News of Note

CRA indicated that, in general, GST/HST “retroactive registration is only available if a person was required to be registered for GST/HST purposes pursuant to subsection 240(1).”

Thus, where a new co-venturer purchased an interest in an existing real estate joint venture for which an ETA s. 273 election was already in place (so that all the rental supplies of that real property were to be reported by the JV “operator” and not by it), it could not become retroactively registered to the date of acquisition so as to claim an ITC for the GST/HST payable by it on that acquisition, and to relieve the supplier from collecting tax under ss. 221(2)(b) and 228(4).

Neal Armstrong. Summaries of 27 February 2020 CBA Roundtable, Q.18 under ETA s. 273(1) and s. 167(1.1)(a)(iii).

The applicants (two couples and a corporation owned by one of them), whose disclosure that they had no foreign assets was doubted by CRA, brought an application to have CRA requests to the Swiss federal tax administration for information pursuant to Art. 25 of the Canada-Swiss Treaty declared invalid on the grounds that “the CRA did not exhaust all domestic avenues of compliance and did not provide full and frank disclosure to the Swiss authorities.” In dismissing the application, St-Louis J found:

• Regarding the stipulation in Art. 25, para 1 that “an exchange of information will only be requested once the requesting Contracting State has pursued all reasonable means available under its internal taxation procedure to obtain the information,” she stated (citing Blue Bridge, 2020 FC 893) that the “purpose of the ‘foreseeably relevant’ standard is to maximise the extent of the information that can be exchanged.”
• “[N]othing prevented the CRA auditor from faithfully presenting unconfirmed information or suspicions” to the Swiss authorities.
• Regarding the requirement in s. 2(a) of the Interpretative Protocol to the Treaty that, before sending a request for exchange of information pursuant to Art. 25 of the Convention, the CRA must have pursued “all reasonable means available under its internal taxation procedure to obtain the information” she found (at para. 162) that she was “satisfied that the CRA pursued all reasonable domestic means available” in light of the various roadblocks faced by CRA (e.g., the individual applicants claimed to have no foreign assets and to have no relationship with the corporations named by the AMF).
• Furthermore, the information sought of the corporate applicant was in the possession of a foreign corporation (“Socimbal”), as to which St-Louis J stated that the “auditor had no legal authority to require information from the contact person at Socimbal, as he was not a Canadian resident or a person carrying on business in Canada” and that “the Applicants have not convinced me that the CRA had a legal obligation to contact the person abroad simply because it was provided with the contact information.”

Neal Armstrong. Summary of Levett v. Canada (Attorney General), 2021 FC 295 under Treaties –Income Tax Conventions - Art. 27.

CRA confirmed that payments made to a retired partner generally would be considered as consideration for an exempt financial service (assuming no rendering of services), including payments to which ITA s. 96(1.1) applies (which, broadly speaking, are treated for ITA purposes as akin to deferred earnings), stating:

When a partner acquires partnership units (i.e. an interest in a partnership), the partner has acquired certain rights which include a right to receive distributions. To the extent that payments made by a partnership to a retired partner are in respect of an interest in the partnership, or any right in respect of such an interest, the payment would be consideration for an exempt supply of a financial service … .

Neal Armstrong. Summary of 27 February 2020 CBA Roundtable, Q.16 under ETA s. 123(1) – para. (f).

In the context of an inquiry on determining the fair market value of a new apartment building (or other ”MURC”) when there is a self-supply at the time of substantial completion and first occupancy, CRA noted that where the cap rate used in applying the income approach to valuing the MURC was derived from comparable sales of occupied MURCs, such comparables may reflect “GST/HST that may be imbedded in the consideration for a supply as a result of the GST/HST having been imposed at an earlier time.” On the other hand, “where the consideration of a taxable supply of a residential complex is used as a comparable in a valuation methodology, the GST/HST imposed on that supply, even where the supply was ‘GST/HST included’, is excluded from the consideration.”

This might imply that where a newly-occupied Ontario apartment building had an FMV of $11M having regard to comparable sales of other apartment sales in the area, that same apartment building might have had an FMV of $10M immediately before the time of the deemed self-supply (treating the Ontario tax rate as being around 10% net of new rental housing rebates), i.e., a purchaser at that point in time would discount for the impending self-supply tax. S. 191(3) is unclear as to whether, in this example, the FMV of the building should be treated as $10M or $11M (and CRA did not address this issue), but one could confidently predict that it would go for the higher number.

Neal Armstrong. Summary of 27 February 2020 CBA Roundtable, Q.15 under ETA s. 191(3).