News of Note
CRA accepts ONEnergy, including that “either” ETA s. 141.1(3) or 141.01(2) can be satisfied
Email this ContentONEnergy found that a company that had already sold all its business could claim input tax credits for the GST/HST on its legal fees in successfully suing its executives for having paid themselves inflated bonuses and option termination payments out of the sales proceeds. In this regard, Webb JA found that ETA s. 141.1(3), which provides for an ITC where the service (or property) is acquired in connection with the disposition or termination of a commercial activity, is more specific than s. 141.01(2), so that a person will not lose its entitlement to claim an ITC solely because it was not making any taxable supplies at the time the service (or property) was acquired.
CRA implicitly accepted ONEnergy (including making a brief reference to “either” s. 141.1(3) or 141.01(2) being satisfied), but stated that the “Domestic Compliance Programs Branch may find that the conditions of subsection 141.1(3) are not met in particular situations where the specific facts are different than those in ONEnergy.”
Neal Armstrong. Summaries of 28 February 2019 CBA Roundtable, Q.16 under ETA s. 141.1(3)(a).
CRA indicates that amounts can be transferred from one RESP to another
In response to a challenge to an indication in the CRA website that it is possible to transfer amounts in a RESP to another RESP with a different subscriber and the same beneficiary, CRA stated:
Such a transfer will be possible subject to the terms of the arrangement with the promoter. The provisions applicable to RESPs allow the transfer of amounts from one RESP to another. In fact, subsection 146.1(6.1) provides special rules for transfers of property from one RESP to another.
Neal Armstrong. Summaries of 11 October 2019 APFF Financial Strategies and Instruments Roundtable, Q.10 under s. 146.1(6.1) and s. 204.9(5)(e).
CRA declines to provide guidance on determining the monthly FMV of GP services to an ILP
ETA ss. 272.1(8) and (3) effectively indicate that management or administrative services rendered by a general partner to an investment limited partnership (ILP) are taxable based on the fair market value of such services rendered in each month (or other billing period). CRA did not provide specific guidance on how such FMV was to determined, and stated:
The CRA recognizes that there are various methods that may be used and the appropriateness of any valuation methodology used in a particular case is a matter of valuation principles and practice. …
[T]he FMV of a supply of a management or administrative service may not necessarily always correspond to the consideration paid for such a service. …
General partners can use whichever method they would like to determine FMV. However … [t]he CRA is under no obligation to accept the value used by the general partner if it is determined to be over or under valued but it will consider the general partner’s FMV determination … .
Neal Armstrong. Summary of 28 February 2019 CBA Roundtable, Q.15 under ETA s. 272.1(3)(b).
CRA indicates that it is applying GST/HST new rental property rebates as it is assessing developers for self-assessment tax
CRA indicated that its current procedures reflect ETA s. 228(6), which deems a developer’s net tax remittance for the reporting period in which there has been a self-supply by it of a newly-constructed residential complex, to have been paid to the extent of the new residential rental property rebate (NRRPR) amount claimed. Thus:
[T]he NRRPR should not be delayed as it would have been verified by the initial auditor and would not require a second review by our refund integrity or rebate processing programs. However, we are aware of some unintended results that may arise with our existing audit procedures and we will be reviewing these procedures to determine where improvements can be made.
CRA also reiterated its position that s. 296(2.1) only applies where a registrant has failed to claim (rather than claimed) a rebate – so that, for example, s. 296(2.1) could apply to require CRA to grant the NRRPR where it has assessed a developer for failure to self-assess.
Neal Armstrong. Summaries of 28 February 2019 CBA Roundtable, Q.14 under s. 228(6) and s. 296(2.1).
CRA finds that an adjustment for municipal taxes and the assignment of tenant leases form part of a single supply of a sale of an office tower
A vendor transfers an office tower without a s. 167 election being made. Where the Statement of Adjustments provides for a reimbursement to the vendor at closing for the portion of prepaid property taxes relating to the post-closing period, CRA would regard this as an increase to the sale price for the office tower rather than as a non-taxable reimbursement of the taxes paid as agent for the purchaser, so that generally no GST/HST would be charged under ETA s. 221(2).
Similarly, the assignment by the vendor of the tenant leases would be considered to form part of the single supply of the building where none of the purchase price was allocated to the leases.
Neal Armstrong. Summaries of 28 February 2019 CBA Roundtable, Q.12 under ETA s. 221(2) and General Concepts – Agency.
CRA finds that a JV operator (with a proprietary interest) of a new apartment project is the one to claim the NRRP rebate
Provided that the designated operator for a joint venture to construct a multiple unit residential complex has a beneficial interest in the project, so that it can qualify as the project “builder,” CRA was generally amenable to the proposition that such operator is the one to claim the new residential rental property rebate under ETA s. 256.2(3) where there is a deemed self-supply by it under s. 191(3) (generally, at the time of first occupancy).
Neal Armstrong. Summaries of 28 February 2019 CBA Roundtable, Q.11 under ETA s. 256.2(3) and s. 123(1) – builder.
CRA will consider forms of security other than an LC for assessed taxes and interest
ETA s. 314(2) provides that “the Minister shall accept security, in an amount and a form satisfactory to the Minister … for payment of any amount that [has been objected to].” (ITA s. 220(4.1) more laconically refers to “adequate security.”) After referring to the “Bank Letter of Guarantee or Irrevocable Standby Letter of Credit” as THE acceptable security, CRA acknowledged:
However, if a form of security is being proposed, the Minister will review the proposed security during the course of administering the ETA, and determine whether it is advisable to accept the proposed security.
Neal Armstrong. Summary of 28 February 2019 CBA Roundtable, Q.10 under ETA s. 314(2).
CRA states that deemed payment on death of the last RRIF annuitant is not pension income
Under s. 146.3(6), the last annuitant under a RRIF is deemed, upon death, to have received, immediately before death, an amount out of or under a RRIF equal to the FMV of the property of the fund at the time of the death. The definition of “pension income” in s. 118(7) – (a)(iii) refers inter alia to “a payment out of or under a registered retirement income fund.”
This wording might seem to be a perfect fit, so that a payment deemed by s. 146.3(6) to be paid out of a RRIF might thereby be thought to qualify as pension income. Not so in the view of CRA, who stated:
For an amount to be considered as “a payment out of or under a registered retirement income fund” for the purposes of subparagraph (a)(iii) of the definition of "pension income" in subsection 118(7), the amount must be paid in satisfaction of an obligation between the issuer and the annuitant of a RRIF.
… [A]n amount deemed to be received under subsection 146.3(6) by the deceased last annuitant of a RRIF is not a payment provided out of or under a RRIF. Indeed, when subsection 146.3(6) applies, no payment is actually made by the RRIF's carrier to the deceased last annuitant.
Neal Armstrong. Summary of 11 October 2019 APFF Financial Strategies and Instruments Roundtable, Q. 9 under s. 118(7) – pension income – (a)(iii).
CRA finds that a GST/HST-registered non-resident marketer using services of a Canadian subcontractor was thereby making supplies in Canada
A registered non-resident (NR) does not itself have any presence in Canada but uses a resident (sub)contractor (RC) to provide marketing and soliciting services (in the credit card processing line of business) to a resident Canadian company in consideration for commissions. After referring to the rule in ETA s. 142(1)(g), which deems a supply of a service to be made in Canada if the service is performed in whole or in part in Canada, CRA stated:
Based on the limited information provided, the subcontracted services performed by RC in Canada would result in the supplies of the services by NR being made in Canada pursuant to paragraph 142(1)(g).
Accordingly, NR should charge GST/HST on its commissions.
CRA went on to indicate that the services supplied by RC appeared to be zero-rated. (Note that the exclusion from zero-rating in Sched. VI, Pt. V, s. 7(f) applies to “a service of … soliciting orders for supplies by or to the [non-resident recipient, i.e., NR]” whereas here the solicitation was for supplies by the Canadian customer of NR.)
Neal Armstrong. Summaries of 28 February 2019 CBA Roundtable, Q.8 under ETA s. 142(1)(g) and Sched. VI, Pt. V, s. 7(f).
CRA indicates it can accommodate bifurcating a GST/HST VDP application into wash transaction and Category 2 components
A taxpayer is making a GST/HST voluntary disclosure respecting wash transactions (e.g., the wrong entity in a corporate group claimed input tax credits), so that, without more, the application would fall under Category 1 (complete waiver of interest and penalties). However, if there are other errors as well, CRA will generally split the application into a Category 1 application respecting the wash transaction, and a Category 2 (General program) or Category 3 (Limited program) application for the other errors, “provided there is no indication of tax avoidance, deliberate or wilful default, or carelessness amounting to gross negligence.” Where such elements are present “then the VDP application as a whole will fall under Category 3” (i.e., usually no relief provided other than from a gross negligence penalty).
Neal Armstrong. Summary of 28 February 2019 CBA Roundtable, Q.7 under ETA s. 281.1(2).