News of Note
Income Tax Severed Letters 11 March 2020
Email this ContentThis morning's release of three severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA indicates that it would be “fair” for it to adjust the new residential rental property rebate when assessing under ETA s. 191(3)
CRA is assessing to increase the amount of GST/HST self-assessed by a builder under ETA s. 191(3) on substantial completion and first occupancy of a rental residential complex. What should be done where there should be a corresponding increase to the amount of the new residential rental property rebate given this higher FMV?
CRA noted that it was not required under s. 296(2.1)(b) to grant the rebate - because this provision did not apply where a rebate application had been filed. Furthermore, the making of a fresh rebate application was prohibited by s. 262(2). However, CRA indicated that, as a matter “of service and fairness, it would be appropriate for the auditor” to adjust the rebate, provided the period was not statute-barred.
Neal Armstrong. Summary of May 2019 CPA Alberta CRA Roundtable, GST Session – Q.10 under ETA s. 256.2(7).
CRA treats a mailed or couriered item as having been received by it five days before the delivery date
S. 248(7) provides that “anything … sent by first class mail or its equivalent shall be deemed to be received by the person to whom it was sent on the day it was mailed.” Be that as it may:
The CRA considers the received date to be the mailroom date (delivered date) minus five days leniency. The CRA strongly encourages the use of electronic filing via certified T2 software.
Neal Armstrong. Summary of May 2019 CPA Alberta CRA Roundtable, General Session – Q.4 under ITA s. 248(7).
DREAM Global REIT was acquired through unit redemptions funded with asset sales and unit subscriptions
Dream Global REIT, a TSX-listed mutual fund trust with no non-portfolio property, held a portfolio of German and Netherlands rental properties through a wholly-owned Bermuda LP which, in turn, held some direct and indirect Netherlands subsidiaries but held the majority of such assets through a Dutch Co-op which, in turn, held a Luxembourg holding company for various property subsidiaries.
The REIT’s purchase (without the benefit of a Plan of Arrangement) was accomplished, in the main, by Luxembourg and Caymans subsidiaries of three non-resident Blackstone-managed funds acquiring the Dutch Co-op for cash and note consideration, winding-up the Bermuda LP (in order to ensure that such gains fell into the right taxation year of the REIT and so that the proceeds were received in the hands of the REIT), and with the cash portion of such proceeds and the subscription by the purchasers for Class B units of the REIT being used to fund a previously declared special distribution on, and then redeem, all the (Class A) Units, thereby giving rise to a deemed year end under ss. 249(4) and 256(9). Given inter alia that much of the gains were realized as capital gains (i.e., gains realized by the Bermuda LP) rather than as gains giving rise to FAPI, management did not anticipate that the special distribution included any ordinary income – so that it was expected that the unitholders received the same treatment as if they had sold their Units for cash.
Neal Armstrong. Summary of Dream Global REIT Circular under Mergers & Acquisitions – Cross-Border Acquisitions – Inbound – REIT Targets.
CRA accepts that “in contemplation of” can be backwards looking
After quoting from Copthorne as to the meaning of the extension in s. 248(10) of the concept of a series of transactions, CRA stated (in the context of a question on s. 55(2)):
Therefore … “in contemplation” is not read in the sense of actual knowledge, but in the broader sense of “because of” or “in relation to” the series. Therefore, this can be applied to events either before, or after a specific transaction.
Therefore, the sole factor of transactions occurring at the same time is not necessarily a deciding factor either way. The transactions are reviewed in the context of the transaction identified and used to apply to the specific section of the act, in this case subsection 55(2).
Neal Armstrong. Summary of May 2019 CPA Alberta CRA Roundtable, ITA Session – Q.7 under ITA s. 248(10).
5 more translated CRA interpretations are available
We have published a further 5 translations of CRA interpretations released in February and January, 2011. Their descriptors and links appear below.
These are additions to our set of 1121 full-text translations of French-language Roundtable items and Technical Interpretations of the Income Tax Rulings Directorate, which covers all of the last 9 years of releases of Interpretations by the Directorate. These translations are subject to the usual (3 working weeks per month) paywall.
CRA indicates that a supply is deemed for GST/HST purposes to be received by a recipient at the time the related agreement is entered into
ETA s. 133 deems property or services supplied pursuant to an agreement to be supplied at the time the agreement is entered into. It does not explicitly deem there also to be an acquisition by the recipient at that time, but this appears to be inferred by CRA.
Where a builder was invoiced, after the time that it self-assessed for the fair market value of a newly-constructed multiple unit residential complex (at the time of substantial completion and first tenant occupancy) for work done before that time, CRA explained the availability of an input tax credit therefor on the basis that, by virtue of s. 133:
where a builder of a MURC agrees to acquire property or a service for consumption or use in constructing the MURC, the supply of the property or service is generally considered to be made to the builder at the time that the agreement is entered into (that is, the builder is considered to be the recipient of the supply at that time).
Neal Armstrong. Summaries of May 2019 CPA Alberta CRA Roundtable, GST Session – Q.8 under ETA s. 133 and s. 169(1).
CRA indicates that a gross negligence penalty generally should not apply to a genuine misinterpretation of the ETA
Respecting whether the ETA gross negligence applied where there has been a failure to report taxable revenue, CRA indicated that “Usually, gross negligence penalties are not assessed where it is considered that there was a genuine misinterpretation of the ETA on the part of the registrant and it is reasonable to assume that the registrant did not know whether a particular supply was a taxable supply” and that “Generally speaking, no penalty will be assessed where it appears that the registrant was confused about the reporting of an amount and it is the first time a penalty is being considered.”
Neal Armstrong. Summary of May 2019 CPA Alberta CRA Roundtable, GST Session – Q.7 under ETA s. 285.
The HBC privatization entailed a significant deemed dividend
Under a Plan of Arrangement, a grouping of non-resident shareholders holding over 60% of the HBC common shares transferred their shares to a newly-formed LLC pursuant to “rollover agreements” (presumably so termed because their HBC shares were not viewed as taxable Canadian property). HBC then purchased for cancellation the common shares of the minority shareholders for $11.00 per share, giving rise to deemed dividends equaling the excess over the paid-up capital of $7.26 per share. It was suggested that shareholders could consider selling into the market to avoid deemed dividend treatment.
Neal Armstrong. Summary of HBC Circular under Mergers & Acquisitions – Cross-Border Acquisitions – Inbound.
CRA indicates that late filing a financial institution return is not particularly relevant to the imposition of an ETA s. 284.1 penalty
When asked about the application of the ETA s. 284.1 penalty to an unfiled return for a financial institution (on form GST111 or RC7219), and whether a zero dollar line item triggers a minimum penalty amount of $1,000, CRA stated:
Where an information return that was not filed on time is subsequently filed, and the correct amount reported on the particular line is zero … there would be no penalty under subsection 284.1(1) based on the formula for calculation the penalty in that subsection. …
However, CRA went on to indicate (respecting the penalty under s. 284.1(2)) that:
Where a return has not been filed, the CRA may apply the $1,000 penalty for a particular line in the absence of information that would support a lower penalty amount.
Neal Armstrong. Summaries of May 2019 CPA Alberta CRA Roundtable, GST Session – Q.6 under ETA s. 284.1(2) and s. 284.1(3).