News of Note
CRA indicates that it generally will not make a designation of a municipality under the ETA retroactive to the extent this changes the tax status of supplies already made
A registered charity (Corporation A) which has been making exempt supplies of accommodation to residents of housing sites and long-term care facilities as well as providing housing management services to the Province and to Corporation B regarding units owned by them has applied to be designated as a municipality for GST/HST purposes.
CRA noted that such change in status (although generating enhanced rebates for non-creditable expenses) would cause some of the supplies made by Corporation A to cease to be exempted by virtue of the exclusion in Sched. V, Pt. VI, s. 2(n), for example, the supplies of its management services, and the optional supplies of laundry and cable services. CRA then stated:
Retroactive determinations will generally not be granted where the retroactive determination would change the tax status of supplies that have already been made. The effects of a municipal determination discussed herein would only apply as of the effective date of the municipal determination.
Neal Armstrong. Summary of 15 June 2023 GST/HST Interpretation 222419 under ETA s. 123(1) – municipality – (b) and Sched. V, Pt. VI, s. 2(n).
Cassidy – Federal Court reverses CRA’s declining to provide significant interest relief due to its failing to engage with the taxpayer’s financial hardship request
The taxpayer requested interest relief under s. 220(3.1) primarily based on his inability to pay due to his divorce, the 2008 economic downturn, and the COVID-19 pandemic. The decision of the CRA reviewing officer to provide only very limited relief was found by Fothergill J to be unreasonable because the officer failed to engage with those submissions, so that the application for judicial review was allowed.
Neal Armstrong. Summary of Cassidy v. Canada (Attorney General), 2024 FC 174 under s. 220(3.1).
CRA has released the final version of the 2 November 2023 APFF Roundtable
We have translated the complete 2 November 2023 APFF Roundtable as released by CRA yesterday in final form (which did not vary significantly from the preliminary version that was provided in November). For your convenience, the table below provides links to the questions, and to the summaries that we prepared in November.
Joint Committee comments on the short-term rental rules
Comments of the Joint Committee on the proposed rules in s. 67.7 denying the deduction of expenses for non-compliant short-term rentals include:
- The wording of non-compliant amount does not reflect the different timing for various deductions and instead simply refers to “outlays made, or expenses incurred, in the taxation year.”
- It would seem inappropriate to include bad debt expenses in the non-compliant amount since the effect is to impose tax on more than the revenues collected.
- It would seem appropriate to add the limitation that the short-term rental definition refers to short-term rentals by the taxpayer to address, for example, situations where the taxpayer leases the property on a long-term basis, but the tenant subleases it on a short-term basis.
- Most, if not all, municipalities and provinces, that have restrictions for short-term rentals use 30 consecutive days, not the 90 consecutive days used in the “short-term rental” definition.
- Quaere whether it was really necessary to provide no time limit on CRA assessments under s. 67.7.
- Non-residents who are not subject to Part I tax have a tax advantage over Canadian residents regarding the taxation of non-compliant short-term rentals.
Neal Armstrong. Summaries of Joint Committee, “Subject: Proposed section 67.6 of the Income Tax Act”, 5 February 2024 Joint Committee Submission under s. 67.7(1) - non-compliant amount, short-term rental, s. 67.7(2) and s. 67.7(4).
Income Tax Severed Letters 7 February 2024
This morning's release of 15 severed letters from the Income Tax Rulings Directorate is now available for your viewing.
9154 – Court of Quebec finds that the ARQ contravened its role by assessing a taxpayer for QST on a property transfer while continuing to collect QST as if the taxpayer was still owner
The ARQ assessed the appellant (9154-6093) for its failure to collect and remit QST on its transfer of a condo unit to the couple who were its shareholders for stated consideration. Alcindor JCQ accepted that the transfer was made to them for the purpose of obtaining mortgage financing on the unit and that they acquired the unit as nominees for 9154-6093 (so that no QST was payable), stating:
[D]espite the assignment, 9154-6093 rented Unit 54 to third parties, declared the income from such rentals, and collected the taxes and remitted them to Revenu Québec. …
Just before the sale of the Unit in October 2019 [the shareholders] retroceded the building to 9154-6093, which collected and remitted the GST and QST [on the sale] … to Revenu Québec.
She further stated that in light of this reporting of the 2019 sale:
[A]llowing Revenu Québec to recover QST on the 2009 transaction means that 9154-6093 is remitting QST twice on the same housing unit. … [T]his runs counter to both Revenu Québec's role and tax policy in this regard.
Neal Armstrong. Summary of 9154-6093 Québec Inc. v. Agence du revenu du Québec, 2023 QCCQ 10241 under General Concepts – Ownership.
GST/HST Severed Letters September 2023
This morning's release of four severed letters from the Excise and GST/HST Rulings Directorate (identified by them as their September 2023 release) is now available for your viewing.
Serres Toundra – Court of Quebec finds that a greenhouse operation is farming, not manufacturing or processing
The Quebec manufacturing and processing credits claimed by Serres Toundra in connection with equipment acquired for use by it in its greenhouse cucumber-growing operation turned on whether such equipment was Class 29 property. A Quebec regulation (similar to the exclusion in (a) of the ITA definition in s. 125.1(3) of “manufacturing or processing”) excluded “farming” from “manufacturing or processing.” In finding that the greenhouse operation was farming, so that the exclusion applied, Vaillant JCQ stated:
Greenhouse cucumber growing at Serres Toundra requires the same elements as those needed for cultivation in home gardens or farmers' fields: soil, water, light, heat and fertilizers. …
[The] food-grade mineral fibre substrate [used] instead of soil … plays the same role as soil … .
Neal Armstrong. Summary of Serres Toundra Inc. v. Agence du revenu du Québec, 2023 QCCQ 10441 under s. 248(1) – farming.
We have translated 8 more CRA severed letters
We have translated 2 translations of a CRA interpretation and ruling issued last week and a 6 further CRA interpretations released during April of 2002. Their descriptors and links appear below.
These are additions to our set of 2,718 full-text translations of French-language Technical Interpretation and Roundtable items (plus some ruling letters) of the Income Tax Rulings Directorate, which covers all of the last 21 3/4 years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
Bundle Date | Translated severed letter | Summaries under | Summary descriptor |
---|---|---|---|
2024-01-31 | 2023 Ruling 2022-0955451R3 F - Post mortem pipeline | Income Tax Act - Section 84 - Subsection 84(2) | conventional post-mortem pipeline transaction |
22 June 2023 External T.I. 2018-0746741E5 F - Eligible dividend allocation | Income Tax Act - 101-110 - Section 104 - Subsection 104(19) | eligible and non-eligible dividend can be wholly designated to two respective beneficiaries | |
Income Tax Act - 101-110 - Section 104 - Subsection 104(13) | a discretionary trust can wholly allocate each of an eligible and a non-eligible dividend to each of two recipient beneficiaries | ||
2002-04-26 | 22 May 2002 Internal T.I. 2001-0106577 F - APPARIEMENT DES REVENUS ET DEPENSES | Income Tax Act - Section 9 - Timing | following Canderel, an upfront payment made under a multi-year supply contract is currently deductible |
14 May 2002 Internal T.I. 2001-0109517 F - SECTION DE LA LOI248(28) | Income Tax Act - Section 248 - Subsection 248(28) | disallowance of interest deduction to partnership on loans to corporate partners whose amount was included in their income under s. 15(2), was not contrary to s. 248(28) | |
8 May 2002 Internal T.I. 2002-0135737 F - REGIME DE CONGE A TRAITEMENT DIFFERE | Income Tax Regulations - Regulation 6801 - Paragraph 6801(a) - Subparagraph 6801(a)(vi) | s. 6(11) income recognition when apparent that the leave would not commence within 6 years/ Reg. 6801(a)(vi) does not to extend 6-year period but deals with leaves over one year | |
2002-04-12 | 3 May 2002 External T.I. 2001-0110145 F - avantage imposable-vetements | Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) | reimbursing a professor for a briefcase needed in connection with work would be non-taxable |
3 May 2002 External T.I. 2002-0132615 F - PERTE DECOULANT D'UN PAIEMENT A UN RPDB | Income Tax Act - Section 147 - Subsection 147(8) | creation of a business loss from making a DPSP contribution is not necessarily inconsistent with the DPSP rules | |
1 May 2002 External T.I. 2002-0133145 F - RAP - BAIL & ACTIONS | Income Tax Act - Section 146.01 - Subsection 146.01(1) - Qualifying Home | unit consisting of a leasehold interest and shares of the corporation owing the property could qualify as qualifying home |
CRA concludes engaging the “one of the main purposes” test in Art. 10(8) of the Canada-UK Treaty for accessing reduced withholding resulted in a 25% withholding rate
Art. 10(8) of the Canada-U.K. Convention provides:
The provisions of this Article shall not apply if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the shares or other rights in respect of which the dividend is paid to take advantage of this Article by means of that creation or assignment.
The day before a dividend was paid to it by a Canadian-resident corporation, a UK corporation undertook transactions to ensure that it owned shares giving it control of 10% of the total votes of the Canadian corporation, and claimed the reduced rate of 5% pursuant to Art. 10(2) of the Treaty.
After reviewing the history of Art. 10(8) (in particular, the expansion of the purpose test in 2003) and the OECD Commentaries, the Directorate concluded that “the intention of both Canada and the UK [was] that paragraph 8 of Article 10 of the Treaty not be limited to situations where the degree of connection of the ultimate dividend recipient with Canada is questioned,” i.e., it was not limited to situations of treaty-shopping.
The Directorate also concluded that application of Art. 10(8) would result in the UK corporation being subject to a withholding rate of 25% (on the basis of denying any benefits under Art. 10), rather than the rate being 15% on the basis of only the benefit of Art. 10(8)(a) being denied.
Neal Armstrong. Summary of 16 June 2020 Internal T.I. 2019-0792651I7 under Treaties – Income Tax Conventions – Art. 10.