News of Note
Income Tax Severed Letters 28 December 2022
Email this ContentThis morning's release of three severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Vohra – Tax Court of Canada finds that support payments could be considered to be made pursuant to terms of a written separation agreement which had expired
When the taxpayer and his wife separated, they entered into separation agreement which provided for the taxpayer making support payments until December 2014. However, they ignored this sunset provision, and the taxpayer continued thereafter with the support payments, which were included by her in her income.
MacPhee J found that under “the plain meaning of the words of the Act,” such “payments were made pursuant to the terms of a written agreement,” so that the taxpayer could continue deducting the payments. The point appeared to be that the payments were being made pursuant to the terms of the support clause in their written separation agreement, even though that clause had expired.
Neal Armstrong. Summary of Vohra v. The King, 2022 TCC 165 under s, 56.1(4) – support amount.
Axamit Versa – Tax Court of Canada finds that the GST registration number need not be set out in a document issued to the ITC claimant by the supplier
The ARQ denied input tax credits claimed by Axamit for its 2015 year regarding GST charged by its landlord, because Axamit had not provided the ARQ with any document issued by the landlord as the ARQ considered to be required by the definition in Input Tax Credit Information (GST/HST) Regulations of “supporting documentation.” However, Gagnon J accepted the testimony of Axamit’s president that it had provided the landlord’s GST registration number to its external accountants in 2013, i.e., before they prepared its 2015 return and claimed the ITC.
In allowing Axamit’s appeal, he followed the finding in CFI Funding that s. 169(4) “simply provides that the registrant must have obtained the prescribed information in a form that will allow the ITCs to be determined” and that “[h]ow that information is obtained does not matter,” and further stated that “it does not appear appropriate that the scope of general wording of the preamble to the definition of supporting documentation in the Regulations be limited to the enumeration following the preamble.”
Neal Armstrong. Summaries of Axamit Versa Inc. v. The King, 2022 CCI 163 under Input Tax Credit Information (GST/HST) Regulations – s. 2 – supporting documentation and ETA s. 223(2).
Schofield – Tax Court of Canada finds that headhunter fees expended to increase commission employment income were deductible even though not specified in the employment contract
A broker employed on commission by BMO Nesbit Burns incurred fees to a headhunter firm to identify an associate who could work for her in canvassing clients and sharing her duties. CRA allowed most of her other expenses claimed under s. 8(1)(f) such as for travel, but not the headhunter fees. Although none of these expenses were specifically required to be incurred by her in her employment contract, her employer certified in form T2200 that, “yes,” she was required to pay her own expense in carrying out her duties. The Crown argued that “nowhere was it written that the appellant was required to incur the recruitment expenses.”
In allowing the headhunter fees, St-Hilaire J stated:
[A]ccording to my interpretation of subparagraph 8(1)(f)(i), where the employer confirms that the employee is required to pay her expenses, and the employee demonstrates that she incurred her expenses to earn her employment income, the condition is satisfied.
Neal Armstrong. Summary of Schofield v. The King, 2022 CCI 142 under s. 8(1)(f).
CRA finds that qualifying revenue of a partnership does not flow through to its partners for CEWS purposes
After quoting from the definition of “qualifying revenue” appearing in the CEWS (wage subsidy) rules, CRA stated:
[A] member's share of the profits of a partnership, as allocated to the member pursuant to subsection 96(1) and in accordance with the partnership agreement, is not "qualifying revenue" to the member … .
A second technical interpretation released at the same time essentially indicated that this conclusion did not change if the partner was a limited partner.
Although the point was not really discussed, it might turn on a partnership being an eligible entity for CEWS purposes, so that this interpretation need not imply that a partnership is not transparent in other contexts.
Neal Armstrong. Summary of 12 December 2022 External T.I. 2021-0878941E5 F under s. 125.7(1) – qualifying revenue and summary of 7 December 2022 External T.I. 2020-0846891E5 F under s. 125.7(7).
Income Tax Severed Letters 21 December 2022
This morning's release of three severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA releases Guidelines on directed donations
S. 168(1)(f) was amended so as to indicate that a registered charity cannot accept a gift of property where the donor, expressly or implicitly, directs the registered charity to transfer the property by way of a gift to a grantee organization. Can a registered charity accept a gift of property from a donor who provides a letter of wishes expressing the hope that the charity will transfer the property to a named grantee organization?
In its written response, CRA referenced the Guidelines released by it on November 30, 2022 (CG-032), which indicated that, to avoid any concerns regarding conditional gifts, a charity should clearly communicate (e.g., on the giving page of its website) that, although donors can indicate preferences as to how their donations were to be applied, the charity will not return the donation if it does not follow this preference. Furthermore, the charity must ensure it retains authority on the use of its resources.
Those Guidelines also discussed related amendments that permit a registered charity to make a “qualifying disbursement,” by way of a gift or otherwise making resources available, to a “grantee organization” (i.e., a non-charitable organization or entity) provided that the disbursement is in furtherance of a charitable purpose of the charity and the charity ensures that the disbursement was exclusively used to advance charitable activities in furtherance of a charitable purpose of the charity. These Guidelines contain a detailed discussion of the italicized “accountability” requirements.
Neal Armstrong. Summary of 29 November 2022 CTF Roundtable, Q.14 under s. 168(1)(f) and summaries of CG-032, Registered charities making grants to non-qualified donees (draft), 30 November 2022 under s. 168(1)(f), s. 149.1(1) – qualifying disbursement and charitable organization – (a).
McCullough – Tax Court of Canada finds that an 8-hour commute between Ontario and Massachusetts was in the course of employment
The taxpayer, an industrial engineer successfully running the operations of his Canadian employer (“Savage Canada”), was asked by it to temporarily assist a US affiliate in its struggling operations over what proved to be a 19-month period. This entailed him travelling to the affiliate’s office in Westfield, Massachusetts (an eight-hour drive away) to serve for two to three weeks every month as its Senior Director of Manufacturing. He was required under an addendum to his employment contract to bear his related lodging, food and other travel expenses. When not working in Massachusetts, he continued his regular duties with Savage Canada, in Lakefield, Ontario. The employment contract for taking on these additional duties (for which he received additional salary) was signed only with Savage Canada, and Savage Canada paid the entirety of his remuneration.
In light of the last point, MacPhee J found that the taxpayer “only had one employer, and that employer was Savage Canada” so that it followed that the taxpayer satisfied the requirement under s. 8(1)(h) that he was ordinarily required (during the 19-month stint) to carry on his duties of employment away from his employer’s place of business (in Lakefield, Ontario).
That then left the issue (which neither party had really addressed) as to whether his claimed expenses were expended by the taxpayer “for travelling in the course of the … employment.” MacPhee J indicated that one “line of cases accepts that travel from an employee’s home to various work sites is in the performance of a service for an employer," whereas the other “finds that travel from an employee’s home to a work site is inherently personal, unless it can be shown that some duties are being performed by the employee during these travels (such as transporting supplies for an employer).” MacPhee J resolved this issue in the taxpayer’s favour, so that the travel expenses were deductible under s. 8(1)(h):
I will accept that the Appellant was providing a service to his employer in his eight-hour drive, and thus travelling in the course of his employment. The Appellant’s employment contract required him to travel to Savage USA. Thus in his travels, the Appellant was fulfilling an employment obligation.
Neal Armstrong. Summary of McCullough v. The King, 2022 TCC 118 under s. 8(1)(h).
We have translated 6 more CRA interpretations
We have published a further 6 translations of CRA interpretations released in January of 2004 and December of 2003.Their descriptors and links appear below.
These are additions to our set of 2,305 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 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 |
|---|---|---|---|
| 2004-01-02 | 10 December 2003 Internal T.I. 2003-0047467 F - DESENREGISTREMENT D'UN REER
Also released under document number 2003-00474670.
|
Income Tax Act - Section 146 - Subsection 146(12) - Paragraph 146(12)(b) | appraiser not required, but issuer must make reasonable efforts to determine FMV of shares of illiquid co-op |
| Income Tax Regulations - Regulation 103 - Subsection 103(6) - Paragraph 106(6)(d) | no source deductions required where property is distributed in year subsequent to RRSP deregistration | ||
| 10 December 2003 External T.I. 2003-0023335 F - COUT D'UN BIEN REMIS EN RECOMPENSE
Also released under document number 2003-00233350.
|
Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) | $500 gift policy applies where parent incurs the cost (which must include any customs and shipping costs) | |
| 18 December 2003 Internal T.I. 2003-0045227 F - FRAIS JURIDIQUES-PENSION
Also released under document number 2003-00452270.
|
Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Legal and other Professional Fees | legal fees in relation to determining revised support entitlements were non-deductible | |
| 2003-12-05 | 21 November 2003 External T.I. 2003-0010195 F - Etablissement Stable
Also released under document number 2003-00101950.
|
Income Tax Regulations - Regulation 400 - Subsection 400(2) - Paragraph 400(2)(e) | use of substantial equipment in a province for even one day triggers a PE |
| 21 November 2003 External T.I. 2003-0023925 F - Distribution non-admissible au sens de 86.1
Also released under document number 2003-00239250.
|
Income Tax Act - Section 86.1 - Subsection 86.1(2) - Paragraph 86.1(2)(b) | distribution did not qualify because distributed shares were not pre-owned by Mexican distributor | |
| Income Tax Act - Section 52 - Subsection 52(2) | distributed shares had ACB equal to the s. 90 inclusion of their FMV | ||
| 28 November 2003 External T.I. 2003-0046025 F - CONVENTION DE RETRAITE DEDUCTIONS
Also released under document number 2003-00460250.
|
Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(r) | s. 20(1)(r) deduction is limited by s. 67 |
CRA finds that a taxpayer could not now file returns for statute-barred periods that had been arbitrarily assessed so as to claim additional expenses
ACo’s 2011 to 2013 taxation years were arbitrarily assessed under s. 152(7). Eventually, it filed tax returns for those taxation years after the normal reassessment periods for those years, claiming additional deductions.
CRA considered that ACo could not effectively extend the normal reassessment period pursuant to a request by it to extend the s. 150(1) filing deadline for its 2011 to 2013 returns under s. 220(3). In this regard, CRA indicated:
[S]ubsection 164(1.5) indicates Parliament’s intention with respect to when relief from the three-year limitation of subsection 164(1) can be granted. Therefore, if a taxpayer does not meet the conditions for relief under subsection 164(1.5), it is our view that no further relief under subsection 164(1) may be provided under subsection 220(3).
Furthermore, ConocoPhillips (finding that s. 220(2.1) could not be utilized to allow a taxpayer to waive the requirement to file a notice of objection) suggested that “[s]ubsection 220(3), which, like subsection 220(2.1), is a general provision, cannot override the specific provisions contained within the objection regime in the Act.”
The taxpayer’s repeated failure to file returns when requested appeared in CRA’s view to amount to a misrepresentation referred to in s. 152(4)(a)(i). However, CRA indicated that “to allow a taxpayer who has made a misrepresentation to use subparagraph 152(4)(a)(i) to reduce the amount of tax assessed would be inappropriate,” in light of various considerations. These included that the onus on the Minister under s. 152(4)(a)(i) implied that the provision could only “be used by the Minister to increase assessed tax payable and not by a taxpayer to reduce tax payable,” and that it seemed inappropriate that a taxpayer could “open a statute-barred year to obtain a more favourable reassessment because they were (or claim to have been) careless or negligent when they filed their tax return or failed to file a return at all.”
Accordingly, s. 152(4)(a)(i) did not permit the Minister to reassess ACo in these circumstances.
Neal Armstrong. Summaries of 22 August 2022 Internal T.I. 2019-0810061I7 under s. 220(3), s. 152(4)(a)(i), s. 164(1.5) and s. 152(6).