Income Tax Severed Letters - 2012-02-24

Ruling

2012 Ruling 2011-0431481R3 - Short-term and Taxable Preferred Share

Unedited CRA Tags
248(1)
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Taxable Preferred Share

Principal Issues: Will the New Common shares be Short-term or Taxable Preferred Share?

Position: No.

Reasons: The definitions of Short-term and Taxable Preferred Share in subsection 248(1) of the Income tax Act will not be met.

2011 Ruling 2010-0357991R3 - Internal reorganization - 55(3)(a)

Unedited CRA Tags
55(3)(a)

Principal Issues: Internal reorganization.

Position: Favourable rulings issued.

Reasons: In compliance with the law and previous positions.

2011 Ruling 2011-0400741R3 - Disposition of Property - XXXXXXXXXX Club

Unedited CRA Tags
149(1)(l), 149(5)
Summary Under
Tax Topics - Income Tax Act - Section 149 - Subsection 149(5)

Principal Issues: Whether subparagraph 149(5)(e)(ii) will apply to the entire gain from the disposition of certain property of the Club.

Position: Subparagraph 149(5)(e)(ii) will apply.

Reasons: The property was used exclusively and directly in providing recreation facilities to its members.

2011 Ruling 2011-0426551R3 - Carrying on Business in Canada

Unedited CRA Tags
2(3)(b); 115(1)

Principal Issues: Whether the provision of certain services by a Canadian corporation to a non-resident corporation will result in the non-resident corporation carrying on business in Canada

Position: No.

Reasons: Factual and legal determination --- see paragraphs 3 and 4

Technical Interpretation - External

17 February 2012 External T.I. 2011-0428561E5 - 88(1)(c)(vi) Bump Denial Rule

Unedited CRA Tags
88(1)(c)(vi), (c.2), (c.3), (c.4) (d.2), (d.3)
Summary Under
Tax Topics - Income Tax Act - Section 88 - Subsection 88(1) - Paragraph 88(1)(c) - Subparagraph 88(1)(c)(vi)

Principal Issues: 1) What is the tax policy behind the bump denial rule provided under subparagraph 88(1)(c)(vi)? 2) Whether the bump denial rule provided under subparagraph 88(1)(c)(vi) would apply in the particular situation.

Position: 1) and 2) General comments provided.

Reasons: Question of fact and law.

16 February 2012 External T.I. 2011-0430841E5 - U.S. Grantor Trusts

Unedited CRA Tags
251(1)(c); proposed 94(1); proposed 94(3), 75(2); Art. IV(6) Canada-U.S. Tax Convention
Summary Under
Tax Topics - Income Tax Act - Section 94 - Subsection 94(1) - Arm's Length Transfer
Summary Under
Tax Topics - Treaties - Income Tax Conventions - Article 4

Principal Issues: 1. Whether a U.S. grantor trust could be subject to Canadian tax and reporting requirements when it receives dividends from Canadian resident corporations (Cancos) that are controlled by two unrelated US resident shareholders each owning 50% of the Cancos shares? 2. What amount of dividend payment will meet the requirements in subparagraph (b)(i) in the definition of "arm's length transfer" in the proposed subsection 94(1)? 3. If the proposed subsection 94(3) applies, does Article IV(6) of the Canada-U.S. Tax Convention apply?

Position: 1. Question of fact; 2. Question of fact; 3. No.

Reasons: 1. Paragraph 251(1)(c) stipulates that, at a particular time, it is a question of fact whether unrelated persons are dealing with each other at arm's length and similarly, it is a question of fact whether the transferor (Cancos) and the recipient (grantor trust) are dealing at arm's length with each other. 2. It is a question of fact what amount of dividend payment meets the requirements of subparagraph (b)(i) in the particular circumstances; 3. If the proposed subsection 94(3) applies, the grantor trust is deemed to be resident in Canada and the treaty benefits under Article IV(6) of the Convention would not be available because Cancos and the grantor trust would both be Canadian residents and Convention benefits are not applicable between Canadian residents.

14 February 2012 External T.I. 2011-0392841E5 - Status of 149(1)(l) Entity

Unedited CRA Tags
149(1)(l)

Principal Issues: Whether the organization can maintain its 149(1)(l) status while trying to recover its losses and continue to meet its objectives.

Position: Maybe

Reasons: See discussion in letter.

14 February 2012 External T.I. 2011-0416621E5 F - REER, swap

Unedited CRA Tags
207.01(1); 207.05
Summary Under
Tax Topics - Income Tax Act - Section 207.01 - Subsection 207.01(1) - Advantage - Paragraph (b)
computation of advantage from swap transaction
Summary Under
Tax Topics - Income Tax Act - Section 207.01 - Subsection 207.01(1) - RRSP Strip
swap of savings bond between RRSP and non-registered account would be an RRSP strip

Principales Questions: Est-ce possible d'échanger sans conséquence fiscale un placement détenu dans un compte non enregistré avec un placement détenu dans un REER

Position Adoptée: Non

Raisons: 207.01(1) et 207.05. L'échange est visé par la notion d'avantage.

14 February 2012 External T.I. 2011-0430191E5 - Beneficial Ownership

Unedited CRA Tags
248(1) "disposition; 9; 40(1)

Principal Issues: Whether a disposition (and possible income or capital gain) occurs on a change in legal ownership.

Position: It is a question of fact.

Reasons: Where there is no change in beneficial ownership there is generally no disposition under the Act.

13 February 2012 External T.I. 2011-0403561E5 - Unitholders income in year of death

Unedited CRA Tags
104(13), 132(6) and 249(1)

Principal Issues: How is a unitholder's income determined in the year of death?

Position: Income payable to the unitholder.

Reasons: Pursuant to subsection 104(13).

6 February 2012 External T.I. 2012-0434071E5 F - Honoraires professionnels - PDV

Unedited CRA Tags
9; 18(1)a); 60o)
Summary Under
Tax Topics - Income Tax Act - Section 60 - Paragraph 60(o)
professional fees incurred under VDP are deductible under s. 60(o) once CRA commences its review
Summary Under
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Legal and other Professional Fees
professional fees incurred in applying under the VDP are not deductible

Principales Questions: Les honoraires professionnels engagés en vue de présenter une demande en vertu du Programme des divulgations volontaires sont-ils déductibles?

Position Adoptée: Les honoraires professionnels engagés afin de présenter une demande dans le cadre du PDV ne sont pas déductibles aux termes de l'alinéa 60o). Toutefois, dès que l'ARC a informé le contribuable qu'elle procédera à la révision du revenu ou de l'impôt à payer de ce dernier en vertu du PDV, nous sommes d'avis que les honoraires professionnels engagés par le contribuable à partir de ce moment pour faire valoir ses prétentions sont déductibles aux termes de l'alinéa 60o). Pour que les frais engagés afin de présenter une demande soient déductibles, il est nécessaire que ce soit des frais qui font partie de l'activité du processus de gain provenant d'une entreprise ou d'un bien.

Raisons: Loi de l'impôt sur le revenu. Position de longue date de l'ARC.

2 February 2012 External T.I. 2012-0434311E5 - Canada-U.S. Tax Convention

Unedited CRA Tags
214(3)(a) of the Act; Articles IV and X of the Canada-U.S. Tax Convention;
Summary Under
Tax Topics - Treaties - Income Tax Conventions - Article 4

Principal Issues: Whether paragraphs 6 and 7 of Article IV and/or paragraph 2 of Article X of the Treaty apply to a paragraph 214(3)(a) deemed dividend

Position: Question of Fact

Reasons: See Response

23 January 2012 External T.I. 2011-0409671E5 F - Propriété superficiaire

Unedited CRA Tags
15(1), 15(2), 13(21), 40(2)b), 45(1)c), 54, 1102(1)c) et 2301 du Règlement, ainsi que les dispositions du Code civil du Québec pertinentes traitant de l'accession et de la propriété superficiaire.
Summary Under
Tax Topics - Income Tax Act - Section 54 - Principal Residence - Paragraph (e)
land leased to corporation for business use not part of principal residence
Summary Under
Tax Topics - Income Tax Act - Section 15 - Subsection 15(1)
benefit if building constructed at corporation’s expense for business purposes becomes shareholder’s property by accession
Summary Under
Tax Topics - Income Tax Regulations - Regulation 1102 - Subsection 1102(1) - Paragraph 1102(1)(c)
individual shareholder not entitled to claim CCA on building constructed by the corporation for use in its business even where taxpayer owns it
Summary Under
Tax Topics - General Concepts - Ownership
whether tenant had Quebec right of superficies to garage erected by it determined whether it was its property
Summary Under
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Depreciable Property
building erected by corporation on shareholder’s land not depreciable property unless shareholder renounces right of accession

Principales Questions: 1. Quelles sont les conséquences fiscales, dans une situation où une société construit un garage sur un terrain appartenant à son actionnaire unique, terrain qui fait parti de sa résidence principale, dans les cas où la société détient ou non la propriété superficiaire du garage, quant a) au droit à la déduction pour amortissement du garage, b) à un avantage à l'actionnaire et c) au droit à l'exemption de la résidence principale ?

Position Adoptée: 1. Si la société détient la propriété superficiaire en vertu du Code civil du Québec à l'égard du garage érigé sur le terrain de l'actionnaire, la société détient un droit de propriété dans le garage a) La société pourrait avoir droit à la déduction pour amortissement dans le garage s'il se qualifie de bien amortissable. Le garage pourrait possiblement se classer dans la catégorie 1q) de l'Annexe II. b) Question de faits. Dépendammant du libellé de l'acte constitutif de la propriété superficiaire, nous ne disposons pas de pas assez d'information pour se prononcer définitivement.Toutefois, si les faits ne démontrent pas que la société a la propriété superficiaire du garage en vertu du Code civil du Québec, la règle de l'accession en droit civil québécois s'applique et l'actionnaire serait alors propriétaire du garage. Dans ce cas, a) l'actionnaire ne pourrait avoir droit à la déduction pour l'amortissement à l'égard du garage b) un avantage à l'actionnaire serait généré et c) Peu importe si une propriété superficiaire existe ou non pour la société à l'égard du garage, il ne serait pas raisonnable de considérer le terrain sous-jacent au garage comme facilitant l'usage du logement comme résidence principale du contribuable. De plus, il pourrait y avoir changement d'usage partiel du fonds de terre sous-jacent au garage s'il sert à gagner du revenu. Ainsi, le garage (peu importe si l'amortissement est réclamé ou non) et le terrain sous-jacent au garage ne pourraient être admissibles à l'exemption pour résidence principale.

Raisons: 1.a) Définition de bien amortissable au paragraphe 13(21) de la Loi de l'impôt sur le revenu. La classification dans une catégorie fiscale est une question de faits, mais possiblement catégorie 1q) de l'Annexe II du Règlement de l'impôt sur le revenu et alinéa 1102(1)c) du Règlement de l'impôt sur le revenu.
1. b) Application des paragraphes 15(1) ou 15(2) de la Loi de l'impôt sur le revenu, ainsi que le paragraphe 10 du Bulletin d'interprétation IT-432R2.
1. c) Règle sur le changement d'usage partiel selon l'alinéa 45(1)c) de la Loi de l'impôt sur le revenu. Application de la définition de résidence principale à l'article 54 et l'alinéa 40(2)b) de la Loi de l'impôt sur le revenu.

23 January 2012 External T.I. 2011-0418281E5 - Employment income - treaty exemption

Unedited CRA Tags
153, 212; ITR 102, 105; Article XV of the Canada-US Tax Convention
Summary Under
Tax Topics - Treaties - Income Tax Conventions - Article 15
US sub is true employer

Principal Issues: 1. Where there is a service contract between USco and Canco and the services rendered in Canada by USco are charged at cost to Canco, will the US employee's remuneration be exempt from tax in Canada under paragraph 2(b) of Article XV?
2. Where there is no service contract between USco and Canco, but USco charges Canco for the US employee's remuneration via an intercompany charge, will the remuneration be exempt under paragraph 2(b) of Article XV?

Position: 1. Question of fact
2. Question of fact

Reasons: 1. and 2. Provided all the other requirements of subparagraph 2(b) of Article XV of the Treaty are met, the remuneration may be exempt if the only employer of the employee is nevertheless USco both in substance and in form.

19 January 2012 External T.I. 2011-0425891E5 - Art 19 Canada-China Treaty & Immigration

Unedited CRA Tags
Canada-China Treaty Art. 19, SC 1986, c 48, Part III.

Principal Issues: 1. What effect does an application for Canadian permanent residency have on the ability to claim benefits under Article 19 of the Treaty, and is the result different if the application is voluntarily withdrawn or refused?
2. If the individual's permanent residency application is withdrawn or refused, and the individual then applies again under a different application category and is approved, at what time does the individual no longer qualify for benefits under the Treaty and does it matter if the second application is submitted before the first application is withdrawn or refused?

Position: 1 & 2. Questions of fact specific to the individual. Absent evidence to the contrary, applications for permanent residence can be viewed as strong evidence of an intent to go beyond merely visiting Canada and that an individual's presence in Canada is also meant to establish lasting residential ties.

Reasons: 1 & 2. Immigration status is informative but not determinative of residency and residency-related issues for tax purposes. Applications for permanent residence, their acceptance, denial or withdrawal are all facts that must be considered in light of the individual's total circumstances in determining their tax-residency. They are also facts which inform on whether or not an individuals intention to "visit" Canada was truly temporary for the purposes of education or training, or if it instead went beyond the scope contemplated by Article 19.

Conference

3 June 2011 Roundtable, 2011-0429101C6 - 2011 STEP Conference - Q20 - Insolvent Estates

Unedited CRA Tags
146.3(5), 159(2), 159(3) and 160.2(2)

Principal Issues: (a) Where an estate is insolvent, does the Crown have priority over other creditors in relation to an outstanding tax liability of the deceased? (b) Where an estate is insolvent, and a bank has distributed the proceeds of a RRIF to the designated beneficiary, what is the liability of the legal representative in relation to any existing tax liability as well as to any taxes due on the RRIF? (c) Is the executor of an estate entitled to use estate assets to defray expenses, in particular, in order for the legal representative to object to income tax assessments?

Position: See below

Reasons: Legislation

3 June 2011 Roundtable, 2011-0405261C6 - 2011 STEP Conf - Q12 - CG from foreign mutual fund

Unedited CRA Tags
12(1)(k); s90; 104(21); 108(5)(a); 131(1) and 131(8)

Principal Issues: How must a Canadian investor report a distribution from a foreign mutual fund that arose from capital gains realized by the fund?

Position: It will depend upon the categorization of the fund for Canadian tax purposes. If it is a trust, it will be income of the beneficiary from a property that is an interest in the trust. If it is a corporation, it will be included in income as a dividend.

Reasons: The capital gain flow-through provisions in 104(21) and 131(1) of the Act will not apply.

3 June 2011 Roundtable, 2011-0401941C6 - 2011 STEP Conference - Q18 - RCA Trusts

Principal Issues: What is the status of the CRA's review of RCA Trusts

Position: The review is ongoing

3 June 2011 Roundtable, 2011-0401951C6 - 2011 STEP Conference - Q19 - Compliance Issues

Unedited CRA Tags
12(1)(j), 75(2) and 104(13)

Principal Issues: Does the CRA have any new compliance issues that it would like to discuss?

Position: Yes, dividend strips structured as arrangements that invoke subsection 75(2)

3 June 2011 Roundtable, 2011-0403751C6 - 2011 STEP Conference - Q8 - Access to Information

Unedited CRA Tags
241

Principal Issues: What guidance can be given in relation to obtaining information on a timely basis and what recourse does a taxpayer have if the information is not provided?

Position: Rights of a taxpayer are set out below

Reasons: Legislation

3 June 2011 Roundtable, 2011-0401901C6 - 2011 STEP Conference-Q14-High Net Worth Individual

Principal Issues: Does the CRA intend to audit all high net worth individuals or only certain persons? At whom is the project directed, i.e. is it random, on the basis of assets, past compliances or other criteria? What are the objectives of the project and why does the CRA consider this necessary?

Position: The program follows the OECD focus group's recommendation on how a tax administration might deal with high net worth individuals. The program examines the high net worth individuals and their related entities listed in the response below.

3 June 2011 Roundtable, 2011-0402761C6 - Q. 6 STEP Conference 2011

Unedited CRA Tags
s.159(5) to (7); Reg. 4301

Principal Issues: a. What is the CRA's administrative position on the payment of interest on tax payable pursuant to subsections 159(5) to (7)?
b. What is the nature of the security that the CRA would accept?
d. Could the estate make payments earlier than specified if it chooses?

Position: a. The legal representative should contact the Revenue Collections Division of the local tax services office to ascertain the amount of interest to include in the next remittance.
b. Security acceptable would include a letter of credit, a bank guarantee, or a mortgage.
c. The amount is payable in no more than ten equal annual payments; hence, fewer than ten payments could be made.

Reasons: a. Interest, compounded daily, is charged at the prescribed rate. It is set quarterly, and consists of the average rate on 90-day treasury bills sold in the first month of the previous quarter, rounded up to the nearest percentage point, plus four percentage points. If that treasury bill rate changes, so would the prescribed interest rate.
b. The CRA's administrative position is to accept highly marketable securities.
d. Subsections 159(5) to (7).

3 June 2011 Roundtable, 2011-0401931C6 - Acquisition of control - 2011 STEP Conference Q17

Principal Issues: Acquisition of control in the event of a change of trustees

Position: See responses below.

Reasons: Wording of the Act and previous positions.

3 June 2011 Roundtable, 2011-0404471C6 - Consequential Assessment - STEP Conference

Unedited CRA Tags
152(4.3), 161.2

Principal Issues: (a) Must a request for an adjustment be made by filing an amended return or by latter, including a T1 Adjustment Form, if the matter involves an individual?
(b) When is the effective interest date for a consequential assessment?
(c) If the auditor does not make the consequential assessment as requested, when and how does one file a Notice of Objection, or seek other recourse?
(d) Does the CRA have any published guidelines concerning consequential assessments?

Position: (a) A taxpayer (any taxpayer) who requests an adjustment must do so in writing, without the need to file any particular form.
(b) Interest would accrue from the balance due day; however, if the amount assessed is paid in full before the end of the period specified in the notice, no interest would be payable, pursuant to section 161.2.
(c) A Notice of Objection is filed in response to a Notice of Assessment. If no assessment is issued, an objection cannot be filed. If the auditor does not make the requested assessment, the taxpayer could seek recourse from the auditor's supervisor.
(d) The CRA does not have any published guidelines on consequential assessments. Such are available, however, from the Department of Finance in a document entitled "Explanatory Notes to the Income Tax Act".

3 June 2011 Roundtable, 2011-0401851C6 - STEP Q4 Testamentary spousal trust

Unedited CRA Tags
104(4), 104(6), 104(24)

Principal Issues: Is income earned by a testamentary spousal trust after the death of the surviving spouse, taxable to the trust or to the residual beneficiary?

Position: Question of fact - depends on the terms of the trust and the nature and extent of the trustee's discretion as to whether an amount in considered "payable"

Reasons: Meaning of payable - 104(24) for purposes of subsection 104(6)

3 June 2011 STEPs Roundtable Q. 2, 2011-0401831C6 - 2011 STEP Conference-Q2-Trusts & Principal Res.

Unedited CRA Tags
75(2), 104(4), 107(2), 107(2.1) and 107(4.1)
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 107 - Subsection 107(4.1)

Principal Issues: What legislative provisions must be considered with regards to a plan to rollout a cottage to a capital beneficiary in order to avoid the deemed disposition rules in 104(4) but also ensuring that it is a tax deferred roll-out under 107(2), which may not apply if 75(2) applies in respect of any property of the trust.

Position: See response

Reasons: Based on legislation and existing CRA position

2 June 2011 STEPs Roundtable Q. 5, 2011-0401861C6 - 2011 STEP - Q.5 - Post-Mortem Planning and 84(2)

Unedited CRA Tags
84(2)
Summary Under
Tax Topics - Income Tax Act - Section 84 - Subsection 84(2)
triggers: quick distribution; mostly cash assets

Principal Issues: Whether the Canada Revenue Agency ("CRA") would comment on the particular circumstances under which subsection 84(2) could apply in the context of a particular series of transactions designed to implement a post-mortem estate planning strategy?

Position: Comments provided.

Reasons: In accordance with the provisions of the ITA and our previous positions.

Technical Interpretation - Internal

9 February 2012 Internal T.I. 2011-0426871I7 F - Perte au titre d'un placement d'entreprise

Unedited CRA Tags
39(1)c); 50(1); 248(1)
Summary Under
Tax Topics - Income Tax Act - Section 39 - Subsection 39(1) - Paragraph 39(1)(c) - Subparagraph 39(1)(c)(iv)
requirement satisfied where debtor reacquired its status as SBC before becoming bankrupt

Principales Questions: Un contribuable peut-il réclamer une PTPE lorsque la société à qui il a fait un prêt reprend son statut de SPCC et de SEPE en raison de la perte de valeur de certains de ses placements étrangers?

Position Adoptée: Dans la mesure où tous les critères sont satisfaits, oui.

Raisons: Loi de l'impôt sur le revenu.