News of Note
Income Tax Severed Letters 16 January 2013
Email this ContentThis morning's release of 40 severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Newly-released information GST/HST reporting requirements for pension plan employers are not onerous
The Government's loss in the General Motors case caused it to enact s. 172.1, which requires employers to remit imputed GST or HST on their expenditures in administering employee pension plans. CRA has now released the required information reporting that the employer is required to provide to the pension plan (which is entitled generally to a rebate of 33% of the imputed tax).
Generally, it's not very onerous (and there doesn't appear to be a prescribed form). Typically, in addition to minor administrative particulars, the employer is only required to specify the aggregate federal and (if applicable) provincial imputed tax for the year - although there's a vague statement to the effect that where there were actual supplies to the pension fund, "the employer must provide sufficient information to enable the pension entity to claim an ITC... ."
Neal Armstrong. Summary of Notice No. 280 "Section 172.1 Information Requirements" January 2013 under ETA - s. 172.1(8).
CRA notes that a distributor/marketer separation may deprive them of access to the promotional allowance HST/GST rule
Where a registrant pays or credits an allowance to another registrant (e.g., a retailer) in order to promote sales by the retailer of its product, the allowance generally will be treated for HST/GST purposes equivalently to the payment of a tax-included rebate, that effectively reduces the net remittance obligations of the payor of the allowance and the input tax credits of the retailer.
CRA has indicated that a separation of roles between a distributor (who supplies the property being promoted) and a marketer (who makes the promotional agreements and payments) within a related group will prevent this rule from applying, as it requires that the registrant providing the promotional allowance also have sold the property being promoted. An agreement that the marketer provide the allowance as agent of the distributor would be necessary.
Scott Armstrong. Summary of 27 July 2012 Interpretation Case No. 126511 under ETA s. 232.1.
CRA agrees that an obligation to return excess remuneration does not give rise to imputed interest
An employee was obligated to repay excess remuneration previously received. (The payroll service had not been informed that the employee was on unpaid leave.) CRA indicated that this repayment obligation did not constitute a non-interest-bearing loan to the employee (so that there was no interest imputation under s. 80.4) notwithstanding that it was agreed that the repayment would occur gradually over an extended period of time.
Neal Armstrong. Summaries of 13 June 2012 Memorandum 2012-0448961I7 F under ss. 8(1)(n) and 80.4(1).
CRA finds that a U.S. LLC’s intra-group lending business can qualify its C-Corp. member, under the Treaty active trade or business test, for the 0% Treaty-reduced rate on an LLC loan to a Canadian affiliate
Article XXIX-A, para. 3 of the Canada- U.S. Treaty indicates that a U.S. resident which is not a qualifying person nonetheless will be eligible for Treaty benefits with respect to income derived from Canada in connection with a substantial business (other than, in the case of a non-financial institution, a business of making or managing investments) actively conducted in the U.S., including such income derived by it "through" another U.S. resident.
CRA considers that a U.S. "C-Corp" that is the sole member of a U.S. LLC which acts as a group Finco will satisfy this test, so that interest paid by a Canadian affiliate on a loan from Finco is eligible for the 0% withholding rate under the Treaty, notwithstanding that the C-Corp is carrying on the business which so qualifies it for this Treaty benefit "through" the LLC. Among other things, this appears to confirm that a money-lending business is not a business of making investments, and that the LLC look-through provision (in Art. IV, para. 6) dovetails nicely with this active trade or business test in Article XXIX-A.
Neal Armstrong. Summary of 2012 Ruling 2012-0458361R3 under Treaties - Art. 4 and Treaties - Art. 29A.
First Quantum structures its share and cash bid for Inmet to ensure no rollover treatment – but will eat any Panamanian tax
First Quantum is making an unsolicited offer to purchase all the shares of Inmet for approximately $2.5B in cash and 115M First Quantum shares. However, the offer is structured so that those tendering only for First Quantum shares will not get rollover treatment (the offeror in fact is a First Quantum subsidiary which is acquiring shares from First Quantum, a B.C. company, and delivering them to tendering Inmet shareholders).
First Quantum will top up the consideration paid by it for any Panamanian withholding tax that is required to be remitted.
Neal Armstrong. Summary of First Quantum Offer for Inmet under Unsolicited Bids.
GST/HST Headquarters Letters September 2012
This morning's release of 10 GST/HST Headquarters Letters is now available for your viewing.
CRA finds that treaty-exempt mark-to-market gains or losses on shares are not qualifying income or losses for foreign tax credit purposes
CRA found that a Canadian insurance company would not have been able to claim foreign tax credits for U.S. withholding tax on dividends paid on its portfolio investments in shares of U.S. companies in the absence of the Canada-U.S. Treaty, as the dividends were from a Canadian source (its Canadian insurance business). CRA went on to indicate that the company was entitled to foreign tax credits by virtue of Article XXIV of the Treaty, which deemed both the dividends and the company's mark-to-market gains or losses on the shares to be income from a Canadian source.
CRA went on to find that in applying the formula to calculate the foreign tax credit, the (income account) mark-to-market gains or losses on the shares were to be ignored as they were deemed to be a separate source of (Treaty-exempt) income under s. 126(6)(c). Accordingly, only the dividends on the shares were "qualifying income" for purposes of the formula. This helped the insurance company in this case, as it had mark-to-market losses for the year in question.
Neal Armstrong. Summary of 5 November 2012 Memorandum 2012-0462151I7 under s. 126(6)(c).
CRA considers penalties under the U.S. Bank Secrecy Act not to be tax penalties
Although FBAR forms and penalties are administered through the IRS, CRA considers FBAR penalties not to be in respect of US taxes owing - a position based mainly on the FBAR penalties being imposed under the U.S. Bank Secrecy Act. Therefore, CRA does not consider itself obligated to collect such penalties under Article XXVI-A of the Canada-U.S. Tax Convention. This reasoning probably applies to other penalties that are not imposed under the Internal Revenue Code.
Scott Armstrong. Summary of 25 July 2012 T.I. 2011-0427221E5 under Treaties - Article 26A.
Income Tax Severed Letters 9 January 2013
This morning's release of 35 severed letters from the Income Tax Rulings Directorate is now available for your viewing.