News of Note
We have translated 7 more CRA severed letters
Email this ContentWe have a translated an interpretation released by CRA last week and a further 6 translations of CRA interpretations released in May of 2003. Their descriptors and links appear below.
These are additions to our set of 2,471 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 ¾ 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 |
|---|---|---|---|
| 2023-05-17 | 15 February 2023 External T.I. 2022-0953991E5 F - Paragraph 84.1(2)(e) and amalgamation | Income Tax Act - Section 84.1 - Subsection 84.1(2) - Paragraph 84.1(2)(e) | loss of s. 84.1(2)(e) safe harbour on an amalgamation of the purchaser and subject corporation |
| 2003-05-30 | 5 May 2003 External T.I. 2002-0140805 F - Arrangements funéraire - Provision de 20(1)m)
Also released under document number 2002-01408050.
|
Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(m) | non-refundable prepaid funeral amounts not held in trust were not eligible for the reserve |
| 23 April 2003 External T.I. 2002-0155125 F - Rétribution Questionnaires - Actionnaires
Also released under document number 2002-01551250.
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Income Tax Act - Section 67 | scenario including non-resident corporation did not comply with ITTN No. 22 | |
| 23 May 2003 External T.I. 2002-0172205 F - FIDUCIE DE BIEN-RE&S
Also released under document number 2002-01722050.
|
Income Tax Act - Section 18 - Subsection 18(9) - Paragraph 18(9)(a) - Subparagraph 18(9)(a)(iii) | s. 18(9)(a)(iii) likely applies where employer makes a payment to a trust which uses insurance to fund employee health services | |
| 26 May 2003 External T.I. 2002-0180455 F - MODIFICATION D'UNE POLICE EXONEREE
Also released under document number 2002-01804550.
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Income Tax Regulations - Regulation 306 - Subsection 306(1) | question of fact for insurer whether splitting a policy terminates its exempt status | |
| 26 May 2003 Internal T.I. 2003-0002297 F - Fonds commun de placement-Dépenses gén.
Also released under document number 2003-00022970.
|
Income Tax Act - 101-110 - Section 104 - Subsection 104(6) | allocation of expenses permitted to maximize dividend tax credits of MFT beneficiaries | |
| Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(bb) | s. 20(1)(bb) deductibility does not turn on the evaluated security being acquired | ||
| 15 April 2003 External T.I. 2002-0139305 F - Immigration
Also released under document number 2002-01393050.
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Income Tax Act - Section 128.1 - Subsection 128.1(1) - Paragraph 128.1(1)(c) | ss. 128.1(1)(b) and (c), unlike former s. 48(3), apply also for CCA/recapture purposes | |
| Income Tax Act - Section 126 - Subsection 126(1) | FTC can be generated where recapture of depreciation, and denied capital loss, are realized on a US rental building | ||
| Income Tax Act - Section 53 - Subsection 53(1) - Paragraph 53(1)(e) - Subparagraph 53(1)(e)(i) | step-up of partnership interest on immigration to Canada neutralized the capital gain on partnership property when partnership wound up |
CRA indicates that stock-compensation expenses may be relevant to pricing cross-border services charges even where s. 7(3)(b) prohibits their deduction
We have published the text of written questions that were posed, and abbreviated summaries of the CRA oral responses, at the CRA Roundtable held yesterday at the IFA Conference in Calgary.
In Q.1, CRA confirmed that it was appropriate to consider taking into account stock-option compensation expenses incurred by Canco in relation to its Canadian employees as a component of what would be a charge complying with the s. 247(2) transfer-pricing rules for their services to a non-resident affiliate, even where such stock compensation costs were non-deductible pursuant to s. 7(3)(b). Conversely, stock-based compensation expenses of a non-resident affiliate (e.g., expenses recognized by a foreign parent regarding options on its stock issued to employees of Canco) could be relevant in determining what was a charge by the parent to Canco that accorded with the arm’s length principle under s. 247(2).
Neal Armstrong. Summaries of 17 May 2023 IFA Roundtable, Q.1 under s. 247(2) and s. 7(3)(b).
CRA confirms an anomaly under the current s. 84.1(2)(e) rule
S. 84.1(2)(e) as it currently reads deemed a taxpayer who had disposed of qualified small business corporation shares or shares of the capital stock of a family farm or fishing corporation (the “subject shares”) to a purchaser corporation to be dealing at arm’s length with it if the purchaser corporation was controlled by one or more children or grandchildren of the taxpayer who were 18 or older and if the purchaser corporation did not dispose of the subject shares within 60 months of their purchase. In addition, s. 84.1(2.3)(a)(i) provided that if, otherwise than by reason of death, the purchaser corporation disposed of the subject shares within 60 months of their purchase, s. 84.1(2)(e) was deemed never to have applied.
CRA confirmed that on this wording, the effect of the purchaser corporation thereafter amalgamating (within the 60-month period) with the “subject corporation” was that, pursuant to s. 87(11)(a), the parent corporation would be deemed to have disposed of the subject shares so that the exclusion in s. 84.1(2.3)(a)(i) would be engaged. CRA considered such loss of the safe harbour to be anomalous, and had notified Finance accordingly.
The draft legislation subsequently released with the March 28, 2023 Budget would substantially amend these rules.
Neal Armstrong. Summary of 15 February 2023 External T.I. 2022-0953991E5 F under s. 84.1(2)(e).
Income Tax Severed Letters 17 May 2023
This morning's release of three severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Gestion Byrns Black – Court of Quebec finds that a building was demolished before the agreement for the property’s transfer was made, so that the supply was taxable
A married couple held a rental property through a holding company. Boutin JCQ held that they acquired the rental property from the corporation on June 25, 2014, when a notarial deed of sale for the transfer by the corporation to them of the property was executed, rather than on March 6, 2014 when the couple personally agreed (without the corporation as a party) with a contractor to have the existing building demolished and a new personal residence constructed. Since the existing building had been demolished by the later of the two dates, the property’s supply to the couple was not an exempted supply of a residential complex for QST purposes, and was a taxable supply.
Neal Armstrong. Summary of Gestion Byrns Black Inc. v. Agence du revenu du Québec, 2023 QCCQ 945 under ETA Sched. V, Pt. I, s. 2.
CRA confirms that it does not consider a directed gift to be a gift
Regarding the receipt of funds by a qualified donee that is a municipality from a registered charity where such funds were directed to a non-qualified donee (a non-profit organization), CRA stated:
It is our general view that donations can be received and receipted by a qualified donee such as a municipality provided the municipality retains discretion as to how the donated funds are to be spent. If a municipality is merely acting as a conduit, by collecting funds from donors, including a charity, on behalf of an organization that is legally or otherwise entitled to the funds so donated, the municipality is not in receipt of a gift.
Neal Armstrong. Summary of 1 February 2023 External T.I. 2022-0945221E5 under s. 149.1(1) – qualified disbursement.
Simonetta – Tax Court of Canada finds that the need for builder-required particulars for the HST new housing rebate fell away if obtaining them was not feasible
Ms. Simonetta acquired a new Toronto home pursuant to a purchase agreement that specified that the purchase price included any applicable HST. The vendors (two individuals) claimed that the sale was exempt from HST, so that it was evident that they did not consider Ms. Simonetta to have paid them any HST on the purchase, and that they would not complete the builder-required portion (“Section D”) of the form for the new housing rebate.
Sommerfeldt J found on the evidence (even though the vendors were not parties to the case) that the vendors had never occupied the home as a residence and had sold the home as an adventure in the nature of trade – so that they were builders, and the sale was subject to HST. Accordingly, Ms. Simonetta had established one of the mooted requirements for claiming the rebate, namely that she had paid HST on her purchase.
Regarding Section D, Sommerfeldt J found:
[I]t was not possible for Ms. Simonetta to obtain the business number (if any), address, telephone number and signatures of the Vendors [as required by Section D]. Therefore, Ms. Simonetta’s inability to obtain that information and those signatures does not vitiate her Application for the Rebate.
Neal Armstrong. Summaries of Simonetta v. The King, 2023 TCC 54 under ETA s. 254(2)(d) and s. 262(1).
We have translated 6 more CRA interpretations
We have a translated a further 6 translations of CRA interpretations released in June and May of 2003. Their descriptors and links appear below.
These are additions to our set of 2,464 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 ¾ 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 |
|---|---|---|---|
| 2003-06-06 | 3 June 2003 External T.I. 2003-0012075 F - Safe Income and 104(13.1) Designation
Also released under document number 2003-00120750.
|
Income Tax Act - Section 55 - Subsection 55(2.1) - Paragraph 55(2.1)(c) | income retained by a trust under s. 104(13.1) and then distributed to its corporate beneficiary was not included in the latter’s safe income |
| Income Tax Act - Section 55 - Subsection 55(2) | |||
| 30 May 2003 Internal T.I. 2003-0000117 F - ALLOCATION AUTOMOBLE VERSÉE
Also released under document number 2003-00001170.
|
Income Tax Act - Section 53 - Subsection 53(2) - Paragraph 53(2)(c) - Subparagraph 53(2)(c)(v) | allowance, or reimbursement for non-partnership expense, is treated as a distribution reducing the partner’s ACB | |
| Income Tax Act - Section 96 - Subsection 96(1) - Paragraph 96(1)(a) | fees, and usually "loan" interest, paid to a partner will be treated as draws rather than deductible expenses | ||
| Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c) - Subparagraph 20(1)(c)(i) | a loan by a partner to the partnership may be treated as a loan rather than a contribution of capital in special circumstances | ||
| 3 June 2003 Internal T.I. 2003-0019087 F - Calculation of 163(1) Penalty - Capital Gain
Also released under document number 2003-00190870.
|
Income Tax Act - Section 163 - Subsection 163(1) | penalty computed on taxable capital gain, not capital gain | |
| 30 May 2003 External T.I. 2003-0182145 F - AVANTAGE IMPOSABLE-VOYAGE
Also released under document number 2003-01821450.
|
Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) | no taxable benefit re free trip for a customer’s employee where employee spends at least 50% of the time on business-related activities | |
| 30 May 2003 External T.I. 2003-0006005 F - EQUIVALENT TO SPOUSE
Also released under document number 2003-00060050.
|
Income Tax Act - Section 118 - Subsection 118(1) - Paragraph 118(1)(b) - Subparagarph 118(1)(b)(i) | s. 118(1)(b)(i) test unlikely to be satisfied where one of couple is incarcerated | |
| 2003-05-30 | 27 May 2003 External T.I. 2002-0176485 F - regime d'assurance-salaire
Also released under document number 2002-01764850.
|
Income Tax Act - Section 15 - Subsection 15(1) | s. 15(1) benefit (e.g., from corporation paying premiums under wage loss replacement plan for shareholder) cannot be reduced by the shareholder repaying the benefit |
Prospera Credit Union – Tax Court of Canada finds that a credit union, although not an authorized MFT unit distributor, earned GST-exempted fees for doing most of the work
A credit union (“Westminster”), which was not authorized to sell mutual fund units or securities to its members, entered into “participation agreements” with two arm’s-length companies (“CAMI” and “CSI”) which were so authorized, pursuant to which Westminster employees nominally became employees or representatives of CAMI or CSI and became licensed and trained to sell securities, while remaining essentially full-time employees of Westminster working under its supervision. Pursuant to the participation agreements, Westminster received percentages of the distribution and service fees received by CAMI from the mutual fund issuers, or of the commissions received by CSI. In finding that such fees of Westminster were exempted from GST/HST as an “arranging for” financial service notwithstanding the exclusion in para. (r.4) of the financial service definition for preparatory services, Wong J stated:
The predominant element was the sale of CAMI/CSI mutual funds/securities to Westminster’s members, carried out by way of the dual employees/investment advisors using their training/licensing to recommend and sell CAMI/CSI products to Westminster members, commensurate with the members’ particular investment profiles.
Westminster arranged for the issue, granting, allotment, acceptance, endorsement, renewal, processing, variation, transfer of ownership or repayment of financial instruments, being CAMI mutual funds and CSI securities. It is the heart of the transaction and what CAMI/CSI really paid for.
Neal Armstrong. Summary of Prospera Credit Union v. The King, 2023 TCC 65 under ETA s. 123(1) – financial service – (r.4).
Investissement Boeckh – Quebec Court of Appeal finds a presumption of coherence that it should apply the FCA’s interpretation of ITA s. 39(5)(a)
The ARQ reassessed the taxpayer (“Boeckh”) for its 2007 to 2015 taxation years, on the basis that net gains realized in those years were income account gains rather than capital gains. Boeckh was a closely-held investment company whose portfolio (of over $100 million for many of the years) was focused on junior Canadian public companies in the resource and high tech sectors. The Court of Quebec had found that an election which Boeckh had made pursuant to TA s. 250.1 (equivalent to ITA s. 39(4)) was ineffective by virtue of the exclusion under TA s. 250.3(a) (equivalent to ITA s. 39(5)(a)) for a "trader or dealer in securities".
In rejecting a submission of Boeckh that the interpretation of “trader or dealer” in Vancouver Metal Arts should not be adopted for purposes of s. 250.3(a), the Quebec Court of Appeal stated:
In sum, the words "a trader or dealer in securities" in TA section 250.3 must be interpreted to mean, at a minimum, a person whose profession or business is the purchase and sale of securities. This interpretation is compatible with the ordinary meaning that it is appropriate to accord to the words employed in the text of the provision, as well as being coherent with the object of the TA and the intention of the legislature, which clearly wished to favour a harmonization in this regard between the Quebec and federal tax regimes. …
[I]n tax matters, where the federal and provincial provisions are appreciably in the same form, a presumption of coherence between the two provisions should prevail.
The Court further found no reversible error in the application inter alia of the following factors to conclude that Boeckh was a trader or dealer:
- A qualified investment professional (an experienced CFA) devoted himself full-time to managing Boeckh’s portfolio;
- The portfolio had what was considered to be a high turnover (of around 30%) and there was a high absolute number of transactions.
- Boeckh’s objective was to generate gains rather than dividends, and focused on companies with a high potential for appreciation.
Neal Armstrong. Summaries of Investissement Boeckh Inc. v. Agence du revenu du Québec, No. 500-09-029863-222 (Quebec Court of Appeal) under s. 39(5)(a) and Statutory Interpretation – Provincial Law.