News of Note
GST/HST Severed Letters January 2020
Email this ContentThis afternoon's release of one severed letter from the Excise and GST/HST Rulings Directorate (identified by them as their January 2020 release) is now available for your viewing.
CRA indicates that an employer and employee can agree, on or before termination of employment, to defer a retiring allowance for a year or years
Respecting a terminated employee electing to receive a retiring allowance in the subsequent calendar year, CRA referred to its position in Folio S2-F1-C2 that an employee can choose, on or before termination of employment, to receive a lump sum in instalments, thereby deferring income recognition under s. 56(1)(a)(ii) until the times of receipt, and stated:
This position applies equally where payment of the lump sum is deferred to a subsequent year, provided that the individual chooses the deferred option on or before termination of employment.
Summary of 7 April 2020 External T.I. 2019-0832241E5 under s. 56(1)(a)(ii).
CRA considers that the sale of digital content generates gross income from property rather than services for TOSI purposes
One of the requirements to be an “excluded share” for purposes of the tax on split income (TOSI) is that less than 90% of the business “income” (i.e., revenue) of the corporation for its last taxation year “was from the provision of services.” Where a corporation produces and “sells” training videos as digital downloads from its website, are its resulting revenues considered as income from the provision of services for TOSI purposes? CRA responded:
[W]e are prepared to accept that payment for the right to download a digital product that traditionally would have been sold to the customer as a tangible property, will generally be treated as a sale of intangible property and not a provision of a service unless the facts and circumstances dictate otherwise.
CRA went on to indicate that payments for after-sales service, for “pure technical assistance” and for services rendered by a supplier under a guarantee, are considered to be income from the provision of services.
Neal Armstrong. Summary of 13 March 2020 External T.I. 2019-0833181E5 under s. 120.4(1) - excluded share – (a)(i).
Penate – Tax Court of Canada finds that sexual harassment by customers and no evidence of diversion of GST/HST collections established a due diligence defence
The taxpayer, Ms. Penate, was the sole director and shareholder of a roofing company that fell behind in its GST/HST remittances. Campbell J found:
There is no evidence that any GST/HST remittances were diverted to assist with the business activities. It was simply a matter of not being able to collect from many contractors as a female-run subtrade unless Ms. Penate agreed to return sexual favours for payment of the Company’s completed subcontracts.
Campbell J stated that these constituted “exceptional circumstances and facts” which allowed her to conclude that the taxpayer could avail herself of the due diligence defence – so that the appeal was allowed.
Neal Armstrong. Summary of Penate v. The Queen, 2020 TCC 63 under ETA s. 323(3).
GST/HST Severed Letters December 2019
This morning's release of four severed letters from the Excise and GST/HST Rulings Directorate (identified by them as their December 2019 release) is now available for your viewing.
Income Tax Severed Letters 22 July 2020
This morning's release of four severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA ruled to permit the immediate receipt of cash on a pipeline so as to fund death taxes
CRA relaxed its longstanding position and accepted that, upon the sale of shares that had been stepped up on death under s. 70(5) to a Newco in a pipeline transaction, the estate could immediately receive cash derived from the surpluses of the company that had been indirectly held by the deceased taxpayer in order to fund the taxes payable under s. 70(5). Thus, it was not necessary to wait a year before accessing such cash derived from such surpluses.
CRA also provided an interest deduction ruling on a transaction in which Opco pays a preferred stock dividend on its common shares whose amount does not exceed its accumulated profits, and then uses a bank loan to redeem such preferred shares (which is described as entailing the replacement of the capital represented by the preferred shares by the bank loan).
Neal Armstrong. Summaries of 2019 Ruling 2018-0789911R3 F under s. 84(2) and s. 20(1)(c)(i) and of Éric Hamelin, “Post Mortem Pipeline: The CRA Relaxes Its Position,” Tax for the Owner-Manager, Volume 20, Number 3, July 2020, p. 6 under s. 84(2).
CanLII – Tax Court of Canada finds that law society funding received by CanLII was consideration for taxable supplies of its services
CanLII was a not-for-profit corporation providing an open-access virtual law library that had all of its operating budget (of around $3 million per annum) funded by its sole member, being the Federation of Law Societies of Canada (Federation), which collected matching fees from 14 Canadian law societies. CanLII collected GST on the payments from the Federation, and claimed input tax credits on its taxable purchases. The Minister disallowed these ITCs on the basis that CanLII provided its service for no consideration (i.e., to its readers) and, therefore, provided an exempt supply pursuant to Shed. V, Pt. V, s. 10.
Lamarre ACJ found that CanLII instead was making a taxable supply for which the amounts collected from the Federation were the consideration. She first noted that the ETA definition of “consideration” included any amount that is payable for a supply “by operation of law.” Given that the Federation became legally obligated to pay a “levy” for a year to CanLII once such levy and the corresponding levies on the provincial law societies, had been approved by its council, “the levy was paid by operation of law for the supply of the virtual library,” i.e., “[t]here was an obligation on the Federation to pay and payment was not discretionary as argued by the [Crown].”
Accordingly, the Sched. V, Pt. V, s. 10 exemption was inapplicable, and CanLII was entitled to its denied ITC claims.
Neal Armstrong. Summaries of Canadian Legal Information Institute v. The Queen, 2020 TCC 56 under ETA Sched. V, Pt. V, s. 10 and s. 123(1) - consideration.
We have translated 6 more CRA Interpretations
We have published a translation of an interpretation released last week by CRA and a further 5 translations of CRA interpretations released in May, 2010. Their descriptors and links appear below.
These are additions to our set of 1,225 full-text translations of French-language Roundtable items and Technical Interpretations of the Income Tax Rulings Directorate, which covers all of the last 10 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 |
|---|---|---|---|
| 2020-07-15 | 12 June 2020 External T.I. 2018-0788161E5 F - Adjusted stub period accrual amount | Income Tax Act - Section 34.2 - Subsection 34.2(1) - Adjusted Stub Period Accrual Income - Paragraph (a) - Element B | ASPA not reduced by s. 111(1)(e) losses |
| 2010-05-14 | 5 May 2010 External T.I. 2010-0359791E5 F - Significant increase - redemption of shares | Income Tax Act - Section 55 - Subsection 55(3) - Paragraph 55(3)(a) - Subparagraph 55(3)(a)(ii) | s. 55(3)(a)(ii) or (v) likely applicable where related shareholder’s prefs are partially redeemed - even if matching partial redemption of arm’s length pref shareholder 1 hr later |
| Income Tax Act - Section 86 - Subsection 86(1) | s. 86 reorg where exchange of common for prefs followed by subscription for (old) commons | ||
| 3 May 2010 Internal T.I. 2010-0359631I7 F - Dépenses liées à une résidence non habitée | Income Tax Act - Section 53 - Subsection 53(1) - Paragraph 53(1)(h) | ACB addition for property taxes inapplicable where a building on the property | |
| Income Tax Act - Section 54 - Adjusted Cost Base | property taxes not added to ACB of inherited property before its sale | ||
| 4 May 2010 External T.I. 2009-0329391E5 F - Provision pour retour de marchandises | Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(e) | no reserve where book publisher’s customers could return unsold books, cf. where a "true" clause for the return of unsold goods | |
| Income Tax Act - Section 9 - Timing | no profit required to be recognized on delivery of goods where a "true" return of unsold goods clause | ||
| 2010-05-07 | 3 May 2010 External T.I. 2010-0358881E5 F - CIRD - construction d'un logement | Income Tax Act - Section 118.04 - Subsection 118.04(1) - Eligible Dwelling - Paragraph (a) | qualifying expenditure for property acquired before completion of home’s construction but applied to renovation work after individual moved in |
| General Concepts - Ownership | individual is considered to be owner of home that is being constructed as soon as it is habitable | ||
| 3 May 2010 External T.I. 2010-0358471E5 F - Capital dividend account - beneficiary of a trust | Income Tax Act - Section 89 - Subsection 89(1) - Capital Dividend Account - Paragraph (g) | capital dividend distributed by trust in its year and designated under s. 104(20) is added to corporate beneficiary’s CDA only at end of trust’s taxation year |
Immeubles Zamora – Quebec Court of Appeal confirms that an LP sold a seniors residence shortly after construction to an unsolicited purchaser on income account
Bouchard JCA agreed with the Court of Quebec that two taxpayers , who were each 10% limited partners of a limited partnership that constructed a seniors residence, as well as owning the general partner, realized, as to their 10% shares, gains on income account when, shortly after the facility opened its doors, one of them was approached by a business associate, who asked what was their price, and agreed to purchase for the price that was named.
Bouchard JCA indicated this being an isolated transaction and their not being “flippers” was not decisive, the judge had not erred in noting the complete absence of any business plan or other documentary proof of their lack of motivating intention to sell and that “the judge did not commit a reviewable error … by holding that the appellants had a secondary intention to divest themselves of their project in the event of an interesting offer being made to them.”
Neal Armstrong. Summary of Immeubles Zamora ltée v. Agence du revenu du Québec, 2020 QCCA 894 under s. 9 – capital gain v. profit – real estate.