News of Note
Barrick Gold – Tax Court of Canada finds that gains from closing out gold hedges on the sale of a mine were included in mining production profits
Email this ContentThe definition of “gross resource profits” included income from “the production and processing in Canada of…ore.” Barrick Gold had entered into forward contracts to lock in the price of anticipated gold production at its Doyon Mine but then, shortly before completing a sale of the Mine to Cambior, closed out its forwards at a gain. Paris J found that the forwards had a sufficient connection with Barrick’s Doyon mining operation, given that they were entered into in the course of that business to hedge against price fluctuations respecting the production, for the hedging gains to be income from that production.
Although the resource allowance that was at stake in this case has since disappeared, this case is consistent with the proposition that the character of a gain from settling a contract usually is determined based on the relevant intention and circumstances surrounding the entering into of the contract rather than those prevailing at the time of realization of the gain. (Among other bold arguments, the Crown had submitted that “the Forward Contracts ceased to be hedges prior to their closeout because as of [the date of the letter of intent for the sale to Cambior] the Appellant no longer anticipated any future gold production from the Doyon Mine.”)
Neal Armstrong. Summaries of Barrick Gold Corp. v. The Queen, 2017 TCC 18 under Reg. 1204(1)(b)(ii) and General Concepts – Accounting Principles.
CRA states that it applies the same (exceptional circumstances) policy to relief of penalties for culpable conduct as for gross negligence
Guindon noted that the Minister’s factum suggested that the taxpayer relief provisions of s. 220(3.1) could be available to an individual assessed with a civil penalty. Before indicating that the position in IC07-1, paras. 37-38 respecting relief from gross negligence penalties being available only in exceptional circumstances would also apply to culpable conduct penalties (which were at issue in Guindon), CRA stated:
CRA policies and procedures have not changed in light of the Guindon SCC decision. The taxpayer relief provisions of subsection 220(3.1) could be available to an individual assessed a civil penalty…including a third-party penalty.
Neal Armstrong. Summary of May 2016 Alberta CPA Roundtable, Q.13 under s. 220(3.1).
CRA confirms that taxpayers paying U.S. taxes through a Canadian trust or partnership are relieved from documenting support for their FTC claim (if T3 or T5013 issued)
At the 2016 STEP Roundtable, Q.9 (and later, at the 2016 annual CTF Conference, Q.12), CRA indicated that it had ceased exempting claims for U.S. foreign tax credits from the approach, which it already had been applying to FTC claims for other jurisdictions, of requiring a copy of the foreign tax return as well as a copy of the foreign notice of assessment (or other equivalent document) from the foreign tax authority – but that, in response to feedback on this change, it had begun to accept proof of payment to (or refund from) the foreign tax authority, rather than insisting on something like a notice of assessment.
As it turns out, CRA was also asked about this a month earlier at the May 2016 Alberta CPA Roundtable and, in addition to the other points, also stated that “Canadian information slips [e.g., T3s or T5013s] continue to be acceptable supporting documents for the FTC.”
Neal Armstrong. Summary of May 2016 Alberta CPA Roundtable, Q.10 under s. 126(1).
Full translations of French severed letters released on December 2, 2015 are available
Full-text translations of five French technical interpretations released on December 2, 2015 are now available - and are listed and briefly described in the table below.
These (and the other translations covering the last 14 months of CRA releases) are subject to the usual (3 working weeks per month) paywall. You currently are in the “open” week for February.
| Bundle Date | Translated severed letter | Summaries under | Summary descriptor |
|---|---|---|---|
| 2015-12-02 | 2 November 2015 External T.I. 2014-0558991E5 F - Loan from an Amateur Athlete Trust | Income Tax Act - Section 143.1 - Subsection 143.1(1.2) - Paragraph 143.1(1.2)(d) | genuine loan to athlete with adequate prospect of repayment not a transfer of property |
| 15 December 2014 Internal T.I. 2012-0445361I7 F - Remboursement de frais de déménagement | Income Tax Act - Section 2 - Subsection 2(1) | criteria for determining “ordinarily resides” under s. 62 (coterminous with “ordinarily resident” under s. 250(3) | |
| Income Tax Act - Section 248 - Subsection 248(1) - Eligible Relocation | expenses re selling a Canadian home after a 2nd relocation abroad are non-deductible if no ordinary residence at 1st location abroad | ||
| Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) | reimbursement of moving expenses not a taxable benefit if such moving expenses otherwise deductible under s. 62 which, in the case of multiple moves, can turn on whether there is ordinary residence at each location | ||
| 15 December 2014 Internal T.I. 2014-0544121I7 F - Chantier particulier | Income Tax Act - Section 6 - Subsection 6(6) | work engagement ceased to be temporary based on a change in circumstances | |
| 4 March 2015 Internal T.I. 2014-0527751I7 F - Soutien de revenu accordé aux individus | Income Tax Act - Section 56 - Subsection 56(1) - Paragraph 56(1)(r) | includes amounts received under the active employment measures of Emploi-Québec | |
| 18 February 2015 External T.I. 2012-0471731E5 F - Déductibilité du droit d’usage pour automobile | Income Tax Act - Section 6 - Subsection 6(2) | no reduction in benefit amount for benefits provided by employee to employer | |
| Income Tax Act - Section 8 - Subsection 8(1) - Paragraph 8(1)(f) | reduced auto enjoyment not an expenditure |
2252493 Ontario – Tax Court of Canada refuses to relieve from charging HST on a real estate sale where the purchaser’s bare trustee capacity was undisclosed
The vendor of a commercial property signed a sale agreement with a purchaser (Mayling) who was not registered for HST purposes – but then, on closing, was directed to transfer title to a purchaser (840 Holdings), which was HST-registered. The vendor was later informed that, in fact, 840 Holdings was purchasing on behalf of two other registered companies who had acquired beneficial co-ownership interests in the property – and who self-assessed themselves for the applicable HST.
Bocock J found that there was no contemporaneous documentation to establish that the “beneficial owners” had relieved 840 Holdings of its obligations under the purchase agreement, so that the vendor was liable for failure to charge HST on a sale to an unregistered purchaser (Mayling).
Neal Armstrong. Summary of 2252493 Ontario Ltd., v The Queen, 2017 TCC 20 under ETA s. 221(2).
ExxonMobil renews proposal to acquire InterOil on the same basis as before, but with an increased contingent cap
The proposal for the Exxon acquisition of InterOil contemplated that a newly-incorporated B.C. subsidiary of ExxonMobil would acquire InterOil under a Yukon Plan of Arrangement, with the consideration for each InterOil share comprising that number of ExxonMobil shares having a fixed value of U.S.$45.00 per share, plus a cash payment of U.S.$26.87 per share (or U.S.$1.37B in total). However the cash “contingent resource payment” (or “CRP”) of U.S.$26.87 per share, was to be held under an escrow arrangement, to be repaid in full if an interim resource assessment of a Papua New Guinea natural gas project of InterOil (slated to occur in the 2nd quarter of 2017), showed a resource of less than 6.2 trillion cubic feet equivalent ("tcfe"), and with the CRP having to be repaid on a pro rata basis if the interim assessment showed a resource of between 6.2 and 10 tcfe.
Following a decision of the Yukon Court of Appeal reversing approval of the Plan of Arrangement, ExxonMobil has returned with the same offer (set out in a more detailed Circular of InterOil), except that the CRP cap occurs at 11 tcfe rather than 10 tcfe – and also secured a fairness opinion from BMO to InterOil which was paid for on a fixed fee rather than contingent basis.
The Canadian tax disclosure is essentially the same as before, and indicates that the full per share CRP consideration (now of U.S.$ $33.94 rather than U.S.$26.87 per share) - as well as, of course, the share consideration of U.S.$45 per share - will be required to be included in computing a resident InterOil shareholder’s proceeds of disposition, but (under s. 42) if the repayment obligation is triggered before the filing due-date for the shareholder’s return, the repayment would reduce those proceeds of disposition.
Neal Armstrong. Summary of InterOil Circular under Mergers & Acquisitions – Cross-Border Acquisitions – Inbound – Canadian Buyco.
CRA indicated that taxpayers potentially can make a 2nd VDP disclosure
CRA indicated in May 2016 that it will accept a second disclosure by a taxpayer under the voluntary disclosure program respecting an unrelated issue (assuming that the usual four conditions set out in its Circular are satisfied). A second disclosure also will be accepted respecting a related issue where the taxpayer’s non-compliance was due to factors beyond its control, e.g., an employee receiving an amended T4, or an executor receiving an unexpected bank statement re a foreign asset (changing amounts in a T1135 VDP filing).
Neal Armstrong. Summary of May 2016 Alberta CPA Roundtable, Q.11 under s. 220(3.1).
The MLI, essentially by virtue of being applied in a global manner, lends itself to English and French being the only authentic texts
A group of 14 lawyers from around the world gave somewhat presciently, before the release of the Multilateral Instrument, the rationale for it to not operate by way of modifying existing bilateral tax treaties but, instead, to modifying bilateral tax treaties between the MLI signatories without specifying them individually, so that one would resort to the MLI for the relevant wording. What in fact happened was something along the suggested lines, but with optionality where a minimum standard was not involved, so that individual articles would be specified, and with the covered Treaties also specified.
In the course of discussing this broader issue, they noted that around 90% of treaties have an authentic English or French version – and respecting the countries which have concluded tax treaties in neither English nor French, “there are some pointers to the likely result” that they should largely be content to have the MLI be implemented in English and French only. This comment also was prescient - the MLI provides that the authentic languages are English and French only, so that where questions of interpretation arise in relation to "Covered Tax Agreements" concluded in other languages or in relation to translations of the MLI into other languages, it may be necessary to refer back to the English or French authentic texts.
Neal Armstrong. Summary of Stéphane Austry, John Avery Jones, Philip Baker, Peter Blessing, Robert Danon, Shefali Goradia, Koichi Inoue, Jürgen Lüdicke, Guglielmo Maisto, Toshio Miyatake, Angelo Nikolakakis, Kees van Raad, Richard Vann and Bertil Wiman, “The Proposed OECD Multilateral Instrument Amending Tax Treaties,” Bulletin for International Taxation, December 2016, p. 683 under Treaties.
CRA releases a primer on the range of circumstances in which a public service body is subject to GST or HST
CRA has issued a new GST/HST Memorandum respecting the (partial) rebate under ETA s. 259 available to public service bodies (such as NPOs, charities, municipalities, hospitals and various schools) for GST/HST payable by them. Most of the Memorandum is a primer on the various circumstances in which a net amount of GST/HST can first become payable by a PSP (including on a self-assessment basis) rather than on the relatively mechanical calculation of the rebate itself.
Although the Memorandum provides 29 examples, they are drafted at such a level of bloodless abstraction that they shed minimal light on the interpretation of the provisions being illustrated. For example, Example 7 references a PSB that is charged at the Ontario rate of 13% on software programming services acquired by it for “use” 80% at its Ontario head office and 20% at one of its offices in PEI – and goes on to note that the PSB would be required to self-assess itself for the 2% higher PEI HST rate on the 20% portion for use in PEI, before then calculating its rebate. If the PSB had its IT department in PEI, executive(s) overseeing them in Ontario, its servers in Chicago and website users benefitting from the software across Canada and elsewhere, on what basis would the percentage split be determined? Example 47 in draft Notice 266, published over five years ago, is similar. Does the absence of any burgeoning published policy signify that CRA is not attempting to enforce this provision, so that it is not developing any experience with it (maybe kind of like the GST GAAR – see Brent Murray)?
Neal Armstrong. 15 summaries of GST/HST Memorandum 13.5 Non-creditable Tax Charged January 2017 including under ETA s. 220.08(1).
CRA expands its stated policies on the home work space s. 18(12) deduction
CRA’s new Folio, on the s. 18(12) limitation on the deduction of expenses of a home work space from business income, maintains most of the stated positions in IT-514, but also adds some additional points, including:
- The portion of a residence used in a bed and breakfast operation generally will be treated as a work space within a self-contained domestic establishment, being the entirety of the home. Sudbrack (which found that an owner’s area within a guest house was a self-contained domestic establishment notwithstanding that it did not have its own kitchen) will only be followed “in situations that fall within the same fact pattern.”
- Without adverting to Ryan (which went somewhat the other way), CRA states that the references in s. 18(12(a)(ii) to “meeting clients, customers or patients” refers to meetings in person rather than by telephone.
- As s. 18(12) only relates to income from a business, it does not limit expenses incurred to earn income from property, e.g., where a home offices is used to manage rental property that is not a business.
- Home office losses from one business cannot be carried forward under s. 18(12)(c) for deduction from the income of a different business (also using the home office); see also Arbeau.
Neal Armstrong. Summaries of S4-F2-C2 under s. 248(1) - self-contained domestic establishment, s. 18(12)(a), s. 18(12)(b) and s. 18(12)(c).