News of Note
CRA confirms that an intermunicipal management board is a corporation
Email this ContentA municipality may acquire an interest in a Canadian renewable energy project through an intermunicipal management board (“IMB”), which acquires an interest in the limited partnership owning the project assets and selling the electricity generated. In order for the LP to claim accelerated CCA without restriction by the Canadian specified energy property rules, Reg. 1100(26)(b) requires that all partners be “corporations” the principal business of which is the sale, distribution or production of electricity (or other enumerated activities), or other qualifying partnerships.
After noting that the (apparently Quebec) statutory provisions governing an IMB are similar to those governing a CBCA corporation, including providing that the IMB is a legal person (“personne morale”), has limited liability, except in relation to certain borrowings, has a board of directors and is governed by by-laws and resolutions – and the interests in it carry voting rights, CRA concluded that such an IMB qualifies as a corporation. It went on to indicate that whether the principal-business test adverted to above was satisfied was a question of fact on which it had insufficient particulars.
Neal Armstrong. Summary of 26 May 2023 External T.I. 2022-0946411E5 under Reg. 1100(26)(b).
Income Tax Severed Letters 30 August 2023
This morning's release of three severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Thomas – Federal Court allows the provision of new evidence on an application for judicial review
The taxpayer’s request for waiver of interest and penalties regarding her late filing of T1135 forms, based on the medical situation of her and her husband, was denied (at two levels) on the grounds that such situation did not prevent her from filing those forms on time.
O’Reilly J found that it was appropriate for him to consider new evidence provided by the taxpayer, namely, that her parallel request for relief regarding late GST filings had been accepted by CRA, and correspondence showing that “she acted fairly promptly” in seeking to address her late filings, notwithstanding the findings of the CRA decision makers to the contrary. He applied the finding in Association of Universities (2012 FCA 22) that new evidence was admissible “when the evidence shows that there was an absence of evidence before the decision-maker on a particular point.”
O’Reilly J found that the departure from the reverse decision on the GST side “was the result of faulty inferences from the evidence that rendered the conclusion unreasonable”, and allowed the request for judicial review.
Neal Armstrong. Summary of Thomas v. Canada (Attorney General), 2023 FC 1110 under s. 220(3.1).
Xu – Tax Court of Canada finds that an informal letter attaching documents and containing only a brief request for adjustment qualified as an objection
The taxpayers were assessed to deny the new residential rental unit rebate. Two weeks later, the taxpayers provided much of that supplemental information along with a covering letter, which stated that it was “to request a re-assessment of case #50499531,” and spoke with a CRA representative. In finding that the taxpayers’ submission qualified as an objection sufficient for the purposes of ETA s. 301(1.1), Bocock J stated:
The form [of the submission] was not usual, but there is no prescribed form.
… The submission, dated two weeks after the notice of reassessment, while not perfectly detailed, was sufficient to initiate the objection process responsive to an audit and conclusions already in active dispute.
Neal Armstrong. Summary of Xu v. The King, 2022 TCC 108 under ETA s. 301(1.1).
CRA indicates that no arrears interest would arise where non-capital loss carryforwards eliminated a tax payable balance arising from reassessments
A taxpayer reported a capital loss in year 1 of $50 million, which was applied to offset a $1 million capital gain realized in year 1 and a $49 million capital gain realized in year 2. When CRA denied the capital loss, the taxpayer requested that a non-capital loss balance in existence in year 1 be carried forward to offset both taxable capital gains.
CRA noted that s. 161(7) – which contemplates that where there is a carryback of a loss to eliminate a tax payable balance for a taxation year, interest generally will accrue on that balance until a specified effective date of the carryback – does not apply to a low carryforward. Here, provided that the loss carryforward eliminated the tax payable balance otherwise arising from the capital loss denial, no arrears interest would be charged on that assessment.
Neal Armstrong. Summary of 11 May 2023 Internal T.I. 2022-0936701I7 under s. 161(1).
Nicoll – Tax Court of Canada finds that a “streamlined” system for handling travel allowances had the effect of making them taxable
The collective agreement between a boilermakers union and a group of employers was amended to provide a “streamlined” system that eliminated the need for receipts for travel allowances paid to the employees: they were paid a straight sum based on the distance between a standardized central point (Burnaby City Hall) and the job site, irrespective of the actual starting location of the employee or of the employers’ premises.
Wong J found that this change had the effect of making the travel allowances fully taxable pursuant to s. 6(1)(b)(vii) or ss. 6(1)(b)(vii.1) and (x). Furthermore, although the employees could still claim their actual travel expenses pursuant to s. 8(1)(h) and (h.1), they had no receipts. Their allowances were fully taxable with no offsetting deductions.
Neal Armstrong. Summaries of Nicoll v. The King, 2023 TCC 116 under s. 6(1)(b)(vii) and s. 6(1)(vii.1).
We have translated 7 more CRA interpretations
We have translated 7 further CRA interpretations released in February and January of 2003. Their descriptors and links appear below.
These are additions to our set of 2,565 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 ½ years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
The Joint Committee recommends that the Act be amended to exclude unconditionally repayable loans from "government assistance"
CAE indicated that a government loan lacking sufficient "ordinary commercial terms" – including one that was made otherwise than to promote the governmental commercial interests or that has a below-market interest rate – will be considered "government assistance" within the meaning of ss. 12(1)(x) and 127(9).
As an example of an implication, the mandates of each of the Business Development Bank of Canada, Canada Infrastructure Bank, Export Development Canada, and Farm Credit Canada include providing loan financing to projects which are desirable for socio-political reasons and which may not have fully commercial terms – thereby resulting in such loans being treated as government assistance so as to cause such projects to not be economically viable due to the increased tax burden.
The Joint Committee recommends an amendment to exclude unconditionally repayable loans from "government assistance" for s. 12(1)(x) and 127(9) purposes and that Finance issue a comfort letter.
Neal Armstrong. Summary of Joint Committee, "Impact of CAE case", 11 August 2023 Submission of the Joint Committee under s. 127(9) – government assistance.
Vancouver’s additional 2.5% hotel tax will increase the overall rate to above the 12% specified tax rate, thereby causing GST to be applied to the 13.5% provincial tax
Effective February 1, 2023, Vancouver has been imposing the Major Events Municipal and Regional District Tax (Major Events MRDT) of 2.5% to supplies of short-term accommodation made in the City. When combined with the regular 8% provincial sales tax (PST) and the 3% Vancouver Municipal and Regional District Tax (MRDT), this increases the combined rate to 13.5%, which is above the “specified tax rate” of 12% that applies for purposes of ETA s. 154. The significance of this is that GST applies to all of such provincial tax so that the combined tax rate increased to over 19%.
CRA has also belatedly announced the cancellation of Policy Statement P-194R2, Application of Penalties and Interest when a Return and/or Rebate Application, and/or Another Return, is Received After the Due Date in recognition of the Villa Ste-Rose decision (which found that interest and penalties on a late-filed GST return should be computed after netting rebate claims against the gross GST payable).
Neal Armstrong. Summaries of Excise and GST/HST News - No. 114, August 2023 under ETA s. 154 and s. 280(1).
Preston – Federal Court of Appeal finds that assumptions of mixed fact and law were not prejudicial to the taxpayer – and that an FMV assumption instead is factual
The Tax Court ordered that “assumptions of fact” pleaded by the Crown in its Reply should be struck out and moved to the reasons part of the Reply on the sole ground that they were in fact conclusions of mixed fact and law. Before finding that these Crown pleadings could stand as they were, Monaghan JA found that this “sole ground” approach was contrary to Rule 53(1)(a), which required a determination as to whether the pleaded assumptions were prejudicial or would delay the fair hearing of the appeal or whether leaving them as is would better serve the trial process.
In particular, there was “no principle of law that a statement of mixed fact and law cannot stand as an assumption” and, indeed, such an assumption created no additional onus on the taxpayer (and, thus, no inherent prejudice) since the legal component was a matter for the court to decide rather than creating any onus on the taxpayer. Conversely, there was no prejudice to the taxpayer if it could discern the factual case that it needed to make out.
One of the assumptions at issue was that the fair market value of the shares and partnership interest received by two beneficiaries of the appellant trust were specified dollar amounts. In this regard, Monaghan JA indicated:
A statement that an identified property has a particular fair market value at a particular point in time is an assumption (or finding) of fact, notwithstanding that fair market value has a legal definition.
Neal Armstrong. Summary of Canada v. Preston, 2023 FCA 178 under Rule 53(1)(a).