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Six further full-text translations of CRA interpretations are available

We have published a further 6 translations of interpretations released in August 2012. Their descriptors and links appear below.

These are additions to our set of 777 full-text translations of French-language Rulings, Roundtable items and Technical Interpretations of the Income Tax Rulings Directorate, which covers the last 6 ½ years of releases by the Directorate. These translations are subject to the usual (3 working weeks per month) paywall.

Bundle Date Translated severed letter Summaries under Summary descriptor
2012-08-31 8 August 2012 External T.I. 2012-0442321E5 F - Pompiers volontaires Income Tax Act - Section 118.06 - Subsection 118.06(1) firefighter is not “volunteer” if remuneration is “comparable” to regular firefighter
3 July 2012 Internal T.I. 2012-0450821I7 F - Interaction of 84(3) and 69(1)(b) Income Tax Act - Section 84 - Subsection 84(3) s. 84(3) deemed dividend based on actual redemption proceeds rather than s. 69
Income Tax Act - Section 69 - Subsection 69(1) - Paragraph 69(1)(b) s. 69(1)(b) adjustment generates capital gain even though larger share redemption proceeds in the 1st place would have been exempt
27 June 2012 External T.I. 2012-0440721E5 F - Compte de gestion de santé Income Tax Act - Section 248 - Subsection 248(1) - Salary Deferral Arrangements conversion of future bonus into PHSP is taxable
10 July 2012 External T.I. 2012-0437531E5 F - Télétravail et revenu d'emploi d'un Indien Other Legislation/Constitution - Federal - Indian Act - Section 87 income of Indian required to telecommute from home office on reserve likely exempted
2012-08-24 14 June 2012 External T.I. 2012-0443711E5 F - RAP - Annulation de la vente de l'immeuble Income Tax Act - Section 146.01 - Subsection 146.01(1) - Eligible Amount subsequent court-ordered voiding of home purchase funded with HBP does not affect satisfaction of the HBP conditions
General Concepts - Effective Date subsequent court-ordered voiding of home purchase did not retroactively void satisfaction of the HBP conditions at home purchase time
26 July 2012 External T.I. 2012-0440261E5 F - Crédit d'impôt pour enfants Income Tax Act - Section 118 - Subsection 118(1) - Paragraph 118(1)(b.1) end-of-year requirement not satisfied when child died in year before attaining 18

Crean – B.C. Supreme Court rectifies a sale agreement to turn it into a 2-step sale that no longer generated a s. 84.1 dividend

The executed documents indicated that an individual (Thomas) sold his shares of a corporation to the Newco of his brother (Michael) in consideration for a promissory note of the Newco. When the tax advisor realized this gave rise to a deemed dividend under s. 84.1, the parties applied successfully in the B.C. Supreme Court for a rectification order redoing the written agreement to provide that Thomas sold his shares to Michael directly for a promissory note, and that there was an immediate on-sale by Michael of those shares to his Newco in consideration for it assuming the promissory note.

Burke J relied on the terms of an agreement in principle that had been signed before the transactions were implemented which provided for a direct sale from Thomas to Michael and provided that “the transaction will be structured, to the extent possible, so that Tom receives capital gains treatment.” She also accepted the tax advisor’s testimony that, consistent with the agreement in principle, he had been instructed to provide for a direct sale and that the failure of the documents to so provide was an error on his part.

She accordingly found that the two brothers had a “prior definite and ascertainable agreement” to which the rectified written agreement was giving effect.

Neal Armstrong. Summary of Crean v Canada (Attorney General), 2019 BCSC 146 under General Concepts – Rectification.

Forbes Painting – Federal Court finds that CRA is required to consider financial hardship in s. 221.2 credit transfer requests

The taxpayer (Forbes) did not file its corporate income tax returns for its 2006 and 2007 years, showing a refund position, until well beyond the three-year limitation under s. 164(1) for claiming those refunds. CRA’s delegate denied the Forbes’ request that the statute-barred credits (SBCs) be reappropriated under s. 221.2(2) to its outstanding payroll account balance on the basis that there were no extraordinary circumstances that had prevented Forbes from filing its returns within the three-year period and that Forbes had not demonstrated that it took any action to resolve non-compliance within a reasonable time.

Before returning the matter for redetermination by another delegate, Boswell J stated:

The ability of a corporate taxpayer to continue as a going concern … is a factor that should be weighed … .

…When assessing a request for the re-apportionment of an SBC, the Minister should also have regard to whether denial of the request might possibly result in the Minister’s inability to collect outstanding tax arrears from a taxpayer. …

[T]he decision [is] unreasonable because it is not apparent or transparent that Forbes’ financial hardship was a factor in the decision-making process.

Neal Armstrong. Summary of Forbes Painting and Decorating Ltd. v. Canada (Attorney General), 2019 FC 160 under s. 221.2(2).

CRA rules on the use of special voting shares which keep corporations related for s. 55(3)(a) purposes

A DC which holds a rental property and an investment portfolio and is owned by Parent and his four children will spin off its investment portfolio in reliance on the s. 55(3)(a) exception to four TCs mostly owned by each of the four children. However, parent will have control of each TC by being issued special voting shares on their incorporation.

The CRA tags mention s. 55(4) as a provision that it considered relevant. In this regard:

  • access to the s. 55(3)(a) exception was assisted by or depended on Parent controlling all the corporations involved in the transactions;
  • the special voting shares of Parent likely had minimal economic attributes; and
  • Parent’s will bequeathed them to the respective children.

To help address this, the ruling letter represents that Parent is in good health and will control the TCs in order to protect his economic interest in notes that will be owing to him by the TCs.

Neal Armstrong. Summaries of 2018 Ruling 2018-0749491R3 under s. 55(3)(a)(ii), s. 55(4) and s. 186(1)(b).

CRA finds that entering into an agreement to pool administrative support services triggered an obligation to register for GST/HST purposes

A non-resident insurer which otherwise was only making exempt (insurance policy) supplies in Canada was found to have been required to register for GST/HST purposes as a result of entering into an agreement with another party under which each agreed to provide administrative services to the other at cost, to be billed annually. ETA 136.1(2) typically deems periodically billed services to be supplied at the beginning of each billing period, so that presumably the effective date of required registration was the effective date of this administrative services agreement.

Neal Armstrong. Summary of 30 August 2018 Ruling 185770 under ETA s. 240(1).

The new look-through rule in ss. 212.1(5) and (6) may defeat the purpose of a pipeline transaction

Estates commonly use “pipeline” transactions (to take advantage of the step-up to them, under s. 70(5), of the cost of the shares of Opco) under which they sell their Opco shares to Newco for Newco notes. However, under the new look-through rule in ss. 212.1(5) and (6), a non-resident residuary beneficiary will be deemed to have sold a pro-rata portion of the Opco shares to Newco for s. 212.1 purposes. Given that the non-resident (by virtue of being an estate beneficiary) will also be deemed by ss. 212.1(3)(b) and (a) to not be dealing at arm’s length with Newco, a deemed dividend generally will arise to the non-resident beneficiary under s. 212.1, thereby defeating the purpose of the pipeline.

Neal Armstrong. Summary of Henry Shew, “Post-Mortem Pipeline Fails for Non-Resident Beneficiaries,” Canadian Tax Focus, Vol. 9, No. 1, February 2019, p. 1 under s. 212.1(6).

CRA finds that a course prepping students to write an English proficiency test was not GST/HST exempt

CRA found that the supply by a private corporation of instruction in a preparation course for the students’ writing of the International English Language Testing System (IELTS) test did not qualify as “language courses that form part of a program of second-language instruction in either English or French” as required under ETA Sched. V, Pt. III, s. 11, so that such supply was not exempt.

Neal Armstrong. Summary of 27 September 2018 Ruling 187397 under ETA Sched. V, Pt. III, s. 11.

CRA confirms the efficacy of a prepaid concurrent lease financing structure for HST purposes

CRA commented on the use of a prepaid concurrent lease structure to finance equipment leases. The Lessor leases equipment to consumers. The Trust, which has raised money from somewhere, is then leased the Lessor’s reversion, so that the Trust is interposed as lessee and sublessor between the Lessor and the consumers. The Trust uses its financing to prepay most of the rent (plus HST thereon) under the concurrent lease between it and the Lessor. An ETA s. 177(1.1) election also is made for the Lessor to collect the HST on the rents from the consumers owing under what now are subleases, as agent for the Trust.

CRA gave interpretations that it would respect the ETA s. 177(1.1) election and the efficacy of the concurrent lease, so that it considers there to be a supply of the equipment by the Lessor to the Trust pursuant to ETA s. 136(1).

Neal Armstrong. Summary of 21 September 2018 Interpretation 167678 under ETA s. 136(1). See also 5 December 2003 Interpretation 44874.

Lapierre – Tax Court of Canada finds that a Canadian resident working for a UN-authorized agency in Afghanistan was not exempted

A Canadian resident, who was an employee of the International Security Assistance Force (ISAF) in Afghanistan serving as an international civilian consultant, would have been exempted on his salary if the ISAF had qualified as a UN-affiliated agency or if it was a non-military body that was a subsidiary body to the NATO Council. The ISAF did not so qualify because it instead was merely authorized by the UN rather than being a UN agency, and it also was a military body that was not a subsidiary body of NATO. His salary was taxable. This case essentially confirms 2012-0461051E5 F.

Neal Armstrong. Summaries of Lapierre v. The Queen, 2019 TCC 18 under Reg. 8900(1)(b) and s. 81(1)(a).

Income Tax Severed Letters 6 February 2019

This morning's release of five severed letters from the Income Tax Rulings Directorate is now available for your viewing.