News of Note
CRA considered that promotional services provided by a public sector body to a sponsor were not subject to GST/HST given the substantial advertising was not the main motivation [corrected link]
Email this ContentETA s. 135 deem a supply by a public sector body (PSB) of a service, or a licence of copyright, a trade-mark, trade-name or other similar property to a “sponsor” for exclusive use by the sponsor in publicizing the sponsor’s business, to not be a supply – except that this rule is stated not to apply where the consideration for this supply by the PSB to the sponsor is “primarily” for radio, TV, newspaper, or magazine advertising. CRA dealt with a situation where the sponsor, who agreed to make payments to the PSB, was granted the status of “major partner” of events of the PSB, with that status to be publicized, and could display the PSB’s logo on its website, social networks and event posters and programs, etc. However, in addition, the sponsor agreed to “provide bargain-basement space on television for a commercial produced by the [PSB].”
CRA noted that it considers a sponsor to be “one who agrees to provide financial support with respect to another's activities or events while, or by, acquiring advertising or certain promotional rights” and concluded that in this, and similar examples, the PSB’s commitment described above was a “one-time supply of promotional services” and that, as the sponsor was sponsoring the relevant events of the PSB, the promotional services offered by the PSB were a deemed non-supply under s. 135.
In explaining why the exclusion for TV advertising did not apply, CRA noted that in a previous file, it had concluded that even though “in monetary terms, the advertising represented a substantial part of the sponsorship, we considered that the reason a sponsor would want to sign an agreement and pay the funds was for the recognition of being a partner in the … events … and being able to use the logos associated with them.” In the current example, “the television advertising service is not the main reason why [the PSB] would want to sign the agreement. “
Neal Armstrong. Summary of 12 August 2019 GST/HST Interpretation 200527 under ETA s. 135.
Bishara – Quebec Court of Appeal reverses the Court of Quebec and finds that the taxpayer realized gains on three condo sales in quick succession on capital account
The taxpayer purchased a condo in April 2008, for him and his girlfriend and two children to live in, sold it a year later to purchase and move into a less cramped condo - but then, due to their separation, purchased in December 2011 a loft for him to live in. He sold both the second and third residences in May 2011.
The Quebec Court of Appeal reversed the trial judge and found that the taxpayer had realized capital gains, stating (after quoting Canada Safeway on secondary intention):
The appellant provided a consistent explanation for his multiple moves that did not include any motivation to make a short-term profit. In contrast to the respondent’s vague and ambiguous allegations, the appellant's explanations have the necessary degree of particularity and likelihood, duly supported by convincing evidence presented at trial.
Neal Armstrong. Summary of Bishara v. Agence du revenu du Québec, 2020 QCCA 854 under s. 9 - Capital Gain vs. Profit - Real Estate.
Andersen – Minister’s reassessments for unreported insurance proceeds failed due to failure to assume what was the policies’ adjusted cost basis
The taxpayers terminated life insurance policies for personal purposes, and were ultimately reassessed to include in their income the gross amounts received by them.
Spiro J set the stage by noting that “In order for the Minister to assess a policyholder under … subsection 148(1)… the “adjusted cost basis” of the policy to the policyholder immediately before its disposition must be determined,” and by stating:
The courts have consistently held that unless the Minister’s assumptions of fact are sufficient to support the assessment under the relevant legislation, the onus does not shift to the taxpayer.
Here, the Reply had stated that the Minister’s assessing assumptions included that the amounts so received “were the net proceeds after the subtraction of the Appellant’s adjusted cost basis with respect to the Policies.” Spiro J indicated that this “bald assertion” was “grossly inadequate” given that the amount included in each taxpayer's income in fact “was simply an amount equal to the ‘proceeds of the disposition’ of each policy.”
Thus, even though the taxpayers did not tender any evidence to speak of, their appeals were allowed:
The onus never shifted to the Appellants to disprove the Minister’s assumption about the “adjusted cost basis” of each policy immediately before its disposition because the Minister never made any such assumption.
Neal Armstrong. Summary of Andersen v. The Queen, 2020 TCC 51 under General Concepts – Onus.
CRA indicates that a corporation’s adjusted stub period accrual respecting a partnership cannot be reduced by s. 111(1)(e) losses
The adjusted stub period accrual (“ASPA”) of a corporation in respect of a partnership generally is reduced, under Element B of the formula for computing the ASPA, by the corporation's share of losses (or certain allowable capital losses) of the partnership for a fiscal period of the partnership that ends in the corporation’s current taxation year. CRA indicated that this means that the corporation cannot reduce its ASPA (and, therefore, the amount to be included in its income under s. 34.2(1)) by the amount of deductions in computing taxable income, such as s. 111(1)(e) limited partnership losses.
Neal Armstrong. Summary of 12 June 2020 External T.I. 2018-0788161E5 F under s. 34.2(1) - adjusted stub period accrual – (a) – B.
Income Tax Severed Letters 15 July 2020
This morning's release of three severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Marino – Tax Court of Canada finds that an individual not within s. 2(1) or (3) was not a taxpayer who could generate a tuition tax credit
An individual with no connection to Canada paid a lot in tuition fees while in attendance at U.S. universities prior to 2012 then, on immigrating to Canada, claimed his purported unused tuition tax credits as a deduction from Canadian tax. Given that the tax credit provisions referred to an individual’s “taxation year,” the Crown successfully argued the Oceanspan principle that “a non-resident with no source of income in Canada, was not a ‘taxpayer’ and therefore did not have a taxation year.” Monaghan J rejected the taxpayer’s position that s. 250.1(a) had the effect of deeming any non-resident to have a taxation year - and instead indicated that this provision only “applies where a non-resident must have a taxation year if a provision of the Act is to operate as it is intended to operate, including in respect of another taxpayer,” for example, respecting a non-resident trust with a resident beneficiary recognizing income under s. 104(13) based on when that trust has a taxation year end.
She also found against the taxpayer on less esoteric grounds, namely, that the tuition tax credit provision (s. 118.5(1)(b)) “applies for one purpose only: ‘for the purpose of computing the tax payable by an individual for a taxation year.’,” so that:
[A] person will not be an individual for purposes of section 118.5 in a particular year unless that individual is a taxpayer in that year because the individual is described in subsection 2(1) or 2(3) and is potentially liable to tax in Canada under Part I.
The taxpayer was described in neither s. 2(1) nor (3) prior to 2012.
Neal Armstrong. Summaries of Marino v. The Queen, 2020 TCC 50 under s. 118.5(1)(b) and s. 250.1(a).
Hunt – Federal Court of Appeal indicates that it would be prepared to consider whether any broad discretion of CRA to waive tax was unconstitutional
The taxpayer, who had been assessed TFSA advantage tax under s. 207.05, and was unhappy with the amount of the tax that the Minister had ultimately offered to waive under s. 207.06, brought a Rule 58(1) application to the Tax Court, which asked whether s. 207.05 offends s. 53 of the Constitution Act, 1867 – with counsel arguing that in light of the potential waiver under s. 207.06 “the Minister sets the rate of tax, not Parliament, and this offends section 53.”
Stratas JA effectively noted that the question, as posed, was defective, because it only referred to s. 207.05 itself, which clearly imposed a tax and delegated nothing to the Minister.
He considered, as did the Tax Court below, that the Court could exercise its discretion to go beyond the question posed and review the combined effect of ss. 207.05 and 207.06. However, he found that the Court should not so exercise this discretion given a “lack [of] adequate submissions[,] and fully developed reasons from the Tax Court.” In describing where assistance was needed, he stated:
[A]fter a full examination of the text in light of its context and purpose, the Court might conclude that Parliament’s provision, in its authentic meaning, satisfactorily constrains the Minister’s discretion and defines what she can do and how she should do it. …
But in other cases, the Court might conclude that Parliament’s provision, in its authentic meaning, gives the Minister an unconstrained, undefined discretion without criteria. The Minister, not Parliament, would be creating and imposing the tax or coming up with the tax rate on her own. She would be a law unto herself.
Under that scenario, any measure adopted by the Canada Revenue Agency to guide the improperly wide discretion Parliament has given the Minister, such as policies, practices or interpretation bulletins, would be irrelevant. They would not fix the fatal problem: Parliament’s over-delegation of taxation power in the first place contrary to section 53 … .
The above passage might be regarded as an invitation to raise this constitutional issue again in another proceeding, subject to the hurdle of identifying a provision that “gives the Minister an unconstrained, undefined discretion” to waive tax.
Neal Armstrong. Summary of Hunt v. Canada, 2020 FCA 118 under Constitution Act, 1867, s. 53.
CRA indicates that a CCPC can generate active business income from its trading in securities
In confirming that the profitable trading of securities by a corporation, that constituted a trading business under the general criteria in IT-479R, would generally give rise to active business income, CRA stated:
In such a situation, the “principal purpose” of the trading business would generally not be to derive income from property and it would not be considered to be a “specified investment business.” As a result, the trading business may be considered an “active business” and any gains or losses from the trading business, as well as any interest or dividend income pertaining to or incident to that business, may be considered “income of the corporation for the year from an active business” under subsection 125(7) … [and] the corporation could be entitled to the small business deduction.
Neal Armstrong. Summary of 13 February 2020 External T.I. 2019-0826051E5 under s. 125(7) – specified investment business and s. 9 – capital gain v. profit - futures.
We have translated 5 more CRA Interpretations
We have published a further 5 translations of CRA interpretations released in May, 2010. Their descriptors and links appear below.
These are additions to our set of 1,219 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 |
|---|---|---|---|
| 2010-05-28 | 19 May 2010 External T.I. 2009-0342651E5 F - Remboursement de dépenses et allocations | Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) | reimbursement for employment-related moving expenses, and reimbursement of accommodation and transportation where employee temporarily assigned away from normal home base, not taxable |
| Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(b) | first $650 of allowance to cover moving costs not taxable | ||
| Income Tax Act - Section 6 - Subsection 6(23) | reimbursement of expenses to obtain a mortgage is included | ||
| 30 March 2010 Internal T.I. 2010-0354391I7 F - P.VI.1:Rachat à l'enchère hollandaise modifiée | Income Tax Act - Section 248 - Subsection 248(1) - Short-Term Preferred Share - Paragraph (a) - Subparagraph (a)(i) | deemed dividends on redemption of common shares tendered under modified Dutch auction came within (a)(i) and (e)(i) FMV exception | |
| General Concepts - Fair Market Value - Shares | purchase price established under modified Dutch auction represented the tendered shares’ FMV | ||
| 2010-05-21 | 13 May 2010 External T.I. 2009-0328741E5 F - Régime "à prix coûtant majoré" | Income Tax Act - Section 248 - Subsection 248(1) - Private Health Services Plan | satisfaction of “reasonable risk” condition in IT-339R2 for cost-plus plan |
| 27 April 2010 Internal T.I. 2009-0335761I7 F - REÉR et revenu d'un Indien | Other Legislation/Constitution - Federal - Indian Act - Section 87 | s. 87 exemption did not apply to blatant RPP/RRSP stripping arrangement | |
| Income Tax Act - Section 146 - Subsection 146(10) | ss. 146(9) and (10) applicable to RRSP purchase of Coop units at undervalue and loan by Coop to annuitant | ||
| 2010-05-14 | 13 May 2010 External T.I. 2009-0343971E5 F - Société de services pour les professionnels | Income Tax Act - Section 67 | deductibility of management fees paid by professional practice to services corporation |
CRA finds that having a purpose of selling an apartment building is consistent for GST/HST purposes with holding each apartment for the purpose of leasing it
In order for a builder of a multiple unit residential complex to receive the new residential rental property rebate, the included residential units must qualify as “qualifying residential units.” One of the relevant requirements (in s. (a)(ii)(A.1) of the definition of “qualifying residential unit”) is that the unit is held by the builder for the purpose of making exempt supplies of residential accommodation to a person “under a lease … for the purpose of its occupancy by an individual as a place of residence.” CRA found that this requirement can be satisfied even where, by the time for testing the eligibility for the rebate (i.e., at the time of the self-supply under s. 191(3) at the later of substantial completion and first occupancy), the builder had agreed to sell the whole complex.
CRA helpfully reasoned that “the terms ‘residential complex’ and ‘residential unit’ … are two distinct things,” so that:
[T]he Builder can hold the Complex (a residential complex) for the purpose of making a supply by way of sale to the Purchaser, and also hold the residential units contained therein for the purpose of making exempt supplies of the units by way of lease to individuals who will occupy the units as a place of residence.
Neal Armstrong. Summary of 10 October 2019 GST/HST Interpretation 193324 under ETA s. (a)(ii)(A.1) of the definition of “qualifying residential unit” in s. 256.2(1).