News of Note
We have translated 6 more CRA interpretations
Email this ContentWe have translated a CRA interpretation released last week and a further 5 CRA interpretations released during the period commencing in December of 2002. Their descriptors and links appear below.
These are additions to our set of 2,577 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 20 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 |
|---|---|---|---|
| 2023-09-06 | 10 February 2022 External T.I. 2019-0819651E5 F - Pension from China | Treaties - Income Tax Conventions - Article 19 | pension from China paid to former civil servant now resident in Canada was not exempted under Art. 18 of the Canada-China Treaty |
| 2003-10-03 | 30 September 2003 External T.I. 2003-0035725 F - MONTANT RELATIF AUX ETUDES
Also released under document number 2003-00357250.
|
Income Tax Act - Section 118.6 - Subsection 118.6(1) - Qualifying Student - Paragraph (d) | meaning of post-secondary |
| Income Tax Act - Section 118.6 - Subsection 118.6(1) - Qualifying Student - Paragraph (a) | portion of month can be counted provided that 12 hours (including course practical work) expended in that portion | ||
| 2003-09-12 | 28 August 2009 Internal T.I. 2003-0029367 F - Paragraph 122.3
Also released under document number 2003-00293670.
|
Income Tax Act - Section 122.3 - Subsection 122.3(1) - Paragraph 122.3(1)(b) - Subparagraph 122.3(1)(b)(i) | contract can be concluded with a person related to the specified employer |
| 2002-12-20 | 7 January 2003 Internal T.I. 2002-0168347 F - RETRAITE OU PENSION ALIMENTAIRE | Income Tax Act - Section 56.1 - Subsection 56.1(4) - Support Amount | splitting of pension income for support purposes was alimony |
| Income Tax Act - Section 56 - Subsection 56(1) - Paragraph 56(1)(a) - Subparagraph 56(1)(a)(i) | equal share of pension income going to ex-spouse without declared element of support was received as pension income | ||
| 12 December 2002 External T.I. 2001-0100755 F - Impact of LCB on Dr and Part IV | Income Tax Act - Section 129 - Subsection 129(2) | general practice to net dividend refund against unpaid Part I tax | |
| Income Tax Act - Section 186 - Subsection 186(1) - Paragraph 186(1)(b) | connected dividend recipient is not required to pay s. 186(1)(b) tax if it can demonstrate by the return-filing deadline that such tax was eliminated through a loss carryback | ||
| Income Tax Act - Section 164 - Subsection 164(1) | where subsequent loss carryback eliminates the Part I tax and dividend refund (DR), the refund interest is calculated on the initial Part I tax amount even if the DR reversal is paid by set-off | ||
| Income Tax Act - Section 160.1 - Subsection 160.1(1) | interest payable under s. 160.1(1) on the reversed dividend refund where subsequent year’s loss is carried back to eliminate the Part I tax and RDTOH | ||
| 20 December 2002 External T.I. 2002-0164735 F - PRODUIT DE DISPOSITION ACHALANDAGE | Income Tax Act - Section 14 - Subsection 14(5) - Cumulative Eligible Capital - Variable E | full potentially receivable amount must be recognized, notwithstanding subsequent possible downward adjustment | |
| Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(g) | s. 12(1)(g) applicable to incremental pharmacy sales price for goodwill based on volume of prescriptions for post-sale years |
CRA rules on a transfer of losses to a Profitco with a different functional currency
CRA ruled on transactions for the transfer of losses by Lossco to Profitco (a Canadian sister) by using standard triangular transactions - through Lossco subscribing for interest-bearing debt of (its new subsidiary) Newco 2, which subscribes for cumulative preferred shares of its sister, Newco 1, which makes a non-interest-bearing loan to Lossco, which at year end funds the dividend obligation of Newco 1 through a capital contribution – with the transactions then being unwound and with Newco 2 then being sold to Profitco so that Profitco can access the Newco 2 losses through winding-it up pursuant to s. 88(1.1). Essentially the same transactions would be repeated (using further Newcos) in subsequent years until the Lossco losses were used up.
Profitco had made a functional currency election. The rulings included a ruling as to the application of s. 261(16)(a) to the wind-up of Newco into Profitco, including regarding Newco 2 being deemed to have elected Profitco’s tax reporting currency for its second short taxation year (of less than one day ending with its dissolution) and regarding the non-application of the avoidance rule in s. 261(18) and the stop-loss rule in s. 262(21).
The ruling letter also included a representation that proposed s. 18.2(4) will not apply to limit the deductibility of the interest on the interest-bearing debt used in the triangular transactions as Lossco and Newco 2 were eligible group corporations in respect of one another and will elect to treat the interest payment under such debt as excluded interest.
Neal Armstrong. Summary of 2023 Ruling 2022-0949841R3 under s. 111(1)(a).
CRA indicates that the immediate expensing income limit under Reg. 1100(0.1)(c) is determined at the partnership rather than partner level
In general terms, the immediate expensing incentive in Reg. 1100(0.1) allows for the immediate expensing of up to $1.5 million (the “immediate expensing limit”) of the costs of various classes of depreciable property (being designated immediate expensing property, or “DIEP”) that has become available for use, acquired by an eligible persons or partnerships (EPOPs) (being resident individuals, CCPCs or partnerships with them as the only members). However, by virtue of Reg. 1100(0.1)(c), an EPOP that is an individual or partner may not claim immediate expensing CCA in excess of the EPOP’s income (computed before CCA) from the business or property in which the relevant DIEP is used for the taxation year.
Regarding the application of this Reg. 1100(0.1)(c) limitation, CRA confirmed that:
- For purposes of this limitation, the income of the EPOP earned from the business or property in which the relevant DIEP is used includes recapture of depreciation or terminal loss that relates to that same source of income.
- The immediate expensing CCA is deducted prior to regular CCA and consequently, although Reg. 1100(0.1)(c) effectively prevents an EPOP that is an individual or partnership from using the immediate expensing deduction to create or increase a loss, following their immediate expensing claim and subject to any other restrictions such as the rental and leasing property restriction rules in Regs. 1100(11) and (15), an individual or partner may use regular CCA on any remaining UCC balances to create or increase a loss.
- Given that CCA is claimed in computing income at the partnership level, the immediate expensing income limit under Reg. 1100(0.1)(c) is also determined at the partnership level, rather than taking into account additional expenses incurred at the partner level.
Neal Armstrong. Summary of 24 March 2023 External T.I. 2023-0960171E5 under Reg. 1100(0.1)(c).
9127-6287 Québec – Court of Quebec prorates the s. 18(3.1) equivalent between the construction of golf course buildings and work on the golf course
The taxpayer, during the taxation years at issue, suspended the operation of its golf course to backfill two artificial lakes in its driving range and to replace its clubhouse and garage – as well as to partially construct (but never complete) a mini-golf course. The ARQ denied the various expenses incurred during such taxation years, such as insurance, interest, licence and consulting fees, property taxes, and utilities, on the basis of applying the Quebec equivalent of ITA s. 18(3.1).
Bourgeois JCQ found that the wording of the s. 18(3.1) equivalent “cannot apply to work done on the driving range, golf course maintenance or the various tasks involved in building a mini-golf course,” since the costs thereof did not relate to the types of land referred to in the provision, e.g., contiguous land, such as a “yard” or “garden,” necessary for the use of the buildings.
He then exercised his “judicial power” to find that that the denial under the provision applied only to 50% of the above expenses incurred during the building-construction period, so that the balance of the expenses were allowed.
Neal Armstrong. Summaries of 9127-6287 Québec Inc. v. Agence du revenu du Québec, 2023 QCCQ 4688 under s. 18(3.1) and s. 3(a) – business source.
Income Tax Severed Letters 6 September 2023
This morning's release of three severed letters from the Income Tax Rulings Directorate is now available for your viewing.
LBL Holdings – Tax Court of Canada finds that “flash” sales occurring on a reserve for immediate delivery to the trucks of non-Indians were exempted from GST
A Sobeys subsidiary (“LBL”) sold $98 million of tobacco products during the 14 months starting in January 1999 to a status Indian (Roberta MacNaughton) operating a variety store on an Indian reserve. As soon as LBL delivered the products to the store vicinity, and it received the cash consideration, the products were loaded onto the waiting trucks of customers, in turn, of Roberta MacNaughton. The Minister’s position was that LBL sold the tobacco products to such third-party customers who were not status Indians, with MacNaughton being compensated for her involvement in this scheme through volume rebates – so that such sales were not exempted under s. 87 of the Indian Act.
Visser J found that MacNaughton was the “recipient” of such sales as defined in ETA s. 123(1), i.e., there was an oral agreement between her and LBL to purchase the products and she was liable under that agreement to pay LBL therefor. He further stated (at para. 142):
I also note that the sale of the Tobacco Products from [LBL] to Roberta MacNaughton often resulted in a resale to her customers almost simultaneously. They were in essence flash sales, which are common types of sales.
Neal Armstrong. Summary of LBL Holdings Limited v. The King, 2023 TCC 130 under ETA s. 123(1) – recipient.
CRA indicates that it can be requested, before audit, to apply ETA s. 296(2.1) to substitute the residential rental rebate for an erroneously-claimed new housing rebate
A questioner suggested that Zdzieblowska seemed to indicate that a taxpayer who had claimed the new housing rebate (NHR) in error, but would have been eligible for the new residential rental property rebate (NRRPR), could advance a claim for the NRRPR pursuant to s. 296(2.1) past the normal two-year deadline, if done in the context of a reassessment denying the NHR – whereas if the taxpayer applied for the NRRPR past the normal deadline rather than waiting to be reassessed, the NRRPR would be denied because relief under s. 296(2.1) was available only for unclaimed rebates.
Without discussing Zdzieblowska or the subsequent Villa Ste-Rose decision, CRA indicated that, indeed, an NRRPR rebate application filed late in order to correct an erroneous NHR rebate claim could preclude it from providing relief. Instead, the claimant who wished to correct the erroneous NHR claim should request a reassessment of the initial NHR claim. After reviewing that adjustment request, CRA would generally offset the NRRPR amount, if determined to be available, against any amount owing from the NHR denial – even if its examination occurred beyond the two-year deadline for filing rebate claims.
Neal Armstrong. Summary of 2021 Alberta CPA Roundtable under “GST/HST New Housing and Rental Property Rebates” under ETA s. 296(2.1).
CRA confirms that the accelerated investment incentive was available for assets that were in construction on the November 21. 2018 effective date
Enhanced first-year capital cost allowance claims were available on assets acquired after November 20, 2018 and that became available for use before 2028, under the accelerated investment incentive (AII). CRA indicated that, for this purpose, where an asset was under construction on November 20, 2018, it would consider an asset to be acquired after that point based, in general terms, on the construction costs incurred after that point.
Neal Armstrong. Summary of 2021 Alberta CPA Roundtable under “Accelerated Investment Incentive (AII)” under Reg. 1104(4)(a).
We have translated 6 more CRA interpretations
We have translated 6 further CRA interpretations released in January of 2003 and December of 2002. Their descriptors and links appear below.
These are additions to our set of 2,571 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 20 ¾ years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
Whitecap Energy – Alberta Court of King’s Bench finds that the Attorney General could revive a dissolved corporation for the purpose of making a s. 160 assessment of the shareholder
An Alberta corporation (Whitecap) had been wound up into its sole shareholder. The Attorney General sought to revive Whitecap pursuant to s. 208 of the Business Corporations Act (Alberta) in order that Whitecap could be assessed by CRA. That, in turn, would permit an assessment of the shareholder under ITA s. 160. Principally at issue was whether the Attorney General had standing as an “interested party,” which was relevantly defined to “mean … a creditor of a dissolved corporation … or …a person designated as an interested person by an order of the Court.”
In finding that the Attorney General was not a “creditor,” Schlosser J stated:
Taxpayers remain liable for tax when income is earned … . notwithstanding that no return is filed. The liability does not become a debt until the taxes are assessed … .
However, in finding that he should exercise his discretion to designate the Attorney General, he stated:
[T]he Attorney General of Canada has a valid interest in revival and seeks this remedy in furtherance of its valid interest for a legitimate purpose; which is to convert liability for taxes into a debt.
The revival application was granted.
Somewhat in contrast, the CBCA definition of an “interested person” (s. 209(6)) is an “includes” rather than “means” definition that does not explicitly refer to a person designated in the discretion of the court.
Neal Armstrong. Summary of Canada (Attorney General) v 18335898 Alberta Ltd (Whitecap Energy Inc), 2023 ABKB 357 under CBCA s. 209(6).