News of Note
CRA indicates that s. 118.1(5.1) does not apply where a GRE donates a capital interest in a charitable residual trust created by will
Email this ContentIn order for a charitable gift by a graduated rate estate gift to be included in the total charitable donations of the estate (or the deceased) under (c)(ii)(B) of the definition in s. 118.1(1) of "total charitable gifts," there is a requirement inter alia that s. 118.1(5.1) deems the gift to have been made by the estate. S. 118.1(5.1) references “property that was acquired by the estate on and as a consequence of the death.”
CRA considers that s. 118.1(5.1) does not apply where a GRE donates a capital interest, in a charitable residual trust created by will, to a qualified donee. However, this does not have much significance as:
under (c)(ii)(A) of the [same] Definition, the eligible amount of a gift of an interest in a trust could be included in the computation of the total charitable gifts of the GRE in the taxation year in which the gift is made or in any of the five subsequent taxation years [until claimed].
Neal Armstrong. Summary of 19 April 2017 External T.I. 2016-0625841E5 Tr under s. 118.1(5.1).
Pak...d – Tax Court of Canada places a heavy burden on those seeking a publication ban
A taxpayer, who was found in the Tax Court to have claimed expenses of what did not qualify as a business, then brought a motion for a publication ban of Masse DJ’s reasons for judgment on the basis that they contained information that would result in harm to himself, his family and the public.
In denying the motion, Campbell J applied the Dagenais/Mentuck tests of the Supreme Court under which courts will only grant publication bans where (i) “such an order is necessary in order to prevent a serious risk to the proper administration of justice because reasonably alternative measures will not prevent the risk,” and (ii) “the salutary effects of the publication ban outweigh the deleterious effects on the rights and interests of the parties and the public.” Respecting the second test, she stated:
In a self-assessing income tax system, it is particularly pertinent that the public have access to decisions of this Court, so that they can better ascertain the state of the law, particularly as it relates to issues which directly affect their daily activities. …
The earlier decision is now back on the Tax Court site.
Neal Armstrong. Summary of Pak...d v. The Queen, 2017 TCC 83 under Charter s. 2(b).
Fink – Attorney General is ordered to answer questions respecting remission relief to other taxpayers re set-off of capital losses against s. 7 benefits
The taxpayer sought judicial review of a CRA decision not to recommend a remission order to effectively permit the taxpayer to use a capital loss realized on a subsequent disposition of shares acquired under a stock option plan to offset part of the s. 7 benefit recognized on exercise of his options. De Montigny JA upheld an order below requiring the Attorney General to answer questions posed by the taxpayer respecting remission orders that had been granted to taxpayers in allegedly similar circumstances, except that those employees had been involved in an employee stock purchase plan rather than an employee stock option plan. Such information was not protected from disclosure under s. 241 as it related to administration or enforcement of the ITA.
Neal Armstrong. Summaries of Canada (Attorney General) v. Fink, 2017 FCA 87 under ITA s. 241(3)(b) and Financial Administration Act, s. 23(2).
CRA indicates that the right of the bare owner of property, subject to a usufruct in favour of a surviving spouse, to dispose of his bare ownership does not preclude a spousal trust
The will of the Quebec deceased bequeathed the usufruct of rental property to his spouse and the bare ownership to his adult child, thereby giving rise to a deemed trust under s. 248(3) (the “Trust”), and a mooted spousal trust. CRA stated:
[W]here the will provides that no person other than the deceased's spouse or common-law partner may, before death, receive any part of the income or capital of the Trust or otherwise obtain the use thereof… the fact that the will does not prevent the bare owner from disposing of his or her right should not, in and of itself, cause the condition in subparagraph 70(6)(b)(ii) to not be met.
Neal Armstrong. Summary of 20 April 2017 External T.I. 2016-0672501E5 Tr under s. 70(6)(b)(ii).
CRA finds that an appraisal increment increased a corporation’s retained earnings for Part I.3 purposes
S. 181.2(3)(a) provides that a corporation’s capital includes its retained earnings, which s. 181(3)(b)(i) requires, in the case of most corporations, to be determined in accordance with generally-accepted accounting principles.
On the initial application to it of accounting standards for private enterprises ("ASPEs") on January 1, 2011, a corporation revalued its assets (from their book value under “old” Canadian GAAP) to fair value, and increased its retained earnings accordingly. CRA found that since this increase accorded with ASPEs, such increase also increased the corporation’s capital under s. 181.2(3)(a).
Neal Armstrong. Summary of 2 May 2017 External T.I. 2016-0663781E5 Tr under s. 181(3)(b)(i).
CRA effectively gives a checklist for determining whether LLLP legislation provides for a corporation
A secondary assessing position of a TSO was that a Delaware LLLP, which had been wound-up, had been a corporation for ITA purposes. In the course of confirming this characterization, the Directorate provided a detailed listing of the relevant provisions of the Delaware legislation (the DRULPA), as well as summarizing the (unexceptional) features of the partnership agreement. This listing might be a useful checklist when confirming the portability of the CRA position respecting Delaware and Florida LLPs and LLLPs to other jurisdictions.
The Directorate went on to note that since it had recently determined to provide grandfathering relief re the application of its position to existing LLPs and LLLPs (see 2017 IFA Roundtable, Q.3), it recommended against treating this LLLP as having been a corporation.
Neal Armstrong. Summary of 13 February 2017 Internal T.I. 2015-0587691I7 under s. 96.
CRA provides illustration of the SBD-denial rule in s. 125(1)(a)(i)(B)
SellCo A and SellCo B sell all of their fishing catch to BuyCo, although BuyCo purchases the majority of its fish from unrelated parties. K owns 65% of BuyCo, K’s brother owns 100% of SellCo A and K’s son owns 100% of SellCo B. CRA confirmed that under the new s. 125(1)(a)(i)(B) rule, the income of the SellCos will not be eligible for the small business deduction, except to the extent that Buyco assigns some of its business limit to them, given that their income is not substantially derived from sales to arm’s length persons or untainted partnerships.
Neal Armstrong. Summary of 20 April 2017 External T.I. 2016-0679721E5 under s. 125(7) – specified corporate income.
Girard – Cour du Québec finds that momentary employment by a new employer was sufficient to render termination damages as a retiring allowance
Robinson found that damages received by an employee, following the amalgamation of the City of Gatineau for whom he worked and the failure of the new City to hire him, were a non-taxable receipt. The same result did not obtain where a taxpayer who had been appointed by a transitional committee to be the chief executive of the new amalgamated city (in this case Saguenay) was fired by the mayor on the second day of existence of the new City (with that decision ratified a week later) – so that his subsequent award of damages was a retiring allowance. Lavoie JCQ stated:
The very short duration of this employment from the beginning of the existence of the new city to his dismissal…does not allow us to discard the notion that he was compensated for losing employment that had been acquired by him.
Neal Armstrong. Summary of Girard v. Agence du revenu du Québec, 2017 QCCQ 3245 under s. 248(1) - retiring allowance.
Income Tax Severed Letters 24 May 2017
This morning's release of six severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Vinet – Cour du Québec finds that managerial actions of an individual limited partner were qua officer of the GP, so that he was a limited partner for tax purposes
An individual, who was the sole limited partner of a Quebec limited partnership (“SEC”) that owned and operated multiple farms, and the president of its general partner, argued that he was not a limited partner under the Quebec equivalent of ITA s. 96(2.4)(a), so that he could deduct his share of a substantial loss of the LP. He relied in this regard on s. 2244 of the Civil Code, which provided that a limited partner “may not negotiate any business on behalf of the partnership or act as mandatary or agent for the partnership,” and pointed to his involvement in the business of the LP including negotiating with suppliers and making various purchases.
Breault JCQ found that the individual had failed to establish that such activities were not effected as agent or manager for the general partner. He also quoted with approval an author who opined that “it is only in the common law provinces that the control of the internal management of a limited partnership gives rise to liability of the limited partners.”
Neal Armstrong Summary of Vinet v. Sous-ministre du Revenu du Québec, 2017 QCCQ 3957 under s. 96(2.4)(a).