News of Note
CRA notes requirement to issue two assessments where unclaimed GST/HST rebates are allowed on a s. 296(2.1) assessment of net tax
Email this ContentAfter noting the requirements under s. 296(2) and (2.1) to allow unclaimed but valid credits when assessing net tax, CRA went on to note:
[B]ecause GST/HST rebates are required to be assessed under section 297, even when the rebate amount is allowed under subsection 296(2.1), the registrant will receive two Notices of Assessments, one for the changes to net tax and one for the GST/HST rebate.
Neal Armstrong. Summary of May 2016 Alberta CPA Roundtable, GST Q.11 under ETA s. 296(2.1).
CRA will no longer unilaterally issue backdated GST/HST registrations
New ETA s. 241(1.5) permits CRA to unilaterally assign a registration to a taxpayer, if it has first notified the taxpayer that the taxpayer should register. However, it cannot backdate the registration.
CRA appears to have acknowledged that this means that CRA can no longer follow its previous practice of unilaterally issuing backdated registrations. However, see also CBA RT Q.23, where CRA stated:
If the CRA exercises the authority under subsection 241(1.5)…to register a particular person, the CRA could still assess that person under paragraph 296(1)(a)…for unremitted net tax in respect of reporting periods prior to that person’s effective registration date.
Neal Armstrong. Summary of May 2016 Alberta CPA Roundtable, GST Q.10 under ETA s. 241(1.5).
CRA’s policy is to deny initial ITC claims without opportunity for representation
CRA stated that “RIP examiners” (i.e., staff reviewing GST/HST refund claims as initially filed) are not required to provide any notice:
when only disallowing ITCs. Proposal of examination results is only mandatory if GST/HST is assessed, a self-assessment is raised or when reassessing a prior period. However, RIP examiners are required to send a final letter to all registrants explaining their adjustments.
Neal Armstrong. Summary of May 2016 Alberta CPA Roundtable, GST Q.8 under ETA s. 229(1).
CRA reiterates its policy on backdated voluntary GST/HST registrations
CRA reiterated its established policy re backdated voluntary GST/HST registrations that:
If a taxpayer who is registering voluntarily requests that a registration be backdated beyond a 30-day period…[t]he taxpayer must provide evidence that GST/HST had been charged from the date requested on a regular and consistent basis. Documentation such as copies of the sales journal, sales or service contracts or the earliest 3 to 5 invoices are generally sufficient for this purpose.
What if the request is rejected? CRA noted that agents at the applicable Regional Correspondence Centre will have scanned the documentation that was sent in into a searchable database, and that if the request was denied because this documentation was insufficient, “taxpayers can resubmit the request and the appropriate proof to backdate the registration.”
Neal Armstrong. Summary of May 2016 Alberta CPA Roundtable, GST Q.6 under ETA s. 240(3).
CRA states that the GST/HST gross negligence penalty can be collected on understated net tax resulting from reasonable mistake
After listing various factors that may be taken into account in determining whether to assess the 25% GST/HST gross negligence penalty, CRA stated that this percentage is generally applied to the difference between the correct net tax for the reporting period and the net tax calculated on the information in the return. CRA applies this literally, so that if the registrant understated its collectible tax by $1,000 due to gross negligence and by a further $99,000 due to a reasonable mistake, CRA would calculate the penalty as $25,000. (The wording of the ITA s. 163(2) penalty does not have this problem.)
Neal Armstrong. Summary of May 2016 Alberta CPA Roundtable, GST Q.5 under ETA s. 285.
CRA indicates that ITCs generally can be claimed at the partner level by a single-purpose GP
ETA s. 272.1(2) generally permits a partner to claim input tax credits on inputs acquired by a partner “for consumption, use or supply in the course of [commercial] activities of the partnership but not on account of the partnership.” When asked to provide an example of the application of s. 272.1(2), CRA referred to a corporation whose only activities were as partner of a general partnership in the construction business, and which acquired equipment for use in the partnership’s construction business without any right to reimbursement.
Some may find the narrowness of this example somewhat disquieting.
Neal Armstrong. Summary of May 2016 Alberta CPA Roundtable, GST Q.2 under s. 272.1(2).
CRA states that it will not be confused for GST purposes by labelling a corp. with operational control of a JV as a “nominee”
CRA considers that a true bare trustee cannot serve as the “operator” for a GST joint venture. However:
The terms "nominee corporation" and "bare trust" may be used somewhat loosely by businesses. As a result, a so-called nominee corporation or so-called bare trust may in fact have the managerial or operational control of a joint venture…[so that] the so-called nominee corporation or bare trust may be a participant in the joint venture for GST/HST purposes.
Neal Armstrong. Summary of May 2016 Alberta CPA Roundtable, GST Q.3 under ETA s. 273(1).
CRA indicates documentary flexibility re pipeline zero-rating requirements
In order for the "first seller" to zero-rate the supply of continuous transmission (pipeline) commodity (“CTC”) to the "first buyer" referenced in ETA Sch. VI, Pt. V, s. 15.1, the first buyer must have documentation satisfactory to CRA that the CTC has been supplied to a registrant and all or part of the consideration is property of the same class or kind delivered to the first buyer outside Canada. CRA stated that it will accept invoices or agreements which:
contain such information as would be required to determine the following:
- The CTC exchanged is of the same class or kind purchased.
- The place of delivery of the CTC to the registrant inside Canada.
- The place of delivery of the exchanged CTC to the first buyer outside Canada.
- Identity of the registrant including their BN.
Neal Armstrong. Summary of May 2016 Alberta CPA Roundtable, GST Q.1 under ETA Sch. VI, Pt. V, s. 15.1.
CRA considers “salary” paid after employment duties had terminated to be retiring allowance
Regular pay is subject to CPP/EI withholding, whereas retiring allowances are not (see Special payments chart). The most challenging of three situations considered by the Directorate was one where a terminated employee received from her employer: "Compensation 1" paid in lieu of notice for the period from Date 2 to Date 3; "Compensation 2," representing severance pay covering the period from Date 3 to Date 4; and her regular salary from Date 4 to Date 5. The taxpayer purportedly became eligible to again start accumulating years of service under the pension plan when her “salary” resumed.
The Directorate unsurprisingly concluded that Compensation 1 was regular pay, and Compensation 2 was a retiring allowance. Respecting the subsequent “salary” payments, it stated:
In spite of the fact that contributions of the taxpayer to the pension plans continued to accumulate for the period from Date 4 to Date 5, … the taxpayer and the employer did not have an employment relationship during that period…since [citing Schwartz] she was not required to provide services. …
Thus, since… there was no [recommencement] of employment on Date 4… the amounts paid between Date 4 and Date 5 constituted the continued payment of a retiring allowance.
…[W]e do not understand how the taxpayer could resume pension accruals on Date 4 when there was no employment on Date 4.
Neal Armstrong. Summary of 6 June 2016 Internal T.I. 2015-0590411I7 Tr under s. 248(1) – retiring allowance.
The Rulings Directorate indicates that per diem or per kilometer “accommodation” allowances paid to long-haul drivers not in excess of their restaurant expenses were likely unreasonable
S. 6(1)(b)(vii) effectively excludes, from the employment income of a long-haul truck driver, a “reasonable allowance for travel expenses…for travelling away [from the home base]….” The Directorate was asked about “accommodation allowances” paid to such employees of $0.04 per kilometer. Although they slept in their cabs for security reasons, these allowances were reasonable in relation to the drivers’ meal costs, which were about $40 per day, whereas the per-kilometre allowance worked out to the equivalent of around $20 per day.
The Directorate started off on a promising footing, stating that “travel expenses include food, beverage and accommodation costs,” but then stated:
[A]n allowance for accommodation expenses calculated exclusively on the basis of distance, time or other criteria will not be considered reasonable if it does not represent an estimate of the cost of accommodation that may be incurred by the employee during the travel that generated entitlement to the allowance. …
[W]here an employee sleeps in the truck cab, it is unlikely that the allowances for accommodation expenses in the three scenarios provided will be considered reasonable for the purposes of paragraph 6(1)(b).
Would this response have been different if the trucking company instead had labelled the same amounts as “traveller meal allowances” - or if it had paid a per diem "accommodation" allowance of $20?
Neal Armstrong. Summary of 15 November 2016 Internal T.I. 2015-0577201I7 Tr under s. 6(1)(b)(vii).