News of Note
Fortius – Federal Court of Appeal finds that CRA was not to be precluded from revoking registered charity status prior to the charity’s objection and appeal being heard
Email this ContentAfter a registered charity (Fortius) received a notice informing it that its registration as a charity would be revoked 30 days later, it could have followed the normal process of filing an objection and, if the Minister confirmed her decision, filing an appeal pursuant to s. 172(3) (an “application”), which would be heard on its merits. Fortius tried to stop the revocation by bringing a motion applying for an order under s. 168(2)(b) for precluding the Minister from publishing the notice of revocation until Fortius had had the opportunity to pursue the above normal objection (and, if applicable, appeal) process, as well as seeking an interim relief order under Rules 372 and 373 enjoining the Minister from publishing the notice of revocation until the application was decided.
In finding that Fortius had not established that it would suffer irreparable harm if its motion was not granted, Rennie JA noted:
- Fortius, on its own evidence, was “in no better position to advance evidence on the application than it [was] currently on the motion”;
- The outcome on this motion would not eliminate the opportunity Fortius had to challenge the Minister’s decision by following the normal objection and appeal procedure;
- Furthermore, the loss of the statutory benefits conferred upon registered charities was not in itself evidence of irreparable harm, i.e., “irreparable harm does not encompass the ordinary consequences that flow from an entity losing its registered charity status (such as loss of tax-exempt status, ineligibility to issue donation receipts, and payment of a revocation tax pursuant to section 188 ...)”.
Neal Armstrong. Summary of Fortius Foundation v. Canada (National Revenue), 2022 FCA 176 under s. 168(4)(b).
Marchessault – Court of Quebec finds that frequent visits by an Alberta worker (without a permanent Alberta home) to his Quebec parents and friends did not establish Quebec residence
The taxpayer started in 2006 to work exclusively at a succession of pipeline-construction jobs in Alberta (or, on occasion, in B.C.) in all but about three or four of the winter months - during which he would visit his parents and friends in Quebec (while generally staying in a hotel), or travel to warmer locations. Because his work sites kept shifting, he did not acquire a permanent home in Alberta. Previously single, he married in 2016 in Alberta, and moved with his spouse to Quebec in 2020, but following a rupture, he resumed his life in Alberta two years later.
In finding that the taxpayer was not resident in Quebec for the years assessed by the ARQ (2008 to 2013), Bergeron JCQ stated:
The Court does not believe that Mr. Marchessault must deprive himself of the opportunities afforded by his mode of life to visit his parents in order to break his ties of residence to Quebec.
… Mr. Marchessault had a roof in Alberta, without having purchased a home there. However, the … [quoting Thomson] “spatial bounds within which he [spent] his life” were within Alberta throughout the Period … .
Neal Armstrong. Summary of Marchessault v. ARQ, 500-80-040307-200, 6 February 2023 (Court of Quebec) under s. 2(1).
We have translated 6 more CRA interpretations
We have published a further 6 translations of CRA interpretations released in October of 2003. Their descriptors and links appear below.
These are additions to our set of 2,369 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 1/3 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 |
|---|---|---|---|
| 2003-10-24 | 10 October 2003 External T.I. 2003-0037135 F - CONTRATS DE RENTE VIAGERE
Also released under document number 2003-00371350.
|
Income Tax Regulations - Regulation 301 - Subsection 301(1) | annuity did not qualify as a "life annuity" where payments made to a corporation |
| 15 October 2003 External T.I. 2003-0014535 F - FRAIS DE GARDE D'ENFANTS
Also released under document number 2003-00145350.
|
Income Tax Act - Section 63 - Subsection 63(3) - Child Care Expense - Paragraph (d) | fees for daycare at day sports camp could qualify | |
| 10 October 2003 External T.I. 2003-0035645 F - DEDUCTIBILITE DES INTERETS
Also released under document number 2003-00356450.
|
Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c) - Subparagraph 20(1)(c)(i) | Ludco and Singleton accepted/ description of how and why cash damming works | |
| Income Tax Act - Section 16 - Subsection 16(1) | interest imputed on a non-interest-bearing note issued at a discount consists of simple interest (annually deductible) and compound interest (deductible only at maturity) | ||
| 10 October 2003 External T.I. 2003-0035665 F - TRANSFER D'UNE POLICE D'ASSURANCE-VIE
Also released under document number 2003-00356650.
|
Income Tax Act - Section 148 - Subsection 148(7) | transfer to shareholder at policy’s FMV is not a “distribution” | |
| 10 October 2003 External T.I. 2003-0035675 F - EVALUATION D'UNE POLICE D'ASSURANCE-VIE
Also released under document number 2003-00356750.
|
Income Tax Act - Section 70 - Subsection 70(5.3) | unpaid policy loan to corporation is to be deducted in determining shares’ FMV if the accords with valuation principles | |
| 10 October 2003 External T.I. 2003-0037125 F - AVANCE SUR POLICE
Also released under document number 2003-00371250.
|
Income Tax Act - Section 148 - Subsection 148(9) - Policy Loan | withdrawal can qualify as policy loan even if not named as such under the policy |
CRA indicates that crypto miners generally had the change-in-use rules apply to their capital properties on May 18, 2019
CRA indicated that as a result of the legislative change, made in 2021 but effective May 18, 2019, to make “virtual payment instruments,” such as Bitcoin, financial instruments, the change-in-use rules generally would apply on that date to the capital properties of miners, given that prior to that date they would be regarded by CRA as being engaged in commercial activity. Thus, as a substantive matter, they were required to remit GST/HST equal to the properties’ basic tax content (essentially, the GST/HST previously paid on the properties’ purchase).
CRA made this point in a very brief, almost sheepish, manner – so that it may recognize that it may now have legal and practical difficulties in purporting to require those who have already filed their return for the relevant 2019 reporting period, to now refile so as to report an application of the change-in-use rule.
Neal Armstrong. Summaries of GST/HST Notice No. 324, Proposed Amendment Addressing Mining Activities in respect of Cryptoassets, February 2023 under ETA s. 188.2(1) - virtual payment instrument, mining activity, cryptoasset, s. 188.2(2), (4), (5), s. 1123(1) – recipient, s. 141.04(4) and s. 200(2).
CRA respects the effect of a court order providing that a lump sum payment was in satisfaction of a retroactive periodic support obligation
A 2018 court order required retroactive child and spousal support payments to be made by an individual to a former spouse on a monthly basis for the period from 2013 until the date of the order but treated various payments previously made by the individual to the former spouse as being in satisfaction of this periodic obligation and also contemplated that such obligation would be satisfied in part by way of set-off against an obligation of the former spouse to pay an equalization amount to the individual respecting a division of matrimonial property.
After noting that s. 60.1(3) deemed payments made in the previous year and during 2018 up to the time of the order to be made pursuant to the order, so that such payments could potentially qualify for deduction under s. 60(b), CRA turned to the deductibility of amounts paid after the time of the order, and stated:
[W]here the lump-sum amount is paid pursuant to a court order that establishes a clear obligation to pay retroactive periodic maintenance for a specified period prior to the date of the court order … the lump-sum payment will not, in and of itself, change the nature of the underlying legal obligation of periodic maintenance payments and, if all other requirements are met, the lump-sum amount paid will be deductible to the payer according to the formula in paragraph 60(b) … .
CRA went on to indicate that the above principle would apply even though such lump sum payment of retroactive periodic support was made in part by way of set-off against an obligation of the support recipient to make an equalization payment.
Neal Armstrong. Summaries of 7 September 2022 Internal T.I. 2022-0931081I7 under s. 60.1(3), s. 60(b) and General Concepts – Effective Date.
It may be unclear as to whether maximum CCA should be treated as having been claimed for pre-acquisition taxation years of an LLC under Reg. 5907(2.03)
US LLC acquired depreciable property in 2015 for use in its active business, and then on January 1, 2022, its shares were acquired by a Canadian taxpayer (Acquireco).
Reg. 5907(1)(a)(iii) generally provide that earnings from an active business of an LLC foreign affiliate of a taxpayer resident in Canada shall be computed as if if the business was carried on in Canada and the LLC was resident in Canada; and Reg. 5907(2.03) generally provides that its income or loss from that business for a particular taxation year shall be computed on the basis that for that year and “any” preceding taxation year ending after August 19, 2011. it claimed the maximum CCA and other deductions in computing its income from the business.
Under the above wording, it might seem that the maximum CCA should be treated under Reg. 5907(2.03) as having been claimed in the prior years, thereby increasing the earnings for 2021 and subsequent years. However, it is suggested that it could be argued that no CCA should be considered to be claimed for the pre-acquisition period, given inter alia that prior to the acquisition, US LLC was not a foreign affiliate of Acquireco and, therefore, never claimed depreciation in computing income with respect to Acquireco.
Neal Armstrong. Summary of Nakul Kohli and Simon Townsend, “Computing UCC for Newly Acquired LLCs,” Canadian Tax Focus, Vol. 13, No. 1, February 2023, p. 9 under Reg. 5907(2.03).
Income Tax Severed Letters 1 February 2023
This morning's release of three severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA continues to apply advantage tax where employee registered plans subscribe for post-freeze common shares of the employer
2009-0320311I7 considered that where, following a freeze transaction, a key employee subscribed for new common shares through a TFSA, the requirements of s. (b)(i) of the “advantage” definition in s. 207.01(1) were satisfied (namely, that such transaction “would not have occurred in an open market where parties deal with each other at arm’s length”), so that the advantage tax would apply to any increase in the total FMV of those shares.
An observed more-recent application of this approach occurred where the shareholders of a widely held private company exchanged their common shares for fixed-value preferred shares and numerous employees (all dealing with each other and the company at arm’s length) then subscribed for new common shares at a low subscription price. The “CRA’s position was that the new common shares were available for purchase solely due to the subscribers’ employment status, and thus the advantage tax was payable by each employee-shareholder who acquired new common shares through their TFSA.”
Neal Armstrong. Summary of Tyler Berg, “Registered Plan Taxes: Recent Experiences,” Canadian Tax Focus, Vol. 13, No. 1, February 2023, p. 3 under s. 207.01(1) – advantage – (b)(i).
Michaluk – Tax Court of Canada finds that a train-operator employee could not deduct his costs of staying in Oshawa, as he reported to work at the Oshawa train station
The taxpayer, who was a Bombardier commuter train operator, usually started and finished work at the Oshawa Go Train Station, which was 160 kilometres from his home in Picton. The taxpayer claimed, pursuant to s. 8(1)(g), the costs of his stays on workdays at the Travelodge Oshawa or in rental apartments, and of related meals (for which his employer provided a form T2200). Given that the taxpayer reported to work in Oshawa, Favreau J unsurprisingly found that these costs incurred in Oshawa did not satisfy the test under s. 8(1)(g) of being incurred outside the metropolitan area where he reported to work.
Neal Armstrong. Summary of Michaluk v. The King, 2023 TCC 15 under s. 8(1)(g).
Bérubé – Tax Court of Canada finds that, as shown by his winnings over a protracted period, a full-time poker player had a reasonable expectation of making a living at it
After depositing his entire savings with an online poker site in 2007, the taxpayer began playing poker (online around 95% of the time, and in-person for the balance) and between 2008 and 2010 took part in around 20 poker tournaments in various international locations. His poker activities were his only source of income from 2008 to 2011.
CRA reassessed his 2008 year to include $1.6 million of net poker winnings in his income, but his appeal for this year was later allowed by consent. At issue were further reassessed inclusions in the taxpayer’s income for the 2009, 2010, and 2011 of $884,323, $454,867, and $231,208, respectively.
Before confirming these income inclusions subject to some agreed downward adjustments, Favreau J dismissed the taxpayer’s arguments that poker was not a source of income to him, for essentially the same reasons as in D'Auteuil (which was released on the same day). He stated:
[T]he appellant spent almost all of his time playing poker. …
Despite his unusual lifestyle and his propensity to ridicule his opponents, the appellant was a serious businessman. … The appellant adopted objective standards of risk management and minimization. He played multiple tables at once in an effort to maximize his winning potential in the shortest amount of time.
At this level of winnings by the appellant over such a long period of time, I am satisfied that the appellant had a reasonable expectation of being able to make a living at playing poker … .
Neal Armstrong. Summary of Bérubé v. The King, 2023 CCI 12 under s. 3(a) – business source.