News of Note
RBC Life Insurance, Lordco - the Federal Court has inherent jurisdiction to go beyond the specific words of the information demand provisions
Email this ContentThe Federal Court authorized the Minister to issue demands to some insurance companies to provide the lists of their customers who had purchased a tax product - and later reversed the authorizations when it emerged that the Minister's initial application had failed to disclose that CRA thought the product technically worked but nonetheless was planning an "audit blitz" of the product in order to discourage it.
In upholding the cancellation of the authorizations, Stratas J.A. indicated that the Federal Court had inherent jurisdiction to control abuse of process and that this included the power to reverse an authorization even where the information omitted by the Minister was not information listed in the applicable statutory provision (s. 231.2(3)) as being relevant - e.g., the motivation of CRA in deciding to initiate audits, or the level of "inconvenience and cost" to the recipients of the demands.
Scott Armstrong. Summary of MNR v. RBC Life Insurance Company, 2013 FCA 50 under s. 231.2(6). See also summary of companion case MNR v. Lordco Parts Ltd., 2013 FCA 49, under s. 231.2(3).
Primaris REIT merger will stream taxable and rollover results at choice of individual unitholders
Primaris Retail REIT subsidiaries are selling $1.9 billion of real estate to the KingSett Consortium (KingSett, OPB and RioCan), with Primaris then pushing out all of the gain (including perhaps $3.00 per unit of recapture) to its unitholders on a cash redemption of approximately 45% of its units. Primaris will then be merged into H&R REIT on a s. 132.2 merger (subject to the complication that H&R REIT is stapled to H&R Finance Trust, so that there will also be a taxable exchange of 4% of the Primaris units for H&R Finance Trust units).
Likely all of the cash redemption proceeds paid to non-residents will be subject to Part XIII or XIII.2 withholding. Primaris unitholders will be able to elect before the unitholders’ meeting whether they will receive cash or H&R units, subject to the aggregate allocation being locked in.
If CRA does not consent to permitting some of the Primaris subsidiary LPs to have short taxation years ending immediately after the real estate sale and before the merger, all the Primaris unitholders will participate in the merger into H&R REIT, and only then will the sale close with the gain being pushed out through the cash redemption of H&R units.
Neal Armstrong. Summary of Primaris Circular under REIT and Income Fund Acquisitions – S. 132.2 Mergers.
CRA recognizes that a partnership is transparent for statute-barring purposes
CRA is entitled to reassess three years beyond the normal reassessment period where the reassessment "is made as a consequence of a transaction involving the taxpayer and a non-resident person with whom the taxpayer was not dealing at arm's length." CRA found that this requirement was satisfied where the transaction (being assessed under s. 17) was a loan made by the taxpayer to a partnership whose non-resident partners did not deal at arm's length with it. It cited the statement in Klein that "the partnership itself does not have the capacity to be indebted. The debt of the partnership is owed by the partners... ."
Neal Armstrong. Summary of 5 December 2012 Memorandum 2012-0439301I7 F under s. 152(4)(b)(iii).
ShawCor to eliminate multiple-voting shares
ShawCor will be eliminating its current two-class share structure under a Plan of Arrangement by having a Newco purchase the ShawCor Class A shares (carrying one vote per share) on a 1-for-1 basis and the ShawCor Class B shares (carrying 10 votes per share) for consideration representing approximately a 10% premium to what's being paid for the Class A shares and comprised 90% of Newco shares and 10% cash. Newco and ShawCor will then amalgamate, and Amalco will pay a special cash dividend of $1.00 on each Amalco share.
The cash may not have been pushed out on a s. 86 reorganization as the Class B shares apparently have nominal paid-up capital.
Neal Armstrong. Summary of ShawCor Circular under Dual Share Class Eliminations.
CRA considers that the central management and control test also applies to estate residence
The Fundy Settlement case found that the residence of inter vivos trusts was determined by the situs of their central management and control rather than by the country of residence of their trustees. Not surprisingly, CRA considers that the central management and control test also determines the residence of an estate.
CRA also considers that, under the draft s. 94(3) rules, a testator cannot be a "resident contributor" to an estate (because he's dead). Furthermore, non-resident trusts, which are deemed by those rules to be resident in Canada for various purposes, continue to be non-resident for purposes of the s. 116 certificate rules, so that clearance certificates are required for a distribution of taxable Canadian property to Canadian beneficiaries.
Neal Armstrong. Summaries of 4 January 2013 T.I. 2012-0448681E5 under ss. 2(1), 116(1) and 94(3).
CRA finds that a switch to computing earnings for surplus purposes under Canadian principles does not result in doubling-up deductions
Suppose that a foreign affiliate ceases to be required to compute its income under local taxation laws so that it becomes required to start computing its earnings for surplus purposes under Canadian principles (under Reg. 5907(1) - "earnings" - (a)(iii)). Would this mean, for example, that an asset which already had been fully depreciated under the local income tax laws under the old system would now have to be depreciated a second time under Canadian principles? Although there is some ambiguity in draft Reg. 5907(2.03) on the point, CRA apparently considers that in this situation, no such catch-up deductions would be required.
Neal Armstrong. Summary of 22 January 2013 T.I. 2012-0460121E5 under Reg. 5907(2.03).
CRA rules that an investment in MRPS was a share investment potentially triggering the CRIC rules
The Luxembourg tax authorities consider mandatorily redeemable preferred shares (i.e., shares which must be redeemed before the 10th anniversary of their issuance) of a Luxembourg s.à r.l. to be debt for Luxembourg purposes, so that dividends paid on the shares are treated as deductible interest. CRA has ruled that MRPS will be treated as shares, although the MRPS in question were non-dividend bearing (perhaps because dividend-bearing MRPS would engage the foreign tax credit generator rules (see draft s. 91(4.7) or because of term preferred share issues - there also was a s. 258(3) ruling).
The MRPS were issued to a Canadian public company which was partly owned, and controlled, by a non-resident public company, with the proceeds used to fund an off-shore project (perhaps a mine). CRA indicated that the foreign affiliate dumping rules would apply to the investment if the Canadian public company could not satisfy the onerous requirements of s. 212.3(16) (so that the paid-up capital of the Canadian public company's shares would be reduced by the amount of the investment, or it would be deemed to pay a dividend to its parent).
Neal Armstrong. Summaries of 2012 Ruling 2012-0452291R3 under ss. 212.3(2) and 248(1) - share.
Income Tax Severed Letters 20 February 2013
This morning's release of 27 letters from the Income Tax Rulings Directorate is now available for your viewing.
GF Partnership – Tax Court finds that a developer “ought to have known” that a clause, purporting to make it an agent for home purchasers in incurring development levies free of GST, was defective
A housing developer implemented advice from a tax consultant (a CA) that it could avoid charging GST on the portion of the home sales prices that represented a recovery of municipal development levies, by sticking a clause (drafted by him) in the sales agreements stating that the development levies had been (or would be) paid by the developer on behalf of the purchasers. Woods J. found that this clause was defectively drafted, so that the development levy on-charges were taxable. However, even a well drafted clause might not have done the trick given that the development levies often were paid in advance of the sales agreements, and the concept of incurring levies on behalf of an unascertainable principal is metaphysical at best.
The effect of the increased sales consideration was to reduce the related new housing rebate on some of the sales. Woods J. found that this gave rise to a liability of the developer under s. 254(6) on the basis that it "ought to have known" that the CA’s legal drafting was defective.
Neal Armstrong. Summaries of GF Partnership v. The Queen, 2013 TCC 53 under ETA ss. 153(1), 154(1), 254(6) and 296(2).
Uranium One employee stock options are to be surrendered under a privatization plan of arrangement for a deferred payment of their Black-Scholes value
An indirect Netherlands subsidiary of a Russian state company (Rosatom) is proposing to acquire the public’s 48% minority block of Uranium One shares for cash consideration of $1.3 billion under a CBCA plan of arrangement. Structuring the transaction this way rather than using a Canadian buyco and an amalgamation squeeze-out avoids an application of the foreign affiliate dumping rules, similarly to the Nordgold transaction.
Employee stock options are being surrendered under the plan of arrangement for the immediate payment of any in-the-money value they have (based on the cash purchase price for the shares) plus a payment on December 31, 2013 (i.e., well beyond the effective date of the rest of the plan of arrangement) of the excess of their Black-Scholes value over any such in-the-money value.
Neal Armstrong. Summary of Circular of Uranium One Inc. under Cross-Border Acquisitions – Inbound – Other.