News of Note
CRA recognizes due diligence defence to paper-filing penalty
Email this ContentS. 162(7.3) imposes a per-return penalty for tax preparers who do not file electronically. CRA recognizes that a due diligence defence is available. For example, respecting the potentially-conflicting requirement that the return not be filed electronically without a signed T183, CRA referred to the situation where:
a return is due for an individual who lacks competency to sign, and over whom no one has Power of Attorney (for example, a child or spouse looking after a parent or spouse’s affairs on an informal basis, or a deceased taxpayer where no Executor or Administrator has been legally appointed).
Neal Armstrong. Summary of May 2017 CPA Alberta Roundtable, ITA Q.8 under s. 162(7.3).
CRA confirms that it can issue a clearance certificate before a corporate dissolution
Where there are multiple legal representatives, e.g., executors or directors, CRA will issue a single s. 159(2) certificate to the person whose name first appears on the request for the certificate, but will include the names of all the other legal representatives on that certificate - and, if more than one address is provided, send a copy of the certificate to the other addresses. CRA also stated:
There is no requirement for a corporation to be dissolved prior to the request of a clearance certificate. The CRA can issue a partial clearance certificate if the articles of dissolution are pending closure or we believe the intent is to dissolve the corporation.
No response was given to the suggestion that corporate directors are not legal representatives during the corporation’s existence.
Neal Armstrong. Summary of May 2017 CPA Alberta Roundtable, ITA Q.7 under s. 159(2).
CRA indicates that the construction of a pipeline can qualify for the GST/HST joint venture election
The Joint Venture (GST/HST) Regulations provide that “the construction of real property … including … development activities” is eligible for the joint venture election. CRA indicated that the construction of a pipeline likely would so qualify “to the extent that it is affixed to the ground and intended to remain there on a permanent basis.”
Neal Armstrong. Summary of May 2017 CPA Alberta Roundtable, GST/HST Q.3 under Joint Venture (GST/HST) Regulations, s. 3(a).
CRA confirms that it usually does not assess the recipient for GST/HST
In response to a suggestion that CRA is starting to use s. 296(1)(b) to assess the recipient of taxable supplies (rather than the supplier) outside of an insolvency context, CRA confirmed that it “generally” will not assess the recipient, but may do so “in circumstances of potential revenue loss,” and that its “usual practice … is to look to the supplier.”
Neal Armstrong. Summary of May 2017 CPA Alberta Roundtable, GST/HST Q.2 under ETA s. 296(1)(b).
CRA indicates that it has no authority to transfer GST/HST returns between entities
CRA indicated that it has no statutory authority to treat a GST/HST return filed by one entity to be transferred to another entity, with the implication that it will treat this situation as one where a new return for the correct entity is effectively being filed late, so that penalties may be imposed.
Neal Armstrong. Summary of May 2017 CPA Alberta Roundtable, GST/HST Q.1 (published in November 2018) under ETA s. 238(1).
CRA indicates that the payment of remuneration or a trust distribution directly to a TFSA is not a 3rd-party contribution or advantage
S. 146.2(2)(c) prohibits anyone other than the holder from making contributions to a TFSA. The s. 207.01(1) definition of advantage includes any benefit that is conditional on the existence of the plan, and any payment received on account of a payment for services provided by the holder.
CRA indicated that a payment made directly by the holder’s employer to the holder’s TFSA - or a payment made by a trust, at the direction of the holder as trust beneficiary, to the holder’s TFSA - would not engage these provisions.
Neal Armstrong . Summaries of 20 August 2018 External T.I. 2018-0739761E5 under s. 146.2(2)(c) and s. 207.01(1) – advantage, and summary of 20 August 2018 External T.I. 2017-0731541E5 under s. 146.2(2)(c).
The treatment of share-sale earnout payments that do not come within IT-426R is uncertain
Having regard to the reference to “the” property in s. 12(1)(g) and the background to its introduction, it is quite arguable that the property referenced in s. 12(1)(g) is only the property that was sold, so that sales proceeds of sold shares or partnership interests that are based only on parameters for use of the underlying property of the sold corporation or partnership do not come within the scope of application of s. 12(1)(g) (thereby suggesting that it might be unnecessary to fit within the safe harbour for earnouts in IT-426R). However, s. 12(l)(g) notably is not stated to be limited to circumstances in which property is sold, notwithstanding the fact that the original impetus for the provision came from a case involving the retention of a royalty in connection with a sale of property.
Neal Armstrong. Summaries of Warren Pashkowich and Daniel Bellefontaine, “Participation-Based Payments: What Are They and How are They Taxed,” 2017 Conference Report (Canadian Tax Foundation), 9:1-25 under s. 12(1)(g) and s. 88(1)(c.3)(i).
NexPoint Trust proposes to be a dual US REIT/non-SIFT MFT holding U.S. hotels
Nexpoint Hospitality Trust (the “REIT”) is proposing to use the proceeds of an IPO to invest in 11 U.S. hotels. An affiliate of its advisor also is the advisor to the NYSE-listed NexPoint Residential Trust. The hotels will be held through an LLC that will elect to be a REIT for Code purposes. In order to comply with the U.S. REIT rules, the hotels will be leased to a taxable REIT subsidiary and will be managed by a third party manager. Part of the consideration received by affiliates of the Advisor for transferring the hotels into the structure will be Class B redeemable units of the hotel LLC owner. The REIT itself will elect to be a REIT for Code purposes. There will be a resulting prohibition against any unitholder or deemed unitholder holding more than 5% of its units.
For Canadian SIFT taxation purposes, the REIT will rely on not holding any non-portfolio property. Anticipated distributions may be sufficient to avoid significant issues arising under the FAPI rules.
Neal Armstrong. Summary of Nexpoint Hospitality Trust Circular under Offerings – REIT and LP Offerings – Cross-Border REITs.
Recent U.S. tax changes create uncertainty for the proposed Americas Silver acquisition of Pershing Gold
Americas Silver, an Ontario corporation listed on inter alia the TSX and NYSE American exchanges, is proposing to acquire Pershing Gold, a listed Nevada corporation, in exchange for Americas Silver shares. The acquisition would entail the merger of Pershing Gold with a newly-formed Nevada subsidiary of Americas Silver, with Pershing Gold being the survivor and with the Americas Silver shares being issued on the merger. The former Pershing Gold common shareholders will thereby become holders of approximately 36.5% of the Americas Silver common shares.
The U.S. tax disclosure indicates that as a result of the removal, in the recently enacted Tax Cut and Jobs Act, of an exception to the application of Code s. 367(a) for the transfer of property by a U.S. person to a foreign corporation for use by such foreign corporation in the active conduct of a trade or business outside the U.S., it is unclear whether resident U.S. shareholders of Pershing Gold will receive rollover treatment for Code purposes on the merger. The anti-inversion rules in Code s. 7874 are not expected to apply given that the Pershing Gold Stockholders are expected to own less than 60% by votes and value of the Americas Silver common shares.
Neal Armstrong. Summary of Pershing Gold Corporation Circular under Mergers & Acquisitions – Cross-Border Acquisitions – Outbound – Delaware etc. Merger.
Crombie REIT used a s.132.2 merger and a renunciation of most of the units otherwise issuable on the merger in order to eliminate a REIT corporate subsidiary held through an LP
Crombie REIT held the units and notes of a subsidiary unit trust (Crombie Subsidiary Trust), whose principal asset was most of the partnership interests, other than exchangeable LP units held by the Empire group, in a subsidiary LP (“Crombie LP”), which held real estate and a corporate subsidiary (“CDL”).
In a 2017 reorganization, the REIT first eliminated Crombie Subsidiary Trust by setting up a unit trust (“MFT”), having Crombie Subsidiary Trust transfer its assets to MFT under s. 107.4, distributing just enough units of MFT to its unitholders for MFT to qualify as a mutual fund trust, and then instigating a s. 132.2 merger of MFT into the REIT.
The REIT also did not want CDL to be subject to potential corporate income tax. Had the REIT now held CDL directly, this would have been accomplished by incorporating a subsidiary (“MFC”), distributing relatively modest shareholdings in MFC to its unitholders sufficient to qualify MFC as a mutual fund corporation, amalgamating MFC and CDL so that Amalco also qualified as a mutual fund corporation, and then instigating the merger of Amalco into the REIT under s. 132.2 – so that the former assets of CDL were now held directly by the REIT.
A complicating factor was that, as noted, CDL was held by a partnership (Crombie LP). Accordingly, Crombie LP first transferred its CDL shares to MFC under s. 85(2) in consideration for most of the shares of MFC (so that CDL could then be vertically amalgamated with MFC to form Amalco). On the s.132.2 merger of Amalco into the REIT, Crombie LP renounced the receipt of the REIT units that otherwise would be receivable by it on the redemption of its Amalco shares. CRA ruled that Crombie LP was not required to include any amount in its income as a result of the exercise of its right of renunciation.
Neal Armstrong. Summary of Crombie REIT Circular under Other – Internal S. 132.2/107.4 Mergers.