News of Note
CRA comments further on the meaning of a “travel restriction under its COVID Guidelines
Email this ContentCRA's Guidance on international income tax issues raised by the COVID-19 crisis provides relief respecting adverse impacts of COVID-related travel restrictions on such matters as being considered to have become a Canadian resident. CRA indicated that a mandatory quarantine period is a travel restriction, a government recommendation that does not have legal force may qualify as a “travel restriction” depending on the surrounding facts and circumstances, and that a government recommendation to return to Canada would generally be viewed as a “travel restriction.”
Neal Armstrong. Summary of 2020 IFA-YIN Seminar on COVID-19 Guidelines, Q. 1 under s. 2(1).
Income Tax Severed Letters 26 August 2020
This morning's release of two severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA intimates that it is looking to get Cameco/Alta Energy reversed one way or the other
Although he did not state it this baldly, Ted Gallivan intimated, in the context of comments heard by him of Parliamentarians, that unless CRA gets a better result in the Supreme Court in cases such as Cameco (for which the period for applying for leave has not yet expired) and other FCA decisions (presumably including Alta Energy, for which leave was recently granted), then in order to protect the fisc, amendments to the ITA transfer pricing rules will be required.
Neal Armstrong. Summary of 2020 IFA-YIN Seminar on COVID-19 Guidelines, Q. 17 under s. 247(2)(b).
CRA now emails and will start videoing
CRA will accept emails from taxpayer representatives and, provided that it reads out a caveat first about the dangers of email, is generally now willing to send emails to representatives.
Having discussions by video was cleared at the beginning of August.
The maximum size of file-uploads on My Business Account has been greatly increased, so it should now be straightforward to provide large volumes of documentation through the account.
Neal Armstrong. Summary of 2020 IFA-YIN Seminar on COVID-19 Guidelines, Q. 13 under s. 152(1).
Banque Laurentienne – Tax Court of Canada finds that fees paid by the issuer of subscription receipts to the investors themselves were deductible under s. 20(1)(e)
In order to finance an acquisition, Laurentian Bank issued subscription receipts to two private placement investors (the Caisse for $100 million and a labour fund for $20 million) at a subscription price representing a 2% discount to the market trading price, and with the subscription proceeds being held in trust until the closing of the acquisition, at which point, the subscription receipts were converted, without further payment, into common shares of the Bank. The Bank was required by the subscription agreements to pay “transaction fees” of 4% of the subscription amounts on the closing to the investors.
Ouimet J concluded that these transaction fees were deductible at the 20% p.a. rate provided under s. 20(1)(e). He rejected the Crown’s position that the transaction fees were in substance discounts to the issue price, and instead accepted testimony that the taxpayer had received a financing service and a service in the form of a positive signal to the marketplace that the Caisse would become its largest shareholder. In addition to finding that the fees were incurred “in the course of” the subsequent common share issuance, he also rejected a Crown submission that a qualifying fee could not extend to one paid to the subscriber itself.
The Crown also asserted that the fees were unreasonable in amount, but bore the onus in this regard as it had not made this assumption in assessing, and had failed to bring any expert evidence on this issue.
Neal Armstrong. Summaries of Banque Laurentienne du Canada v. The Queen, 2020 CCI 73 under s. 20(1)(e) and s. 67.
We have translated 5 more CRA Interpretations
We have published a further 5 translations of CRA interpretations released in March, 2010. Their descriptors and links appear below.
These are additions to our set of 1,251 full-text translations of French-language Roundtable items and Technical Interpretations of the Income Tax Rulings Directorate, which covers all of the last 10 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 |
|---|---|---|---|
| 2010-03-26 | 9 February 2010 Internal T.I. 2009-0333571I7 F - Paragraphe 7(1.5) - contrepartie reçue | Income Tax Act - Section 7 - Subsection 7(1.5) | s. 7(1.5) rollover where employees exchanged specific s. 7(1.1) shares for shares of grandparent, even though they also received cash and PUC distribution |
| Income Tax Act - Section 53 - Subsection 53(1) - Paragraph 53(1)(j) | ACB increased by s. 7(1) benefit that had not yet been triggered due to s. 7(1.5) rollover | ||
| Income Tax Act - Section 116 - Subsection 116(1) | s. 116 certificate required even for shares disposed of under s. 7(1.5) rollover | ||
| Income Tax Act - Section 7 - Subsection 7(1.4) | non-resident ex-employees will be required to recognize s. 7 benefit deferred by s. 7(1.5) when they dispose of the shares acquired in exchange | ||
| 15 March 2010 Internal T.I. 2009-0352731I7 F - Remboursement de rémunération | Income Tax Act - Section 8 - Subsection 8(1) - Paragraph 8(1)(n) | deduction for repayment of amounts received during deferred salary leave period following failure to return to work | |
| 2010-03-19 | 11 March 2010 External T.I. 2009-0345481E5 F - Allocations versées administrateurs bénévoles | Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(b) | allowances and travel reimbursements paid by NPO to volunteer directors were non-taxable |
| Income Tax Act - Section 248 - Subsection 248(1) - Office | definition of a “volunteer” (who is excluded from the holder of an “office”) | ||
| 1 March 2010 Internal T.I. 2009-0346951I7 F - Article XVI-Établissement stable-Province | Income Tax Regulations - Regulation 400 - Subsection 400(2) | being on concert tour in Canada did not render the various arenas fixed places of business, given lack of “regularity and recurrence” | |
| Income Tax Regulations - Regulation 400 - Subsection 400(2) - Paragraph 400(2)(e) | using massive stage equipment for Canadian concerts did not result in deemed PEs given that at each venue under 30 days and in Canada under 90 days | ||
| Treaties - Income Tax Conventions - Article 16 | Art. XVI of US Convention applicable irrespective of whether a PE | ||
| 2010-03-12 | 4 March 2010 External T.I. 2009-0343851E5 F - Remboursement des cotisations à un club | Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) | reimbursements of employee fitness facility fees are considered principally for employees’ benefit if membership merely improves their performance through increased health |
CRA provides guidance on the “not materially different” requirement of the s. 147.4(1) rollover
S. 147.1 contemplates that the commuted value of an individual’s registered pension plan can be used to purchase an annuity contract in full satisfaction of the individual’s entitlement to benefits under an RPP (with a partial satisfaction scenario also being contemplated). S. 147.1 deems the individual to have not received an amount from an RPP by acquiring the annuity and deems amounts received under the contract to be amounts received under the RPP. Thus, there effectively is a rollover.
One of the conditions for s. 147.1 to apply is that the rights provided under the annuity contract “are not materially different from those provided for under the [RPP].” For example, “an annuity provided from a licensed annuity provider cannot provide payments that have a greater guarantee period than what was available under the RPP.” CRA has provided guidance on this material-difference requirement, including a detailed discussion of COLA adjustments (with some of the issues to be addressed arising from the fact that many RPPs provide full CPI cost-of-living adjustments, whereas licensed annuity providers generally do not offer life annuities with this feature.
In some cases, the commuted value is not enough to provide an annuity that equals the benefits that would have been provided under the RPP. In this case, the individual can choose to receive a reduced lifetime retirement benefit, a reduction in one or more ancillary benefits, or a combination thereof, as long as no element of the benefits under the annuity exceed the amount of that element under the RPP.
If the commuted value is greater than the cost to buy an annuity that replicates the RPP benefits, the excess commuted value cannot be used to provide higher annuity payments under the annuity contract. Under Reg. 8502(d)(ix), the portion of the commuted value that is in excess of the annuity acquisition cost typically must be paid in cash to the individual and included in income.
Neal Armstrong. Summary of Newsletter 20-1, “Registered Pension Plan Annuity Contracts” 24 July 2020 under s. 147.1.
CRA confirms that it generally will not attach value to private company voting rights
CRA confirmed a previous position that “provided that the owners of all the shares of the corporation act in a manner consistent with the assumption that no value attaches to the voting rights, and the rights are eventually extinguished for no consideration, the CRA will generally not attribute value to the rights,” so that, for example, “in the context of an estate freeze of a Canadian-controlled private corporation, where the freezor, as part of an estate freeze, keeps controlling non-participating preference shares in order to protect his economic interest in the corporation, the CRA generally accepts not to take into account any premium that could be attributable to such shares for the purposes of subsection 70(5).”
Neal Armstrong. Summary of 8 July 2020 CALU Roundtable Q. 7, 2020-0842251C6 under s. 70(5).
CRA treats the deemed proceeds arising on death from a jointly owned whole life policy as being simply a valuation matter
Opco and its sole shareholder (A) jointly acquired a universal life insurance policy on the life of A, whose stipulated death benefit equals $1 million plus the fund value of the policy immediately before A’s death. Under a co-ownership agreement, Opco is entitled to the $1 million face amount on death and bears the annual insurance charges; and A is entitled to make additional (exempt-test qualifying) deposits into the policy, can designate the fund value recipient, and is also entitled to the cash surrender value (“CSV”) on any pre-death termination.
A dies when the fund value (and CSV) of the policy equals $200,000, so that Opco receives $1 million and A’s estate receives $200,000. Is the FMV of the life insurance policy under s. 70(5.3) (generally valuing a life policy for inter alia s. 70 purposes at its CSV) $200,000; and is the FMV of Opco’s interest in the policy nil, as it has no interest in the CSV pursuant to the co-ownership agreement?
CRA responded:
[W]e cannot definitively conclude that the FMV of the interest in the life insurance policy to Opco will be nil. The terms and conditions of the shared ownership arrangement, the specific life insurance contract and all other related agreements which may form part of the particular arrangement and the particular facts at the given time would have to be considered in the determination of the FMV of Opco’s interest in the life insurance policy.
… The CRA does not have its own method for computing the FMV; this computation is based upon the facts known on the valuation date, to which the principles and standards of the Canadian Institute of Chartered Business Valuators are applied.
Neal Armstrong. Summary of 8 July 2020 CALU Roundtable Q. 5, 2020-0842191C6 under s. 70(5.3).
GST/HST Severed Letters June 2020
The morning's release of one severed letter from the HST/HST Rulings Directorate (identified by them as their June 2020 release) is now available for your viewing.