News of Note
CRA acknowledges that where a contested notice of assessment is subject to a stay, it generally must apply to the bankruptcy court for lifting the stay
Email this ContentThe Girardi decision (2014 QCCA 1922) stated, in connection with the Bankruptcy and Insolvency Act ("B.I.A."):
[I]f the CRA files a claim with the trustee, it may follow it up with a notice of assessment. However, since this notice of assessment constitutes a procedure for the collection of a provable claim, it will not have the legal effects conferred on it by the ITA, unless the CRA obtains the authorization of the court. In other words, if the CRA wishes the ITA's procedure for contesting a notice of assessment to apply, particularly as regards the time limit for contesting it, it must apply to the court and obtain the court's consent, in accordance with section 69.4 of the BIA.
CRA indicated that Girard does not call into question the validity under the ITA of an assessment, and instead deals with the procedures to be followed under the BIA when the CRA's proof of claim is contested by the trustee in bankruptcy. Accordingly, CRA will not seek court authorization where the trustee does not contest its proof of claim - or where the debtor (in a proposal) or the trustee (in a bankruptcy) does not intend to object to the assessment. Conversely:
In the event that a trustee contests the CRA's proof of claim, the legal effects of the notice of assessment, including the procedure for contesting the assessment and the time limits associated with it, are suspended until the CRA obtains the lifting of the suspension of proceedings under section 69.4 B.I.A., pursuant to the Girard decision.
Neal Armstrong. Summary of 2 November 2023 APFF Roundtable, Q.13 under BIA, s. 69(4).
Slightham – Ontario Superior Court of Justice agrees to rectify family trust deeds to reflect the drafting contemplated in the original tax plan
In order that s. 75(2) would not apply to the corporate beneficiary (Holdco) of two family trusts, the tax plan contemplated that Holdco would be prohibited under the trust deeds from receiving any income or capital derived from itself. However, due to a drafting error, a reference to the underlying Opco held by the trusts was mistakenly added as one of the parties from which Holdco could not receive income or capital.
This mistake was discovered when CRA denied the s. 104(6) deduction for dividends from Opco distributed by the trusts to Holdco, on the grounds that such distributions were prohibited by the trust deeds. CRA refused to accept that the trust deeds could be amended pursuant to their amendment provisions to correct this error nunc pro tunc.
After noting that the evidence clearly supported the above nature of the drafting mistake, Osborne J allowed the trusts’ application to amend the declarations of trust to delete the references to Opco, stating:
[T]he parties are not changing their antecedent agreement. Rather, they are seeking the assistance of equity to change the written instrument that did not at the time it was executed, and does not now, properly and accurately reflect the agreement of the parties that has remained unchanged throughout.
Neal Armstrong. Summary of Slightham et al. v. AGC, 2023 ONSC 6193 under General Concepts – Rectification.
CRA discusses the documentation of a loss from the collapse of a crypto exchange
After the taxpayer for a number of months had been trading on a daily basis in cryptocurrencies through an account held at a major cryptocurrency exchange platform, the platform went into bankruptcy on the discovery of fraud. All documentation relating to the daily transactions was on the platform, and the taxpayer no longer has access to that information.
CRA provided a detailed list of documents that the taxpayer in these circumstances might be able to obtain in order to support the taxpayer’s claimed loss.
Neal Armstrong. Summary of 2 November 2023 APFF Roundtable, Q.12 under General Concepts – Evidence.
Income Tax Severed Letters 15 November 2023
This morning's release of five severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Bank of America – Federal Court finds that it was fair and reasonable for CRA to deny relief from a mistake attributed to outsourcing all of a tax department
BANA outsourced all its Canadian tax department in 2018 to EY. The last tax employee, shortly before her departure in July 2018, told BANA and EY that BANA’s adjusted tax credit amounts (ATCAs) had never exceeded $500,000 in any two consecutive fiscal years, so that it was not expected to be a qualifying institution (QI). Starting in June 2019, BANA discovered that this was incorrect, and in June and December of the following year, it filed late applications pursuant to ETA s. 141.02(19)(b)(ii) to be permitted to use a method for computing its input tax credits (ITCs) for its four most recent fiscal years that would result in ITCs that exceeded the minimum otherwise applicable under s. 141.02(8)(d) of 12% of its GST on its residual inputs.
In denying the applications, the CRA delegate recognized BANA and EY as highly sophisticated entities and considered that a high degree of care and diligence was to be expected, and that this had not been demonstrated in their merely accepting a statement from a departing employee that was inconsistent with BANA’s completed tax filings.
In dismissing the BANA appeal, Elliott J found this decision to be fair and reasonable. In this regard she noted inter alia that she could not agree that the delegate’s “emphasis on due diligence was misplaced” and indicated that the downsizing and outsourcing of the BANA tax department “were not extenuating circumstances beyond their control”.
Neal Armstrong. Summary of Bank of America, National Association v. Attorney General of Canada 2023 FC 1496 under ETA s. 141.02(19)(b)(ii).
CRA indicates that a Quebec tax credit is received on the due date for the related return, or when a carryforward or carryback request is made for it
S. 53(2)(k) provides for the reduction in the ACB of a capital property by the amount of government assistance that the taxpayer “has received or is entitled to receive.” Regarding the synergy tax credit for Québec businesses ("CSEQ") provided under s. 776.1.38 of the Taxation Act, CRA considered that this time occurred (upon the taxpayer having made the claim in prescribed form) on the due date for the return for the year, assuming that the credit claimed did not exceed the maximum claim limit. To the extent this claim limit applied, CRA considered that the entitlement arose when the taxpayer filed a request to carry back or carry forward the amount to another taxation year.
Neal Armstrong. Summary of 2 November 2023 APFF Roundtable, Q.11 under s. 248(1) – disposition.
We have translated 6 more CRA interpretations
We have translated 6 further CRA interpretations released during September of 2002. Their descriptors and links appear below.
These are additions to our set of 2,636 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 21 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 |
|---|---|---|---|
| 2002-09-13 | 4 October 2002 Internal T.I. 2002-0139807 F - REMBOURSEMENT DE TPS | Income Tax Act - Section 13 - Subsection 13(21) - Undepreciated Capital Cost - J | GST rebate received after sale of asset would not, under J of UCC formula, produce recapture |
| Income Tax Act - Section 13 - Subsection 13(7.1) | GST rebate claim reduced UCC pursuant to J of formula rather than under s. 13(7.1, since claimed after asset’s disposition | ||
| Income Tax Act - Section 6 - Subsection 6(8) - Paragraph 6(8)(b) | GST rebate claimed by employee re CCA on car after its sale reduces UCC pursuant to J of formula rather than under s. 13(7.1) | ||
| 4 October 2002 Internal T.I. 2001-010564A F - PENSION ALIMENTAIRE-ARRERAGES | Income Tax Act - Section 60 - Paragraph 60(b) | lump sum payment in settlement of periodic support payments in arrears is an amount payable on a periodic basis | |
| General Concepts - Payment & Receipt | set-off does not constitute payment unless the parties so agree | ||
| 2 October 2002 External T.I. 2002-0118815 F - DIABETE JUVENILE | Income Tax Act - Section 118.3 - Subsection 118.3(1) - Paragraph 118.3(1)(a.1) | child with juvenile diabetes does not generate the infirm credit, including under para. (a.1) | |
| 3 October 2002 External T.I. 2002-0122345 F - EN RAPPORT AVEC ENTREPRISE | Income Tax Act - Section 37 - Subsection 37(1) - Paragraph 37(1)(a) - Subparagraph 37(1)(a)(i) | related-business requirement will generally be satisfied where the results of the SR&ED, if successful, have a direct and beneficial application in the taxpayer’s business | |
| Income Tax Act - Section 37 - Subsection 37(1.1) | SR&ED performed by sub to improve products of unrelated business of parent is deemed to be related to sub’s business | ||
| 26 September 2002 External T.I. 2002-0128955 F - 84.1(1)(b) Deem Dividend 83(2) CDA
rev'd by 11 October 2019 APFF Roundtable, Q.1
|
Income Tax Act - Section 83 - Subsection 83(2) | s. 84.1 deemed dividend to someone who in fact was not a shareholder was not eligible for an s. 83(2) election | |
| 3 October 2002 External T.I. 2002-0133525 F - CADEAUX QUASI-MONETAIRES | Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) | awards of gifts certificates that could be exchanged for under $500 of the employer’s goods were taxable benefits |
CRA indicates that there likely was a disposition of bitcoin on its transfer to a bitcoin platform
In return for depositing the taxpayer’s bitcoins with a centralized bitcoin exchange and lending platform, the platform provides a variable return of approximately 4% per annum, payable in bitcoin. The platform holds the bitcoins in its own name and may pledge, sell or lend the bitcoins deposited with it in its discretion. The profit derived from the use of the bitcoins by the platform is its property. The taxpayer is entitled to withdraw up to an equivalent of the taxpayer’s bitcoin account balance at any time, with withdrawal being paid from a cryptocurrency wallet in which the bitcoins received from the platform's various customers are collectively deposited.
In finding that there likely was a disposition on the bitcoin transfer to the platform, CRA indicated that it was “likely that ownership of the bitcoins initially belonging to the taxpayer was transferred to the platform” and, in particular, that “the platform acquired the right to use the assets, to make profits from them and to dispose of them at its discretion.”
Neal Armstrong. Summary of 2 November 2023 APFF Roundtable, Q.10 under s. 248(1) – disposition.
CRA notes that bitcoin may be capital property but not personal-use property and that the timing of a loss from fraud may be governed by s. 44(2)
We have finished translating the answers in the (regular) 2023 APFF Roundtable, and will provide a complete translation of the 2023 APFF Financial Strategies and Instruments Roundtable tomorrow evening.
Q.9 of the regular Roundtable described Madame Y, who made a cash purchase of a bitcoin on a central exchange platform in order that she could ultimately pay for items online. Subsequently, the exchange platform was the victim of fraud and Madame Y lost access to her bitcoin. Regarding the character and timing of her loss, CRA indicated:
- whether a loss was a capital loss or on income account turned on whether she “held the cryptocurrency in the course of a business or as a capital investment” (i.e., like gold (see Harms), its not generating income did not necessarily preclude its being capital property).
- if the exchange acted as custodian of the cryptocurrency for her, the loss suffered from the fraud would generally be attributed to her.
- conversely, if the exchange platform was the owner, then her contractual relationship with the exchange platform would need to be examined.
- “the mere holding of cryptocurrency for future use, i.e., for the purchase of products online, does not make the cryptocurrency personal-use property.”
- although a loss from fraud usually arises when the loss is recognized, “where the taxpayer has received compensation for capital property unlawfully taken, the specific rules of subsection 44(2) apply to determine the time of disposition” (e.g., if she sued for her loss, it would be recognized when she received an award or her action was settled).
Neal Armstrong. Summaries of 2 November 2023 APFF Roundtable, Q.9 under s. 18(1)(b) – capital expenditure v. expense - damages, s. 54 – proceeds of disposition – (b) and s. 54 – personal-use property.
CRA indicates that it will continue on a discretionary basis to accept revisions to prior years’ CCA claims for nil-income years
The taxpayer in St. Benedict was unsuccessful in trying to effectively regenerate non-capital losses that had expired by reversing CCA claims so as to reduce those losses to nil, and then claiming a terminal loss on its subsequent disposition of its depreciable property (a building) as a result of the resulting increased UCC balance. Webb JA found that the “administrative practice [in IC 84-1, para. 10] is not binding on this Court” and that the taxpayer had no ability to change its choice of having claimed CCA for the earlier years.
Could a taxpayer who wished to refresh losses that were about to expire, reduce previous CCA claims to reduce the losses for those years (Situation 1), or could a taxpayer who did not claim CCA for loss years now make CCA claims for those years in order to increase losses for carry forward to offset trading profits that it was going to realize (Situation 2)?
CRA indicated that its position regarding the application of IC 84-1, para. 10 so far remains unchanged, but that it will exercise discretion in determining whether to allow a taxpayer's request to revise CCA claims for prior years and will consider “whether granting the request would produce an inappropriate result.” Regarding revisions for loss years, relevant circumstances could include “whether the loss has expired, whether the loss has been applied to other years, whether the revision would result in a change in the tax assessment for the year or any other year, and whether a Notice of Determination has been issued in respect of the loss.” “Since each decision is based on the facts and circumstances of each case,” it declined to comment on the two Situations presented.
Neal Armstrong. Summary of 2 November 2023 APFF Roundtable, Q.8 under s. 20(1)(a) – revising claims.