News of Note
Discovery Trust – a trust, whose Alberta trustee (Royal Trust) followed all the requests of the Newfoundland beneficiaries after careful review, was resident in Alberta
Email this ContentA trust with Newfoundland beneficiaries but whose sole trustee was the Calgary office of Royal Trust was resident in Alberta, notwithstanding that essentially everything it did was on the recommendation of the non-Alberta advisors for the Newfoundland beneficiaries. Royal Trust carefully reviewed each suggested trust action first, before agreeing to it, to ensure that it seemed to be in the interests of the beneficiaries – which indicated that Royal Trust was an independent trustee rather than that the trust’s central management and control was in Newfoundland.
Neal Armstrong. Summary of Discovery Trust v. MNR, 2015 CanLII 34016 (NL SCTD) under s. 2(1).
CRA considers that life insurance policy premiums on a corporate-owned policy reduce safe income on hand if they do not increase the policy’s CSV
Where prior to a sale by Holdco of all the shares of Opco to an arm's length purchaser, Opco transfers a life insurance policy on the life of Holdco’s shareholder to Holdco through a dividend-in-kind, CRA considers that the resulting gain to Opco (based on the policy’s cash surrender value ("CSV")) will not increase the safe income on hand ("SIOH") for purposes of the sale because that time will be before the realization of that gain.
The (non-deductible) policy premiums that had been paid by Opco would reduce its SIOH except to the extent that their payment increased the policy’s CSV and thereby increased the accrued gain on the shares of Opco.
Neal Armstrong. Summaries of 14 May 2015 CLHIA Roundtable, Q. 5, 2015-0573821C6 under s. 55(2) and s. 148(7).
CRA finds that income from the sale of life insurance business asset by a Canadian insurer’s FA to the insurer’s non-resident branch generally will not generate FAPI
S. 95(2)(a.1) may deem business income realized by FA from a sale of property to its Canadian parent to be foreign accrual property income where the cost to Canco of the property "is relevant" in computing its business income. However, if Canco is an insurer which acquires property (previously used by FA in its foreign life insurance business) for use in Canco’s foreign life insurance branch, CRA accepts that the cost to that branch of the property will not be relevant to computing Canco’s business income (so that s. 95(2)(a.1) will not apply) as any gain or loss to Canco from a subsequent sale of the property would be excluded from its income by ss. 138(2) and (9).
Neal Armstrong. Summary of 14 May 2015 CLHIA Roundtable, Q. 2, 2015-0573801C6 under s. 95(2)(a.1).
CRA accepts that a designation (but not an election not listed in Reg. 600) can be made late
Reg. 2411 prescribes an amount which is intended to ensure that a multinational insurer’s net investment revenue derived from its designated insurance properties is not less than the net investment revenue that would be determined for that property if the average rate of return on its designated assets of each class equaled an average rate of return on all its investment property of each class. Reg. 2411(3)(a) provides that in specified circumstances the insurer may elect in its return for a specific formula to be used for these purposes.
If this election is not made in the return, CRA will not accept a late election, given that it is not listed in Reg. 600. It considers decisions on late-filed designations (e.g., Nassau Walnut, Lussier) to be inapplicable to late elections.
Neal Armstrong. Summary of 14 May 2015 CLHIA Roundtable, Q. 3, 2015-0573861C6 under Reg. 2411(3)(a).
CRA considers that a s. 88(2) distribution of an insurance policy occurs at FMV rather than CSV
CRA considers that where an insurance policy is distributed on the winding-up of a corporation under s. 88(2), s. 69(5), as "the more specific provision," generally will take precedence over s. 148(7), so that the policy would be disposed of at fair market value rather than cash surrender value.
Neal Armstrong. Summary of 14 May 2015 CLHIA Roundtable, Q. 4, 2015-0573841C6 under s. 69(5).
CRA finds that monthly payments to employees to cover part or all of the costs of cell phones required for their duties were fully taxable
An employer whose employees were required to use cell phones in the course of their duties but which had a "bring your own device policy," paid monthly amounts to each such employee based on their particular requirements not in excess of their actual cell phone costs. CRA found that these monthly amounts were taxable allowances given that the employer did not require detailed receipts.
Neal Armstrong. Summary of 7 April 2015 T.I. 2014-0552731E5 F under s. 6(1)(b).
Income Tax Severed Letters 12 August 2015
This morning's release of 10 severed letters from the Income Tax Rulings Directorate is now available for your viewing.
The exemption of the services provided by naturopaths from GST/HST may have imposed a substantial financial penalty on them
Beware your wishes, for they may be granted.
Most naturopathic services of qualified practitioners were exempted effective February 11, 2014. Accordingly, the practitioners became subject to the change-of-use rules in which they were required to remit HST/GST equal to the input tax credits they previously had claimed on their previous purchases of equipment, furniture and other personal capital property (assuming such property was now being used primarily in making exempt supplies) – subject to a pro rata reduction based on declines in the properties’ fair market values since purchase. A similar rule applied to capital property which was realty, except that the recaptured ITCs were mostly based on the percentage increase in exempt use - rather than being an all-or-nothing (primary use) test.
Accordingly, this "gift" from the government could be very expensive for those practitioners who had purchased their own buildings.
Neal Armstrong, Summaries of B-109 "Application of the GST/HST to the Practice of Naturopathic Doctors" under ETA, s. 200(2), s. 206(5), s. 123(1) – recipient, s. 123(1) – supply, s. 182(1), Sched. V, Pt, II, s. 1 – qualifying health care supply, Pt, II, s. 7.
Notwithstanding Anson, LLCs are not fiscally transparent under the ITA
The finding in Anson that profits of a Delaware LLC belonged to the members as they arose is unlikely to change the view in Canada that an LLC is fiscally opaque. The characterization of the LLC Agreement for the LLC in question as causing the profits of the LLC to immediately vest in the owners seems wrong given inter alia that "creditor claims could interrupt the owner’s ultimate access to [the] assets, underlying the profits." Furthermore, Canadian courts have not challenged, and Finance has endorsed, that LLCs are not fiscally transparent.
Neal Armstrong. Summary of Nathan Boidman, "Anson and U.S. LLCs: A Canadian Perspective," Tax Notes International, August 3, 2015, p. 439 under s. 248(1) – corporation.
Starflex – Court of Quebec finds that the Quebec exemption of income, which is Treaty-exempted by Canada, did not permit a deduction under Art. XXI, para. 7 of the Canada-U.S. Convention for donations made to U.S. charities
Art. XXI, para. 7 of the Canada-U.S. Convention provides (subject to conditions) that a gift by a Canadian with U.S.-source income to a qualifying U.S. charity is to be treated the same as one to a registered Canadian charity. Pokomandy JCQ (after noting that a province is not bound by the Convention) found that a Quebec provision, which exempted income for Quebec purposes if it also was exempted under one of Canada's treaties, did not require Quebec to provide donation deductions for gifts to U.S. charities, stating that Art. XXI, para. 7 "confers tax relief and not exemption from tax on income otherwise taxable in Canada."
At the trial opening, the taxpayer sought to add an argument that the donations were deductible as promotional expenses (see Olympia). In refusing to allow this alternative claim as one which contradicted the original claim, Pokomandy JCQ stated:
One cannot claim to have donated a sum and alternatively to have expended it in earning income from a business.
Neal Armstrong. Summaries of Emballages Starflex Inc. v. ARC, 500-80-019409-110, under Treaties, Art. 21 and s. 18(1)(a) –income-producing purpose.