Subsection 81(1) - Amounts not included in income
Paragraph 81(1)(a) - Statutory exemptions
Cases
The Queen v. AEL Microtel Ltd., 86 DTC 6348, [1986] 2 CTC 108 (FCA)
The intention of Parliament to exempt the amount of a development incentive from income tax is not frustrated by taking the amount into account under s. 13(7.1). "Taking the incentive into account does not effectively avoid its exemption from taxation, it merely ensures that an equal amount of future earnings, not exempted from tax, will not escape taxation by virtue of capital cost allowance."
Administrative Policy
9 January 2001 T.I. 2000-005344
Where a non-resident corporation derives income or a capital gain which is exempted from tax under Part I by a treaty, s. 81(1)(a) provides that such amount shall not be included in income of the corporation for the taxation year. No deduction under s. 110(1)(f)(i) may be claimed in respect of an amount that is exempt under s. 81(1)(a).
Paragraph 81(1)(c) - Ship or aircraft of non-residents
Cases
Furness Withy & Co. Ltd. v. MNR, 66 DTC 5358 (Ex Ct), aff'd 68 DTC 5033, [1968] CTC 35, [1968] S.C.R. 221
The taxpayer, which was a resident of the U.K. and carried on an international shipping business both directly and through subsidiaries, provided various services through its Canadian branch office in respect of both its own ships and those of subsidiaries, including the provision of stevedoring services, the finding and booking of cargo for the ships and attending and participating in the rate setting and other activities in the Canada-U.K. Eastbound Freight Conference. In finding that the profits attributable to these services provided in relation to the taxpayer's own ships came within the exemption in s. 10(1)(c) of the pre-1972 Act for "income for the year of a non-resident person earned in Canada from the operation of a ship or aircraft owned or operated him", Thurlow J. stated (p. 5366):
"Both the 'agency' and stevedoring services in respect of which the entries arose were part of the process of operating the ships and the amounts entered in the books in respect of such services do not become any the less exempt by reason of the manner in which the appellant organized the activities of its branches or arranged their bookkeeping and accounting."
However, no similar exemption applied to such services provided to subsidiaries.
Administrative Policy
16 June 2014 T.I. 2013-0515431E5 - International traffic and airline enterprise
During peak season, Canco, which transports passengers to destinations inside and outside Canada, is supplied planes, and non-resident pilots and crew by an arm's length U.K. resident ("Forco") who is the pilots' and crew's employer, to transport Canco's passengers. In finding that Forco qualified under s. 81(1)(c) provided similar relief was provided in the U.K., CRA stated:
Forco could be viewed as earning income in Canada from the operation of an aircraft in international traffic within the meaning of paragraph 81(1)(c), notwithstanding that the tickets held by the passengers on its flights represent contracts for services between the passengers and Canco.
4 June 1996 T.I. 96 1114
General discussion.
4 May 1995 T.I. 951182 (C.T.O. "Shipping Income - Residents of Greece")
"As it is our understanding that Greece continues to exempt residents of Canada from its Freight Tax on the basis of the bilateral arrangement between Canada and Greece agreed to in the above-mentioned exchange of diplomatic notes [in September 1929], paragraph 81(1)(c) of the Act will operate to exempt the income for the year of a resident of Greece earned in Canada from the operation of a ship in international traffic."
June 1992 Hong Kong Seminar (May 1993 Access Letter, p. 227)
"Income from the operation of a ship" does not include a capital gain from a disposition of the ship, nor will the capital gain be included in the taxpayer's "gross revenue".
92 C.M.TC - Q.6
"Income from the operation of a ship" does not include a capital gain from the disposition of the ship.
2 July 1991 T.I. (Tax Window, No. 5, p. 15, ¶1326)
The foreign country will be considered to grant substantially similar relief if it does not impose an income tax, or if the income from the operation of the ship or aircraft in international traffic is exempt from tax in that country.
The exemption does not apply to income from a dry lease or bare boat charter because such income is not income from the operation of a vessel.
Articles
Owen, "Tax Issues in International Shipping", 1993 Canadian Tax Journal, Vol. 41, No. 4, p. 724.
Lang, "Taxation of International Aviation: A Canadian Perspective", 1992 Canadian Tax Journal, No. 4, p. 881.
Paragraph 81(1)(d) - Service pension, allowance or compensation
Administrative Policy
5 July 2013 Ministerial Correspondence 2013-0489561M4 - Taxation of the Veterans Independence Program
Under a recent change in the Veterans Independence Program, recipients would get lump sums to pay vendor invoices rather than sending the invoices to Veterans Affairs Canada. These lump sums are not taxable (the same as before), because the are received pursuant to the Pension Act.
Paragraph 81(1)(e) - War pensions
Administrative Policy
10 July 2014 T.I. 2014-0529791E5 - Pension income arising in Hong Kong
Respecting the treatment of a Hong Kong War Memorial Pension received by a resident of Canada, CRA stated: we would consider a pension received from Hong Kong SAR to be a pension received from a country that was an ally of Canada at the time of the Second World War.
Paragraph 81(1)(g.1) - Income from personal injury award property
Administrative Policy
28 January 1992 Memorandum (Tax Window, No. 16, p. 17, ¶1723)
A lump-sum payment received by an individual through a consent to judgment of the Supreme Court of Canada as a result of his claim for compensation under a long-term disability plan for an automobile accident injury, will not be exempted by s. 81(1)(g.1) because there is no award for damages, and no income from property acquired as a result of an award for damages.
Paragraph 81(1)(h) - Social assistance
See Also
Gallant v. The Queen, 2009 DTC 1102 [at 558], 2008 TCC 91, aff'd 2010 DTC 5090 [at 6898], 2010 FCA 138
The taxpayer resides at and operated two special care homes. Subsidies which she received from the Province of New Brunswick to cover part of the costs of care for residents did not qualify as social assistance payments under s. 81(1)(h) given that they represented consideration for services provided by her in the course of her business of providing long-term care services.
Administrative Policy
19 March 1992 Memorandum (Tax Window, No. 18, p. 17, ¶1821)
Amounts paid to a care giver to cover the room and board of a handicapped person are not included in his employment income.
See also ¶1850.
Paragraph 81(1)(e.2)
Administrative Policy
27 March 2013 Folio S4-F3-C1
CRA will consider a price adjustment clause to represent pricing at fair market value if:
- the agreement reflects a bona fide intention of the parties to transfer property at FMV;
- the purported FMV is determined by method that is fair and reasonable in the circumstances (which does not necessarily entail using CRA's preferred method, nor engaging a valuation expert);
- the parties agree that a CRA or Court valuation, if any, will supersede the price otherwise determined; and
- the excess or shortfall is actually refunded or paid, or legal liability therefor is adjusted (para. 1.5).
Price adjustment clauses involving shares may use a number of adjustment mechanisms. CRA non-exhaustively mentions changes in redemption value, the issuance of a note or change in the principle amount of a note, or a change in the number of shares issued - although CRA recommends against using the latter because of inherent legal and technical difficulties (para. 1.6).
Subsection 81(2) - M.L.A.‘s expense allowance
Administrative Policy
83 C.P.T.J. - Q.24
Any allowances received by a member of a legislative assembly (or by an municipal officer) that reimburse her for expenses considered to be personal in nature will be required to be included in her income.
An allowance described in s. 81(2) will not be subject to tax under s. 6(1)(b).
6 August 1992 T.I. 921792 (April 1993 Access Letter, p. 143, ¶C76-065)
A per diem allowance of $100 would not qualify for exemption.
Subsection 81(3) - Municipal officers’ expense allowance
Cases
Bellrose v. The Queen, 2012 DTC 5068 [at 6922], 2012 FCA 67
The Court found that the Métis Nation of Alberta Association ("MNAA") was not an incorporated municipality. Although MNAA was incorporated under a provincial act and had a complex governance structure, it did not have powers of self-government and did not provide the services that a municipality typically provides. The taxpayer's contention that MNAA would have provided municipal-like services if given greater funding was not germaine to the point that it did not in fact provide such services.
Moreover, MNAA simply could not fall within the ordinary meaning of "municipality", nor Alberta's Municipal Government Act, which contemplated that a municipality be formed "for an area." Dawson J.A. stated (at para. 20):
It may be possible to envision a different legal model, in which a municipality may be established on some basis other than a geographic standard. However, as counsel for the Minister observed, legislative change would be required to permit such an outcome.
Administrative Policy
26 June 1995 T.I. 950321 (C.T.O. "Municipal Officer's Expense Allowance")
Taxable benefits such as the automobile standby charge are not considered to be amounts "paid" as salary or other remuneration as required by the municipal officer's contract of employment.