News of Note
CRA follows Elim Housing in finding that an Ontario nursing home qualified for enhanced GST/HST rebates
Email this ContentElim Housing found that a B.C. long-term care facility, whose residents mostly had dementia, severely impaired mobility, complex medical issues and a life expectancy of between three months and three years, was making "facility supplies," so that it was eligible for the enhanced 83% federal public service body rebate. This likely overruled 3 July 2012 Ruling 109082 (re a nursing home). CRA has now (in response to a ruling request dated back in July 2011) ruled that an Ontario nursing home (the “Facility”) that was operated by a registered charity qualified for the federal 83% PSB rebate as well as the Ontario 87% PSB rebate. CRA stated:
After comparing the services and the care provided at the Facility to its residents to the elements described in Elim, we are of the view that facility supplies are provided at the Facility by the Corporation.
The Elim elements described by CRA included:
- physicians visited residents frequently (e.g., roughly on a bi-weekly basis); …
- registered nurses were at the facility at all times, and nurses were in regular communication with physicians for prescription or advice;
- the facility received funding for 2.8 hours of care per resident per day …;
- the care provided was of a different type than ordinary assistance with activities of daily living that a more robust individual might require.
Neal Armstrong. Summaries of 24 July 2017 Ruling 138196 under s. 259(1) – facility supply and s. 259(14).
CRA rules on subordinated notes with a mandatory conversion event
CRA provided rulings on interest being deductible and not being considered participating debt interest respecting subordinated notes with conventional terms other than that, on a redacted specified event (presumably respecting a shaky financial condition, as defined), the notes would be automatically converted into preferred shares based on a pre-determined conversion ratio. This fixed conversion ratio is different from 2014-0523691R3, where there was conversion into a formula quantity of common shares, but this made no difference. Here there was a similar statement in the summary that:
The borrower-lender relationship will continue to exist until such time as a [mandatory conversion event] occurs or until such time as it is or it became apparent the [mandatory conversion event] would occur.
Neal Armstrong. Summaries of 2016 Ruling 2015-0602711R3 under s. 20(1)(c)(i) and s. 212(3) - participating debt interest.
Income Tax Severed Letters 15 November 2017
This morning's release of five severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA rules that the Ontario electricity rebate does not reduce the consideration for the supply
There currently is an 8% rebate under the Ontario Rebate for Electricity Consumers Act, 2016 equal to the provincial portion of HST on the electricity bills of residential, farm, small business and other eligible customers. CRA has ruled that the rebate is financial assistance and does not reduce the consideration for the supply of the electricity nor the HST itself – so that input tax credits or public service body rebate claims of the recipient are not reduced by the rebate amount.
Neal Armstrong. Summary of 2 August 2017 Ruling 182285 under s. 169(1) and summary of 10 August 2017 Ruling 182286 under s. 259(1) – non-creditable tax charged.
The merger or liquidation of a CFA sub into its CFA parent may double-up exempt surplus
A foreign affiliate (Sub) that is generating exempt earnings pays a dividend to its foreign affiliate parent (Parent) more than 90 days into the year, and then is merged into Parent, who is the survivor. It would appear that Reg. 5907(8) deems Sub to have a year end prior to the merger for purposes of the 90-day rule in Reg. 5901(2) and that Sub satisfies an implicit requirement under that rule that it continues to exist for at least a moment after such deemed year end.
On this basis, under Reg. 5907(1)(c)(A)(v) the exempt surplus dividend paid by Sub to Parent is included in Parent's surplus at the date Parent receives the dividend and, under Reg. 5901(2), Sub is deemed to pay that dividend to Parent immediately following the end of the deemed year – so that Sub's exempt surplus balance immediately before that year end (and before the merger) includes the exempt surplus distributed from Sub to Parent earlier in the year. As a result:
The surplus paid out through Sub's dividend to Parent is double-counted in the exempt surplus balance after the merger… . First, under Regulation 5905 the opening surplus balances combines the surplus and deficit balances of Sub and Parent immediately before the merger time … .. Next, the 90-day rule in Regulation 5901(2) deems Sub to pay the dividend to Parent immediately following the end of the year. As a result of this timing, Sub's surplus balance before the merger … includes the surplus previously paid out and already included in Parent's surplus as a result of the dividend.
Similar issues arise if Sub is liquidated.
Neal Armstrong. Summary of Susan Mckilligan, "The 90-Day Rule and Mergers or Liquidations of Foreign Affiliates," International Tax (Wolters Kluwer CCH), October 2017, No. 96, p. 10 under Reg. 5901(2)(a).
Six further full-text translations of CRA technical interpretations are available
The table below provides descriptors and links for six French technical interpretation released in May 2014, as fully translated by us.
These (and the other full-text translations covering the last 3 ½ years of CRA releases) are subject to the usual (3 working weeks per month) paywall.
Scott – Tax Court of Canada finds that compensation to former Nortel employees for loss of life insurance was non-taxable
In connection with the Nortel asset distributions, a Nortel health and welfare trust made lump sum payments in 2011 to various beneficiaries in satisfaction of their entitlement to payments under the trust. These beneficiaries included:
- Ms. Ellis, who was a retired employee who had had a vested right for the trust to pay the periodic premiums for life insurance policies on her life (giving rise to income inclusions to her under s. 6(4)), with the insurance proceed to be paid to her beneficiary on her death.
- Mr. Scott, who had been the husband of a full-time non-unionized employee, and had been receiving monthly survivor income benefits following her death, that had been included in his income under s. 56(1)(a)(iii) as death benefits.
Sommerfeldt J found that the sum so received by Ms. Ellis was tax free. Although it could easily be considered to be a benefit that arose out of her previous employment, he applied the Savage principle of interpretation that:
where, in addition to the general provision in paragraph 6(1)(a), there is “a specific [statutory provision] containing detailed conditions for the inclusion of an amount in income that would not otherwise be income” … the general provision cannot be used “to fill in all the gaps left by” the specific provision [viz. s. 6(4)].
As for Mr. Scott, his payment was included in his income under s. 56(1)(a)(iii) as an amount paid “in lieu of” a death benefit, a phrase that had been broadly interpreted in Transocean.
Neal Armstrong. Summaries of Scott v. The Queen, 2017 TCC 224 under s. 6(1)(a), s. 56(1)(a)(iii), Tax Court Rules, s. 89(1)(a), ITA s. 107.1(a), s. 9 - Compensation Payments and General Concepts – Stare Decisis.
Barclays Wealth Trustees – English Court of Appeal indicates that the determination of whether there is a single trust should accord with how a trust lawyer would view the matter
Henderson LJ rejected a submission on behalf of HMRC that a separate settlement (i.e., trust) was created whenever further property was contributed to be held by the trustee of a previously-settled trust. He stated that his single-trust view was “how a trust lawyer or practitioner would view the matter,” and also was consistent with the statutory definition (in the Inheritance Tax Act 1984) of “settlement,” which referred to “any disposition or dispositions of property … whereby the property is for the time being … held in trust….”
Neal Armstrong. Summary of Barclays Wealth Trustees (Jersey) Limited v. Commissioners for Her Majesty's Revenue and Customs, [2017] EWCA Civ 1512 under s. 104(1) and Statutory Interpretation – Interpretation/Definition Provisions.
National Money Mart v 24 Gold - Ontario Superior Court finds that the 2-year Ontario limitation period for a claim for unpaid HST starts running only when the supplier pays that tax
ETA s. 224 provides that a supplier can sue the recipient of a taxable supply for unpaid GST/HST on the supply upon meeting conditions including that the supplier “has accounted for or remitted the tax payable by the recipient in respect of the supply to the Receiver General.” A supplier did not charge HST on a sale of unrefined gold (perhaps being unaware of the distinction between it and refined gold). Later it was audited and assessed for the missing HST, and on payment of the assessment, it sued the purchaser for the tax.
The purchaser argued that the two-year time limitation under the Limitations Act 2002 (Ontario) started running from the time that the supplier should have invoiced the HST on the sales, so that the supplier’s right of action under ETA s. 224 was out of time. In rejecting this argument, Diamond J found that the supplier did not have a right of action under s. 224 until it had been assessed for and paid the HST, so that the two-year limitation period only started running from that point. Thus, the supplier’s s. 224 action had been brought in time.
He also found that the purchaser was not time-barred under ETA s. 225(4) from claiming an input tax credit given that HST had not originally been charged by the supplier.
Neal Armstrong. Summaries of National Money Mart Co. v 24 Gold Group Ltd, 2017 ONSC 6373 under ETA s. 224 and s. 225(4)(c).
CRA notes that a fee paid for assignment of a non-builder’s new house purchase contract does not affect the GST/HST new housing rebate
The computation of the new housing GST or HST rebate takes into account the total taxable consideration for the supply of the new house to the individual purchaser. Where A, who agreed to purchase a new home from the builder, assigns her purchase agreement before closing to B for consideration representing the increased value of the underlying house, the new housing GST rebate to B will be computed on the basis only of the original purchase price – unless A also constituted a builder (e.g., A had entered into the purchase contract for the primary purpose of reselling the house), in which case, the assignment fee would be taxable, and the computation of the rebate would also take into account the amount of the assignment fee.
Neal Armstrong. Summary of 23 March 2017 CBA Commodity Taxes Roundtable, Q.21 under ETA s. 254(2)(i) and s. 254(4).