News of Note
Finance addresses policy re sourcing of student moving expenses
Email this ContentA 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 finds that the treatment by one municipality of another municipality’s excess sewage was not GST/HST exempt
It is intuitively obvious that the sharing of core municipal functions between municipalities will be GST/HST exempt, right?
Two GST/HST registered municipalities agreed that each would charge the other for the receipt and treatment of the other municipality’s excess wastewater at their respective treatment facilities. Were these charges exempted under ETA Sched. V, Pt. VI, s. 22, which applied to “a supply of a service, made by a municipality … of ... maintaining … a … sewerage … system”?
CRA acknowledged that City of Brandon had found that this wording “is broad enough to include the ‘operation’ of a … sewerage … system,” but characterized what was going on here as instead being “the acceptance, treatment and disposal of … wastewater at the [other’s] municipal wastewater treatment facilities,” so that the exemption was unavailable.
Neal Armstrong. Summary of 29 June 2018 Ruling 125593r under ETA Sched. V, Pt. VI, s. 22.
CRA rules that kinesiology services are not exempt from GST/HST
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.
CRA indicates that the 10% of votes and FMV tests for excluded share status can be satisfied on a collective basis
One of the tests for share of a specified individual to be “excluded shares” is that the specified individual own shares of the corporation representing 10% or more of the fair market value of all its shares and 10% or more of the voting rights. CRA stated that these two tests can “be applied at the shareholder level (i.e., based on the aggregate of all classes of shares so owned) versus on each specific class of shares owned by the specified individual” so that, for example, these test would be satisfied if the individual held non-voting common shares representing 20% of the corporation’s equity FMV and special voting shares carrying 20% of the votes but having a nominal FMV.
Neal Armstrong. Summary of 21 August 2018 External T.I. 2018-0771811E5 under s. 120.4(1) – excluded share – (b).
CRA finds that interest on an interspousal loan cannot be paid with a promissory note
Where a loan is made to a spouse at the prescribed interest rate, s. 74.5(2) requires that each year’s interest be “paid” by January 30 of the following year. Although in other contexts, CRA accepts that a promissory note can be issued and accepted as payment of an amount, CRA considers that the context and purpose of the income attribution rules:
favour a more restrictive interpretation of the word "paid", according to which the issuance of a note, although irrevocable, unrestricted and payable on demand, does not satisfy the requirement provided for in those [provisions].
Neal Armstrong. Summary of 2018 APFF Financial Strategies and Instruments Roundtable, Q.10 under s. 74.5(2).
CRA notes factors considered in deciding to backdate an HBP withdrawal
S. 146.01(2)(d) provides that for purposes of the home buyer plan rules in s. 146.01, a withdrawal from an RRSP made by an individual in January of a year “or at such later time as is acceptable to the Minister” is deemed to have been made at the end of the preceding year. When asked what factors CRA would consider in exercising this discretion, CRA mentioned, as the most likely:
- whether the RRSP balance at December 31, 2017 is sufficient to cover the subsequent RRSP withdrawal
- “the dates on which the amounts required for withdrawal were contributed” and
- “the reasons for the withdrawals being made over a period that straddled two calendar years” (e.g., a February closing)
Furthermore:
HBP participants who withdraw over more than one year will generally be contacted by the CRA to confirm details of their participation.
Neal Armstrong. Summary of 2018 APFF Financial Strategies and Instruments Roundtable, Q.8 under s. 146.01(2)(d).
CRA illustrates the effective date of the passive income rules
New s. 125(5.1)(b), which eliminates the business limit of a Canadian-controlled private corporation if it or associated corporations had significant passive income (a.k.a. “aggregate investment income”) in their taxation years ending in the preceding calendar year, is stated to apply to taxation years that begin after 2018. This means that a calendar CCPC with an associated corporation (BCo ) with a November 30 year end must account, in its 2019 taxation year, for its own passive income for the preceding 2018 calendar taxation year and for the passive income of BCo for its year ending on November 30, 2018.
Neal Armstrong. Summary of 20 September 2018 External T.I. 2018-0771871E5 under s. 125(5.1)(b).
Income Tax Severed Letters 24 October 2018
This morning's release of five severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Laval Technopole – Court of Quebec applies the traditional common law tests of Crown agency to determine whether companies were agents of Canadian municipalities
Various companies in Quebec whose function it was to promote commercial development, or cultural, sporting or tourist activities, in their respective municipalities, were found to be subject to a higher rate of employer health tax because they were an agent (“organisme mandataire”) of a Canadian municipality.
Notwithstanding that this was a Quebec case, Quenneville JCQ determined this question by essentially applying the common law function and control tests for determining crown agency (referencing “the nature and degree of control that the Crown exercises over the entity”). She noted that the municipalities themselves considered that they controlled the companies, in most cases a majority of the company’s board was named by the municipality or chosen from among a list proposed by the municipality (para. 58)), their budgets were approved by the municipal Councils, they received much of their financing from the municipalities and their activities were integrated with those of the municipalities. Quenneville JCQ stated:
It is important to emphasize that it is not actual control which must be considered, but rather the potential for the municipality to exercise such control.
Neal Armstrong. Summary of Laval Technopole v. Agence du revenu du Québec, 2018 QCCQ 6352 under s. 212(3) – fully exempt interest - (a)(iii).
CRA finds a tainting effect of the payment by a spousal trust of premiums on its policy on the lives of the children
In various interpretations, CRA has indicated that the fact that a spousal trust, holding a policy on the life of the spouse, paid the premiums, had the effect of tainting the trust for s. 70(6) rollover purposes. CRA has now confirmed that the same tainting occurs where a spousal trust, holding a life insurance policy on the lives of the children of the trust (who are the residuary beneficiaries of the trust on the death of the spouse), pays the policy premiums.
Neal Armstrong. Summary of 5 October 2018 APFF Financial Strategies and Instruments Roundtable, Q.7 under s. 70(6)(b)(ii).