News of Note
Csak – Tax Court of Canada finds that a taxpayer could reverse a s. 160 assessment because inter alia her transferor husband had given a waiver for the primary assessment on a Sunday
Email this ContentTwo months after their marriage, the taxpayer received (on January 8, 1993) from her 80-year old ailing husband (“CC”) the transfer of a property valued in excess of his subsequently assessed tax liabilities for various taxation years including his 1988 and 1989 years (as a result of losses from a partnership investment being denied). CRA alleged that it received a timely waiver by CC for his 1988 year. CRA also received a waiver for his 1989 year on the Monday immediately following the expiry of the normal reassessment period on the previous day.
Owen J rejected the taxpayer’s submission that she was not liable under s. 160(1) because she had provided full consideration for the transfer through her agreement to marry CC and care for him. However, he found (based on Gaucher) that she was not precluded from disputing the validity of the assessments of her under s. 160(2) on the grounds that the waivers proffered by CRA were invalid, even though this issue had not been raised in the unsuccessful group appeal by CC and others of the denial of the partnership losses.
Regarding the waiver for 1988, Owen J found that the burden on the Minister to establish that the waiver had been timely-received had not been met with evidence of a CRA employee that an unstamped signed waiver was included in the taxpayer’s physical file along with a time-stamped letter on behalf of the taxpayer that was not established to have been attached in front of the waiver.
Regarding the waiver for 1989 and in finding that s. 26 of the Interpretation Act (which provided that “Where the time limited for the doing of a thing expires or falls on a holiday, the thing may be done on the day next following that is not a holiday”), did not have the effect of deeming the waiver to have been received during the normal reassessment period expiring on the Sunday, Owen J stated:
A taxpayer filing a waiver is not facing a deadline that would preclude the taxpayer from doing anything. … The deadline relates solely to the validity of the waiver itself, not to the doing of something by the person filing the waiver.
Neal Armstrong. Summaries of Csak v. The King, 2024 TCC 9 under s. 160(1), s. 160(2), and s. 152(4)(a)(ii).
Gestion Roy – Federal Court of Appeal confirms that a company’s payment of premiums on whole life policies where it was the beneficiary but not owner engaged ss. 15(1) and 246(1)
Various whole life policies on the life of a resident individual (Mr. Roy) were owned by (i) a holding company (“Gestion Roy”), controlled by Mr. Roy and which was the majority shareholder of a consulting firm (“R3D”), or by (ii) another holding company (“445 Canada”) which was wholly-owned by Mr. Roy but which was not a shareholder of R3D. However, R3D was the revocable beneficiary of any death benefits under the policies and paid all the premiums.
Boivin JA confirmed the inclusions in Gestion Roy’s income under s. 15(1) of the annual premium amounts paid on Gestion Roy’s policies for the reasons given in the Tax Court. Gestion Roy was the owner of such policies (entitling it to the cash surrender value of the policies at any time), so that it was “enriched” when the premiums were paid by R3D– and it was irrelevant to this point that, in fact, Gestion Roy never received any distribution on its policies. (What in fact occurred a number of years later was that, on the sale of R3D and R3D assets to a third-party purchaser, R3D received the cash surrender value of most of the policies on their termination.)
In also confirming the Tax Court’s finding that it followed from this that the payment by R3D of the premiums on the policies of 445 Canada resulted in corresponding inclusions under s. 246(1) to 445 Canada, Boivin JA stated:
[W]e agree with the TCC's conclusion that the analysis to be performed under subsection 246(1) is substantially the same as that required under subsection 15(1) (see Laliberté).
Neal Armstrong. Summaries of Gestion M.-A. Roy Inc. v. Canada, 2024 CAF 16 under s. 15(1) and s. 246(1).
We have translated 6 more CRA interpretations
We have translated 6 further CRA interpretations released during May of 2002. Their descriptors and links appear below.
These are additions to our set of 2700 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 21 3/4 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 |
|---|---|---|---|
| 2002-05-10 | 24 May 2002 External T.I. 2002-0123225 F - REER DONNE EN GARANTIE | Income Tax Act - Section 146 - Subsection 146(8) | generally no double taxation under s. 146(8) on payout on guarantee if property’s value previously included under s. 146(10)/ gross-up for source deduction purposes |
| Income Tax Act - Section 146 - Subsection 146(10) | inclusion under s. 146(10) for secured guarantee not limited to loan value, and ousts application of s. 146(8) if payment made by RRSP pursuant to guarantee | ||
| Income Tax Act - Section 248 - Subsection 248(28) | s. 248(28) prevents double inclusion under s. 146(10) when secured guarantee given and under s. 146(8) when guarantee called | ||
| 24 May 2002 Internal T.I. 2001-0113597 F - ASSURANCE CONTRE LES MALADIES GRAVES | Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) - Subparagraph 6(1)(a)(i) | if a clause providing for the return of premiums on death was ancillary, the policy could still qualify as a group sickness or accident insurance plan | |
| 20 May 2002 External T.I. 2002-0117885 F - Lien de dépendance et application de 120.4 | Income Tax Act - Section 251 - Subsection 251(2) - Paragraph 251(2)(a) | trustee is related to individual if its trustee is so related | |
| Income Tax Act - Section 120.4 - Subsection 120.4(1) - Split Income - Paragraph (c) | split income definition applied on the basis that the business of a partnership is carried on by its partners and that a trust if related based on the relatedness of its trustee | ||
| Income Tax Act - 101-110 - Section 104 - Subsection 104(1) | s. 104(1) indicates that related party status of trust is tested through its trustee | ||
| 2 May 2002 External T.I. 2002-0134335 F - Sous-aliéna 104(4)a)(i) et 110.6(15)a)(i) | Income Tax Act - 101-110 - Section 110.6 - Subsection 110.6(15) - Paragraph 110.6(15)(a) - Subparagraph 110.6(15)(a)(i) | s. 110.6(15)(a)(i) deeming rule does not apply for s. 104(4)(a)(i) purposes | |
| 15 May 2002 External T.I. 2001-0103605 F - Prêt par un Associé à une Société | Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c) | interest on loan by partner to partnership is treated as interest rather than income allocation if there is a loan rather than partnership contribution under provincial law | |
| Income Tax Act - Section 96 - Subsection 96(1) - Paragraph 96(1)(g) | if a loan made by a partner is at law a loan rather than a partnership contribution, the interest thereon will be treated as interest rather than profit allocation | ||
| 31 May 2002 External T.I. 2001-0110095 F - ALLOCATIONS NON IMPOSABLES | Income Tax Act - Section 6 - Subsection 6(16) - Paragraph 6(16)(a) | mobility impairment means significant difficulty moving around that lasts 12 months |
CRA treats a Swiss collective investment vehicle as a flow-through for purposes of the pension/ retirement fund dividend exemption in the Canada-Swiss treaty
A collective investment scheme (the “Fund”) established under Swiss law is an arrangement by which investors pool their assets to be managed by and in the name of a Swiss regulated fund management company (the “Management Company’) for the account of the investors, whose proportionate entitlements to income and to cash or in-kind redemption proceeds are represented by non-voting units. The Fund was established by a contract of the investors with the Manager and the non-resident custodian of the Fund assets (the “Custodian”), and lacks legal personality. The Custodian delegated the custody of Canadian securities (being mostly listed shares of Canadian companies) to the “Canadian Sub-Custodian.” The Fund unitholders are all Swiss entities providing pension or retirement plans.
CRA effectively ruled that this arrangement would be treated like a co-ownership arrangement rather than like an entity such as a trust, so that dividends paid on the Canadian shares would benefit from the Canadian withholding tax exemption in Art. 10 of the Canada-Swiss Treaty for Canadian dividends received by Swiss pension/ retirement entities.
Neal Armstrong. Summary of 2024 Ruling 2019-0817961R3 under Treaties – Income Tax Conventions – Art. 10.
CRA rules on transactions to increase the PUC of shares of Cdn. parent in its Canadian subsidiary before the re-domestication of parent engaging s. 128.1(4)
After being acquired by a foreign acquiror, a Canadian mining company (Parent Amalco) re-domesticated to a foreign jurisdiction (presumably, the U.S.) so that it was subject to the s. 128.1(4) emigration rules. Before this continuance out of Canada, it engaged in transactions to increase the PUC of the shares of its principal Canadian subsidiary, e.g., transferring under s. 85(1) a royalty interest and shares of other Canadian subsidiaries to that subsidiary for treasury shares.
CRA ruled that the PUC-increase steps were effective, and would not be altered by s. 245(2). However, it required a representation of the subsidiary that it will not use its retained earnings or contributed surplus in computing its equity amount for s. 18(5) purposes without first obtaining a positive ruling.
Neal Armstrong. Summary of 2020 Ruling 2019-0817051R3 under s. 89(1) – paid-up capital.
Declaration of a private company dividend immediately before an s. 128.1(4)(b) emigration of the shareholder appears to be tax-neutral
Suppose that, shortly before the emigration of a resident individual holding shares of a private corporation (Xco), Xco declared a dividend in an amount equal to the FMV of Xco’s net assets but did not pay it until after the individual became non-resident. The unpaid dividend represented a right of the individual (likely, a capital property) that was owned at the time of ceasing to be resident, so that the tax on the capital gain from the disposition thereof pursuant to s. 128.1(4)(b), plus the Part XIII tax, equals the s. 128.1(4)(b) and Part XIII tax that would have been paid by the individual had the individual emigrated before the dividend declaration.
The position in 9640475 – that s. 128.1(4)(b) would apply to tax the individual on the emigration as if the declared and unpaid dividend had been paid - appears to be incorrect. As noted, the individual is only deemed to have disposed of the right to the dividend and not to have received it.
Neal Armstrong. Summary of David M. Sherman, Bal Katlai and Kenneth Keung, “Can an Unpaid Dividend Avoid Departure Tax?”, Tax for the Owner-Manager, Vol. 24, No. 1, January 2024, p. 9 under s. 128.1(4)(b).
CRA discusses the GST/HST treatment of crowdfunding pledges
A Canadian corporate registrant (“X”) raises money to fund a project through a crowdfunding website from supporters around the world. By their pledging funds to support X’s project in exchange for a reward such as a copy of a product, a limited edition, or a custom experience related to the project, they thereby enter into a contract with X. The contract does not specify whether the pledge amounts are inclusive or exclusive of GST/HST.
CRA indicated:
- If the product was essentially a digitized product to be downloaded by the supporters, CRA would regard this as a supply of intangible personal property (“IPP”).
- If the contract did not provide any restrictions regarding the place of use of the IPP, then it would be the case that the IPP may be used in whole or in part in Canada, so that the place of supply would be in Canada (which would be relevant if there was no zero-rating under ETA Sched. VI, Pt. V, s. 10.1.)
- If there were no restrictions regarding where the Canadian rights could be used, and X did not obtain the address of the supporter then, pursuant to s. 11 of the New Harmonized Value-Added Tax System Regulations, the provincial place of supply would then be in the specified (highest-rate) province “closest in proximity, determined in any reasonable manner, to the supplier’s business address that is most closely connected with the supply.”
- Pursuant to s. 133, “the tax applies to any advance payment or part payment of the consideration for a supply even if, at the time payment is made, property has not in fact been transferred.”
Neal Armstrong. Summaries of 12 July 2023 GST/HST Ruling and Interpretation 174441 under ETA s. 142(1)(c)(i), s. 133, s. 223(1) and New Harmonized Value-Added Tax System Regulations, s. 11.
Income Tax Severed Letters 17 January 2024
This morning's release of two severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA accepts the bifurcation of a gift card for GST/HST purposes between the complimentary coupon portion and the purchased gift certificate portion
A supplier issues gift cards with stipulated monetary values to purchasing customers, which they can use at its stores or at its e-commerce portal. However, to promote products or as a customer service gesture, the supplier also issues “complimentary gift cards” whose “complimentary value,” when applied by the customer, is treated by it as consideration for the goods or services supplied. Customers can purchase additions (“top-up values”) to such cards.
CRA indicated that, subject to conditions, the complimentary value of a gift card could be treated as a “coupon” for GST/HST purposes so that, in the case of a (non-zero-rated) taxable supply, the supplier could claim an ITC under ETA s. 181(3)(b) for the tax fraction of the complimentary value on the gift cards’ redemption. Those conditions principally were that:
- The complimentary value of each gift card issued is tracked and accounted for separately from any top-up value added to the gift card.
- The person redeeming the complimentary value is believed to be a consumer.
- The supplier accepts the complimentary value as full or partial consideration for a supply of property or service.
- The gift card’s complimentary value is extinguished before any top-up value is applied to a supply.
CRA went on to note that any top-up value added to the gift card would generally be considered the issuance or sale of a gift certificate for consideration and, when redeemed for a supply of property or services, would be deemed to be applied as money as described in s. 181.2.
Neal Armstrong. Summaries of 31 July 2023 GST/HST Interpretation 217772 under ETA s. 181(1) – coupon, and s. 181.2.
The interposition of a Middleco in a spin-off transaction can put it back onside s. 55(3)(a)
Suppose that Opco is owned on an 85-15 basis by two arm’s-length shareholders, Aco and Bco. If Opco wishes to spin off the real property used in its active business to a Newco owned in the same proportions by Aco and Bco, the s. 55(3)(a) exception will not be available since Bco, which is not related to either Opco or Newco, has a significant increase in its interest in Newco occur contrary to s. 55(3)(a)(ii) and (v).
Instead suppose that there is a preliminary step under which Aco and Bco transfer their shares of Opco to newly-incorporated Middleco on an s. 85(1) rollover basis. Then, Opco spins off the real estate to a Newco incorporated by Middleco. Done this way, the spin-off would come within the s. 55(3)(a) exception given, inter alia, the relieving effect of the rule in s. 55(3.01)(g). See also 2015-0570021E5 F.
Neal Armstrong. Summary of David Carolin, Manu Kakkar and Boris Volfovsky, “Tax Alchemy and Paragraph 55(3.01)(g): Converting a 55(3)(b) Divisive Reorganization into a 55(3)(a) Related-Party Butterfly,” Tax for the Owner-Manager, Vol. 24, No. 1, January 2024, p. 7 under s. 55(3.01)(g).