News of Note
CRA, following Alexander College, now recognizes that a college granting provincially-recognized two-year degrees can qualify as a “university”
Email this ContentThe ETA states that a "’university’ means a recognized degree-granting institution or an organization that operates a college affiliated with … such an institution." Alexander College found that a private for-profit B.C. college with a two-year arts program providing "associate degrees," which were recognized as degrees under the Degree Authorization Act (B.C.), qualified as a university under the bolded language above, so that its fees were GST-exempt.
CRA has acknowledged that it will follow Alexander College:
[A] “recognized degree-granting institution” will now include a college or similar organization that is authorized by a province under provincial legislation or a governmental body in a foreign entity’s home jurisdiction to grant a degree where degree is defined in the applicable legislation to include an academic achievement at the associate level or higher. Therefore … the CRA no longer requires the degree to be at the baccalaureate level or higher.
Neal Armstrong. Summary of Excise and GST/HST News - No. 107 February 2020 under ETA Sched. V, Pt. III, s. 7.
The GST/HST place of supply may be affected by revised Incoterms
The place of supply of goods for GST/HST purposes generally is the place of legal delivery, which is commonly specified by using an Incoterm. A revised set of Incoterms came into effect on January 1, 2020, including modifying the FCA, DAP, DPU, and DDP terms to reflect the reality that some buyers and sellers will often bypass third-party carriers in favour of transporting the goods using their own means of transport, and redefining DAT (Delivered at Terminal) as DPU (Delivered at Place Unloaded) to reflect the fact that delivery could be at any place rather than just at a terminal.
Neal Armstrong. Summary of Rob Kreklewetz & Stuart Clark, “Incoterms® 2020 Changes Incoming!” Millar Kreklewetz Tax & Trade Bog, 21 November 2019 under ETA s. 142(1)(a).
The PPT concept of “arrangement or transaction” may be restricted to the scope of a common-law series
Although not expressly stated in the language of the principal purpose test itself in the Multilateral Instrument, the expression “arrangement or transaction” probably implicitly includes the common law notion of “series of transactions”, which references sequenced transactions that are pre-ordained to produce a given result, with no practical likelihood that the pre-planned events would not take place in that order. This suggests, for example, that if the holding structure for a Canadian oil and gas company, such as in Alta Energy “is migrated to Luxembourg at a time when there is neither an agreement nor a specific genuine intention to sell the shares of the Canadian company, no series should exist for the purposes of the application of the PPT.”
As the PPT uses a “one of the principal purposes” test to determine the presence of an avoidance transaction, rather than the GAAR principal purpose test, it is broader than GAAR in this regard.
(As also discussed by Duff) on the face of the MLI, it appears that where it applies to deny a Treaty benefit, all of that benefit is denied rather than only the incremental benefit attributable to the tax avoidance.
Neal Armstrong. Summary of Michael Kandev and John Lennard, "The OECD Multilateral Instrument: A Canadian Perspective on the Principal Purpose Test", Bulletin for International Taxation, January 2020, p. 54 under Treaties - MLI – Art. 7(1).
CRA provides its official responses to the 2019 CTF Roundtable
Today, CRA published in final form its responses to the questions posed at the December 2019 Canadian Tax Foundation 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.
Income Tax Severed Letters 19 February 2020
This morning's release of 16 severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Barejo – Federal Court of Appeal finds that the amount payable under a “debt” for s. 94.1(1)(a) purposes need not be crystallized until maturity
An offshore fund ("SLT"), in which the taxpayer had an interest, invested in instruments (labelled as "Notes") of non-resident subsidiaries of Canadian banks. The Notes did not bear interest and provided for a payment on maturity (15 years after their issuance, subject to earlier repayment after having given 367 days’ notice) that reflected the performance of a matching actively-managed portfolio of assets (the “Reference Assets”) held by affiliates of the bank-group obligors. If the Notes constituted "debts" for purposes of s. 94.1(1)(a) (the question posed under Rule 58), the taxpayer would be required to recognize its share of foreign accrual property income of SLT under Element C of the FAPI definition. The principal issue was whether they so constituted debts notwithstanding that the dollar amounts to be paid thereunder were unknown until the maturity date.
After stating that “subsection 94.1(1) … contemplates in express terms that an instrument that derives its value from fluctuating portfolio investments can be a debt” and that a narrow construction of “debt” would go contrary to the purpose of the above provisions of “annual imputation of income while … foreign investments are in place,” Noël CJ found that future crystallization of the amount due was sufficient, and concluded:
When regard is had to the text, context and purpose of paragraph 94.1(1)(a), a debt arises for purposes of this provision when an amount or credit is advanced by one party to another party; an amount is to be paid or repaid by that other party at some point in the future in satisfaction of the advance and this amount is fixed or determinable or will be ascertainable when payment is due. As these three conditions are present here … this suffices to dispose of the appeal … .
Neal Armstrong. Summaries of Barejo Holdings ULC v. Canada, 2020 FCA 47 under s. 94.1(1)(a) and Statutory Interpretation - Consistency.
CAA v. Jet2.com – Court of Appeal of England and Wales applies dominant purpose test to determining whether privilege applies to emails sent to both lawyers and executives
Is an email protected by legal advice privilege (“LAP”) if it is sent by an executive to multiple recipients, including an in-house lawyer but most of whom are fellow executives? Hickinbottom LJ stated:
In respect of a single, multi-addressee email sent simultaneously to various individuals for their advice/comments, including a lawyer for his input, the purpose(s) of the communication need to be identified. … If the dominant purpose of the communication is … to settle the instructions to the lawyer then … that communication will be covered by LAP. That will be so even if that communication is sent to the lawyer himself or herself, by way of information; or if it is part of a rolling series of communications with the dominant purpose of instructing the lawyer. However, if the dominant purpose is to obtain the commercial views of the non-lawyer addressees, then it will not be privileged, even if a subsidiary purpose is simultaneously to obtain legal advice from the lawyer addressee(s).
As this test was not satisfied, the emails were not privileged.
Neal Armstrong. Summary of The Civil Aviation Authority v Jet2.Com Ltd, R. (on the Application of) [2020] EWCA Civ 35 under s. 232(1) – solicitor-client privilege.
Shanda v. Maso – Privy Council confirms application of minority discount to minority bloc of public-company shares
Some minority shareholders of a Caymans NASDAQ-quoted company dissented when they were squeezed out in a going-private transaction for a modest (26%) premium over the trading price. The sole issue before the UK Privy Council was the correctness of their argument that their shares’ “fair value” should, consistently with the Delaware and Canadian corporate jurisprudence respecting compulsory minority buy-outs, be valued at a pro rata portion of the net enterprise value, rather than at a price that reflected a minority discount (which, if relevant, was 23%) to such value.
Lady Arden indicated that such jurisprudence should not be followed, in the absence of any indication that that was what was meant by “fair value.” She stated:
[I]t is a general principle of share valuation that (unless there is some indication to the contrary) the court should value the actual shareholding which the shareholder has to sell and not some hypothetical share. This is because in a merger, the offeror does not acquire control from any individual minority shareholder. Accordingly, in the absence of some indication to the contrary, or special circumstances, the minority shareholder’s shares should be valued as a minority shareholding and not on a pro rata basis.
This suggests that one should be cautious in considering the fair market value of a minority shareholding to equal a pro rata portion of enterprise value, without building in a minority discount.
Neal Armstrong. Summary of Shanda Games Ltd v Maso Capital Investments Ltd & Ors (Cayman Islands) [2020] UKPC 2 under General Concepts – FMV – shares.
CRA maintains its position that the provincial Crown exemption does not apply to Alberta employees using their own credit card for provincial purchases
CRA has significantly expanded its GST/HST Memorandum on Provincial Governments, but by way of expanding its exposition of its positions rather than changing them.
All the provincial governments collect GST on the taxable supplies made by them, with various departments (and often various Crown agents) using the same provincial registration number, but with different filings (presumably using different branch suffixes) made for each department or agency.
All of the provinces other than Alberta, Saskatchewan and Manitoba, have agreed with the federal government to a “pay-and-rebate” model, under which all government departments and Crown agents pay the GST/HST at the time of purchase and listed entities (authorized Crown agents) subsequently claim a government rebate of 100% of the GST/HST paid or payable.
Listed entities in Manitoba, Saskatchewan, Alberta, the Northwest Territories and Yukon do not pay the GST/HST on purchases of taxable property and services, provided that an authorized official of the listed entity provides sufficient evidence to the supplier that the supplies are being purchased by a listed entity on its own behalf (as to which, CRA provides a suggested form of exemption certificate).
Otherwise taxable purchases made by employees of a listed entity in the employee’s own name (e.g., hotel and meal expenses) are subject to GST/HST even if the employee makes the purchase in the course of employment (unless the purchase is made using a credit card for which the listed entity employer is solely liable.) (This position seems to implicitly assume that it is legally impossible for an employee to purchase as agent of the employer. Absence of agency might be the case for travel expense reports which the employer might not approve, but will not always be the case, e.g., where the expenditure has been pre-approved or the employee has been accorded broad authority.)
Neal Armstrong. Summaries of GST/HST Memorandum 18-2 “Provincial Governments” February 2020 under ETA s. 122(b), s. 122, s. 239(2), s. 146, Sched. V, Pt. VI, s. 10, s. 20.
CRA sets out its positions on public colleges
CRA has published a new GST/HST Memorandum on Public Colleges. Quite a number of the points are similar to those made in the new Memoranda on Universities (20-3) and on School Authorities - Elementary and Secondary Schools (20-1), and are not repeated here.
Respecting the ETA definition of a “public college,” CRA indicates that:
- accepting mature students who do not have a high school diploma is consistent with being a “post-secondary” college or technical institute
- the requirement to cater to the “general public” is interpreted to refer to “a significant segment of the general public,” and “as long as a post-secondary college or post-secondary technical institute offers a variety of courses to the general public, it may be acceptable for a portion of the courses or programs offered to be limited to a narrow segment of the public.”
- furthermore, “funding to support job training activities is generally used by an organization to provide specific educational services over a limited time period and therefore does not relate to the ongoing provision of educational services to the general public.”
Neal Armstrong. Summaries of GST/HST Memorandum 20-2 “Public Colleges” December 2019 under ETA s. 123(1) - public college, Sched. V, Pt. III, s. 6, s. 7, s. 16.