News of Note

On June 30, 2006, the trustee of an Australian trust declared a distribution to the taxpayer of all its income for the year then ended and at the same time made a further resolution that in the event the Australian taxation authority denied a deduction to the trust, the trust income for that year was instead to be deemed to have been distributed on the same 2006 date to an alternate beneficiary. This contingency in fact materialized, i.e., the ATO denied a loss carryforward by the trust, so that all the income of the trust for that year was now a material amount. The Court accepted that the further resolution made the distribution declaration contingent, so that it did not cause the (now material) income amount to be included in the taxpayer’s hands as an amount to which she was “presently entitled” on that (June 30, 2006) date.

The taxpayer had delegated the handling of all her affairs to her husband, and did not find out about the purported income distribution until over seven years later, at which point she promptly executed a disclaimer of any interest in the distribution. The Court found that she should be imputed with the knowledge of her agent (her husband), so that she had not promptly disclaimed - so that if (contrary to the finding above) the income distribution to her had otherwise been valid, her purported disclaimer thereof would have been ineffective.

Neal Armstrong. Summaries of Lewski v Commissioner of Taxation, [2017] FCAFC 145 under s. 104(24), s. 248(8)(b) and s. 18(1)(a) – incurring of expense.

A mine ceased production quite some time ago as a result of the grade of the production being too low to justify continued production. The underground workings were allowed to flood and other historic shafts were sealed. The existing tracks would be unusable without significant work.

The new owner will conduct an exploration program, much of it focused on the existing mine site, in order to expand the “mineralization” (with any reserve identification being much further down the road). CRA ruled, subject to its detailed provisoes, that the expenses of this work would qualify as exploration (under s. 66.1(6) – Canadian exploration expense - para. (f).)

Neal Armstrong. Summary of 2017 Ruling 2016-0635341R3 under s. 66.1(6) – CEE - para. (f).

Various clients are establishing trusts in the U.S. (which has not agreed to exchange information under the Common Reporting Standard) in order to avoid reporting under the CRS.

The motivation of these individuals is the privacy and protection of their families who are resident in the home countries to which CRS reporting will be provided. For countries whose controls on disclosure of financial information are easily subverted, CRS reporting is particularly problematic. Disclosures regarding the foreign assets of these individuals invite extortion, and in some cases kidnapping. Where these concerns are not present, often political risk is.

Neal Armstrong. Summaries of Robert E. Ward, "The Common Reporting Standard Comes to Canada", Tax Management International Journal, 2017, p. 538 under s. 270(1) – reportable jurisdiction person and s. 271(1).

Woods JA found that the LNG terminal in St. John qualified as a Class 43 property because it was engaged in "processing" (i.e., a conversion of LNG into gas form, viewed as representing a change in the goods that rendered them more marketable) and because the terminal was not a "distribution" asset (i.e., “distribution” did not commence until at least the delivery of the (converted) gas to the transmission pipeline.)

In finding that the jetty at which the tankers discharged the LNG was part of the terminal asset rather than a separate (Class 3) “jetty” asset, she applied “the judge-made integration principle … that processing includes all activities that are necessary and integral to the processing operation.” This perhaps is similar in effect to the single supply doctrine applied in the GST cases.

Neal Armstrong. Summary of Canada v. Repsol Energy Canada Ltd., 2017 FCA 193 under Sched. II, Class 1(n).