News of Note
Consistent use of Bloomberg, Thomson Reuters or OANDA FX spot rates generally is acceptable to CRA
Email this ContentWhat exchange rate will CRA permit a taxpayer to use as the “relevant spot rate” as an alternative to the Bank of Canada daily exchange rate? CRA indicated that the rates quoted by Bloomberg L.P., Thomson Reuters Corporation and OANDA Corporation would be “generally acceptable” as satisfying its criteria of being widely available on an ongoing basis, verifiable, and market-recognized. If such rates are used for ITA purposes, they must be used consistently from year to year and also used in the taxpayer’s financial statements – and be “used in accordance with well-accepted business practice” (which might mean something more than simply recording and storing them properly).
There is no mention of being allowed to average the exchange rates – and there is also no explicit discussion of how to select rates if the Bloomberg machine is providing continuous quotes throughout the day (although the “consistently” and “well-accepted business practice” references would have some bearing.)
CRA also states that:
The Bank of Canada rate will still be required in respect of a taxpayer transitioning into or out of income tax reporting in its elected functional currency in accordance with subsections 261(7) or 261(12)….
Neal Armstrong. Summary of 27 April 2017 Internal T.I. 2017-0684831I7 under s. 261(1) – relevant spot rate.
CRA states that a s. 149(1)(o.2)(iii) corporation is not generally precluded by the permitted investment rule from putting more than 10% of its assets in a single investment
A s. 149(1)(o.2)(iii) corporation is not permitted to make investments that are not permitted under the Pension Benefits Standards Act, 1985 (or similar provincial legislation). For PBSA purposes, the prohibition against a pension plan investing more than 10% of its assets in any one investment is applied at the level of the pension plan, rather than of a subsidiary pension corporation. CRA has determined that the policy intent of the permitted investment rule in s. 149(1)(o.2)(iii) (as well as of similar rules in ss. 149(1)(o.2)(ii)(B) and 149(1)(o.2)(ii.1)(B)(IV)) “is to defer to the investment requirements of the PBSA.” Accordingly, the same approach is to be followed under such s. 149(1)(o.2) provisions, i.e., the pension corporation is not precluded from investing more than 10% of its assets in a single investment.
Neal Armstrong. Summary of 21 December 2016 Internal T.I. 2013-0508321I7 under s. 149(1)(o.2)(iii).
Income Tax Severed Letters 3 May 2017
This morning's release of eight severed letters from the Income Tax Rulings Directorate is now available for your viewing.
High-Crest and Birchcliff Energy – Federal Court of Appeal nullifies cases that were decided by a 2nd judge based on the trial transcript before the 1st judge
Rossiter CJ dealt with the difficulties of a Tax Court Judge in not being able to do much work by assigning the transcripts of some cases that that judge had already heard to other judges to reach a decision based on the transcript, where the parties were amenable to this approach rather than choosing to undergo a fresh trial.
A majority of the Federal Court of Appeal (Stratas JA dissenting) has now decided that the transcript-based decisions are nullities, so that these cases are being remitted back to the first judge (who is available) for decision (based inter alia on the same transcripts). Webb JA stated:
The general rule, as noted by the Supreme Court, is that a judge who is seized of a matter is the one who has the jurisdiction to continue with that matter. In my view, if Parliament intended to alter this rule to provide the Chief Justice with the power to remove a file from a judge who was seized of this matter, clearer language would be required.
Neal Armstrong. Summaries of High-Crest Enterprises Ltd. v. The Queen, 2017 FCA 88 under Tax Court of Canada Act, s. 14(2) and ETA, s. 191.1(1) – government funding and of Birchcliff Energy Ltd. v. The Queen, 2017 FCA 89 under Tax Court of Canada Act, s. 14(2).
Six further full-text translations of Technical Interpretations are available
Full-text translations of the French technical interpretation that was released last week and of five French technical interpretations released between April 8, 2015 and April 1, 2015, are listed and briefly described in the table below.
These (and the other translations covering the last 25 months of CRA releases) are subject to the usual (3 working weeks per month) paywall. You currently are in the “open” week for May.
Smith – the provision of a free monthly parking pass to an employee was a taxable benefit
A flight attendant would not have received a taxable benefit from the provision to him, pursuant to a collective agreement, of a free monthly parking pass at the Calgary airport if it had been demonstrated that his employer (Jazz) provided the pass primarily for its benefit. This was not demonstrated, given that employees were free to choose any available means to get to the airport – and, in the case of the taxpayer, who had no other available means of transport to the airport, he would have gotten there on time even if he had to pay for his pass.
Neal Armstrong. Summary of Smith v. The Queen, 2017 TCC 62 under s. 6(1)(a).
CRA considers that s. 152(4)(b)(iii) permits a reallocation of taxable income among provinces where a taxpayer’s sales revenue has been increased under s. 247(2)
S. 152(4)(b)(iii) extends the normal reassessment period for an additional three years for reassessments made “as a consequence of” a transaction involving the taxpayer and a non-arm’s length non-resident.
A s. 247(2) transfer-pricing adjustment (“TPA”) was reassessed by CRA within the three years after the normal reassessment period to increase the sales proceeds on a cross-border sale. CRA then performed a provincial income allocation audit, also within the additional three-year period. The Directorate found that CRA was also authorized by s. 152(4)(b)(iii) to reassess so as to reallocate both the pre-TPA and additional TPA revenue among the provinces – apparently even though this might only affect relative provincial taxable income and not affect federal taxable income (given that the TPA reassessment had already occurred).
Neal Armstrong. Summary of 16 January 2017 Internal T.I. 2016-0651411I7 under s. 152(4)(b)(iii).
CRA indicates that a sole shareholder who did not receive salary every year could receive a death benefit
CRA considers that if a sole shareholder was paid “over the years” for his or her employment services, the receipt only of dividends for the two years preceding death would not preclude an amount paid by the corporation after death from qualifying as a death benefit. CRA also stated that “the payment of the death benefit may be staggered over more than one taxation year.”
Neal Armstrong. Summary of 14 March 2017 External T.I. 2016-0656101E5 Tr under s. 248(1) – death benefit.
NR4s are required even where there is no Part XIII tax
CRA confirmed that the NR4 filings are required even if interest paid to a non-resident is not subject to withholding.
Neal Armstrong. Summary of 26 April 2017 IFA Roundtable, Q.8 under Reg. 202(1).
CRA interprets the s. 95(2)(a)(ii)(D)(IV)2 reference to “income” to include “loss,” but indicates that s. 95(2)(a)(ii)(D)(IV)2 does not work re an LLC interest that is sold before year end
S. 95(2)(a)(ii)(D) may recharacterize interest received by a non-resident sub (“CFA”) of Canco as active business income if the loan was made by CFA to a non-resident subsidiary (FA2) to finance FA2's purchase of FA3 shares that are excluded property. However, where one or both of FA2 and FA3 are fiscally transparent LLCs, s. 95(2)(a)(ii)(D)(IV)2 requires that their members at the end of their relevant taxation year be subject to U.S. tax on substantially all of such FA's income for that year.
CRA considers that this requirement will be satisfied even if, in the particular year, FA2 or FA3 experiences a loss rather than income. However, it considers that the words simply are not satisfied respecting, say, FA3, if FA2 (in this example, a C Corp.) disposes of its membership interest in FA3 before the end of the year, so that FA2 cannot satisfy the s. 95(2)(a)(ii)(D)(IV)2 requirement that it be a member of FA3 at the end of that year. This latter issue has been forwarded to Finance.
Neal Armstrong. Summary of under s. 95(2)(a)( 26 April 2017 IFA Roundtable, Q.7 under s. 95(2)(a)(ii)(D)(IV)2.