News of Note
Zhang – Federal Court sets aside a CRA rejection of s. 204.1(4) relief that did not consider whether indeed there had been an excess contribution
Email this ContentIn 2013, the taxpayer’s spouse made a $13,142 contribution that was (the taxpayer claimed) intended to pay off her home buyers’ plan (HBP) balance. However, the RBC branch treated that amount as a contribution by her to the RRSP of the taxpayer which, if correct, meant that he had over-contributed for 2013. In June 2021, CRA assessed the taxpayer for excess contribution tax under s. 204.1(1), and in July 2021 (rather than objecting), the taxpayer requested a waiver of the tax under s. 204.1(4).
Southcott J noted that the CRA position in reaching an adverse decision - that the taxpayer had not made a reasonable error given that he was notified of his contribution on a sufficiently timely basis that he could have gone back to RBC to correct its reporting of the contribution while it still had sufficient records of the transaction – was not supported by the record, which did not establish that CRA had notified the taxpayer of his alleged over-contribution in 2013 before December 2020.
Regarding the second element of s. 204.1(4), namely, the requirement for the taxpayer to have taken reasonable steps to eliminate his excess contribution, Southcott J stated (at para. 43):
[T]he Applicant submits that he should not be expected to make an RRSP withdrawal to correct an over-contribution situation that would not exist if the Minister accepted his position that the $13,142 contribution made in 2013 should not be attributed to him. This argument raises what I consider to be a valid point that what constitutes reasonable steps, under the second element of the s 204.1(4) test, may in some circumstances be influenced by the particular facts surrounding the excess contribution for which a tax waiver is sought. In the case at hand, the Delegate’s unreasonable analysis under the first element of the test precluded the possibility of the Delegate accepting the Applicant’s characterization of the 2013 contribution and considering what, if anything, would be required as reasonable remedial steps in the context of that characterization.
As can be seen from the above passage, Southcott J was unwilling to get caught up in the scoping question as to whether s. 204.1(4) can apply to the cancellation of tax that was never owing (and whose assessment was not objected to) because in fact there was no over-contribution. The adverse decision of the CRA review officer was remitted for decision by another officer.
Neal Armstrong. Summary of Zhang v. Canada (Attorney General), 2023 FC 356 under s. 204.1(4).
We have translated 6 more CRA interpretations
We have published a further 6 translations of CRA interpretations released in September of 2003. Their descriptors and links appear below.
These are additions to our set of 2,410 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 19 ½ years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
| Bundle Date | Translated severed letter | Summaries under | Summary descriptor |
|---|---|---|---|
| 2003-09-19 | 15 September 2003 Internal T.I. 2003-0013357 F - ALLOCATION RECUE PAR UN BENEVOLE
Also released under document number 2003-00133570.
|
Income Tax Act - Section 5 - Subsection 5(1) | volunteer driver was not an employee |
| Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | volunteer driver with high activity level likely was engaged in a business | ||
| 16 September 2003 Internal T.I. 2003-0023957 F - Droits et biens crédit personne mariée
Also released under document number 2003-00239570.
|
Income Tax Act - Section 118 - Subsection 118(1) - Paragraph 118(1)(a) | income of deceased from rights or things (included in separate return) is excluded from income for s. 118(1)(a) purposes | |
| Income Tax Act - Section 70 - Subsection 70(2) | deemed separate nature of person for rights and things return | ||
| 15 September 2003 External T.I. 2003-0028075 F - Definition of "Specified Class" Sub 256(1.1)
Also released under document number 2003-00280750.
|
Income Tax Act - Section 256 - Subsection 256(1.1) - Paragraph 256(1.1)(b) | taking away of voting rights by shareholders agreement did not satisfy s. 256(1.1)(b) | |
| 2003-09-12 | 18 July 2003 External T.I. 2002-0162985 F - Renonciation et bénéficiaire
Also released under document number 2002-01629850.
|
Income Tax Act - Section 75 - Subsection 75(2) | renunciation by transferor of capital interest (but not of income interest) may avoid s. 75(2)(a)(i) if not done in advance of transfer |
| Income Tax Act - 101-110 - Section 107 - Subsection 107(4.1) - Paragraph 107(4.1)(b) | s. 107(4.1)(b) exclusion applicable if s. 75(2) was applicable at any time | ||
| 2 July 2003 External T.I. 2002-0180015 F - Usufruit d'un immeuble
Also released under document number 2002-01800150.
|
Income Tax Act - Section 69 - Subsection 69(1) - Paragraph 69(1)(b) - Subparagraph 69(1)(b)(i) | application of s. 69(1)(b)(i) on transfer of individual’s property to a corporation with him having the usufruct | |
| Income Tax Act - Section 251 - Subsection 251(1) - Paragraph 251(1)(c) | transferor to a deemed s. 248(3) trust who receives a usufruct does not deal at arm’s length with the trust | ||
| Income Tax Act - 101-110 - Section 105 - Subsection 105(1) | no benefit re use of personal-use property | ||
| 29 August 2003 Internal T.I. 2003-0018497 F - L'Année d'imposition diffère
Also released under document number 2003-00184970.
|
Income Tax Act - Section 126 - Subsection 126(1) | foreign tax paid for different foreign taxation year should be prorated based on the proportions of income earned in the Canadian taxation years |
Goldhar – Tax Court of Canada finds that the taxpayer could rely on his accountants regarding his taxation years being statute-barred and avoiding penalties for T1134 filing failures
In finding that CRA could not reassess beyond the normal reassessment period to include substantial amounts as alleged unreported shareholder benefits from non-resident corporations in the income of the taxpayer (Mr. Goldhar) for his 2008 to 2011 taxation years, Visser J stated:
Mr. Goldhar carried on an international business, and engaged professional lawyers and accountants to assist in organizing his financial affairs and in filing his personal and corporate tax returns. … Considering the complexity of Mr. Goldhar’s businesses and his lack of tax expertise, it is my view that he took all reasonable steps that a wise and prudent person would to ensure that his tax returns were filed properly during the taxation years under appeal. … Mr. Goldhar lacked the expertise to undertake a more thorough review. He would have had to be a tax expert to do so. That is not the standard. That is why he engaged a professional accounting firm, which had professional tax experts within its ranks, to provide him with tax advice and file his tax returns.
Visser J made similar findings that Mr. Goldhar had established a due diligence defence to the imposition of penalties under ss. 162(7)(a) and 162(10.1)(f) regarding his failure to file T1134 forms for some but not all the taxation years under review and, in this regard:
- quoted with approval the application in Chiang of an SCC statement that under such defence “[a] defendant can also avoid liability by showing that he or she took all reasonable steps to avoid the particular event...”
- and stated: “Due to complexity of his financial affairs, and his lack of tax background, it is my view that Mr. Goldhar reasonably relied on his accountants to properly file his tax returns in each of his 2008 to 2011 taxation years.”
Neal Armstrong. Summaries of Goldhar v. The King, 2023 TCC 30 under s. 152(4)(a)(i) and s. 162(10.1).
CRA indicates that the GST/HST for self-supplies of condo units rather than of MURCs was relevant to the conversion of a MURC to condo units
Regarding whether the conversion of a rental apartment building into condo units would be subject to GST/HST in the hands of an owner under the “self-supply” rule in ETA s. 191, CRA indicated that, under the definition of “residential condominium unit,” the building would consist of residential condominium units from the time that there was an intention to convert it into particular bounded spaces comprising such units.
Partly, on this basis, CRA considered that the relevant self-supply rule was that in s. 19(1) applicable to the substantial renovation (or construction) of a residential condominium unit rather than that applicable under s. 191(3) to the substantial renovation (or construction) of a multiple unit residential complex. Thus, the issue would turn on whether there was substantial renovation of the physical space for each proposed condo unit – with CRA reiterating in this regard its longstanding position that to rise to the level of substantial renovation there would need to be a gutting (or more) of each unit at issue.
Neal Armstrong. Summaries of 7 April 2022 CBA Roundtable, Q.7 under ETA, s. 191(1) and s. 123(1) -residential condominium unit.
CRA has postponed proceeding with treating orthodontists as making a single exempt supply
At the 2018 CBA Roundtable, Q.5 regarding Brian Hurd, and CRA’s administrative arrangement to allow 35% input tax credits to orthodontal practices, CRA indicated that it would prospectively phase-out that administrative arrangement and that it was preparing a publication discussing input tax credit availability to dentists and orthodontists. This would essentially mean that orthodontists would be treated as making a single exempt supply to each patient and would not generate any ITC for the related costs (e.g., for the orthodontic devices).
Davis Dentistry (under appeal), which effectively applied that administrative practice to the orthodontic practice of a professional corporation even though it (contrary to the stated CRA requirement) did not show an allocation in its invoices between the two supply components, conflicted with Brian Hurd.
CRA now stated that it will wait for the FCA decision in Davis Dentistry “before taking any more steps in regard to the 35% ITC administrative arrangement.”
Neal Armstrong. Summary of 7 April 2022 CBA Roundtable, Q.6 under ETA, Sch. VI, Pt. II, s. 11.1.
CRA accepts that there can be a double supply of a physician’s services
P-238 discusses fee sharing in the context of a practice involving a principal practitioner and a locum, and involving a principal practitioner and contract associates, and states:
[Where there is a] bona fide arrangement to share fees, the CCRA will not consider the payment by the associate to be in respect of a supply of administrative services made by the principal. The underlying characteristic of this arrangement is an apportionment of the fee for the health care service rendered to the individual between the parties. Thus, for purposes of the ETA, the amounts apportioned between the two parties are not subject to tax.
CRA indicated that the view underlying this policy is that where one person (A) supplies exempt health care services to patients and engages a medical practitioner (B) as a sub-contractor to render those services to patients, then A’s supply to patients can be exempted (for example, under Sch. V, Pt. II, s. 5), and B’s supply to A can also be exempted under s. 5, as there, as well, there is “a supply of a consultative, diagnostic, treatment or other health care service that is rendered by a medical practitioner to an individual.” It further stated:
The CRA considers that some exemptions can apply twice to the same service as the requirement is that the service be rendered by a medical practitioner or a practitioner as defined in section 1 of Part II of Schedule V.
Neal Armstrong. Summary of 7 April 2022 CBA Roundtable, Q.5 under ETA, Sch. V, Pt. II, s. 5.
CRA indicates that it will grant ITCs beyond the normal period for claiming them only if they are offsettable against tax owing
A registered supplier files its outstanding HST returns for the last 8 years, reporting the HST that it failed to charge for those reporting periods, and claiming available ITCs. It would like to be reassessed, at the least, for the earlier of those reporting periods so that it can now charge HST on the supplies and tell its suppliers that they will benefit from the extended period under s. 225(4)(c) for claiming ITCs on the basis inter alia that it has only now been assessed for those periods.
CRA indicated that it would assess all the reporting periods for which it computed any amount of tax owing by the registrant or any refund or rebate owing by it – so that it was only reporting periods where the amount owing on the return as filed equaled the payment made on filing which it would not assess. (Thus, in this context, it would be a mistake to accompany the filing of the late returns with payment.) However, if the returns are filed pursuant to a voluntary disclosure request, CRA indicated that a notice of assessment “will be issued once the voluntary disclosure has been accepted and finalized” – even though, to be accepted, the voluntary disclosure application must “include payment of the estimated tax owing.” Thus, in the VDP context, it would not matter if the estimate of tax paid on filing the disclosure was precisely correct.
CRA further indicated that if an offset was available to CRA under s. 318 regarding amounts owing by it under other statutes, “subsection 315(1) of the ETA does not allow collection action under section 318 unless the amount has been assessed.” Thus, the presence of such other amounts would not stop CRA from assessing all the reporting periods as desired.
A somewhat separate issue was the availability of ITCs to the supplier on the above filings. After acknowledging that s. 296(2) “allows input tax credits to be applied against the amount assessed for the same period even if they would otherwise be statute barred,” CRA stated:
If there is an overpayment of net tax on the part of the registrant after the unclaimed ITCs are applied against the net tax of the reporting period, the CRA will apply this overpayment against any unpaid or unremitted amounts that arose before or after (up to four years) the reporting period, and that remain outstanding on the day the Notice of Assessment is issued. If there is still an overpayment, the CRA will refund the amount to the registrant with interest, provided that the Notice of Assessment is issued before the time limit for claiming the ITCs has expired and the person has filed all returns that are required to be filed.
This statement that the ITC claims will be denied if they are out of time is contrary to the wording of s. 296(2), which lifts that time limit. However, s. 296(2) also on its face states that CRA must grant the ITC only if it has not already been claimed by the registrant. Does this mean that the registrant in this example should file the older returns without claiming ITCs then, following assessment of the tax, object on the basis that CRA should of its own accord on the assessment have granted it the ITC amounts pursuant to s. 296(2)?
Neal Armstrong. Summaries of 7 April 2022 CBA Roundtable, Q.4 under ETA s. 225(4)(c), s. 318, s. 296(2) and s. 281.1(2).
Supreme Court grants leave to Iris Technologies
The Federal Court of Appeal had struck out a Federal Court application of Iris Technologies Inc., which had sought a declaration that it was denied procedural fairness in the audit and assessment process, that the resulting assessments were made without an evidentiary foundation and that they were issued for the improper purpose of depriving the Federal Court of jurisdiction to hear its administrative law grievances and stated that the application was “in essence, a collateral challenge to the validity of the assessments issued under the ETA, a matter within the exclusive jurisdiction of the Tax Court.” It also applied the proposition that the Court should not exercise its discretion by making a declaration that will not “have any real or practical effect” (Iris had long since been assessed).
In granting leave, the Supreme Court indicated that this appeal will be heard with Dow Chemical ULC – presumably, on the basis that both deal with the demarcation of the respective jurisdictions of the Federal Court and Tax Court.
Neal Armstrong. Summary of Canada (Attorney General) v. Iris Technologies Inc., 2022 FCA 101, leave granted 16 March 2023 under Federal Courts Act, s. 18.5.
Silber – Court of Quebec finds that a stock broker could deduct costs of sponsoring his cycling team from employment income
A commissioned stock broker employed by CIBC Wood Gundy (Silber) founded a team of around 10 professional cyclists, known as "Silber Pro Cycling" and, in 2015 and 2016, paid the team $265,000 and $330,302, respectively, in his capacity of principal team sponsor. The ARQ denied his deduction of the sponsorship expenses under the equivalent of ITA s. 8(1)(f) on the basis that they were not expended by him for the purpose of earning his employment income.
In allowing Silber’s appeal, Richard J noted inter alia that, in return for his sponsorship, Silber obtained exposure for his name and practice in a number of ways including the teams’ name, logo, website name, and both his and his employer’s names being prominently displayed on the cyclists’ clothing.
Neal Armstrong. Summary of Silber v. Agence du revenu du Québec, 2023 QCCQ 127 under s. 8(1)(f).
CRA indicates that a used machine acquisition on current account was ineligible for SR&ED credit
The Claimant purchased a used machine which it modified as part of its SR&ED project and which was accepted as being purchased on current account as it was transformed in the prosecution of the SR&ED. The Directorate found that this expenditure was a prescribed expenditure pursuant to Reg. 2902(b)(ii), i.e., the expenditure was in respect of “the acquisition of property that has been used … for any purpose whatever before it was acquired.” It indicated in this regard that the acquisition cost being a current expenditure was not inconsistent with there having been an “acquisition of property.”
Neal Armstrong. Summary of 26 October 2022 Internal T.I. 2021-0915091I7 under Reg. 2902(b)(ii).