News of Note
Income Tax Severed Letters 6 September 2023
Email this ContentThis 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).
CRA confirms that an intermunicipal management board is a corporation
A 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).