News of Note
CRA rules that fees paid by an introducing broker to a carrying broker were GST/HST taxable
Email this ContentAn 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).
Penate – Tax Court of Canada finds that sexual harassment by customers and no evidence of diversion of GST/HST collections established a due diligence defence
The taxpayer, Ms. Penate, was the sole director and shareholder of a roofing company that fell behind in its GST/HST remittances. Campbell J found:
There is no evidence that any GST/HST remittances were diverted to assist with the business activities. It was simply a matter of not being able to collect from many contractors as a female-run subtrade unless Ms. Penate agreed to return sexual favours for payment of the Company’s completed subcontracts.
Campbell J stated that these constituted “exceptional circumstances and facts” which allowed her to conclude that the taxpayer could avail herself of the due diligence defence – so that the appeal was allowed.
Neal Armstrong. Summary of Penate v. The Queen, 2020 TCC 63 under ETA s. 323(3).
GST/HST Severed Letters December 2019
This morning's release of four severed letters from the Excise and GST/HST Rulings Directorate (identified by them as their December 2019 release) is now available for your viewing.
Income Tax Severed Letters 22 July 2020
This morning's release of four severed letters from the Income Tax Rulings Directorate is now available for your viewing.