News of Note
Income Tax Severed Letters 4 April 2016
Email this ContentThis morning's release of five severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA is actively collecting the leaked Panama Papers
CRA announced today that it “is actively pursuing the cooperation of its tax treaty partners and the International Consortium of Investigative Journalists to obtain all of the leaked [Panama Paper] records that pertain to Canadian residents.”
Neal Armstrong. Summary of 5 April 2015 CRA Press Release under Treaties – Art. 27.
CRA finds that s. 148(10)(d) (deeming exercise of rights not to be dispositions) does not apply to the exercise of a right to split an insurance policy
S. 148(10)(d) provides that a “policyholder shall be deemed not to have disposed of… an interest in a life insurance policy…as a result only of the exercise of any provision (other than a conversion into an annuity contract) of the policy.” CRA considers that s. 148(10)(d) does not apply to the exercise by a policyholder of a contractual right to split a universal life insurance policy covering two lives into two policies, stating that as “the Act does not contemplate the splitting of a multiple life insurance policy into separate policies…the objective of introducing paragraph 148(10)(d)… was not to provide for a non-disposition of the policy in these circumstances.”
CRA also indicated that whether there was a disposition on general principles (before looking at s. 148(10)(d)) turned on whether “the changes that are made to the terms of the policy…are so fundamental as to go to the root of the policy.”
Neal Armstrong. Summary of 17 February 2016 T.I. 2015-0608261E5 under s. 148(10)(d).
CRA considers that ETA s. 186(1) does not help a parent to qualify for a s.156 election
CRA considers that ETA s. 186(1), which permits input tax credits to be claimed by a registered holding company on expenses incurred for use in relation to shares or indebtedness of a related corporation (e.g., a sub) engaged exclusively in commercial activity, applies “only for the purpose of ITC calculations” and does not have the effect of deeming the holding company to be engaged in commercial activity – so that it would generally not qualify for the purposes of making a s. 156 election with the sub so as to avoid having to charge GST on management fees.
Neal Armstrong. Summary of 2015 CBA Roundtable, Q.21 under ETA s. 186(1), s. 156(1) – qualifying member.
Menzies – Tax Court of Canada finds that notice provided to a GP is irrebuttably notice to all the limited partners
Lafleur J found that the presumption in s. 244(20), that notice to the general partner of an LP is notice to all the partners, is conclusive rather than rebuttable, so that a limited partner would not have accomplished anything even were she able to establish that she had not received a notice of redetermination of loss which had been received by the GP.
Neal Armstrong. Summaries of Menzies v. The Queen, 2016 TCC 73 under s. 244(2) and s. 152(1.6).
CRA rules that an amalgamation which uses a Plan of Arrangement to avoid the usual corporate requirement for the predecessors to be in the same jurisdiction qualifies as a good amalgamation – and also permits a contrived s. 135.1 “allowable disposition”
S. 135.1 allows qualifying members of agricultural cooperative corporations (“ACCs”) to defer the inclusion of patronage dividends by taking them in the form of shares which are not redeemable for five years otherwise than on an “allowable disposition” – so that the income inclusion is deferred until the shares’ disposition. An “allowable disposition” includes a disposition following the taxpayer ceasing to be a member.
As a preliminary step in the spin-off by an ACC of one of its two businesses under a Plan of Arrangement, CRA is allowing all of the members to be deemed under the Plan to have ceased to be members so that all the shares of one of the two classes can then be redeemed for cash (with resulting income inclusions to the members).
As part of the same Plan, the ACC will be amalgamated with a subsidiary corporation (“Subco”) which was incorporated under a different statute, with Amalco being considered to be formed under that same other statute. CRA ruled that this amalgamation will be considered to be a s. 87(1) amalgamation.
Neal Armstrong. Summaries of 2015-0564981R3 under s. 135.1(1) - allowable disposition, and s. 87(1).
McGillivray Restaurant – Federal Court of Appeal finds that de facto control includes only significant influence over the board of directors
Silicon Graphics stated that, to have de facto control of a corporation, “a person or group of persons must have the clear right and ability to effect a significant change in the board of directors or the powers of the board of directors or to influence in a very direct way the shareholders who would otherwise have the ability to elect the board of directors.”
The Federal Court of Appeal has now rejected the proposition that subsequent decisions had expanded the concept of de facto control. Ryer JA stated:
De facto control, like de jure control, is concerned with control over the board of directors and not with control of the day-to-day operations of the corporation or its business.
Neal Armstrong. Summary of McGillivray Restaurant Ltd. v. The Queen, 2016 FCA 99 under s. 256(5.1).
1455257 Ontario Inc. – Federal Court of Appeal finds that a dissolved corporation cannot appeal to the Tax Court
Dawson JA and her colleagues have overruled an earlier decision of their Court (495187, a.ka. Sarraf) and found that an Ontario corporation which has been dissolved cannot file a Notice of Appeal.
Under the OBCA, a dissolved corporation cannot initiate legal proceedings, but proceedings can be taken against it. Sarraf considered that a court appeal was a mere continuation of proceedings which had been commenced against the corporation by the Minister’s assessment – but Dawson JA found that Sarraf had failed to consider that the current appeal procedures were quite different from the Income War Tax Act procedures considered in a yet earlier decision.
She noted that although a voluntarily dissolved corporation could not be revived by the Companies Branch, “the dissolved corporation may be revived by a Private Act of the Ontario Legislature.”
Neal Armstrong. Summaries of 1455257 Ontario Inc. v. The Queen, 2016 FCA 100 under OBCA s. 242, ITA s. 169(1), General Concepts – Stare Decisis.
Muir – Federal Court finds that financial hardship references basic living requirements, not university tuition
In rejecting a submission that garnishing $720 per month from a taxpayer with annual income of over $100,000 and children in university produced financial hardship justifying interest relief under s. 220(3.1), Annis J stated:
[I]n many Canadian families, children are expected to finance their own university education as an investment which would be recovered in the future by the benefits of the knowledge and skills acquired by a higher education. … In any event, I agree with the CRA’s interpretation that financial hardship for an individual is financial suffering or lack of what is needed for basic living requirements, such as food, clothing, shelter and reasonable nonessentials.
Neal Armstrong. Summary of Muir v. MNR, 2016 FC 362 under s. 220(3.1).
CRA considers that an aerial drone likely is an aircraft for CCA purposes
CRA considers that an aerial drone likely is a type of (unmanned) “aircraft” so that it would be classified as a Class 9(g) property (25% CCA rate).
Neal Armstrong. Summary of 11 March 2016 T.I. 2016-0633111E5 under Schedule II - Class 9.