News of Note
We have translated 8 more CRA interpretations
Email this ContentWe have published a further 8 translations of CRA interpretation released in May, 2005. Their descriptors and links appear below.
These are additions to our set of 1,950 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 16 ¾ years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
Glenogle Energy – Federal Court decision effectively penalizes a taxpayer for filing s. 97(2) elections on a timely basis rather than late
In January 2015, the taxpayer transferred resource properties to a limited partnership that was wholly-owned by it, directly and indirectly. The s. 97(2) elections that were filed approximately 18 months later (in July 2016) designated nominal agreed amounts. In November 2016, the taxpayer applied to amend the elections so as to increase the agreed amounts by approximately $32 million. Despite CRA requests, no detailed explanation was provided to CRA as to the reasons for the requested amendments, and ultimately, in May 2021, the Minister’s delegate denied the request on the basis inter alia that it involved retroactive tax planning (indicating that the amended elections circumvented the successor rule in s. 66.7) and that the taxpayer’s submission did not support that the requested amendments were “just and equitable” as required by s. 96(5.1).
In dismissing the taxpayer’s application for judicial review, Aylen J stated:
I am satisfied that the Applicant’s “explanation” was so devoid of particulars that it did not amount to an explanation at all. …
The Applicant … failed to explain in any meaningful way why it would be just and equitable for the Minister [to grant the request].
… I am not satisfied that the Applicant has demonstrated any error by the Minister’s delegate in his finding that the amendment requests constituted an attempt to circumvent the successor rule stipulated in section 66.7 … .
Doubtless it has occurred to the taxpayer that it would have been better off to have filed the s. 97(2) elections four months later and paid the additional penalty under s. 96(6) of $100 per month.
Neal Armstrong. Summary of Glenogle Energy Inc., 2022 FC 198 under s. 96(5.1).
Daville Transport – Tax Court of Canada finds that a settlement offer not made on a principled basis should be ignored for cost award purposes
The taxpayer submitted that it was entitled to “substantial indemnity costs” from the Crown per Rule 147(3.1) (i.e., perhaps 80% of its actual legal costs, as adjusted) on the basis that it had achieved greater success in its tax appeal than reflected in a settlement offer it had made. However, Russell J characterized that offer as an “arbitrary settlement offer,” i.e., as “a ‘let’s split it down the middle’ settlement offer” that thus violated the principle “that the Minister … can only assess tax consistent with his/her view of the underlying facts and law.” Accordingly, “this settlement offer was not within the scope of Rule 147(3.1).”
However, although the taxpayer thus was only entitled to party and party costs, Russell J increased the Tariff items by a factor of 1.6 to reflect that the Tariff had not been updated for some time.
Neal Armstrong. Summary of Daville Transport Inc. v. The Queen, 2022 TCC 5 under Rule 147(3.1).
Iris Technologies – Federal Court of Appeal finds that a Federal Court action to compel CRA to pay a net tax refund was obliterated when CRA then assessed
Iris appealed a Federal Court order, dismissing its request for mandamus to compel the release of $21.85 million in GST/HST tax refunds pending the conclusion of an on-going audit and assessment.
At the outset of the appeal to the FCA, the Minister was granted permission to file the affidavit of a CRA official indicating that Iris’ net tax for the relevant reporting periods had now been assessed and there was no net tax refund shown as owing. Rennie JA found that this affidavit met the usual tests for admission of fresh evidence at the appellate level, namely:
The evidence could not have been adduced at trial, it is relevant in that it bears on a decisive or potentially decisive issue on appeal, is credible, and could reasonably be expected to have affected the result in the Federal Court.
In going on to find that Iris’ appeal, in the light of this affidavit, should now be dismissed as moot, he stated:
The assessments are determinative of Iris’ net tax liability until the Minister makes a reassessment or the assessment is vacated by the Tax Court … .
…There is no credible basis on which it can be argued that this Court can compel the payment of the refunds claimed in the face of an assessment that the refunds are not owing.
Neal Armstrong. Summaries of Iris Technologies Inc. v. Canada (National Revenue), 2022 FCA 39 under Federal Courts Rules, Rule 351 and Federal Courts Act, s. 18.5.
Yao – Tax Court of Canada excludes an “expert report” of an immigration lawyer – but admits reports of sociology and psychology professors
In the context of a challenge under s. 15 of the Charter to the denial of child tax benefits to refugee claimants, Bocock J admitted, as expert reports, two reports of a sociology and psychology professor; on the basis that they could be helpful to the Court in determining whether the refugees were a relevantly disadvantaged group.
However, he did not admit the report of an immigration lawyer (containing a legislative history and context concerning various federal statutes; and providing observations on wait times, durations and pathways for refugee determination) on the basis that “an expert opinion should be information that is outside the experience or knowledge of the judge” and that the “overall necessity and probative value of [such] evidence from a lawyer is low relative to the time and cost of having an additional expert testify on topics already covered in the context of social science [reports].”
Neal Armstrong. Summary of Yao v. The Queen, 2022 TCC 23 under General Concepts – Evidence.
7958501 Canada - Quebec Court of Appeal finds that software that was not depreciable property to the transferor because it was written off as SR&ED was not subject to s. 13(7)(e) to the NAL transferee
A private company (“SherWeb”) transferred software, which it had developed and then used in its business, to a newly-formed sister company (“501”) at a gain (with such software licensed back to it for continued use in its software services business).
The Court found that although the acquired software was depreciable property to 501, it had not been depreciable property to SherWeb because SherWeb, rather than claiming capital cost allowance respecting the software, had treated its software development expenses as deductible SR&ED expenses, so that the software had been excluded from treatment in its hands as depreciable property pursuant to the Quebec equivalent of Reg. 1102(1)(d) (which so excludes any property that was acquired by expenditures in respect of which the taxpayer was allowed a deduction under s. 37). Accordingly, Taxation Act s. 99 (imposing the equivalent to the ½ step-up rule in ITA s. 13(7)(e) – with both provisions required that the property have been depreciable property to the transferor) did not apply to reduce the capital cost to 501 of the acquired software. The Court stated:
One cannot escape the fact that, to SherWeb, the Software has never been treated as a depreciable asset, and so continually until the time "immediately before the transfer" to the respondent.
The Court further rejected an ARQ submission that the Reg. 1102(1)(d) equivalent was intended only to preclude a double deduction (for SR&ED and CCA) and not to avoid the ½ step-up rule.
Neal Armstrong. Summaries of Agence du revenu du Québec v. 7958501 Canada Inc. 2022 QCCA 315 under s. 13(7)(e) and s. 13(21) – depreciable property.
CRA is reviewing how to deal with an error on its T1135 form, and its impact on other foreign reporting forms
CRA has released the official versions of the 2021 CTF Roundtable. For convenience of reference, we set out a chart below with links to the items and our summaries and to descriptors that we prepared shortly after the conference.
There is one change to the official answers (as compared to an earlier version) that caught our eye.
Q.14 of the Roundtable dealt with the T1135 form and related disclosure stated that specified foreign property “does not include … a share of the capital stock or indebtedness of a foreign affiliate,” without disclosing that the definition “foreign affiliate” for these purposes is narrower than the definition in s. 95(1). For example, if a Canadian corporation holds debt of a foreign “grandchild” subsidiaries whose shares are held by its immediate Canadian subsidiary, then (by virtue of s. 233.4(2)(a) as it applies pursuant to para. (k) of the “specified foreign property” definition in s. 233.3(1)), it will not be considered to be holding debt of a “foreign affiliate,” so that such debt will be required to be disclosed on the T1135 form.
In its preliminary response, CRA indicated that applications for cancellation of interest or penalties for taxpayers that were misled by the T1135 wording would be entertained by CRA, and that it also encouraged taxpayers to voluntarily correct past filing errors through submitting adjustments or applying under the voluntary disclosure program.
In its final version, CRA added:
At this time, the CRA is in the process of consulting internal stakeholders to evaluate and potentially develop a position on this issue, while giving consideration to the impacts on other foreign reporting forms.
Neal Armstrong. Summary of 3 November 2021 CTF Roundtable Q. 14, 2021-0911951C6 under s. 233.3(1) – specified foreign property - (k).
Income Tax Severed Letters 2 March 2022
This morning's release of 17 severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA indicates that s. 125.7(4)(c) cannot be accessed by a corporation jointly owned by joint venture participants which do not deal with it at arm’s length
S. 125.7(4)(c) provides that where all of the interests in an eligible entity are owned by participants in a joint venture and all or substantially all (interpreted by CRA as generally referencing a 90% threshold) of the qualifying revenue of the eligible entity for a qualifying period is in respect of the joint venture, the eligible entity may use the qualifying revenues of the joint venture (determined as if the joint venture were an eligible entity) as its qualifying revenues for the qualifying period in determining its CEWS (wage subsidy) entitlement.
CRA considered the situation where two related corporations (Holdco 1 and Holdco 2) were equal participants in a joint venture and Opco (owned by them on a 50/50 basis) earned all its revenues from providing services to the joint venture. Although this situation might seem to come within s. 125.7(4)(c), CRA referred to para. (d) of the qualifying revenue definition, which excludes amounts derived from persons or partnerships not dealing at arm’s length with the eligible entity from its qualifying revenues. CRA indicated that, based on para. (d), Opco did not derive any qualifying revenue from the joint venture (i.e., from Holdco 1 and Holdco 2), so that s. 125.7(4)(c) was not available – whereas it would have been available if it instead had been dealing with them at arm’s length.
However, its non-arm’s length relationship with Holdco 1 and Holdco 2 would not preclude it from effectively accessing their qualifying revenue declines through a joint election under s. 125.7(4)(d).
Neal Armstrong. Summaries of 15 February 2022 Internal T.I. 2020-0870731I7 under s. 125.7(4)(c) and s. 125.7(4)(d).
Ghermezian – Federal Court finds that s. 231.1(1) authorizes CRA to compel the production of existing documents, but not to compel written answers
The Minister applied for s. 231.7 compliance orders respecting CRA requests for various documents made pursuant to s. 231.1(1) (and s. 231.2(1)). Southcott J found that “s 231.1(1) entitles an authorized person to demand provision of documentation without physically attending at a place or premises where the documentation is kept.” However, he accepted that “s 231.1 … does not authorize issuance of a demand compelling the recipient to provide, through written answers to questions, substantive information relevant to a taxpayer’s tax position” as contrasted to “authoriz[ing] compulsion of only pre-existing documentation.” He stated in this regard:
[T]he distinction underlying the reasoning in Cameco is between documented and undocumented information. Section 231.1(1)(a) empowers the Minister to compel provision of the former but not the latter.
After noting the taxpayers’ submission “that the Minister cannot compel the production of foreign-based information or documents, within the meaning of s 231.6, other than through s 231.6,” Southcott J accepted “that the [s. 231.2(1)] Requirements oblige the Respondents to provide the documents and information in their power, possession and control, if accessible from Canada [emphasis in original]”, but found that the taxpayers had not met their burden of establishing that the requested information was not accessible from Canada.
Neal Armstrong. Summaries of MNR v. Ghermezian, 2022 FC 236 under s. 231.1(1), s. 231.2(1), s. 231.6(2), s. 244(5) and General Concepts – Evidence.