News of Note
CRA rules on construction costs of an underground ramp as CEE
Email this ContentCRA gave a ruling regarding the qualification of expenditures, on an underground mineral drilling program to expand the proven and probable reserves of a mineral deposit, as Canadian exploration expense under para. (f) of the definition, including expenditures for an underground ramp which not only facilitated the underground drilling but would be used to bring ore up to the surface once production commenced.
Neal Armstrong. Summary of 2020 Ruling 2019-0826011R3 under s. 66.1(6) – Canadian exploration expense – (f).
We have translated 5 more CRA Interpretations
We have published a further 5 translations of CRA interpretations released in May and April, 2010. Their descriptors and links appear below.
These are additions to our set of 1,230 full-text translations of French-language Roundtable items and Technical Interpretations of the Income Tax Rulings Directorate, which covers all of the last 10 ¼ years of releases of Interpretations by the Directorate. These translations are subject to the usual (3 working weeks per month) paywall. Next week is the “open” week for August.
1455257 Ontario – Tax Court of Canada suggests that a CRA policy to adjust loss carrybacks, to a reassessed year, beyond the s. 152(6) period, has no statutory authority
The validity of a s. 160 assessment of the taxpayer turned on whether the affiliate from which the taxpayer had received a transfer of property in 2003 should be regarded as having had its taxable income for 2000 reduced by a portion of its non-capital loss for 2002 that the affiliate had not claimed because the taxpayer and the affiliate had not found out about that additional loss until 2011, when the taxpayer made an ATIP request following the s. 160 assessment of it.
The taxable income of the affiliate for 2000 had arisen as a result of a 2005 settlement which had reduced a 2001 non-capital loss (and, thus, reduced the loss carryback to 2000), thereby leaving 2000 unsheltered. Although St-Hilaire J considered that there was no statutory authority for this (given the time limits in s. 152(6)), the CRA policy in such circumstances was to allow a taxpayer (i.e., the affiliate) to increase loss carry backs from other years, to offset the increased 2000 income. It made a request to carry back a loss from 2003 to 2000 (which CRA ultimately acceded to), but this was not enough to fully offset the 2000 taxable income.
Because it did not request the carryback of the additional 2002 loss in 2005 (even though CRA knew about it), this policy was to no avail. Furthermore, it was not possible to somehow treat the original request shortly after 2002 to carryback a smaller loss from that year to 2000 as carrying with it an implied request to carry back a larger loss (“discovered” in 2011) when, as a result of the 2005 settlement, use of that additional loss was now required.
In dismissing the taxpayer’s appeal, St-Hilaire J stated:
…[T]he Court is left with legislation that does not satisfactorily address the circumstances and an administrative policy that seemingly seeks to address the lacunae but for which there is no legislative authority. …
Neal Armstrong. Summaries of 1455257 Ontario Inc. v. The Queen, 2020 TCC 64 under s. 152(6), s. 160(1)(e)(ii) and General Concepts – Onus.
CRA rules that fees paid by an introducing broker to a carrying broker were GST/HST taxable
An Agreement between a carrying broker and the introducing broker contemplated that the introducing broker would effect all of its trades on all of the exchanges and in the over-the-counter markets that were checked off in a Schedule, and that the carrying broker would provide clearing services (deliveries and settlements of cash and securities respecting trades made for the introducing broker’s clients), segregation/safe-keeping services (holding securities and/or cash of the introducing broker’s clients and of the introducing broker in segregation or safekeeping) and record keeping/information services (preparing and issuing confirmations of trades, monthly statements and statements in respect of inactive accounts to the introducing broker’s clients in the name of the introducing broker).
After finding that the introducing broker was making an exempt “arranging for” financial services supply to its clients, CRA went on to find that, on general principles, there was a single supply of an administration service by the carrying broker to the introducing broker, so that the fees charged by it to the introducing broker were GST/HST taxable rather than being an exempt financial service. Although it thus was unnecessary to consider the exclusion from a financial service under para. (t) of the definition thereof and under the Financial Services and Financial Institutions (GST/HST) Regulations, that exclusion, if relevant, would also have applied given that (in light of a reasonably comprehensive indemnity provided by the introducing broker) the carrying broker was not a person at risk.
Neal Armstrong. Summaries of 24 January 2020 GST/HST Ruling 194625 under ETA s. 123(1) – financial service – para. (l) and Financial Services and Financial Institutions (GST/HST) Regulations, s. 4(1) – person at risk.
Andre Lamy Medicine Professional Corp. - Tax Court of Canada finds that a surgeon carried out his cardiac SR&ED on behalf of his professional corporation
A cardiac surgeon, who carried on his medical practice through a professional corporation, successfully appealed a CRA denial of SR&ED credit claims respecting cardiac research which CRA claimed had been conducted by him in his personal capacity rather than as employee of his corporation. D’Arcy J stated:
He bills the Government of Ontario for such [medical] services in his own name. The Respondent does not challenge the Appellant’s position that any monies received in respect of such services are received by Dr. Lamy for and on behalf of the person providing the service, i.e., his employer, the Appellant. The result is the same with respect to the research activities: Dr. Lamy signed his own name on the contracts, but he provided the services as an employee of the Appellant.
It is helpful that this case did not challenge the proposition that the doctors’ professional corporations earn the professional income notwithstanding the required billing arrangements.
Neal Armstrong. Summary of Andre Lamy Medicine Professional Corporation v. The Queen, 2020 TCC 61 under s. 127(9) – qualified expenditure – (a) and s. 5(1).
GST/HST Severed Letters March 2020
This afternoon's release of two severed letters from the Excise and GST/HST Rulings Directorate (identified by them as their March 2020 release) is now available for your viewing.
GST/HST Severed Letters February 2020
This afternoon's release of one severed letter from the Excise and GST/HST Rulings Directorate (identified by them as their February 2020 release) is now available for your viewing.
GST/HST Severed Letters January 2020
This afternoon's release of one severed letter from the Excise and GST/HST Rulings Directorate (identified by them as their January 2020 release) is now available for your viewing.
CRA indicates that an employer and employee can agree, on or before termination of employment, to defer a retiring allowance for a year or years
Respecting a terminated employee electing to receive a retiring allowance in the subsequent calendar year, CRA referred to its position in Folio S2-F1-C2 that an employee can choose, on or before termination of employment, to receive a lump sum in instalments, thereby deferring income recognition under s. 56(1)(a)(ii) until the times of receipt, and stated:
This position applies equally where payment of the lump sum is deferred to a subsequent year, provided that the individual chooses the deferred option on or before termination of employment.
Summary of 7 April 2020 External T.I. 2019-0832241E5 under s. 56(1)(a)(ii).
CRA considers that the sale of digital content generates gross income from property rather than services for TOSI purposes
One of the requirements to be an “excluded share” for purposes of the tax on split income (TOSI) is that less than 90% of the business “income” (i.e., revenue) of the corporation for its last taxation year “was from the provision of services.” Where a corporation produces and “sells” training videos as digital downloads from its website, are its resulting revenues considered as income from the provision of services for TOSI purposes? CRA responded:
[W]e are prepared to accept that payment for the right to download a digital product that traditionally would have been sold to the customer as a tangible property, will generally be treated as a sale of intangible property and not a provision of a service unless the facts and circumstances dictate otherwise.
CRA went on to indicate that payments for after-sales service, for “pure technical assistance” and for services rendered by a supplier under a guarantee, are considered to be income from the provision of services.
Neal Armstrong. Summary of 13 March 2020 External T.I. 2019-0833181E5 under s. 120.4(1) - excluded share – (a)(i).