News of Note
Quinco Financial – Federal Court of Appeal confirms that a retroactive amendment to the GST credit note rules is not “for greater certainty”
Email this ContentThe Tax Court confirmed that there was a legislative oversight in the wording of the GST credit note rules, so that Quinco Financial received full input tax credits for the GST on its original purchases notwithstanding that it subsequently received credit notes for $2.3M of those ITC claims. In affirming this decision, Pelletier JA stated that "absent words allowing us to address situations of abuse or windfall, where the provisions are precisely-worded, clear and unambiguous, they must be given their plain effect."
As is its wont, Finance introduced subsequently to the Tax Court dispute a "for greater certainty" amendment to s. 225(3.1) (in Bill C-31, now in second reading) to reverse this approach, retroactive back to 1996. The outrageous, if continually repeated, becomes routine.
Although its ITCs were claimed after 1996, Quinco Financial may still be sitting pretty following the passage of Bill C-31 as the dispute will be res judicata.
Neal Armstrong. Summaries of The Queen v. Quinco Financial Inc., 2014 FCA 108, under Statutory Interpretation – Ordinary Meaning and ETA, s. 232.
A capital distribution by Intrepid Mines will be treated similarly for Canadian and Australian purposes
Intrepid Mines, an Australian company listed on the ASX and TSX, is proposing to distribute approximately 87% of its assets in cash as a capital distribution. It is anticipated that the Australian Taxation Office will publish a "class" ruling on its website indicating that the distribution will be treated as a basis reduction rather than a dividend for Australian purposes for those shareholders who do not hold their shares as revenue assets. Essentially the same treatment is anticipated for Canadian income tax purposes for most Canadian shareholders based on the distribution’s treatment as a return of capital for Australian corporate purposes.
Neal Armstrong. Summary of Intrepid Mines Explanatory Memorandum under Spin-Offs & Distributions – Foreign capital distributions.
CRA finds that GAAR should not be applied to a tax-motivated partnership income-sharing arrangement
The Directorate found that an income-splitting arrangement involving a limited partnership, of which a trust for the minor children of a professional was one of the partners, was not caught by the pre-2014 version of the s. 120.4 split-income rules, as the income of the partnership "was not derived from the provision of property or services." However, the Directorate suggested that the arrangement might be attacked under s. 103(1) (on the basis that income-splitting appeared to be the sole objective of the structure) or s. 103(1.1) (on the basis that the kiddie trust did not effectively bear any of the expenses of the partnership).
The general anti-avoidance rule should not be applied as "subsections 103(1) and (1.1) are of sufficient breadth to override the [agreed] income-sharing terms."
Neal Armstrong. Summaries of 10 March 2014 Memo 2013-0493971I7 F under s. 120.4(1) – split income – (c), s. 103(1) and s. 103(1.1).
Significant closing agenda items before the acquisition and amalgamation of target will result in it having two deemed taxation year ends
When a target engages in significant transactions described in a plan of arrangement or closing agenda on the closing date but before the closing of its acquisition (at, say, 6:00 p.m.), it is logical for the amalgamation of the target and the acquirer to be considered to occur subsequently to the other transactions (i.e., after 6:00 p.m. rather than effective the beginning of the closing date). Accordingly, the acquisition of control and amalgamation of the target will give rise to two deemed taxation year ends of the target even if it makes a s. 256(9) election.
Neal Armstrong. Summary of 26 March 2014 2014-0523251E5 F under s. 87(2)(a).
David – Tax Court of Canada finds that there was no downside to claiming credits based on charitable receipts known to be inflated
Woods J found that individuals, who received charitable receipts of $1,000 for every $100 that they "donated" to a registered charity, were entitled to credits based on the 10% amount, as "the issuance of an inflated tax receipt should not usually be considered a benefit that negates a gift" – and also directed that any penalties be deleted.
Neal Armstrong. Summary of David v. The Queen, 2014 TCC 117 under s. 118.1 - total charitable gifts.
Bakorp – Federal Court of Appeal finds that s. 169(2.1) did not permit a large corporation to change arguments on appeal
The taxpayer's Notice of Objection indicated that the Minister had erred in reducing the amount of a deemed dividend from $53 million to $28 million for its 1995 taxation year, but its Notice of Appeal indicated that the deemed dividend for 1995 should have been nil instead. On appeal it emerged that taxpayer’s counsel in fact wanted to argue that the deemed dividend arose in 1993 (when all the shares in question were redeemed) rather than in 1995 (when the balance of the redemption proceeds were received).
The taxpayer, as a large corporation, could only appeal on an issue raised (and properly quantified) in its Notice of Objection. The taxpayer argued that, at both the Notice of Objection and Appeal stages, it was raising the same issue, namely, the quantum of the deemed dividend for 1995. Webb JA found that the Objection did not satisfy "the purpose of allowing the Minister to know the nature and quantum of tax litigation at the earliest possible date." Furthermore, it did not assist the taxpayer to try to obscure the change in its argument by drafting a Notice of Appeal which did not describe the (new) timing issue.
Neal Armstrong. Summary of Bakorp Management Ltd. v. The Queen, 2014 FCA 104 under s. 169(2.1).
A deemed year end does not arise under s. 249(3.1) (re loss of CCPC status) if a s. 89(11) election has been made
If a CCPC has made the s. 89(11) election not to be a CCPC for certain purposes including s. 249(3.1), this of course means that s. 249(3.1) will not apply to give it a deemed taxation year end if two public corporations acquire a majority of its shares (so that it then ceases to be a CCPC for all purposes). As intimated by CRA, this point is relevant if the two public corporations are not a group, so that s. 249(4)(a) also would not apply to produce a deemed year end.
Neal Armstrong. Summary of 27 March 2014 T.I. 2014-0523171E5 under s. 249(3.1).
CRA finds that a s. 251(5)(b) right does not vitiate the actual control by the share owner
Where a CCPC (Bco) makes a binding offer to purchase all the shares of a subsidiary (Aco) of a public corporation, the fact that s. 251(5)(b) may apply at that time to now deem Bco to control Aco does not detract (in light of Ekamant) from the actual control of Aco at that time by the public corporation. Accordingly, Aco will not become a CCPC, and s. 249(4) (or 256(9)) will not apply, until the offer closes.
Neal Armstrong. Summary of 27 March 2014 T.I. 2014-0524851E5 F under s. 249(3.1).
Income Tax Severed Letters 30 April 2014
This morning's release of 10 severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA provides provincial GAAR rulings
A public company (Lossco) is transferring losses to a "Profitco" which is a wholly-owned indirect subsidiary of another public company (Bco) which is partially owned by Lossco. Profitco effectively is receiving the losses for free, which means that the minority shareholders of Bco are receiving a free ride.
In addition to customary federal rulings including GAAR, CRA ruled that the provincial GAAR for any province with which there is a tax collection agreement will not be applied to "determine" (i.e., redetermine) tax consequences addressed in the federal rulings.
Neal Armstrong. Summaries of 2013 Ruling 2013-0504301R3 under s. 111(1)(a) and s. 245(4).