2022-0926191C6 IFA 2022 - Q3 - Meaning of "goods" under 95(3)(b)

Principal Issues: Does real estate inventory, such as residential condominiums, held for sale in the regular course of business qualify as “goods” for purposes of paragraph 95(3)(b)?

Position: No.

Reasons: Goods are generally accepted to mean tangible, moveable, personal property intended for sale. Since real property is not moveable or personal property, it would not be considered a good.

Author: Spiers, Alison
Section: 95(3)(b), 95(2)(b)

2022 International Fiscal Association Conference

CRA Roundtable

Question 3 - Meaning of “goods” in 95(3)(b)

Consider a situation where marketing services are provided by a wholly-owned foreign affiliate (“FA”) of a corporation resident in Canada (“Canco”) in respect of the sale of residential condominiums located in Canada.

The residential condominiums are owned either by Canco or entities that do not deal at arm’s length with Canco.

The following is assumed:

a) Canco and non-arm’s length entities are subject to Canadian tax in relation to income earned on the sale of the residential condominiums; and

b) Reasonable consideration is paid for the provision of the marketing services and that these costs are deductible against income earned in Canada.

Does real estate inventory, such as residential condominiums, held for sale in the regular course of business qualify as “goods” for purposes of paragraph 95(3)(b)?

CRA Response

Paragraph 95(2)(b) provides that where certain conditions are met:

“the provision, by a foreign affiliate of a taxpayer, of services or of an undertaking to provide services

(i) is deemed to be a separate business, other than an active business, carried on by the affiliate, and any income from that business or that pertains to or is incident to that business is deemed to be income from a business other than an active business, to the extent that the amounts paid or payable in consideration for those services or for the undertaking to provide services”

The conditions turn in part on the deduction of the amount paid or payable for those services in computing the income from a business carried on in Canada and or in computing the foreign accrual property income of a controlled foreign affiliate.

Paragraph 95(3) provides that:

“For the purposes of paragraph (2)(b), “services” includes the insurance of Canadian risks but does not include

(b) services performed in connection with the purchase or sale of goods;

The term “goods” is not defined in the Income Tax Act or the Income Tax Regulations for the purposes of paragraph 95(3)(b).

In Canadian Wirevision Ltd. v the Queen (79 DTC 5101(F.C.A.), affirmed. 78 DTC 6113 (F.C.T.D.)), the Court addressed the meaning of the word “goods” in the context of the processing and manufacturing deduction. It held that television and radio signals transmitted by the company to subscribers were not “goods” within the meaning of section 125.1:

I agree with the trial judge that the word “goods” in section 125.1 “is used in the common parlance of merchandise or wares, or, to put it in legal jargon, tangible moveable property”. In that sense, the signals captured by the appellant, in my view, are not goods.

That view is reflected in various legal and English dictionaries, where the term “goods” is defined broadly to generally include all tangible, moveable, personal property intended for sale. The Black’s law Dictionary for example defines goods as “[t]angible or moveable personal property other than money; esp., articles of trade or items or merchandise” [emphasis added]. The Oxford English Dictionary (“OED”) defines goods as “personal property, possessions; esp. movable property. Cf. Chattel.” The term “marchandises” used in the French version of paragraph 95(3)(b) is defined as tangible property that is bought and sold and is generally understood to be moveable.

Based on the general definitions above, residential condominiums being real estate (immovable property in Québec), they would not be considered “goods” under paragraph 95(3)(b). The view that the word “goods” in that provision refers to moveable property is also consistent with paragraph 95(3)(a), which also refers to “goods” and excludes services related to their transportation. It is also consistent with the other paragraphs which, although not using the word “goods”, refer to:

(c) the transmission of electronic signals or electricity along a transmission system located outside Canada; or

(d) the manufacturing or processing outside Canada […] of tangible property, or for civil law corporeal property” [emphasis added]

If no other exclusions are met, 95(2)(b) would apply to services provided in connection with the sale of real estate inventory, including residential condominiums.

Alison Spiers
2022-092619
May 17, 2022





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