News of Note

An individual who managed a partnership for a fixed fee "through" a corporation of which he was the sole officer and shareholder would have been an officer of the partnership but for the interposition of his corporation - so that the corporation was found to be carrying on a personal services business (with a resulting loss of the small business deduction).

Before reaching this conclusion, Bédard J. noted that the same individual could not have been viewed as an employee (as contrasted to the holder of an office) of the partnership as (at both common law and Civil Law) it was "well established that a partner cannot be an employee in his own partnership."  This legal proposition is in part the basis for a CRA position that fixed partnership draws paid to a "salaried" partner cannot give rise to a deductible loss to the other non-salaried partners.  See Income Tax Technical News, No. 30.

This case also may indicate that in some circumstances, "fees" paid to an individual partner-manager of a partnership are exempt from GST/HST under s. 272.1 of the Excise Tax Act.

Neal Armstrong  Summaries of 9098-9005 Québec Inc. v. The Queen, 2012 TCC 324 under s. 125(7) - personal services business and s. 248(1) - office.

When CRA withdrew its position allowing joint ventures to compute income as if they had a separate fiscal period, it also indicated that it would allow transitional relief by allowing the deferred income to be brought into income over a period of up to five years (similar to the rule in s. 34.2).

CRA has indicated that this administrative transitional relief also will apply to the the full amount of the deferral of 22 months' worth of income that was deferred as a result of a two-tier joint venture (e.g., the corporate taxpayer is a member of a joint venture with a fiscal period ending one month later which, in turn, is the member  of a second joint venture with a fiscal period ending yet a further one month later).

Neal Armstrong.  Summary of 28 August 2012 T.I. 2012-0454811E5 under s. 249.1(1).

Section 182 provides that where a supplier under an agreement for a taxable supply receives an amount as a result of a breach or termination of the agreement, this payment is deemed to be inclusive of GST/HST, and the payor generally is entitled to an input tax credit for the included GST/HST.

In a ruling dealing with a damages payment received by a company which was not paid the remaining instalments on equipment it was constructing, CRA stated that section 182 did not apply because the supplier did not receive that payment as a consequence of the breach or termination of the agreement - so that the payor of the damages was not entitled to an input tax credit for GST.  On the facts described, this finding seems to be incorrect.  Perhaps there was a lack of understanding of basic contract law principles on the part of CRA, or perhaps there was something redacted from the ruling that would justify this conclusion.

Neal Armstrong.  Summary of 8 March 2012 Ruling 137942 under ETA s. 182(1).

CRA has ruled that trailer fees received by dealers from the investment manager for an investment fund (presumably, a mutual fund) will be considered to be exempt consideration for having facilitated the sale of shares in the fund only if the dealer does not provide any post-sale servicing of the investor's account in order to earn the trailer fees, e.g., regularly contacting the client to review the appropriateness of this investment, and reviewing alternatives.  Although this may sound like a statement that trailer fees are exempt only if the investment dealer is not doing a good job, in fact this statement may not be problematic as the trailer fees will be earned by the dealer based on the level of continued investment in the fund irrespective of the level of post-sale service provided by the dealer.

Neal Armstrong.  Summary of 15 March 2012 Ruling 132880-2 under ETA s. 123(1) - financial service.