News of Note
CRA challenges TFSA day trading
Email this ContentIn contrast to s. 146(4)(b), which exempts an RRSP’s income from a business to the extent that the income is from trading qualified investments (see 2014-0538221C6 F), s. 146.2(6) indicates that a TFSA is taxable on its taxable income from any business.
CRA apparently is challenging day trading within TFSAs, and a case is expected "in the next year or two."
Neal Armstrong. Summary of Arthur B.C. Drache, "TFSAs as a Business," The Canadian Taxpayer, January 2, 2015 – Vol. xxxvii No. 1, p. 5 under s. 146.2(6).
CRA recognizes that a transfer for nominal consideration can be a gift
When asked whether a transfer of an immovable for $1 to a non-arm’s length person can be a gift, CRA responded that, in the absence of sham "the genuine legal relations must be respected in tax matters" – which sounds generally favourable. Note also that in ITTN No. 44, CRA stated, apparently based on s. 69(1)(c) re "gifts," that "a corporation that receives property from its shareholder for no consideration has a cost basis for that property equal to its FMV."
Neal Armstrong. Summary of 10 October 2014 APFF Roundtable, Q. 8, 2014-0538621C6 F under s. 69(1)(c).
ConocoPhillips – Federal Court of Appeal finds that a taxpayer can appeal a decision of CRA, to treat a Notice of Objection as invalid, to the Tax Court
Where a taxpayer wishes to demonstrate that its Notice of Objection in fact was filed on a timely basis because it did not receive the reassessment when alleged by CRA, the correct procedure is for it to appeal to the Tax Court for an adjudication of when the notice of reassessment was mailed.
Neal Armstrong. Summary of Minister of National Revenue v. ConocoPhillips Canada Resources Corp under s. 169(1).
CRA asserts that accrued recapture of depreciation is irrelevant to share valuation
Father transfers his shares of a real estate corporation with substantial accrued recapture of depreciation to his son.
After repeating (albeit, with confused terminology) its uncontroversial position that the assets of a corporation or other taxpayer are to be valued without taking into account deferred tax credits or debits, CRA then made the extraordinary statement:
In the situation provided, the CRA would not accept the latent taxes respecting the assets held by the corporation being considered in the determination of the FMV of the shares of the corporation.
Earlier in the interpretation, CRA referred to "deferred taxes" ("impôts différés"), so that the above statement referring to "latent taxes" ("impôts latents") apparently cannot be rationalized as merely indicating that you ignore the bogus deferred tax (or FITL) balances generated under GAAP.
Neal Armstrong. Summary of 10 October 2014 APFF Roundtable, Q. 12, 2014-0538121C6 F under General Concepts – FMV – Shares.
Income Tax Severed Letters 14 January 2015
This morning's release of 20 severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA requires reporting of corporate websites only when they directly generate revenue
Sched. 88 to the T2 corporate return requires the reporting of websites from which the corporation earns income. CRA interprets this as referring only to sites which "directly generate income," so that sites which only provide information would not be reportable – whereas, for example, bank sites which generate banking charges to the bank would be reportable.
Neal Armstrong. Summary of 10 October 2014 APFF Roundtable, Q. 27, 2014-0538211C6 F under s. 150(1)(a).
Gaumond – Tax Court of Canada finds that a settled debt is not disposed of to the debtor
The taxpayer renounced debt owing to him by his small business corporation pursuant to a bankruptcy proposal. Lamarre J found that, in the absence of a provision similar to s. 84(9) deeming the debt to have been disposed of to someone, all the taxpayer had was a disposition of the debt rather than a disposition to another person, so for that reason alone he did not have a business investment loss. Furthermore, the French version of the BIL definition requires that such disposition be to a person with whom he did not have a non-arm’s length relationship, and this also could not be demonstrated. (The English version, which she did not refer to, states a positive requirement that the disposition be to an arm’s length person, which more clearly was not satisfied.)
Notwithstanding its protestation to the contrary, s. 84(9) was not enacted "for greater certainty." This indicates that the CRA position (e.g., in 2012-0448681E5 and 2010-0385771E5), that a non-resident capital beneficiary whose interest is satisfied is thereby disposing of property to the resident trust, is wrong.
Neal Armstrong. Summary of Gaumond v. The Queen, 2014 TCC 339, under s. 39(1)(c).
Brown – Federal Court of Appeal recognizes, but finds inapplicable, a doctrine of statutory voidness for uncertainty
In rejecting a submission of a self-represented taxpayer (er, rather, natural person) that definitions in the Act, such as of "taxpayer" and "business," are so vague as to render the Act null and void, Webb JA quoted with approval a statement in the Supreme Court that "a law will [only] be found unconstitutionally vague if it so lacks in precision as not to give sufficient guidance for legal debate."
Neal Armstrong. Summary of Brown v. The Queen, 2014 FCA 301 under Statutory Interpretation – Resolution of Ambiguity.
New FAPI pick-up rule (similar to Code s. 951(a) rule) is on hold for reworking
Proposed ss. 91(1.1) and (1.2) would now potentially require a FAPI pick-up where a CFA interest has been disposed of before year end, so that the FAPI pick-up generally will not now be avoided through not holding the CFA at that year end. The comparable U.S. rule is that pro rata portions of Subpart F income must be recognized unless the disposition occurs in the first 30 days of the CFC's taxable year and the sale is to a non-U.S. person.
This proposed rule was not included in the recently enacted Bill C-43 because it is being reworked by Finance.
Neal Armstrong. Summary of Nathan Boidman, "Canada Augments International Tax Rules", Tax Management International Journal, Vo. 43, No. 12, December 12, 2014, p. 759 under s. 91(1.1).
QROC elections (where available) should be considered for pre-acq dividends received by a partnership
Pre-acquisition surplus dividends received on foreign affiliate shares held by a partnership with Canadian corporate partners do not reduce the adjusted cost base to it of those shares. Instead, the consequences of the dividend are deferred until either those shares or the partnership interest are disposed of, with the result that the Canadian corporate partners realize a corresponding gain or increased proceeds of disposition at that time – even where such disposition otherwise would occur on a rollover basis.
This result can be avoided if any such distributions are made by the foreign affiliate as capital distributions to the partnership and are electively treated as qualifying returns of capital. However, this solution will not be available if capital distributions are not permitted or practicable in the particular foreign jurisdiction.
Neal Armstrong. Summary of Geoffrey S. Turner, "ACB Adjustments for Foreign Affiliate Shares Held Through Partnerships", International Tax (Wolters Kluwer CCH), No. 79, December 2014, p. 1 under s. 92(5).