News of Note
Filion – Federal Court of Appeal finds that suspending an action to recover a retiring allowance did not suspend the running of the 7-year s. 60(o.1) limitation period
Email this ContentThe taxpayer was sued by the Quebec government for fraud and breach of trust, and he counter-sued in 2001 to be paid a "retiring allowance" (i.e., termination payment) by the National Assembly. This latter action was suspended until 2009 pending the outcome of the criminal case. In 2013 he received a judicial award of part of his claimed retiring allowance.
It was unnecessary to address to what extent he paid his legal fees in the 1999 to 2003 period in order to establish a right to the retiring allowance, because the award occurred more than seven years after those fees were paid, i.e., beyond the carryforward period contemplated by s. 60(o.1): suspending the civil action to recover the allowance did not suspend the running of the limitation period.
Neal Armstrong. Summary of Filion v. The Queen, 2017 CAF 67 under s. 60(o.1).
CRA confirms that the car standby charge is reduced for the sales tax reduction occurring where a trade-in allowance is provided on the car purchase
Under ETA s. 153(4)(c) and a similar approach under the western provincial sales tax regimes, the sales tax payable where a trade-in allowance is provided on a purchased automobile is reduced accordingly. CRA confirmed that this also has the effect of reducing the automobile cost for standby charge purposes.
Neal Armstrong. Summary of 2 January 2017 Internal T.I. 2016-0636911I7 under s. 6(7).
CRA rules that a fee charged on assigning receivables was part of the GST-exempt consideration for the receivables sale
A car dealer enters into contracts with customers, which could be conditional sales contracts, instalment sales contracts, credit agreements or finance contracts with instalments, and immediately sells each contract to a lender for cash consideration. Consistently with Canada Trustco, CRA found that a separate fee charged by the car dealer on selling the contracts was also part of the consideration for the assignment, so that the fee was also exempted from GST/HST.
Neal Armstrong. Summary of 21 December 2016 Ruling 157873 under ETA, s. 123(1) – financial service – (d).
CRA confirms that the use of space-confirmed, but not standby, passes by airline employees is a taxable benefit
CRA confirmed that the use of space-confirmed airline passes by current airline employees, but not standby passes, is a taxable benefit which is valued at what it would have cost to purchase the space – whereas neither category of pass is taxable to retired employees.
Neal Armstrong. Summary of 17 February 2017 External T.I. 2016-0662341E5 under s. 6(1)(a).
Robotx Solutions – Tax Court of Canada finds that solving narrowly-cast production engineering problems was not SR&ED
There was something paradoxical about a company contractually committing itself to come up with narrowly defined solutions to particular production problems of its clients, e.g., designing, making and installing a “flow rectifier plate” to straighten-out rectangular aluminum bars coming out of an extruder, while at the same time treating a portion of its expenditures in performing such contracts as “experimental development,” which requires that there be significant technological uncertainty to be resolved, i.e., a significant chance that a solution would not be found within a predictable time frame.
Jorré J found that the company had not demonstrated that any of the work on four separate projects of this nature “was engaged in to resolve technological uncertainties that could not be resolved with current methods and existing knowledge.”
Neal Armstrong. Summary of Robotx Solutions Inc. v. The Queen, 2017 CCI 73 under s. 248(1) – scientific research & experimental development.
CRA indicates that handling (and marketing to) the customers of an insurance company was not predominantly arranging for issuance of insurance for GST/HST purposes
A separate company which took care of dealing with the insurance clients of an insurance company including applications and forwarding inquiries, as well as doing marketing, was found by CRA to be likely engaged in the supply of taxable promotional and administrative services rather than GST/HST-exempt “arranging for” supplies.
Neal Armstrong. Summary of 16 December 2016 Interpretation 169841 under ETA – s. 123(1) – financial service – (l).
Income Tax Severed Letters 17 May 2017
This morning's release of five severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Gaz Métro – Cour du Québec finds that a “mirror debt” arrangement did not result in a legal release of debt for GAAP and capital tax purposes
Gaz Métro issued debt in the public markets and then on-lent the money on the same terms to a limited partnership of which it was a 70% limited partner, so that it was the limited partnership which serviced the debt through its “mirror” debt. Gaz Métro considered that, under generally-accepted accounting principles, this arrangement qualified as one in which (as per the relevant accounting pronouncements) it had been “legally released” from its debt, thereby reducing its capital for Quebec capital tax purposes.
Fournier JCQ considered that, notwithstanding that the partnership had effectively assumed the debt, there had been no legal release given that there had been no novation.
Federally, ss. 181(3) and 190(2) indicate that Part VI capital (other than of OSFI-supervised institutions) is determined under GAAP.
Neal Armstrong. Summary of Gaz Métro inc. c. Agence du revenu du Québec, 2017 QCCQ 3664 under s. 181(3).
Four further full-text translations of Technical Interpretations are available
Full-text translations of four French technical interpretations that were released between March 11, 2015 and March 4, 2015 are listed and briefly described in the table below.
These (and the other translations covering the last 26 months of CRA releases) are subject to the usual (3 working weeks per month) paywall.
R & S Industries – Tax Court of Canada finds that a taxpayer is not bound by the statement of boot set out in its s. 97(2) election form
R & S Industries was unsuccessful in a motion to have the Federal Court direct CRA to reconsider its decision to not permit R & S Industries to file an amended s. 97(2) election form so as to change the agreed amounts. R & S then appealed to the Tax Court with a view to convincing the Court that the allocation of consideration between partnership-interest and non-partnership interest consideration set out on the (T2059) election form did not reflect the actual agreed allocation. CRA viewed this as an attempted end-run around R & S’s inability to amend its election, and sought to have the appeal dismissed on jurisdictional grounds.
Graham J considered that there was a crucial distinction between the T2059’s agreed amounts, which could not be altered by the Minister, and the allocation of the consideration, which was a purely factual matter which was merely recorded on the T2059, and which either CRA or the taxpayer were free to challenge in the Tax Court as not according with the actual facts. Accordingly, the Crown’s jurisdictional challenge was dismissed.
This case likely suggests that the CRA practice, of requiring that corrections to s. 85 etc. election forms be made through the filing of amended election forms accompanied by a late-filing penalty, is wrong to the extent that the changes relate to information other than the elected amounts.
Neal Armstrong. Summary of R & S Industries Inc. v. The Queen, 2017 TCC 75 under s. 97(2).