News of Note
CRA considers that national arts service organizations generally are NPOs rather than charities, and that on-call services are not services
Email this ContentCRA considers that national arts service organizations which register with it do not qualify as charities for GST/HST (or presumably ITA) purposes – although they generally will qualify as non-profit organizations if they are not operated for profit.
A medical facility may pay a doctor set fees for agreeing to be on call for specified periods. CRA has published its view (confirming 8 January 2016 Interpretation 150125) that such fees not only are not for exempt health services, but constitute consideration for supplies by the doctor of intangible personal property. (Agreeing to not engage in conflicting activities is not a service?)
Neal Armstrong. Summaries of Excise and GST/HST News - No. 101 March 2017 under ETA s. 123(1) – charity, Sched. V, Pt. II, s. 5 and Sched. VI, Pt. 1, s. 2(b).
CRA indicates that a qualifying PHSP could encompass the only two employees of a corporation who are the sole shareholder and spouse
The only two employees of a corporation are its sole shareholder and a related individual (e.g., spouse). The corporation pays all their premiums under a (Blue Cross) private health services plan. CRA stated that there would be no taxable benefit (based on the exclusion in s. 6(1)(a)(i)) if they received the benefits qua employees rather than qua shareholder (or spouse of shareholder), and in this regard quoted its position in S2-F3-C2 that this test “may” be satisfied if “all of the employees are shareholders or individuals related to a shareholder, and the benefit or allowance is comparable (in nature and amount) to benefits and allowances generally offered to non-shareholder employees of similar-sized businesses, who perform similar services and have similar responsibilities.”
If there were a taxable benefit, both the shareholder’s premiums and the spousal premiums would be included in the shareholder’s income under s. 15(1) or 56(2).
Neal Armstrong. Summary of 11 January 2017 External T.I. 2016-0635351E5 under s. 6(1)(a)(i).
CRA treated a distribution to a partnership comprised of named trust beneficiaries (as permitted by the trust deed) as not being made to trust beneficiaries
The CRA position (e.g., in 2014-0538261C6) that if a personal-trust beneficiary is instead issued a promissory note by the personal trust in satisfaction of her capital interest in the trust, the s. 107(2) rollover is unavailable, may not sit well with the proposition that the note issuance entails a transfer of property to the beneficiary.
An apparent position in 2014-0538141C6 that interest, on a hypothec charging a property distributed to a beneficiary, is deductible provided that the assumption of the hypothec “is a condition, of the distribution" should not be applicable in the common law provinces (or at all) given that, at common law, a devisee of real property of an estate takes the property subject to the charge without any requirement that the devisee specifically assume the mortgage, in the absence of any contrary indication in a will.
Where a non-resident personal trust wishes to distribute property (other than taxable Canadian property) to a resident beneficiary, the beneficiary can make a s. 107(2.002) election so that the property does not roll out under s. 107(2) and is instead acquired by the beneficiary at full cost. However, as the beneficiary may therefore realize a gain on the deemed disposition of her capital interest in the trust, it may be more efficient, subject to applicable foreign tax considerations, for the non-resident trust to effect an actual disposition of the property before the distribution.
CRA, in responding to a request for a technical interpretation, declined to confirm that the s. 107(2) rollover was available where property was distributed by a Canadian-resident personal trust to a newly formed partnership, all of whose partners were (non-resident) individual beneficiaries under the trust, unless the deed of settlement of the trust was amended or varied to include the partnership as a named beneficiary. This position appears to be contrary to the meaning of a "beneficiary" in general trust law, which includes any person or partnership that may receive a distribution of property under the trust (whether or not specifically named).
Neal Armstrong. Summaries of Elie Roth, Tim Youdan, Chris Anderson, Kim Brown, "Taxation of Beneficiaries Resident in Canada", Chapter 4 of Canadian Taxation of Trusts (Canadian Tax Foundation), 2016 including under s. 107(2), s. 20(1)(c)(ii) and s. 107(2.002).
Parthiban – Tax Court of Canada finds that a UK visitor acquired a new home in Ontario as his primary place of residence
Boyle J rejected a CRA position that a UK citizen had not bought a new home in Markham as the primary place of residence of his family, as required for purposes of the new housing GST/HST rebate, because his status while in Canada when he agreed to buy it was that of a visitor. Since the requisite intention was there (and, in fact, was fulfilled), it was irrelevant that there may have been a significant risk of this intention being defeated by not being allowed to stay by Immigration Canada.
Neal Armstrong. Summary of Parthiban v. The Queen, 2017 TCC 30 under ETA s. 254(2)(b).
CRA states that the usual statute-barring rules apply to whether partnership income or loss can be redetermined
S. 152(1.4) indicates that the Minister may make a determination of the income, loss etc. of a partnership within 3 years of the later of the filing deadline and filing date for the partnership T5013.
3 years may not mean 3 years. CRA considers that because s. 152(1.2) effectively indicates that various of the Division I rules, including the statute-barring rules in s. 152(4), also apply for partnership determination purposes, the 3-year limitation does not apply where the T5013 contained a misrepresentation attributable to neglect etc. The way CRA expressed itself, the CRA determination made beyond the 3 years would not be limited to addressing the misrepresentation, as required by s. 152(4.01), but this may have been inadvertent.
Neal Armstrong. Summary of 29 November 2016 Internal T.I. 2016-0648571I7 under s. 152(1.4).
CRA considers that writing-off a statute-barred debt of an employee triggers a s. 6(15) benefit
CRA considers that whenever a debt owing by an employee is extinguished because of an employer action, s. 6(15) deems the forgiven amount to be an employment benefit. Respecting the situation where an employee debt becomes statute-barred (which presumably is not subject to the deemed settlement under s. 80.01(9) because the debt is not a commercial debt obligation), and the employer then writes it off because it is thus no longer legally collectible, CRA considers this writing-off to be sufficient to trigger s. 6(15). Cf. Diversified Holding: “for a debt to be settled or extinguished…there must be a legally binding termination in form.”
Neal Armstrong. Summary of 12 October 2016 Internal T.I. 2016-0637781I7 under s. 6(15).
Income Tax Severed Letters 8 March 2017
This morning's release of six severed letters from the Income Tax Rulings Directorate is now available for your viewing.
InterOil – Yukon Supreme Court indicates that all plans of arrangement must be accompanied by a fairness opinion prepared on a fixed fee basis
A decision of the Yukon Court of Appeal reversed approval of the plan of arrangement for the acquisition of InterOil by ExxonMobil on the basis inter alia that the Circular did not contain information permitting InterOil shareholders to properly assess the adequacy of contingent cash consideration to be paid to them based on the subsequently-measured size of InterOil’s natural gas resource. ExxonMobil then returned with an offer that was essentially the same, except that the contingent cash consideration was capped only once the resource size reached a quite unlikely level. The Circular disclosure was substantially improved.
In the course of giving his final approval for this revised plan, Veale J noted that, in giving interim approval, he had required that a fairness option be prepared by a reputable expert on a fixed fee (rather than “success” fee) basis and that there also be a supportive report of a Board Transaction Committee consisting of four independent directors, and stated:
In my view, these requirements provide a minimum standard for interim orders of any plan of arrangement. It is not acceptable to proceed on the basis of a Fairness Opinion which is in any way tied to the success of the arrangement.
Neal Armstrong. Summary of Re: Interoil Corp., 2017 YKSC 16 under Business Corporations Act (Ont.), s. 182(5)(c).
Full-text translations of severed letters extend back to July 2015
Full-text translations of five further technical interpretations released in French on August 5, 2015, as well as a French technical interpretation released on July 29, 2015 are now available - and are listed and briefly described in the table below.
These (and the other translations covering the last 19 months of CRA releases) are subject to the usual (3 working weeks per month) paywall. You are currently in the “open” week for March.
Farm Credit Canada – Tax Court of Canada finds that “loan corporation” for GST/HST purposes has a broader meaning than its provincial regulatory meaning
A listed financial institution, whose definition includes a “person whose principal business is the lending of money,” will usually also be a selected listed financial institution (SLFI) if it has a cross-Canada business. Different types of SLFIs are subject to different attribution rules for determining the blended HST rate of tax to which they are ultimately subject. One of these SLFI categories is for “a trust and loan corporation, a trust corporation or a loan corporation.” Quite oddly, “loan corporation” is not defined.
Farm Credit Canada (a federal Crown corporation providing financing assistance to farmers) argued that it was not a “loan corporation” because the quoted phrase above had a well understood meaning given that the provincial legislation regulating trust and loan corporations defined a “loan corporation” as a corporation that was incorporated for the purpose of borrowing money from the public (which Farm Credit Canada did not do) and then lending or investing such money.
D’Arcy J found that a loan corporation simply refers to a corporation whose principal business is the making of loans (notwithstanding that the Regulation did not use this phrase appearing in the listed financial institution definition), stating:
There are no provisions in the GST Act that state that a listed financial institution whose principal business is the lending of money is only a “loan corporation” for the purposes of the Attribution Regulations if it accepts deposits from the public. In my view, if Parliament had intended such a result it would have added that specific condition to the legislation. …
Neal Armstrong. Summary of Farm Credit Canada v. The Queen, 2017 TCC 29 under Selected Listed Financial Institution Attribution Method (GST/HST) Regulations, s. 26(1).