News of Note
CRA finds that the FMV of an FHSA which is not distributed by the second year of the last holder’s death is, absent designations of beneficiaries, included in the estate’s income
Email this ContentS. 146.6(16)(a)(ii) provides that an FHSA ceases to be an FHSA at the end of the year following the year of death of the last holder. If this occurs, s. 146.6(17)(c) provides that the proportion of the FMV of all the (former) FHSA property that a beneficiary is entitled to at that time is deemed for purposes of s. 146.6(14) to be distributed at that time from the FHSA to the beneficiary, so that such deemed amount is included in the beneficiary’s income for the year under s. 146.6(14).
CRA confirmed that, in this situation, where the deceased last holder had designated three siblings as equal beneficiaries under the FHSA in accordance with provincial law, then each of the three siblings would be required to include 1/3 of the FHSA FMV in their income; whereas, if under the provincial law, the individual’s estate was the beneficiary (for example, because the individual had not designated any individual beneficiary under the FHSA), the income inclusion resulting from s. 146.6(17)(c) would be to the estate.
Neal Armstrong. Summary of 7 May 2024 CALU Roundtable, Q.2, 2024-1005791C6 under s. 146.6(17)(c).
CRA issues a notice on the purpose-built rental housing rebate (PBRH rebate)
CRA has issued Notice 336 on the rebate under s. 256.2 of all the GST on the sale or self-supply of a newly-constructed multiple (over 4-unit) rental housing complex. Points made in the Q&A section include:
- Regarding the requirement that construction have commenced after September 13, 2023, this is considered to be when the excavation work starts.
- The PBRH rebate is not available for the substantial renovation of an existing complex (although it can be available for the addition of multiple units to an existing complex).
- Assuming the other requirements were met, the PBRH rebate could be available, for example, for the conversion of an office building to a multiple unit residential complex (where the conversion started after September 13, 2023), and to the construction of a long-term care facility (assuming it qualified as a multiple unit residential complex).
- The entering into before September 13, 2023 of an agreement to purchase a new 10-unit apartment building would not preclude access to the PBRH rebate where the construction started after that date.
Neal Armstrong. Summary of GST/HST Notice, No. 336, Purpose-built Rental Housing Rebate, June 2004 under ETA s. 256.2(3.1).
CRA indicates that the TCC has confirmed its view that an amount paid by a trust to a beneficiary is not deductible under s. 104(6) if it was not payable under the trust deed
CRA referred to an unreported 2023 Tax Court decision (which has not been appealed) regarding a family trust that realized a capital gain, paid $100,000 to each of two minor beneficiaries in the same taxation year, and claimed the deduction therefor pursuant to s. 104(6)(b) – notwithstanding that the trust deed prohibited any distributions to designated persons in respect of the father. Hogan J found that if an amount cannot be paid under the terms of a trust it cannot be considered to be payable, so that CRA’s denial of the deductions was confirmed.
CRA considers that this decision is consistent with its position in 2005-0159081I7 that in determining whether an amount is payable for the purposes of s. 104(6), it must first be determined whether the amount is payable under the provincial law, i.e., without regard to any ITA provision.
Neal Armstrong. Summary of 4 June 2024 STEP Roundtable, Q.10 under s. 104(6)(b).
CRA indicates that holding any GIC would preclude a trust from qualifying under s. 150(1.2)(b)
Although s. 150(1.1) historically had exempted trusts from a requirement to file returns if they had no income or dispositions of capital property in the year, this exemption was taken away by s. 150(1.2) for express trusts unless they came within a listed exemption, such as in s. 150(1.2)(b) regarding holding only specified property types with a value throughout the year of under $50,000. CRA indicated that a GIC issued by a Canadian bank or trust company did not constitute one of the assets listed in s. 150(1.2)(b), such as money, or a government issued or guaranteed debt obligation described in s. 212(3) – fully exempt interest – (a), so that any GIC would taint the trust under s. 150(1.2)(b).
Neal Armstrong. Summary of 4 June 2024 STEP Roundtable, Q.9 under s. 150(1.2)(b).
Income Tax Severed Letters 19 June 2024
This morning's release of 10 severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Tourigny – Court of Quebec finds that damages for a burnt warehouse were compensation for lost profits rather than proceeds of goodwill
The taxpayer (“Trac-World”), whose warehouse was destroyed by fire, received damages from the local municipality in settlement of its claim for providing inadequate water supply during the fire. The quit claim stated that the sum was paid to compensate for the loss of Trac-World customers.
Trac-World reported the sum as being proceeds of disposition of goodwill, giving rise to an eligible capital amount. In finding that, under the surrogatum principle, the amount instead was fully taxable as compensation for lost profits, Bergeron JCQ noted that over 90% of Trac-World’s claim had been for lost profits and that its statement of claim had made no mention of loss of goodwill.
Neal Armstrong. Summary of Tourigny v. Agence du revenu du Québec, 2024 QCCQ 1914 under s. 9 - compensation payments.
CRA finds that “cost” under s. 127(32) did not include costs of processing property after its acquisition
The rules in s. 127 require the recapture of the cost of property previously claimed as investment tax credits where the property is, for instance, converted to commercial use or sold. S. 127(32) provides inter alia that, in this context, the cost “shall not exceed the amount paid by the taxpayer to acquire the particular property from a transferor [thereof].”
CRA, in a diffident analysis, suggested that, in light of this wording in relation to trees which were converted into logs and then used to test some experimental lumber-producing equipment, the cost likely only included the cost of the trees (i.e., the stumpage fees paid to the province) and not all the additional costs incurred in processing the trees.
Neal Armstrong. Summary of 31 July 2023 Internal T.I. 2021-0876331I7 under s. 127(32).
CRA finds that assessment of a director under s. 227.1 does not restart the 10-year limitation on relief under s. 220(3.1)
A corporation was assessed in its 2007, 2008 and 2010 taxation years regarding unremitted source deductions for its 2006 to 2009 taxation years together with interest and penalties. CRA assessed the director pursuant to s. 227.1 in September 2018, and the director applied for relief under s. 220(3.1) in 2019.
After stating that “the director’s liability under subsection 227.1(1) arises from his joint and several liability with the corporation and does not create a second tax debt,” the Directorate found that the taxation years referenced in s. 220(3.1) were those in which the corporation’s liability for the unremitted source deductions arose rather than that in which the director was derivatively assessed. Accordingly, as the director’s application for interest and penalty relief was in respect of the 2006 to 2009 taxation years, the 10-year limitation in s. 220(3.1) applied.
Neal Armstrong. Summary of 26 March 2024 Internal T.I. 2023-0974091I7 under s. 220(3.1).
We have translated 8 more CRA severed letters
We have translated a ruling and interpretation released by CRA last week and a further 6 CRA interpretations released in October of 2001. Their descriptors and links appear below.
These are additions to our set of 2,866 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 22 2/3 years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
CRA rules on s. 55(3.01)(g) applying to the transfer (fresh after an estate freeze) by unrelated shareholders of Opco to a new Holdco, with an Opco realty spin-off to a new Realtyco sister
The three unrelated individuals (A, B and C) holding the shares of Opco were to engage in preliminary estate-freeze transactions as a result of which trusts for the families of A and B will hold non-voting Opco common shares and Opco preferred shares will be held through holding companies for A and B. (C will participate, but did not use a family trust.)
Thereafter, the Opco shareholders were to transfer their shares to a new Holdco, Holdco would transfer some of its (newly-acquired) Opco preferred shares to a newly-formed subsidiary (Realtyco) and Opco would transfer its real estate to its sister, Realtyco, for preferred shares (as, in the two preceding transactions, utilizing s. 85(1)), with the preference shares between Opco and Realtyco then being cross redeemed.
CRA ruled that these transactions will not be considered in themselves to result in a disposition or increase in interest described in any of ss. 55(3)(a)(i) to (v) and, in particular, that the share issuance by Holdco to the Opco shareholders will not be described in s. 55(3)(a)(ii) by virtue of s. 55(3.01)(g).
The ruling letter had a representation that the estate freeze transactions “will not be carried out with a view to completing the series of transactions that includes the Proposed Transactions and would be completed notwithstanding the implementation of the Proposed Transactions, and vice versa.” This is consistent with the proposition that transactions are not undertaken in contemplation of a subsequent series unless they are undertaken “in relation to” or “because of” that series” (see, e.g., Deans Knight at para. 55).
Neal Armstrong. Summaries of 2024 Ruling 2023-0989121R3 F under s. 55(3.01)(g) and s. 75(2).