Search - consideration

9 January 2023- 11:39pm CRA confirms that shares issued to a Canadian parent in consideration for it issuing shares on a Delaware merger had a cost equal to such shares’ FMV Email this Content The acquisition of a non-resident target (Target) by a Canadian corporation (Opco) and its Canadian parent (Parent) entailed: Parent forming two new stacked non-resident subsidiaries (Merger Sub1 holding Merger Sub2); Merger Sub2 being merged into Target with Target being the survivor, with the shareholders of Target having their shares converted into shares issued by Parent and cash paid by Merger Sub1 (which it had borrowed from Opco) and with Merger Sub1 becoming the parent of Target; and Merger Sub2 then immediately being merged into Merger Sub1 with Merger Sub1 as the survivor. In order that Parent could get basis for having issued the share consideration, it was stated in a funding agreement to have issued such shares in consideration for the issuance to it by Merger Sub1 of common shares of Merger Sub1 – and CRA ruled that indeed those shares issued to Parent had a cost to it equal to the FMV of the shares issued by it in turn to the Target shareholders plus any related costs incurred by it. ...

14 November 2017- 10:10pm CRA rules that the Ontario electricity rebate does not reduce the consideration for the supply Email this Content There currently is an 8% rebate under the Ontario Rebate for Electricity Consumers Act, 2016 equal to the provincial portion of HST on the electricity bills of residential, farm, small business and other eligible customers. CRA has ruled that the rebate is financial assistance and does not reduce the consideration for the supply of the electricity nor the HST itself – so that input tax credits or public service body rebate claims of the recipient are not reduced by the rebate amount. ...

14 July 2024- 11:26pm Barwicz – Tax Court of Canada finds that a distribution by a discretionary trust in satisfaction of a capital interest occurred for no consideration for s. 160 purposes Email this Content The taxpayer was one of nine beneficiaries of a discretionary inter vivos personal trust which ceased to be resident in Canada on December 17, 2001 as a result of the replacement of its sole trustee by a Barbados corporate trustee. ... Gagnon J confirmed the Crown’s position that the taxpayer had not given consideration to the trust for either distribution (e.g., in exchange for part or full satisfaction of his capital interest in the trust) so that he was liable under s. 160(1) for the trust’s unpaid departure tax. In this regard, Gagnon J first noted: [I]f one party is enriched and the other impoverished by the same amount, it will be possible to conclude that the party who became richer did not offer equivalent consideration …. ...

18 June 2018- 11:31pm CRA finds that a “fee” charged by a an auto dealer for assigning a credit agreement to a lender was part of the GST/HST exempt consideration for the assignment Email this Content An auto dealer, which sold conditional sales contracts or credit agreements arising from its sales to customers to a lender, would also be paid a separately-stated fee by the lender. CRA stated: A fee received by the Dealer from a lender for the assignment of a conditional sales contract or credit agreement forms part of the consideration received for the assignment of the contract, and therefore would not be subject to the GST/HST as the assignment of the contract is an exempt supply. ...

20 June 2021- 2:35pm CRA recharacterizes a portion of the lease payments under a lease with a bargain purchase option as consideration for the option Email this Content Regarding a lease of a truck tractor with a term of 48 months and a bargain purchase option at maturity, CRA indicated that the monthly rental payments should be allocated between deductible rental payments for the use of the vehicle and consideration for the option, which would be added to the adjusted cost base of the option. ...

29 December 2016- 11:56pm CRA indicates that insurance assets transferred to a subsidiary in consideration for assuming obligations of the insurance business could qualify as “reinsurance premiums” Email this Content In the context of a tax-deferred transfer under s. 138(11.94) of an insurance business carried on in Canada to a corporation within the same wholly-owned group, s. 138(11.5)(m) provides that a reinsurance premium paid or payable by the transferor to the transferee respecting the assumed or reinsured obligations will be included or deducted, as the case may be, only to the extent that doing so may reasonably be regarded as necessary to determine the appropriate amount of income of both the transferor and the transferee. After noting that whether s. 138(11.5)(m) can apply depends, in part, on whether the drop-down occurs under a reinsurance arrangement, CRA stated that “the assets transferred by the transferor to the transferee in exchange for assuming the transferred obligations may be a ‘reinsurance premium’” (although that term could also extend to “any amounts paid or payable to the transferee as consideration for the assumed obligations in respect of the transferred insurance business.”) ...

14 May 2018- 12:09am CRA finds that making the ETA nil consideration election can have punitive results respecting GST/HST on related employee benefits Email this Content Although ETA s. 173(1) often imputes a taxable supply by an employer based on the amount of taxable benefits conferred by it under ITA s. 6(1)(a), s. 173(1)(d)(i) provides that this rule does not apply where the employer was denied an input tax credit under s. 170 on its acquisition of the property or service that, in turn, was provided to the employee. ... CRA found that this s. 173(1)(d)(i) exclusion did not apply where the property in question (an automobile) was acquired by a closely-related corporation and then leased to the employer with the benefit of the s. 156 nil-consideration election, with the automobile being provided for the exclusive personal benefit of an employee. ...

28 January 2019- 11:43pm CRA confirms that it will not apply s. 112(3) to a dividend that has been subjected to s. 55(2) and discusses animating policy considerations Email this Content In its published comments on its further conclusions on various questions posed to it on the s. 55(2) rules, CRA provided some more detail than in its oral presentation at the 2018 Annual Conference. ... CRA also was more loquacious on the policy considerations underlying its interpretations. ...

7 March 2021- 11:10pm Engineering Analysis Centre – Supreme Court of India finds that consideration for software paid by Indian resellers was not royalties for Canadian (and other) Treaty purposes Email this Content The OECD Commentary on the royalty article (Art. 12) states i nter alia that “where a distributor makes payments to acquire and distribute software copies (without the right to reproduce the software),” such payments generally “would be dealt with as business profits in accordance with Article 7” rather than as royalties under Art. 12 – and that this would be so “regardless of whether the copies being distributed are delivered on tangible media or are distributed electronically (without the distributor having the right to reproduce the software).” Nariman J considered a multitude of appeals, principally involving consideration paid to non-residents (who were respective Treaty residents in 18 different countries including Canada) by: Indian end-users for the purchase of software (for example, a non-exclusive licence to use Samsung software on the end-user’s Samsung mobile device, with a prohibition against making the software available to any other person); or Indian (or non-Indian) distributors for resale to Indian end-users or other Indian distributors. ...

5 October 2022- 10:57pm If commercially feasible, deferred share consideration can be used instead of a share sale occurring on a cash earnout basis Email this Content Some points made on share sale earnouts, or achieving their equivalent without having to address s. 12(1)(g), include: The contingent payment terms can be embedded in the terms of special shares issued by the Canadian purchaser, thereby permitting s. 85(1) rollover treatment, and with a Callco needed in the buyer structure to avoid Pt. ... However, the election form (T2057) creates difficulties in that it refers only to the “share consideration” rather than also including rights to receive shares in that quoted phrase. ...