News of Note
CRA confirms that it does not consider a directed gift to be a gift
Email this ContentRegarding the receipt of funds by a qualified donee that is a municipality from a registered charity where such funds were directed to a non-qualified donee (a non-profit organization), CRA stated:
It is our general view that donations can be received and receipted by a qualified donee such as a municipality provided the municipality retains discretion as to how the donated funds are to be spent. If a municipality is merely acting as a conduit, by collecting funds from donors, including a charity, on behalf of an organization that is legally or otherwise entitled to the funds so donated, the municipality is not in receipt of a gift.
Neal Armstrong. Summary of 1 February 2023 External T.I. 2022-0945221E5 under s. 149.1(1) – qualified disbursement.
Simonetta – Tax Court of Canada finds that the need for builder-required particulars for the HST new housing rebate fell away if obtaining them was not feasible
Ms. Simonetta acquired a new Toronto home pursuant to a purchase agreement that specified that the purchase price included any applicable HST. The vendors (two individuals) claimed that the sale was exempt from HST, so that it was evident that they did not consider Ms. Simonetta to have paid them any HST on the purchase, and that they would not complete the builder-required portion (“Section D”) of the form for the new housing rebate.
Sommerfeldt J found on the evidence (even though the vendors were not parties to the case) that the vendors had never occupied the home as a residence and had sold the home as an adventure in the nature of trade – so that they were builders, and the sale was subject to HST. Accordingly, Ms. Simonetta had established one of the mooted requirements for claiming the rebate, namely that she had paid HST on her purchase.
Regarding Section D, Sommerfeldt J found:
[I]t was not possible for Ms. Simonetta to obtain the business number (if any), address, telephone number and signatures of the Vendors [as required by Section D]. Therefore, Ms. Simonetta’s inability to obtain that information and those signatures does not vitiate her Application for the Rebate.
Neal Armstrong. Summaries of Simonetta v. The King, 2023 TCC 54 under ETA s. 254(2)(d) and s. 262(1).
We have translated 6 more CRA interpretations
We have a translated a further 6 translations of CRA interpretations released in June and May of 2003. Their descriptors and links appear below.
These are additions to our set of 2,464 full-text translations of French-language Technical Interpretation and Roundtable items (plus some ruling letters) of the Income Tax Rulings Directorate, which covers all of the last 19 ¾ years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
| Bundle Date | Translated severed letter | Summaries under | Summary descriptor |
|---|---|---|---|
| 2003-06-06 | 3 June 2003 External T.I. 2003-0012075 F - Safe Income and 104(13.1) Designation
Also released under document number 2003-00120750.
|
Income Tax Act - Section 55 - Subsection 55(2.1) - Paragraph 55(2.1)(c) | income retained by a trust under s. 104(13.1) and then distributed to its corporate beneficiary was not included in the latter’s safe income |
| Income Tax Act - Section 55 - Subsection 55(2) | |||
| 30 May 2003 Internal T.I. 2003-0000117 F - ALLOCATION AUTOMOBLE VERSÉE
Also released under document number 2003-00001170.
|
Income Tax Act - Section 53 - Subsection 53(2) - Paragraph 53(2)(c) - Subparagraph 53(2)(c)(v) | allowance, or reimbursement for non-partnership expense, is treated as a distribution reducing the partner’s ACB | |
| Income Tax Act - Section 96 - Subsection 96(1) - Paragraph 96(1)(a) | fees, and usually "loan" interest, paid to a partner will be treated as draws rather than deductible expenses | ||
| Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c) - Subparagraph 20(1)(c)(i) | a loan by a partner to the partnership may be treated as a loan rather than a contribution of capital in special circumstances | ||
| 3 June 2003 Internal T.I. 2003-0019087 F - Calculation of 163(1) Penalty - Capital Gain
Also released under document number 2003-00190870.
|
Income Tax Act - Section 163 - Subsection 163(1) | penalty computed on taxable capital gain, not capital gain | |
| 30 May 2003 External T.I. 2003-0182145 F - AVANTAGE IMPOSABLE-VOYAGE
Also released under document number 2003-01821450.
|
Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) | no taxable benefit re free trip for a customer’s employee where employee spends at least 50% of the time on business-related activities | |
| 30 May 2003 External T.I. 2003-0006005 F - EQUIVALENT TO SPOUSE
Also released under document number 2003-00060050.
|
Income Tax Act - Section 118 - Subsection 118(1) - Paragraph 118(1)(b) - Subparagarph 118(1)(b)(i) | s. 118(1)(b)(i) test unlikely to be satisfied where one of couple is incarcerated | |
| 2003-05-30 | 27 May 2003 External T.I. 2002-0176485 F - regime d'assurance-salaire
Also released under document number 2002-01764850.
|
Income Tax Act - Section 15 - Subsection 15(1) | s. 15(1) benefit (e.g., from corporation paying premiums under wage loss replacement plan for shareholder) cannot be reduced by the shareholder repaying the benefit |
Prospera Credit Union – Tax Court of Canada finds that a credit union, although not an authorized MFT unit distributor, earned GST-exempted fees for doing most of the work
A credit union (“Westminster”), which was not authorized to sell mutual fund units or securities to its members, entered into “participation agreements” with two arm’s-length companies (“CAMI” and “CSI”) which were so authorized, pursuant to which Westminster employees nominally became employees or representatives of CAMI or CSI and became licensed and trained to sell securities, while remaining essentially full-time employees of Westminster working under its supervision. Pursuant to the participation agreements, Westminster received percentages of the distribution and service fees received by CAMI from the mutual fund issuers, or of the commissions received by CSI. In finding that such fees of Westminster were exempted from GST/HST as an “arranging for” financial service notwithstanding the exclusion in para. (r.4) of the financial service definition for preparatory services, Wong J stated:
The predominant element was the sale of CAMI/CSI mutual funds/securities to Westminster’s members, carried out by way of the dual employees/investment advisors using their training/licensing to recommend and sell CAMI/CSI products to Westminster members, commensurate with the members’ particular investment profiles.
Westminster arranged for the issue, granting, allotment, acceptance, endorsement, renewal, processing, variation, transfer of ownership or repayment of financial instruments, being CAMI mutual funds and CSI securities. It is the heart of the transaction and what CAMI/CSI really paid for.
Neal Armstrong. Summary of Prospera Credit Union v. The King, 2023 TCC 65 under ETA s. 123(1) – financial service – (r.4).
Investissement Boeckh – Quebec Court of Appeal finds a presumption of coherence that it should apply the FCA’s interpretation of ITA s. 39(5)(a)
The ARQ reassessed the taxpayer (“Boeckh”) for its 2007 to 2015 taxation years, on the basis that net gains realized in those years were income account gains rather than capital gains. Boeckh was a closely-held investment company whose portfolio (of over $100 million for many of the years) was focused on junior Canadian public companies in the resource and high tech sectors. The Court of Quebec had found that an election which Boeckh had made pursuant to TA s. 250.1 (equivalent to ITA s. 39(4)) was ineffective by virtue of the exclusion under TA s. 250.3(a) (equivalent to ITA s. 39(5)(a)) for a "trader or dealer in securities".
In rejecting a submission of Boeckh that the interpretation of “trader or dealer” in Vancouver Metal Arts should not be adopted for purposes of s. 250.3(a), the Quebec Court of Appeal stated:
In sum, the words "a trader or dealer in securities" in TA section 250.3 must be interpreted to mean, at a minimum, a person whose profession or business is the purchase and sale of securities. This interpretation is compatible with the ordinary meaning that it is appropriate to accord to the words employed in the text of the provision, as well as being coherent with the object of the TA and the intention of the legislature, which clearly wished to favour a harmonization in this regard between the Quebec and federal tax regimes. …
[I]n tax matters, where the federal and provincial provisions are appreciably in the same form, a presumption of coherence between the two provisions should prevail.
The Court further found no reversible error in the application inter alia of the following factors to conclude that Boeckh was a trader or dealer:
- A qualified investment professional (an experienced CFA) devoted himself full-time to managing Boeckh’s portfolio;
- The portfolio had what was considered to be a high turnover (of around 30%) and there was a high absolute number of transactions.
- Boeckh’s objective was to generate gains rather than dividends, and focused on companies with a high potential for appreciation.
Neal Armstrong. Summaries of Investissement Boeckh Inc. v. Agence du revenu du Québec, No. 500-09-029863-222 (Quebec Court of Appeal) under s. 39(5)(a) and Statutory Interpretation – Provincial Law.
CRA indicates that 2 related but not associated CCPCs do not have their SBD ground under s. 125(1)(a)(i)(B) if they have no business dealings with each other
CRA indicated that where two CCPCs, wholly-owned by Mr. or Mrs. X, did not provide services or property, directly or indirectly, in any manner whatever, to the other, then on that basis neither CCPC would be considered to have earned income described in s. (a)(i) of the definition of “specified corporate income” in s. 125(7), i.e., s. 125(1)(a)(i)(B) would not carve out any such income from that income eligible for the small business deduction. Furthermore, as the corporations were not associated with the other, they would not be required to aggregate their taxable capital employed in Canada for the purposes of the formula reduction in their business limit pursuant to s. 125(5.1)(a).
Neal Armstrong. Summaries of 26 January 2023 External T.I. 2021-0887661E5 under s. 125(7) – specified corporate income - (a)(i) and s. 125(5.1)(a).
Income Tax Severed Letters 10 May 2023
This morning's release of four severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Tax Court of Canada finds that funding under a government “service agreement” caused the HST self-supply rule to apply to the cost of a new seniors’ home rather than its lower FMV
The Appellant obtained the agreement of the Nova Scotia Department of Health to construct a replacement seniors facility for its aging existing facility, and concluded both a Development Agreement with the Department, which set out the terms upon which it was to develop the Facility, and a “Service Agreement” with the Department, which set out the services that the Appellant was to provide through the Facility and the payments that it would receive from the Department and the residents.
Although assisted–living facilities normally are subject to HST on their fair market value when substantially completed, CRA assessed on the basis of s. 191.1(2) effectively deeming the HST to be payable on most costs incurred, as these were higher than the new facility’s FMV. This provision very generally applied where the builder (the Appellant) received government funding "for the purpose of making residential units in the complex available to [seniors]."
In dismissing the Appellant’s appeal, Graham J indicated that the facts of this case were in all material respects identical to those in High-Crest, and that he agreed with the conclusions of Jorré J in that case. For instance, he agreed with Jorré J that “[s]o long as some portion of the total payments that the Department of Health made to the Appellant were made for the purpose of making residential units in the Facility available to seniors” the government funding test was met (para. 37). That was the case here given that the Service Agreement included accommodation in the required services, and the payments thereunder covered interest and principal under the mortgage financing.
Furthermore, it was not relevant to the tests in s. 191.1(2) that, after construction, the Appellant might be considered to be making a single supply of health care services to the residents.
Neal Armstrong. Summary of Windsor Elms Village for Continuing Care Society v. The King, 2023 TCC 58 under s. 191.1(2).
2405124 Ontario – Tax Court of Canada finds that a s. 244 Requirement applies to funds that the recipient is directed by its controlling shareholder (the tax debtor) to pay to him
CRA issued a Requirement to Pay to a corporation (240 Ontario) respecting the unpaid tax debt of its sole shareholder (IB), who was also its officer. IB, through his control of the corporate bank account, then withdrew funds from that account in order to repay credit card balances that he had run up on his wife’s credit card. S. 224(1), by its terms, indicated that the Requirement applied to any amount that 240 Ontario became liable to pay to another person within a year of the Requirement, and garnished that amount when it was paid.
In finding that the bank account withdrawals were subject to s. 224 so that 240 Ontario was liable for its failure to pay those amounts over to the Receiver General, Russell J stated that “[j]urisprudence has established that the subsection 224(1) language ‘liable to make a payment’ applies where there is responsibility at law to make a payment,” and found that such responsibility to pay the amounts arose when IB through his “ownership of and authority over 240 Ontario” required it to pay the funds to him.
Neal Armstrong. Summary of 2405124 Ontario Ltd. v. The King, 2023 TCC 57 under s. 224(1).
O'Hagan – Tax Court of Canada indicates that whether a false statement engages a s. 163(2) penalty should be determined only as at the time of return filing
The taxpayer, who had a modest income, filed a return prepared by an “accounting firm” (DSC) claiming a false business loss of $214,176.
Before confirming the imposition of a gross negligence penalty, Russell J referred approvingly to the finding in Torres that wilful blindness can impute knowledge as well as constitute gross negligence, and adopted and applied the Torres indicators as to wilful blindness to find that in the circumstances the taxpayer should have first reviewed the return to ensure its correctness, rather than signing it without any review, or enquiry of DSC.
Russell J further stated that “whether … false statements or omissions in a return justify a subsection 163(2) penalty is determinable at the time the return is filed,” so that he did “not consider evidence heard that post-dates the filing of the 2009 return containing the false statement is of relevance.”
Neal Armstrong. Summary of O'Hagan v. The King, 2023 TCC 52 under s. 163(2).