News of Note
CRA accommodates backdating a GST/HST registration by over six years in order to claim ITCs
Email this ContentA not-for-profit corporation registered for GST/HST purposes effective March 18, 2016, then got this registration backdated somewhat to January 1, 2016 – and then subsequently filed returns for the previous six years (2010 through 2015) and requested that its registration be further backdated to April 1, 2010 in order that it could claim input tax credits for tax paid since April 1, 2010. The Rulings Directorate was accommodating, stating that:
In order to backdate its registration, [Corporation A] could show it was a registrant during the period in question by proving it was not a small supplier; in other words, it was required to be registered.
The Directorate did not reference any limitation on claiming ITCs from before the four-year period referenced in ETA s. 225(4)(b).
Neal Armstrong. Summary of 19 March 2018 Interpretation 183900 under ETA s. 240(1) and s. 225(4)(b).
CRA has published its 2018 IFA Roundtable responses
Except as noted in the previous post, there do not appear to be any significant departures or elaborations in the official 2018 IFA Roundtable Answers published last week by the Rulings Directorate from those provided orally at the Conference. Accordingly (with the same exception) we have not generated further posts on these responses – but, for convenience of reference, provide the table below linking to the official responses and (for the nine questions that had interpretive content) our summaries thereof and our descriptors.
CRA indicates that a French limited partnership was a corporation
At the 2018 IFA Roundtable, CRA noted that it had declined to rule that a specific French SLP (Société de Libre Partenariat) was a partnership for ITA purposes. Although it had separate legal personality (and the general partner had unlimited liability unlike the general partner of a Delaware LLP or LLLP), that was not sufficient to render it a corporation. However, there was no legal authority to support an effective entitlement on the part of the members to share profits and losses earned through the entity: the computation of earnings at the SLP entity level, with a distribution mechanism for its members akin to the declaration and payment of dividends, was found to be very relevant.
In the published response, CRA noted that the particular SLP was a “Fonds Professionnel Spécialisé” – established as a “société en commandite simple” (“SECS” - usually translated simply as a "limited partnership," or sometimes as a "standard limited partnership") – and stated that:
A SECS is considered to be a “société commerciale” under French law, as is also the case for a “société en nom collectif”, “société à responsabilité limitée” and a “société par actions”.
In Quebec, SENCs are general partnerships which have been judicially found to not have separate legal personality but to have their own patrimony (so that partners do not own the partnership property). The above reference in the same breath to (French) SENCs as to SECSs likely is not a concern given French SENCs' apparent lack of legal personality, whereas the French limited partnership was considered by CRA to have separate legal personality.
This pronouncement is a further warning that a foreign entity that is termed a limited partnership may be viewed by CRA as a corporation.
Neal Armstrong. Summary of 16 May 2018 IFA Roundtable Q. 8, 2018-0749481C6 under s. 96.
CRA, changing its mind, concludes that two Canadian sisters can be closely related for GST/HST purposes through multiple stacked NR corporations above them
When it previously looked at this question, CRA considered that a “qualifying subsidiary” includes a child or grandchild but not a great-grandchild. As a result, it concluded that sufficient stacking of corporations can result in an inability of all group members to make the ETA s. 156 nil consideration election. For example if, in a wholly-owned group, there are two stacks of four corporations beneath a common non-resident Holdco, the two "grandchild" Canadian-resident corporations, but not the two" bottom" Canadian-resident great-grandchild corporations, would be able to elect with each other, as they are too remote from the Holdco to be closely related to each other.
CRA has now revisited the same question and concluded that the “qualifying subsidiary’ definition can be applied iteratively so that, in the above example, the two bottom Canadian corporations would be closely related to each other. It also confirmed that it does not matter that their relationship is through non-resident parent corporations.
Neal Armstrong. Summary of 12 February 2018 interpretation 167422R under ETA s. 156(1) – qualifying group.
CRA finds that a “fee” charged by a an auto dealer for assigning a credit agreement to a lender was part of the GST/HST exempt consideration for the assignment
An auto dealer, which sold conditional sales contracts or credit agreements arising from its sales to customers to a lender, would also be paid a separately-stated fee by the lender. CRA stated:
A fee received by the Dealer from a lender for the assignment of a conditional sales contract or credit agreement forms part of the consideration received for the assignment of the contract, and therefore would not be subject to the GST/HST as the assignment of the contract is an exempt supply.
Neal Armstrong. Summary of 24 January 2018 Ruling 156434 under ETA s. 123(1) – financial service – para. (d) and s. 123(1) – debt security.
Six further full-text translations of CRA interpretations are available
The table below provides descriptors and links for six Interpretation released in July 2013, as fully translated by us.
These (and the other full-text translations covering all French-language Interpretations released in the last 4 3/4 years by the Income Tax Rulings Directorate) are subject to the usual (3 working weeks per month) paywall.
Archambault – Court of Quebec invalidates a director’s assessment because the preceding corporate judgment proceeding had the wrong address
The Quebec equivalent of ITA s. 227.1(2)(a) in s. 24.0.1(a) of the Quebec Tax Administration Act) requires as a precondition to assessing a director for unremitted corporate source deductions or QST that “the notice of execution of a seizure of movable property in respect of the corporation is returned unfulfilled in whole or in part following a judgment rendered under section 13 [of the TAA]” (subject to an alternate procedure applying). Bourgeois JCQ found that this precondition was not satisfied where the certificate and judgement issued under s. 13 as well as the writ of execution referred to the home address of the taxpayer rather than the registered address of the corporation (being the home address of the other director, whom the ARQ knew to be a deadbeat). The taxpayer’s appeal was allowed.
Neal Armstrong. Summary of Archambault v. Agence du revenu du Québec, 2018 QCCQ 3291 under s. 227.1(2)(a).
CRA finds that the distribution to a non-resident parent of assets of a subsidiary that had SERP obligations and the assumption of such obligations did not create an RCA
Opco, which formerly had an active business, but now is inactive, is obligated to pay supplemental executive pension benefits to former executive employees (the “Pensioners”). With the consent of the Pensioners, the non-resident “Parent” (which actually appears to be an Opco grandparent) assumes these “SERP Obligations” for no consideration. Immediately thereafter, Opco is wound-up into its immediate parent (Holdco), and Holdco uses its mostly cash assets to satisfy the liquidation entitlement of the Holdco shares held by Parent. The ruling letter stipulates that no portion of the assets distributed on the two windings-up are“ear-marked” or segregated to secure the SERP Obligations.
CRA ruled that no portion of the distributed assets will be considered a “contribution” made to a retirement compensation arrangement (or the subject property of an RCA for the purposes s. 207.6(1) respecting the SERP Obligations assumed by Parent. As stated by CRA in its summary:
[N]one of the proposed transactions involving the transfer of the SERP liability to Parentco would create an RCA.
Neal Armstrong. Summary of 2017 Ruling 2016-0655071R3 under s. 207.5(1) – refundable tax – (a).
Motter – Court of Quebec finds that a purported “tenant inducement payment” was a capital expenditure
An individual in the business of constructing and renting commercial real estate, entered into a lease agreement with Téléglobe respecting a building which he was to construct, that provided Téléglobe with “an initial Improvement Allowance” of $25.00 per square foot (or $2M). After construction, this was paid by way of partial set-off against the $2.7M cost of tenant improvements made by him in the course of constructing the building that he invoiced to Téléglobe. The $2.7M apparently was included in his income, but he sought to deduct what he styled as a $2M “tenant inducement payment” on income account.
After noting that in Canderel and Toronto College Park, the landlords made tenant inducement payments respecting already-constructed buildings in a market where there was a high vacancy rate, and in finding that the leasehold improvement payment of the taxpayer was a capital expenditure rather than deductible in computing his income, Lareau JCQ noted that the “lease provides that the budgeted amount must be devoted to the construction of the tenant improvements and consequently be assimilated to the building” and also that there was “no evidence that this amount was intended to deal with competition in a particularly difficult market,” and then concluded:
[T]here is no proof that links this expense to anything other than the construction of the building with a view to a future benefit arising from the collection of rents over the term of the lease.
Neal Armstrong. Summary of Motter v. Agence du revenu du Québec, 2018 QCCQ 3483 under s. 18(1)(b) – improvements v. repairs/running expense.
Toronto-Dominion Bank – Federal Court finds that the deemed trust for unremitted GST defeated the mortgagee’s priority on a voluntary sale of the mortgaged home
TD Bank made a mortgage loan to an individual who, unbeknownst to it, had unremitted GST collections. A year later the individual sold his home and repaid TD in full. TD found out about the unremitted GST two years later when it received a payment demand from CRA.
Grammond J found that TD was required to comply by virtue of the proposition that the deemed trust under ETA s. 222 for the unremitted GST followed the proceeds of the sale into TD’s hands. Among other arguments, he rejected a submission that (based on attempting to give the word “proceeds” a narrow construction) s. 222(3) did not apply to a voluntary sale as contrasted to a sale under a power of sale, and also rejected the proposition that a secured creditor could benefit from the equitable defence for “purchasers” (including lenders) for value. However, he stated:
I would add that the defence remains available to unsecured creditors, such as suppliers, landlords or public utilities, who receive payments from a tax debtor. In those cases, denying the defence would give rise to the concerns mentioned [in] ... First Vancouver – it “would have a general chilling effect on commercial transactions.”
Similar considerations arise under other statutes, e.g., ITA s. 227(4.1). It may become more common for loan agreements to require the regular provision by borrowers of statements of account with CRA, and for acceleration if this is not done.
Neal Armstrong. Summary of Canada v. Toronto-Dominion Bank, 2018 FC 538 under ETA s. 222(3).