Words and Phrases - "acquire"
Thye RRSP of James T. Grenon (552-53721) by its Trustee CIBC Trust Corporation v. Canada, 2025 FCA 129
The appellant subscribed $310 million for units of various income funds, which were intended to qualify as mutual fund trusts on the basis that each had received subscription proceeds totaling $128,250 from 171 investors, with each such investor subscribing for 100 units at $7.50 per unit. Whether they so qualified turned on whether they each satisfied the distribution condition in ITR 4801(a)(i)(A)—that there had been a lawful distribution of units of the trust to the public in circumstances in which a prospectus or similar document was not required to be filed—and that the 150-minimum beneficiary condition in ITR 4801(b) was satisfied.
(Monaghan JA stated that she was "far from convinced" (para. 169) as to whether the parties were correct in their mutual view that an offering memorandum was not a similar distribution document to a prospectus, so that the distribution condition in ITR 4801(a)(ii)—that a class of units of the trust is qualified for distribution to the public—was not relevant. However, nothing turned on this since, in light of the definition in ITR 4803(2)(a) of "qualify for distribution to the public," this alternate distribution test, like ITR 4801(a)(i)(A), required that there have been a lawful distribution of units to the public.)
Regarding the 150-minimum beneficiary condition, Monaghan JA found that such beneficiaries need not have acquired their units in a lawful distribution to the public. She stated (at para. 133) that “the minimum beneficiary condition might also be satisfied through a unitholder transferring units to others” and (at para. 145) that she was satisfied that, in the context of the ITA, "’hold’ is intended to mean ‘own’, unless the context in which it is used indicates otherwise” – which was not the case regarding Regulation 4801. Furthermore, the ITA's use of "hold" and "acquire" suggested they have different meanings (para. 147). Thus, the test of 150 beneficiaries holding units did not require that such units have been acquired from any particular persons.
Regarding the distribution condition in ITR 4801(a)(ii), Monaghan JA found (at para. 214) that the Tax Court did not err in interpreting a distribution as meaning “distribution in the collective sense,” i.e., an issuance to all those subscribing in a particular offering. Furthermore, the reference to a "lawful" distribution referred to compliance “with the exemption relied on under relevant provincial securities laws” (para. 218). Here, the exemption from a prospectus-filing requirement that had been relied on was the offering memorandum exemption (OME) coupled with a condition stipulated in the offering memorandum (OM) that a minimum of 160 investors subscribe.
She indicated (at para. 221) that, although she accepted that “not every deviation from the prospectus requirement or prospectus exemptions, or from the terms of the prospectus or OM, will necessarily lead to the conclusion that the distribution is unlawful, even if it might attract liability or enforcement action,” the appellant agreed that such 160-investors-minimum specified in the OM "was an essential term" (para. 229). The Tax Court had made a non-reversible finding that 39 of the subscribers in each fund were minors. Agreeing with the Tax Court that this thus established that such minimum had not been lawfully met, she stated (at para. 247) that, like the Tax Court, she had "difficulty accepting that provincial securities regulators envisaged minors, some as young as two years old, subscribing for units based on the OME." She also stated (at para. 250) that "it was open to the Tax Court to find that the income funds did not take any steps to waive the condition regarding legal capacity and age of majority."
Moreover, she found no reasonable error in the Tax Court's “finding regarding adults signing subscriptions and paying for units for other adults and minors” (para. 262), contrary to the representations of the investors that each investor was purchasing "as principal." This further supported the Tax Court's conclusion (at para. 288) that the income funds had not “complied with an essential term in their OMs: that they issue units to a minimum of 160 investors in compliance with the OME.”
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 207.1 - Subsection 207.1(1) | since FMV of non-qualified investments was required to be included in the annuitant’s income (even though such inclusion was not reported or assessed) it was excluded from Pt. XI.1 tax | 360 |
| Tax Topics - Income Tax Act - Section 152 - Subsection 152(3.1) | assessment of group RRSP return focused on Pt. XI.1 tax reporting did not start the Pt. I normal reassessment period running | 279 |
| Tax Topics - Other Legislation/Constitution - Federal - Federal Courts Act - Section 27 - Subsection 27(1.3) | FCA raised the correctness of (and reversed) a TCC finding that was not challenged by the parties | 420 |
| Tax Topics - Income Tax Act - Section 146 - Subsection 146(10.1) | RRSP must recognize losses on non-qualified investments but such losses, if capital losses, cannot be deducted from property income from such investments | 153 |
| Tax Topics - Statutory Interpretation - Consistency | presumption that same word has same meaning, and different words have different meanings throughout the ITA | 233 |
| Tax Topics - Statutory Interpretation - Ordinary Meaning | meaning of “distribution” informed by provincial securities law | 161 |
| Tax Topics - Statutory Interpretation - French and English Version | 2-step approach to reconciling 2 versions | 298 |
31 July 2023 Internal T.I. 2021-0876331I7 - SR&ED ITC Recapture Rules
The taxpayer harvests trees, transforms then into logs, and feeds the logs into a new machine being tested for SR&ED purposes. The logs so used in the SR&ED testing are then transformed into finished lumber, which is sold at market prices to an arms-length party. The cost of materials for such SR&ED purposes consists of stumpage fees, harvesting fees, delimbing fees, transportation fees and in-house manufacturing salary and overhead expenses.
After noting that the “the term ‘cost’ includes the full cost of acquiring the property and incorporates all costs that are necessary to put the property into a position to be used,” and that “In general, for a property to be considered to be acquired, an element of beneficial ownership must exist (possession, use, risk, and control,” the Directorate noted that, having regard to s. 127(32), the particular property that was acquired from a transferor appeared to be the trees, for which a stumpage fee was paid and that, conversely, the logs did not appear to so qualify as they were obtained (out of the trees) “as a result of third-party services rendered in respect of the trees.” In addition, since no acquisition of property occurs in connection with manufacturing salary and overhead costs, these amounts cannot be considered an amount paid by the taxpayer to acquire the particular property from a transferor of the particular property.
However, for property manufactured in-house, the cost of each component part and raw material input might qualify as a separate property that was subject to the ITC recapture rules.
GST New Memorandum 8.1, ITCs—General Eligibility Rules, May 2005
Meaning of “acquire”
9. The word “acquire” is not defined in the Act. The ordinary dictionary definition of the term “acquire” is to get, obtain, have control over or possess. With respect to property, relevant case law indicates that property is acquired by obtaining ownership or such normal aspects of ownership as possession, use or risk.
Acquiror usually recipient
62. … The person that is eligible to claim the ITC for the tax paid or payable on the property or service is usually the recipient.
Regan M. Williams, Appellant v. Her Majesty the Queen, Respondent, 97 DTC 887, [1997] 2 CTC 2151 (TCC)
When the taxpayer exercised stock option rights, he did so as nominee for others. Accordingly, he had not "acquired" (i.e., obtained for himself) the shares and, accordingly, was not taxable.
Canada v. Morin, 2006 DTC 6057, 2006 FCA 25
The taxpayer entered into an arrangement with a consultant ("Bobsan") under which Bobsan would recommend to him firms within the high-tech area to whom the taxpayer might apply for a position, and the taxpayer agreed to pay Bobsan the first $100,000 of any employee stock option benefits realized by him from such an employer, plus 1/3 of the excess over $100,000. In finding that an amount paid by the taxpayer to Bobsan pursuant to this arrangement did not qualify as an "amount ... paid by the employee to acquire the right to acquire ... securities" for purposes of s. 7(1)(a)(iii), so that the amount so paid was not deductible under s. 7(1)(a)(iii), Malone J.A. stated (at p. 6059) that:
"An amount paid to acquire property is an amount paid in exchange for title to the property or in exchange for the incidents of title, and here is apparent that the payments made by the taxpayer to Bobsan were not made to acquire the stock options, which instead were received directly from the employer to whom he had been referred by Bobsan, and he was not required to pay any money to that employer for the options."
Kowdrysh v. The Queen, 2001 DTC 5221, 2001 FCA 34
Létourneau J.A. found that in the context of the temporary program for qualified small-business property, the proper interpretation of the word "acquired" refers to the time when farming equipment was purchased by means of a binding and enforceable contract, rather than the later time at which beneficial ownership passed to the purchaser.
Fortin & Moreau Inc. v. The Queen, 90 DTC 1450, [1990] 1 CTC 2583 (TCC)
The Quebec taxpayer was found to have "acquired" trucks pursuant to leases given that it had possession and use of the trucks, it had assumed all risks, it had the option, six months before the expiry of the lease, to purchase the trucks for an amount approximately equal to the fair market value of the remaining lease payment, and it was required to pay the "rent" even if the trucks were destroyed or it no longer had the use of them. However, the taxpayer was found not to be the "owner" of the trucks because, under the Quebec Civil Code, ownership could not be divided between a legal and beneficial owner, and the lessor rather than the taxpayer was the legal owner. Because the definition of "depreciable property" in its amended form required ownership of the property, the taxpayer was not entitled to claim capital cost allowance.
Canada v. General Motors of Canada Limited, [2009] GSTC 64, 2009 FCA 114
The Appellant (a car manufacturer) was the administrator of various defined benefit pension plans for its unionized employees. It was the recipient of portfolio advisory services as it rather than the plans was contractually liable to pay the advisors' fees, and the Crown did not dispute that it also "acquired" those services if s. 167.1 did not apply to deem those services to instead have been acquired by the plans (which it did not).
These services also satisfied the requirement in s. 169(1) that they have been acquired by it in the course of its commercial activities. As noted by the Campbell, J below, its employee compensation program was a necessary adjunct to its making taxable sales, and it was contractually obligated to maintain the plans as part of that program.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 169 - Subsection 169(1) | 99 | |
| Tax Topics - Excise Tax Act - Section 267.1 - Subsection 267.1(2) | administrator of pension trust was not a trustee, and not subject to s. 267.1 | 51 |
| Tax Topics - Income Tax Act - Section 104 - Subsection 104(1) | administrator of pension trust was not a trustee | 41 |