News of Note

Full-text translations of the 2017 Quebec CPA Roundtable items are available

Full-text translations of all the eight of 2017 Quebec CPA Roundtable questions and answers that were released last Wednesday (including those referred to in previous posts) are now available, and are listed and briefly described in the table below.

These (and the other translations covering the last 21 months of CRA releases) are subject to the usual (3 working weeks per month) paywall.

Bundle Date Translated severed letter Summaries under Summary descriptor
2017-03-15 2 February 2017 Quebec CPA Individual Taxation Roundtable Q. 1.1, 2016-0674221C6 F - General deduction from tax - 123.4 Income Tax Act - Section 123.4 - Subsection 123.4(1) - Full Rate Taxable Income income on which the SBD was not claimed nonetheless is not eligible for the general rate deduction
2 February 2017 Quebec CPA Individual Taxation Roundtable Q. 1.2, 2017-0682711C6 F - Dedicated Telephone Service for Income Tax Service Income Tax Act - Section 152 - Subsection 152(1) telephone service for those with complex technical tax issues will initially be limited to Ontario and Quebec CPAs
2 February 2017 Quebec CPA Individual Taxation Roundtable Q. 1.3, 2016-0674821C6 F - Individuals separated living under the same roof Income Tax Act - Section 122.6 - Cohabiting Spouse or Common-Law Partner couple under the same roof can be living separate and apart
Income Tax Act - Section 248 - Subsection 248(1) - Common-Law Partner meaning of living "separate and apart"
2 February 2017 Quebec CPA Individual Taxation Roundtable Q. 1.4, 2016-0674831C6 F - Changement d'usage - duplex Income Tax Act - Section 45 - Subsection 45(1) - Paragraph 45(1)(c) substantially renovating the personal-use portion of a rental property (without changing floor areas) generally would not engage the change-of-use rules
Income Tax Act - Section 4 - Subsection 4(1) - Paragraph 4(1)(a) apportionment of operating expenses of duplex used both personally and for rental income
Income Tax Act - Section 248 - Subsection 248(1) - Property duplex is single property
2 February 2017 Quebec CPA Individual Taxation Roundtable Q. 1.5, 2016-0674801C6 F - Allocation et frais d'une automobile Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(k) - Subparagraph 6(1)(k)(v) electric vehicles treated the same
Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(b) - Subparagraph 6(1)(b)(vii.1) general reasonability of a car allowance rate of $0.54/$0.48 per kilometre including for electric vehicles
2 February 2017 Quebec CPA Individual Taxation Roundtable Q. 1.6, 2016-0674861C6 F - Wholly dependent person tax credit Income Tax Act - Section 118 - Subsection 118(1) - Paragraph 118(1)(b) - Subparagraph 118(1)(b)(ii) meaning of support/legal custody not required/ITA is silent on number of days child must spend with parent
2 February 2017 Quebec CPA Individual Taxation Roundtable Q. 1.7, 2016-0674811C6 F - Allocations automobiles & dépenses afférentes Income Tax Regulations - Regulation 200 - Subsection 200(3) correction of T4s
Income Tax Act - Section 8 - Subsection 8(1) - Paragraph 8(1)(h.1) if vehicle allowance is too low, employee can include the allowance and deduct the vehicle expenses/T2200 production expected
2 February 2017 Quebec CPA Individual Taxation Roundtable Q. 1.8, 2016-0674851C6 F - HBTC - Acquisition by way of gift Income Tax Act - Section 118.05 - Subsection 118.05(1) - Qualifying Home gifted home can qualify for the HBTC

CRA states that a gross negligence penalty can be imposed even where no return is filed

Similarly to ITA s. 163(2), the ETA gross negligence penalty provision (s. 285) references the making of “a false statement or omission in a return…statement…or answer” knowingly or in circumstances amounting to gross negligence. CRA asserted that “the gross negligence penalty is potentially applicable even where no GST/HST return has been filed,” and cited Kion, where “natural persons,” who had made false statements to have their profitable business partnership deregistered for GST purposes and had not filed GST returns, were subjected to gross negligence penalties.

Neal Armstrong. Summary of 25 February 2016 CBA Roundtable, Q. 9 under ETA s. 285.

CRA indicates that it has the “flexibility” to accommodate a requested assessment of a prior GST/HST return to allow an unclaimed s. 232 rebate credit

In P-149R, CRA states that it generally will not assess a prior GST/HST return at the request of the registrant to the extent this will result in a reduction in net tax, so that the registrant should instead carry forward unclaimed input tax credits for claiming in its current return. However, this does not work for a credit arising under ETA s. 232 (re rebating consideration and related GST/HST for a previous reporting period) where the registrant missed claiming the s. 232 credit for the reporting period in which the adjustment was made, as that credit (unlike an ITC) cannot be carried forward to a subsequent return.

However, CRA has indicated that in its policy under P-149R, it has the “flexibility” to allow assessing the prior return “where the adjustment relates to an amount that may not be reported or accounted for in a subsequent period,” which appears to be a very guarded “yes,” that it generally would be receptive to opening up the return to allow the s. 232 credit.

Neal Armstrong. Summary of 2016 CBA Roundtable, Q.8 under ETA s. 296(1).

Aeronautic Development – Tax Court of Canada finds that a situation of extreme economic dependence gave rise to de facto control

A Canadian corporation (ADC), which had issued voting common shares for a modest amount to three Canadian employees, was found to be subject to the de facto control (as defined in s. 256(5.1)) of a U.S. corporation and its controlling shareholder (Mr Silva), so that it did not qualify for refundable SR&ED investment tax credits. Hogan J noted that “McGillivray confirms that the influence [referenced in s. 256(5.1)] must be exercisable, directly or indirectly, against the voting shareholders of the corporation.” He nonetheless found that this narrow test was satisfied on the basis inter alia that the sole source of revenue of ADC was (and likely could only be) a cost-plus contract with the U.S. corporation for work on a particular project and, that, accordingly:

[I]t is hard to conceive that the Canadian Resident Shareholders would have exercised their voting rights independently of Mr. Silva’s wishes. The fact that the Canadian Resident Shareholders were either employees of the Appellant or entities wholly owned by employees of the Appellant reinforces this conclusion.

Neal Armstrong. Summary of Aeronautic Development Corp. v. The Queen, 2017 TCC 39 under s. 256(5.1).

The new CRA telephone service for those with complex technical tax issues will initially be limited to Ontario and Quebec CPAs

The Dedicated Telephone Service ("DTS") for tax service providers with “more complex technical tax issues“ than those that can be handled by the CRA general inquiry line, which will launch in July 2017 as a pilot project, will initially be limited to Ontario and Quebec CPAs. CRA states:

The DTS will be a technical resource for tax service providers rather than a problem solving line. …[T]he DTS is not intended for specialized tax professionals whose services are focused on complex tax planning. They should continue to direct their tax queries through requests for technical interpretations, advance rulings, or pre-decision consultations.

Neal Armstrong. Summary of 2 February 2017 Quebec CPA Individual Taxation Roundtable, 2017-0682711C6 Tr under s. 152(1).

CRA confirms that if a vehicle allowance is too low, the employee can include the allowance and deduct the vehicle expenses

S. 6(1)(b)(xi) provides that if any of an employee’s vehicle expenses are reimbursed by her employer, the full amount of any vehicle allowance received by her will be included in her employment income. However, where the employee receives a vehicle allowance that is less than the maximum which could be received as a tax-free vehicle allowance, CRA considers that where the:

employee elects to include in income the amount of a non-taxable motor vehicle allowance, the employee can deduct the expenses for that vehicle which were actually incurred and which are otherwise deductible on condition that the employee can demonstrate that such expenses are in excess of the allowance in question.

Neal Armstrong. Summaries of 2 February 2017 Quebec CPA Individual Taxation Roundtable, Q.1.7, 2016-0674811C6 Tr under s. 8(1)(h.1) and Reg. 200(3).

CRA accepts that a couple under the same roof can be living separate and apart

The eligibility of an individual for the Canada child tax benefit or the GST/HST credit under s. 122.5 may turn on whether the individual has a “cohabiting spouse or common-law partner,” whose definition turns, in part, on whether they are living “separate and apart.” CRA accepts the family law jurisprudence that they can potentially qualify as living separate and apart even if they are living under the same roof (e.g., pending sale of the house), and cited the criteria in M. v. H, [1999] 2 SCR 3 of “shared shelter, sexual and personal behaviour, services rendered between them, social activities and relations, economic support and children, as well as the societal perception of the couple.”

Without hint of self-consciousness, CRA then provided a list of documents that could satisfy an auditor that these criteria are met.

Neal Armstrong. Summary of 2 February 2017 Quebec CPA Individual Taxation Roundtable, Q.1.3, 2016-0674821C6 Tr under s. 122.6 – cohabiting spouse or common-law partner.

CRA affirms general reasonability of a car allowance rate of $0.54/$0.48 per kilometre including for electric vehicles

In S2-F3-C2 respecting employee vehicle allowances, CRA states that “generally, a per-kilometre rate will be considered reasonable if it is equal to the rate prescribed for the particular province in [Reg.] 7306,” which currently is at the rate of $0.54 per km for the first 5,000 km and $0.48 per km for the excess. CRA affirmed this position in response to a query pointing out that in some technical interpretations, CRA had referenced the Treasury Board rates, which currently are $0.49 per km.

Electric cars are not treated differently.

Neal Armstrong. Summaries of 2 February 2017 Quebec CPA Individual Taxation Roundtable, Q.1.5, under s. 6(1)(b)(vii.1) and s. 6(1)(k)(v).

CRA states that substantially renovating the personal-use portion of a rental property (without changing floor areas) generally would not engage the change-of-use rules

CRA considers a real estate property that has not been partitioned to be a single property. Thus, for example, if a duplex containing two identical units with unit 1 used for personal purposes and unit 2 being rented out, has a reversal of use, so that unit 1 starts to be rented out and unit 2 to be used for personal purposes, the change of use rules would not apply, because the rental-property use of this single property stays at 50%. When asked what would happen if unit 2 then was substantially renovated so that its relative value increased, CRA stated that this:

would not in itself have the effect of changing the relation between the use regularly made by the taxpayer of the property for gaining or producing income and the use regularly made of the property for other purposes. Our comments would be different if the renovation had the effect of changing the relative area of each unit.

Neal Armstrong. Summaries of 2 February 2017 Quebec CPA Individual Taxation Roundtable, Q.1.4, 2016-0674831C6 Tr under s. 45(1)(c) and s. 4(1)(a).

CRA considers that a gifted home can qualify for the HBTC

CRA considers that the acquisition of a first home by way of gift (e.g., from parents) rather than as a purchase does not preclude access to the first-time home buyer’s tax credit.

Neal Armstrong. Summary of 2017 Quebec CPA Roundtable, Q.1.8, 2016-0674851C6 Tr under s. 118.05(1) – qualifying home – para. (a).

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