News of Note
RevCon – Federal Court of Appeal finds that s. 231.7 continues to apply to non-lawyers
Email this ContentStratas JA found that Chambre des notaires and Thompson did not invalidate s. 231.7, and that there the Supreme Court instead had merely “read down section 231.7 to exclude lawyers and notaries,” so that the taxpayer was required to disclose materials which were not covered by solicitor-client privilege.
The decision below of Mosley J, which was affirmed, included findings that:
The name of a law firm, without more, is not protected by solicitor-client privilege. Nor is the revelation of shorthand tax language used by tax planning advisors.
Neal Armstrong. Summary of Revcon Oilfield Constructors Inc. v. Canada (National Revenue), 2017 FCA 22 under s. 231.7(1) and summary of MNR v. Revcon Oilfield Constructors Inc., 2015 FC 524, aff’d 2017 FCA 22 under s. 232(1) – solicitor-client privilege.
Changes to the life insurance policy taxation rules are impacting UL LCOI policies
The accumulating fund of a life insurance policy, which is intended to represent its savings element, is compared to that of a notional exemption test policy so as to determine whether the policy holder is exempt from taxation on accruing income. A number of changes to the rules for calculating the accumulating fund will, in a majority of situations, not have much impact – but could have a significant impact for universal life level cost of insurance (UL LCOI) policies, especially for younger ages. Furthermore, respecting changes to the calculation of the 15% Part XII.3 (IIT) tax payable by life insurance companies on the investment income accumulating within life insurance policies:
It is expected that the change in IIT on UL LCOI policies, if flowed through to policyholders, will have a significant impact on [cost of insurance] rates at younger ages (in the range of 6 to 9 percent), gradually decreasing at older ages (for example, 3 percent or less for insured individuals over the age of 60). There will also be an impact on level limited-pay universal life policies (whether on a level cost or yearly renewable term cost).
Neal Armstrong. Summaries of Kevin Wark and Michael O'Connor, “The Next Phase of Life Insurance Policyholder Taxation is Nigh,” Canadian Tax Journal (2016) 64:4, 705 - 50 including under Reg. 1401(1)(c).
In limited circumstances it may make sense for a CCPC target to make an s. 89(11) election
In the situation where, for example, a non-resident enters into an agreement to acquire a Canadian-controlled private corporation on September 1 and the agreement closes on December 1, it might be desirable for the target to make an election under s. 89(11) to be considered to not be a CCPC from the commencement of that year. This will have the advantage that it will not have a deemed year end on August 31 of that year (i.e., at the time immediately before that at which it otherwise would have ceased to be a CCPC), so that it will only have one deemed year end (immediately before the acquisition of control on December 1) rather than two.
Although making this election will also apply for small business deduction and LRIP/GRIP purposes, it will not affect the target's ability to claim the enhanced ITC for SR&ED, nor the ability of its shareholders to claim an allowable business investment loss or the capital gains deduction for qualified small business corporation shares.
Neal Armstrong. Summary of Manon Thivierge, “Income Tax Due-Diligence Considerations in Mergers and Acquisitions,” 2015 Conference Report (Canadian Tax Foundation), 18:1-29 under s. 89(11).
CRA finds that a notice of determination of partnership income or loss need not be sent to each partner
S. 152(1.5) provides that a determination of income or loss (or other items) for a partnership shall be sent to each partnership member. CRA applied s. 244(20) and Menzies to find that this requirement is deemed to be satisfied by sending the notice to the latest known partnership address.
Neal Armstrong. Summary of 18 October 2016 Internal T.I. 2016-0640321I7 under s. 244(20).
Income Tax Severed Letters 15 February 2017
This morning's release of five severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA takes an expansive view of what constitutes regular places of employment so as to render reimbursements for related travel as taxable benefits
CRA considers that if an individual has multiple regular places of employment (RPE) and travels between them during the day, the trip from the individual’s home to the first RPE and the trip home from the last RPE is personal, whereas travel between RPEs is considered employment-related – so that reimbursement of or allowances respecting the former but not the latter would give rise to employment benefits. In this context, CRA stated that “travel between an employee’s home and their employer’s business location is personal, even when the employee has a home office that is a regular place of employment” (cf. Cork), and that “a location may not be a RPE for an individual if, for example, the individual works at that particular location only once during the year or perhaps for only a few days in the year.”
Neal Armstrong. Summary of May 2016 Alberta CPA Roundtable, Q.3 under s. 6(1)(b).
Further full-text translations of severed letters (including on “spousal sharing”) are now available
Full-text translations of the French technical interpretation released last week and of seven technical interpretations released between December 2, 2015 and September 30, 2015 are now available - and are listed and briefly described in the table below.
These (and the other translations covering the last 16 months of CRA releases) are subject to the usual (3 working weeks per month) paywall.
CRA indicates that s. 163(1) penalties for 2014 and prior will not be reduced to reflect the more favourable post-2014 penalty calculation
The amended version of s. 163(1) imposes penalties for the 2015 and subsequent taxation years in accordance with a more favourable formula than previously. CRA will not exercise its discretion under s. 220(3.1) to reduce penalties assessed for the 2014 and prior taxation years to this more favourable basis, and instead will only apply its usual (somewhat onerous) criteria for penalty relief.
Neal Armstrong. Summary of May 2016 Alberta CPA Roundtable, Q.4 under s. 220(3.1).
CRA states that it will accommodate failures to make a GRE designation in the first estate return
To be a graduated rate estate, the estate, amongst more substantive requirements, must designate itself as a GRE in its first T3 return. CRA stated:
If the designation for the trust to be a GRE is omitted in error, an adjustment request containing the elements required for the designation and the rationale for the omission from the original filing may be submitted to the CRA.
No time limitation was stated.
Neal Armstrong. Summary of May 2016 Alberta CPA Roundtable, Q.18 under s. 248(1) - graduated rate estate – para. (d).
CRA acknowledges the onus on it to justify assessing T1135 penalties outside the normal statute-barring periods
Notwithstanding that CRA acknowledges that assessing a s. 162(7) penalty for failure to file T1135s for periods before the normal reassessment period (as potentially extended by three years under s. 152(4)(b.2)) would require CRA to demonstrate that such failure “was an error that a prudent and conscientious person would not have made” (which often would be difficult for CRA to do where there were few records or memories), CRA nonetheless states that in order for failure to file T1135s to be exonerated under the voluntary disclosure program, “the taxpayer would have to complete the T1135 for all years for which such filing was required.”
This was position was formulated even before the more recent trend towards providing less encouragement to taxpayers to make voluntary disclosures.
Neal Armstrong. Summaries of May 2016 Alberta CPA Roundtable, Q.17 under s. 152(4)(a)(i) and s. 220(3.1).