News of Note
We have translated 8 more CRA interpretations
Email this ContentWe have published a further 8 translations of CRA interpretation released in November of 2004. Their descriptors and links appear below.
These are additions to our set of 2,089 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).
Great Land – Tax Court of Canada finds that condos were supplied when they were conditionally agreed to be built
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).
CRA confirms that the Bill C-208 amendments applied to dispositions occurring on and after Royal Assent (June 29, 2021) and not before
Did 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).