News of Note
CRA indicates that it has the “flexibility” to accommodate a requested assessment of a prior GST/HST return to allow an unclaimed s. 232 rebate credit
Email this ContentIn P-149R, CRA states that it generally will not assess a prior GST/HST return at the request of the registrant to the extent this will result in a reduction in net tax, so that the registrant should instead carry forward unclaimed input tax credits for claiming in its current return. However, this does not work for a credit arising under ETA s. 232 (re rebating consideration and related GST/HST for a previous reporting period) where the registrant missed claiming the s. 232 credit for the reporting period in which the adjustment was made, as that credit (unlike an ITC) cannot be carried forward to a subsequent return.
However, CRA has indicated that in its policy under P-149R, it has the “flexibility” to allow assessing the prior return “where the adjustment relates to an amount that may not be reported or accounted for in a subsequent period,” which appears to be a very guarded “yes,” that it generally would be receptive to opening up the return to allow the s. 232 credit.
Neal Armstrong. Summary of 2016 CBA Roundtable, Q.8 under ETA s. 296(1).
Aeronautic Development – Tax Court of Canada finds that a situation of extreme economic dependence gave rise to de facto control
A Canadian corporation (ADC), which had issued voting common shares for a modest amount to three Canadian employees, was found to be subject to the de facto control (as defined in s. 256(5.1)) of a U.S. corporation and its controlling shareholder (Mr Silva), so that it did not qualify for refundable SR&ED investment tax credits. Hogan J noted that “McGillivray confirms that the influence [referenced in s. 256(5.1)] must be exercisable, directly or indirectly, against the voting shareholders of the corporation.” He nonetheless found that this narrow test was satisfied on the basis inter alia that the sole source of revenue of ADC was (and likely could only be) a cost-plus contract with the U.S. corporation for work on a particular project and, that, accordingly:
[I]t is hard to conceive that the Canadian Resident Shareholders would have exercised their voting rights independently of Mr. Silva’s wishes. The fact that the Canadian Resident Shareholders were either employees of the Appellant or entities wholly owned by employees of the Appellant reinforces this conclusion.
Neal Armstrong. Summary of Aeronautic Development Corp. v. The Queen, 2017 TCC 39 under s. 256(5.1).
The new CRA telephone service for those with complex technical tax issues will initially be limited to Ontario and Quebec CPAs
The Dedicated Telephone Service ("DTS") for tax service providers with “more complex technical tax issues“ than those that can be handled by the CRA general inquiry line, which will launch in July 2017 as a pilot project, will initially be limited to Ontario and Quebec CPAs. CRA states:
The DTS will be a technical resource for tax service providers rather than a problem solving line. …[T]he DTS is not intended for specialized tax professionals whose services are focused on complex tax planning. They should continue to direct their tax queries through requests for technical interpretations, advance rulings, or pre-decision consultations.
Neal Armstrong. Summary of 2 February 2017 Quebec CPA Individual Taxation Roundtable, 2017-0682711C6 Tr under s. 152(1).
CRA confirms that if a vehicle allowance is too low, the employee can include the allowance and deduct the vehicle expenses
S. 6(1)(b)(xi) provides that if any of an employee’s vehicle expenses are reimbursed by her employer, the full amount of any vehicle allowance received by her will be included in her employment income. However, where the employee receives a vehicle allowance that is less than the maximum which could be received as a tax-free vehicle allowance, CRA considers that where the:
employee elects to include in income the amount of a non-taxable motor vehicle allowance, the employee can deduct the expenses for that vehicle which were actually incurred and which are otherwise deductible on condition that the employee can demonstrate that such expenses are in excess of the allowance in question.
Neal Armstrong. Summaries of 2 February 2017 Quebec CPA Individual Taxation Roundtable, Q.1.7, 2016-0674811C6 Tr under s. 8(1)(h.1) and Reg. 200(3).
CRA accepts that a couple under the same roof can be living separate and apart
The eligibility of an individual for the Canada child tax benefit or the GST/HST credit under s. 122.5 may turn on whether the individual has a “cohabiting spouse or common-law partner,” whose definition turns, in part, on whether they are living “separate and apart.” CRA accepts the family law jurisprudence that they can potentially qualify as living separate and apart even if they are living under the same roof (e.g., pending sale of the house), and cited the criteria in M. v. H, [1999] 2 SCR 3 of “shared shelter, sexual and personal behaviour, services rendered between them, social activities and relations, economic support and children, as well as the societal perception of the couple.”
Without hint of self-consciousness, CRA then provided a list of documents that could satisfy an auditor that these criteria are met.
Neal Armstrong. Summary of 2 February 2017 Quebec CPA Individual Taxation Roundtable, Q.1.3, 2016-0674821C6 Tr under s. 122.6 – cohabiting spouse or common-law partner.
CRA affirms general reasonability of a car allowance rate of $0.54/$0.48 per kilometre including for electric vehicles
In S2-F3-C2 respecting employee vehicle allowances, CRA states that “generally, a per-kilometre rate will be considered reasonable if it is equal to the rate prescribed for the particular province in [Reg.] 7306,” which currently is at the rate of $0.54 per km for the first 5,000 km and $0.48 per km for the excess. CRA affirmed this position in response to a query pointing out that in some technical interpretations, CRA had referenced the Treasury Board rates, which currently are $0.49 per km.
Electric cars are not treated differently.
Neal Armstrong. Summaries of 2 February 2017 Quebec CPA Individual Taxation Roundtable, Q.1.5, under s. 6(1)(b)(vii.1) and s. 6(1)(k)(v).
CRA states that substantially renovating the personal-use portion of a rental property (without changing floor areas) generally would not engage the change-of-use rules
CRA considers a real estate property that has not been partitioned to be a single property. Thus, for example, if a duplex containing two identical units with unit 1 used for personal purposes and unit 2 being rented out, has a reversal of use, so that unit 1 starts to be rented out and unit 2 to be used for personal purposes, the change of use rules would not apply, because the rental-property use of this single property stays at 50%. When asked what would happen if unit 2 then was substantially renovated so that its relative value increased, CRA stated that this:
would not in itself have the effect of changing the relation between the use regularly made by the taxpayer of the property for gaining or producing income and the use regularly made of the property for other purposes. Our comments would be different if the renovation had the effect of changing the relative area of each unit.
Neal Armstrong. Summaries of 2 February 2017 Quebec CPA Individual Taxation Roundtable, Q.1.4, 2016-0674831C6 Tr under s. 45(1)(c) and s. 4(1)(a).
CRA considers that a gifted home can qualify for the HBTC
CRA considers that the acquisition of a first home by way of gift (e.g., from parents) rather than as a purchase does not preclude access to the first-time home buyer’s tax credit.
Neal Armstrong. Summary of 2017 Quebec CPA Roundtable, Q.1.8, 2016-0674851C6 Tr under s. 118.05(1) – qualifying home – para. (a).
CRA implies that income on which the SBD is deliberately not claimed is subject to a punitive rate of corporate tax
It was suggested to CRA that a Quebec CCPC that was not eligible for the Quebec small business deduction might choose not to claim the federal SBD because, although this would increase its combined corporate tax from 22.3% to 26.9%, all its income could then be distributed as eligible dividends.
CRA demurred, indicating that not claiming the SBD would not have the effect of increasing the amount of taxable income which was eligible for the general rate reduction of 13% under s. 123.4(2): such taxable income is reduced by the amount of income eligible for the SBD, irrespective of whether it is claimed. This seems to suggest that the income on which the SBD could have been, but was not, claimed would be subject to corporate income tax of around 40%.
Neal Armstrong. Summary of 2017 Quebec CPA Roundtable, Q.1.1, 2016-0674221C6 Tr under s. 123.4(1) – full rate taxable income.
Income Tax Severed Letters 15 March 2017
This morning's release of eight severed letters from the Income Tax Rulings Directorate is now available for your viewing.