News of Note
Thompson - Federal Court of Appeal affirms that client names are not inherently privileged
Email this ContentTrudel JA found that the Minister was within her rights to require a lawyer to disclose his current accounts receivable listings, including client names and contact info - subject to any instances where a client's identity "constitutes the foundation of the retainer" or "the essence of the consultation," in which case disclosure of the name would be protected by solicitor-client privilege.
In passing, she also noted that lawyers' statements of account may be privileged.
Scott Armstrong. Summaries of Thompson v. The Queen, 2013 FCA 197, under s. 232 - Solicitor-Client Privilege and s. 230(2.1).
PDM Royalties – Tax Court finds that an internal agreement to allocate inputs for GST purposes on an IPO was ineffective
An attempt to obtain input tax credits for GST incurred on the IPO of an income fund was unsuccessful.
Although the income fund and a subsidiary LP (which held the business) agreed that the taxable expenses were to be incurred for the account of the LP, this was not sufficient to make the LP the "recipient" of the services, as it was not a party to the agreements with the services providers. As V. Miller J was not informed of the 2nd order supply rule in s. 185(1), she also considered that even if the expenses had been incurred by the LP in order to issue LP units in consideration for receiving the IPO funds, that represented an exempt supply which would not have entitled the LP to ITCs.
Neal Armstrong. Summary of PDM Royalties LP v. The Queen, 2013 TCC 270 under ETA – s. 169(1) and Input Tax Credit Information (GST/HST) Regulations, s. 3.
CRA interprets the Shell concept of FX hedging narrowly
CRA considered that a taxpayer, who hedged an FX (capital account) debt owing by it to related parties by entering into foreign currency forward contracts in the amount of the principal owing, realized losses on the forwards on income account because there was no linkage between their maturity dates (they were rolled over every month) and that of the debt. This is a narrow construction of what constitutes a hedge.
Neal Armstrong. Summary of 26 June T.I. 2013-0481691E5 under s. 9 – capital gain v. profit – foreign exchange.
Income Tax Severed Letters 4 September 2013
This morning's release of 25 severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA respects a “gift” of shares to a public foundation occurring in a technology-commercialization context
S. 149.1(3)(c), which effectively prohibits a public foundation from acquiring control of any corporation, is ameliorated by s. 149.1(12)(a), which indicates that there is no such acquisition of control where the foundation has not acquired the shares of the corporation for consideration.
CRA has ruled that the gift of all the shares of a taxable corporation by a charitable organization to a public foundation comes within this exemption notwithstanding that this occurs as part of a broader arrangement for commercializing technology rights which the charitable organization had transferred to the corporation.
Neal Armstrong. Summary of 2013 Ruling 2012-0443321R3 under s. 149.1(12)(a).
Concurrent small LP investments of a sister-in-law can convert small shareholdings in Canadian resource companies into taxable Canadian property
Under the July 12, 2013 draft amendments, a small shareholding in a Canadian resource or real estate company will be taxable Canadian property if the same non-resident investor, or a non-arm's length person, also held units of various partnerships which, in aggregate had 25% (or close to 25%) of the shares of the same company - and similarly for income funds or REITs.
There will be expansions to the standard jello jiggler circular disclosure for non-residents.
Neal Armstrong. Summary of Jack Bernstein and Francesco Gucciardo, "TCP Proposal Overshoots Objective?", Canadian Tax Highlights, Vol. 21, No. 8, p. 4 under s. 248(1) - taxable Canadian property.
IMIC plc acquisition of Afferro uses a Canadian Buyco and is 1/3 financed by an Afferro CFA upstream loan
Although the foreign affiliate dumping rules can be avoided, where a Canadian target public company holds most of its assets in foreign affiliates, by the foreign acquirer purchasing the shares of the target shareholders directly (see Effective Energy and Nordgold), cross-border acquisitions are still using Canadian Buycos. This might make sense if the paid-up capital of the target is low, and there is real potential down the road for using the high stated capital of the Buyco to distribute sales proceeds of the underlying foreign affiliates under the PUC reinstatement rule.
A recent Buyco example is the IMIC plc proposed acquisition of Afferro using a BC subsidiary Buyco. 1/3 of the consideration includes convertible notes of IMIC, but with this being handled so that it does not interfere with the (cross-border) stated capital of shares issued by Buyco to IMIC.
Around 1/3 of the purchase price is being funded by a Seychelles subsidiary of Afferro making a loan to IMIC simultaneously with the acquisition of the Afferro shares by the Buyco.
Neal Armstrong. Summary of Circular of Afferro Mining Inc. respecting its acquisition by International and Mining Infrastructure Corporation plc under Mergers & Acquisitions – Cross-Border Acquisitions - Inbound – Canadian Buyco.
CRA considers that payment to an unsecured creditor by an executor is a "distribution"
CRA has stated that an executor or other legal representative must obtain a certificate under s. 159(2) before paying off a credit card company (or otherwise distributing property to an unsecured creditor) if the taxpayer in question owes tax, or else the representative will be personally liable under s. 159(3) for the amount distributed. However, CRA also appears to imply that it will not require a certificate before such a "distribution" is made to a secured creditor.
Scott Armstrong. Summary of 27 March 2013 Memorandum 2012-0457251I7 under s. 159(2).
CRA releases its convertible debenture ruling
CRA has released its 2012 ruling that the semi-annual interest on a plain vanilla convertible note was not participating debt interest, so that it was not subject to Part XIII tax when paid to an arm’s length non-resident holder.
Neal Armstrong. Summary of 2012 Ruling 2011-0418721R3 under s. 212(3) – participating debt interest.
Income Tax Severed Letters 28 August 2013
This morning's release of 10 severed letters from the Income Tax Rulings Directorate is now available for your viewing.