News of Note
CRA defines the meaning of “substantially complete” in a UHTA context
Email this ContentUHTA s. 6(7)(k) exempts a person who is not an excluded owner from tax respecting a residential property held at the end of a calendar year where “the construction of the residential property is not substantially completed before April of the calendar year.”
CRA indicated that it may use its GST/HST guidelines in determining when construction of a residential property is substantially completed for UHTA purposes. It stated:
Generally, substantial completion of a residential property means that construction is at a stage of completion (generally 90% or more) that allows an individual to reasonably inhabit the property.
S. 6(7)(l) provides an exemption where “the construction of the residential property is substantially completed in January, February or March of the calendar year, the residential property is offered for sale to the public during the calendar year and the residential property had never been occupied by an individual as a place of residence or lodging during the calendar year.” CRA indicated that this exemption would apply in the following simple example:
- C and D (who are not citizens or permanent residents) together own all the shares of a Canadian corporation which had substantially completed constructing detached homes in Canada in March 2022.
- Although the homes had been offered for sale to the public from shortly after the commencement of construction, they were still unsold on December 31, 2022.
Neal Armstrong. Summaries of Underused Housing Tax Notice UHTN13 Exemptions for New Residential Properties February 2023 under UHTA s. 6(7)(k) and s. 6(7)(l).
We have translated 7 more CRA interpretations
We have published a CRA interpretation released last week and 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 2,397 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 |
|---|---|---|---|
| 2023-03-01 | 30 June 2022 Internal T.I. 2022-0936671I7 F - Frais de déplacement | Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) | one-time travel between a home office and the employer’s office was in the course of employment |
| Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(b) - Subparagraph 6(1)(b)(vii.1) | per-kilometer allowances for one-time travel between home office and employer’s office qualified under s. 6(1)(b)(vii.1 | ||
| Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(b) - Subparagraph 6(1)(b)(vii) | one-time travel between home office and employer’s office did not qualify as travel away from the employer’s establishment | ||
| Income Tax Act - Section 6 - Subsection 6(6) - Paragraph 6(6)(b) | potential exclusion of allowances for meals and hotels paid for travel to a remote work site (an office) of the employer where the employees stay for 3 days | ||
| 2003-10-17 | 8 September 2003 Internal T.I. 2003-0010407 F - Gains et pertes sur change étranger
Also released under document number 2003-00104070.
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Income Tax Act - Section 39 - Subsection 39(2) | s. 39(2) applies to interest on US mortgage |
| Income Tax Act - Section 40 - Subsection 40(1) - Paragraph 40(1)(a) - Subparagraph 40(1)(a)(i) | Gaynor applies in computing gain on disposition of US securities | ||
| 29 September 2003 Internal T.I. 2003-0027347 F - FRAIS MEDICAUX DEPLACEMENT
Also released under document number 2003-00273470.
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Income Tax Act - Section 118.2 - Subsection 118.2(2) - Paragraph 118.2(2)(h) | travel and accommodation expenses of parents in order to be near their hospitalized child were not covered | |
| 24 September 2003 Internal T.I. 2003-0184097 F - perte au titre de placement
Also released under document number 2003-01840970.
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Income Tax Act - Section 40 - Subsection 40(2) - Paragraph 40(2)(g) - Subparagraph 40(2)(g)(ii) | Byram accepted: NIB loan can be made with a view to dividends | |
| 2003-10-10 | 11 September 2003 Internal T.I. 2003-0026217 F - Report de Pertes du de Cujus
Also released under document number 2003-00262170.
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Income Tax Act - Section 111 - Subsection 111(2) | net capital loss in year before death could be carried back rather than applied against all income in the two s. 111(2) years |
| 25 September 2003 Internal T.I. 2003-0032837 F - Market Maker: Reserve Account for Losses
Also released under document number 2003-00328370.
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Income Tax Act - Section 153 - Subsection 153(1) - Paragraph 153(1)(a) | payment of deferred commission amounts held as contingency loss reserve from old employer to new employer was a payment of “remuneration” subject to withholding | |
| General Concepts - Payment & Receipt | constructive receipt by employee where reserve loss account (funded out of commissions) is transferred from old brokerage employer to new brokerage employer | ||
| 2003-10-03 | 24 September 2003 External T.I. 2003-0028145 F - DON FAIT PAR UN PARTICULIER NON-RESIDENT
Also released under document number 2003-00281450.
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Income Tax Act - Section 118.1 - Subsection 118.1(3) | non-resident can carry forward a credit five years to when Canadian residence is acquired |
CRA purports to require non-resident executors to obtain UHTA clearance certificates
The UHTA reflects the reassuring premise that we will continue to be persons after our deaths. In particular, s. 6(7)(h) provides an exemption from the tax that otherwise would be imposed on a (non-resident/non-citizen) person’s ownership of a residential property at the end of a calendar year “if …the person died during the calendar year or the prior calendar year.” On the other hand, s. 6(7)(i) exempts a person who “is the personal representative of a deceased individual who was an owner of the residential property during the calendar year or the prior calendar year and the person was not otherwise an owner of the residential property in either of those calendar years.”
CRA provided a simple example illustrating the relationship between the two provisions involving individuals all of whom were not permanent residents or citizens.
- The estate arising on the death of C on December 15, 2022 included a Canadian detached home, whose registered title was in C’s name. C (through D, the executor) was required to file a UHTA return for 2022, but was exempted as a substantive matter for that year under s. 6(7)(h). Essentially the same would have applied for 2023 if registered title had continued in C’s name until December 31, 2023, e.g., the s. 6(7)(h) exemption would have applied because C died the prior year.
- However, the registered title was transferred to the executor (D) in February 2023. D must file a return for the property for the 2023 calendar year, but is exempted from the tax under s. 6(7)(i) because D is the executor of a deceased individual who was the property’s owner during the prior year (2022), and D is not an owner otherwise than in D’s capacity of executor.
CRA also indicated that (the executor or other representative of a deceased individual’s estate “must” obtain a CRA clearance certificate (under UHTA s. 11(4), equivalent to ITA s. 159(2)) confirming no unpaid UHTA amounts before making any distribution out of the estate, so as to avoid personal liability. This will come as a surprise to non-resident executors of non-resident estates.
Neal Armstrong. Summaries of Underused Housing Tax Notice UHTN11 Exemptions for Deceased Individuals and Their Personal Representatives or Co-owners February 2023 under s. 6(7)(h), s. 6(7)(i), s. 6(7)(j), s. 2 – ownership percentage, and s. 11(4).
CRA finds that one-time travel between a home office and the employer’s office was in the course of employment, and that such office could be a special work site
Given the great distance between the residence of new employees hired by the employer for a 24-month period and the employer's offices, they work from home. Although their contract of employment designates one of the employer's offices as their place of work, they are only required to attend there for a single three-day visit for training and team building activities.
CRA indicated that given that the employer’s office was not the employees’ regular place of employment, their travel between home and that office quailed as travel in the course of their employment. This signified that reimbursement for their travel expenses (e.g., for bus and hotels) was not a taxable benefit under s. 6(1)(a). Furthermore, for those who travelled using their own vehicles, a reasonable per-kilometre allowance payable by their employer would not be included in their income pursuant to s. 6(1)(b) by virtue of the exception in s. 6(1)(b)(vii.1), again because such travel would be considered to be in the course of their employment.
Any allowances paid for other types of travel expenses (e.g., for meals) would not qualify for exclusion under s. 6(1)(b)(vii) given the requirement under that provision that the travel be away from the municipality (and, where applicable, metropolitan area) where the employer’s establishment was situated and the CRA position “that a home office is not an employer's establishment.” However, such allowances potentially would qualify for exclusion under s. 6(6)(b) (i.e., travel for temporary work at a special work site of the employer).
Neal Armstrong. Summaries of 30 June 2022 Internal T.I. 2022-0936671I7 F under s. 6(1)(a), s. 6(1)(b)(vii.1), s. 6(1)(b)(vii) and s. 6(6)(b).
CRA indicates that employee beneficiaries of a mooted ELHT form a single class if their benefit entitlements are reasonably similar
In order to qualify as an employee life and health trust (ELHT), s. 144.1(2)(e)(i) or (ii) must be satisfied. The test in s. 144.1(2)(e)(i)(A) requires that the “trust … contains at least one class of beneficiaries where the members of the class represent at least 25% of all of the beneficiaries of the trust who are employees of the participating employers under the trust.” The term “class of beneficiaries” is defined in s. 144.1(1) “as a group of beneficiaries who have identical rights or interests under the trust.”
CRA considered a plan covering all the non-unionized employees of over 1,000 stores in a retail chain, where the benefits offered to the employees varied by participating employer, so that there could be different classes of benefits and coverage levels offered to the employees of the different participating employers. In indicating that there being no 25% group with the same benefit entitlements or coverage would not necessarily preclude the s. 144.1(2)(e)(i) test from being satisfied, CRA stated:
[A] “right”, as it pertains to an ELHT, includes an entitlement to designated employee benefits (“DEBs”). Thus, where the employees of several participating employers have the same rights under the trust (but not necessarily the same benefit entitlements or coverage), it is our view that such employees may collectively form a class of beneficiaries for purposes of clause 144.1(2)(e)(i)(A) of the Act as long as the benefit entitlements for each employee in the class are reasonably similar. This could be the case, for example, if a particular designated benefit plan offers various levels of benefit coverage that are different but similar to those offered by another participating employer whose employees are included in the class.
Neal Armstrong. Summary of 5 December 2022 External T.I. 2021-0915921E5 under s. 144.1(2)(e)(i).
Income Tax Severed Letters 1 March 2023
This morning's release of three severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA provides examples of the application of the UHTA exemptions for seasonal, inaccessible, renovated or recently-acquired residential properties
CRA has provided some simple examples illustrating the application of the exemptions from the UHTA tax (as a substantive matter, although there still is a return-filing obligation) under ss. 6(7)(c) to (g) of the UHTA regarding the ownership by non-resident/non-citizen owners of Canadian residential properties:
- A house lacking a central heating system, such as a furnace or boiler, or room heating sources, such as fireplaces or electric baseboard heaters is not suitable for year-round use as a place of residence (exempted under s. 6(7)(c)).
- A property fronting on a road which is impassable throughout the winter season is considered to be seasonally inaccessible (exempted under s. 6(7)(d)).
- Where the first unit in a duplex was renovated so that it was uninhabitable for 5 months in 2022 and there was a similar renovation of the second unit in 2023, because the (one-time) exemption under s. 6(7)(f) for a renovation had applied in 2022, it was not available in 2023.
- Two spouses (C and D) co-owned a property on December 31, 2022, with the interest of D having been acquired in 2022 from C, who had acquired 100% of the property in 2020 (the co-ownership interest of D is exempted under the s. 6(1)(g) exemption for a property acquired in the year– but not that of C).
Neal Armstrong. Summary of Underused Housing Tax Notice UHTN8 Special Rule and Elections for Individual Owners of Multiple Residential Properties under s. 6(10), summaries of UHTN9 Exemptions for Residential Properties That Cannot be Used Year-round under s. 6(7)(c) and s. 6(7)(d), summary of UHTN10 Exemptions for Uninhabitable Residential Properties under s. 6(7)(f) and summary of UHTN11 Exemption for New Owners under s. 6(7)(g).
K & D Logging – Tax Court of Canada finds that a s. 20(21) deduction cannot offset previously-recognized s. 17 income
The taxpayer (K & D) initially recognized interest from year to year at the prescribed rate under s. 17 on a loan to a Uruguay farming corporation (Interan) of which it was a 44% shareholder. It supposedly did not confirm that the loan was non-interest-bearing until years’ later, after the loan had become, in part, a bad debt and was only partially repaid.
K & D argued that it could obtain a deduction under s. 20(21), for the amount of the interest previously recognized by it, on the loan’s disposition (its partial repayment). In rejecting this position, Russell J stated:
Subsection 20(21) cannot apply where subsection 17(1) does. Allowing a subsection 20(21) deduction for reported income on the basis of fictional receivable interest would completely nullify the intended purpose and effect of subsection 17(1). It would leave the appellant in a better place than if the true situation of the Loan being non-interest bearing had governed from the start.
Russell J found in the alternative that even if the accumulated interest could be treated as an interest receivable amount, there could still be no s. 20(21) deduction given that the terms of the loan provided that repayments were to be applied to interest before principal, i.e., all of the loss was in the collection of principal rather than interest.
Neal Armstrong. Summary of K & D Logging Ltd. v. The King, 2023 TCC 23 under s. 20(21).
We have translated 8 more CRA severed letters
We have published two CRA interpretations and a ruling which were released last week and a further 5 translations of CRA interpretations released in October of 2003. Their descriptors and links appear below.
These are additions to our set of 2,390 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 |
|---|---|---|---|
| 2023-02-22 | 17 November 2022 External T.I. 2021-0919001E5 F - Eligible Dividends and Non-Capital Loss Carry-Back | Income Tax Act - Section 152 - Subsection 152(6) - Paragraph 152(6)(c) | s. 152(6)(c) permitted amending carryback request, if made within s. 152(6)(c) deadline and normal reassessment period, and implicitly authorized consequential Part III.1 reassessment |
| Income Tax Act - Section 152 - Subsection 152(3) | s. 152(3) (and, consequentially, s. 185.2(2)) requires filing of amended return to reflect missing excessive dividend | ||
| Income Tax Act - Section 185.1 - Subsection 185.1(2) | s. 185.1(2) election can be made before the incremental Part III.1 assessment that is being avoided | ||
| Income Tax Act - Section 89 - Subsection 89(1) - General Rate Income Pool - Element B | B of formula reduces GRIP by NCLs carried back | ||
| Income Tax Act - Section 152 - Subsection 152(4) - Paragraph 152(4)(b) - Subparagraph 152(4)(b)(i) | CRA discretion re accepting adjustment to losses carried back provided that the amendment request is made within the s. 152(4)(b)(i) period and loss year not statute-barred | ||
| 22 December 2022 Internal T.I. 2020-0856411I7 F - SSUC/CEWS -– Rémunération admissible | Income Tax Act - Section 125.7 - Subsection 125.7(1) - Eligible Remuneration | eligible remuneration for each qualifying period for CEWS purposes includes additional payments for vacation and sick leave pay | |
| 2021 Ruling 2020-0862431R3 F - Variation of a trust deed and addition of new beneficiaries | Income Tax Act - Section 248 - Subsection 248(1) - Disposition | trust deed amendment by court order to permit addition of corporations that were only indirectly owned by family beneficiaries did not trigger a disposition/ such addition triggered dispostion of trust interests but without proceeds | |
| Income Tax Act - Section 69 - Subsection 69(1) - Paragraph 69(1)(b) | addition of corporate beneficiaries to discretionary trust resulted in a disposition by existing family beneficiaries, but not in the receipt by them of proceeds of disposition | ||
| 2003-10-17 | 8 September 2003 External T.I. 2002-0163705 F - Choix Tardif
Also released under document number 2002-01637050.
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Income Tax Act - Section 132.11 - Subsection 132.11(6) | late designation can be requested pursuant to s. 220(3.2) in light of s. 220(3.21)(b) |
| Income Tax Act - Section 220 - Subsection 220(3.21) - Paragraph 220(3.21)(b) | s. 220(3.21)(b) brings s. 132.11(6) within the s. 220(3.2) regime | ||
| 23 September 2003 External T.I. 2002-0172175 F - Arrangements Funérailles - Provision 20(1)m)
Also released under document number 2002-01721750.
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Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(m) | portion of prepaid funeral amount which the funeral home can use in its operations is income under s. 9, not s. 12(1)(a), for which no s. 20(1)(m) reserve can be claimed | |
| Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(a) | prepaid funeral amounts which a funeral home was not required to hold in trust were s. 9, not s. 12(1)(a), income | ||
| 12 September 2003 External T.I. 2003-0001335 F - Gain en Capital par une fiducie
Also released under document number 2003-00013350.
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Income Tax Act - 101-110 - Section 104 - Subsection 104(21) | s. 104(21) designation can be made even if non-taxable half of capital gain is retained by trust | |
| 17 September 2003 External T.I. 2003-0027555 F - REER JUGES
Also released under document number 2003-00275550.
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Income Tax Act - Section 146 - Subsection 146(1) - RRSP Deduction Limit | computation of RRSP deduction limit for federal judges | |
| 2 October 2003 Internal T.I. 2003-0031747 F - paiement pour service de volontaire
Also released under document number 2003-00317470.
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Income Tax Act - Section 81 - Subsection 81(4) | $1,000 cap is multiplied by the number of payers |
CRA indicates it may accept adjusting losses carried back provided that the amendment request is made within the s. 152(4)(b)(i) period and the loss year is not statute-barred
Opco carried back non-capital losses from its 2019 and 2020 taxation years to its 2016 to 2018 taxation years. This had the effect of reducing its GRIP under “B” of the GRIP formula, so that dividends paid by it in its 2020 year, which it had designated as eligible dividends, were excessive and subject to Part III.1 tax.
CRA indicated that it had the discretion to grant a request to reduce the carrybacks so as to eliminate the GRIP reduction and associated Part III.1 tax (so that it might grant such request if it was satisfied that this was “a situation involving a bona fide error and not amounting to retroactive tax planning) provided that the loss years (2019 or 2020) were not statute-barred and that the request to reduce the carryback satisfied “the conditions … in subparagraphs 152(4)(b)(i) and 152(4.01)(b)(i) in respect of the [prior] Years.” The quoted requirement seems to indicate that CRA would consider itself precluded from accepting a carryback reduction request except in the highly unusual circumstance where the request was made before the s. 150 filing deadline (made applicable by s. 152(6)(c)) for the 2019 or 2020 year, as applicable (which did not appear to be the case here, as enough time had passed in order for the Part III.1 tax to have been already assessed).
In the (unlikely) event that such carryback reduction occurred, CRA considered that it would be authorized to make a consequential reassessment to reduce the Part III.1 tax that had been initially assessed “since the reassessment could be considered to be required to be made pursuant to subsection 152(6)” (which explicitly required the acceptance of the initial timely carryback requests).
Neal Armstrong. Summaries of 17 November 2022 External T.I. 2021-0919001E5 F under s. 89 – GRIP – B, s. 152(4)(b)(i), s. 152(6)(c), s. 152(3) and s. 185.1(2),