News of Note
CRA states that an individual accessing the “+1” rule on a principal residence disposition need not complete Form 2091
Email this ContentOn page 2 of Schedule 3 of the return for the year of disposition of a principal residence, if the individual checks the box for Case 1, there is a concern that by virtue of this effectively being a designation for all the years during which the taxpayer was owner, this could result in wasting the extra year under the “+1” computation.
No worries! CRA stated:
Box 1 may be checked to designate [the house] as the individual’s principal residence for all years (or for all years less one year). … [T]he CRA will not require Form T2091 to be completed… .
Neal Armstrong. Summary of 6 October 2017 APFF Roundtable, Q.3 under s. 54 - principal residence - para. (c).
CRA appears to indicate that it is still not applying penalties for failure to issue T4As to independent contractors
In a fractured response to whether a s. 162(7) penalty will be imposed for failure to provide a T4A to a service provider even if the provider’s invoice bear a proper GST/HST registration number, CRA indicated that, although in 2010, it had announced a “temporary measure” indicating that it would not penalize taxpayers for failure to complete Box 048 (re fees for services):
However, this has never had the effect of relieving taxpayers of their responsibility to report these payments. Thus, a penalty under subsection 162(7) is applicable for non-filing if payments for services are not reported on the T4A form, even if an invoice with valid tax numbers is provided to the payer.
This might mean: a penalty is applicable but not applied.
Neal Armstrong. Summary of 6 October 2017 APFF Roundtable, Q.2 under s. 162(7).
CRA will not assess a s. 162(7) penalty for failure to file a nil T2 return
CRA considers that the reasoning in Exida.com indicates that a Canadian corporation with no taxable income (or a loss) for a year is subject to a s. 162(7) penalty for failure to file a nil T2 return. However, it affirmed its policy that it nonetheless will not assess the penalty in these circumstances.
Neal Armstrong. Summary of 6 October 2017 APFF Roundtable, Q.1 under s. 162(7).
ADT Canada – Quebec Court of Appeal holds that a home security monitoring service was not a supply of a “telecommunication service”
ADT Canada, which provided its security-monitoring services remotely and, thus, used significant telecommunication services, was found to be making a single supply of a security service to its customers rather than of a “telecommunication service,” which was defined in the Quebec Sales Tax Act (essentially with the same wording as in the ETA) as one would expect.
Neal Armstrong. Summary of Services de sécurité ADT Canada inc. v. Agence du revenu du Québec, 2017 QCCA 1507 under ETA s. 123(1) - telecommunication service.
CRA is inclined to base the s. 6(2) standby charge on the leasing cost to the employer rather than the automobile’s cost to an affiliated purchaser
In the situation where Holdco acquires an automobile and leases it to a related corporation (Opco) at a fair market value rent, with Opco making the automobile available to one of its employees, a literal reading the standby charge formula would indicate that the standby charge is based on both the cost of the automobile to Holdco and the leasing cost to Opco, so that effectively there is double taxation. Finance has been notified about this.
Depending on all the facts of the situation, CRA generally would be inclined to base the standby charge only on the leasing cost to Opco.
Neal Armstrong. Summary of 6 October 2017 APFF Roundtable, Q.13 under s. 6(2).
CRA states that convention expenses “historically” have been viewed as capital expenditures
S. 20(10) very oddly provides that the cost of up to two qualifying conventions can be deducted in computing business income notwithstanding s. 18(1)(b). Given that the Anglo-Persian line of cases established that employees and agents are not a capital asset (as they are more-or-less free to walk out the door at any time), it is implausible that a convention expense could be found to be a capital expenditure (although the Shaver case and Griffith, [1956] C.T.C. 47 did just that.)
When asked about this, CRA sort of waffled:
Where a taxpayer has incurred expenses related to a convention in order to earn income from a business and such expenses are not capital expenditures, such expenses may be deductible in computing its business income without reference to subsection 20(10).
Historically, the CRA's position with respect to convention expenses is that such expenditures are generally capital expenditures to which paragraph 18(1)(b) applies.
Neal Armstrong. Summary of 6 October 2017 APFF Roundtable, Q.12 under s. 20(10).
CRA indicates that the s. 13(38)(d)(iii) transitional election is irrelevant to ECP dispositions by a calendar-year partnership
A partnership with a calendar year end, but whose corporate partners have March 31 taxation year ends, disposed of eligible capital property in November 2016. CRA indicated that because income is computed at the partnership rather than partner level, there is no need for (or ability of) the partners to make the s. 13(38)(d)(iii) transitional election, i.e., the relevant taxpayer had a calendar year.
Neal Armstrong. Summary of 6 October 2017 APFF Roundtable, Q.11 under s. 13(38)(d)(iii).
CRA indicates that a s. 184(3) excess dividend election deems the elected-upon amount to retroactively be income even if it is still unpaid
The s. 184(3)(b) excess dividend election is made respecting the amount of the original dividend that was payable. S. 184(3)(d) deems the shareholder to have received the excess dividend. CRA confirmed that the effect of this is that the excess portion of the dividend becomes taxable to the shareholder as of the time of the original dividend declaration, even if it still remains unpaid.
CRA had already notified Finance of this anomaly.
Neal Armstrong. Summaries 6 October 2017 APFF Roundtable, Q.10 under s. 184(3) and s. 185(3).
Income Tax Severed Letters 11 August 2017
This morning's release of 15 severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA asserts that a second freeze transaction by a family trust could be viewed as an indirect transfer by the original freezor
As a result of a previous estate freeze, A holds the voting freeze preferred shares of Opco (which is not a small business corporation) and a discretionary family trust (“Initial Trust”), with spouse and children as beneficiaries, holds the non-voting common shares. Now a further freeze is implemented under which Initial Trust exchanges its shares for preferred shares, and New Trust, with spouse children, grandchildren and family corporations as beneficiaries, subscribes for new non-voting common shares.
CRA acknowledged that only the (born) grandchildren (and not the spouse) could be designated persons in respect of Initial Trust (which was the relevant transferor to Opco on the second freeze) for s. 74.4(2) purposes, but did not give up that easily, stating:
[T]he application of subsection 74.4(2) could arise with respect to the estate freeze by Initial Trust if it were determined that the transfer of property made during this estate freeze was made indirectly by Mr. A by means of Initial Trust.
Consequently, were it were possible to establish that the Purpose Test was satisfied, subsection 74.4(2) could also apply to Mr. A in respect of the estate freeze by Initial Trust.
Neal Armstrong. Summaries 6 October 2017 APFF Roundtable, Q.9 under s. 74.4(2) and s. 74.5(5).