News of Note
CRA finds that sponsorship revenues of a public sector body were not subject to GST/HST
Email this ContentSubject to an exclusion respecting radio, TV or print advertising, ETA s. 135 deems there to be no supply where
a public sector body makes
(a) a supply of a service, or
(b) a supply by way of licence of the use of a copyright, trade-mark, trade-name or other similar property of the body,
to a person who is the sponsor of an activity of the body for use by the person exclusively in publicizing the person’s business … .
A public sector body (PSB) is defraying some of the expense of organizing an event at a particular centre through selling sponsorships, which include logo visibility, branding opportunities, acknowledgement during the event, and use of an exhibition booth. . CRA somewhat generously considered that all of these items fell within the listed s. 135 items other that the exhibition booth, which it characterized as a supply of real estate. However, it then applied the single supply doctrine to find that all of the sponsorship revenues received by the PSB were not subject to GST/HST, stating:
[A]lthough the sponsors receive the use of real property, they also receive a multitude of promotional services as part of the sponsorship package. These packages are all considered a single supply of promotional services, because, amongst other things, it is not possible for a sponsor to choose which benefit it wants and to only pay that price.
This ruling shows CRA using the ‘single’ supply doctrine to find that there is ‘no’ supply.
Neal Armstrong. Summaries of 20 February 2019 Ruling 196070 under ETA s. 135 and 123(1) – recipient.
Singh – Tax Court of Canada accepts a written director’s resignation that was not fully recorded
Similarly to ITA s. 227.1(4), ETA s. 323(5) indicates that a director’s assessment under ETA s. 323 is invalid if made more than two years after the individual ceased to be a director.
Bocock J accepted the taxpayer’s evidence that he had resigned by written letter of resignation “delivered” to the corporation (e.g., to his wife as the other director) more than two years before the s. 323 assessment, so that such assessment was invalid. He found that it was not contrary to this conclusion that the taxpayer (or corporation) had not filed a notice of change under the Corporations Information Act, and that the directors’ register (in the corporate minute book) was not fully updated to reflect the change.
Neal Armstrong. Summary of Singh v. The Queen, 2019 TCC 120 under ETA s. 323(5).
Retfalvi – U.S. 4th Circuit finds that Art. 26A of the Canada-U.S. Treaty was constitutionally valid
An individual (Retfalvi) who had resided for a while in Canada, left Canada, and became a U.S. citizen. When he failed to pay (or appeal to the Tax Court) a CRA reassessment of the gains on two Vancouver condos that he sold on his departure, CRA invoked Art. 26A of the Treaty. Retfalvi ultimately paid the liability (in U.S. dollars) to the IRS, but then launched a refund suit in the U.S. federal court system.
In rejecting Retfalvi’s argument that there had been a crucial failure to implement Art. 26A through House-originated implementing legislation, Judge Hollander stated:
Plainly put, the phrase “bills for raising Revenue” refers to bills that impose taxes for the general support of the federal government and not the administration of taxes. Article 26A does not levy taxes. …
We agree with the government that Article 26A merely facilitates collection of an already existing debt.
Neal Armstrong. Summary of Retfalvi v. USA, No. 18-2158 (U.S.C.A., 4th Circuit, 16 July 2019) under Treaties – Income Tax Conventions - Art. 26A.
CRA finds that s. 129(6) deemed business income arises during taxation year of associated payer rather than payee
Corporation B, which carried on an active business, paid rent to Corporation A. As a result of an acquisition of its control, Corporation B ceased to be associated with Corporation A and had a fresh taxation year commence on March 28, 2018.
CRA found that “any taxation year” in s. 129(6) referred to taxation years of Corporation B rather than Corporation A, so that s. 129(6) only deemed Corporation A to have active business income from the rents generated by it during the short Corporation B taxation year ending on March 27, 2018 rather than for all of Corporation A’s calendar taxation year.
Neal Armstrong. Summary of 6 June 2019 External T.I. 2019-0795751E5 under s. 129(6).
Income Tax Severed Letters 17 July 2019
This morning's release of five severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Polubiec – Tax Court of Canada comments on the harshness of the s. 163(1) penalty
A retired investment dealer had, over a number of years, failed to report around 15 items of dividend or other investment income (some of them, somewhat over $10,000), which he claimed resulted from a failure of an investment dealer (“BMONB”) to send him T5 or other reporting slips for those items (although such forms had been received by CRA). In addition, in his 2014 return he had not reported approximately $700,000 which he had withdrawn from his RRSP. He claimed that he had been advised by a BMONB employee that reporting this amount was not required as it had been subject to 30% withholding on such withdrawal.
Sommerfeldt J found that the taxpayer had failed to establish a due diligence defence for any of the above failures, so that it was unnecessary to determine which of these failures were the ones for which there was a need to establish due diligence. However, he went on to provide an obiter invitation to the Minister to reduce the s. 163(1) penalty, noting the magnitude of the penalty in relation to the taxpayer’s current means, and further noting numerous previous judicial statements along lines that the s. 163(1) penalty was “harsh, particularly where source deductions have been withheld” and “can be disproportionate in nature,” and that “the scope of the due-diligence defence is quite limited, as it does not apply to unreasonable mistakes of fact made in good faith, to mistakes of law made in good faith, or to reasonable mistakes of law.”
Neal Armstrong. Summary of Polubiec v. The Queen, 2019 TCC 146 under s. 163(1).
CRA indicates that tax paid in error does not figure into the SAM formula for SLFIs
The special attribution method formula in ETA s. 225.2(2), as modified by the Selected Listed Financial Institution Attribution Method (GST/HST) Regulations, requires a SLFI to apply a weighted average provincial HST rate (determined based on the relative provincial weightings of its stakeholders) to the net federal GST “payable” by it under A of the formula to arrive at the level of provincial HST that normatively should have been payable by it, and to then compare this normative provincial HST to the actual provincial HST “payable” by it (under element F of the formula) to determine whether it is entitled to a refund or is obligated to make a top-up payment – subject to the making of special adjustments under element G of the formula, and subject to further elaboration for Quebec.
CRA indicated that the s. 123(1) definition of tax “is interpreted by it to include only amounts of tax that are actually payable under Part IX, such as tax under subsections 165(1) and (2),” so that “an amount paid in error as or on account of tax is not tax for GST/HST purposes.” Thus, in its view, such tax paid in error does not go into elements A and F of the formula, nor is a refund of the tax paid in error deducted under G of the formula as a refund of “tax under” e.g. ETA s. 165(1).
Neal Armstrong. Summaries of 19 January 2019 Interpretation 165888 under Selected Listed Financial Institution Attribution Method (GST/HST) Regulations, s. 46(1) - G2 - s. (iii) and s. 263.01(1).
6 more translated CRA interpretations are available [corrected]
We have published a CRA interpretation released last week and a further 5 translations of CRA interpretations released in November, 2011. Their descriptors and links appear below.
These are additions to our set of 909 full-text translations of French-language Roundtable items and Technical Interpretations of the Income Tax Rulings Directorate, which covers the last 7 2/3 years of releases by the Directorate. These translations are subject to the usual (3 working weeks per month) paywall.
CRA finds that a fee-sharing arrangement that gave a small share of revenues generated by him to a contract dentist was GST/HST exempt
A professional dentistry corporation (“PC”) agrees with a dentist acting as independent contractor (Mr. D) that all patients treated at PC’s clinic by Mr. D are patients of PC, that PC will do all the invoicing, and that PC will pay to Mr. D 40% of the revenues generated from treatments performed by him (net of specified expenses including the payroll of contributing dental hygienists).
In finding that the 60% retained by the Recipient was not consideration for a taxable supply made by it, CRA stated
The terms of the contract clearly established that during the term of the contract, all patients treated by the [Mr. D] were patients of [PC] and that, consequently, all invoicing was to be done by [PC]. The contract terms did not include any clause for the supply of property or administrative services. Thus, the contract terms do not permit a conclusion that the portion of the net revenues retained by [PC] represented consideration for a supply.
We instead consider that the underlying character of the terms of the contract entailed a division amongst the parties of the [exempt] fees paid for health services rendered to patients.
Neal Armstrong. Summary of 20 February 2019 Interpretation 175346 F under ETA – s. 123(1) – supply.
CRA rules on using s. 107.4 transfers to split up ETFs
In connection with an arm’s length acquisition transaction, apparently of the business of managing exchange-listed mutual fund trusts, holders of Series D or O Units of some of such funds (the Participating Public Funds) wish to become investors in corresponding “New Funds” and thereby continue to have their investments managed by the previous managers, rather than remaining as investors in the Participating Public Funds and having their investments managed by the new managers.
CRA provided s. 107.4 rollover rulings respecting a transfer of a proportionate part of each security holding of each Participating Public Fund (based on the percentage of the NAV of the Participating Public Fund attributable to the units of the Series D or O Unitholders) to the corresponding New Fund (held by the Series D or O Unitholders) for no consideration, with the Series D or O Units in the Participating Public Fund being cancelled for no consideration.
Neal Armstrong. Summaries of 2018 Ruling 2018-0778961R3 under s. 107.4(1) and s. 107.4(2.1).