News of Note

The taxpayer (Laplante) was the dominant trustee of a family trust (DL Trust) that had realized a capital gain of around $6M on the sale of qualified small business corporation shares. He passed a trust resolution for the distribution of the taxable capital gain to the family members in amounts sufficient to use up their capital gains exemption. However, immediately upon their receipt of their distribution cheques, they endorsed them over to Laplante and executed deeds of gift in his favour. He paid all their alternative minimum tax liabilities for that year.

In the Tax Court, Ouimet J had found that the purported distribution of the taxable capital gain to the trust beneficiaries was a sham (or, to be more precise, a “simulation” under Art. 1451 of the Quebec Civil Code), stating that the beneficiaries

had each accepted a mandate [i.e., agency] from Mr. Laplante whose essential features consisted in receiving from the DL Trust a distribution in the amount of $375,000 and thereupon paying that amount to Mr. Laplante. In so doing, they were required to use their capital gains exemption, which was essential. In consideration, they were permitted to keep the recoveries of alternative minimum tax made by them in the subsequent taxation years.

In affirming this decision, Boivin JA stated that Ouimet J:

did not err in finding a simulation in this case, i.e., that the appellant was the true beneficiary of the amounts distributed by DL Trust to the seeming beneficiaries.

The Rulings Directorate took a similar approach in 2011-0424341I7 F (see also 2013-0475501I7 F).

Neal Armstrong. Summary of Laplante v. Canada, 2018 CAF 193 under General Concepts – Sham.

In the autumn of 2017, CRA requested numerous taxpayers to provide information respecting their foreign tax credit claims including as to the allocation of their income from Canadian mutual funds as between the U.S., Europe and Asia. This information was not available on the T3s issued by such mutual funds. In response to a query on this, CRA stated:

[W]here a mutual fund is invested in a significant number of countries and the burden of allocating the respective information may be burdensome to the taxpayer, the CRA will revise its administrative position and request taxpayers to provide an amended tax slip that correctly reflects the federal foreign tax credit amounts claimed. In general, the CRA will no longer systematically require a breakdown of foreign income by country, type of income and foreign taxes paid by country in such situations.

We have now published full-test translations of all the CRA and Finance responses to the questions posed at the two 2018 APFF Roundtables (together with summaries of the questions posed.) We have not summarized various questions posed at the 2018 APFF Financial Strategies and Instruments Roundtable to which the Finance representative did not provide written responses.

Neal Armstrong. Summary of 2018 APFF Financial Strategies and Instruments Roundtable, Q.12 under s. 126(1).

A Finance official was content with the current tax policy of allowing students to deduct eligible moving expenses from scholarship and research grant income (and from employment income if “a full-time student … also moves to take up an employment”) but not from educational assistance payments received out of a registered education savings plan, noting inter alia that “an individual’s scholarships and research grants are more closely tied to a relocation site than income from [an RESP].”

Neal Armstrong. Summary of 2018 APFF Financial Strategies and Instruments Roundtable, Q.9 under s. 62(1)(c)(ii).

CRA ruled that kinesiology services (specifically services provided to mobility-impaired patients by a member of the B.C. Association of Kinesiologists) were not GST/HST exempt.

Neal Armstrong. Summary of 25 June 2018 Ruling 143194 under ETA Sched. V, Pt. II, s. 10.