News of Note
CRA declines to provide guidance on whether hosting advertising on a non-resident website entails the performance of any service in Canada
Email this ContentA non-resident supplies digital products or services though digital platforms and websites and also sells advertising on its website through a Canadian agent.
If the non-resident was registered under the regular GST/HST registration regime, then it would be required to charge GST/HST if it was making supplies in Canada. In the case of the advertising service, CRA simply noted, without more, that pursuant to ETA s. 142(1)(g), a “supply of a service is deemed to be made in Canada where the service is, or is to be, performed in whole or in part in Canada” – perhaps recognizing that the non-resident might not be regarded as “performing” any services in Canada through its website. On the other hand, regarding any supply of copyright or other intangible personal property (IPP), CRA noted that s.142(1)(c) provides that a supply of IPP is deemed to be made in Canada if the property may be used in whole or in part in Canada, and stated that the “expression ‘may be used’ is interpreted to mean ‘allowed to be used’ – so that “a supply of IPP could be considered to be made in Canada even if it is not actually used in Canada.” Thus, the IPP supply generally would be made in Canada.
If the non-resident instead was a specified non-resident supplier registered under the simplified GST/HST registration regime, a supply made by it to a specified Canadian recipient (i.e., generally, a non-registrant with a Canadian address), would be deemed to be made in Canada pursuant to s. 211.14 (irrespective of the place-of-supply rules in s. 142) so that such supply would generally be taxable under s. 165.
Neal Armstrong. Summaries of 19 December 2023 GST/HST Interpretation 230511 under ETA s. 142(1)(g). s. 142(1)(c) and s. 211.14(1).
CRA confirms that retiring allowances can be paid in instalments over an extended period of years
CRA confirmed that a retiring allowance can be paid in instalments over a number of years (without any limitation on the length of the chosen term), in which case the retiring allowance is taxable to the individual only as received.
Neal Armstrong. Summary of 26 June 2024 External T.I. 2023-0961541E5 under s. 248(1) – retiring allowance.
We have translated 6 more CRA interpretations
We have translated a further 6 CRA interpretations released in September of 2001. Their descriptors and links appear below.
These are additions to our set of 2,910 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 22 ¾ years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
CRA indicates that a non-resident registered under the E-Commerce provisions can follow the ETA s. 232 refund procedure if the resident recipient demonstrates that it was registered
Where a non-resident supplier who is registered for GST/HST purposes under the “Electronic Commerce” rather than regular rules and charges GST/HST to a Canadian recipient who has not provided it with evidence that it is itself registered under the regular provisions, CRA considers that if the recipient subsequently provides satisfactory evidence to the non-resident supplier that it in fact was so registered at the time of the supply, then the non-resident can follow the procedures in ETA s. 232(1) for refunding on a timely basis the GST/HST that it charged the Canadian recipient and claim a corresponding credit.
CRA further noted that where a supplier has difficulties in issuing a credit note, the recipient is permitted to issue a debit note to the supplier, containing the prescribed information so as to satisfy the s. 232(3) documentary requirements.
Neal Armstrong. Summary of 14 February 2024 GST/HST Interpretation 231621 under ETA s. 211.17(2)(b).
0808414 B.C. Ltd. – Tax Court of Canada finds that the proceeds under s. 69(1)(b) of depreciable property were not reduced to the net FMV of the related business
The taxpayer, which produced and distributed breakfast cereals, sold that business to an affiliated Canadian company. Although it conceded that the FMV of the (Class 29) machinery and equipment included in the sale was $56.5 million, it took the position that the reference in s. 69(1)(b) to the disposition of “anything” referred to the sale of its business as a going concern. Since that going concern value was depressed by the amount of the pension obligations which were assumed by the purchaser, its deemed proceeds under s. 69(1)(b) were $48.3 million, and allocating this amount to the Class 29 property produced proceeds of disposition thereof of $48.3 million.
In confirming CRA’s reassessment to increase the recapture of depreciation realized based on proceeds of disposition of $56.5 million, Spiro J stated:
No text in the Act reflects an intention by Parliament to require taxpayers to use different methods for computing proceeds of disposition of depreciable property depending on whether the depreciable property was sold on its own to a non-arm’s length purchaser or as part of the sale of a business as a going concern. …
[T]he fair market value of a business as a going concern plays no role in determining the proceeds of disposition, or consequential recapture, of depreciable property under the Act.
Neal Armstrong. Summary of 0808414 B.C. Ltd. v. The King under s. 69(1)(b).
CRA rules on a public company butterfly spin-off involving successive s. 86 and 51 exchanges
CRA ruled on a butterfly spin-off by a listed Canadian corporation (DC) of its indirect interest in a foreign project to a “SpinCo” to be held by its shareholders, with most of the steps to occur pursuant to a plan of arrangement. A few points that may be of interest:
The “old” common shares of DC were to be split into “new” common shares (bearing 2 votes per share) and preference shares pursuant to a s. 86 reorganization, with the DC shareholders then transferring their preference shares to SpinCo for SpinCo common shares under s. 85.1. However, immediately before the effective set-off of the notes owing by DC and SpinCo to each other as a result of the subsequent butterfly mechanics, the “new” DC common shares were to be converted under s. 51 back into “old” common shares, so that there was no need to deal with the exchange regarding a listing of the “new” common shares.
SpinCo, pursuant to the definition of “public corporation” in s. 89(1), was to elect in its federal return to be a public corporation from the beginning of the year until the time that its common shares were listed on the exchange.
The application of s. 7(1.4) to the exchange of employee incentive securities required a determination of the relative FMV of the shares of DC pre-butterfly exchange to that of its shares and of SpinCo immediately after the butterfly exchange. To this end, the FMV of pre-butterfly DC common shares was to be based on their VWAP on the exchange for the five business days immediately prior to the Effective Date of the Arrangement, and the FMV of the DC Common Shares and the SpinCo Common Shares immediately after the butterfly exchange was to be determined by their VWAP on the exchange for the five business days beginning on the Effective Date.
The completed pre-butterfly transactions included DC acquiring all the shares of a Canadian corporation that were not already held by it pursuant to a plan of arrangement.
Neal Armstrong. Summary of 2023 Ruling 2022-0958241R3 under s. 55(3.02).
Income Tax Severed Letters 31 July 2024
This morning's release of three severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA requires that redemption notes issued by an open-end REIT have a term not exceeding a specified maximum
CRA ruled that the conversion of a listed REIT from a closed-end unit trust under s. 108(2)(b) to an open-end unit trust under s. 108(2)(a) through the addition of a retraction right to the unit terms would accomplish that objective and would not result in a disposition of trust property or of units. The ruling letter specified a requirement that the term of any notes issued and transferred to a retracted unitholder would not have a term of greater than X years from the date of issue.
Neal Armstrong. Summary of 2023 Ruling 2022-0958681R3 under s. 108(2)(a).
We have translated 6 more CRA interpretations
We have translated a further 6 CRA interpretations released in September of 2001. Their descriptors and links appear below.
These are additions to our set of 2,904 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 22 ¾ years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
CRA finds that a s. 152(1.4) increased partnership loss determination authorizes an increased partnership unit capital gain for a subsequent statute-barred year
The 2001 to 2010 taxation years of limited partners of a tax shelter limited partnership were reassessed under s. 152(1.7)(b) in accordance with Minutes of Settlement that contemplated increases to their share of partnership deductions claimed under s. 20 (consistent with redeterminations made in respect of the partnership pursuant to s. 152(1.4)). These deductions reduced the ACB of their partnership interests.
1. Was the Minister authorized to assess the limited partners beyond the normal reassessment period for their 2011 taxation year to include any amount in respect of the disposition of their partnership units in 2011, given that no redetermination in respect of the partnership was made for 2011 under s.152(1.4), and 2011 was also not part of the period discussed in the Minutes of Settlement?
2. If such 2011 reassessments were permitted, was the Minister authorized to reassess the entire capital gain, or was the authority under s.152(1.7)(b) only to increase the gain based on the increased losses as redetermined for the 2001 to 2010 taxation years under s. 152(1.4)?
1. The Directorate found that s. 152(1.4) authorizes the Minister to determine the correct ACB per LP unit of a member of LP, as it is an amount that is relevant in determining the taxable income of a member of LP for “any taxation year,” including the year in which the member realizes a taxable capital gain (or deemed taxable capital gain) with respect to their interest in LP.
2. Given that the redetermination issued to the partnership under s. 152(1.4) encompasses a redetermination of the ACB of a partnership interest, and a member’s revised at-risk amount includes the initial capital contributed by the member, the Directorate concluded that the Minister has the authority under s. 152(1.7)(b) to (re)assess the entire taxable capital gain in 2011, calculated in accordance with the Act.
Neal Armstrong. Summary of 29 February 2024 Internal T.I. 2024-1003171I7 under s.152(1.7)(b).