News of Note
We have translated 7 more CRA interpretations
Email this ContentWe have translated a CRA interpretation released in March 2024 and a further 6 CRA interpretations released in December of 2001. Their descriptors and links appear below.
These are additions to our set of 2,838 full-text translations of French-language Technical Interpretation and Roundtable items (plus some ruling letters) of the Income Tax Rulings Directorate, which covers all of the last 22 ½ years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
The 2024 IFA Roundtable is available
We have published the written questions which were posed, and a summary of the preliminary oral responses of CRA, at yesterday’s CRA Roundtable hosted by IFA in Montreal.
CRA indicates that the 3-month threshold for a drilling rig to be a PE under the Canada-US Treaty is counted based on days of consecutive or non-consecutive use including standby time
Art. V(4) of the Canada-U.S. Treaty provides that a permanent establishment exists in a Contracting State if the use of an installation or drilling rig or ship in that State to explore for or exploit natural resources is for more than three months in any twelve-month period. CRA indicated:
The three-month period is tested by counting the days of use, which need not be consecutive, provided they total to the three months.
Preparation time does not count as “use,” whereas standby time, i.e, “generally a temporary pause from operation that could be caused, for example, by severe weather, or shortage of labour” is counted as use on the basis that a “temporary interruption should not change the status that the installation or drilling rig or ship in question is being utilized in the business.”
Neal Armstrong. Summary of 23 November 2023 Internal T.I. 2020-0850381I7 under Treaties – Income Tax Conventions – Art. 5.
Income Tax Severed Letters 15 May 2024
This morning's release of four severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA indicates that dividend income that has not been subject to tax should not constitute safe income, and double taxation can be avoided with proper structuring
The starting structure in Example 30 of “CRA Update on Subsection 55(2) and Safe Income” is that Holdco owned the shares of Opco with an FMV, ACB and safe income of $500, 0 and 0; and Opco owned Subco1 (whose shares also had an FMV, ACB and safe income of $500, 0 and 0) and Subco2 (whose shares had no value, ACB or safe income). Then:
- Subco1 transfers its assets with an FMV and ACB of $500 and 0 on an s. 85(1) rollover basis to Subco2 for Subco2 shares.
- A third-party purchaser subscribes $500 for Opco shares.
- Subco2 redeems the shares of Subco1, Subco1 repurchases the shares of Opco, then Opco repurchases the shares of Holdco, in each case generating a $500 deemed dividend.
CRA indicated that although the deemed dividend from Subco2 to Subco1 is exempted under s. 55(3)(a) by virtue of s. 55(3.01)(g), the deemed dividend from Subco1 to Opco, and from Opco to Holdco, is subject to s. 55(2). In particular, the dividend from Subco2 is not subject to tax in the hands of Subco1 and none of the accrued gain on the assets has been realized, so that such dividend does not result in safe income to Subco1.
In response to a follow-up question, CRA indicated that the purpose of this example was merely “to illustrate the concept that a dividend income that has not been subject to tax should not constitute safe income for the benefit of a shareholder,” and stated:
The order of transactions described in the example would unlikely be implemented as such in the real world (for example, Subco1 does not need to redeem its shares held by Opco to achieve the results sought by Holdco) and a discussion on possible double-taxation in the scenario described is fruitless.
The double taxation issue was that, although “the capital gain realized by Opco on the redemption of shares of Subco1 would be included in the safe income of Opco and would not result in any double-taxation” (presumably because it would be there for potential future use), “[u]nfortunately, the deemed capital gain under subsection 55(2) would not be part of the safe income computed before the safe income determination time if all the transactions described are part of the same series of transactions” so that both Opco and Holdco would realize a capital gain. CRA further stated:
[W]e understand that transactions can be successfully implemented in a way to attract only one level of taxation if the ordering of transactions is carefully thought out … .
Neal Armstrong. Summary of 30 January 2024 External T.I. 2024-1005011E5 under s. 55(2.1)(c).
CRA comments on the situation of a registrant selling through a distribution platform operator who insists on being a billing agent for GST/HST purposes
A registered individual who sold coins and monetary collectibles through a distribution platform operator was informed by the operator, after the introduction of the s. 211.23 distribution platform operator rules, that it would now be accounting for the GST/HST as a billing agent on the individual’s behalf, for all sales of taxable goods made within Canada through its platform – to which the individual protested that such an arrangement was not authorized or necessary.
CRA confirmed that “GST/HST registered vendors who make sales of goods through a distribution platform still remain responsible for charging, collecting and remitting the GST/HST on their sales under the regular GST/HST rules.” Depending on the facts, the billing agent election under s. 177(1.11) might be available, and (if available) whether such an arrangement was to be made was a “business decision” of the parties.
Neal Armstrong. Summary of 30 August 2023 GST/HST Interpretation 244795 under ETA s. 177(1.11).
CRA rules that the transfer of land to and from a builder to secure the contract price for home construction was not subject to GST
ETA s. 134 provides that where, under an agreement in respect of a debt or obligation, a person transfers property for the purpose of securing payment of the debt or performance of the obligation, the transfer is deemed not to be a supply, and where, on payment of the debt or performance of the obligation, the property is retransferred, the retransfer is also deemed not to be a supply.
An individual transferred title to his lands (which included a detached dwelling) to a builder, who paid off the existing mortgage on the lands with new mortgage financing, demolished the existing home and built a new one, and conveyed the lands back to the individual on being paid the full contract price plus GST.
CRA ruled that, as s. 134 deemed the transfer and retransfer not to be supplies, the individual had been charged GST on the portion of the contract price that related to the lands, in error.
Neal Armstrong. Summary of 15 November 2023 GST/HST Ruling 245913 under ETA s. 134.
We have translated 6 more CRA interpretations
We have translated a further 6 CRA interpretations released in January of 2002 and December of 2001. Their descriptors and links appear below.
These are additions to our set of 2,831 full-text translations of French-language Technical Interpretation and Roundtable items (plus some ruling letters) of the Income Tax Rulings Directorate, which covers all of the last 22 ½ years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
| Bundle Date | Translated severed letter | Summaries under | Summary descriptor |
|---|---|---|---|
| 2002-01-04 | 2 January 2002 External T.I. 2001-0094555 F - Subsidies and Assistance Payments | Income Tax Act - Section 13 - Subsection 13(7.1) | government assistance to subsidize the interest costs on a loan applied for expansion purposes did not reduce UCC under s. 13(7.1) |
| 2001-12-21 | 3 January 2002 External T.I. 2001-0109425 F - REER TITE D'UNE SOCIETE EN FAILLITE | Income Tax Regulations - Regulation 4900 - Subsection 4900(1) - Paragraph 4900(1)(b) | share of now-bankrupt corporation can continue to be held by RRSP |
| Income Tax Regulations - Regulation 4900 - Subsection 4900(14) | Reg. 4900(12) share continues as qualified investment following bankruptcy | ||
| 9 January 2002 External T.I. 2001-0075825 F - CII-LIQUIDATION | Income Tax Act - Section 88 - Subsection 88(1) - Paragraph 88(1)(e.2) | parent has an s. 12(1)(t) inclusion in its year beginning after the winding-up if the sub claimed winding-up year ITCs respecting depreciable property which it sold before wind-up | |
| Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(t) | application of s. 12(1)(t) to parent in the year following the s. 88(1) wind-up of sub | ||
| 8 January 2002 External T.I. 2001-0084115 F - SOMMES RECUES D'UN SYNDICAT | Income Tax Act - Section 3 - Paragraph 3(a) | amounts received from union by members for making a referral of a non-employee leading to certification application, are not from a source | |
| 7 January 2002 External T.I. 2001-0089585 F - AUTOMOBILE DETENUE EN COPROPRIETE | Income Tax Act - Section 6 - Subsection 6(2) | standby based on corporation’s cost where it purchases a co-ownership interest in the automobile | |
| Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(k) | no s. 6(1)(k) benefit where timely expense reimbursement by employee | ||
| 21 December 2001 External T.I. 2001-0091615 F - PART-SOCIETE DE PERSONNES AGRICOLE | Income Tax Act - 101-110 - Section 110.6 - Subsection 110.6(1) - Qualified Farm or Fishing Property - Paragraph (a) | farm acquired by a family partnership from a farmer was not held by it for 24 months so that interests in the partnership did not qualify as qualified farm property |
GST/HST Severed Letters October-December 2023
Williams Moving – B.C. Court of Appeal chooses to itself correct the bankruptcy proposal which CRA had misinterpreted
A drafting error (involving an inappropriate duplication of text) in the proposal which was approved by the creditors of an insolvent company (Williams Moving) and by the B.C. Supreme Court resulted in CRA subsequently concluding that debts owing by Williams Moving to related companies had been forgiven pursuant to the proposal, so that it reassessed to apply s. 80 to Williams Moving. Following the reassessment, Williams Moving applied for a judicial order to correct the error.
Wilcock JA, after referring to authorities on the interpretation of “patently inconsistent provision in a contract,” concluded that “the most common‑sense reading of the Proposal, and that which does the least violence to its words, is to read out the duplicated text so as to resolve the inconsistency in the [relevant] definition” thereby excluding the debts owing to the related companies from the debt forgiveness.
In finding that the chambers judge had not erred in denying rectification of the written terms of the proposal, Wilcock JA noted (at para. 68) the finding in Fairmont that “rectification requires the parties to show an antecedent agreement with respect to the term or terms for which rectification is sought” and stated:
[I]t is difficult to see how it can be said that the creditors would have understood the Proposal to be anything other than what was presented to them. …
There was insufficient evidence of a common understanding amongst the appellant and its creditors on the matter in dispute … .
However, the chamber judge had failed to exercise her discretion under s. 187(5) of the Bankruptcy and Insolvency Act (“BIA”) to vary the court order giving effect to the proposal, even having regard to Rule 92 under the BIA, which provided that “the court may correct any clerical error or omission in it, if the correction does not constitute an alteration in substance.” In finding that it was appropriate on this appeal to now exercise such discretion, Wilcock JA stated:
I am satisfied the duplicated text appeared in the version of the Proposal accepted by creditors as a result of a clerical error which the Court may correct. The correction does not constitute an alteration in substance. It will not prejudice creditors or third parties … [nor] is [it] a collateral attack upon a [CRA] decision that should be challenged elsewhere.
Neal Armstrong. Summary of Williams Moving & Storage (B.C.) Ltd. v. Canada (Minister of National Revenue), 2024 BCCA 160 under General Concepts – Rectification.