News of Note

CRA confirmed that where there is a disposition of taxable Canadian property by a non-resident acting solely as nominee for the beneficial owner, who is a Canadian resident, no s. 116 certificate is required. Some doubt on this point may have arisen after the Olympia Trust case, finding that a purchaser for s. 116 purposes was the trustee of the purchasing RRSP, not the RRSP plan.

CRA also helpfully stated (regarding a Quebec “counter letter” establishing that the true owner is different from that named in the sale agreement):

[I]n certain cases, the CRA could issue a letter to the taxpayer confirming that it is not necessary to withhold tax or to obtain a certificate of compliance under section 116, thereby recognizing the legal effect of a counter letter … .

Neal Armstrong. Summary of 8 October 2021 APFF Roundtable, Q.16 under s. 116(3) and s. 152(4)(a)(i).

On March 12, 2015, the Bank wrote to the Minister to ask that $54 million of non-capital loss from its 2008 taxation year be carried back to its 2006 taxation year (ending October 31, 2006) to offset the increase to its income for the 2006 year that would occur when the Minister implemented a concurrent settlement agreement regarding a transfer-pricing audit. The Minister did so, but calculated interest on the increased balance of tax owing for the Bank’s 2006 year up to the date of the written request pursuant to s. 161(7)(b)(iv) (i.e., for the period of around eight years up to March 12, 2015). Thus, interest was caculated on a balance that was not ultimately owed.

Wong J rejected the Bank’s submission that, pursuant to s. 161(7)(b)(iv), such interest should not have accrued after the filing due date for the 2008 loss year return (i.e., April 28, 2009), “that Parliament did not intend for a taxpayer to be subject to interest during periods when a loss was available for carryback but the taxpayer does not know to do so until the conclusion of an audit” and that the loss carryback was as "a consequence of" the CRA audit rather than the Bank's carryback request. She considered the wording of s. 161(7)(b) to be unambiguous, but was fortified in her conclusion by her view that the scheme of the Act is to establish a “self-assessing income tax system under … which the onus is put on the taxpayer,” stating in this regard that:

The Act contemplates retroactive/retrospective liability following reassessment in a self-assessing system. Subsection 152(3) says that liability for tax is unaffected by an incorrect/incomplete assessment or by the fact that no assessment was made. In other words, one is liable for tax owing regardless of the assessment status.

Thus, she considered that the Bank owed tax from the moment it filed its 2006 return on a basis that failed to recognize the income later subject to the transfer-pricing adjustment, and the subsequent non-capital loss could not be recognized until, many years later, that need for its application was identified.

She stated that an Alberta Court of Appeal decision going the other way on a similar provincial provision was “either wrongly decided” or inapplicable federally.

Neal Armstrong. Summary of The Bank of Nova Scotia v. The Queen, 2021 TCC 70 under s. 161(7)(b)(iv).

Under s. 118.1(13)(c), where a qualified donee that disposes of non-qualifying securities (“NQS”) that were gifted to it, the amount of the original gift will be deemed in some circumstances to equal the fair market value of the “consideration” received by the donee for that subsequent disposition.

CRA indicated that, unless the context indicates otherwise, “the notion of ‘consideration’ is broad enough to encompass any amount, good or service received upon the disposition of property,” so that the “consideration” received by the donee would not be limited to s. 54 proceeds of disposition, and would include a deemed dividend received by the qualified donee under s. 84(3) on a redemption of shares.

Neal Armstrong. Summary of 8 October 2021 APFF Roundtable, Q.14 under s. 118.1(13)(c).

Vendors may proceed with a preliminary reorganization before a share sale and agree in advance that elections will be made in the event that CRA later identifies that there have been excessive eligible dividend or capital dividend designations. CRA stated:

… In [this] context … the CRA generally accepts that shareholders may give their concurrence in advance, through undertakings under the various sale agreements, to the making of elections under subsections 184(3) and 185.1(3).

It went on to indicate that “since in such circumstances the number of shareholders is generally small and their respective returns have generally been assessed at the time the 184(3) election is filed, the CRA will not request the preparation of T5 slips in respect of that election unless the circumstances make that procedure practical."

Neal Armstrong. Summaries of 8 October 2021 APFF Roundtable, Q.10 under s. 184(3) and s. 185.1(3).