News of Note
CRA extends its policy on the executor’s year to a stub executor’s year
Email this ContentIT-286R2, para. 6 states that the income of the trust for that year is considered to be payable to the beneficiaries where the sole reason for the rights of a beneficiary being unenforceable is the existence of an executor's year, the taxation year of a testamentary trust coincides with the executor’s year, and all of the beneficiaries agree to this treatment. CRA confirmed that where the initial taxation year of the estate is less than one year, the above comments apply to the “stub” portion of the executor’s year that is within the first estate year. In this regard, CRA indicated that the mere fact that the beneficiaries each had a fixed percentage entitlement to the net estate would not by itself result in the trust income being considered to be payable to them during the stub executor’s year.
As to the portion of the executor’s year falling in the second estate year, although CRA did not state it this baldly, effectively the executor’s year concept was irrelevant given that the income for the second estate year could be paid or payable to the beneficiaries under the general s. 104(24) rules by the end of that year.
Neal Armstrong. Summary of 14 September 2017 CPA Alberta Roundtable, Q.25, 2017-0703921C6 under s. 104(24).
CRA indicates that waivers generally cannot be used to extend the 6-year period for claiming a FTC under s. 126(2.21)
Where an individual, who had been resident in Canada for over five years, realized a capital gain from the deemed disposition of non-Canadian real property under s. 128.1(4)(b) on emigrating from Canada, he would be potentially eligible under s. 126(2.21) to claim a Canadian foreign tax credit for foreign taxes that become payable on the gain that accrued in Canada, provided that this credit is assessed within the extended reassessment period of six years following the emigration year. Can this period be extended by filing a waiver with CRA? CRA stated:
[I]f any of the circumstances to support the deduction under subsection 126(2.21) … (e.g., disposition of the property and/or foreign taxes paid) are present within the statutory assessment period referred to in paragraph 152(4)(b) … it may be appropriate for the Minister to consider a taxpayer’s waiver request for the emigration year to allow the Minister sufficient time to review and process any potential reassessment for this deduction beyond the aforementioned reassessment period.
This seems to be saying that a waiver can be useful in giving CRA the time to process the FTC, but is not a mechanism for getting the FTC for foreign tax that is not triggered until, say, 20 years after the emigration year.
Neal Armstrong. Summary of 11 October 2017 External T.I. 2016-0660421E5 under s. 152(4)(b)(i).
CRA provides comfort on when provision of corporate security for a shareholder loan will not trigger the B2B loan rules
When will the back-to-back loan rules in s. 15(2.17) apply where a corporation provides security to a lender to its shareholder? CRA noted that “where a security interest in the assets of the company is tantamount to putting assets in the hands of the intermediary for its general use, the shareholder loan rules will ordinarily apply.” On the other hand:
[W]here a financial institution lends money on commercial terms to an individual that is a shareholder of a corporation, the corporation provides a security interest in its property to the lender, and such property can only be used in the event of default on the loan as a means of repaying amounts owing by the debtor under the lending agreement, then the security interest would not ordinarily be considered a “specified right”.
CRA also noted that this quoted safe harbour is not affected if the security interest is granted by the corporation to secure more than one shareholder debt.
Neal Armstrong. Summary of 14 September 2017 CPA Alberta Roundtable, Q.11, 2017-0703901C6 under s. 15(2.16)(c)(ii).
Income Tax Severed Letters 20 December 2017
This morning's release of six severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Groscki – Tax Court of Canada finds that a director was not liable for failure to obtain a s. 159(2) certificate before his corporation disposed of most of its assets
Bocock J appears to have found that a director was not a “legal representative” of a Macao-incorporated corporation that disposed of all of its inventory (being substantially all of its assets) without obtaining a s. 159(2) clearance certificate given inter alia that the director did not do a lot more than directors normally do and, in particular did not act as a liquidator given that there was no liquidation process authorized by the corporation nor any formal authority granted to him to act as a liquidator, de facto or otherwise.
Neal Armstrong. Summary of Groscki v. The Queen, 2017 TCC 249 under s. 159(3).
Farm Credit Canada – Federal Court of Appeal finds that “loan corporation” for GST/HST purposes has a broader meaning than its provincial regulatory meaning
Different types of selected listed financial institutions (SLFIs) are subject to different attribution rules for determining the blended HST rate of tax to which they are ultimately subject. One of these SLFI categories is for “a trust and loan corporation, a trust corporation or a loan corporation.” “Loan corporation” is undefined.
Farm Credit Canada (a federal Crown corporation providing financing assistance to farmers) argued that it was not a “loan corporation” because the quoted phrase above had a well understood meaning given that the provincial legislation regulating trust and loan corporations defined a “loan corporation” as a corporation that was incorporated for the purpose of borrowing money from the public (which Farm Credit Canada did not do) and then lending or investing such money. It preferred another rule for general non-loan corporations that would have given weight to much of its payroll being in low-rate provinces.
Near JA, in rejecting this submission, found that the words “loan corporation” simply mean “a corporation that makes loans.” He also found that this accorded with the rule’s likely policy, which would have contemplated a level playing field between privately-funded loan corporations and those funded with deposits from the public.
Neal Armstrong. Summary of Farm Credit Canada v. The Queen, 2017 TCC 29 under Selected Listed Financial Institution Attribution Method (GST/HST) Regulations, s. 26(1).
CRA has finalized its revised VDP GST/HST Memorandum
CRA has made similar revisions in finalizing its Memorandum on the GST/HST (and excise) voluntary disclosure program as was the case for the ITA Circular, for example:
- The effective date is now March 1, 2018, meaning that applications received on and after that date will be categorized as falling into one of three categories: wash transactions (100% interest and penalty relief); general program (50% interest relief and 100% penalty relief); and limited program (no interest relief and penalty relief only for the gross negligence penalty).
- The limited program is now expressed to apply “where there is an element of intentional conduct on the part of the registrant or a closely related party.” (To show how closely integrated the drafting of the two VDP documents is, “closely related” is an ETA-defined term that was also used in the ITA Circular.)
- However, “generally, applications by corporations with gross revenue in excess of $250 million in at least two of their last five taxation years, and any related entities, will [only] be considered under the Limited Program.”
Neal Armstrong. Summary of 15 December 2017 GST/HST Memorandum 16.5 – Voluntary Disclosures Program under ETA s. 281.1(2).
ConocoPhillips - Federal Court of Appeal finds that CRA has no ability to use the s. 220(2.1) waiver to extend the period for filing a Notice of Objection
S. 220(2.1) provides that “where any provision of this Act… requires a person to file a… document…the Minister may waive the requirement, but the person shall provide the document…at the Minister’s request.” Woods JA has reversed the finding of Boswell J that s. 220(2.1) accords the Minister the discretion to waive the requirement to file a Notice of Objection (respecting a situation where the taxpayer allegedly did not find out about the reassessment in question until after the one-year limitation in s. 166.1(7) to get an extension for filing an Objection had passed).
Woods JA found that this “strict” limitation “is intentional,” and that “the general waiver provision cannot be applied in this manner to override a more specific provision [s. 166.1(7)].”
Neal Armstrong. Summaries of Canada (National Revenue) v. ConocoPhillips Canada Resources Corp., 2017 FCA 243 under s. 220(2.1) and Statutory Construction – Specific v. general provision.
Six further full-text translations of CRA technical interpretations are available
The table below provides descriptors and links for six French technical interpretations released in April and March of 2014, as fully translated by us.
These (and the other full-text translations covering the last 3 2/3 years of CRA releases) are subject to the usual (3 working weeks per month) paywall.
CRA provides examples on the operation of the proposed split-income rules
Various points illustrated by examples prepared by CRA of the operation of the expanded split income proposals include:
- There generally is no limitation under the rules on income-splitting with an over-24 inactive spouse with a significant shareholding in the business in question – for example, paying all the profits as a dividend to such spouse on a separate class of discretionary shares (Example 3B).
- Nor is there any limitation under the expanded rules on Opco paying salary to a child or spouse (other than under the current rules including s. 67) (Example 5B).
- There is a safe harbour for under-25 children who work an average of at least 20 hours per week in the business, but there is a more general exclusion for being actively engaged on a regular, continuous and substantial basis in the activities of the business in the taxation year or in any five prior taxation years. CRA does not consider this more general test to be satisfied where the child worked 600 hours in the four summer months (Example 5A), but considers it to be satisfied where the child is a major actor in a business that does not require a lot of hours per week (Example 9).
- The definition of an excluded share refers inter alia to a test of less than 90% of the business income being from the provision of services. CRA references examples of shares in a portfolio-investment corporations (Example 8) and a rental-property corporation (Example 10) as being excluded shares.
- CRA states that in determining whether a payment is a reasonable return, it “does not intend to generally substitute its judgment of what would be considered a reasonable amount unless there has not been a good faith attempt to determine a reasonable amount.” It gives, as an example, a spouse doing bookkeeping of less than 20 hours per week for the other spouse’s professional firm, and who receives dividends that “while higher that the amount that was paid to the arm’s length bookkeeper,” nonetheless do not violate the quoted standard (Example 11).
Neal Armstrong. Summaries of CRA Guidance on the application of the split income rules for adults under s. 120.4(1) – split income – (c)(ii)(C), reasonable return, excluded shares, excluded business, split income, s. 120.4(1.1)(c).