Section 170

Subsection 170(1))

Paragraph 170(1)(b)

Subparagraph 170(1)(b)(ii)


Westcoast Energy Inc. v. Canada, 2022 FCA 57

s. 170(1)(b)(ii) did not apply to reimbursed employee health care services as the services were acquired by the employees rather than the employer

Westcoast reimbursed employees who had incurred various taxable health care services, e.g., acupuncture, massage therapy and naturopathy. and homeopathy services. On appeal, Westcoast did not challenge the finding below that the employees were the recipients of such taxable services, so that Westcoast did not satisfy the requirement under in s. 169, for generating input tax credits (ITCs) for the tax, of having acquired such services. After confirming the finding below that the employees should not be considered to have consumed or used the services “in relation to activities of [Westcoast],” so that no ITCs were generated to Westcoast under s. 175(1)(c), Stratas JA went on to reject the Westcoast submission that s. 170(1)(b)(ii) allowed Westcoast to claim ITCs on the basis of services being supplied “exclusively for the personal consumption, use or enjoyment” of employees, stating (at para. 8):

ExxonMobil held (at para. 37) that “[s]ection 170 deals with input tax credits that may be claimed with respect to benefits in kind provided to employees” [emphasis added]. … [G]iven that the appellant did not acquire the services, it could not provide them as in kind benefits.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 175 - Subsection 175(1) - Paragraph 175(1)(b) health care services rendered to employees were not in relation to the employer’s activities 226

See Also

Westcoast Energy Inc. v. The Queen, 2020 TCC 116 (Informal Procedure), aff'd 2022 FCA 57

s. 170(1)(b)(ii) exception conceded to apply

Westcoast reimbursed (through Manulife as its agent) employees who had incurred various health care services. As a preliminary matter, Sommerfeldt J noted (at para. 27):

Westcoast submits that, for the purposes of subparagraph 6(1)(a)(i) of the ITA, the Subject Services were made available to Westcoast’s employees and their family members pursuant to a private health services plan, with the result that no amount was included under section 6 of the ITA in respect of those services in computing the income of the employees. Therefore, the exception in subparagraph 170(1)(b)(ii) of the ETA precludes the exclusion in paragraph 170(1)(b) of the ETA from applying. The Crown does not dispute that, pursuant to subparagraph 6(1)(a)(i) of the ITA, no amount was required to be included in computing the income of Westcoast’s employees by reason of the Subject Services being made available to them or their family members. In other words, the Crown has not suggested that the value of a Subject Service received by an employee of Westcoast or a family member should, by reason of paragraph 6(1)(a) of the ITA, be included in computing the income of that employee.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 175 - Subsection 175(1) - Paragraph 175(1)(b) an employer was not entitled to ITCs for the GST/HST on reimbursed employee health care services 472
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Recipient employees rather than employer were the recipients of health care services even where the employer paid the health care provider directly 331

Subsection 170(2) - Further Restriction

Administrative Policy

5 January 2016 External T.I. 2015-0622991E5 - Reasonableness of intercorporate management fees

no change in policy re fees paid to managment holdcos following 6051944

Will CRA revisit its position on the reasonableness of management fees paid by an operating company to a holding company that is owned by an individual who is the ultimate operator/manager of the business in light of the 6051944 Canada Inc. decision? CRA responded:

…[T]his GST/HST case was heard under the…informal procedure and therefore has limited precedential value. Accordingly, there are no plans to undertake a review of the CRA’s position on the above-noted issue for income tax purposes. The determination of whether any outlay or expense is reasonable under section 67 of the Income Tax Act is primarily a question of fact and can only be determined once all the facts and circumstances are known.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 67 reasonableness of management fee paid by opco to management holdco following 6051944 183

6051944 Canada Inc. The Queen, 2015 CCI 180, 2015 TTC 180

management fee not excessive

The appellant, which engaged in a home construction business, paid management fees to its two shareholders, which were companies whose sole respective shareholders were the founder of its business (Germain) and his son (Eric). Germain managed the office including personnel management, financing and overseeing land purchases and house sales. Eric focused on home design and construction. The management fees were allocated between the two shareholder companies on a 50-50 basis for 2009 and were $1,250,000, $1,770,000 and $950,000 for the appellant's 2008, 2009 and 2010 fiscal years (each ending on July 31). The Minister applied s. 170(2)(b) to allow input tax credits ("ITCs") only on the first $950,000 of the management fees for the 2009 year. In allowing the appeal, Favreau J stated (22-25, 28, 30, TaxInterpretations translation):

[T]he Minister alleges that the management fee was a mere year end accrual, that there was no management agreement and that there were no objective criteria for determining the amount… . The management fee was merely a profit distribution mechanism as it varied from year to year, without any real change in the qualify or level of services rendered… .

The jurisprudence addressing section 67 of the [ITA] is not relevant…because the text of section 67 is different… .

The evidence reveals that we have here a very profitable business which was very well managed by very experienced managers… . The annual revenues…for…2007, 2008, 2009 and 2010 were $16,045,841, $12,883,743, $13,180,230 and $11,970,088, respectively.

The services rendered by the management companies and their shareholders were not limited to customary management services as they encompassed financing and access to a bank of serviced lots ready for development, which were held by corporations controlled by …Germain and his children, Lyne and Eric.

…The payment of the management expenses by the appellant was essential to protecting its assets from the risks associated with carrying on its construction business. …That which was deductible at the appellant's level was subject to taxation at the level of the management companies at the same rate of federal [income] tax.

…[T]he management fees paid…[for] 2009 were clearly justified for the level of services received and were reasonable in the circumstances.