Words and Phrases - "primarily"
Canadian Imperial Bank of Commerce v. The King, 2024 TCC 160
In 2001 (before the three annual fiscal periods in issue) the appellant (CIBC) outsourced part of its Visa-card transaction processing and payment services to an arm’s length non-resident (“GPDI”) so that, in a typical transaction in which a Canadian cardholder presented their CIBC Visa card to a Canadian merchant, GPDI would process the point-of-sale information received from the merchant and transmit it to CIBC for credit authorization, transmit the authorization (assuming no “decline”) back to the merchant and send this and the other day’s transactions to VISA for clearing, following which there was a process involving CIBC, GPDI and VISA by which the settlement funds were paid to the merchant. GPDI would charge the merchant a merchant discount fee of, say, 2%, and pay CIBC an interchange fee of, say, 1.5% in consideration for CIBC’s authorization and payment services.
Before concluding that the interchange fees were not zero-rated on the basis of the exclusion in VI‑IX‑1(a)(ii) for a service that “relates to (a) a debt that arises from … (ii) the lending of money that is primarily for use in Canada”, Sommerfeldt J found that:
- Regarding the “relates to” test, “there only needs to be ‘some connection’ between the interchange services and the debt described in the carve‑out, and the interchange services do not need to be ancillary or incidental to the debt” and the “Slattery, Stantec and Miedzi Copper cases indicate that the phrases relating to, in relationship to, and, by extension, relates to, are to be given a wide or broad interpretation, and that a narrow view is to be avoided” (para. 54).
- In this context the verb “lend” should have “a broad meaning (recognizing that a loan arises when the lender, at the request of the borrower, pays money to a third party in satisfaction of an obligation owed by the borrower to the third party)” (para. 74), so that “when a Cardholder used a CIBC Visa Card in respect of a transaction, CIBC loaned to the Cardholder, and the Cardholder borrowed from CIBC, the monetary amount of the transaction” (para. 80).
- “in a tax context, the word primarily generally means (among other things) principally, mainly, most importantly, or more than 50%” (para. 107).
- “the loaned money was used to pay merchants located in Canada” (para. 104) so that “the money paid by CIBC indirectly to the merchants (i.e., through the Visa Payment System), in satisfaction of the Cardholders’ obligations to the merchants, was loaned money that was primarily for use in Canada” (para. 107).
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Excise Tax Act - Section 280 - Subsection 280(1) - Paragraph 280(1)(a) | due diligence defence established based on reasonable filing position | 55 |
24 April 2002 External T.I. 2001-0095755 F - TÉLÉTRAVAIL
The Employe is now permitting employees to choose to perform their duties from home (“telework”) so that employees can perform the tasks assigned to them from home, but with a certain portion of their time spent on the road or at the office (e.g., in a shared work space for such teleworking employees). CCRA indicated:
- Although the employer must confirm in this context through the Form T2200 that the employee was obliged by the employment contract to use part of their home to perform the employment duties and to pay for the specified supplies, for which the employee is not reimbursed, it need not confirm that the s. 8(13) conditions were satisfied.
- “[I]f an employee voluntarily adheres to the telework arrangement proposed by their employer, the employee is considered to have an obligation to use part of their home to perform the duties of employment and to pay certain expenses relating to this space devoted to working from home as long as the employee and the employer enter into a formal telework agreement.”
- “[T]he fact that the Employer provides an individual or shared work space at its place of business for teleworking employees has no bearing on an employee's eligibility to claim the deduction of expenses incurred in maintaining space dedicated to working from home in computing employment income.”
- Time spent on the road is not time spent by the employee working at home for purposes of the “principally” (over 59%) test.
16 July 2021 Internal T.I. 2020-0872521I7 - CERS - Qualifying property for rental income
Would the owner of a qualifying property that operates a hotel, or other similar business such as a motel or a bed and breakfast, be considered to use its qualifying property primarily to earn rental income as described in para. (b) of the definition of “qualifying rent expense,” such that it would be prevented from claiming the Canada emergency rent subsidy (“CERS”)?
CRA stated:
Generally, any income earned from the use or occupation of a property or a right to use or occupy property is considered to be rental income. However, where, in addition to basic services that are customarily supplied with rental of real or immovable property, an entity also provides significant additional services that are integral to the success of its ordinary activities, it is the CRA’s longstanding position that the entity would be earning income from the services provided instead of earning rental income from the use or occupation of the property.
Although the term “primarily” is not defined in the Act, “primarily” generally means more than 50% for income tax purposes. … With respect to a building … the use of its square footage is generally an accepted factor that is given significant weight in determining the particular use to which a building is put.
CRA went on to indicate that the application of these tests was a question of fact.
20 May 2014 External T.I. 2014-0517331E5 F - CII - exploitation agricole
Two taxpayers, dealing at arm's length and carrying on an unincorporated farming business, purchased farm equipment in a qualifying region for use on a farm there. However, in the same year, the equipment was also used for a number of months on other farmland owned by them in a non-qualifying region – and the equipment was not used at all in the winter months.
Does the use of the farm equipment in the other region disqualify it, and can each of them claim part of the ITC on the same equipment? CRA responded:
[A]n analysis of the facts must be made … to ascertain the governing intention when the property was acquired. … Thus, the taxpayer must be able to establish the taxpayer’s intention, i.e., to have acquired the new farm equipment primarily for use throughout its lifetime on farm land situated in XXXXXXXXXX.
The term "primarily"… mean[s] more than 50%. The … "operating time" generally refers to the time the equipment usually runs or functions during the taxation year. …
Where there are two co-owners, we agree that it is possible for them to divide the total of qualified property eligible for the ITC between themselves… .
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 127 - Subsection 127(27) | no ITC reversal if unanticipated transfer of equipment to a farm outside the region | 172 |
| Tax Topics - General Concepts - Ownership | co-owners entitled to pro rata ITCs | 63 |
S4-F15-C1 - Manufacturing and Processing
Application of "primarily"
1.21 ... [T]he term primarily as used in paragraph 5201(a) of the Regulations signifies principally or chiefly and means more than 50%. A corporation’s activities are generally carried on by its employees. The CRA will look at the employees’ activities to determine if they are engaged principally or chiefly in manufacturing, processing, or something else. In some industries, the use of the company's assets in manufacturing or processing activities may also be considered where the use of labour does not accurately reflect the principal activities of the corporation.
Gerbro Holdings Company v. Canada, 2016 TCC 173, briefly aff'd 2018 FCA 197
The taxpayer (“Gerbro”) was a Canadian investment corporation (owned by a family trust but with an elderly income beneficiary, so that Gerbro was required to have liquid investments) whose board-established investment guidelines specified that between 0% and 30% of its holdings be of directional hedge funds and 0% to 30% be of non-directional hedge funds (i.e., uncorrelated with the equity markets). Gerbro invested in both types of hedge funds, which typically were offshore feeder funds (in a low-tax rate jurisdiction) in a master-feeder structure and with most or all returns reinvested rather than distributed.
In finding that the hedge funds derived their value “primarily” (i.e., “more than 50% of their value” (para. 120)) from portfolio investments, Lamarre ACJ stated (at paras. 101-103):
[T]he ordinary commercial meaning of portfolio investment in the international investment context is an investment in which the investor … is not able to exercise significant control or influence over the property invested in.
... [T]he definition suggests thresholds ranging from 10% to 25% ownership … [although] a small group of well-organized investors could have a controlling interest while having less than 10% ownership… .
[P]ortfolio investments are passive investments that do not entail active management of, or control over, the operations of the underlying investment… .
Turning to the “main reason” test, Lamarre ACJ found (at para. 158) that “while tax deferral was an ancillary reason prompting Gerbro to invest in the Funds, none of its main reasons was tax deferral.” In this regard, she stated (at para. 165) that “the more important a reason for investing is, the harder it will be to elevate another reason, such as obtaining a tax deferral benefit, to the same level” before referring (at para. 167) to “overarching commercial reason[s] for investing" in these Funds,” (at para. 170) that “Gerbro was very concerned with the reputation of the mangers it invested with” and (at para. 172) that “access to the mangers of the Funds was only possible for Gerbro through offshore hedge funds, and these types of alternative investments only made up a part of Gerbro’s investment portfolio.” Furthermore, the Funds satisfied Gerbro’s liquidity criteria (para. 173).
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - General Concepts - Onus | no taxpayer burden to displace assumptions of mixed fact and law | 71 |
| Tax Topics - Statutory Interpretation - Hansard, explanatory notes, etc. | Minister's statement was false | 130 |
| Tax Topics - Other Legislation/Constitution - Federal - Tax Court of Canada Rules (General Procedure) - Section 145 - Subsection 145(3) | expert's report did not include all the underlying data | 115 |
Will Kare Paving & Contracting Ltd. v. The Queen, 98 DTC 6203 (FCA)
The taxpayer purchased an asphalt plant with the expectation that it would sell up to 40% of the production of the plant to third parties and use the balance in its own asphalt paving business. In fact, only 25% of the plant's production was sold to third parties.
The Tax Court Judge had "correctly ascribed to 'primarily' in this context the meaning of 'most important'" in concluding that the property had not been acquired primarily for manufacturing goods for sale. Furthermore, the Coopers & Lybrand case (94 DTC 6541) had been properly applied in finding that the taxpayer's own use under contracts that were for working materials and not in respect of the sale of goods did not represent the purchase of "goods for sale or lease".
Plamondon v. The Queen, 2011 DTC 1137 [at at 746], 2011 TCC 47 (Informal Procedure)
Hogan J found that dried insects donated by the taxpayer to Laval University were individually appraised and did not "form an unbreakable set," and thus were not a set (as per s. 46(3)), so that under s. 46(1), each insect had an adjusted cost base of $1,000. Before so concluding, he disagreed with the expansive interpretation of personal-use property in Klotz, stating (at para. 15):
In English, the ITA uses the word "primarily". The Oxford English Dictionary, third edition, defines "primarily" as follows: "to a great or the greatest degree; for the most part, mainly". Thus, the property must unequivocally be for the use and enjoyment of the taxpayer. If Parliament had wanted there to be only two types of property, it could have defined PUP as all property that is not income property However, that was not what Parliament did.
Here, the taxpayer "prepared them only for donation. There was no real use" (para. 19) (after citing Glaxo Wellcome as to "use").
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 46 - Subsection 46(3) | 83 |
Burger King Restaurants of Canada Inc. v. Canada, 2000 DTC 6061 (FCA)
Although Burger King restaurant were used for "processing" (given that the ordinary meaning of that word did not exclude the preparation of food), the taxpayer was unable to adduce sufficient evidence of qualitative factors that would detract from a conclusion that the buildings of the taxpayer's fast food chain were not used "primarily" for processing given that approximately 46.5% of the space was used for processing.
Mother's Pizza Parlour (London) Ltd. v. The Queen, 88 DTC 6397, [1988] 2 CTC 197 (FCA)
A Mother's Pizza restaurant, which devoted 25% of its floor area and 30% of its payroll to its kitchen, and the balance to the dining rooms and ancillary activities, could not be said to be using the restaurant building "primarily" for the purpose of processing goods (i.e., food) for sale. "When, as in the present case, different parts of a same building are permanently used for what is considered to be two different purposes, the most important factor in determining the purpose for which the building is primarily used is the amount of space in the building that is used for each one of these two purposes."