Words and Phrases - "included"


13 August 2020 External T.I. 2019-0802891E5 F - Unclaimed RRSP Benefits

benefit includible in deceased annuitant’s return was not subject to "benefit"-(a) exclusion because it was not reported

The executor of the estate of the deceased annuitant of an RRSP trust was unaware of the RRSP, did not notify the issuer of the RRSP, and settled and distributed the estate (to herself as the sole heir) without regard to the RRSP. After the RRSP became unclaimed property, a Commission (the "DPBNR") responsible for administering Québec’s Unclaimed Property Act ("UPA") instructed the RRSP issuer to wind up the RRSP, i.e. to dispose of the securities held therein, and to remit the proceeds of disposition in cash to the DPBNR. In a subsequent taxation year, the surviving spouse of the deceased RRSP annuitant claimed and received the amount (plus interest and net of fees) from the DPBNR by virtue of being the sole estate beneficiary.

CRA noted that the FMV of the property in the RRSP normally would have been included in the deceased annuitant’s income under s. 146(8.8) but here, there was no inclusion of such amount in the final return because the executor was unaware of the RRSP – and that return now was statute-barred. However, the amount paid to the surviving spouse was to be included in her income under the surrogatum principle as being in lieu of a payment received under s. 146(8). Such an amount would have been a “benefit” notwithstanding the exclusion in para. (a) of the “benefit” definition for an amount “included in computing the income of an annuitant by virtue of [s. 148(8.8].” CRA stated:

[I]t is not reasonable to consider all or part of the amount paid out of the RRSP to the DPBNR as part of the amount included in computing an annuitant's income by virtue of subsections 146(8.8) and (8.9) since, as noted above, no amount was included in computing the annuitant's income pursuant to subsections 146(8.8) and (8.9) in the annuitant's final return.

Words and Phrases
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 146 - Subsection 146(8) s. 146(8) benefit paid to the taxpayer’s administrator was not includible in her income until the year she was identified and received the amount 369
Tax Topics - Income Tax Act - Section 146 - Subsection 146(4) - Paragraph 146(4)(c) tax imposed on RRSP under s. 146(4)(c) where RRSP issuer unaware of annuitant’s death 187
Tax Topics - General Concepts - Payment & Receipt constructive receipt of amount deducted on account of fees that were the recipient’s obligation 280
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Income-Producing Purpose fees incurred as a consequence of receiving unclaimed property (which was taxable under s. 146(8)) were non-deductible 205
Tax Topics - Income Tax Act - Section 9 - Timing receipt of income by an administrator was not income of the beneficial owner until the year she was identified 350

Burton v Commissioner of Taxation, [2018] FCA 1857, aff'd [2019] FCAFC 141

a foreign tax credit was reduced by ½ when only ½ of a capital gain was brought into income

The taxpayer was an Australian resident who was taxed at the 15% long-term U.S. capital gains rate on his gains on disposal of U.S. oil and gas drilling rights. For Australian purposes a 50% discount was applied to the capital gain before imposing tax at a rate of around 45% on it.

The Australian foreign tax credit (FITO) provision (s. 770-10) provided:

An amount of foreign income tax counts towards the tax offset for the year if you paid it in respect of an amount that is all or part of an amount included in your assessable income for the year.

In confirming the Commissioner’s denial of a FITO for (leaving aside the effect of complicating adjustments) half of the U.S. tax, and after stating (at para. 95) that "that ‘included’ is a word that in different contexts may receive different applications," McKerracher J stated (at para. 109) his agreement with the Commissioner’s position (summarized at para. 4) that “double taxation occurs where a person pays both foreign tax and Australian tax on the same amount” and “an amount not included in assessable income (namely, 50% of the capital gain) cannot, by definition, be doubly taxed,” and added (at para. 114) that “the words ‘in respect of an amount’ mean an amount which is itself assessable.”

Words and Phrases
in respect of included
Locations of other summaries Wordcount
Tax Topics - Treaties - Income Tax Conventions - Article 24 foreign tax credit was not required to be accorded to all the US tax on the gain 361

David Nathanson, "Included Versus Reported", Canadian Tax Highlights, Vol. 24, No. 9, September 2016, p. 5

Quigley treats “included” as “reported” or “assessed” (p. 5)

[T]he [Quigley] decision assumes that "included" means "reported" or "assessed as income," but paragraph 20(l)(j) allows a deduction for "such part of any loan . . . [that was] repaid by the taxpayer in the year as was by virtue of subsection 15(2) included in computing the taxpayer's income for a preceding taxation year." The wording seems to indicate that the operative event is the inclusion in income by a provision of the statute and not the inclusion in income by the minister's assessment or by the taxpayer's reporting.

CRA position that SDA benefit can be included in 1st non-statute-barred year (p. 5)

[A] contribution to an RCA is not included in the individual taxpayer's income; a contribution to an SDA is income from employment in the year of receipt, not a subsequent year. But the CRA takes the position that because the contribution was not reported by the individual in the year of receipt, 'it was not "included" in the computation of the individual's income for that year "to that extent" As a consequence, the CRA says that the amount can be included in income by reassessment of the individual's first year that is not statute-barred. This conclusion is not true if an amount is included in income only because it is required by the Act and not because the taxpayer reported it as income.

…The Act provides no such statutory election to the minister.

Parliament did not make year of inclusion contingent (p. 5)

The orthodox view is that the word "included" means reported or assessed. However, in many if not all circumstances, the word specifically means amounts that are included by the statue and not by any act of the taxpayer or of the minister. If Parliament intended to make a tax result depend on the action of the taxpayer or the minister, the statute should expressly provide for that contingency.

Words and Phrases

Quigley v. The Queen, 96 DTC 1057, [1996] 1 CTC 2378 (TCC)

The taxpayer argued that no imputed interest was required to be included in his income under s. 80.4(2) respecting shareholder advances because, under s. 80.4(3)(b), the amount of those advances had previously been required to be included in his income for a statute-barred year (although no such inclusion had been reported by him or assessed by the Minister). In rejecting this submission, Bowman TCJ stated (at pp. 1060-1061):

Just because subsection 15(2) provides that an amount "shall be included" in computing income, it does not follow that is "was included". Whether something was or was not included is purely a question of fact. Whether an amount is "required to be included" – words used, for example in subsection 104(12), or subsection 144(7) – is a question of law. The distinction between the two phrases is recognized throughout the Act. A good example of this is found in paragraph 20(1)(j), which permits a deduction when a shareholder's loan that was previously included in income under subsection 15(2) is repaid. Since 1983 the paragraph has read in part, as follows:

Such part of a loan or indebtedness repaid by the taxpayer in the year as was by virtue of subsection 15(2) included in computing his income for a preceding taxation year.

Prior to 1983 the relevant portion of the phrase read "such part of any loan repaid by the tax payer as was by subsection 15(2) required to be included… ."

Words and Phrases

4 November 2008 External T.I. 2008-0264181E5 - Income recognition and ACB - trust units

amount paid to beneficiary "was included" in its taxation year in which trust's taxation year ends/beneficiary return for previous year re-opened to avoid double taxation

Where a corporation with an October 31 year end receives income distributions from an income trust in February and March 2007 and sells its units in April 2007, the distributions so received by it will reduce the adjusted cost base of its units because the corresponding income allocated to it by the income fund will not be included in its income until its October 31, 2008 taxation year, i.e., at the time of the disposition of the units it was not the case that the amount of the distributions "was included in the taxpayer's income" (s. 53(2)(h.1)(A)). In this regard, CRA stated:

Assuming that the amounts payable are ultimately determined to be part of the trust's income for its taxation year, the amounts will, under paragraph 104(13)(a) of the Act, be income amounts of the beneficiary. However, paragraph 104(13)(a) of the Act requires the beneficiary to include those income amounts payable only for the beneficiary's taxation year in which the trust's taxation year ends. ...

[T]he amounts paid in February and March 2007...will not be included in income until October 2008 and therefore, because of the use, in clause 53(2)(h)(i.1)(A), of the past tense in the expression "was included in the taxpayer's income", these amounts are not described in clause (A).

In light of the provision in s. 39(1) that a capital gain will not include an amount otherwise included in income, the corporation at the time of filing its 2008 return (in which it included the distributions in income under s. 104(13)) would be able to refile ints 2007 return to reduce the capital gain reported in that return.

Words and Phrases

Langdon v. Canada, 2000 DTC 6203 (FCA)

The taxpayer was not entitled to claim a deduction under s. 20(1)(l) because the sale giving rise to the receivable had not been reported in his return for the year of disposition. The Court rejected a submission that the requirement in ss. 12(1)(b) and 20(1)(l) that the amount receivable have been "included in computing" income required only that the taxpayer have taken that amount into account in computing his net income and did not establish a requirement that the amounts be reported on a tax return. Strayer JA stated (at para. 9):

Such a condition would be almost meaningless if the words "included in computing" did not require the reporting of such income in a current or previous return. That is, the Minister must be able to track back to a particular source of income if a deduction for doubtful debts is to be accepted in respect of that source.

Words and Phrases

Delle Donne v. The Queen, 2015 TCC 150

doubtful debt reserve claimed implicitly as at the year end in light of subsequently revealed information

The taxpayer made a loan, bearing interest at 25%, to a corporation ("SA") owned by his brother-in-law, which in turn lent the funds, at the same rate of interest, to an arm's length Canadian-resident corporation ("EMB"), which received those funds as part of a Ponzi scheme. The principal of EMB committed suicide on 17 March 2010, media accounts suggested a Ponzi scheme, and on 6 April 2010, SA filed notice of intention to make a proposal under the Bankruptcy and Insolvency Act.

The T5 for 2009 issued to the taxpayer by SA showed all the interest for 2009. He did not include it in his return (apparently filed in April 2010), and attached an explanatory letter stating that the interest was "never earned, payable nor collectible" and the 25 March 2010 report of the EMB receiver.

The Minister assessed inter alia on the basis that, as the 2009 interest had not been included in the taxpayer's return, no deduction could be claimed under s. 20(1)(l) or (p) and that, in any event, the debt for the interest was not doubtful as of 31 December 2009.

Owen J found that the taxpayer was entitled to rely on either para. (l) or (p) to deduct the entire amount. Contrary to the Minister's focus on available information as of 31 December 2009, "instead, the taxpayer may rely on information that comes into existence after the end of the year, but before the filing-due date, to fulfill his…obligation to report…" (para. 69), so that "the taxpayer must determine whether or not the debt was doubtful at the end of the taxation year, taking into account all information available up to the filing-due date for that year" (para. 70).

Respecting the Minister's submission (at para. 59) "that, because no written demand to pay the Interest was made by the Appellant, there can be no doubtful or bad debt," Owen J noted that this failure merely meant that the interest was added to the principal amount instead, which is to say that it was still owed to the taxpayer, and stated (at para. 60):

Although the precise meaning of the word "debt" may be the subject of some debate, it certainly encompasses a contractual obligation to pay an ascertainable sum such as the Interest, regardless of whether or not a demand for payment had been made by the Appellant.

Finally, there is no requirement that the taxpayer specifically report an amount from a doubtful or an uncertain debt as income in his return in order for it to be "included in computing the taxpayer's income." Owen J stated (at para. 64):

The fact that the Appellant reported the Interest in a manner that did not record it as income on a line of his 2009 T1 income tax return does not alter the fact that the interest was included in his income for 2009 by virtue of the application of the provisions of the ITA to the facts. This general principle was identified … in … Simard-Beaudry … as …:

…[T]he taxpayer’s liability results from the Act and not from the assessment.

See summary under s. 20(1)(p)(i).

Words and Phrases
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 12 - Subsection 12(11) - Investment Contract "debt" exists irrespective of demand 99
Tax Topics - Income Tax Act - Section 171 - Subsection 171(1) reserve could be claimed on appeal 90
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(p) - Subparagraph 20(1)(p)(i) bad debt deduction taken as at Dec. 31 in light of information available at April 30, and could be claimed implicitly or on appeal 478

Everett's Truck Stop Ltd. v. The Queen, 93 DTC 965, [1993] 2 CTC 2658 (TCC)

inducement to purchase product for more was includible under s. 12(1)(x), or perhaps s. 9

The assumption by another corporation ("Polar Oils") of the obligation of the taxpayer to pay $119,658 in consideration for the taxpayer's agreement to pay four cents per litre more for diesel fuel purchased by it from Polar Oils until the total overpayments amounted to $119,658, constituted an inducement under s. 12(1)(x). The amount of the inclusion under s. 12(1)(x) was the full amount rather than the amount of additional payments made by the taxpayer to Polar Oils in the taxation year.

After noting (at p. 973) regarding the exclusion in s. 12(1)(x)(v) for an amount “otherwise included in computing the taxpayer’s income,” that he “read the word “included’ to mean ‘properly includible’,” Bowman J went on to state obiter that he thought the amount was includible under s. 9.

No relief was available under s. 13(7.4) given the absence of a timely election.

Words and Phrases
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 244 - Subsection 244(14) 96