News of Note
CRA establishes 3 conditions for there to be an extraordinary item for CEWS purposes
Email this ContentBefore concluding (in the context of provincial support payments to childcare centres to assist them during the COVID-19 pandemic) that it would “generally consider emergency government assistance … directly related to COVID-19 to be an extraordinary item,” so that such assistance would generally be excluded as an extraordinary item from “qualifying revenue” for CEWS (wage subsidy) purposes, CRA stated:
Generally, we would expect extraordinary items to meet all three of the following characteristics:
a) Not be expected to occur regularly or frequently within several years
Grants or other government assistance that an entity is eligible to receive on a regular or reoccurring basis would not meet this criteria.
b) Not typical of the normal activities or risks inherent in the normal operations of the entity …
c) Primarily out of the control of owners or management … .
Neal Armstrong. Summary of 6 May 2020 Internal T.I. 2020-0846711I7 under s. 125.7(1) – qualifying revenue – (c).
Income Tax Severed Letters 24 June 2020
This morning's release of five severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Sangha – Federal Court rejects a CRA decision for failure to contain “a coherent assessment of the relevant law and significant facts and submissions”
Mr. Sangha entered the 2017 taxation year having made excess contributions to his TFSA, but then withdrew all the funds two months before received a CRA letter (the “June 2017 Letter”) informing him of his excess 2016 TFSA contributions and warning that if he continued to make excess contributions “in the future”, he could be subject to a monthly 1% penalty tax. However, Mr. Sangha contributed $35,000 to his TFSA in September 2017 (allegedly reflecting a misunderstanding that he was not required to wait until January 2018 to make this contribution), and maintained the resulting excess contribution for almost a year.
CRA assessed penalty tax, including on the excess monthly balances in 2017 prior to the June 2017 Letter. In response to the second request of Mr. Sangha for a penalty waiver pursuant to s. 207.06(1), the delegate’s decision relevantly only referred to the fact that Mr. Sangha had over-contributed following the warning.
Before allowing the application and returning the matter for reconsideration by another delegate, Walker J found that the letter thus had failed to address material issues including (i) the fact that the assessments effectively were retroactive to before the second overcontribution notwithstanding the wording of the June 2017 Letter (which given the emphasis of Mr. Sangha on this issue in his review application, was by itself “a determinative error”), and (ii) Mr. Sangha’s submission that the timing of his second overcontribution was a “reasonable error” (i.e., ignoring an issue specifically raised in s. 207.06(1).)
She concluded, applying Vavilov:
I find that the Decision does not reflect a coherent assessment of the relevant law and significant facts and submissions from the record and that the Minister’s refusal to exercise their discretion was not intelligible or justified.
Neal Armstrong. Summary of Sangha v. Canada (Attorney General), 2020 FC 712 under s. 207.06(1).
Northview Apartment REIT intends to effect a tax-deferred spin-off using the s. 107.4 rollover [corrected]
It is proposed that the unitholders of Northview Apartment REIT receive mostly cash from Starlight and KingSett funds for their REIT units. However, the purchasing funds will not end up with all the assets of the REIT. The two purchasers will acquire a portion of the assets after they have been suitably packaged into partnerships, with the REIT intending to push out the resulting capital gains (presumably with an eye on avoiding issues under s. 132(5.3)) using the capital gains refund mechanism.
Furthermore, some of the real estate will have first been packaged into a “High Yield Fund,” that is intended to qualify as a REIT and that effectively will be distributed to those unitholders who are interested in receiving units of that fund in lieu of full cash proceeds for their units. This will be accomplished by the REIT settling the new unit trust (the High Yield Fund) with $1,000 in cash, distributing $1,000 of cash to the REIT unitholders, selling its units of the High Yield Fund to the REIT unitholders for $1,000 in cash, and then effecting a s. 107.4 transfer of a holding LP for the real estate in question from it to the High Yield Fund. Those unitholders who have elected to receive only cash then will have their High Yield Fund units redeemed for $7.06875 per unit, in addition to having their REIT units redeemed for $29.18125 per unit. Those who want to retain the High Yield Fund units will not have those units redeemed, so that they only receive cash for their REIT units – and in effect receive their High Yield Fund units on a tax-deferred basis.
The High Yield Fund will need cash to accomplish the above. It is expected to complete the Offering, of up to $430,000,000 of units concurrently with the completion of the (Alberta) Arrangement.
Full Pt. XIII.2 tax will be withheld from the redemption proceeds paid to non-resident unitholders.
Neal Armstrong. Summary of Northview Apartment REIT Circular under Mergers & Acquisitions – REIT/Income Fund /LP Acquisitions – LP Acquisitions of Trusts.
We have translated over 1200 CRA interpretations
We have published a translation of a CRA interpretation released last week and a further 5 translations of CRA interpretations released in June 2010. Their descriptors and links appear below.
These are additions to our set of 1,204 full-text translations of French-language Roundtable items and Technical Interpretations of the Income Tax Rulings Directorate, which covers all of the last 10 years of releases of Interpretations by the Directorate. These translations are subject to the usual (3 working weeks per month) paywall.
| Bundle Date | Translated severed letter | Summaries under | Summary descriptor |
|---|---|---|---|
| 2020-06-17 | 2 June 2020 External T.I. 2020-0847081E5 F - Compte de frais médicaux – période de report | Income Tax Act - Section 248 - Subsection 248(1) - Private Health Services Plan | during COVID-19, unused HCSA credits can be carried forward for up to an additional 6 months |
| 2010-06-25 | 11 June 2010 External T.I. 2010-0354881E5 F - Traitement fiscal de la FNACC | Income Tax Act - Section 20 - Subsection 20(16) | ceasing to use a class of depreciable property to generate income results in a terminal loss under ss. 45(1)(a) and 20(16) |
| Income Tax Act - Section 45 - Subsection 45(1) - Paragraph 45(1)(a) | application of s. 45(1)(a) to film production that ceased to generate income, resulting in a terminal loss under s. 20(16) | ||
| 2 June 2010 External T.I. 2010-0354951E5 F - Bien de remplacement-disp. involontaire | Income Tax Act - Section 44 - Subsection 44(5) - Paragraph 44(5)(a.1) | rental building did not qualify as a replacement property to an expropriated parking lot because of different physical attributes | |
| 2010-06-18 | 7 June 2010 External T.I. 2009-0331731E5 F - CII et crédit de taxe sur le capital du Québec | Income Tax Act - Section 13 - Subsection 13(7.2) | Quebec ITCs or capital tax credits reduce the LP’s UCC at end of its October 31 fiscal period following the calendar year in which its partners claimed those credits |
| 4 June 2010 External T.I. 2009-0324801E5 F - catégorie 43 | Income Tax Regulations - Schedules - Schedule II - Class 43 | potential inclusion of moulds and cranes, but not forklift truck | |
| 9 June 2010 External T.I. 2009-0342081E5 F - Associé déterminé | Income Tax Act - Section 248 - Subsection 248(1) - Specified Member | trust member of partnership can be actively engaged through the activities of its trustee | |
| Income Tax Act - 101-110 - Section 104 - Subsection 104(1) | s. 104(1) imputes the activities of the trustee to the trust for “specified member” purposes |
Menasse – Court of Quebec declines to follow a TCC judgment on the same transactions given the very brief reasons given
The appellants were assessed for unremitted GST and QST and to deny claimed input tax credits and input tax refunds. Their appeal of the GST assessments was dismissed from the bench, with brief reasons for judgment being provided.
In rejecting the ARQ’s submission that it was contrary to judicial comity and an abuse of process for the same transactions to now be appealed to the Court of Quebec (and before going on to grant the appellants’ appeals in part), Choquette JCQ stated:
The judgment of the TCC deals very summarily with the evidence adduced, and its analysis, just as summarily, does not allow the Court to conclude that the same factual and legal framework prevails in these proceedings.
These circumstances are not sufficient to conclude that there was an abuse of process … .
Neal Armstrong. Summary of Menasse v. Agence du revenu du Québec, 2020 QCCQ 1829 under General Concepts – Judicial Comity.
CRA rules that an Ontario palliative care hospice operated by a charity and funded mainly by donations qualified for enhanced GST/HST rebates
CRA ruled that a registered charity receiving a portion of its operating funding from the Ontario Ministry of Health and Long-Term Care (MOHLTC), through the Local Health Integration Networks (LHIN), but relying mainly on donations, to operate a palliative care hospice, qualified for the enhanced 83% federal and 87% Ontario public service body rebates. It reasoned that stipulated requirements for ”chronic care” - such as that the residents be in receipt of “therapeutic care” each day - were not required to be met by such a facility because “palliative care differs from chronic care.”
The minority funding received by the hospice from its LHIN pursuant to an “Accountability Agreement” was sufficient to satisfy the requirements in ETA ss. 259(2.1)(b) and (c) that it receive more than nominal “qualifying (government) funding” and that it be “authorized” by the Province.
Neal Armstrong. Summaries of 24 July 2019 GST/HST Ruling 162099 under ETA s. 259(1) – facility supply and s. 259(2.1)(c).
CRA states that it will follow Fortnum in “factually similar” situations
S. 118.5(1)(b) accords a tuition credit to “a student in full-time attendance at a university outside Canada in a course leading to a degree” subject to exclusions for inter alia fees “paid in respect of a course of less than three consecutive weeks duration.” In the face of conflicting authority, Smith J found jn Fortnum that this requirement was satisfied by a summer session for an MBA program at an Indiana university that consisted of 10 or 11 consecutive courses each of which was of one or two weeks’ duration. When asked about the implications of this decision, CRA first indicated that “the court applied the three consecutive week requirement to the summer semester as a whole, rather than to each individual course in the semester,” and then stated:
Our interpretation of subparagraph 118.5(1)(b)(i) … as explained in paragraph 2.10 of … S1-F2-C2 … has generally not changed as a result of … Fortnum. … [T]his case was heard … under the Informal Procedure … [and] do[es] not have precedential value.
Notwithstanding this, the CRA will consider a course of less than 3 consecutive weeks duration to satisfy the requirement in subparagraph 118.5(1)(b)(i) in situations factually similar to Fortnum.
CRA provided no guidance on what it would regard as “factually similar.”
It is hard to know what to make of the statement in s. 18.28 of the Tax Court of Canada Act that Informal Decisions ”shall not be treated as a precedent for any other case” given that General Procedure cases also may not be followed (as happened in BCS), Well-reasoned decisions of either type are accorded substantial deference. The only ones paying much attention to s. 18.28 are at CRA when dealing with a decision that might require reworking their published positions.
Neal Armstrong. Summary of 3 July 2019 Internal T.I. 2019-0791521I7 under s. 118.5(1)(b)(i).
CRA finds that CECRA loans do not disqualify a s. 149(1)(o.2)(ii) corporation nor lead to deregistration of an RPP
S. 149(1)(o.2)(ii)(C) stipulates that a s. 149(1)(o.2)(ii) corporation has “borrowed money solely for the purpose of earning income from real property or an interest [therein].” Reg. 8502(i) provides that a registered pension plan (RPP) shall not borrow money, subject to what CRA correctly describes as “two very narrow exceptions.”
The CECRA program contemplates the making of loans to commercial landlords to partially fund their providing rent relief to qualifying tenants, followed by forgiveness of such loans on December 31, 2020 if the landlord has complied with the program terms. CRA states:
- Participating in the CECRA with respect to commercial property held by a pension real estate corporation will not contravene the borrowing restriction in clause 149(1)(o.2)(ii)(C).
- Although participating in the CECRA by an RPP will contravene the narrower borrowing restriction in paragraph 8502(i), the CRA will exercise its discretion to not revoke the registration of an RPP for failure to comply with this condition.
Neal Armstrong. Summaries of 15 June 2020 External T.I. 2020-0850981E5 under s. 149(1)(o.2)(ii)(C) and Reg. 8502(i).
CRA is not ruling on whether entities are excluded from CEWS access by being public institutions
In indicating that it could not provide a ruling as to whether a registered charity was excluded from being an “eligible entity” for “CEWS” (wage subsidy) purposes by virtue of being a public institution, CRA stated:
[D]ue to the large number of enquiries that our Directorate is receiving in the context of the COVID-19 pandemic, we will not be providing any advance income tax ruling regarding the qualification of a specific entity as a public institution for the purpose of the CEWS.
Neal Armstrong. Summaries of 3 June 2020 External T.I. 2020-0846831E5 under s. 125.7(1) – eligible entity – (c), and s. 149(1)(c).