News of Note
Silver Wheaton – Tax Court of Canada denies class action plaintiffs access to documents provided on discovery in transfer pricing dispute
Email this ContentSilver Wheaton (renamed Wheaton Precious Metals) was assessed in 2015 for Cdn.$353M respecting CRA’s position that, pursuant to s. 247(2), Wheaton’s income should be increased by an amount equal to substantially all of the income earned outside Canada under precious metal streaming contracts by its Caymans subsidiaries for the 2005 to 2010 taxation years. This produced an immediate drop in its share price, and a U.S. federal securities class action was immediately brought against it. The representative plaintiffs in that action brought a motion in the Tax Court seeking a declaration that an implied undertaking of confidentiality did not apply to Wheaton’s discovery evidence in the Tax Court action (which subsequently was settled in December 2018). In denying this motion, D’Arcy J stated:
The granting of the Non-parties’ motion would result in the very evil the Supreme Court cautions against: defeating the objective of the implied undertaking of confidentiality, which is to encourage open and generous discovery by assuring the parties being discovered of confidentiality.
Neal Armstrong. Summary of Silver Wheaton Corp. v. The Queen, 2019 TCC 170 under Tax Court Rules, s. 16.1(1).
Cortland is proposing to acquire a US rental portfolio through acquiring the units of Pure Multi-Family REIT LP
It is proposed that an LLC (the “Purchaser”) that is an affiliate of a third party (Cortland) acquire for cash all the (listed) Class A units and (unlisted but convertible) Class B units of Pure Multi-Family REIT LP (“Pure Multi-Family”).. The US rental portfolio of Pure Multi-Family is held through a US private REIT.
The LPA for Pure Multi-Family REIT LP will be amended to provide for a special allocation of income to the unitholders under s. 96(1.01). However, there is no mention of there being any foreign accrual income from the US REIT being allocated for s. 96(1.01) purposes to Pure Multi-Family REIT LP under the stub period accrual rule in s. 91(1.2) (there presumably is none).
Canadian unitholders will not be subject to FIRPTA tax assuming that they comply with the 5%/regularly traded exemption. Closing is conditional on an opinion that the US REIT qualifies as such.
Neal Armstrong. Summary of Pure Multi-Family REIT LP Circular under Mergers & Acquisitions – REIT/Income Fund/LP Acquisitions.
CRA suggests that a double penalty should only be assessed where this is appropriate and equitable
A T1135 form was filed late and with missing information, that did not affect the substance of the form. Headquarters found that “technically” both a penalty of $2,500 under s. 162(7) (for late-filing) and of $100 under s. 162(5)(a) for the missing information, could be assessed, but then stated:
We suggest that care be taken to ensure that assessing penalties under subsections 162(5) and (7) is both appropriate based on the relevant facts of a situation and equitable to the tax community as a whole.
Headquarters also noted that for s. 162(7) penalty purposes, “an information return that is missing substantial information will be considered invalid and, therefore, will not be considered to have been filed.”
Neal Armstrong. Summary of 27 June 2019 Internal T.I. 2019-0791541I7 under s. 162(5)(a).
Income Tax Severed Letters 4 September 2019
This morning's release of four severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Yellow Point – Tax Court of Canada finds that an ecological gift was made in the year before it was certified as such
A taxpayer, who donated an interest in ecologically sensitive land to two qualified donees in 2008, unsuccessfully argued that the gift was not made until 2009 for purposes of computing the five-year (now 10-year) carryforward period described in s. 110.1(1)(d)(iii), because it was not until 2009 that he received certification from the Minister of the Environment as to the lands’ ecologically sensitive nature. Visser, J stated:
[A] gift has been made … when a donor legally effects a voluntary transfer of property to a donee … .
… [T]he certificates are necessary to claim a deduction under paragraph 110.1(1)(d) … but not to determine if a gift of land has been “made” for the purpose of paragraph 110.1(1)(d).
Neal Armstrong. Summary of Yellow Point Lodge Ltd. v. The Queen, 2019 TCC 178 under s. 110.1(1)(d)(iii).
CRA expands its Folio on principal residences
CRA has revised its Folio on the principal residence, for instance:
- Noting its discretion under s. 220(3.21)(a) to extend the time for making a principal residence designation
- Providing a simple example of the application of the transitional rule in s. 40(6.1) to a personal trust that does not come within the narrow category of excluded trusts in (c.1)(iii.1) of the principal residence exemption, i.e., a personal trust whose family beneficiaries occupied the house from the time of the trust’s acquisition of the house must recognize a gain based on the house’s appreciation by $50,000 from December 31, 2016 to the sale of the house in 2017.
Additional Summaries of Folio S1-F3-C2 under s. 220(3.21)(a) and s. 40(6.1).
Walls – Tax Court of Canada finds that a savvy home developer “knowingly” failed to report his substantial profits
A licensed real estate agent, who had been reporting income of about $20K a year, realized gains from the construction and sale (in 2006, 2008 and 2010) of three homes in Vancouver (together with a small gain from the sale of a vacant lot) totaling over $2.2 M. He professed to have constructed each home as a principal residence, but did not substantiate that he or his family occupied the homes.
Visser J affirmed the gross negligence penalties assessed on the taxpayer for his failure to report his business profits on the basis that the taxpayer “knowingly made false statements or omissions in his 2006, 2008 and 2010 tax returns.”
Neal Armstrong. Summary of Wall v. The Queen, 2019 TCC 168 under s. 163(2).
6 more translated CRA interpretations are available
We have published a further 6 translations of CRA interpretations (including three 2011 APFF Roundtable items) released in November and October, 2011. Their descriptors and links appear below.
These are additions to our set of 951 full-text translations of French-language Roundtable items and Technical Interpretations of the Income Tax Rulings Directorate, which covers all of the last 7 3/4 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 September.
| Bundle Date | Translated severed letter | Summaries under | Summary descriptor |
|---|---|---|---|
| 2011-11-04 | 7 October 2011 Roundtable, 2011-0412201C6 F - Art. 160 - dividende en actions suivi d'un rachat | Income Tax Act - Section 160 - Subsection 160(1) | s. 160 could apply to a stock dividend followed by a redemption of the stock dividend shares |
| 7 October 2011 Roundtable, 2011-0412021C6 F - Financing Expenses | Income Tax Act - Section 12 - Subsection 12(2.2) | s. 12(2.2) might apply to on-charge, to ultimate group recipient of financing, of the finanacing expenses | |
| Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(e) - Subparagraph 20(1)(e)(ii.2) | CRA will evaluate whether the transactions are "restructuring" | ||
| 7 October 2011 APFF Roundtable Q. 17, 2011-0412171C6 F - 112(7) - Share-for-Share Exchange - 85(1) | Income Tax Act - Section 112 - Subsection 112(3) | s. 112(3) could still apply if "old" dividend-bearing shares "exchanged" under purported s. 85(1) exchange for "new" but identical shares | |
| Income Tax Act - Section 248 - Subsection 248(1) - Disposition | purported dirty s. 85 exchange of old common shares for new common shares does "not necessarily" entail a disposition | ||
| Income Tax Act - Section 85 - Subsection 85(1) | potentially no disposition if "new" share rights identical | ||
| Income Tax Act - Section 112 - Subsection 112(7) | s. 112(7) does not “technically” apply to a dirty s. 85 exchange of old shares for new shares | ||
| 2011-10-28 | 18 October 2011 External T.I. 2011-0394041E5 F - Fiducie personnelle- revenu brut | Income Tax Act - Section 3 | capital gains not included in computing income from a source |
| Income Tax Act - Section 248 - Subsection 248(1) - Gross Revenue | gross revenue from farming business did not include capital gains | ||
| 17 October 2011 External T.I. 2011-0423361E5 F - Loi sur le courtage immobilier | General Concepts - Illegality | Quebec real estate brokers can earn their remuneration through a corporation | |
| Income Tax Act - Section 9 - Nature of Income | Quebec real estate broker can generate commissions in a controlled corporation | ||
| 18 October 2011 External T.I. 2011-0422021E5 F - Purpose test - Subsection 55(2) of the Act | Income Tax Act - Section 55 - Subsection 55(2.1) - Paragraph 55(2.1)(b) | dividend from grandchild to child likely does not engage s. 55(2) re sale of shares of grandparent |
CRA finds that employer contributions to a predecessor fund are insufficient to give rise to superannuation or pension benefits
An Irish resident transferred the funds from a conventional Irish company pension plan to an Irish Personal Retirement Savings Account (PRSA) and, following taking up Canadian residence, will transfer the PRSA funds to an Irish Approved Retirement Fund (ARF). In finding that neither the PRSA nor the ARF qualified as a pension plan or an employee benefits plan, CRA stated:
If no employer contributions have been made to a foreign retirement plan, the plan will not be considered a pension plan, nor an EBP. In accordance with Abrahamson … the fact that the original source of funds in a foreign individual retirement plan was a pension plan is not relevant.
On this basis, withdrawals from the plan would not be taxable under s. 56(1)(a) as pension income or under s. 6(1)(g) as an EBP distribution. Instead, any income or capital gains generated under the plan would be taxable in Canada on a current, annual basis.
Neal Armstrong. Summary of 3 July 2019 External T.I. 2018-0781941E5 under s. 248(1) – superannuation or pension benefit.
Loiselle – Court of Quebec finds that filing a revocation of a waiver confirmed that the waiver had been validly given
The taxpayer, after being asked by the ARQ to substantiate her capital gain computation for a share sale, met with the ARQ auditor (Mr. Drapeau) over three months before the expiry of the normal reassessment period and signed, at his suggestion, and on the spot and without the benefit of professional advice, a waiver, which was worded to extend to all sources of income rather than only the share sale. Shortly thereafter, she told her accountant what she had done and, on his advice, she sent a revocation of the waiver to the ARQ. Under the Quebec equivalent of ITA s. 152(4.1), six months had to run for the revocation to have effect, and the ARQ reassessed within this six month period to increase the capital gain from what she had reported.
In finding that the taxpayer could not resile from her waiver given that her signature to the waiver was “free and enlightened,” Lévesque, J.C.Q. stated:
Mr. Drapeau had explained clearly and simply to Mrs. Loiselle that her signature to the waiver enabled her to assemble the documents necessary for substantiating her computation of the capital gain and avoiding a rushed assessment, which would not be in her interests.
In fact, Mrs. Loiselle received from Mr. Drapeau all the particulars necessary in order that she could give a free and enlightened consent by signing the waiver. …
[T]he revocation only served to confirm her acceptance of the waiver.
Neal Armstrong. Summaries of Loiselle v. Agence du revenu du Québec, 2019 QCCQ 4647 under s. 152(4)(a)(ii) and s. 152(4.1).