News of Note

Glatt – Federal Court orders CRA to pay interest on a refund where CRA thought there was no statutory authority for interest

Following his assessment for a s. 163.2 penalty, the taxpayer paid $1M to CRA so as to offset interest which would be borne by him if the assessment were upheld. After the assessment was vacated pursuant to a consent judgment, CRA issued a Notice of Reassessment showing the cancellation of the penalty and a refund of the $1M but denying any refund interest on the basis that s. 164(3) requires a taxation year to be specified in order for interest to be paid – and a s. 163.2 penalty is not calculated by reference to any particular taxation years.

A significant difficulty with this CRA position was that the Notice of Reassessment in fact, in its upper right-hand corner, stated “Tax year 2012.” Diner J found that this was not an administrative error that was corrected by s. 152(8). The Crown further argued that s. 164(3) also lacked traction on the basis the Notice was improperly described as a “Reassessment” rather than as a “notice of refund” or “refund receipt.”

It is unclear whether the taxpayer would have succeeded if CRA had not made the “mistake” of referring to 2012 in the Reassessment, given that Diner J also indicated that denying interest on the refund was inconsistent with Grenon.

He took the unusual step of ordering CRA to pay the interest, rather than remitting the matter back to CRA for further consideration.

Neal Armstrong. Summary of Glatt v. Canada (National Revenue), 2019 FC 738 under s. 164(3).

Income Tax Severed Letters 5 June 2019

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

6075240 Canada – Federal Court notes that s. 152(3.1), unlike its Quebec equivalent, does not give a taxpayer longer to respond to an arbitrary assessment than a normal assessment

The Minister made arbitrary assessments of the taxpayer following its failure to file some annual returns. In refusing to review the refusal of the Minister to process returns for those years filed more than three years after those assessments, Grammond J. stated that the normal reassessment period “applies to all assessments, whether they were issued following the filing of a tax return or not.”

After noting that s. 152(3.1), unlike the equivalent Quebec provision, “does not provide that the normal reassessment period can begin at the time when the taxpayer files a tax return, if that time is after a first notice of assessment is sent,” Grammond J. stated:

[T]he Quebec statute cannot be used to interpret the federal statute. I agree that this lack of consistency between the two statutes may be a source of confusion for Quebec taxpayers and that it might be considered a source of unfairness, but it is not my role to rewrite the Act to avoid such an outcome.

Neal Armstrong. Summary of 6075240 Canada Inc. v. Canada (National Revenue), 2019 FC 642 under s. 152(4).

Ghumman – Tax Court of Canada finds that a life insurance salesman was taxable on compensation received for selling himself a life insurance policy

IT-470R stated:

[W]here a life insurance salesperson acquires a life insurance policy, a commission received by that salesperson on that policy is not taxable provided the salesperson owns that policy and is obligated to make the required premium payments thereon.

Guide T4130 subsequently added a statement that this policy “only applies where the income received is not significant and the insurance policy has no investment component or business use.”

Sommerfeldt J confirmed an inclusion in the employment income of a life insurance salesman of $57K in commissions received by his corporation for his purchase of a life insurance policy on his life that were then paid to him as salary. Sommerfeldt J stated that such assessment accorded with the Act, and that, in any event, this situation did not fall within the stated administrative policy (even leaving aside the CRA position that the amounts were “significant”) given that the commissions were not received by the individual directly but, rather, by his corporation.

Neal Armstrong. Summary of Ghumman v. The Queen, 2019 TCC 125 under s. 5(1).

CRA draws negative inferences from a rule intended to provide a GST/HST-exemption safe harbour

Proposed s. 7.4 of ETA, Sched V, Pt. II would generally exempt a single supply of a “multidisciplinary health care service” where substantially all of the consideration for the supply is reasonably attributable to two or more particular services listed in ss. 5 to 7.3 of that Part.

CRA has inferred that if the “substantially all” test is not satisfied, all of the consideration for the composite supply is taxable. For example, if a rehab service for a fixed fee could reasonably be attributed as to 82% to “good” services (chiropractic, physiotherapy, acupuncture) and 18% to massage therapy services, ALL of the fee is treated as taxable. This example is particularly striking because the three “good” services are all listed in paragraphs within the same exemption section (s. 7). Since the predominant character of the supply is of a service described in s. 7, why does the single supply doctrine not apply to exempt the supply without reference to s. 7.4? The answer may be that CRA is inferring that Finance was intending to exempt only what was described in its s. 7.4 safe harbour.

Contrast this with the definition of “institutional health care service” which in a similar listing of paragraphs sets out various services provided at, for example, an assisted-living facility that are included in that exemption, such as meals, accommodation and the personal care workers. It clearly is not intended that the fee charged to a resident is not exempted because he or she receives a single supply rather than separate supplies of these listed components. The only difference appears to be a purely semantic one – the s. 7 services are not given a label of, say, regulated health care service.

Neal Armstrong. Summary of GST/HST Notices - Notice 311, Proposed Exemption of Multidisciplinary Health Care Services, May 2019 under ETA, Sched V, Pt. II, s. 7.4.

Anand – Tax Court of Canada accepts oral evidence that the parties' written contract did not reflect their contractual intent

CRA assessed an individual (“Anand”) on the basis that he had provided services as a general contractor for the construction of a new home (so that he should have charged HST on the full cost to the landowning couple (Dr. Gupta and Dr. Khanna) rather than merely providing services as a construction manager for a fee of $50,000 per year. CRA relied on a contract which had been drafted by Dr. Gupta, perhaps using a template he found on the internet.

Hogan J accepted the oral testimony of Anand and Dr. Gupta that the written contract did not reflect their contractual intent. Such parol evidence could be admitted since there were significant inconsistencies in the contract’s drafting amounting to “patent ambiguity.” Even if there had been no such patent ambiguity, Hogan J might have been prepared to come to the same result on the basis that “latent ambiguity” arose from the “factual matrix” surrounding the contract.

Thus the services of the various trades were received by Anand as agent for the couple.

Neal Armstrong. Summary of Anand v. The Queen, 2019 TCC 119 under General Concepts – Evidence.

6 more translated CRA interpretations are available

We have published translations of a CRA interpretation released last week, and a further 5 CRA interpretations released in January, 2012. Their descriptors and links appear below.

These are additions to our set of 873 full-text translations of French-language Rulings, Roundtable items and Technical Interpretations of the Income Tax Rulings Directorate, which covers the last 7 1/3 years of releases by the Directorate. These translations are subject to the usual (3 working weeks per month) paywall. You are currently in the “open” week for June.

Bundle Date Translated severed letter Summaries under Summary descriptor
2019-05-29 15 September 2017 External T.I. 2017-0696821E5 F - Amalgamation Income Tax Act - Section 87 - Subsection 87(1) - Paragraph 87(1)(a) receipt of cash on amalgamation did not preclude qualification under s. 87(1) [per Envision, 2013 SCC 48?]
Income Tax Act - Section 87 - Subsection 87(4) receipt of cash on amalgamation precluded rollover
2012-01-27 4 January 2012 External T.I. 2011-0417371E5 F - Frais de garde d'enfants Income Tax Act - Section 63 - Subsection 63(3) - Child Care Expense - Paragraph (b) - Subparagraph (b)(i) child care corporation can render qualifying child care services to the child of its sole shareholder
4 January 2012 External T.I. 2011-0418291E5 F - Transfert entre conjoints Income Tax Act - Section 74.2 - Subsection 74.2(1) - Paragraph 74.2(1)(a) s. 74.2 attribution cease on divorce/s. 74.5(3)(b) election available after marriage breakdown
9 January 2012 External T.I. 2011-0427461E5 F - Attribution Rules and Suspended Loss Rules Income Tax Act - Section 74.2 - Subsection 74.2(1) stop-loss rule in s, 40(3.6) trumped s. 74.2(1) so that denied capital loss was added to transferee spouse’s common share ACB
Income Tax Act - Section 40 - Subsection 40(3.6) stop-loss rule in s, 40(3.6) gave ACB addition to commons shares of transferee spouse who redeemed preferred shares gifted to him by spouse
19 January 2012 External T.I. 2011-0414341E5 F - Déf revenu brut location Partie XIII Income Tax Act - Section 216 - Subsection 216(4) election permits withholding only on net amount remitted by agent-manager to NR owner
Income Tax Act - Section 212 - Subsection 212(1) - Paragraph 212(1)(d) agent-manager required to withhold on gross rent rather than net rent remitted absent s. 216(4) election
7 October 2011 APFF Roundtable Q. 23, 2011-0412111C6 F - Validity of Price Adjustment Clause General Concepts - Effective Date price adjustment clause does not require filing amended election
Income Tax Act - Section 85 - Subsection 85(7.1) validity of price adjustment clause does not depend on filing an amended election

CRA proactively shares interesting information with foreign tax authorities and Revenu Québec, and will increase use of s. 231.4 inquiries

Comments of Sue Murray, the Director General of the High Net-Worth Compliance Directorate, included:

  • CRA is contemplating more frequent use of s. 231.4 to delegate the power to make inquiries, and may use it in some of the more egregious cases of offshore non-compliance if it is unable to obtain information and cooperation in other ways.
  • There have been increased exchanges of information with Revenu Québec, and with whom there is a high degree of cooperation.
  • CRA’s position is that, for 2018 and subsequent filing years, any failure to file a CbC report as required under s. 233.8(3) will be presumed gross negligence, absent special circumstances. Things are still in transition, and CRA would be lenient where there is ambiguity or other problems, but it expects that that would be rare.
  • Where CRA, in undertaking compliance activities, comes across information that will be of interest to a foreign tax administration, it will proactively take that information and provide it to the other country. CRA expects reciprocity in this regard, and receives it.

Neal Armstrong. 14 May 2019 IFA Conference - Sue Murray on Information Exchanges.

CRA can infer and assume where, post-Cameco, taxpayers refuse interviews

CRA acknowledges that Cameco decided that “the Minister … does not have the authority to compel the employees requested by the CRA to attend interviews and answer oral questions under [the ITA]” – but emphasizes that:

…[T]he FCA … also stated that:

  • all taxpayers should fully cooperate with reasonable requests arising in the course of an audit;
  • it remains open to the Minister to make inferences when no answer is given; and
  • the Minister is free to make assumptions and to assess on that basis.


Where taxpayers decline interviews in circumstances similar to the Cameco case, the CRA will use alternative means to carry out its obligations … [which] may include the use of assumptions about the nature of a taxpayer's business activities and tax planning to form the basis of an assessment of taxes owing.

Neal Armstrong. Summary of 31 May 2019, Statement from the Canada Revenue Agency regarding the decision in Canada (National Revenue) v. Cameco Corporation (2019 FCA 67), CRA Webpage under s. 231.1(1)(a).

Connolly – Federal Court of Appeal finds that the CRA internal guidelines on waiving the RRSP over-contribution tax were inherently unreasonable

S. 204.1(4) provides that the tax imposed on RRSP contributions may be waived by the Minister if she is satisfied that the over-contribution “arose as a consequence of reasonable error, and reasonable steps are being taken to eliminate the excess.” Internal CRA guidelines stated that “Reasonable error means that the taxpayer did not intend to over contribute to their RRSP/PRPP and that it happened because of extraordinary circumstances beyond their control” (i.e., a mere mistake as to the contribution limit is not reasonable error) and that “reasonable steps” allowed the taxpayer “two months from the date of the Agency’s letter to withdraw funds and submit proof.”

Gleason JA found that these guidelines were unreasonable, stating:

The delegate’s interpretation of subsection 204.1(4) of the ITA (as well as the interpretation set out in the internal CRA guideline, on which the delegate relied) thwarts the subsection’s remedial purpose as it virtually extinguishes the Minister’s discretion … . Nearly every error a taxpayer might make in over-contributing to his or her RRSP (other than a simple arithmetical error) will be caused by a misunderstanding of the applicable limits – an error of law. … Similarly, the fact that the error might have been made by a third party advisor or as a result of erroneous advice given by such advisor does not automatically mean that the error cannot be reasonable.

… [Furthermore] the requirements to take reasonable steps to withdraw an RRSP over-contribution cannot be equated with immediacy or with the two-month timeframe mentioned in CRA’s internal “Guidelines for waiving tax – 19(23)7.23”.

However, she nonetheless did not find the CRA delegate’s refusal to provide relief to be unreasonable on the facts, given that the taxpayer had not sought any advice before over-contributing and had been very dilatory about addressing the situation once it was brought to his attention.

Neal Armstrong. Summary of Connolly v. Canada (National Revenue), 2019 FCA 161 under s. 204.1(4).