News of Note
CRA considers that a TFSA cannot hold a non-commutable life annuity
Email this ContentLife annuities providing benefits that are purely contingent on the life’s continuing survival generally are not commutable. CRA considers that in the absence of commutability, the life annuity contract will not satisfy s. 146.2(2)(e) and, therefore, cannot be registered as a TFSA. In addition, it is not a qualified investment for a trusteed TFSA.
Subsection 146.2(2) provides that a “qualifying [TFSA] arrangement” must:
(e) … provide that, at the direction of the holder, the issuer shall transfer all or any part of the property held in connection with the arrangement (or an amount equal to its value) to another TFSA of the holder;
CRA apparently is reading into this wording a requirement that the arrangement represent transferable property.
Neal Armstrong. Summary of 14 May 2019 CLHIA Roundtable Q. 7, 2019-0799121C6 under s. 146.2(2)(e).
6 more translated CRA interpretations are available
We have published a further 6 translations of CRA interpretations released in December 2011. Their descriptors and links appear below.
These are additions to our set of 897 full-text translations of French-language Roundtable items and Technical Interpretations of the Income Tax Rulings Directorate, which covers the last 7 1/2 years of releases by the Directorate. These translations are subject to the usual (3 working weeks per month) paywall. You are currently in the “open” week for July.
Collins Family Trust – B.C. Supreme Court follows Pallen even though it was “undermined” by Fairmont
Giaschi J granted an application for rescission of transactions “which concerned an almost identical set of facts” to those in Pallen (i.e., transactions which used s. 75(2) for alleged surplus-stripping, and which did not work in light of Sommerer). He stated:
I agree ... that ... Fairmont and Jean Coutu have seriously undermined Pallen. However, Pallen has not been expressly overruled and I am bound to follow it. In my view, it is for the British Columbia Court of Appeal to determine whether Pallen remains good law in light of the legal developments since it was rendered.
Respecting arguments that Satoma had established that these transactions entailed aggressive tax avoidance, he stated:
[T]he evidence before me establishes that the purpose was to shield assets from creditors and to do so in a manner that did not attract tax liability, with both aspects having equal importance.
Neal Armstrong. Summary of Collins Family Trust v Canada (Attorney General), 2019 BCSC 1030 under General Concepts – Rectification.
Bitton Trust – Supreme Court of Canada finds that the ARQ could issue a requirement to a Calgary branch of a Quebec bank
The ARQ, which was seeking to determine whether a supposed Alberta trust was resident in Quebec, issued a requirement to a Calgary branch of the National Bank of Canada for various bank records respecting the trust under the Quebec equivalent of ITA s. 231.2(1). The requirement was sent directly to the branch rather than to the bank’s head office in Quebec because this was required under s. 462(2) of the Bank Act. Before concluding that the ARQ had not exceeded its territorial competence in making this requirement, Rowe J found that the sending of the requirement to the Calgary branch (which was deemed to be a separate entity only for the limited purposes of s. 462) did not detract from the fact that it was sent to a person (the bank) that operated in Quebec, stating:
It would be absurd if the procedural requirements imposed by s. 462(2) … were understood to affect the ARQ’s authority to issue a formal demand to a bank that operates within its territorial jurisdiction.
He added:
[I]f a corporate entity had no operations in Quebec, it is not clear whether the ARQ would have the authority to issue a formal demand to that entity.
Neal Armstrong. Summary of 1068754 Alberta Ltd., trustee of DGGMC Bitton Trust v. ARQ, 2019 SCC 37 under s. 231.2(1).
Caplan – Court of Quebec finds that family trust income purportedly distributed to the children beneficiaries was in fact received by the father as beneficiary
Two university-age children received income-distribution cheques from the discretionary family trust, and endorsed them to their father (who was one of the two trustees as well as a beneficiary), who professed to spend such funds on expenditures for the benefit of the children, such as covering part of the costs of the family car and condominium. In confirming the inclusion of the distributed income amounts in the income of the father under the Quebec equivalent of s. 104(13), Bourgeois JCQ stated:
… Michael and Megan each acted as an accommodation party, whether as an agent or nominee, for their father.
… Michael and Megan never had control of the sums that were paid to them by the Trust.
Laplante is similar, although it put more emphasis on there being a “simulation” (a concept akin to sham).
Neal Armstrong. Summary of Caplan v. Agence du revenu du Québec, 2019 QCCQ 3269 under s. 104(13).
CRA indicates that a 3rd party can make an RRSP contribution
CRA indicated that it is acceptable for an RRSP contribution to be received from a third party (i.e., drawn on a bank account other than the annuitant’s) “provided that the payment is made at the direction or with the concurrence of the annuitant of the RRSP,” so that the RRSP receipt should be issued by the financial institution to the annuitant.
Neal Armstrong. Summary of 14 May 2019 CLHIA Roundtable Q. 3, 2019-0799111C6 under s. 146(5).
Income Tax Severed Letters 26 June 2019
This morning's release of six severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Aquilini Estate – Tax Court of Canada finds that partnership income and losses should be allocated proportionately to capital invested and recognizing work performed
The facts of this case, involving the successful application by CRA of s. 103(1.1), are perhaps too extreme to merit an extensive description. Pizzitelli J found that income and losses, which were allocated to a holding partnership by lower tier partnerships, had been allocated by it, in turn, to its family members in a manner that was highly disproportionate to the relative capital invested and that was negatively correlated with the work performed (the losses were allocated to the three brothers who did the work, and other entities which did no work were allocated income.)
Pizzitelli J rejected submissions that “all circumstances, including personal family circumstances and personal estate planning goals must be considered” and that the income and loss allocation methodology could be supported from the standpoint of estate planning objectives – and instead thought that “the reasonable business person would only consider factors relevant to their own business considerations having regard to their own business interest,” which confirmed his view that the focus should be on the respective capital invested and work performed.
Neal Armstrong. Summary of Aquilini Estate v. The Queen, 2019 TCC 132 under s. 103(1.1).
Ngai – Federal Court of Appeal reverses a finding that a rebate could be claimed by an agent
The Tax Court found that an individual, who co-signed a new home purchase agreement with her nephew, did so as agent for her nephew and that she claimed the Ontario HST new housing rebate as agent and bare trustee for her nephew, so that the rebate was available. Webb JA essentially indicated that the person claiming the rebate must herself qualify for the rebate, which was not the case as the only individual to occupy the new home was an unrelated individual to the claimant.
Webb JA also implied that if the nephew had instead claimed the rebate, the rebate also would have been unavailable on the authority of Cheema (a case in which, by the way, Webb JA had dissented, but now accepts) given that a co-purchaser of the property (the aunt of the rebate claimant in this alternative scenario) did not occupy the property and was unrelated to the occupant.
Neal Armstrong. Summary of Canada v. Ngai, 2019 FCA 181 under ETA s. 254(2)(g) and Tax Court Rules, s. 6(1)(h).
6 more translated CRA interpretations are available
We have published a further 6 translations of CRA interpretations released in December 2011. Their descriptors and links appear below.
These are additions to our set of 891 full-text translations of French-language Rulings, Roundtable items and Technical Interpretations of the Income Tax Rulings Directorate, which covers the last 7 1/2 years of releases by the Directorate. These translations are subject to the usual (3 working weeks per month) paywall. Next week is the “open” week for July.