News of Note

The taxpayer over-contributed to his RRSPs for the 2018 taxation year in December 2018 and, upon realizing his error in March of 2019, filed a return reporting the Part X.1 tax on his over-contribution (which was assessed largely as filed) - and then applied for waiver of the tax pursuant to s. 204.1(4).

Aylen J noted that in Connolly “the applicant had provided little detail as to why he made the mistake that resulted in his over-contribution and did not appear to have made any inquiries, whether with his accountant, his bank or his employer, to confirm his RRSP contribution room … [so that] the Federal Court of Appeal concluded that his error likely could not be said to have been a reasonable one,” and found that she was faced with a similar situation here, stating:

The onus was on the Applicant to ensure that he did not over-contribute to his RRSP and if there was any lack of clarity or understanding as [to] the contribution room available to him, the Applicant was expected to seek advice … .

She found that CRA’s decision not to waive the tax was not unreasonable.

Neal Armstrong. Summary of Froehling v. Canada (Attorney General), 2021 FC 1439 under s. 204.1(4).

CRA, which had been auditing the taxpayers -Dr. Smith, a physician and his Ontario professional corporation - learned of a USB key that included accounting data for Caymans corporations controlled by Dr. Smith. Dr. Smith initially had brought the USB key to Canada and provided it to his Canadian accountants, but they had sent it to their Buffalo office, which had the requisite software to extract the information on the key. The Minister issued request letters in October 2020 effectively requesting, pursuant to s. 231.1, information on the USB key along with certain other information. Although the Minister brought compliance applications in April 2021, this hearing dealt only with the taxpayers’ application for judicial review of the request letters.

After having indicated that the reasonableness of the letters turned on a test of whether there may be considered to be “a rational connection … between the information sought and the administration and enforcement of the ITA,” Fothergill J rejected a submission that the request letters sought foreign-based information and that they should have been issued under s. 231.6, stating:

I am satisfied that Dr. Smith is being audited with respect to potential unreported income and assets from his offshore holdings. His long association with, and ownership interests in [the two offshore companies] are sufficient to establish that the requests for information respecting the two entities are rationally connected to the audit of Dr. Smith personally. ...

… I am not persuaded that the evidence in this case is so compelling that it was unreasonable for the Minister to proceed otherwise than under s. 231.6 of the ITA. … [A] taxpayer cannot transform domestic-based information into foreign-based information merely by moving it outside the country.

He went on to note that, in dismissing the judicial review application, all he was deciding was that the request letters were not unreasonable - and that Dr. Smith would still have an opportunity (e.g., by adducing evidence relevant to the location of the material) “to equip the Court to decide whether a compliance order should be issued” in the subsequent hearing.

Summary of Frank C. Smith Medicine Professional Corporation v. Canada (National Revenue), 2022 FC 29 under s. 231.1(1).

Reg. 6801(a)(v) requires the terms of a qualifying deferred salary leave plan (“DSLP”) must provide for the employee to return to regular employment after the DSLP leave of absence for a period of not less than the leave period - so that it is impermissible for the employee to retire immediately following the leave. CRA indicated:

• If it was evident that an employee had entered into the arrangement with an intention to immediately retire following the leave, then the arrangement would never have qualified as a DSLP and CRA, on this view of matters, would assess on the basis that no salary had been deferred at all under the purported DSLP.
• Conversely, if the arrangement initially met the DSLP conditions but, later, the employee or employer ceased to abide by the conditions, the employer would be required to terminate the arrangement and pay all deferred amounts plus any unpaid interest under the arrangement (less source deductions) to the employee within a reasonable period of time (thereby resulting in an employment income inclusion to the employee in that year).
• CRA generally “would consider 60 days to be a reasonable period of time for the employer to terminate the arrangement and pay the amounts to the employee.”
• If the payment was not made within a reasonable period of time, the arrangement would become subject to the salary deferral arrangement rules in the taxation year when it first became known that the arrangement no longer satisfies the DSLP rules, resulting in employment income inclusions for that year.

Neal Armstrong. Summary of 14 June 2021 External T.I. 2021-0896151E5 under Reg. 6801(a)(v).

A registered charity (not qualifying as a hospital authority) which currently operated a palliative care facility and had applied for and received the public service bodies rebate (of 83% of its GST costs) for the period after its commencement of operation, also applied for that rebate (rather than only the “ordinary” charity rebate of 50%) regarding its costs incurred during the construction period. It argued that it had acquired property and services during the construction period for the purpose of making eligible facility supplies (i.e., very broadly, exempt health care services provided under practitioners’ supervision).

In ruling against this claim, CRA noted that the definition of qualifying facility for a fiscal year included a requirement that the supplies of services ordinarily rendered “during that fiscal year” qualified as facility supplies, so that the facility did not qualify during the pre-opening phase.

Neal Armstrong. Summary of 13 July 2021 GST/HST Ruling 212992 under ETA s. 259(2.1).