News of Note

The Income Tax Rulings Directorate has released the 2020 STEP Roundtable under its severed letter program. We already have discussed most of the items, but for your convenience, we are providing the table below with our descriptors, and links to the severed letters and our summaries.

The appellant issued fleet insurance policies to trucking companies who operated their vehicles in both Canada and the U.S. The appellant claimed input tax credits on the basis that 1/3 of its supplies of insurance were zero-rated. The 1/3 figure came from its historical analysis that 1/3 of its payouts under the policies it issued respected perils that arose in the U.S. (i.e., the policies to that extent “relate[d] to risks that are ordinarily situated outside Canada.”)

Graham J found that the quoted phrase in the zero-rating provision (Sched VI, Pt. IX, s. 2(d)) referenced the ordinary situs of the “objects” of the insurance, i.e., in approximate terms, the ordinary situs of the vehicles, their contents and their drivers. Furthermore, if a policy insures more than one object (as would clearly be the case for fleet insurance) “any apportionment of the supply of that policy into exempt and zero-rated parts should occur on an object-by-object basis” (e.g., looking at the ordinary situs of each vehicle in the insured fleet).

Instead, what the insurer had done was to effect apportionment “on a global basis.” Since Graham J did not “have any specific evidence regarding the individual policies in issue, let alone evidence regarding the vehicles covered by those policies,” he dismissed the appeal.

However, he went on to indicate that if what evidence he had seen was representative, he “would have found that those policies related to risks that were ordinarily situated in Canada, [so that] the supply of each policy was entirely an exempt supply.” In rough terms, this reaction was based on the fleet vehicles and their drivers being based in Canada, albeit, making trips to the U.S.

Neal Armstrong. Summary of Northbridge Commercial Insurance Corporation v. The Queen, 2020 TCC 132 under ETA Sched. VI, Pt. IX, s. 2(d).

When asked for updates on the offshore tax informant program, CRA stated:

As of December 31, 2019, the OTIP has received nearly 5,500 calls of which of over 1,600 have been from potential informants, received over 750 written submissions and has entered into nearly 50 contracts with informants.

… [O]ver 150 audits of taxpayers have been completed, nearly $60 million has been assessed of which approximately $20 million has been collected and over 300 audits of taxpayers are in progress.

Neal Armstrong. Summary of 2020 STEP Roundtable, Q.16 under s. 152(1).

After noting that CRA has the authority under Reg. 600(b) to accept a late filed s. 164(6) election, it also “noted that this does not change the requirement that the losses to which this election applies must have been incurred in the first taxation year of the estate.” After noting the Joint Committee submission to Finance that this one-year requirement should be alleviated, CRA stated that it “is prepared to work with Finance should they seek our views on this issue.”

Neal Armstrong. Summary of 2020 STEP Roundtable, Q.15 under s. 164(6).