News of Note
CRA indicates that applicants are required only to include 4 years of payments with their VDP GST/HST application
Email this ContentIn its GST/HST Memorandum 16-5 on the voluntary disclosure program, CRA indicates that VDP applicants are required to submit information for the four calendar years before the date the application is filed for applications under Category 1 or Category 2 – but also states that a valid VDP application must “include payment of the estimated tax owing.” CRA has now clarified that such applicants would only be expected to include payment of the estimated tax owing for the same four-year period with their VDP applications.
In the course of a brief statistical update, CRA stated:
From March 1, 2018 to December 31, 2018, the CRA received 639 GST/HST VDP applications. …
CRA received a total of 347 requests for pre-disclosure discussions related to both Income Tax Act and Excise Tax Act matters between March and December 2018.
Neal Armstrong. Summary of 28 February 2019 CBA Roundtable, Q.4 under ETA s. 281.1(2).
CRA indicates that it no longer provides an administrative concession limiting the application of ETA s. 155(1)
CRA reportedly indicated in 1991 that, as an administrative concession, it would not apply ETA s. 155(1) (respecting certain transactions between non-arm’s length persons being deemed to occur at fair market value) to transactions between corporations without share capital that form part of a national religious organization.
CRA indicated that it now “has no administrative concession in place that limits the application of subsection 155(1),” and noted that after 1991, s. 155(2) was enacted to provides a detailed code for exceptions to the application of s. 155(1), so that:
For example, if a charity were to make a non-arm’s length supply of real property for no consideration that was exempt by way of section 5 of Part V.I of Schedule V to the ETA, subsection 155(1) would not apply to deem the supply to be made for consideration equal to the fair market value of the property.
Neal Armstrong. Summary of 28 February 2019 CBA Roundtable, Q.3 under ETA s. 155(2).
CRA indicates that a GST/HST election to render memberships taxable is inferred if GST/HST is charged
Sched. V, Pt. VI, ss. 18 and 17 describe a GST/HST exemption for a supply of a membership in a professional organization or a public sector body in qualifying circumstances – unless an election is made (on Form GST 124 or GST23, respectively) for s. 18 or 17 to not apply to the supply. CRA stated:
In general, the CRA would accept that an election was made under section 17 or 18 even though the organization did not complete the required form, if the organization has always acted as though it had made the election in question.
Unsurprisingly, CRA stated that a fresh election is not required for each membership supply, and explained that the signed election is regarded as having a continuing effect respecting all future supplies until the election is revoked by completing Part D of the form.
Neal Armstrong. Summary of 28 February 2019 CBA Roundtable, Q.2 under ETA Sched. V, Pt. VI, s. 17.
CRA entertains discretionary extension of the TFSA rollover period
The s. 207.01(1) definition of “exempt contribution” sets out key requirements for the transfer of the TFSA of a deceased to a surviving spouse to occur on a rollover basis, including that the survivor’s contribution be made during the “rollover period” ending on December 31 of the calendar year following the year of death, or “at any later time that is acceptable to the Minister.”
CRA effectively confirmed that a Ministerial extension of the rollover period also extended the required period for the survivor to receive the payment from the deceased’s TFSA. CRA did not comment on when such discretion would be exercised, which was better than saying something like, it would only be exercised in “exceptional” circumstances.
Neal Armstrong. Summary of 11 October 2019 APFF Financial Strategies and Instruments Roundtable, Q.7 under s. 207.01(1) - “exempt contribution” – (b).
CRA states that backdated ETA s. 211 elections are accommodated only in “exceptional” circumstances
An important planning issue for a public service bodies (e.g., a charity or municipality) is whether to make an ETA s. 211 election which, for example, may permit it to generate additional input tax credits, but may also impose additional GST/HST costs on it or its customers.
In response to a suggestion that it was CRA policy that “if a public service body has been charging GST/HST on supplies of real property that would otherwise be exempt, and has been accounting for that tax and claiming input tax credits (ITCs) in its net tax calculations and remittances as if the s. 211 election had been filed on time, then the CRA will normally accept a late-filed section 211 election,” CRA stated:
[A] decision on whether to accept a backdated effective date for a section 211 election falls within the purview of the Domestic Compliance Programs Branch … [which] will only consider the backdating of a section 211 election in exceptional circumstances. Exceptional circumstances include, but are not limited to, situations where a PSB has obtained inaccurate written information from the CRA. The acceptance of a late-filed section 211 election will be determined on a case-by-case basis.
Neal Armstrong. Summary of 28 February 2019 CBA Roundtable, Q.1 under ETA s. 211(1).
CRA notes the absence of rollover treatment when an annuity is purchased out of a foreign pension plan
S. 147.4(1) effectively provides a rollover where an individual acquires ownership of an annuity contract in satisfaction of the individual’s entitlement to benefits under a registered pension plan. However, s. 147.4(1) does not apply to annuities purchased from foreign pension plans, so that a retiree - whose former non-resident employer determined to wind-up a foreign pension plan by using funds in the plan to purchase annuity contracts for each retired member – was required under s. 56(1)(a)(i) to include the full fair market value of the annuity in income in the wind-up year.
Neal Armstrong. Summary of 12 September 2019 External T.I. 2019-0802301E5 under s. 56(1)(a)(i).
6 more translated CRA interpretations are available
We have published a further 6 translations of CRA interpretations released in July and June, 2011. Their descriptors and links appear below.
These are additions to our set of 987 full-text translations of French-language Roundtable items and Technical Interpretations of the Income Tax Rulings Directorate, which covers all of the last 8 1/3 years of releases of Interpretations by the Directorate. These translations are subject to the usual (3 working weeks per month) paywall. Next week is the “open” week for November.
Gervais Auto – Court of Quebec confirms that a 10% interest rate on an unsecured loan was unreasonably high
The taxpayer financed its inventory of used automobiles held for resale through unsecured loans totaling $6 million from its shareholders, bearing interest at 10% p.a. When the ARQ reviewed the deductibility of the interest, the taxpayer provided a letter from its accountants (Deloitte) that concluded, based on Moody’s metrics, that an interest rate for such loans should fall in the range of 7.89% to 12.39%. The ARQ reassessed to deny the claimed interest in excess of 7.89%.
After referring to the Quebec equivalent of s. 67, and in finding that the taxpayer had not met its burden of establishing that such assessments were incorrect, Allen JCQ stated:
How can the plaintiff challenge the presumption of correctness of the notices of assessment where the 7.89% rate, considered to be reasonable and adopted by the defendant, falls within the range that its own expert considered to be a reasonable rate based on the current rates in the market for obligations with similar considerations and risks during the period in litigation?
Doubtless, the rate of 7.89% corresponds to the lowest rate in the range, but it nonetheless is within that range and cannot be considered to be prima facie unreasonable.
Neal Armstrong. Summary of Gervais Auto Inc. v. Agence du revenu du Québec, 2019 QCCQ 5894 under s. 20(1)(c).
CRA finds that the 5-year excluded business exception does not restart on the business incorporation
Para. (b) of the “excluded business” definition of the tax on split income (TOSI) rules includes in an excluded business of a specified individual for a taxation year a business in which she was “actively engaged on a regular, continuous and substantial basis” (“Involved”) in “any five prior taxation years.” CRA followed the guidance in Finance’s Explanatory Notes and found that the five year test could be satisfied where the specified individual was Involved in the business for, say, three years while it was conducted by her spouse as a sole proprietorship, and for a further three years after it was rolled by him into a newly-incorporated Opco. In other words, it was the same business for TOSI purposes throughout the six years.
Accordingly, after she retired, she could receive a s. 104(19)-designated Opco dividend qua beneficiary of a family trust without being subject to the TOSI.
Neal Armstrong. Summary of 19 August 2019 External T.I. 2019-0814181E5 under s. 120.4(1) – excluded business – para. (b).
CRA finds that there was a loss of the TOSI excluded business exception when a specified individual went on extended mat leave
A specified individual, who holds only 5% of the shares of Aco but has been “actively engaged on a regular, continuous and substantial basis” (“Involved”) in the active business of Aco (which is run by her husband) for 2017 through 2019, so that the dividends received by her on her shares of Aco were excluded amounts and, thus, not subject to the tax on split income. If throughout 2020 she were absent from any work because of a maternity leave or temporary (or permanent) disability, would her dividends still be excluded amounts?
CRA indicated that, indeed, the excluded business exception from TOSI would be unavailable in 2020 because she had no involvement in the business. CRA implicitly found that she could not rely in that year on para. (b) of the excluded business definition - which includes in an excluded business of a specified individual for a taxation year a business in which she was Involved in “any five prior taxation years” - because she had only been so Involved for a total of three prior taxation years.
CRA went on to indicate that the reasonable return exception might be available, noting that any application of this exclusion would be:
based on the specific criteria applicable in the circumstances, including the work performed, the property contributed, the risks assumed, the total amounts paid or payable and such other factors as may be relevant.
Neal Armstrong. Summary of 11 October 2019 APFF Roundtable, Q.18 under s. 120.4(1) – excluded business – para. (b).