News of Note
CRA finds that a co-purchaser of a new rental property can qualify for the new residential rental property rebate (NRRPR), even if his co-purchaser does not
Email this ContentTwo unrelated individuals (Individual 1 and Individual 2) agreed to purchase a new condo unit for rental purposes from the builder. However, due to second thoughts, Individual 1 did not close the purchase, so that the condo unit and title thereto were acquired only by Individual 2.
In finding that Individual 2 was entitled to claim the new residential rental property rebate (NRRPR), CRA stated:
[I]n a situation where a group of persons is applying for the NRRPR … [e]ach person would be treated separately … [so that] if one person does not meet all the eligibility requirements, it will not preclude the other person(s) from qualifying for the rebate … .
Cheema, which focused only on who were the named parties to a purchase agreement, may be causing questions that, pre-Cheema, might have seemed straightforward.
Neal Armstrong. Summaries of HST 11 August 2021 GST/HST Interpretation 184857 under ETA s. 256.2(3) and s. 123(1) - recipient.
Christen – Federal Court finds that a voluntary disclosure planned before, but made after, the audit notification could be considered non-voluntary - but annuls the CRA rejection anyway
In May 2015, the plaintiff authorized her law firm to represent her in making a voluntary disclosure of her Swiss assets, and in the summer and fall of 2015, various documents were collected and organized to this end. However, on September 25, 2015, CRA sent a letter to the plaintiff indicating that her 2005 to 2014 taxation years were under audit regarding a failure to declare foreign property. A voluntary disclosure filing made by the plaintiff about four weeks later was rejected by the first and second CRA decision makers on the basis that it was not voluntary.
Walker J found that this decision did not represent an unreasonable exercise of Ministerial discretion under s. 220(3.1). She agreed that it would have been “inequitable and unreasonable” for a voluntary disclosure to have been rejected as being non-voluntary if made one minute after communication of an audit, but noted that this was not the situation before her, stating that “there is an important distinction between the date information is actually disclosed under the VDP and the date the taxpayer makes the decision to investigate the making of a disclosure.”
However, the (second) decision under review was annulled given that the involvement of the first decision maker in the process for the second review decision “was not minimal.” The decision was remitted to the Minister for a fresh determination by an agent with no involvement with the previous decisions.
Neal Armstrong. Summary of Christen v. Canada (Agence du revenue), 2021 CF 1440 under s. 220(3.1).
Our translations of CRA Interpretations go back over 16 years
We have published a further 10 translations of CRA interpretation released in January, 2006 and December, 2005. Their descriptors and links appear below.
These are additions to our set of 1,869 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 years of releases of such items by the Directorate. These translations are subject to the usual (3 working weeks per month) paywall. You are curently in the "open" week for January.
CRA applies Zomaron to find that fees for marketing credit/debit card processing services to merchants likely were GST/HST exempt
In finding that the “Contractor” (a sales agent) very well might be generating GST/HST exempt “arranging for” fees from the “Company” (a member of a payments network) for marketing the services of the Company to prospective merchants for the processing of credit and debit cards of the merchants’ customers, and completing the merchants’ applications online for submission to the Company for electronic approval, CRA stated:
There is indication that the Contractor has direct involvement and effort in the provision of the Company’s supplies of financial services made to merchants under the merchant agreement. The Contractor has some autonomy to recommend fees and rates to the Company with respect to the merchant agreements. There appears to be a significant degree of reliance by both the Company and the merchant on the Contractor in concluding the merchant agreement and the information substantiates the Contractor’s intention of effecting a supply of a financial service.
This interpretation is similar to 15 June 2021 GST/HST Ruling 196187, and both are based on an acceptance of Zomaron.
Neal Armstrong. Summary of 17 August 2021 GST/HST Interpretation 207227 under ETA s. 123(1) - financial service – para. (l).
CRA indicates that the Treaty Other-Income Articles generally accord Canada the full right to impose Part I tax on CERB payments made to a resident of the other Treaty country
After noting that payments (“CERB Payments”) made pursuant to the Canada Emergency Response Benefit Act (the “CERB Act”) to a non-resident individual were required by ss. 56(1)(r)(iv.1) and 115(1)(a)(iii.22) to be included in computing the taxable income earned in Canada of the non-resident, CRA indicated that the “Other Income” Article of an applicable Treaty will generally apply to the payments and that, similarly to federal employment insurance compensation, it is CRA’s view that the CERB Payments constitute income arising in Canada, so that Canada generally has the right to tax CERB Payments without restriction.
CRA further noted that pursuant to the non-Double-Taxation Article of the relevant Treaty, the non-resident’s country of residence “will be required to provide relief from double taxation either in the form of a credit or of a deduction for the Canadian income taxes paid or accrued in respect of CERB Payments”.
Neal Armstrong. Summaries of 9 July 2021 Internal T.I. 2021-0893981I7 under s. 120(1) and Treaties – Income Tax Conventions – Art. 15, Art. 24.
Income Tax Severed Letters 29 December 2021
This morning's release of two severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA determines the Ontario corporate FTC regarding non-business income tax paid in different countries by prorating the federal FTC based on each country’s relative investment income
Canco earns $100 of investment income in each of foreign Country A and Country B, and incurs a Canadian source loss of $100, so that its net income and taxable income is $100 and its Canadian federal income tax otherwise payable (“FTOP”) at the 15% federal tax rate is $15. The “non-business-income tax” (“NBIT”) paid in each country on such investment income is $10. Canco’s Ontario allocation factor is 1, and the Ontario corporate tax rate is 11.5%.
Canco’s provincial foreign tax credit for each such country turns principally on the determination under s. 34(2) of the Taxation Act, 2007 (“TAO”) of any excess of (A) the NBIT paid to each country, of $10, over (B) the amount deductible by Canco “in respect of the foreign investment income for the year” under ITA s. 126(1).
CRA considered that it would be reasonable to determine the quoted amount on a pro rata basis in proportion to the foreign investment income earned in each country (i.e., half and half, or $7.50 and $7.50) – so that the provincial FTC for each country would be $2.50 (being the Ontario domestic factor of 1, multiplied by the excess of $10 of the NBIT paid to each country over $7.50).
Neal Armstrong. Summary of 17 August 2021 External T.I. 2020-0842981E5 under Taxation Act, 2007, s. 34(2).
CRA denies that a manager can earn a management fee directly from an investment limited partnership rather than its GP
Before discussing the somewhat new rules in ETA ss. 272.1(3)(b) and (8), generally deeming the general partner of an investment limited partnership to be making monthly or other periodic taxable supplies to the ILP for consideration equaling the FMV of its services, CRA seemed to indicate that a similar result would obtain under the more general test in 272.1(1) (regarding whether the partner is relevantly acting qua partner). If the income of the partnership allocated to the GP was disproportionate to the capital that it had invested in the ILP, CRA generally would infer that in substance the “draws” received by it were compensation for its services rather than a return on its partnership capital. (This seems to ignore the proposition that non-equity partners can still receive draws qua partner in recognition of their contribution of services qua partner.)
Regarding the application of ss. 272.1(3)(b) and (8), CRA seemed to indicate, subject to the caveat below, that management fees that the ILP has agreed to pay to the manager should be treated as being payable by the GP to the manager, and by the ILP to the GP (i.e., an inferred double supply) – based on its confidently-expressed views that the manager’s appointment “does not negate the general partner’s responsibilities and fiduciary duties to the limited partnership” and that “the general partner is the only person with authority to implement any advice provided by a third party manager.”
The caveat is that the deemed supply is based on the FMV of the services rendered by the GP rather than the actual quantum of the draws received.
Regarding the determination of such FMV:
- it “should take into consideration the industry standard for the management of investments in comparable situations” which
- “includes management fees and performance fees”.
- these “will usually be described in the limited partnership agreement, the offering memorandum provided to investors and/or the management agreement.”
- “The fees vary depending on various factors, such as the size of the investment and whether the investments require passive or active management.”
Neal Armstrong. Summaries of 27 July 2021 GST/HST Interpretation 197267a under ETA s. 272.1(1), s. 272.1(3)(b) and s. 123(1) - investment limited partnership.
GST/HST Severed Letters August/September 2021
CRA provides a listing of expenses typically not incurred as agent
Expenses incurred by a supplier of taxable services as agent for its client are not subject to GST/HST when it is reimbursed for those amounts by the client, whereas expenses incurred by it as principal are subject to GST/HST if it is able to add those amounts (including any GST/HST on those expenses for which it is not entitled to ITCs, e.g., 50% of restaurant bills) to its invoice for its taxable services. CRA provided the following list of expenses which are generally not incurred as agent for the client:
- office supplies, if they are associated with the service being performed by the supplier for the client
- air travel
- local transportation, such as a taxi
- parking
- hotel or other accommodation
- per diem amounts, such as meals
- car rentals and gasoline
- an automobile allowance, where the supplier’s personal vehicle is used in the performance of the service
Before discussing the 50% denial of ITCs for food, beverage and entertainment expenses, CRA indicated:
Generally, a client who is a registrant can claim an ITC for the GST/HST paid or payable on the out-of-pocket expenses incurred by a supplier as agent of the client … to the extent that the supplier’s services and the supply acquired by the supplier are consumed, used or supplied in the course of the client’s commercial activities.
This suggests that CRA may not generally require the supplier to provide the invoices for the expenses, that it incurred as agent, to the client.
Neal Armstrong. Summaries of GI-197 “Out-of-Pocket Expenses” 17 December 2021 under ETA s. 123(1) - supply, and s. 236(1).