News of Note
Parthiban – Tax Court of Canada finds that a UK visitor acquired a new home in Ontario as his primary place of residence
Email this ContentBoyle J rejected a CRA position that a UK citizen had not bought a new home in Markham as the primary place of residence of his family, as required for purposes of the new housing GST/HST rebate, because his status while in Canada when he agreed to buy it was that of a visitor. Since the requisite intention was there (and, in fact, was fulfilled), it was irrelevant that there may have been a significant risk of this intention being defeated by not being allowed to stay by Immigration Canada.
Neal Armstrong. Summary of Parthiban v. The Queen, 2017 TCC 30 under ETA s. 254(2)(b).
CRA states that the usual statute-barring rules apply to whether partnership income or loss can be redetermined
S. 152(1.4) indicates that the Minister may make a determination of the income, loss etc. of a partnership within 3 years of the later of the filing deadline and filing date for the partnership T5013.
3 years may not mean 3 years. CRA considers that because s. 152(1.2) effectively indicates that various of the Division I rules, including the statute-barring rules in s. 152(4), also apply for partnership determination purposes, the 3-year limitation does not apply where the T5013 contained a misrepresentation attributable to neglect etc. The way CRA expressed itself, the CRA determination made beyond the 3 years would not be limited to addressing the misrepresentation, as required by s. 152(4.01), but this may have been inadvertent.
Neal Armstrong. Summary of 29 November 2016 Internal T.I. 2016-0648571I7 under s. 152(1.4).
CRA considers that writing-off a statute-barred debt of an employee triggers a s. 6(15) benefit
CRA considers that whenever a debt owing by an employee is extinguished because of an employer action, s. 6(15) deems the forgiven amount to be an employment benefit. Respecting the situation where an employee debt becomes statute-barred (which presumably is not subject to the deemed settlement under s. 80.01(9) because the debt is not a commercial debt obligation), and the employer then writes it off because it is thus no longer legally collectible, CRA considers this writing-off to be sufficient to trigger s. 6(15). Cf. Diversified Holding: “for a debt to be settled or extinguished…there must be a legally binding termination in form.”
Neal Armstrong. Summary of 12 October 2016 Internal T.I. 2016-0637781I7 under s. 6(15).
Income Tax Severed Letters 8 March 2017
This morning's release of six severed letters from the Income Tax Rulings Directorate is now available for your viewing.
InterOil – Yukon Supreme Court indicates that all plans of arrangement must be accompanied by a fairness opinion prepared on a fixed fee basis
A decision of the Yukon Court of Appeal reversed approval of the plan of arrangement for the acquisition of InterOil by ExxonMobil on the basis inter alia that the Circular did not contain information permitting InterOil shareholders to properly assess the adequacy of contingent cash consideration to be paid to them based on the subsequently-measured size of InterOil’s natural gas resource. ExxonMobil then returned with an offer that was essentially the same, except that the contingent cash consideration was capped only once the resource size reached a quite unlikely level. The Circular disclosure was substantially improved.
In the course of giving his final approval for this revised plan, Veale J noted that, in giving interim approval, he had required that a fairness option be prepared by a reputable expert on a fixed fee (rather than “success” fee) basis and that there also be a supportive report of a Board Transaction Committee consisting of four independent directors, and stated:
In my view, these requirements provide a minimum standard for interim orders of any plan of arrangement. It is not acceptable to proceed on the basis of a Fairness Opinion which is in any way tied to the success of the arrangement.
Neal Armstrong. Summary of Re: Interoil Corp., 2017 YKSC 16 under Business Corporations Act (Ont.), s. 182(5)(c).
Full-text translations of severed letters extend back to July 2015
Full-text translations of five further technical interpretations released in French on August 5, 2015, as well as a French technical interpretation released on July 29, 2015 are now available - and are listed and briefly described in the table below.
These (and the other translations covering the last 19 months of CRA releases) are subject to the usual (3 working weeks per month) paywall. You are currently in the “open” week for March.
Farm Credit Canada – Tax Court of Canada finds that “loan corporation” for GST/HST purposes has a broader meaning than its provincial regulatory meaning
A listed financial institution, whose definition includes a “person whose principal business is the lending of money,” will usually also be a selected listed financial institution (SLFI) if it has a cross-Canada business. Different types of SLFIs are subject to different attribution rules for determining the blended HST rate of tax to which they are ultimately subject. One of these SLFI categories is for “a trust and loan corporation, a trust corporation or a loan corporation.” Quite oddly, “loan corporation” is not defined.
Farm Credit Canada (a federal Crown corporation providing financing assistance to farmers) argued that it was not a “loan corporation” because the quoted phrase above had a well understood meaning given that the provincial legislation regulating trust and loan corporations defined a “loan corporation” as a corporation that was incorporated for the purpose of borrowing money from the public (which Farm Credit Canada did not do) and then lending or investing such money.
D’Arcy J found that a loan corporation simply refers to a corporation whose principal business is the making of loans (notwithstanding that the Regulation did not use this phrase appearing in the listed financial institution definition), stating:
There are no provisions in the GST Act that state that a listed financial institution whose principal business is the lending of money is only a “loan corporation” for the purposes of the Attribution Regulations if it accepts deposits from the public. In my view, if Parliament had intended such a result it would have added that specific condition to the legislation. …
Neal Armstrong. Summary of Farm Credit Canada v. The Queen, 2017 TCC 29 under Selected Listed Financial Institution Attribution Method (GST/HST) Regulations, s. 26(1).
Full-text federal tax decisions going back to the late 90s have been added
We are beginning to add the full-text judicial decisions to our database, starting with Tax Court decisions (back to 1999), and tax-related decisions of the Federal Court of Appeal (1997) and Trial Division (1996) and the Supreme Court of Canada (1877, subject to no income tax back then). This will permit you to use our search engine in searching content in the last two decades of cases. Two basic pointers:
- Searches for section numbers will include more detailed versions of the indicated item. For example entering
245(4) 20(1)(c)
in the search box will show cases (and other content types, before you choose to narrow them down using the menu at the left), that also contain both 245(4) and 20(1)(c)(i) or (ii).
- Search results will be narrowed if you use quotations (resulting in only that exact word or phrase being searched). For example searching “surplus stripping” rather than surplus stripping reduces the cases hit from 30 to 15.
Decisions are added to our site within 37 minutes of their being published at the court sites (our computer slumbers not, nor sleeps).
CRA provides detailed guidance on the CbCR rules
On Thursday, CRA released its guide on the Country-by-Country Reporting (CbCR) legislation (s. 233.8) and related return-completion guidelines. CRA comments include:
- The BEPS Action 13 Final Report should be a “useful” source in interpreting s. 233.8.
- “CRA intends to provide a reasonable degree of flexibility for MNE groups filing a CbC report in Canada in respect of their initial reporting fiscal year, where guidance or interpretation on certain issues may not have been available….”
- Some accommodations are being made for ultimate parent entities (UPEs) which are resident in jurisdictions which have been somewhat slow in implementing their legal CbCR framework.
- The s. 233.8 definition of “excluded MNE group” (i.e., excluded from CbCR reporting obligations) references consolidated annual group revenue of €750M, whereas some other jurisdictions reference the local currency equivalent of this. Provided that such jurisdiction “has implemented a reporting threshold that is a near equivalent of €750 million in its domestic currency as it was at January 2015, an MNE group that complies with this local threshold will not be subject to the secondary reporting mechanism in Canada.”
- Also, use of an average annual exchange rate is permitted in translating revenues for purposes of applying the €750M threshold.
- A Canadian entity completing the report can fill in the amounts using its functional currency, if it has made a functional currency election.
- Respecting the reporting of “Revenues-Related party” (i.e., “revenues arising from transactions between entities not dealing at arm’s length”), “the financial results of all intercompany transactions within the same jurisdiction must be aggregated and not consolidated” (which is easy to say).
- Where there has been a takeover or reorg during the fiscal year resulting in a new UPE (including perhaps one in the same jurisdiction), the old UPE reports results up to that time, and the new UPE for the balance of the fiscal year (also easy to say).
- Investment funds should follow their accounting treatment in determining whether investees are part of their consolidated group, so that unless the investees are consolidated (as contrasted presumably with equity accounting), they can be ignored.
- As the CbCR is supposed to be used only for risk assessment, “CRA will not use CbCR information, by itself, to make reassessments to the income of a taxpayer.”
Neal Armstrong. Summaries of RC4651 “Guidance on Country-By-Country Reporting in Canada” 2 March 2017 under s. 233.8(3), s. 233.8(1) - excluded MNE group, s. 241(1) and s. 247(2).
A TCPL sub trust is proposing to issue 60-year automatically convertible notes which will qualify as equity for rating-agency purposes
An Ontario units trust controlled by TransCanada PipeLines Limited, which has already issued U.S.$1.95B in notes, is proposing to issue a further U.S.$1.2B, with the proceeds to be on-lent under unsecured subordinated notes to TCPL at roughly a 25 b.p. spread. The targeted result is that this debt will qualify for Basket ''C'' equity treatment by Moody's, and for Intermediate Equity Credit treatment by S&P. Somewhat equity-like features include the term of around 60 years, automatic conversion into preferred shares (with the same redemption amount) on specified insolvency events and the right of TCPL to satisfy interest payments in preferred shares.
The Trust notes and Sub notes of TCPL nonetheless clearly are debt for ITA purposes; but the U.S. tax disclosure states that there is no certainty that the IRS or a court will agree with TCPL’s position that they are debt. TCPL has the right to cause the Trust notes to be redeemed in the event that a “Tax Event” occurs, which in approximate terms refers to an opinion of independent counsel that any change in tax law (including its official administrative interpretation) would limit an interest deduction for U.S. tax purposes so as to result in the Trust or TCPL/TCC being subject to significant additional taxes or the interest being subject to significant withholding.
Neal Armstrong. Summary of Short Form Supplemented PREP Prospectus of TransCanada Trust under Offerings – Trust Notes.