News of Note
CRA indicates that normal course dividends and loss-shifting transactions generally do not engage the new s. 55(2) rules
Points made by CRA respecting the new s. 55(2) rules include:
- "Normal course" dividends (albeit with a narrow description of the only clear safe harbour) should not be subject to the new rules.
- CRA is willing to issue opinions (and presumably rulings, once the new rules are enacted) on the non-application of s. 55(2.1), although as a purely technical matter they will be somewhat meaningless, as the required representations will beg the (purpose) question.
- Conventional loss shifting transactions (which CRA has already been requiring not to create additional basis) will not be subject to the new rules.
- Where a non-participating discretionary shares has no accrued gain, then a dividend paid thereon which violates the purpose test cannot benefit from safe income. However, where this occurs, CRA is prepared to accept that the safe income on the participating shares of the same corporation will not be affected.
- CRA considers it to be offensive to redeem a share for a note in a s. 55(3)(a) reorganization, with the note being used to generates basis in excess of redeemed shares’ ACB.
- Also offensive is "ACB streaming prior to a reorganization under 55(3)(a) or (b), where the redemption would be of low-ACB shares, while the high ACB shares would be preserved."
- CRA appears to consider creditor-proofing transactions to per se entail a purpose that engages the new rules.
Neal Armstrong. Summary of 24 November 2015 CTF Annual Roundtable, Q.6 under 2015 CTF Roundtable.
CRA translates USD debt at the historical rate for thin cap purposes
CRA considers, based on s. 261(2), that the amount of U.S.-dollar denominated debt is to be measured for thin cap purposes in Canadian dollars based on the FX rate at the time the loan was made.
Neal Armstrong. Summary of 24 November 2015 CTF Annual Roundtable, Q. 10 under 2015 CTF Rountable.
Income Tax Severed Letters 25 November 2015
This morning's release of three severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA currently is inclining to classify Delaware and Florida LLPs and LLLPs as corporations
CRA is "heavily leaning" towards characterizing Florida limited liability partnerships (LLPs) and Florida limited liability limited partnerships (LLLPs) as corporations, and is a few weeks away from reaching a definitive conclusion on this point. Its preliminary view is that the equivalents under Delaware law also are corporations.
Neal Armstrong. Summary of 24 November 2015 CTF Annual Roundtable, Q. 7(b) under 2015 CTF Roundtable.
CRA maintains its policy on LLCs as corporations
CRA essentially indicated that Anson has not changed its view that an LLC is a corporation for purposes of the Act. (CRA was obliged to point out that it has not examined all the LLC statues or even changes to ones that it previously has examined, but did not communicate that this was a big deal).
Neal Armstrong. Summary of 24 November 2015 CTF Annual Roundtable, Q. 7(a) under 2015 CTF Roundtable.