News of Note
Az-Zahraa Housing Society – Federal Court finds that CRA had fettered its statutorily-accorded discretion by strictly adhering to its published guidelines
Email this ContentA non-profit society received assistance from a government organization (BC Housing) towards its goal of providing affordable accommodation to lower-income renters by selling some of its condo units to BC Housing, with BC Housing then providing those units to the society on a rent-free basis. The Minister’s delegate denied the society’s application to be designated as a municipality pursuant to s. 259(1) (which would have entitled it to GST rebates under s. 259(4)) on the ground that the above government assistance was not government “funding” as required in the CRA published information sheet as to when it would grant a “municipality” designation.
Before ordering that this denial of designation be remitted to a fresh CRA delegate for redetermination, Grammond J stated:
This is an obvious case of fettering of discretion. Section 259 … simply does not lay out any criteria for the exercise of the Minister’s power to designate an entity as a municipality. By refusing to consider circumstances that fell outside the four corners of the information sheet, the Minister’s delegate essentially treated the latter as if it superseded the broad discretion granted by section 259… .
As the Minister’s delegate fettered her discretion, the decision is unreasonable.
Neal Armstrong. Summary of Az-Zahraa Housing Society v. Canada (National Revenue), 2023 FC 842 under ETA s. 259(1) – municipality.
CRA indicates that joint tenants of a newly-constructed residence are each responsible for the GST/HST on 100% of the property’s FMV
Two individuals (the “Owners”) acquired a residential property as joint tenants and contracted for a laneway house to be constructed on the property and leased out.
CRA found that since each Owner, as a joint tenant, was considered at common law to own the entire property, and given that the self-supply rule in ETA s. 191(1) applied to the whole residential complex and not to an interest therein and the rule does not provide for the division of the tax payable on the deemed supply among multiple joint-tenant builders, each co-owner was subject to tax on the FMV of the whole building. However, where one joint tenant accounted for such tax payable on the self-supply, such accounting and the remittance of any resulting positive amount of net tax by that joint tenant would discharge the liability of the other joint tenant, and only one of the Owners was required to report and remit the GST/HST deemed to have been collected on the fair market value of the newly constructed laneway house.
Neal Armstrong. Summaries of 23 March 2023 GST/HST Ruling 244917 under ETA s. 273(1) and s. 191(1).
CRA rules that a charity’s facility used to provide short-term accommodation to clients of its program was not a residential complex
A government-funded registered charity used a facility to provide a program which involved clients staying at the facility for, on average, less than 30 days. There were no lease agreements with them.
CRA ruled that the facility was not a residential complex on the basis that the accommodation provided to the clients was not of “residential units” as defined in ETA s. 123(1). Accordingly, a transfer of the facility in connection with a reorganization would be exempted under Sched. V, Part V.1, s. 1.
Neal Armstrong. Summary of 24 March 2022 GST/HST Ruling 222713 under s. 123(1) – residential unit.
We have translated 7 more CRA interpretations
We have translated a CRA interpretation released on July 12, 2023 and 6 translations of CRA interpretations released in March of 2003. Their descriptors and links appear below.
These are additions to our set of 2,546 full-text translations of French-language Technical Interpretation and Roundtable items (plus some ruling letters) of the Income Tax Rulings Directorate, which covers all of the last 20 1/3 years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
CRA rules that a long-term care facility does not supply home care services for HST purposes
An individual (X) in a long-term care facility in Ontario (the “Centre”) that was funded by an Ontario local health integration network, required additional care, which was provided by the Service Provider in the form of personal care, behaviour management, oral care and feeding.
ETA Sched, V, Pt. II, s. 13(c) indicated that the services of the Service Provider were exempted if they were provided by it in in addition to home care services rendered by a government-funded supplier – a requirement which was argued to be satisfied by the services of the Centre to X. In rejecting this submission and in connection with ruling that such services of the Service Provider were taxable, CRA stated:
While the supply made by the Centre may include elements that are home care services, the supply also includes accommodation, meals and nursing services. The supply made by the Centre is beyond the scope of the definition of “home care service”. Therefore, the supply rendered to [X] at the Centre is not a supply of publicly funded home care services.
Neal Armstrong. Summary of 4 May 2023 GST/HST Ruling 196193 under Sched, V, Pt. II, s. 13(c).
Dow Chemical may raise the issue as to whether a provision that effectively gives CRA the discretion to impose tax is constitutional
It is suggested that in Dow Chemical, the Supreme Court, perhaps on its own initiative, may consider the constitutionality of s. 247(10), which effectively provides the Minister with discretion to determine the amount of tax resulting from taxpayers’ transfer-pricing transactions, without express guidance on how to do so.
Note that Vanguard Coatings (rev’d on narrower grounds in the FCA) stated:
[S]ection 34 of the Excise Tax Act is no paradigm of the rule of law. It is, indeed, so contrary to the rule of law that it can surely be declared to be unconstitutional. It accords arbitrary administrative discretion, without any guidelines or directives, to the Minister whose determination is not subject to any objective second opinion as is inherent in an appeal provision.
S. 53 of the Constitution Act, 1867 provides that Parliament alone has the power to impose a tax, and a provision. such as s. 247(10), which grants the Minister discretion to override results otherwise determined by the legislation, may run counter to Canada’s system of the rule of law (expressly recognized in the preamble to the Constitution Act, 1867 - see also Provincial Judges Reference, [1997] 3 SCR 3, at para. 10 [and see also Mark Anthony]).
Neal Armstrong. Summary of Pascale Desmarais and Olivier Fournier, “Dow Chemical and the Constitutionality of Subsection 247(10),” Canadian Tax Focus. Vol. 13, No. 3, August 2023, p. 10 under Constitution Act, 1867, s. 53.
Fransen – Tax Court of Canada finds that failure to review a return in the presence of red flags was wilful blindness, not just gross negligence
The taxpayer, an employed construction engineer, claimed a fictitious net business loss of $333,418 for his 2009 taxation year with the assistance of Financial Arbitrators and DSC Lifestyles (“DSC”), thereby purportedly generating a full refund of that year’s source deductions and further refunds from carrybacks to his three previous years. He signed his return without reviewing it, and agreed to pay a fee to DSC equal to 20% of the refunds generated. He was instructed to forward any requests from CRA to DSC and to not discuss with any third party any of the tax information provided to or received from DSC.
Lyons J affirmed the imposition of an s. 163(2) penalty. After reviewing the various red flags, which did not generate any inquiries by the taxpayer, she stated:
In my view, he chose not to inquire because he strongly suspected, or suppressed a suspicion, that the inquiry would have provided him with knowledge that the statement in the Return was false thereby he would have discovered such inconvenient truth. This amounts to wilful blindness … .
She briefly found in the alternative that he had been grossly negligent.
Neal Armstrong. Summary of Fransen v. The King, 2023 TCC 107 under s. 163(2).
CRA releases the official 2023 IFA Roundtable
CRA has released the final version of the May 17, 2023 IFA Roundtable. For your convenience, the table below provides links to the official responses, and to the summaries thereof that we prepared in May.
Income Tax Severed Letters 2 August 2023
This morning's release of eight severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Canafric – Tax Court of Canada finds that developing new pie recipes was SR&ED
Canafric specialized in developing frozen pies for grocery chains and restaurants. Customers would request specific targets, such as content (e.g., low fat and salt, or halal), shelf life (e.g., without preservatives), taste acceptability and texture. Canafric averaged around six projects a year in which it would elaborate a recipe designed to meet such requirements, test the recipe and send the sample product to a “taste panel” – and evaluate the reasons for any failure.
The chief beef of the CRA technical advisor was that each breakthrough made was transferrable from one product to the other so that most of the projects lacked technological uncertainty. In rejecting this view and before finding that all of the SR&ED claims at issue were to be allowed, Rossiter C.J. stated that the CEO “clearly demonstrated that this was not the case because the ingredients will react differently when used in different products.” Regarding two of the projects where the CRA technical advisor considered there to be insufficient documentation, any such gaps were filled by the testimony, with Rossiter C.J stating:
Documentary evidence is not mandatory.
More generally, all five criteria established in Northwest Hydraulics were met.
Neal Armstrong. Summary of Canafric Inc. v. The King, 2023 TCC 108 under s. 248(1) - SR&ED.