News of Note
CRA states that GAAR reassessments of statute-barred years should be "rare"
Email this ContentCRA considers that "the reassessment of statute-barred years where GAAR is the assessing authority should be rare."
The correct word is "impossible." Taxpayers have no discretion under s. 245(2) to alter the application of the Act to their transactions in accordance with their personal views of its policy. As decided in Copthorne, "there is nothing in the GAAR provisions that would allow a taxpayer to self assess on the basis that GAAR applies." If taxpayers have no authority to self-assess themselves under GAAR (or obligation to report under s. 237.3), how can failure to do so be careless or negligent?
Neal Armstrong. Summary of 9 November 2012 CTF Atlantic Roundtable Q. 5, 2012-0465921C6 ("Statute Barred Years") under s. 152(4)(a)(i).
CRA accepts, based on Rezek, that elections required to be filed with a return are considered timely even if the return itself is late
CRA accepts the Rezek decision for the proposition that where there is a requirement to file an election with a taxpayer's return, the election's filing will be considered to be timely if the election is filed with an overdue return.
However, the converse also holds - an election filed after the return's filing will be considered late even if it is filed before the return's due date. This is problematic for electronic return filing, where electronic filing of elections "in the return" is not accommodated. CRA is considering administrative concessions, as discussed in 9 November 2012 CTF Atlantic Roundtable Q. 8, 2012-0465981C6.
Scott Armstrong. Summary of 18 September 2013 T.I. 2013-0487871I7 ("Filing Due Date for Elections") under s. 220(3.5).
CRA (changing its mind) will allow a s. 110.5 adjustment 3 years beyond the normal reassessment period
S. 152(4)(b)(iv) provides that the Minister may reassess three years beyond the normal reassessment period "as a consequence" of any payment of foreign income tax. This permits a reassessment to allow a taxpayer's foreign tax credit claim.
But what if the taxpayer is asking to have its taxable income increased under s. 110.5 in order to generate a foreign tax credit? CRA (reversing 2010-0379801I7) considers that, in this situation, "there is a causal connection between the foreign tax paid and the adjustment to claim the foreign tax credit, regardless of whether the adjustment includes an addition to income under the provisions of section 110.5."
By analogy with the CCA revision policy in IC 84-1, an assessment under s. 110.5 may be made even beyond the six-year s. 152(4)(b)(iv) period "where there is no change in the tax payable for the year." "Tax" includes provincial taxes, so that a requested adjustment under s. 110.5 for a statute-barred year will not be permitted if it increases provincial taxes payable. 2010-0379801I7 suggests that this usually will be a problem.
Neal Armstrong. Summary of 16 July 2013 Memorandum 2013-0481151I7 under s. 152(4)(b)(iv).
CRA effectively exempts a receipt to which s. 56(2) already has applied
CRA considers that where a real estate agent directs the real estate brokerage to pay a portion of a home-purchase commission to the purchaser, the amount of this "referral fee" will be included in the agent's income under s. 56(2) irrespective of whether it is income to the purchaser. Furthermore, as "it is the practice of [CRA] not to assess the same income twice," the brokerage would not be expected to issue a T4A to the purchaser.
This arguably is a "reverse Winter" situation. That case (as limited by James) may indicate that if an amount is earned as income by the recipient, s. 56(2) does not impute income to a 3rd party who directed that benefit. In any event, CRA presumably was mindful that most purchasers would treat the referral fee as an inducement that was not taxable under s. 12(1)(x).
Neal Armstrong. Summary of 19 August 2013 T.I. 2013-0488011E5 ("Real Estate Referral Fees") under s. 56(2).
Oil and gas coordination centres likely are distinct permanent establishments
Jan de Goede and Ruxandra Vlasceanu suggest under the general OECD commentary principles that unincorporated coordination centres, which provide support to the various oil and gas exploration and production blocks of a joint venture in the same country (such as accounting, administration, finance, human resources, treasury, information and communication, technical support, and supervision activities) (1) are permanent establishments, as their activities are more than preparatory or auxiliary, and (2) are distinct permanent establishments from the exploration and production blocks since such multiple places of business lack geographic and commercial coherence.
Neal Armstrong. Summary of Jan de Goede and Ruxandra Vlasceanu, "Permanent Establishment Implications for Coordination Centres in the Oil and Gas Industry", Bulletin for International Taxation, September 2013, p. 466 under Treaties – Art. 5.
Harvey - Tax Court finds that unauthorized personal use was partly business use
The taxpayer's teenaged daughter and her friends (all without a driving licence) took his Jeep on an unauthorized joyride. It crashed.
Graham J permitted the taxpayer to deduct a portion of the repair expenses based on the percentage of business use of the vehicle prior to the day of the accident.
Neal Armstrong. Summaries of Harvey v. The Queen, 2013 TCC 298 under s. 18(1)(a) - income-producing purpose, and s. 163(2).
CRA confirms the anomalous application of the inter-provincial income allocation rules to SIFT partnerships
Reg. 402(6) provides that a corporate partner picks up its proportionate share of gross revenues and salaries and wages attributable to each of the partnership’s permanent establishments for purposes of the application of the inter-provincial income allocation rules in Part IV of the Regulations.
CRA has confirmed that this rule applies even where the partnership is a SIFT partnership earning taxable non-portfolio earnings, so that the partner is treated under s. 96(1.11) essentially as the common shareholder of a taxable Canadian corporation.
Neal Armstrong. Summary of 7 August 2013 T.I. 2012-0460511E5 under Reg. 402(6).
Upon conversion to a functional currency, the CDA must also be converted irrespective of CDA activity
Since the capital dividend account of a Canadian corporation, which has made a functional currency election, is relevant to its "Canadian tax results" (i.e., whether it is subject to Part III tax), it is required to convert its CDA to the functional currency as at the end of the Canadian currency year preceding its first functional currency year – irrespective of whether it actually paid a capital dividend.
Neal Armstrong. Summary of 20 September 2013 T.I. 2012-0471261E5 under s. 261(7)(h).
Income Tax Severed Letters 2 October 2013
This morning's release of 28 severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA permits warehousing of new losses in a thinly-capitalized Newco in a loss-shifting transaction
Losses typically are transferred from a parent (Lossco) to a subsidiary (Profitco) in a no-incest jurisdiction through a triangular circling of funds: Lossco makes an interest-bearing loan to Profitco; Profitco subscribes for pref of a Newco subsidiary of Lossco; Newco makes a non-interest-bearing loan to Lossco; and Newco services the dividends on the pref through capital contributions from Lossco.
Here however, Profitco is itself a public corporation which does not want to show additional debt on its balance sheet. Accordingly, the above triangular transactions will be used to transfer losses to a newly-incorporated special-purpose subsidiary of Lossco ("A Co"), with A Co only being transferred to Profitco and wound-up into it after the loss generation transactions have been unwound.
No representation was given that A Co could borrow even a nickel on its own covenant. Also, CRA was fine with the accumulated dividends and interest under the triangular arrangement not being funded and serviced until immediately before the triangular arrangement is unwound.
Neal Armstrong. Summary of 2013 Ruling 2012-0472291R3 under s. 111(1)(a).