News of Note
Loiselle – Court of Quebec finds that filing a revocation of a waiver confirmed that the waiver had been validly given
The taxpayer, after being asked by the ARQ to substantiate her capital gain computation for a share sale, met with the ARQ auditor (Mr. Drapeau) over three months before the expiry of the normal reassessment period and signed, at his suggestion, and on the spot and without the benefit of professional advice, a waiver, which was worded to extend to all sources of income rather than only the share sale. Shortly thereafter, she told her accountant what she had done and, on his advice, she sent a revocation of the waiver to the ARQ. Under the Quebec equivalent of ITA s. 152(4.1), six months had to run for the revocation to have effect, and the ARQ reassessed within this six month period to increase the capital gain from what she had reported.
In finding that the taxpayer could not resile from her waiver given that her signature to the waiver was “free and enlightened,” Lévesque, J.C.Q. stated:
Mr. Drapeau had explained clearly and simply to Mrs. Loiselle that her signature to the waiver enabled her to assemble the documents necessary for substantiating her computation of the capital gain and avoiding a rushed assessment, which would not be in her interests.
In fact, Mrs. Loiselle received from Mr. Drapeau all the particulars necessary in order that she could give a free and enlightened consent by signing the waiver. …
[T]he revocation only served to confirm her acceptance of the waiver.
Frank A Smart & Son Ltd – UK Supreme Court indicates that input credits were available for fund raising costs of a taxable business
CRA may take the view that GST/HST costs incurred in raising funds, e.g., through issuing shares or debt, will not give rise to input tax credits in the absence of relief under ETA s. 185(1), because the first order supply being made is an exempt financial service. The European VAT jurisprudence initially took a similar approach, but that jurisprudence has evolved.
The taxpayer (“FASL”) purchased entitlements to an EU farm subsidy, which generated annual subsidies over several years (which initially exceeded 30 times its cattle sales revenues from its farming operation) and intended to use the money so generated to fund its future current and future business activities, which currently involved only taxable supplies.
In finding that FASL was entitled to deduct input credits for the VAT on its taxable purchases of the subsidy rights, Lord Hodge referenced the principle that such credits were available where there is “a direct and immediate link between th[e] acquired goods and services and the whole of the taxable person’s economic activity because their cost forms part of that business’s overheads and thus a component part of the price of its products” and noted that under the VAT jurisprudence, this test could be satisfied, for example, respecting costs incurred in a fund-raising activity, such as a sale of shares, that had such a link to prospective taxable activities of the fund raiser’s business. He then stated:
I do not detect in the jurisprudence of the CJEU any basis for distinguishing expenditure incurred in a fund-raising exercise which takes the form of a sale of shares from a fund-raising exercise that involves the receipt of a subsidy over several years.
Neal Armstrong. Summary of Revenue and Customs v Frank A Smart & Son Ltd (Scotland)  UKSC 39 under ETA s. 141.01(2).
After finding that “Bitcoin received by a miner to validate transactions is consideration for services rendered by the miner,” and that “As cryptocurrencies are not legal tender, it follows that when a cryptocurrency is used to pay for, or is received as payment for, goods or services, this is treated as a barter transaction,” CRA stated:
[W]here a taxpayer who is in the business of Bitcoin mining receives Bitcoin as a result of their mining activities, they must bring into income the value of the services rendered or the value of the Bitcoin received, whichever is more readily valued. In most cases, we expect the value of the Bitcoin received to be more readily valued and, accordingly, this is the amount to be brought into income.
This Interpretation is interesting because inter alia CRA characterized the mining as a services business rather than a property-production business, and tried to shoe-horn its analysis into its Bulletin on barter transactions. It is difficult to envisage examples where the revenue of a services business that generates property is anything other than the value of the property received (rather than the value of the services performed) even where there may be difficulties in valuing the property received, e.g., where a lawyer who bills her services at $500 per hour does 10 hours of work for an impoverished farmer and agrees to receive therefor all the hazelnuts she can eat (5 bushels of unprocessed hazelnuts).
Neal Armstrong. Summary of 8 August 2019 Internal T.I. 2018-0776661I7 under s. 9 – computation of profit.
MacDonald – Tax Court of Canada finds that commuter air fares were not deductible employment expense
The taxpayer flew on a close-to-weekly basis back and forth between his Ottawa home (where he claimed to have a home office) and the Regina office of his employer. In finding that the air fares were non-deductible to the taxpayer, Russell J stated:
Where a taxpayer lives is that taxpayer's personal decision, and the expenses of commuting from wherever he/she lives to his/her employer's place of business and return are personal and hence not deductible as expenses of employment.
Neal Armstrong. Summary of MacDonald v. The Queen, 2019 TCC 169 under s. 8(1)(h).
A general response to a question as to whether a new CEO of a CCPC was receiving a housing loan qua employee (so that s. 15(2.4)(b) could apply) given that he also was acquiring 3% of the corporation’s shares may imply that CRA was not startled by the proposition that this was the case, stating:
[G]enerally … “benefits” are received qua shareholder where that person can significantly influence the corporation’s business policy. However, this might not be the case where the individual is only a minority shareholder of the corporation and does not otherwise have significant influence over the corporation.
Neal Armstrong. Summary of 14 June 2019 External T.I. 2019-0808411E5 under s. 15(2.4)(e).
We have published a translation of a CRA interpretation released last week, and a further 6 translations of CRA interpretations released in November, 2011 (all of them, from the October 2011 APFF Roundtables). Their descriptors and links appear below.
These are additions to our set of 945 full-text translations of French-language Roundtable items and Technical Interpretations of the Income Tax Rulings Directorate, which covers the last 7 3/4 years of releases by the Directorate. These translations are subject to the usual (3 working weeks per month) paywall. Next week is the “open” week for September.
Burton – Full Federal Court of Australia confirms that a foreign tax credit was reduced by ½ when only ½ of a capital gain was brought into taxable income
An Australian-resident individual was taxed at the 15% long-term U.S. capital gains rate on his gains on the disposal of U.S. oil and gas drilling rights. For Australian purposes a 50% discount was applied to the capital gain before imposing tax at a rate of around 45% on it. The Australian foreign tax credit (FITO) provision provided a credit for foreign income tax “if you paid it in respect of an amount that is all or part of an amount included in your assessable income for the year.” The Commissioner successfully took the position that as only half of the U.S. gain had been included in the individual’s income, he was entitled to the FITO for only half of the U.S. tax.
Art. 22(2) of the Australia-U.S. Convention provided that U.S. tax “shall be allowed as a credit against Australian tax payable in respect of the income” but went on to provide that: “Subject to these general principles, the credit shall be in accordance with the provisions and subject to the limitations of the law of Australia as that law may be in force from time to time.” Art. 22(2) did not help. The Full Court accepted that “income” could refer to the full (100%) gain. The problem was in the last quoted sentence, which referenced Australian tax law. Jackson J stated:
The term that is used to indicate a connection between the relevant amount of income, whatever that may be, and each of the United States tax and the Australian tax is 'in respect of'. That is indeterminate. No doubt, in each case the connection cannot be a distant, arbitrary or illogical one. But to the extent that it is necessary to identify the connection more precisely, that must be done in accordance with the provisions of the law of Australia. That is what the [quoted] sentence of Art 22(2) requires.
In considering the present case, it does not stretch the language of the article to read 'Australian tax payable in respect of the income' as referring to capital gains tax payable in Australia on assessable income being an amount equal to only 50% of the gain.
The CRA approach is to allow the U.S. tax on 100% of the gain to be taken into account in computing the Canadian foreign tax credit on the Canadian taxable capital gain (see. e.g., Folio S5-F2-C1, para. 1.89).
CRA indicates that only one of two related joint employers should T4 an employee for the s. 6(1)(e) or (k) benefit provided to him
CRA indicated that where an individual had two employers, which were related corporations, and one of the two corporations acquired a car that it made available to Mr. X, which he was free to use for personal purposes but was also required to use in his work for both employers, that:
- A single benefit under each of ss. 6(1)(e) and 6(2), and under s. 6(1)(k), was to be computed.
- Each such single benefit was to be reported in a T4 slip issued by either employer (as they agreed) rather than being split between the T4 slips issued by both corporations.
CRA concludes that a loss that was suspended under s. 40(3.5)(c)(i), can be de-suspended by winding-up the CFA referenced under s. 40(3.5)(c)(i)
Canco realized a suspended loss when it contributed its shares of a controlled foreign affiliate (CCo) to another CFA (BCo), and then took the position that such loss was de-suspended when CCo was then liquidated under s. 95(2)(e) into BCo. In 2017-0735771I7, Headquarters rejected this position on the basis that, for purposes of s. 40(3.5)(c)(i), Bco was a corporation “formed” on the “merger” of CCo with BCo – with the result that BCo was deemed to continue to own the shares of CCo with which it was affiliated, notwithstanding that CCo had, in fact, ceased to exist.
Headquarters was subsequently asked to consider the consequences of Canco dropping its shares of Bco under s. 85.1(3) into another Canco CFA (DCo) followed by the wind-up of BCo into DCo. Headquarters concluded that this resulted in the loss being de-suspended, stating:
Upon the completion of the liquidation of BCo, it would no longer be affiliated with ACo.
… Pursuant to subparagraph 40(3.4)(b)(i), the Suspended Loss will be deemed to be a capital loss of ACo immediately after the completion of the liquidation of BCo.
Neal Armstrong. Summary of 30 April 2019 Internal T.I. 2019-0793481I7 under s. 40(3.4)(b)(i).