Words and Phrases - "incur"
Lewski v Commissioner of Taxation, [2017] FCAFC 145
On June 30, 1999, a trust of which the taxpayer was a beneficiary had a 40% (later reduced to 2%) interest in a syndicate (that entered into an agreement to purchase an aged care facility in consideration for a “Settlement Amount” of $1.74 million to be paid on the settlement date (being the date of completion of a contemporaneous purchase of the business at the facility, slated to be October 31, 1999), with provision being made for further post-settlement amounts totalling $14.5 million. S. 8-1 of the Income Tax Assessment Act 1997 (Cth) provided:
You can deduct from your assessable income any loss or outgoing to the extent that:
(a) it is incurred in gaining or producing your assessable income; or
(b) it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income.
The Court referred inter alia to the statement in Commissioner of Taxation v Raymor (NSW) Pty Ltd (1990) 24 FCR 90 (at 101) that:
Once … it is appreciated that an outgoing may be deductible notwithstanding that it may be defeasible, there can be no logical reason why an outgoing pursuant to a contract may not be deductible notwithstanding that the ultimate price payable upon delivery of the goods the subject of a contract may be varied upwards or downwards to reflect the increased cost of the goods.
In finding that the trust’s share of the Settlement Amount was incurred by it on June 30, 1999, the Court stated (at paras. 103, 110):
[T]he Tribunal [below] relied on the fact that, under the Contract of Sale, the Glendale Property Syndicate was entitled to terminate the contract if an insolvency event occurred in relation to [the purchaser] as a basis for concluding that “it was not known whether the Contract of Sale would proceed” …. However, the cases discussed above do not suggest that, without more, this type of contingency is enough to conclude that an outgoing is not incurred upon execution of a contract. …
Neither approval [by the Department of Health and Aged Care] of the Purchaser as an Approved Provider nor approval of the transfer of the Approved Places from Prime Life Corporation to the Purchaser was a condition for payment of the balance of the purchase price. The obligation to pay the balance of the purchase price was not expressed to be conditional upon these matters.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(24) | an alternate resolution that the taxpayer was not entitled to an income distribution if Revenue denied a trust deduction made her entitlement contingent and non-includible | 374 |
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(8) - Paragraph 248(8)(b) | since the taxpayer through her husband as agent had knowledge of an income distribution, her subsequent purported disclaimer was not immediate | 304 |
| Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(13) | a trust income declaration that was subject to a tax contingency did not result in an income inclusion to the beneficiary | 149 |
| Tax Topics - General Concepts - Agency | knowledge of agent imputed to principal | 217 |
6 December 2016 External T.I. 2015-0589041E5 F - Frais médicaux payés d’avance - prepaid medical expenses
What impact does the timing of payment of medical expenses have on the computation of the medical expense tax credit ("METC") in s. 118.2(1), e.g., where fees are paid on January 1, 2015 for a dental treatment plan under which the services would be rendered in 2015 and 2016?
CRA responded that “an individual's medical expenses include expenses paid to a dentist which are for dental services provided to the individual in the taxation year in which the expenses were incurred,” so that fees which were prepaid in 2015 for services charges that would not be incurred in 2016, such fee could not qualify as medical expenses until 2016. After stating that it could be considered that “an expense is ‘incurred’…only where there is an obligation to pay a sum of money,” CRA went on to state:
[I]f it is established that that the services are provided and the expenses are incurred in 2016, the expenses paid to a dentist for dental services would be medical expenses under paragraph 118.2(2)(a) as long as the expenses were paid at some time. The time of payment may be before or after 2016.
CRA went on to confirm that for purposes of computing the medical expense tax credit ("MEC") in s. 118.2(1) for a year, an individual may choose any 12-month period ending in the year, but that the medical expenses must have been paid during the period so chosen. For example, if dental fees were paid on December 31, 2015, they would not be eligible for the METC computation for the 2016 taxation year if the individual had selected the calendar year, but such fees could be included in the computation of the METC in the 2016 return if the selected period included December 31, 2015.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 118.2 - Subsection 118.2(1) | example of the election to claim medical expenses (that are not a prepayment for a future year’s services) on a lagged basis | 183 |
10 January 2014 Internal T.I. 2013-0505911I7 - Meaning of "assembly project" in Brazil Convention
Art. V, subpara. 2(g) of the Canada-Brazil Treaty included an "assembly project" in the definition of permanent establishment, rather than using the term "installation project." After noting that this provision likely was based on Art. 5 of the 1963 OECD Model, which used "assembly project," before this was changed in 1977 without comment to "installation project," referring to dictionary definitions of "assemble" and "install," and noting that the French Treaty versions generally used "montage" for both terms, CRA stated:
[T]he better view would be to consider the terms "assembly" and "installation" as having a similar meaning. Accordingly…any position previously taken by the Directorate with respect to an "installation project" would generally be relevant in determining if an "assembly project" exists… .
Turning to the phrase's application, CRA stated:
[T]he OECD Commentaries have been expanded to make it clear that paragraph 5(3) of the OECD Model is not limited to construction or manufacturing-type activities. … Usually…installation is seen as being performed in relation to a tangible property, such as a machine or equipment, and…installation should be the main activity of the project to qualify as an "installation project". If significant other activities are also taking place, such as consulting, modification and testing, the project may not be viewed as an installation project.
The Queen v. Burnco Industries Ltd., 84 DTC 6348, [1984] CTC 337 (FCA)
The taxpayer was obligated under an agreement with a municipality to replace earth that it removed in the process of excavating a gravel pit. However, the taxpayer did not enter into a contract with a contractor to have the required "backfilling" work done until after the end of the taxation year. It was held that the taxpayer had not "incurred" an expense equal to the estimated cost of backfilling because "an expense cannot be said to be incurred by a taxpayer who is under no obligation to pay money to anyone."
C.I.R. v. Lo and Lo, [1984] B.T.C. 281 (PC)
Each long-term employee of a law firm was entitled, upon retirement, to a lump-sum payment from the firm roughly equivalent to 1/24 of his annual salary as at the date of retirement multiplied by the number of his years of service. The firm's accrued liability to date for future staff retirement benefits, calculated in this fashion, was held to be "an expense incurred" because under such an arrangement "the right of the employee to receive his retirement benefit is absolute, in the sense that he need do nothing whatever except give a period of notice and pick up his money." (Inland Revenue Ordinance of Hong Kong, s. 16).
Edmonton Liquid Gas Ltd. v. The Queen, 84 DTC 6526, [1984] CTC 536 (FCA)
MacGuigan JA rejected the position of the Minister that amounts paid to a drilling operator in 1974 for drilling work to be performed in 1975 did not represent an "expense incurred in drilling...an oil or gas well" in respect of the taxpayer's 1974 taxation year. He stated (at pp. 6530, 6531) that the word "incurred"
has always had the meaning of 'to become liable for or subject to'. ... [T]he proper test for defining expenses incurred by a taxpayer in a particular year must be cast in terms of the absoluteness of the transactions in which he engaged during that year: are the transactions absolute, with no contingencies as to disposition, use or enjoyment?
Here, the taxpayer had no refund rights with respect to the 1974 payment, so that it was incurred by it in 1974.
Ensign Tankers (Leasing) Ltd. v. Stokes, [1989] B.T.C. 410 (Ch.D.)
At 477:
"'To incur' means 'to render oneself liable to'."