News of Note
Fazal – Tax Court of Canada apparently finds that an individual’s dissolution of a proprietorship terminated her GST/HST registrant status
Email this ContentAn individual carried on a proprietorship, which was registered for GST/HST purposes, and shortly thereafter incorporated that proprietorship, with the corporation receiving a fresh GST/HST registration. The business was unsuccessful, and the corporation was dissolved, and she began to carry on a fresh and quite separate business, as a proprietorship. Although in the initial three years, her annual sales came under the small supplier threshold of $30,000, CRA nonetheless ultimately assessed those years on the basis that she (personally) was still registered. (Under ETA s. 166, a small supplier must not be a registrant in order to be excluded.)
Fournier DJ vacated those assessments. Although his reasoning is somewhat unclear, it appears that he considered that because the previous proprietorship was dissolved, therefore she was no longer a registrant because the proprietorship respecting which she had registered no longer existed. This was a bit like him according a proprietorship separate person status for these purposes. He also suggested that CRA exercise “clemency” respecting a year in which she exceeded the $30,000 threshold by only $250.
Neal Armstrong. Summary of Fazal v. The Queen, 2020 TCC 137 under ETA s. 148(1).
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 July, 2009. Their descriptors and links appear below.
These are additions to our set of 1,350 full-text translations of French-language Roundtable items and Technical Interpretations of the Income Tax Rulings Directorate, which covers all of the last 11 1/3 years of releases of Interpretations by the Directorate. These translations are subject to the usual (3 working weeks per month) paywall.
3412229 Canada – Federal Court confirms various exemptions from Access to Information claimed by CRA
The applicants, who were awarded damages in Ludmer regarding CRA’s conduct of its audit of their investments in an off-shore company and who had been denied full access to 8,041 out of 38,090 pages of documents that had been identified as covered by their requests under s. 6 of the Access to Information Act (“ATIA”), sought judicial review under s. 41 of the ATIA of CRA’s decision to exempt various of such documents from disclosure. In the course of dismissing their application for expanded disclosure, Bell J made a number of comments on the scope of various provisions in the ATIA exempting CRA from disclosure obligations:
- Regarding the prohibition in ATIA s. 13 against disclosure of any record obtained in confidence from a foreign government, any information obtained by the CRA pursuant to the Tax Information Exchange Agreement with Bermuda was to be treated as confidential, not just information that CRA could demonstrate had been communicated in confidence.
- The prohibition in ATIA s. 16(1)(b) of disclosure of “information relating to investigative techniques or plans for specific lawful investigations” applied to preclude disclosure of “audit techniques used by the CRA to identify or guide its auditors in applying s. 94.1 … or a risk assessment tool used to evaluate and manage the risks of an ongoing audit.”
- The names of Bermuda individuals with whom CRA had spoken were protected “personal information” under ATIA s. 19.
- Bell J agreed with a previous judicial statement that “most internal [government] documents that analyse a problem, starting with an initial identification of a problem, then canvassing a range of solutions, and ending with specific recommendations for change, are likely to be caught within [the disclosure prohibition in] paragraph (a) or (b) of subsection 21(1)”.
- He also applied the finding in Slattery that the prohibition in ATIA s. 24(1) against the disclosure of personal information is mandatory.
Neal Armstrong. Summaries of 3412229 Canada Inc. v. Canada (Revenue Agency), 2020 FC 1156 under ATIA s. 13(1)(a), s. 16(1)(b), s. 19(1), s. 21(1) and s. 24(1).
CRA indicates that the principal place of performance test for the employee home office deduction need only be satisfied during COVID for part of the year
In its revised webpage dealing with home office expenses for employees, CRA indicates that employees can opt, for their 2020 year, to use a “flat rate method” for computing their s. 8(13) home office deduction in lieu of using the regular “detailed” method. Under this temporary method, they can claim $2 per day worked from home because of COVID (subject to a 4 week minimum) up to $400 maximum (i.e., 200 working days). The principal advantages are simplicity: no need to calculate the size of the work space or keep supporting documents, and no need for the employer to complete Form T2200S or Form T2200. In addition, multiple employed individuals living in the same home (e.g., two spouses and their stay-at-home child) can each claim the $400.
CRA also provides guidance on the application of the “detailed” s. 8(13) deduction method in the COVID context. S. 8(13)(a)(i) in most circumstances requires that the mooted home office be “the place where the individual principally performs the duties of the … employment.” CRA informs the employee that such individual will meet this test if:
- you worked from home in 2020 due to the COVID-19 pandemic or your employer required you to work from home
- you worked more than 50% of the time from home for a period of at least four consecutive weeks in 2020
In other words, the “principally” test does not have to be satisfied over the whole year (e.g., for over 50% of the working days in the year) and instead need only be satisfied for a continuous 4-week period. This might also inform the meaning of “the individual’s principal place of business” in s. 18(12)(a)(i), although CRA does not extend its commentary to that provision.
CRA further indicates that it will accept an electronic signature on the Form T2200S and Form T2200 (but only for the 2020 taxation year), and that it “has expanded the list of eligible expenses that can be claimed to include home internet access fees” (presumably, including after 2020).
No one is expecting the pandemic to end on January 1, so that CRA doubtless will be asked whether various of these positions will apply in 2021.
Neal Armstrong. Summary of CRA webpage on “Home office expenses for employees” (Date modified: 2020-12-15) under s. 8(13).
CRA finds that the QSBC character of capital gains, including previous years’ reserves, can be flowed out in a 2-tier trust structure
Q.17 of the 2020 STEP Roundtable (2020-0837001C6) reversed 2016-0667361E5 and found that (with the proper designations at both levels under ss. 104(21) and (21.2),) taxable capital gains realized by a lower-tier personal trust from the disposition of qualified small business corporation (QSBC) shares could retain their character as such when distributed to personal trusts that were its beneficiaries which, in turn and in the same year, distributed those gains to their individual beneficiaries.
The Rulings Directorate has now published the internal technical interpretation on which Q.17 is based. The facts are somewhat more elaborate. (The capital gains were recognized over two years as a result of the lower-tier trust claiming a capital gains reserve, and the upper-tier trusts also realized other capital gains which also were distributed.) However, the answers were substantially the same.
Neal Armstrong. Summary of 13 August 2020 Internal T.I. 2019-0818301I7 F under s. 104(21.2).
Income Tax Severed Letters 16 December 2020
This morning's release of two severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Ghermezian – Federal Court discusses the boundaries between ss. 231.2 and 231.6
In relation to five requirements for information (“RFIs”) issued pursuant to s. 231.2(1) to four resident individuals and a corporation, Southcott J found:
- Although the RFIs themselves did not name all the particular parties that the Minister was investigating, this was acceptable since the requirement to first seek judicial authorization under s. 231.2(3) before issuing the RFIs to “unnamed persons” meant only that such persons were “unknown to the Minister” rather than being “unnamed in the RFI.”
- Furthermore, “the unnamed persons provisions are not engaged where a requirement seeks information related to an unnamed person that is not the subject of the Minister’s investigation.”
- Although he was not convinced “that the statutory scheme of the ITA permits the Minister to require production of foreign-based information through s 231.2(1),” it was acceptable to issue requirements under both ss. 231.2 and 231.6 with it to be sorted out later which of the requested information was foreign-based information that was subject to the limitations in s. 231.6 rather than being subject to a potential compliance order under s. 231.7 (for non-foreign based information).
- It was acceptable for some of the RFIs to seek material dating back 21 years.
- “[T]he ITA does not require that the party from whom the information is sought be given any details as to the purpose of the requirement.”
- An RFI request for “any additional information or explanations that are relevant in determining whether or not the rules of former section 94 of the Act (for taxation years before 2007) applies to the Royce and Regent Trusts in respect of the transaction described in the background of this query” was too vague to permit a proper response and needed to be redone.
Neal Armstrong. Summary of Ghermezian v. Canada (Attorney General), 2020 FC 1137 under s. 231.2(1).
Victus Academy – Tax Court of Canada finds that the hockey program provided by a hockey school was (even if a separate supply) an exempt educational service
A for-profit private school took the position that it was providing separate supplies of exempt academic programming and taxable hockey training to its students, so that it could claim input tax credits for its significant costs of providing the hockey-school aspect of its services (including the fees of contractors who provided the training). Monaghan J found that it was unnecessary to decide whether there was a single supply, because even if the academic and hockey program were separate supplies, both were educational services described in Sched. V, Pt. III, s. 2 or s. 3, given that each student came within the definition in Sched. V, Pt. III, s. 1 of an “elementary or secondary school student.”
Regarding the s. 2 exemption, which refers to a “supply made by a school authority … of a service of instructing individuals in a course that is provided primarily for elementary or secondary students,” she found an implication in Sched. V, Pt. III, s. 16 that a “’course’ in Part III includes training in sports and recreational pursuits.”
The s. 3 exemption relevantly refers to a “supply of … services … made by a school authority primarily to elementary or secondary school students during the course of extra-curricular activities organized under the authority and responsibility of the school authority.” The hockey program (being the provision of services through the engagement of the third-party contractors) seemed to qualify as extra-curricular activities since the students were not required to participate (although all did in the reporting periods under appeal).
Neal Armstrong. Summaries of Victus Academy LP v. The Queen, 2020 TCC 134 under ETA Sched. V, Pt. III, s. 2 and s. 3.
We have translated 8 more CRA Interpretations
We have published a translation of a CRA interpretation released last week and a further 7 translations of CRA interpretation released in August and July, 2009. Their descriptors and links appear below.
These are additions to our set of 1,344 full-text translations of French-language Roundtable items and Technical Interpretations of the Income Tax Rulings Directorate, which covers all of the last 11 1/3 years of releases of Interpretations by the Directorate. These translations are subject to the usual (3 working weeks per month) paywall.
| Bundle Date | Translated severed letter | Summaries under | Summary descriptor |
|---|---|---|---|
| 2020-12-09 | 7 October 2020 APFF Roundtable Q. 18, 2020-0862931C6 F - 12(1)(x) and CEBA | Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(x) - Subparagraph 12(1)(x)(iv) | bank lending under CEBA loan program is described in s. 12(1)(x)(i) and forgivable loan included on receipt |
| Income Tax Act - Section 12 - Subsection 12(2.2) | s. 12(2.2) can be applied to non-deductible expenses/consequences of CEBA loan not being forgiven | ||
| Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(hh) | the parties can agree to allocate late CEBA loan repayments between the forgivable and non-forgivable loan components | ||
| 2009-08-07 | 29 June 2009 External T.I. 2008-0296371E5 F - Capital dividends | Income Tax Act - Section 129 - Subsection 129(1.2) | s. 87(2)(aa) would apply to eliminate RDTOH of predecessor given the absence of an s. 83(2.4) equivalent to exempt the predecessor’s notional dividend |
| Income Tax Act - Section 83 - Subsection 83(2.1) | s. 83(2.1) would apply to acquisition and amalgamation with shell corp. with CDA unless s. 83(2.4) exceptions applied | ||
| Income Tax Act - Section 87 - Subsection 87(2) - Paragraph 87(2)(z.1) | s. 87(2)(z.1) would apply to eliminate CDA of predecessor if the s. 83(2.4) exceptions did not prevent the application of s. 83(2.1) to the notional dividend paid by that predecessor | ||
| 30 June 2009 External T.I. 2008-0304311E5 F - Période admissible - CIEE | Income Tax Act - Section 122.3 - Subsection 122.3(1) | meaning of “more than six consecutive months” | |
| 2009-07-31 | 7 July 2009 External T.I. 2008-0267941E5 F - Pompiers volontaires | Income Tax Act - Section 81 - Subsection 81(4) | “volunteer” in s. 81(4) references its broader meaning under provincial standards legislation, and is initially applied by the employer municipality |
| Income Tax Act - Section 5 - Subsection 5(1) | someone normally is a “volunteer” rather than employee if any compensation is too small to be motivating | ||
| 20 July 2009 External T.I. 2009-0312541E5 F - Allocation pour usage d'un véhicule à moteur | Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(b) - Subparagraph 6(1)(b)(x) | car allowance bifurcated into 2 allowances: reasonable per-kilometre allowance; and unreasonable minimum allowance | |
| Income Tax Act - Section 8 - Subsection 8(1) - Paragraph 8(1)(h.1) | T2200 can be prepared where car allowance bifurcated into 2 allowances, one of which is taxable | ||
| 2009-07-24 | 15 July 2009 External T.I. 2009-0315221E5 F - Crédit d'impôt pour la rénovation domiciliaire | Income Tax Act - Section 118.04 - Subsection 118.04(1) - Qualifying Expenditure | cost of replacing residential septic system for principal residence (e.g., a cottage) generally qualifies |
| 15 July 2009 External T.I. 2009-0316451E5 F - Crédit d'impôt pour la rénovation domiciliaire | Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Expenditure v. Expense - Improvements v. Repairs or Running Expense | cost of replacing septic tank and drainage field of an enduring nature | |
| 13 July 2009 Internal T.I. 2009-0328161I7 F - Personne entièrement à charge non-résidente | Income Tax Act - Section 118 - Subsection 118(1) - Paragraph 118(1)(b) | individual living outside Canada with dependant child can claim s. 118(1)(b) credit if a deemed s. 250(1) resident |
Caisse Desjardins de Limoilou – Quebec Court of Appeal finds that a mortgagee’s prescribed security interest was reduced under Reg. 2201(2)(a) by the shareholders’ guarantee
Reg. 2201 provides a carve-out, from the super-priority of the Crown under ITA ss. 227(4) and (4.1) regarding unremitted source deductions and withholding taxes, for a prescribed security interest (“PSI”). Under Reg. 2201(2)(a), the PSI of the Caisse at the time of a mortgage borrower’s failure to remit source deductions was equal to the mortgage balance owing at that time minus "all rights of the secured creditor securing the [mortgage] obligation.”
The federal Crown successfully took the position that the Caisse’s PSI was reduced by the portion of the mortgage loan that was guaranteed by shareholders of the borrower – notwithstanding that this security was evidently not of much value to the Caisse, as it released those shareholders from their guarantee after the source deduction remittance failure and before the sale of the mortgaged property pursuant to a court-approved sale.
Gagné JCA stated:
First, the ordinary meaning of the words "rights of the secured creditor …" refers to all the economic rights of the secured creditor securing the obligation. There is nothing in the text of [Reg.] 2201(2)(a) … to limit these rights to the real property rights of the secured creditor [as argued by the Caissse]. …
Second, the legislator was careful to add "including guarantees …” … The word "guarantees" must be taken in its broad sense, which includes suretyship. …
Third, the [Finance] Explanatory Notes to the Regulations support this interpretation. …
In rejecting a further argument of the Caisse that the Reg. was contrary to “the rule prohibiting the granting of pure discretion by Regulation,” she stated that the Reg. was not purely discretionary and, in fact, its meaning “can easily be determined by applying the modern method of interpretation.” She also gave short shrift to an argument that the Reg. was contrary to s. 7 of the Charter.
Neal Armstrong. Summaries of Attorney General of Canada v. Caisse Desjardins de Limoilou, 2020 QCCA 1612 under Reg. 2201(2)(a) and Statutory Interpretation – Regulations/Statutory Delegation.