News of Note
CRA states that a company providing free trips to incorporated sales reps is required to T4A the individuals if they received the trip qua employee (but not shareholder) of their corporation
Email this Content2012-0472211I7 concerned a Canadian company which provided free annual trips to southern resorts to high-performing brokers and sales agents of its products or services, who could be performing the services as individual proprietorships, or through personal corporations.
CRA has now “clarified” (through wording that is ambiguous) that the total value of the trip (i.e., the business portion including morning briefings on the trip provider’s products or services, as well as the personal portion) should generally be included in computing the income of the individual proprietorship or personal corporation, as the case may be.
CRA also considers that the company providing the trips should issue T4A slips to the individual proprietor, or to the individual receiving the trip as a benefit qua employee of the individual’s personal corporation – whereas no T4A slip is required if the trip was received as a benefit qua shareholder of the personal corporation (a distinction which in practice would be difficult or impossible for the trip provider to apply). If the trip was received qua individual proprietor, the full value of the trip was to be recorded on the T4A, whereas if the trip was received qua employee, only the value of the benefit was to be recorded.
Neal Armstrong. Summaries of 2014-0547931I7 Tr under s. 9 – Nature of Income and Reg. 200(1).
CRA considers that a public-sector nurse did not provide services “to Switzerland” for purposes of Art. 18(2)(a) of the Canada-Swiss Treaty
Art. 18(2)(a) of the Canada-Swiss Treaty provides that pensions paid out of funding provided by Switzerland or a political subdivision thereof “in respect of services rendered to Switzerland or subdivision…thereof in the discharge of functions of a governmental nature shall be taxable only in Switzerland.” CRA considered that “services rendered to Switzerland" referred to services rendered in the course of functions of a public character, and did not encompass the exercise by a person of duties as a nurse within the Swiss healthcare sector, “which is essentially dedicated to the provision of services for the benefit of the community as a whole” – so that pensions received by a retired Swiss public-sector nurse would not qualify for the exemption.
Neal Armstrong. Summary of 15 May 2017 External T.I. 2016-0645891E5 Tr under Treaties - Art. 18.
Sarmadi – Webb JA prunes the flourish of a taxpayer “demolishing” the Minister’s assumptions with a prima facie case
Webb JA essentially indicated that unnecessary confusion had resulted from statements such as “This initial onus of “demolishing” the Minister's exact assumptions is met where the appellant makes out at least a prima facie case… . Where the Minister's assumptions have been ‘demolished’ by the appellant, ‘the onus . . . shifts to the Minister to rebut the prima facie case’ made out by the appellant” (per L’Heureux-Dubé J in Hickman Motors).
He stated:
[A] taxpayer should have the burden to prove, on a balance of probabilities, any facts that are alleged by that taxpayer in their notice of appeal and that are denied by the Crown. … If there are facts that were assumed by the Minister in reassessing a taxpayer and that are not inconsistent with the facts as pled by that taxpayer...the taxpayer [must] prove, on a balance of probabilities, that these facts assumed by the Minister (and which are in dispute and are not exclusively or peculiarly within the Minister’s knowledge) are not correct. … Once all of the evidence is presented, the Tax Court judge should then (and only then) determine whether the taxpayer has satisfied this burden.
That’s it.
Stratas JA (with whom Woods JA agreed) stated that he found “much of what [Webb JA said] … to be thoughtful, illuminating and attractive,” but also that he declined “to express a definitive opinion on the correctness of his views on this fundamental point.”
Neal Armstrong. Summary of Sarmadi v. Canada, 2017 FCA 131 under General Concepts – Onus.
Tax Interpretations is now scraping both the new and old CRA sites every 4 hours
Our scraped copy of the CRA website now also includes the CRA pages under the Government of Canada website (canada.ca/en/revenue-agency and canada.ca/en/services/taxes). CRA is migrating to these pages from the "old" CRA website (cra-arc.gc.ca). The old and new sites are being crawled by us every four hours to identify new content.
The significance of this is that when you do a search using the Tax Interpretation search engine, your results will reflect a search of both the new and old CRA pages, so that hopefully nothing will be missed. Your search results will also of course show hits from the other content on the Tax Interpretations site before you click on the menu on the left to narrow the search results. A search on the whole site should take less than 1/7 of a second.
CRA rules that contributions made by construction contractors to a workplace development fund as agreed to by their collective bargaining agent were not subject to GST/HST
An employers’ organization for collective bargaining on behalf of employers (i.e., construction contractors) in the construction industry agreed during the negotiation of the collective agreements between the organization and the unions, that for each hour worked by employees pursuant to the collective agreements, the employers would contribute amounts to support workforce development initiatives. As a result, and as authorized by the provincial legislation, the contributions were paid by the employers over to the organization, which contributed them to a trust fund to be applied as bargained for.
CRA ruled that:
There is no direct link between the contributions made by the contractors to the Trust Fund and a supply made by the Trust Fund to the contractors. The payment of amounts as an industry development fee set by [the Organization] are therefore not consideration for a supply and therefore not subject to GST/HST.
Neal Armstrong. Summary of 19 January 2017 Ruling 172004 under ETA s. 123(1) – supply.
CRA finds that the sale of the two interests in a commercial trust to a 3rd party gave rise to a new trust
A non-resident common-law commercial trust had been settled with cash and Canadian real estate by two (apparently non-resident) corporations. A subsequent sale of their interests in the trust (along with the shares of the corporate trustee) to a third-party resident purchaser was found to have given rise to a resettlement of the trust, so that losses of the trust disappeared and, thus, were not available to shelter gain on the immediately ensuing sale of the real estate by the trust (which on the sale had become resident in Canada).
In this regard, the Directorate stated:
[T]he two original beneficiaries were not specifically prohibited from disposing of their capital and income interests in the Trust by selling it to someone else. However, in doing so the intention of the two original settlors is completely set aside. The intention of the settlors, as clearly spelled out in the Trust Deed, was to have the trustee hold and invest the capital of the trust for the benefit of two specific beneficiaries, the two original settlors themselves, and this is no longer the case. … [T]he transaction changed the whole substratum or “raison d’etre” of the Trust.
The Directorate went on to find (apparently in the alternative) “that the effective transfer of losses of the Trust to benefit the unrelated new majority/sole beneficiary of the Trust should be subject to GAAR,” after having quoted from Mackay.
Neal Armstrong. Summaries of 9 August 2016 Internal T.I. 2014-0526171I7 under s. 248(1) – disposition and s. 245(4).
CRA indicates that restricting s. 88(1.1) to Canadian corporations is not contrary to Art. XXV(1) or (5) of the Canada–U.S. Treaty
U.S. LLCs that had incurred non-capital losses as a result of carrying on business in Canada through Canadian permanent establishments, are wound up into their parent, which also is a U.S. LLC. S. 88(1.1) is restricted to Canadian corporations, so that those non-capital losses are extinguished, rather than being transferred to the LLC parent.
CRA confirmed in light of Saipem UK and some OECD commentary that it does not consider this result to constitute discrimination based on nationality or on permanent establishment status contrary to Art. XXV(1) or (5) of the Canada–U.S. Treaty.
Neal Armstrong. Summary of 25 May 2017 External T.I. 2017-0685651E5 under Treaties - Article 25.
Income Tax Severed Letters 28 June 2017
This morning's release of five severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Bygrave – Federal Court of Appeal finds that reliance by the taxpayer on ignorant advice justified his delay in bringing a s. 167(5) extension application
The taxpayer was misinformed by his accountant that it was necessary to gather the necessary documentary proof before appealing an assessment which treated his condo gain as on income account, as well as imposing a s. 163(2) penalty. Pelletier JA found that, in this light, the failure of the taxpayer (acting through the same accountant) to bring a Court application for extension of the appeal deadline until 52 days past the appeal deadline nonetheless satisfied the test in s. 167(5)(b)(iii), that the extension application “was made…as soon as the circumstances permitted.”
Neal Armstrong. Summary of Bygrave v. The Queen, 2017 FCA 124 under s. 167(5)(b).
Seven further full-text translations of CRA technical interpretations/Roundtable items are available
Full-text translations of the five French technical interpretations released last week and of two (APFF) Roundtable item that were released on January 14, 2015, are listed and briefly described in the table below.
These (and the other translations covering the last 29 months of CRA releases) are subject to the usual (3 working weeks per month) paywall. Next week is the “open” week for July.