News of Note
CRA considers that an a business which is acquired on an amalgamation cannot be transferred immediately with the benefit of a s. 167 GST election
Email this ContentCRA considers that a s. 167 GST election is not available where an operating company is amalgamated and Amalco immediately sells all of the assets, on the grounds that Amalco is a new corporation that itself did not carry on the business. Similar difficulties arise where a Newco which acquired all of a business is immediately amalgamated before carrying on the business. This is a perennial issue.
Neal Armstrong. Summary of CBAO National Commodity Tax, Customs and Trade Section – 2013 GST/HST Questions for Revenue Canada, Q. 20. ("Reorganizations - Amalgamations") (available with membership password at http://www.cba.org/CBA/sections_NSCTS/main/GST_HST.aspx), under ETA, s. 167.
CRA considers that a non-resident can be considered to be carrying on business in Canada for GST based on its agreement rather than what it ends up doing
A question posed to CRA highlights an anomaly arising under the rule in ETA s. 133, which deems a supply to be made at the time the agreement for the supply is entered into. What if a non-resident enters into an agreement for the sale and installation of a power plan in Canada (which if implemented would clearly entail carrying on business in Canada) and then, before the installation work occurs, enters (along with its Canadian subsidiary) into an amended agreement under which the subsidiary will do all the Canadian installation work?
CRA stated that "the determination of whether a non-resident is carrying on business in Canada is generally made… at the time the non-resident enters into an agreement to make taxable supplies in Canada and those supplies are deemed to be made."
Neal Armstrong. Summary of CBAO National Commodity Tax, Customs and Trade Section – 2013 GST/HST Questions for Revenue Canada, Q. 15. ("Carrying on Business") (available with membership password at http://www.cba.org/CBA/sections_NSCTS/main/GST_HST.aspx), under ETA, s. 133.
A newly-incorporated Subco within a large corporate group generally cannot claim ITCs for GST on pre-incorporation contracts
CRA recognizes that a corporation can generally adopt a pre-incorporation contract for GST purposes. However, this will not entitle it to claim ITCs for the related GST unless (in light of the rule in ETA s. 171) it started off life as a small supplier (which will not work if it is part of a larger commercial group that is over the relevant small-supplier threshold).
Neal Armstrong. Summary of CBAO National Commodity Tax, Customs and Trade Section – 2013 GST/HST Questions for Revenue Canada, Q. 23 ("Pre-Incorporation Contracts") (available with membership password at http://www.cba.org/CBA/sections_NSCTS/main/GST_HST.aspx), under ETA, s. 169(1).
A partner cannot claim ITCs for partnership-related expenses incurred before the partnership’s formation
ETA s. 272.1(2) potentially permits a partner to claim input tax credits for expenses incurred by it in the course of partnership activities but not as agent for the partnership. CRA has intimated that this provision will not be available where the expenses in question was incurred by the partner before the formation of the partnership.
Neal Armstrong. Summary of CBAO National Commodity Tax, Customs and Trade Section – 2013 GST/HST Questions for Revenue Canada, Q. 29 ("Real Property Investment") (available with membership password at http://www.cba.org/CBA/sections_NSCTS/main/GST_HST.aspx), under ETA, s. 272.1(2).
CRA construes voluntary GST registration provision broadly
The ETA stipulates that a non-resident who is not engaged in commercial activity in Canada but which "regularly solicits orders" for the supply by it of tangible personal property to Canadians may voluntarily register for GST purposes. However, the CRA will register a non-resident person that purchases and sells taxable tangible personal property for delivery in Canada in the ordinary course of carrying on a business outside Canada, but does not regularly solicit orders in respect of such sales.
Neal Armstrong. Summary of CBAO National Commodity Tax, Customs and Trade Section – 2013 GST/HST Questions for Revenue Canada, Q. 14. ("Voluntary Registration") (available with membership password at http://www.cba.org/CBA/sections_NSCTS/main/GST_HST.aspx), under ETA, s. 240(3)(b).
Vivaconcept International - Tax Court finds that voluntarily agreeing to a debt reduction under a proposal does not preclude a bad debt claim for the related GST
Subject to conditions, the ETA allows both a bad debt claim (under s. 231) for the GST included in a bad trade debt, and for a credit (under s. 232) for the related GST where the consideration for the supply is voluntarily adjusted after the fact and a credit note is issued by the creditor "within a reasonable time" of that adjustment. What happens if, after the trade debtor becomes insolvent, the creditor agrees with the debtor to reverse the debt under a proposal with the creditors?
Tardif J appears to have concluded that such an adjustment does not preclude a s. 231 bad debt claim. Furthermore, he indicated in the alternative that issuing a credit note 23 months after the adjustment would normally represent "a relatively long time," but here that was an acceptable delay for s. 232 purposes as the credit note was issued by the taxpayer shortly after being informed by Revenue Quebec that it was denying the bad debt claim.
Neal Armstrong. Summaries of Vivaconcept International Inc. v. The Queen, 2013 CCI 336 under ETA – s. 231(1) and s. 232(3).
Casa Blanca - Tax Court finds that HST is not chargeable on the assignment of a right to a deposit
Suppose that a registrant has entered into an agreement to acquire real estate for $1M and then, after the real estate has appreciated to $1.1 million, assigns the purchase agreement to an assignee for an "assignment fee" of $0.1M plus a further amount of $0.1M to reflect that the deposit will now be held by the property's vendor for the account of the assignee. CRA characterizes this as a single supply of real estate for $0.2M so that, in the absence of any exemption, HST is payable on this full amount.
Hogan J disagreed. The assignment of the purchase agreements and of rights to the deposits were not inextricably linked, as it would be quite possible to structure a sale where there was no assignment of the deposit and the assignee gave a fresh deposit to the property vendor. Accordingly, there were two supplies: of an interest in real property; and of a financial instrument (a right to money). In the alternative, there is no supply at all respecting the deposit as the definition of property excludes money.
Neal Armstrong. Summary of Casa Blanca Homes Ltd. v. The Queen, 2013 TCC 338 under ETA - 123(1) - supply.
CRA confirms that a s. 40(1)(a)(iii) reserve can be claimed as a deduction from a s. 55(2) capital gain
In 1999-000929, CRA indicated that a capital gains reserve under s. 40(1)(a)(iii) generally could be claimed respecting a capital gain, resulting from the application of s. 55(2) to what otherwise would be a s. 84(3) deemed dividend, where the s. 84(3) dividend arose on the receipt of a promissory note (payable at future dates) made as a conditional rather than absolute payment. On redacted facts, CRA has confirmed that the reserve also is available where the deemed dividend (to which s. 55(2) applied) arose as a result of the purchase for cancellation of shares for an unpaid (i.e., still owing) purchase price.
Neal Armstrong. Summary of 7 October 2013 Memorandum 2013-0504081I7 F under s. 40(1)(a)(iii).
CRA illustrates its policy that different partnership units or classes are not separate property
CRA considers that all of the interest of a partner in a partnership constitutes a single property even if that interest is unitized. This means, for example, that if a partner disposes of 40% of its units during a year, it will not receive any addition to the ACB of those units (under s. 96(1.01) or any other provision) for 40% of the partnership income for the year, and 100% of the partnership income for that year will be added to the ACB of the retained units.
Neal Armstrong. Summary of 1 October 2013 T.I. 2013-0491571E5 under s. 43(1).
Income Tax Severed Letters 6 November 2013
This morning's release of nine severed letters from the Income Tax Rulings Directorate is now available for your viewing.