News of Note
CRA indicates that the multigenerational home renovation credit rules do not require that the secondary unit be built as a renovation to an existing unit
Email this ContentIn the context of an individual constructing a family home with a semi-attached garden suite in which the individual’s parents will live, CRA indicated that there is no requirement, in order for the multigenerational home renovation tax credit to be provided under s. 122.92, that the “secondary unit” (the garden suite) be built and occupied subsequently to the occupancy of the “eligible dwelling” (the main residence), so that, for instance, both could be built and occupied at the same time. However, there remained the requirement that there must be a reasonable expectation that both the “qualifying individual” (i.e., the parents) and the “qualifying relation” (i.e., the individual) will ordinarily inhabit the housing unit (including the secondary unit) within 12 months after the end of the renovation period.
Neal Armstrong. Summary of 13 March 2023 External T.I. 2023-0961401E5 under s. 122.92(1) – qualifying renovation.
CRA illustrates when the services of intermediaries to insurers may be GST/HST exempt
CRA has issued a Notice outlining its position on when services provided by intermediaries to insurers may be exempted as financial services. Examples covered include:
- Example 1: the services of a managing general agent to an insurer of marketing the insurer’s policies through independent sales agents, are exempted “arranging for” services under para. (l) of the financial services definition.
- Example 2: a third-party administrator (“TPA”) designs and handles employee benefit plans, which it markets to employers, with coverage from insurer who pays it a commission which is exempted under para. (l).
- Example 4: this is similar to Example 2 except that the contract with the insurer is split into two contracts, one of them for admin services – but this makes no difference to the result in light of the single-supply doctrine.
- Example 6: a non-licensed insurer covers any major collision or theft loss of new car purchasers who enter into a contract with it – given that it is not a licensed insurer, this contract is not considered to be the provision of an exempt insurance service (although such corporation’s coverage, in turn, from the insurer is exempted). (Under Example 5, there is a better result if the corporation distributes insurance coverage of the insurer to the car customers.)
- Example 7: an insurance claims adjudication and settlement system of the corporation is provided to the insurer on a taxable basis (predominantly admin services).
Neal Armstrong. Summaries of GST/HST Notice 325 Services Provided by Certain Insurance Intermediaries July 2023 under ETA s. 123(1) – financial service – para. (l), para. (d).
Income Tax Severed Letters 26 July 2023
This morning's release of five severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Zeifmans – Federal Court, in not granting an information disclosure order under s. 231.7, effectively reversed an earlier decision where the Court had been misled
Zeifmans, 2021 FC 363, aff’d 2022 FCA 160 concerned the application of the Zeifmans accounting firm for judicial review of a CRA issuance of a requirement letter pursuant to s. 231.2(1) respecting three named individual clients of the firm and all “entities owned, operated, controlled or otherwise connected to [such] individuals” (the “Unnamed Persons.”) The submission of Zeifmans - that judicial authorization should have been obtained pursuant to s. 231.2(3) given that the requirement extended to the Unnamed Persons – was rejected essentially because there was “no evidence in the record that the Unnamed Persons [we]re a current investigation target.”
In this subsequent proceeding, an application of the Minister for a compliance order pursuant to s. 231.7 was dismissed. Of crucial significance was the finding of Pallota J that Unnamed Persons were (and had been at the time of issuing the Requirement) an investigation target, i.e., the lead auditor had effectively admitted in cross examination in these proceedings that the requirement had been issued as part of the CRA audits of all the companies in the group.
Neal Armstrong. Summary of Canada (National Revenue) v. Zeifmans LLP, 2023 FC 1000 under s. 231.7(1).
CRA will accept alternatives to a foreign notice of assessment to evidence the foreign tax liability for foreign tax credit purposes
CRA indicated that when it is reviewing a foreign tax credit claim in a Canadian return, it requires confirmation of the final tax liability to the foreign tax authority.
It indicated that it understands that a notice of assessment, transcript, or other official document from the tax authority, indicating the final foreign tax liability, is not always available, in which case it will generally accept proof of payment of tax, or receipt of refund, from the foreign tax authority. Proof of payment can include bank statements, cancelled cheques, or official receipts, provided that they clearly indicate that the payment was made to (or received from) the applicable tax authority, the amount of the payment, the taxation year to which it relates, and the date of payment.
Neal Armstrong. Summary of 20 June 2023 STEP Roundtable, Q.18 under s. 126(1).
We have translated 6 more CRA interpretations
We have translated a further 6 translations of CRA interpretations released in March of 2003. Their descriptors and links appear below.
These are additions to our set of 2,533 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 1/3 years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
CRA has published a memorandum on when corporations and partnerships are closely related for purposes of the ETA s. 156 election
CRA has published a new memorandum regarding when Canadian partnerships and corporations will be considered to be closely related to each other for purposes of the ETA s. 156 (nil consideration) election.
CRA notes that since a limited partner does not have the right to direct the business and affairs of the partnership, it will not be closely related to the partnership.
CRA provides numerous and helpful examples of structures showing the operation of these rules. None of the results are startling. For instance:
- In Example 3, three stacked Canadian partnerships, which thus form a closely related group, are closely related to a fourth Canadian partnership jointly owned by them.
- In Example 7, where each member of a qualifying group – consisting of a holding partnership (X) holding 90% of a partnership (Y) and 90% of a corporation (Z) – holds 1/3 of Corporation L, each such entity is closely related.
- In Example 9, where two grandchildren subsidiaries of AB Corp each hold a 50% partnership interest in a Canadian partnership (XY), each corporation in that chain, as well as each corporation in another wholly-owned stack beneath AB Corp, is closely related to XY.
Neal Armstrong. Summaries of GST/HST Memorandum 14-8 Closely Related Canadian Partnerships and Corporations for Purposes of Section 156 June 2023 under ETA s. 156(1.3)(b)(i), s. 156(1.3)(b)(iii), s. 156(1.1)(a)(i)(C), s. 156(1.2) and s. 156(1.1)(b)(iii)(C).
GST/HST Severed Letters May 2023
This morning's release of 11 severed letters from the Excise and GST/HST Rulings Directorate (identified by them as their May 2023 release) is now available for your viewing.
CRA releases a memorandum on the GST/HST closely related corporation rules
CRA has released a new memorandum on the rules regarding when corporations qualify as closely related for ETA purposes
Points covered include:
- CRA considers that a Canadian permanent establishment is not deemed by s. 132(2) to be a Canadian resident person for purposes of being potentially considered to be part of a closely related group of persons.
- Conversely (and at least somewhat contrary to the CIBC World Markets case, which is not mentioned), the closely-related status of a Canadian corporation can extend to the activities carried on by it through a foreign permanent establishment notwithstanding s. 132(3).
- Where a corporation (C) is owned equally by two unrelated corporations (A and B), s. 128(4) will deem a wholly-owned subsidiary (D) of C to not be closely related to C if A holds the voting rights (e.g., under a voting proxy arrangement?) to the shares held by C in D.
Neal Armstrong. Summaries of GST/HST Memorandum 14-7 Closely Related Corporations June 2023 under ETA s. 132(2), s. 132(3), s. 128(1)(a), s. 128(1.1), s. 128(1.1)(a)(i)(B), s. 128(4) and s. 128(2).
CRA confirms that T1142 reporting requirements can arise once a foreign estate has been fully administered
S. 233.6(1) provides that foreign reporting (on Form T1142) is not required for a distribution from a foreign trust where the distribution is from an estate that arose as a consequence of the death of an individual.
CRA confirmed its position that once the estate has been administered, the Canadian beneficiary of any ongoing non-resident testamentary trust is required to file a T1142 in any year where a distribution is received from a trust, or where a Canadian beneficiary becomes indebted to the trust. Generally, an estate is considered to be fully administered when the assets in the estate have been distributed and, if applicable, a clearance certificate is requested.
Neal Armstrong. Summary 20 June 2023 STEP Roundtable, Q.17 under s. 233.6(1).