News of Note
CRA considers that farm quota units often are identical properties for determining their cost as Class 14.1 assets
Email this ContentCRA considers that since “in most cases, units of a particular type of farm quota are indistinguishable from one another,” the units (viewed as Class 14.1 properties) likely would constitute identical property whose cost is averaged under general principles or under s. 47 – including where their cost is determined under the transitional rule in draft s. 13(38)(b)(ii) based on the pre-2017 eligible capital expenditure made for their acquisition.
Neal Armstrong. 27 September 2016 External T.I. 2016-0660861E5 under s. 13(38)(b)(ii).
Blank – Australian High Court briefly affirms a finding that phantom units were not taxable when they vested
What essentially was a deferred compensation plan granted phantom units to an individual, who started off as an employee of Glencore International AG (“GI”) and later became employed by an Australian subsidiary, to participate in the cumulative profits of GI, although it was somewhat dressed up to look like he was investing in shares of the ultimate Swiss parent (Glencore Holding AG). The Australian High Court found that the U.S.$160 million to which he was entitled on his retirement was ordinary income rather than a capital gain when received.
Most of the case was devoted to the income v. capital receipt distinction. However, the “when received” aspect of this case briefly affirmed an interesting finding in the Full Federal Court below, which appeared to implicitly find that the phantom units were not income when they vested, but only when they were paid out. This is consistent with the proposition that phantom units are not constructively received when they vest but no exercise occurs (cf. Bianchini).
The High Court did not address the rejection by the Full Court of an argument that a pro rata portion of the U.S.$160 million was exempt based on the fact that for roughly his first eight years of service after the grant of a predecessor version of the units, the taxpayer had been a non-resident employed outside Australia (with the Full Court finding that the U.S.$160 million “was incapable of apportionment as between earnings from foreign service, on the one hand, and earnings not from foreign service on the other because the agreed method of calculating that Amount did not allow for that distinction to be made.”)
Neal Armstrong. Summaries of Blank v Commissioner of Taxation [2016] HCA 42 under s. 6(1)(a) and of Blank v. Commissioner of Taxation, [2015] FCAFC 154, aff’d [2016] HCA 42 under s. 6(1)(a) and s. 115(1)(a)(i).
Chrysler Coop - Cour du Québec finds that a marketing-promotion corporation qualified as a not-for-profit
Lareau J followed BBM in finding that a corporation, which was funded by member Chrysler dealerships to help promote their vehicle sales, qualified as a not-for-profit under the Quebec equivalent of s. 149(1)(l). Although in the years in question, it had a profit, its more general mode of operation was to operate on a cost recovery basis (based on the member funding), and it was irrelevant that its activities were promoting the profitability of its members through increased sales. What mattered was that it was not being operated with a view to its own profit and that no profit could be distributed to its members.
Neal Armstrong. Summary of Coop publicitaire des concessionnaires Chrysler Jeep Dodge du Québec c. Agence du revenu du Québec, 2016 QCCQ 11252 under s. 149(1)(l).
Tax Interpretations is scraping the CRA website 6 times daily
We are now scraping the CRA website six times daily. Consequently, this content is included in our search engine results. (To enhance search results, certain irrelevant content, such as CRA-auditor expense reports, is excluded.) In addition, it will be easier to see where you are within the (copied) CRA site (including fully expanded breadcrumb trails).
The continual scraping also will soon let us start highlighting key changes in the CRA site including, perhaps most importantly, changes to topic web pages. The scraped site is included within the regular paywall.
Finance official indicates that the U.S. was informed in the FATCA negotiations of Canada’s view that estate planning trusts are excluded
A Finance official indicated that, in the course of the negotiations of the IGA with the U.S., the US tax authorities were informed of the Canadian government’s position that personal trusts used for estate planning purposes and not seeking to raise external capital are excluded from the FATCA reporting requirements for Canadian financial institutions. Finance considers that the Canadian legislation in this regard is compatible with the "financial institution" definition in the IGA.
Neal Armstrong. 7 October 2016 APFF Financial Strategies and Instruments Roundtable, Q.10.
CRA confirms that a corporate-owned policy is valued for SBC or QSBCS purposes at the cash surrender value even if non-shareholder lives are included
S. 110.6(15)(a) provides that a shareholder’s shares are to be valued for various listed purposes including the “small business corporation” definition on the basis that a life insurance policy owned by the corporation on the shareholder’s life is to be valued at its cash surrender value. CRA has confirmed that 110.6(15)(a) applies even where the corporate policy covers lives other than that of the shareholder, e.g., the payout occurs on the death of both the shareholder and a key employee, or on the survivor of the shareholder and his spouse.
Neal Armstrong. Summary of 7 October 2016 APFF Financial Strategies and Instruments Roundtable, Q.9 under s. 110.6(15)(a).
CRA indicates that gifts made in Year 5 by a but-for GRE can only be claimed before death or in Years 5 to 10
Where an estate which otherwise would still be a graduated rate estate but for the passage of 36 months from the date of death makes a charitable gift in Year 5 of the estate (i.e., within 60 months of the death as required by s. 118.1(5.1)), that gift can be claimed in the year of death of the deceased or in the preceding year (s. (c)(i)(C) of the “total charitable gifts definition”), or (under s. (c)(ii)(A)) in the year of the gift or in one of the five following years (i.e., in Years 5 to 10) - but cannot be claimed in any of Years 1 to 4.
Neal Armstrong. Summary of 7 October 2016 APFF Financial Strategies and Instruments Roundtable, Q.8 under s. 118.1(1) – total charitable gifts – s. (c)(ii).
CRA states that recovery tax applies to undistributed income in a QDT at the time of the disabled beneficiary’s death
CRA confirmed that where the disabled beneficiary of a qualified disability trust dies during a year, this will result (in addition presumably to the QDT not qualifying as such in the year of death) in the imposition of “recovery” tax, based on the top marginal rate, on any undistributed income from previous years still in the hands of the trust at the time of the beneficiary’s death. S. 159(3) could apply if the trustee of the former QDT distributed trust property to the estate of the deceased without the recovery tax being paid.
Neal Armstrong. Summaries of 7 October 2016 APFF Financial Strategies and Instruments Roundtable, Q.7 under s. 122(2)(c) and s. 159(2).
CRA states that a beneficiary of a qualified disability trust must be specifically named by the deceased individual
One of the requirements for a testamentary trust to qualify as a qualified disability trust is that each of its beneficiaries be an individual “named as a beneficiary” by the deceased individual. CRA stated:
This term refers to a beneficiary whose name is specifically stated in the instrument under which the trust was created.
Consequently, a beneficiary who is part of a class of persons described in the instrument under which the testamentary trust has been established, such as children or descendants of the deceased individual, as well as a beneficiary who is not yet born, would not be considered as a named beneficiary.
Neal Armstrong. Summary of 7 October 2016 APFF Financial Strategies and Instruments Roundtable, Q.6 under s. 122(3) - qualified disability trust - para. (b).
CRA provides detailed guidelines on the split-receipting rules
Positions in the new Folio on split-receipting include:
- The common law concept of gift (requiring inter alia that “no benefit or consideration must flow to the donor”) and the civil law concept (encompassing “gifts with partial consideration that are remunerative gifts or gifts with a charge”) differ, so that implicitly, s. 248(30), which can permit recognition of a gift where a benefit of under 80% of the donated property’s value flows back to the donor, is more necessary in the common law provinces.
- Even where this numerical test is satisfied, CRA considers that the other “gift” elements must be satisfied, e.g., “the intention to make a gift.”
- If the amount of advantages (other than cash or near-cash items such as gift certificates) received by the taxpayer (e.g., pens, and a pro rata portion of door prizes) do not exceed the lesser of 10% of the fair market value of the gifted property and $75, they will not be regarded as an advantage for the purposes of determining the eligible amount (i.e, taking into account their modest value, the advantages in fact can exceed 80%, and a receipt can be issued for the larger implied gift).
- Purchasing items at charity auctions generally gives rise to an eligible gift if any excess of the purchase price over the retail price is such as to satisfy the 80% test.
- Membership fees also can give rise to an eligible amount.
- CRA discusses s. 248(39), which is intended to prevent a taxpayer from avoiding a reduction in his gift amount under s. 248(25) (deeming the fair market value of gifted property to be equal to its cost, for example, when it is promptly gifted after purchase), by instead selling the property to the charity and then gifting the proceeds, or property substituted therefor), in a way which suggests that it considers the rule to apply mechanically rather than only in an avoidance context.
- S. 248(41) provides that the eligible amount of a gift is nil if the taxpayer fails to inform the qualified done of any circumstances that would cause the eligible amount of the gift under ss. 248(31), (35), (36), (38) or (39) to be less than the fair market value of the gifted property. CRA stipulates that this required disclosure might include not only the length of time the taxpayer held the property, and whether it was acquired as part of a tax shelter arrangement or from a non-arm’s-length party, but also “whether the taxpayer [was] engaged in a transaction or series of transactions to avoid the deemed fair market value rule.”
Neal Armstrong. Summaries of S7-F1-C1, Split-receipting and Deemed Fair Market Value under s. 118.1(1) – total charitable gifts, s. 248(30), s. 248(32), s. 248(39), s. 143.2(1) – limited-recourse amount, and s. 248(41).