News of Note
CRA further extends the filing deadline for initial UHT returns to 30 April 2024
Email this ContentOn March 27, 2023, CRA announced that no interest and penalties would be imposed on owners who otherwise would have been required to file an underused housing tax return for their 2022 year on April 30, 2023, provided the return was filed or the UHT paid by October 31, 2023. Today (on October 31, 2023), CRA issued a Press Release stating:
The Minister of National Revenue announces that owners affected by the Underused Housing Tax (UHT) will have until April 30, 2024, to file their returns for the 2022 calendar year without being charged penalties or interest.
… Consequently, the Canada Revenue Agency will waive the application of penalties and interest for any late-filed UHT returns and for any late-paid UHT payable for the 2022 calendar year, provided the return is filed and the UHT is paid by April 30, 2024.
Neal Armstrong. Summary of 31 October 2023 Press Release, “Government of Canada extends deadline for homeowners to file their Underused Housing Tax return” under UHTA, s. 48(1).
Northbridge Commercial Insurance – Federal Court of Appeal finds that zero-rating for fleet insurance could be based on the relative expected claims experience for US accidents
Northbridge issued fleet insurance policies to trucking companies who operated their vehicles in both Canada and the U.S. The Tax Court had found that none of such supplies of insurance were zero-rated under Sched VI, Pt. IX, s. 2(d), which covers insurance under a policy “that relates to risks that are ordinarily situated outside Canada,” on the basis that this wording referenced the ordinary location of the insured vehicles, and there was no evidence on that point – and accordingly confirmed the denial of Northbridge’s related input tax credit claims.
Before allowing Northbridge’s appeal, Webb JA stated:
“[R]isks” means the risk of a claim arising from an accident or other insurable event. To the extent that any insurance policy issued by Northbridge covered such risks that were ordinarily situated in the United States, the supply of such a policy would be a zero-rated supply. The risks would be ordinarily situated in the United States based on the historical data for claims arising from accidents in the United States.
The Tax Court had not considered the evidence relating to this point, and the matter was referred back to it for such consideration.
Neal Armstrong. Summary of Northbridge Commercial Insurance Corporation v. Canada, 2023 FCA 211 under ETA Sched VI, Pt. IX, s. 2(d).
CRA indicates that amounts paid to reiki practitioners are ineligible for the medical expense tax credit
CRA indicated that amounts paid for reiki treatments performed by reiki practitioners (i.e., hovering their hands over the body to guide energy throughout it) would not qualify as medical expenses under s. 118.4(2)(a) given the absence of any apparent “legislation that authorizes the practice of reiki in any of the Canadian jurisdictions” so that “reiki practitioners are not considered to be medical practitioners under paragraph 118.4(2)(a).” However, the College of Massage Therapists of Ontario seemed to allow registered massage therapists to integrate “First Degree Reiki” into massage therapy treatment plans, in which case, their services would still be considered to be registered massage therapy, with the associated fees being eligible as medical expenses.
CRA was inclined to doubt that the amounts could qualify under s. 118.2(2)(l.9) given that it seemed unlikely that a “reiki practitioner would administer reiki treatments or therapy under the general supervision of a medical practitioner,” with there also being the additional hurdle that CRA must have determined that the patient receiving reiki treatments is eligible for the disability tax credit.
Neal Armstrong. Summaries of 11 August 2023 External T.I. 2023-0974121E5 under s. 118.2(2)(a) and s. 118.2(2)(l.9).
CRA indicates that ransomware payments generally are deductible
Regarding whether amounts related to ransomware attacks and business email compromise (“BEC”) scams, including ransom payments, payments to a BEC scammer, and recovery costs, were deductible, CRA stated:
[E]xpenses resulting from a ransomware attack or BEC scam appear to be an inherent risk of most businesses in an increasingly digital age. Accordingly, we would generally consider them to be deductible in computing income from a business where the expense is reasonable compared to the income earning activities of the business.
Neal Armstrong. Summary of 21 September 2023 External T.I. 2023-0984251E5 under s. 18(1)(a) – income-producing purpose.
Target – UK Supreme Court finds that the VAT exemption for “transactions … concerning … payments” did not include causing funds transfers through issuing payment instructions
Target administered loans made by a provider of mortgages and loans (“Shawbrook”), including by operating individual loan accounts and instigating and processing payments due from borrowers.
Article 135(1)(d) of the Principal VAT Directive exempted “transactions, … concerning … payments, transfers, debts, … but excluding debt collection”. (The rough ETA analogue is para. (a) of the financial service definition, which exempts the “payment … or transfer of money …”.) Target in this regard relied on the fact that it procured payments from borrowers’ bank accounts to Shawbrook’s bank accounts by giving instructions for payment which were then automatically and inevitably carried out through the Bankers’ Automated Clearing System (“BACS”).
After referring to various decisions of the Court of Justice of the European Union regarding this exemption, Lord Hamblen stated:
[T]he services must in themselves have the effect of transferring funds and changing the legal and financial situation. It is not enough to give instructions to do so thereby triggering a transfer or payment.
Before dismissing Target’s appeal, he then stated:
It follows that giving instructions which automatically and inevitably resulted in payment from the borrowers’ bank accounts to Shawbrook’s bank accounts via BACS is insufficient to fall within the exemption.
Neal Armstrong. Summary of Target Group Ltd v Revenue and Customs [2023] UKSC 35 under ETA s. 123(1) – financial service – (a).
CRA finds that a US athlete’s Canadian “signing bonus” was in substance employment remuneration for Treaty purposes
A U.S.-resident professional athlete signed a multi-year contract with a Canadian sports team which, in addition to salary, provided for the payment of a “Signing Bonus,” payable in annual instalments but with the instalments being lost for the sports year in which the taxpayer withdrew his services or breached the contract, and thereafter. In finding that the instalment received to date fell under Art. XV(1) of the Canada-U.S. Convention (Canadian employment subject to Canadian income tax without Treaty limitation) rather than Art. XVI(4) (Canadian tax limited to 15% of a payment of an “inducement to sign an agreement relating to the performance of the services of an athlete (other than an [Art. XV(1)] amount”), CRA stated:
Although the Agreement defines the Bonus as meaning compensation for signing the contract, the contractual requirement for the payment of the Bonus links the amount of the Bonus to which the Taxpayer is entitled to the performance of employment services.
Neal Armstrong. Summary of 14 July 2022 Internal T.I. 2020-0869441I7 under Treaties – Income Tax Conventions – Art. 16.
CRA finds that remuneration paid by a Canadian corporation to a non-resident (recently, resident) employee was not subject to withholding
CRA found that monthly remuneration paid by a resident Canadian corporation to its only employee (who ceased to be resident in a previous year) was not subject to income tax source deductions pursuant to the exemption in Reg. 104(2) given that neither of the exclusions in Regs. 104(4)(a) and (b) applied. Although Reg. 104(4)(a) was potentially engaged because of his previous Canadian residency, he was excluded from its application because such remuneration was subject to income tax in the foreign jurisdiction and related to employment duties performed outside Canada. The performance of the duties outside Canada also precluded the application of the Reg. 104(4)(b) exclusion.
However, an annual T4 slip was required.
Neal Armstrong. Summary of 13 March 2023 External T.I. 2022-0947251E5 under Reg. 104(2).
Income Tax Severed Letters 25 October 2023
This morning's release of four severed letters from the Income Tax Rulings Directorate is now available for your viewing.
A.G. v. Richter – Quebec Court of Appeal finds that the court below could accord priority to interim bankruptcy-proposal financing over the ITA s. 227(4.1) trust for source deductions
At the conclusion of the sale process for the assets of two debtors who had filed a proposal under the Bankruptcy and Insolvency Act (“BIA”), the net sale proceeds were less than both the amount of interim financing from CIBC that the Quebec Superior Court had ordered to have a super-priority, and the total amount of unremitted federal and Quebec source deductions.
In finding that the Superior Court had the jurisdiction to provide that the super-priority charge ranked ahead of the deemed trust for the federal source deductions under ITA s. 227(4.1) (as well as the Quebec equivalent), Schrager JA noted:
- Canada North decided that CCAA courts could grant super-priority charges ranking in priority to s. 227(4.1) deemed trusts.
- Callidus indicated that the “proposal provisions in the BIA serve … the same remedial purpose as those in the CCCA – i.e., the financial rehabilitation of an insolvent corporate debtor” and “to the extent possible, the two statutes should be treated in a harmonized fashion.”
- Regarding the Attorney General’s argument - that BIA s. 50.6(3), which provided that the “court may order that the … charge rank in priority over the claim of any secured creditor,” did not apply because s. 227(4.1) did not create a security interest - “it would seem nonsensical in the overall scheme of the BIA that a court could order that the interim lending charge take priority over the claim of any hypothecary or mortgage creditor but not over the claim of an unsecured creditor benefiting from a sui generis non-proprietary right akin to a floating charge, that is, the ITA Deemed Trust."
- If the above interpretation of s. 50.6(3) was incorrect, the Superior Court nonetheless had the inherent jurisdiction to order the super-priority: “Judgments of this Court have acknowledged the existence of this inherent jurisdiction under the BIA.”
Neal Armstrong. Summary of Attorney General of Canada v. Richter Advisory Group Inc., 2023 QCCA 1295 under BIA, s. 50.6(3).
BCM Cayman – Court of Appeal of England and Wales confirms that a two-tier partnership structure can be legally respected as such if the upper-tier partnership is an LP
The taxpayer (“Cayman Ltd.”) was a Cayman company which was the general partner of a Cayman LP (“Cayman LP”) which, in turn, had a 19% interest in a UK LLP.
Whether it was Cayman Ltd. (a taxpayer in this case) or Fyled (a UK corporate limited partner of the Cayman LP) who was liable for UK corporate income tax on carry profits allocated to the Cayman LP turned, in part, on whether Fyled was to be considered as a member of the UK LLP.
In finding that Fyled could not be considered to be carrying on business in common with the named partners of the UK LLP and, thus, was not a member of the UK LLP, Whipple LJ stated:
Cayman LP's business was carried on by its general partner (Cayman Ltd) and … the limited partners (including Fyled) were prohibited by Cayman law from taking part in Cayman LP's business … .
Thus, the well-known statement in Lindley and Banks on Partnership, that “where a firm purports to become a partner, this will, as a matter of law, constitute each of the members of that firm as a partner in his own right,” was inapplicable because the limited partner of the upper-tier partnership was prohibited from engaging with the partners of the lower-tier partnership.
Neal Armstrong. Summaries of BCM Cayman LP & Anor v Commissioners for His Majesty's Revenue and Customs [2023] EWCA Civ 1179 under s. 102(2) and s. 248(1) - corporation.