News of Note
B.C. now recognizes that foreign continuation-style amalgamations do not trigger PST
Email this ContentThe B.C. Ministry of Finance has reversed its position in PST 210 "Related Party Asset Transfers" to acknowledge that a foreign amalgamation which qualifies as a continuation-style amalgamation will not trigger B.C. provincial sales tax.
Neal Armstrong. Summary of PST 210 "Related Party Asset Transfers under Provincial Sales Tax Act (B.C.), s. 37(1).
CRA states that remuneration is exempt if it “is quite unrepresentative of the services rendered”
When asked about volunteers sent by a charity on missions to developing countries, CRA stated:
[R]emuneration that is quite unrepresentative of the services rendered would not be taxable. However, when it is significant enough to influence the participation of the volunteer, it generally will become taxable as employment or business income.
Most people reading only the first sentence would conclude they were exempt.
CRA would reject the issuance of donation receipts to volunteers who decline the offered remuneration (in this case, a daily fixed allowance for meals and lodging).
Neal Armstrong. Summaries of 12 February 2015 T.I. 2014-0550771E5 F under s. 5(1), s. 6(6) and s. 118.1(1) – total charitable gifts.
CRA rules that finishing a building interior qualifies as “erecting” the building for Reg. 1102(5)(a) purposes.
Reg. 1102(5)(a) deems a building leasehold interest that was acquired "by reason of…the taxpayer erect[ing] a building" to be a Class 1 rather than Class 13 property.
The shell of a large apartment, which had already been erected by a development partnership, was leased by it to a sister partnership, which under the lease was required to finish the work at its expense. CRA ruled that Reg. 1102(5)(a) applied to the cost of this finishing work. This is an expansive interpretation of "erect."
Neal Armstrong. Summary of 2015 Ruling 2014-0552291R3 under Reg. 1102(5).
CRA finds that a foreign partnership did not hold Bitcoins in an active business
The definition of "specified foreign property" for purposes of the foreign property reporting rule in s. 233.3 includes an interest in a (mostly foreign-owned) partnership which holds "funds or intangible property…situated, deposited or held outside Canada," but with an exclusion in para. (j) of the definition for where such property of the partnership "is used or held exclusively in the course of carrying on an active business of the…partnership."
CRA considered that the para. (j) exclusion likely did not apply for a foreign partnership that held Bitcoins and engaged in related FX hedging and arbitrage transactions. Given that the definition of non-portfolio property (which refers only to "property...use[d]…in the course of carrying on a business in Canada") has narrower wording (i.e., merely "holding" in the course of a business is not enough to taint), this suggests that listed Canadian precious metal funds should not be considered to be SIFT trusts (or partnerships) even if they hold their property in Canada.
Neal Armstrong. Summary of 16 April 2015 T.I. 2014-0561061E5 under s. 233.3 – "specified foreign property".
CRA finds that the surplus recognition rule in Reg. 5907(2.01) for drop-down and sale transactions is not available where any liabilities are assumed
Reg. 5907(2.01) potentially allows the recognition for surplus purposes of unrealized gain on a transfer from one foreign affiliate to another, newly incorporated, foreign affiliate where the shares of the new foreign affiliate are then promptly sold to a third party. A requirement for this relief is that the "only consideration received in respect of" the drop-down is shares of the new foreign affiliate.
CRA considers that this requirement will not be satisfied if the new foreign affiliate assumes any liabilities of the transferor FA as part of the purchase. This appears to be technically correct. However, since any normal business or business division will have related liabilities, this interpretation eviscerates the rule.
Neal Armstrong. Summary of 22 April 2015 T.I. 2014-0550451E5 under Reg. 5907(2.01).
CRA affirms two-step approach for characterizing a mooted foreign partnership
In CRA’s Folio on "What is a Partnership?" it states that a two-step approach (similar to Memec) should be applied in determining whether a foreign arrangement is a partnership: determine the characteristics of the arrangement under the foreign law and contracts; and compare those characteristics with the attributes of a partnership under "Canadian law." CRA is somewhat vague as to whether it accepts the implicit approach in Backman that the Canadian law to be applied here is that of the common law provinces (carrying on business in common with a view to profit).
Neal Armstrong. Summary of S4-F16-C1: "What is a Partnership?" under s. 96.
CRA narrowly defines constructive receipt of employment income
Folio S2-F3-C1: "Payments from Employer to Employee," which mostly deals with s. 6(3), reflects significant revisions to IT-196R2. CRA has added a statement that s. 6(3) employment income can be "constructively received," and defines this situation as one where an "amount is credited to an employee’s debt or account, set apart for the employee or otherwise available to the employee without being subject to any restriction concerning its use."
CRA has added examples indicating that a signing bonus will be included even where the employee is subject to a potential obligation to repay the amount, and that an agreement at the time of hiring the employee to purchase her customer list on termination of employment also would give rise to employment income on the sale.
CRA has carried forward from IT-196R2 a statement that a payment which satisfies the specific s. 6(3) conditions will only be included in employment income if it has the "nature and quality" of employment income.
Neal Armstrong. Summaries of Folio S2-F3-C1: "Payments from Employer to Employee" under s. 6(3), s. 5(1) and s. 6(3.1).
Income Tax Severed Letters 6 May 2015
This morning's release of four severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA treats part of a building as a “former business property”
Insurance proceeds received for the destruction of part of a building qualified as "compensation for property damaged" (para. (f) of the "proceeds of disposition" definition) rather than "compensation for property destroyed" (para. (c)), so that it was necessary for the destroyed property to qualify as a "former business property" in order for the replacement property rollover to potentially apply to the reinvestment of the insurance proceeds. Although parts of the building were used as a rental property, the destroyed part had been used exclusively as a business property, so that such part qualified as a former business property. In other words, the destroyed part of the property in effect was viewed as a separate property in the context of the former business property definition but not in the context of characterizing the proceeds.
A further hurdle was that the scale of the reconstruction work had to be such as to be able to conclude "that a new property is acquired by the taxpayer."
Neal Armstrong. Summary of 4 March 2015 T.I. 2014-0550761E5 F under s. 44(1).
Jennings – Tax Court of Canada finds that rezoning expenses were fully deductible
Six years after the taxpayers acquired a triplex, they discovered that it was not zoned for that use, and applied to get it rezoned. In finding that the substantial related expenses were deductible, Woods J noted that although there was in a sense a long-term benefit from the rezoning, it did not produce any change in how the property was used.
This is a more favourable result than Shabro, where the replacement of a floor, which was damaged because it rested on a former landfill site, by a floor supported by steel piles, was a capital expenditure even though (similarly to Jennings) the taxpayer thereby only got what it thought it had in the first place (a suitable building) - although it may have helped that the expenditures did not effect any change to, or acquisition of, tangible property (see BP Australia, Strick v. Regent, Oxford).
Neal Armstrong. Summary of Jennings v. The Queen, 2015 TCC 96 under s. 18(1)(b) – capital expenditure v. expense – improvements v. running expense.