financed the automobile dealers by prepaying rents under the head leases. Before finding that CFI had satisfied the documentary requirements for claiming ITCs for the HST on the rent prepayments, and in rejecting the Crown position that various CFI spreadsheets did not satisfy its alleged requirement that “a supporting document … must originate from or be signed by the [supplier]”, Hogan J stated:

[T]he broad term “form” was used in subsection 169(4) of the Act and section 2 of the Regulations because Parliament was mindful of the benefits of paperless record keeping. …

[I]nformation stored on a registrant’s computer server qualifies as supporting documentation. …

[T]he Regulations do not set out a general requirement for the supporting documentation to be issued or signed by the supplier. The definition of “supporting documentation” only requires the document to be issued or signed by the supplier where the documentation does not fit within one of the document types outlined in paragraphs (a) to (g) [of the “includes” definition of “supporting documentation”] or fall within the meaning of “form” as set out in the preamble to the definition.

Neal Armstrong. Summary of CFI Funding Trust v. The Queen, 2022 TCC 60 under Input Tax Credit Information (GST/HST) Regulations – supporting documentation.

Prior to the October 30, 2007 announcement of the GST rate reduction from 6% to 5%, a builder agreed with numerous buyers to sell them (on a GST-included basis) condo units in a project that had not yet received site plan approval or a building permit. The transitional provision indicated that the reduced rate applied inter alia “to any supply … made on or after January 1, 2008.”

In concluding that there were supplies of real property under the agreements that occurred prior to 2008, so that the 6% rate applied, D’Arcy J. found:

• That there was a supply at the time each agreement was entered into on general principles given that such agreement gave the buyer a conditional right to acquire a specific (albeit, so far, non-existent) condo and: “This was the provision of something and thus constituted a supply.”
• In any event, ETA s. 133 (which, in approximate terms, deems supplies of property to occur when the agreement for their supply is entered into) deemed the agreements to be supplies of the condos, with D’Arcy J. noting in this regard that “[t]he application of section 133 is also not contingent on the existence of the Condo Units at the time the parties entered into the … Agreements … .”

He also accepted the Crown’s alternative argument that the appellant had in fact collected GST at the 6% rate (and thus, would have been required to remit tax at that rate under the s. 225(1) formula, which included "all other amounts collected by the person … on account of tax,” even if the 5% rate applied under the transitional rule), noting that the 6% rate was referenced in the statements of adjustments at the closings, and that the buyers claimed the new housing rebates on the basis of a 6% rate.

CRA had incorrectly computed the GST as being 6/106 of the agreed consideration for the purchase plus the new housing rebate amount that was assigned by the buyer to the appellant, rather than only 6/106 of the agreed consideration – but this did not matter since this erroneous tax was, in fact, collected and, therefore, was required to be remitted.

Neal Armstrong. Summaries of Great Land (Olive) Inc. v. The Queen, 2022 TCC 56 under ETA s. 133 and s. 225(1) – A(a).

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).

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.