News of Note
Income Tax Severed Letters 23 January 2013
Email this ContentThis morning's release of 10 severed letters from the Income Tax Rulings Directorate is now available for you viewing.
Marabella - Tax Court finds that invoices issued in the wrong name resulted in lost input tax credit claims
In the course of a construction business, a registrant paid invoices from a subcontractor, which demanded payment to a number of GST-registered corporations that did not in fact provide the services in question. Instead, these corporations were involved in a false invoicing scheme and none of the GST collected from the registrant was remitted.
Batiot J. found that the registrant was not entitled to ITCs as the suppliers named in the invoices in fact had not supplied it with services - and a good faith mistake in accepting these invoices fell short of establishing a due diligence defence. The findings in this case would be troubling if they were applied to the situation where one company in a corporate group issues invoices for work that was done by another group company.
Scott Armstrong. Summary of Les Constructions Marabella Inc. v. The Queen, 2012 TCC 397, under s. 169(4).
GST/HST Headquarters Letters October 2012
This afternoon's release of 21 GST/HST Headquarters Letters is now available for your viewing.
CRA confirms that the Canadian competent authority will only enter into deferral agreements where there is potential double taxation
Some of the treaties contemplate that the Canadian competent authority may agree to the deferral of recognition of gain under a reorganization transaction where there is no recognition of gain to a resident of the other country under the tax laws of that country. CRA has confirmed that the Canadian competent authority may enter into such a deferral agreement only where gain is deferred under the foreign tax law rather than being exempted - even where the Treaty (e.g., Art. 8, para. 5 of the Canada-Italy Convention) does not specifically stipulate that such a deferral agreement is being entered into "in order to avoid double taxation" (see Art. XIII, para. 8 of the Canada-U.S. Convention).
Neal Armstrong. Summary of 17 May 2012 IFA Conference 2012-0444161C6 under Treaties - Art. 13.
CRA treats a partnership interest as a single property - but shareholdings are different!
CRA may view the interest of a taxpayer in a partnership as a single property. For example, the taxpayer may not accomplish anything by purporting to hold both preferred and participating partnership interests with supposedly separate adjusted cost bases. Consistently with this view, CRA considers that the s. 70(6.2) election, to deem a "property" of a deceased taxpayer passing to a spouse to be disposed of for its fair market value, cannot be made with respect to a portion of the taxpayer's partnership interest (including, presumably, units of a unitized partnership).
However, each share of a corporation is viewed as a separate property, so that the election can be made with respect to a portion of the deceased taxpayer's shareholdings (except in the unusual situation where he or she held only one share).
Neal Armstrong. Summary of 12 June 2012 STEP CRA Roundtable, Q. 9 2012-0442921C6 under s. 70(6.2).
American Hotel Income Properties REIT LP achieves flow-through treatment for U.S. properties
The American Hotel Income Properties REIT LP is a Canadian limited partnership which will hold a newly-acquired portfolio of U.S. hotel properties through a subsidiary U.S. private REIT. This is targeted to achieve flow-through treatment in both jurisdictions.
Neal Armstrong. Summary of American Hotel Income Properties REIT LP preliminary prospectus under Foreign Asset Income Funds and LPs.
A new trend – Alamos tax disclosure excludes CRICs
Alamos (which has only foreign mining properties) has structured its offer for Aurizon (which on an aggregate basis provides 50% share consideration (Alamos shares) and 50% cash consideration) so as to ensure that the s. 85.1 rollover is not available except for shareholders who receive only Alamos shares. The tax disclosure states that it does not apply to corporations resident in Canada who are non-resident controlled for purposes of the foreign affiliate dumping rules.
Neal Armstrong. Summary of Alamos Circular under Unsolicited Bids.
CRA accords a broad meaning to the concept in s. 84(2) of a distribution occurring "on" the reorganization or discontinuance of a "business"
S. 84(2) deems a Canadian-resident corporation to pay a dividend to the extent that a distribution made by it "on the winding-up, discontinuance or reorganization of its business" exceeds the related reduction, if any, in the paid-up capital of its shares. In response to a question directed at a "pipeline strategy" (see 2011 STEPs Roundtable, Q. 5 2011-0401861C6), CRA noted that "business" for this purpose includes earning property income from investments, and that the broad meaning of the word "on" could include, for example, the situation where sales proceeds of a business are distributed some time after the sale.
Neal Armstrong. Summary of 29 May 2012 CTF Prairie Tax Conference, Q. 14 2012-0445341C6 under s. 84(2).
CRA publishes comment on beneficial ownership for Treaty purposes
CRA has published its response at the 2012 IFA Conference respecting when a recipient of interest, royalties etc. is the beneficial owner of those amounts for Treaty purposes. It states that it "will generally accept that a payment will be for the recipient's use and enjoyment, and that the recipient assumes risk and control over the payment, if the recipient holds a sufficient degree of discretion with respect to the use or application of the payment." This is similar to an earlier statement (see 2009 IFA Roundtable, Q.1 (No. 2009-0321451C6)).
Neal Armstrong. Summary of 17 May 2012 IFA Round Table 2012-0444041C6 under Treaties - Art. 11.
CRA accepts that shares of mortgage corporations generally are not taxable Canadian property
CRA considers that the shares of a private corporation holding mostly undefaulted mortgages on Canadian properties do not derive their value more than 50% from the real estate, so that such shares are not taxable Canadian property.
Neal Armstrong. Summary of 13 September 2012 CICA Compliance Conference, 2012-0453021C6: under s. 248(1) - taxable Canadian property.