Words and Phrases - "in connection with"
The appellant (“Look”), which had been carrying on a telecommunications business, sold its licences (including its “Spectrum” licence) , which were its principal asset, in September 2009 for gross proceeds of $80 million, and ceased providing services to its customers in November 2009. Approximately 25% of the proceeds was paid to the executives as bonuses, and option or SAR cancellation payments. In 2011, Look commenced an action which resulted in a portion of these amounts being returned to it as having been misappropriated.
In finding on a Rule 58 determination that Look was not entitled to input tax credits for the GST on its related legal fees pursuant to s. 141.1(3)(a), C. Miller J stated (at para 17, 19 and 21):
“[I]n connection with”… is a broad expression but does not…, even on a textual reading allow for the remotest of links, such as a link only arising by way of the “but for” test. …
[T]he cost of legal services to chase after directors, who the Appellant claims have absconded with its money, is a need that would have been fulfilled regardless of where the funds emanated from. …
[T]here is no commercial expectation that directors on winding up a corporation will abscond with funds and that the cost of such contingency is somehow worked into the cost of the supply. … The business of Look was effectively wound up before there was any activity necessitating the acquisition of legal services. …
He added (at para. 26):
[T]his is not an issue of timing. For example, had the Board discovered two years after the Spectrum sale that a competitor had wronged Look in some fashion, diminishing sales, and the Board commenced a lawsuit, I would see no difficulty in finding such litigation activity was connected with commercial activity, notwithstanding some considerable time had passed since the termination of the business. Similarly, if Look had to sue the purchaser of Spectrum long after the completion of the sale for breach of a confidentiality provision, again timing would not preclude a finding of a connection.
A foreign affiliate ("FA1") of a Canadian manufacturer (the "Taxpayer") provides testing services to the Taxpayer on products (namely, prototypes) manufactured by the Taxpayer in Canada or abroad and which are owned by the Taxpayer. The tests on the prototypes help validate the manufacturing processes developed in Canada by the Taxpayer and resolve problems. Although the prototypes themselves are not sold, the information generated from the testing thus ameliorates issues on subsequent production for sale as a result of corrective adjustments being made. Taxpayer employees are involved in oversight of the testing.
Did s. 95(3)(b) apply so that the testing services were not services for purposes of s. 95(2)(b)? In responding negatively, the Directorate stated (TaxInterpretation translation):
Our long-standing position respecting the expression services performed in connection with the sale of goods is that only services directly related to such sales so qualify.
…[T]hese activities fall under scientific research and experimental development…and not under services related to the sale of goods, per se.
See also summary under s. 95(3)(d).
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|Tax Topics - Income Tax Act - Section 95 - Subsection 95(3) - Paragraph 95(3)(d)||prototype testing services not manufacturing||116|
Reiner v. The Queen, 2005 DTC 308, 2005 TCC 115 (Informal Procedure)
The taxpayer, who was a full-time teacher, also was pursuing a course of studies at a U.S. university leading to a Master of Arts in Curriculum Instruction. This program was found not to be undertaken as part of her duties of employment or "in connection with" her duties of employment but, rather, was undertaken in connection with her profession. The "joining, fastening or linking together" is with the Appellant's personal skill ...".