News of Note
CRA indicates that a gross negligence penalty generally should not apply to a genuine misinterpretation of the ETA
Email this ContentRespecting 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).
CRA will deny a request for a late-filed ETA s. 156 election where not all returns have been filed
Respecting a query on late-filed ETA s. 156 elections, CRA stated:
Under administrative tolerance, the CRA may consider a request to accept a late-filed election. These requests will be considered on a case-by-case basis. As a condition, Paragraph 4 of policy statement P-255 specifies that all GST/HST returns must be filed by all parties to the election, and, that the parties must be fully compliant with the GST/HST legislation. Where GST/HST returns are outstanding, or a registrant is non-compliant, the request to accept this election will be denied.
Neal Armstrong. Summary of May 2019 CPA Alberta CRA Roundtable, GST Session – Q.4 under ETA s. 156(4)(b)(ii).
CRA may accept a late-filed ETA s. 211 election
The Alberta CPAs have published the May 2019 CPA Alberta CRA Roundtable. Although there was also an income tax session the GST session is more useful, as CRA declined to answer any specific technical questions in the income tax session since the Alberta CPAs were not one of the “national organizations with a national or international focus” (like the APFF?)
Respecting the ETA s. 211 election (to make otherwise exempted supplies by a public service body, such as a charity, taxable), CRA stated:
[I]f a charity has been charging the GST/HST on supplies of real property that would otherwise be exempt and has been accounting for that tax and claiming any ITCs it may be eligible to claim in its net tax calculations and remittances as if the election had been filed in accordance with subsection 211(5), the CRA may accept a late filed-election, effective as of the date the charity began charging the tax, if the charity was eligible to file the election on that date.
There was more strident language about such a late election only being accommodated in “exceptional circumstances” three months earlier at the 28 February 2019 CBA Roundtable, Q.1.
Neal Armstrong. Summary of May 2019 CPA Alberta CRA Roundtable, GST Session – Q.3 under ETA s. 211(5)(c).
Here are our full-text translations of the 2019 APFF Roundtable
Today, CRA published in final form its responses to the questions posed at the October 2019 (regular) APFF Roundtable. Although these responses have already been summarized by us, for your convenience the following table lists and links these questions and responses and our summaries of the responses, and provides brief descriptors.
In October, we provided translations of the full text of the answers, and provided brief summaries of the questions posed. Now you have full-text translations of the questions as well. We have not noticed any changes in the final answers. (There was a clarification to the wording the question posed in Q.9(b).)
However, at the Roundtable, CRA did not answer Questions 4, 7 and 14, which we have not included below as they are still pending.
Income Tax Severed Letters 4 March 2019
This morning's release of 16 severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Zomaron – Tax Court of Canada finds that a service of inducing merchants to use credit card processing services was an exempt financial service
CRA 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.