News of Note
Bresse Syndics – Federal Court of Appeal finds that a trust deed requirement that the trustees be the Pubco directors gave Pubco de facto control of a trust subsidiary
Email this ContentA public company (CO2 Public), operating a high-tech business, carried on its SR&ED through a private company (CO2 Technologies) that was held by a discretionary trust whose beneficiaries were CO2 Public and special-purpose subsidiaries thereof. A provision in the Declaration of Trust provided that each trustee was required to be a director of CO2 Public.
Noël CJ noted that although “in principle” the determination of whether CO2 Public had de jure control of CO2 Technologies was to be determined having regard to the articles of incorporation of CO2 Technologies and any unanimous shareholders agreement, Duha Printers had indicated that the terms of the deed of trust for a shareholder trust of a corporation could be relevant to determining whether the deed restricted the ability of trustees to exercise their voting rights over the corporation’s shares. However, he found that it was unnecessary to resolve this issue, because the above trust deed restriction gave Public CO2 de facto control of CO2 Technologies within the meaning of s. 256(5.1), so that CO2 Technologies was not a Canadian–controlled private corporation on those grounds. He stated:
Fiducie’s deed of trust operated in such a way that by electing Public CO2’s board of directors, Public CO2’s shareholders also elected Fiducie’s trustees, as they had to be directors of Public CO2. … Thus, Public CO2 had the power to terminate the trustees’ functions by revoking or not renewing their mandate as directors.
… [T]he mechanism put in place clearly gave Public CO2 the ability to change the appellant’s board of directors or to influence in a very direct manner those who had that ability.
Neal Armstrong. Summary of Bresse Syndics Inc. acting for the bankruptcy of CO2 Solution Technologies Inc. v. The Queen, 2021 FCA 115 under s. 256(5.1).
CRA indicates that a sublease of land to a mobile home occupant is a supply of part of a residential complex, unless the site is a residential trailer park
A corporation, which has been headleased land, subdivides the land into residential lots that are registered in the land registry, and subleases the lots to persons who install manufactured homes (qualifying as “mobile homes,” as defined in ETA s. 123(1)) on the lots. CRA indicated that the subleasing of the land would be regarded as the supply of “part of a residential complex” – except that if the land was a site in a residential trailer park, the s. 123(1) definition of residential complex as it applied (in para. (d) thereof) to a mobile home, excluded the land from the residential complex (consisting only of the mobile home), so that the sublease instead would be a supply of bare land. CRA did not discuss whether such supplies were exempted under Sched. V, Pt. I, s. 6(a) or 7(b).
Neal Armstrong. Summaries of 1 December 2020 GST/HST Interpretation 193361r under ETA Sched. V, Pt. I, s. 6(a) and s. 123(1) - residential trailer park.
GST/HST Severed Letters December 2020
This morning's release of four severed letters from the Excise and GST/HST Rulings Directorate (identified by them as their December 2020 release) is now available for your viewing.
GST/HST Severed Letters November 2020
This morning's release of four severed letters from the Excise and GST/HST Rulings Directorate (identified by them as their November 2020 release) is now available for your viewing.
CRA indicates that a COVID lockdown closing in-store shopping or seated restaurant dining can be a “public health restriction” notwithstanding curbside pickups or deliveries/take-out
Regarding whether the “public health restriction” definition would apply to retail stores or food court restaurants in a shopping mall subject to a COVID lockdown, the Directorate stated:
[W]here a particular order or decision prohibits customers from physically entering a Store to shop, then “in-person shopping” activities could be considered restricted activities. The fact that customers of a Store are permitted to collect their orders at a designated location within the shopping mall, via curbside pickup or delivery, would not preclude a Store from having restricted activities related to “in-person shopping”.
Similarly, where a particular order or decision requires public seating areas of a shopping mall available to customers of the Restaurants in the food court to close, such that customers of the Restaurants are no longer permitted access to the seating area of the food court, the Restaurants’ “sit-down dining” activities could be considered restricted activities. The fact that take out service may continue would not preclude the Restaurants from having restricted activities related to “sit-down dining”.
Neal Armstrong. Summary of 7 June 2021 Internal T.I. 2020-0873601I7 under s. 125.7(1) - public health restriction – para. (f).
CRA indicates that a COVID lockdown closing a travel agency office qualified as a “public health restriction” even if the personnel continued bookings from home
Element B of the rent subsidy formula in s. 125.7(2.1) provides a “rent top-up percentage” for a qualifying renter in respect of a qualifying property that is subject to a “public health restriction” in the qualifying period, which in very rough terms, references a COVID lockdown measure requiring the cessation of activities (“restricted activities”) of the eligible entity at the property (para. (f)) from which at least 25% of its qualifying revenues for the prior reference period were derived (para. (g)).
The Directorate indicated that the para. (f) test would likely be satisfied by a travel agency that was required to close its office due to COVID lockdown measures, so that its employees started working from home, assuming that clients, prior to the lockdown, had been making in-person visits to the office to arrange travel bookings. It indicated that there were insufficient facts provided to conclude on the para. (g) test, but made the bold statement:
[I]f, during the relevant prior reference period, all activities were performed in-person at the travel agency, then it may be reasonable to conclude that at least approximately 25% of its qualifying revenues in the prior reference period, that were earned from the qualifying property, were derived from the restricted activities.
Neal Armstrong. Summary of 7 June 2021 Internal T.I. 2020-0873601I7 under s. 125.7(1) - public health restriction.
Income Tax Severed Letters 9 June 2021
This morning's release of four severed letters from the Income Tax Rulings Directorate is now available for your viewing.
2276230 Ontario – Federal Court states that a CRA requirement for information need not be demonstrated by it to be proportional to the matter at issue
CRA had requested that three taxpayers provide information (characterized by it as routine business information) pursuant to ETA s. 288(1) (similar to ITA s. 231.2(1)) and when many of the requests were either not answered at all or only partially by the last of the extended deadlines, it sought a compliance order.
Before granting the compliance order, Pentney J cited (at para. 19) Cameco for the proposition that “the fact that the requests may involve substantial documentation which the taxpayer may view as not proportional to the matter is not a relevant consideration,” and further stated (at para. 29):
[T]here is no evidence to suggest that the CRA audit has been launched for any purpose other than to ensure compliance with the ETA, or that the request for information was so wide, extraordinary, or unusual as to give rise to questions about its legitimacy in the context of the audit (assuming that such a claim could be brought, in the face of the wide authority granted to the Minister to set the timing, scope, and nature of the audit …).
Neal Armstrong. Summary of Canada (National Revenue) v. 2276230 Ontario Inc., 2021 FC 242 under ETA s. 289.1(1).
Des Groseillers – Quebec Court of Appeal decision indicates that s. 69(1)(b) deems FMV proceeds for an employee stock option gift for s. 7 purposes
An individual who donated some of his employee stock options on the shares of a public company to arm's length registered charities, claimed the $3M fair market value of the donated options for charitable tax credit purposes, but did not include any portion of the donated options in his income under the equivalent of ITA s. 7(1)(b). This reporting was confirmed in the Court of Quebec on the basis inter alia that the equivalent of ITA s. 7(3)(a) established that the stock option rules constituted a “complete code” so that the equivalent to ITA s. 69(1)(b) did not apply to deem the “value of the consideration for the disposition” received by him to be equal to the options’ fair market value of $3M, rather than the nil proceeds in fact received.
In disagreeing with this interpretation and before allowing the ARQ’s appeal, Cournoyer JCA stated:
[The s. 7(3)(a) equivalent] only has the effect of giving precedence to the application of [the s. 7 equivalent rules] over any other section providing for a taxability rule. It does not prevent the ARQ from using the presumptions provided for in the T.A. to calculate the taxable income of the taxpayer.
Neal Armstrong. Summary of Agence du revenu du Québec v. Des Groseillers, 2021 QCCA 906 under s. 7(3)(a).
We have translated 11 more CRA interpretations
We have published a further 10 translations of CRA interpretation released in February, 2008, and also an interpretation released last week. Their descriptors and links appear below.
These are additions to our set of 1,568 full-text translations of French-language severed letters (mostly, Roundtable items and Technical Interpretations) of the Income Tax Rulings Directorate, which covers all of the last 13 1/3 years of releases of Interpretations by the Directorate. These translations are subject to the usual (3 working weeks per month) paywall. You are currently in the “open” week for June.