News of Note
CRA states that the will-directed formation by a GRE of a charitable remainder trust cannot benefit the deceased’s terminal return under s. 118.1(5.1)(b)
Email this ContentS. 118.1(5.1)(b), when read together with the s. 118.1(1) - “total charitable gifts” – (c)(i)(C) definition, generally indicates that a gift by a graduated rate estate made within 5 years of the deceased’s death can be deemed to be a gift made by the deceased if the gift was of (i) property that was acquired by the GRE on and as a consequence of the death or (ii) property that is substituted for that property
Suppose that the terms of a charitable remainder trust (“CRT”), created by the will of the deceased taxpayer to hold property of the deceased received by the GRE, provide for all the income earned by the CRT to be paid to the surviving spouse and, on the death of that spouse, for the property to be transferred to a qualified donee. Will s. 118.1(5.1)(b) apply to the gift of the equitable interest in such testamentary trust on the basis that such interest is property that is substituted for the remainder interest in the property owned at the time of death that is received by the GRE on and as a consequence of the death of the individual?
CRA essentially indicated that this question was assuming a form of transaction at a variance with what CRA saw. It responded:
[T]he equitable interest in the CRT is created as a result of the transfer of property to the CRT by the GRE. The gift of the equitable interest in the CRT is considered to have been made to the qualified donee when the property is transferred to the CRT, provided that the equitable interest in the CRT vests with the qualified donee at that time (and all other requirements are met).
Since the equitable interest of the donee arose at the moment of the creation of the trust, CRA did not construe there to be a gift of substituted property by the GRE (or of the remainder interest itself) – so that s. 118.1(5.1)(b) did not apply.
Neal Armstrong. Summary of 2 December 2020 External T.I. 2017-0734261E5 under s. 118.1(5.1)(b).
Income Tax Severed Letters 27 January 2021
This morning's release of three severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CIBC – Federal Court of Appeal finds that VISA provided a GST/HST-exempt financial service to CIBC
CIBC issued Visa credit cards and utilized the Visa payment system, for which it paid fees to VISA. It was acknowledged that such charges otherwise came within the exempt financial services definition, relevantly described as including “the services of paying money (paragraph (a)), arranging for the payment of money (paragraph (l)), and any service provided under an agreement relating to payments of amounts for which a credit card voucher or charge card voucher has been issued (paragraph (i)),” and the only issue was whether the exemption was ousted by the services being of an “administrative” nature.
In finding that this exclusion did not apply, Laskin JA emphasized factual findings by the Tax Court that:
Visa’s services “form an essential part of the ability for CIBC to offer credit card based services to their clients," … they "[give] CIBC customers the ability to purchase goods and services anywhere in the world without CIBC having to individually contact each merchant to set up payment arrangements with them," and that "[i]f CIBC was forced to create such a payment network on its own, even if technically feasible, this network would invariably be much less widely accepted than the one offered by Visa." (para. 63)
He added:
Visa’s services relieve CIBC and other issuers of the need to investigate and analyze the risk profile and solvency of the merchants that accept credit cards in payment for goods and services. To describe the benefit that CIBC obtained from Visa’s services … as "quintessentially administrative," [as was done by the Tax Court] does not … adequately recognize the reality of the benefit that CIBC derived. (para. 63)
Neal Armstrong. Summary of Canadian Imperial Bank of Commerce v. Canada, 2021 FCA 10 under Financial Services (GST/ HST) Regulations – s. 4(2)(b).
Stonehouse Group – Ontario Court of Appeal considers “the principle that governments have the right to legislate illogically” to be “not … persuasive”
As a result of being reassessed to deny the carryback of a loss, the taxpayer was required to pay the reassessed taxes – but, following success in its objection, later was refunded the tax. The logical application of an interpretation of a Corporations Tax Act (Ontario) provision advanced by the Ontario Ministry of Finance would have been to deny any interest to the taxpayer on this refund.
After noting that the provision could also potentially be interpreted more narrowly so as to avoid this result, and before finding for the taxpayer, Nordheimer JA stated:
[T]he respondent’s reliance on the principle that governments have the right to legislate illogically is not a persuasive one. It is also not a principle of statutory interpretation to be readily invoked. …
The language in s. 79(7) is not unambiguous when read in its entire context. While it is not necessary to resort to it in this case … there remains “a residual presumption in favour of the taxpayer” … . Given the history of the legislative provisions regarding the payment of interest, an interpretation which favours the underlying policy choice of fairness to the taxpayer is to be preferred.
Neal Armstrong. Summary of Stonehouse Group Inc. v. Ontario (Finance), 2021 ONCA 10 under Corporations Tax Act. s. 79(7).
We have translated 6 more CRA Interpretations
We have published a translation of a CRA interpretation released last week and a further 5 translations of CRA interpretation released in May 2009. Their descriptors and links appear below.
These are additions to our set of 1,374 full-text translations of French-language Roundtable items and Technical Interpretations of the Income Tax Rulings Directorate, which covers all of the last 11 2/3 years of releases of Interpretations by the Directorate. These translations are subject to the usual (3 working weeks per month) paywall. Next week is the “open” week for February.
CRA finds that donations generated from a charity’s special campaign were not “extraordinary items,” and were not excluded for CEWS purposes
A registered charity undertook a special campaign in response to the COVID-19 pandemic that resulted in a large increase in its donation revenue. Should such donations be excluded from its “qualifying revenue” for CEWS (wage subsidy) purposes as “extraordinary items”? CRA stated:
[T]he solicitation and receipt of donations is part of the Charity’s normal activities in the ordinary course of its operations. Accordingly, we would not consider the Campaign donations to be extraordinary items.
CRA also indicated that funding received by the charity from a municipal government would be included in its “qualifying revenue” (absent an election under (a)(ii) of the definition) on the basis of being “funding received from government sources.”
Neal Armstrong. Summaries of 15 December 2020 External T.I. 2020-0855601E5 under s. 125.7(1) - “qualifying revenue” – (c), (a)(ii).
CRA finds that where the employee alternates between a close and distant regular place of work, travel expenses even to the distant location are personal
An employee, working alternating weeks at an employer establishment located in the city where the employee resides and at a second establishment located in a city approximately 300 km from the first establishment, is paid a reasonable per-kilometre travel allowance by the employer, regarding the commute to the more distant location. Is this excluded from income inclusion under s. 6(1)(b) by virtue of the exclusion in s. 6(1)(b)(vii.1) “for traveling in the performance of the duties of the … employment”? CRA stated:
[I]f the employer determines that [the two establishments] are "regular places of employment" of the employee, the travel expenses incurred by the employee to travel between the individual's residence and these locations are personal expenses of the employee. Amounts paid to the employee for such travel must therefore be included in computing the employee's income … [and] the employee cannot deduct personal travel expenses in computing income from an office or employment.
“Longstanding position” or not, it could be argued that this represents a mechanical application of statements made in the Federal Court of Appeal (e.g. Hogg, at para. 12) without regard to the underlying rationale, which is that if the employee incurs significant commuting expenses, that is a result of a personal decision to live at a distance rather than close to the employer’s establishment (see e.g., Cumming – “There may no doubt be [other] cases where a further element of personal preference for a more distant location has an appreciable effect on the amount of the expense involved” - or the House of Lords decision cited both by CRA and in Hogg: “They are incurred … because … living … away from Portsmouth, he must travel to that place before he can begin to perform his duties … and, having concluded those duties, desires to return home”), and that in a situation like this, the expense instead results from the employer’s business decision to have a second, more distant, work location.
Neal Armstrong. Summary of 17 August 2020 External T.I. 2016-0643631E5 F under s. 6(1)(b)(vii.1).
Allstaff Inc. – Federal Court confirms that GST/HST remittance obligations are triggered by invoicing
The taxpayer, in seeking relief under ITA ss. 153(1.1) and 220(3.1) regarding interest and penalties on substantial arrears in its source-deduction remittances, argued that those arrears were caused by CRA incorrectly requiring it to remit GST/HST based on when it invoiced its supplies rather than when it collected those invoices.
Shirzad J found that even if the taxpayer’s ETA interpretation were correct, this would not have justified late source-deduction remittances – and that, in any, event “subsections 152(1)(a) and 168(1) of the ETA clearly indicate that the Applicant’s GST/HST payments are due on the date in which the Applicant issues its invoices.” Thus, CRA’s decision to deny relief was reasonable.
Neal Armstrong. Summary of Allstaff Inc. v. Canada (Attorney General), 2021 FC 52 under ITA 153(1.1).
MacDonald – Federal Court of Appeal finds that the Crown’s seeking an increased costs award was impermissible relitigation
After the taxpayer’s success in MacDonald in the Tax Court, he secured an enhanced costs award from the Tax Court based on a settlement offer he had made. After the reversal of MacDonald in the Federal Court of Appeal, as further confirmed by the Supreme Court, the Crown appealed the enhanced cost award, seeking enhanced costs instead for itself based on a settlement offer it had made.
Stratas JA found that this appeal should be dismissed on two grounds:
- When the FCA had allowed the Crown’s appeal, it awarded costs on the usual scale to the Crown. Since the entitlement for costs in the TCC proceedings had thus been decided, it could not now be relitigated in the current appeal by virtue of the res judicata doctrine.
- Since the TCC’s enhanced cost order (under Rule 147(7)) was wholly contingent on the order it made in the underlying action, when that order was reversed, its Rule 147(7) order was rendered a nullity – there was nothing for the Crown to appeal.
Neal Armstrong. Summary of Canada v. MacDonald, 2021 FCA 6 under General Concepts – Res Judicata.
Barkley – Federal Court of Appeal finds that s. 8(1)(b) does not provide deductions of legal fees incurred to resist repaying remuneration
The three directors (two siblings and a spouse) of a corporation incurred legal fees in defending an action brought by two other siblings challenging the validity of a purported gift of the control bloc of shares of the corporation to one of the directors by the father, and seeking the repayment by them of allegedly-overpaid remuneration.
In finding that such legal expenses were not deductible under s. 8(1)(b), Webb JA stated:
The language is clear that the deduction is only available for legal expenses incurred to collect or establish the right to amounts that, if received, would be included in [employment] income. It does not apply to legal expenses incurred to allow a taxpayer to retain amounts that have already been paid.
Fenwick, which suggested a potentially broader scope for s. 8(1)(b) , was now “moot” as s. 8(1)(b) had since been relevantly amended.
Neal Armstrong. Summary of Barkley v. Canada, 2021 FCA 5 under s. 8(1)(b).