News of Note

The son of the taxpayers, who was the beneficiary of his own life insurance policy, was abducted by Angolan rebels in 1998 and later presumed dead.  The taxpayers received the insurance proceeds plus interest in 2002, which was three years before his estate went into administration.  The Upper Tribunal found that the interest was not income to the taxpayers because at the time of receipt all beneficial interests in the unadministered estate were held in suspense - and, in fact, until the administration was completed, they did not have any proprietary interest in any particular asset of the unadministered estate.

The UK provision in issue specified that tax "shall be charged on and paid by the persons receiving or entitled to the income."  The Upper Tribunal found that the taxpayers were not "entitled to" the interest, but did not explicitly state that they did not "receive" the interest.  An implicit finding appears to be that, because the interest was potential income of the unadministered estate, the taxpayers should not also be regarded as the "persons receiving or entitled to" that income.

Similar reasoning might apply in Canada.  Ss. 104(13) and (24) provide that an amount of estate (or other trust) income is not included in a beneficiary's income until the beneficiary is entitled to enforce its payment, or it is paid, by the estate.

Scott Armstrong.  Summaries of Pope & Ors v. R & C Commrs., [2012] UKUT 206 (Tax and Chancery Chamber) under s. 104(13) and s. 12(1)(c).

If you purchase a company for $2.6 million, and then immediately incur $200,000 in professional fees to reorganize the company, followed by a transfer of the securities of the company in an internal reorganization, is it appropriate to consider that the securities have a fair market value of $2.8 million on the internal transfer?  The Fiducie Gauthier case - which dealt with the reverse situation where approximately $200,000 of reorganization expenses are incurred before transferring securities in a non-arm's length transfer, and then selling them in an arm's length sale for $2.8 million - arguably provides some support for the proposition that the fair market value of shares may reflect recently-incurred reorganization expenses.

Neal Armstrong.  Summaries of Fiducie Famille Gauthier v. The Queen, 2012 FCA 76, aff'g  2011 TCC 318 under s. 84.1(1) and General Concepts - Fair Market Value - Shares.

In the version of Policy P-202 which was outstanding up until April of this year, CRA stated that one of the characteristics of a gift certificate (which is treated for GST and HST purposes similarly to money) is that the consideration for its purchase "is given in the amount of the stated value."  This previous requirement that the gift certificate not be purchased at a discount from its face amount has now been corrected by CRA.

In particular, CRA has acknowledged that vouchers purchased on-line from a "Groupon" type of vendor still qualify as gift certificates even though they are purchased at a discount from their face amount and the participating merchants have agreed to honour the vouchers at their face amount.  This position now is also reflected in the revised version of P-202.

Neal Armstrong.  Summary of 19 July 2011 HQ Letter 127619 under ETA s. 181.2.

CRA considers that a public institution operating a nursing home (in this case, one focusing on Alzeimer's residents) did not qualify for the higher 83% GST rebate available to qualifying operators of "qualifying facilities" (as opposed to a 50% rate) given that the level of "active" physician involvement in the care services was significantly short of that traditionally provided in hospitals.  Examples of qualifying facilities included "those that offer a high level of therapeutic care, cancer clinics, day surgery clinics and community health centres that render primary care services."

Neal Armstrong.  Summary of 20 May 2011 HQ Letter 115028 under s. 259(1) - "facility supply".