News of Note
Zomaron – Tax Court of Canada finds that a service of inducing merchants to use credit card processing services was an exempt financial service
Email this ContentCRA viewed the taxpayer (Zomaron) as essentially a marketing arm of two “Processors” (e.g., “Elavon”) that accessed the credit card issuer and payment network to pay a merchant whose customer had used a credit card, and then used a portion of the fee (e.g., 2%) paid by the merchant at the end of the month to pay the interchange fees of that network and split the balance of the fee between itself and Zomaron in the agreed proportions. However, it was Zomaron who obtained the agreement of the merchants to use the processing services of Elavon and, although the agreement between Zomaron and Elavon was termed a “marketing” agreement, essentially all the marketing involved was merely that entailed in persuading merchants to agree to use Elavon’s services.
In finding that the net fees received by Zomaron were exempt “arranging for” fees that were not excluded by virtue of being taxable promotional services under para. (r.4) of the financial services definition, Lyons J stated:
[T]he essence for what the Processors is paying Zomaron for is to “arrange for” merchants to use the Processor’s card payment services. This, I find, is the predominant element of the supply provided by Zomaron to [the Processors]. ...
… Even if the supply provided by Zomaron to the Processors involved services of a promotional nature, since these do not represent the predominant element of the supply, paragraph (r.4) has no application … .
Neal Armstrong. Summary of Zomaron Inc. v. The Queen, 2020 TCC 35 under s. 123(1) – financial service – (r.4).
CRA indicates that a s. 6(1)(b)(vii) reasonable allowance could include an apartment allowance re legislative sittings away from the constituency office
Temporary residence allowances are paid to members of a legislative assembly where their permanent residence is more than a specified distance away in order to cover the cost of apartments in that city. CRA implicitly accepted that such allowances potentially could be exempt under s. 6(1)(b)(vii) on the basis that they were travel allowances paid for staying at a location that was at a distance from the “employer’s” ordinary establishment (i.e., the home riding constituency office, keeping in mind that the members, as office holders, were deemed employees). However, CRA added that “[w]hether the allowance is reasonable … would need to be assessed on a case by case basis.”
Neal Armstrong. Summary of 8 November 2019 External T.I. 2019-0820401E5 under s. 6(1)(b)(vii).
Escape Trailer – Federal Court of Appeal finds that the intent of ETA is to only zero-rate goods where they are shipped to a destination outside Canada
When a B.C.-based company (the “applicant”) sold an RV to a U.S. customer, it could have avoided the requirement to charge HST on the sale price by delivering the RV to the customer in the U.S. (so that under ETA s. 142 the place of supply would have been outside Canada) or by shipping the RV to the customer in the U.S. on a common carrier (thereby engaging zero-rating). Instead, it delivered the RV to the customer in a parking lot just north of the border, with the customer then driving the RV across the border as the importer of record. In confirming that CRA had not acted unreasonably in declining to recommend a remission order under s. 23(2) of the Financial Administration Act, Locke JA noted that CRA had “implicitly acknowledged the general intent noted in Montecristo … that GST/HST should be limited to consumption within Canada,” but had reasonably considered that “Goods purchased by non-resident consumers are only intended to be zero-rated if they are shipped to a destination outside Canada, or they are sent by mail or courier to an address outside Canada,” and further stated:
The Assistant Commissioner concluded reasonably that the predicament in which Escape Trailer found itself … was caused not by any unintended results of the legislation, but rather by its failure to comply with any of the detailed conditions for zero-rating.
Neal Armstrong. Summary of Escape Trailer Industries Inc. v. Canada (Attorney General), 2020 FCA 54 under ETA Sched. VI, Pt. V, s. 12.
Clark - Court of Appeal of England and Wales finds that there can be a payment even where there is a resulting trust in favour of the payor
The UK taxpayer argued that a transfer out of his self-invested personal pension plan to another pension plan was not subject to tax for an unauthorized “payment” out of the first plan on the grounds that the second plan was a trust that was void for uncertainty, so that there was a resulting trust of the transferred funds in favour of the first plan, i.e., there was no beneficial transfer. In rejecting this submission, Henderson LJ stated:
[T]he natural reaction of anybody to the question whether there had been a payment of the £2.115 million by Suffolk Life to the LML Pension would surely be that of course there had. The money was intended to pass from the control and supervision of one registered pension scheme to another … . From a practical and common-sense perspective, why should it make any difference to this analysis if it later transpired that, unknown to everybody at the time, the transfer was in fact defective and gave rise to a resulting trust? In the context of the carefully designed scheme of the 2004 Act, one would not expect the meaning of an everyday word like "payment" to depend on legal niceties of that kind.
Neal Armstrong. Summary of Clark v HM Revenue and Customs, [2020] EWCA Civ 204 under General Concepts – Payment and Receipt.
We have 1100 translations of CRA interpretations going back 9 years
We have published a translation of a technical interpretation released last week and a further 5 translations of CRA interpretations released in February, 2011. Their descriptors and links appear below.
These are additions to our set of 1100 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. You are currently in the “open” week for March.
Quebec Ombudsperson criticizes the ARQ for not following the Galway principle in settlement agreements
Quebec’s Public Protector (a.k.a. Ombudsperson) has issued a report containing eight recommendations for improvements in the way that the ARQ handles the process of seeking and entering into settlements with taxpayers.
It found that the internal policy of the ARQ has contemplated settling cases where the facts in the record cannot support its position, or the ARQ fears having its reassessments reversed by the Courts. The report found that it was abusive and improper for the ARQ to reassess without an adequate evidentiary foundation capable of surviving judicial scrutiny – and that, in such instances, the reassessment should be dropped. The Public Protector also found that the ARQ has an obligation to ensure that taxpayers are fully informed of the tax and legal consequences of any settlement, and referenced the CRA’s AD-19-01 Audit Agreement and Waiver of Objection Rights Guidelines in this regard.
After listing the eight Recommendations, the Report gave the ARQ until April 30, 2020 to submit an action plan and timetable in response.
Some will consider that this Report is relevant to how the ARQ has been administering the GST/QST.
Neal Armstrong. Summary of 27 February 2020 Report of the Quebec Ombudsman entitled “So that taxpayers’ rights are upheld in payment arrangement proposals with Revenu Québec” summarized under ETA s. 306.1(2).
CRA ruling letter contemplates successive transfer of losses to new Losscos, which then are wound-up into the Profitco
A parent company (Aco), whose only source of taxable income was foreign accrual property income from a non-resident subsidiary but which had losses because of issuing debt to the public, received rulings for the transfer of its losses to a domestic Profitco (held through an intermediate Holdco). This was to be accomplished by Holdco incorporating a new corporation (Lossco1), which would generate losses through triangular transactions between Aco, it, and a Newco incorporated by Aco, with Lossco1 (once it had generated those losses) being transferred on a s. 85(1) rollover basis to Profitco, and wound-up into Profitco on a s. 88(1) rollover basis.
The ruling letter describes a repetition of these transactions (i.e., with a new Lossco and Newco) in a subsequent taxation year, but no rulings are provided (presumably only because CRA requires ruled–upon transactions to be implemented somewhat promptly).
Neal Armstrong. Summaries of 2017 Ruling 2017-0711911R3 under s. 111(1)(a) and s. 88(1.1).
CRA indicates that an annuity issued by a registered charity did not qualify for the s. 60(l) rollover
In order for an annuity to be eligible for a tax-deferred rollover under s. 60(l), s. 60(l)(ii) requires that the annuity issuer must be a person licensed or otherwise authorized under the laws of Canada or a province to carry on an annuities business in Canada. In rejecting the proposition that a registered charity could issue a charitable gift annuity that was eligible for the rollover, CRA stated:
[T]he fact that provincial insurance law may exempt a charitable organization from the application of certain legislative requirements with respect to the issuance of charitable gift annuities does not amount to the organization being licensed or otherwise authorized under that law to carry on an annuities business in Canada.
Neal Armstrong. Summary of 23 January 2020 External T.I. 2019-0830781E5 under s. 60(l)(ii).
CRA confirms that the s. 8(1)(c) does not entail any home office requirement
CRA confirmed that, in order to be eligible for the clergy residence deduction under s. 8(1)(c), there is no requirement for a minister to maintain an office in her residence or use it in connection with her duties as a member of the clergy.
Neal Armstrong. Summary of 23 January 2020 External T.I. 2019-0796121E5 F under s. 8(1)(c).
Grands Palais – Court of Quebec finds that consideration for parking spots was part of the consideration for (condo) residential complexes for new housing rebate purposes
The Quebec new housing rebate is essentially the same as the ETA equivalent, except that entitlement to it is lost at a lower dollar level of total consideration for the “residential complex” that is purchased. Croteau, J.C.Q. found that the consideration paid by purchasers for new condo units in a complex also included the $25,000 they paid for an underground parking spot. In particular, she found that the parking spot was “attributable to the [condo] unit and … reasonably necessary for the use and enjoyment of the unit,” stating:
The location of the various high-rise residential buildings and the advantages that indoor parking spaces can provide led 99.44% of purchasers to express their intention to acquire at least one parking space at the same time as their residential unit.
[A]lthough they constitute different cadastral lots … the interdependence and interconnection of the parking spaces to the residential units are such that they could not be considered, for the purposes of establishing the amount of the Rebate to which the purchasers were entitled, as separate components.
Accordingly, for 93 of the purchases, the total consideration exceeded the dollar threshold, after taking the extra $25,000 into account.
Like ETA s. 254(6), the builder under the QSTA is not liable for the denied rebate (which has almost invariably been assigned to the builder in larger projects) except where it “knows or ought to know” that the individual purchaser is not eligible for the rebate. In finding that the builder could not escape liability on this ground, Croteau, J.C.Q. found that although the rebate form itself did not explain the point at all well, the builder should have been able to ascertain the CRA/ARQ position on the rebate in various published Bulletins.
Neal Armstrong. Summary of Grands Palais du nouveau Saint-Laurent Inc. v. Agence du revenu du Québec, 2020 QCCQ 281 under ETA s. 123(1) – residential complex – (b).