News of Note
CRA accepts the potential relevance of IT-349R3 and IT-268R4 to the kiddie tax provisions
Email this ContentA relatively recent addition to the "split income" definition refers to "income derived from a business of, or the rental of property by, a particular partnership or trust, if a person who is related to the individual at any time in the year is actively engaged on a regular basis in the activities of the particular partnership or trust related to earning income from a business or the rental of property. CRA considers that it is reasonable for the meaning of the phrase "actively engaged on a regular basis" to be partly informed by judicial and CRA interpretations (e.g., in IT-349R3 and IT-268R4) accorded to the phrase "actively engaged on a regular and continuous basis" in provisions (e.g., s. 70(9)) dealing with farming or fishing businesses, as well as in the somewhat similar specified member definition.
Neal Armstrong. Q. 2 of 9 October APFF Roundtable under 2015 APFF Conference.
CRA finds that discharge of a debt through its assumption denies a s. 20(1)(e)(v) deduction
The usual deduction by a taxpayer under s. 20(1)(v)(v) for its remaining unamortized debt issuance expenses when the debt is settled does not apply where such settlement occurs "as part of a series of borrowings or other transactions and repayments."
CRA considers that this exclusion applies where (i) the debt of the taxpayer is settled by the taxpayer transferring assets to a subsidiary in consideration inter alia for an assumption of the debt (with the taxpayer being released) – or (ii) where the debt is not assumed on the asset transfer and the taxpayer instead uses cash consideration received from the subsidiary (funded out of a borrowing by it) to discharge the debt. In the second situation, CRA considers that the subsidiary borrowing is a borrowing occurring as part of the series. It considers that in the first situation, the debt assumption is also caught, without indicating how the quoted word specifically apply.
Three summaries of questions posed at the October 2015 APFF Roundtable, including this one, along with translations of the full text of the preliminary CRA responses, have been uploaded. The other 21 responses will be translated and uploaded piecemeal over the next week or so.
Neal Armstrong. Q. 1 of 9 October APFF Roundtable under 2015 APFF Conference.
CRA confirms that the same date must be picked by it in totalling the maximum cost of foreign property on which the T1135 s. 162(10.1)(e) penalty is calculated
CRA considers that the additional penalty under s.162(10.1)(e) for failure to file a T1135 is determined based on the total costs of all specified foreign property on the day in the year where that total is the highest, rather than by determining the highest cost that each specified foreign property had in the year, and totalling all those highest costs.
Neal Armstrong. Summary of 16 July 2015 Memo 2015-0590681I7 under s. 162(10.1).
CRA provides favourable interpretation on the ability of a Newco (which may take a while to get going) to make an ETA s. 156 nil consideration election
A member of a closely-related corporate group generally will be a "qualifying member," so as to be able to make a nil consideration election with other qualifying group members under ETA s. 156 if (under (c)(i) if the "qualifying member" definition") substantially all of its property, other than financial instruments or property with only a nominal value ("disregarded property"), has been acquired for consumption, use or supply exclusively in the course of its activities ("commercial acquisitions"). However, if it has no property other than disregarded property, it nonetheless may qualify under (c)(iii) of the "qualifying member" definition if "it is reasonable to expect" that it will be making taxable supplies "throughout" the following 12 months, substantially all of which will be taxable supplies, and that substantially all of its property acquisitions (other than of disregarded property) within those 12 months will be commercial acquisitions.
CRA has issued an interpretation which, reading between the lines, seems to reflect a relaxed interpretation of "throughout" – and notes that if, in fact, the mooted qualifying member has any commercial acquisitions during the 12-month period, it generally will thereupon qualify under the regular test in (c)(i).
Neal Armstrong. Summary of 14 January 2015 Interpretation 165076 under ETA s. 156(1) – qualifying member.
Income Tax Severed Letters 21 October 2015
This morning's release of two severed letters from the Income Tax Rulings Directorate is now available for your viewing.
ETA s. 156 elections can be filed, viewed and modified through My Business Account
At the time of writing in January 2015, CRA anticipated that electronic filing of the ETA s. 156 nil consideration group elections would be available through "My Business Account" (MyBA) in mid April 2015. Registrants will then be able to view, through MyBA, section 156 elections that they have filed, either electronically or by using the paper Form RC4616, as well as those filed by another group member on their behalf. Once a section 156 election has been filed either electronically or on paper, the election can be modified through MyBA.
CRA points out that where a specified member wishes to revoke an existing election, care must be taken to ensure that the elections between the other specified members remain in effect. The problem arises because every pair combination of named memers appearing in Part A of the form (RC4616) would be considered to have revoked their election. The solution is to file separate Forms RC4616 (electronically or on paper) specifically revoking only the targeted elections.
Neal Armstrong. Summaries of 29 January 2015 Interpretation 167061 under ETA s. 156(4), s. 156(3).
CRA finds that a commitment fee earned by the assignor of a loan is consideration for the loan made by the assignee for HST purposes
Exempt financial services include (in para. (g) of the ETA definition of financial service) the lending of money and (in para. (l)) agreeing to provide an otherwise-listed financial service. Somewhat curiously, CRA considered a commitment fee paid to a lender to be exempted under para. (g) rather than (l) notwithstanding that the loan agreement had been assigned to a third party by the time the loan advance occurred. The key (or pretext) for this may be ETA s. 133, which provides that the entering into of an agreement to supply property shall be deemed to be a supply at that time of the property.
Neal Armstrong. Summary of 29 January 2015 Ruling 93176 under ETA s. 123(1) – financial service – para. (g).
Alexander College - Tax Court of Canada considers that a private college does not qualify as a “recognized degree-granting institution” for GST purposes
The ETA states that a "’university’ means a recognized degree-granting institution or an organization that operates a college affiliated with, or a research body of, such an institution."
A private for-profit B.C. college with a two-year arts program provided "associate degrees," which were recognized as degrees under the Degree Authorization Act (B.C.). It thus qualified as a university on a literal reading of the definition.
Lyons J nonetheless found that it did not so qualify (so that its tuition fees were subject to HST) on the grounds that:
- income tax cases (e.g., Zailo) treated associate degrees as not being real degrees
- it was prohibited under the Degree Authorization Act from calling itself a university, which suggested that it was not "recognized" as an "institution" by the B.C. government
- the exempting provision (Sched. V, Pt. III, s. 7) also exempts "public colleges," and the definition itself assimilates affiliated colleges to "university," which suggests that "university" is intended to refer to something more than a mere private college.
Neal Armstrong. Summary of Alexander College Corp. v. The Queen, 2015 TCC 238 under ETA s. 123(1) - university.
CRA confirms that a penalty for failure to file a T1135 becomes statute barred when the Part I return for the year has become statute-barred
CRA has confirmed its position that, as a s. 216 return is a distinct return from a normal Part I return, it has its own normal reassessment period. However, the same does not apply to the imposition of penalties under s. 162(7) for failure to file T1135 returns, as the income from foreign properties in question is required to be reported on a normal Part I return rather than on a distinct return – so that such a penalty must be reassessed within the normal reassessment period for that return.
Neal Armstrong. Summary of 15 September 2015 Memo 2015-0572771I7 under s. 152(4).
CRA finds that no source deductions are required on payments to non-resident employees of third parties
On a literal reading, the source deduction Regulations apply to any payment of remuneration made by an employer to an employee, and are not restricted to remuneration paid to the employer’s own employees (see also Philp).
CRA stated that "that no withholding tax is required… where there is no employer/employee relationship." Accordingly, payments made by a Canadian manufacturer directly to the non-resident employees of non-resident dealers, based on the volume of sales warranties that were sold on customer purchases through those employees of the manufactured products, were not subject to Canadian source deductions (although T4A slips would be required to be issued). The payments also were not subject to withholding under s. 212(1)(d)(iii) given the exclusion therein for "a payment made for services performed in connection with the sale of property or the negotiation of a contract."
Neal Armstrong. Summary of 24 September 2015 T.I. 2013-0495611E5 under Reg. 100(1) – remuneration and s. 212(1)(d)(iii).