Income Tax Severed Letters - 2013-02-27

Ruling

2012 Ruling 2011-0425441R3 - Cross Border Butterfly

CRA Tags
143.3, 212.1, 55(3)(b), 55(3.2)(h), 55(3.1)
cross-border b/f with 3-party exchange to address s. 55(3.2)(h)/indemnity neutralizes liability assumption/Newco 3 is implicit DC

Summary under s. 55(1) and s. 55(3.1)(b)(i).

Principal Issues: Whether transaction meets legislative and administrative requirements. Analysis of three party share exchange. Definition of distribution and permitted exchange.

Position: Transaction meets requirements.

Reasons: Consistent with law and administrative requirements.

Ministerial Correspondence

2 May 2012 Ministerial Correspondence 2012-0433811M4 - TFSA - Escrowed Property as Qualified Investment

CRA Tags
ITR 4900, 146(1) qualified investment

Principal Issues: (1) Whether a property subject to an escrow agreement, being a unit consisting of one common share and one-half warrant, can be held by a trust governed by a TFSA, and if so, is an issuer required to permit the property to be held inside their particular arrangement. (2) How to determine the amount of the contribution into the TFSA, and in particular how to properly value the warrants.

Position: General comments provided.

Reasons: (1) Longstanding position set out in IT-320; (2) Property must be contributed at the property's FMV, which is a question of fact and an appropriate valuation method must be used in the particular circumstances. In the CRA's view, the intrinsic value of an option, warrant or similar right is not reflective of the option's, warrant's or similar right's FMV.

Technical Interpretation - External

21 February 2013 External T.I. 2012-0470181E5 - RCA advantage tax rules

CRA Tags
207.5(1) "advantage", 207.5(1) RCA strip, 207.62, Bill C-45 paragraph 44(3)(b), 207.01(1) advantage

Principal Issues: 1. Various questions on the transitional rule for pre-March 29, 2012 debt obligations that provide for "commercially reasonable" payments of principal and interest. 2. Whether the advantage tax would apply if an RCA were to guarantee or secure a third-party loan on behalf of a specified beneficiary of the RCA?

Position: 1.See reply. 2. Yes.

Reasons: 1. See reply. 2. The provision of the guarantee or security constitutes an advantage on the basis that it is conditional on the existence of the RCA, it is an RCA strip or both.

11 February 2013 External T.I. 2013-0477321E5 - Various questions on trust for mineral rights

Principal Issues: Taxpayer submitted four questions to XXXXXXXXXX TSO in respect of a trust to hold mineral rights on behalf of her and XXXXXXXXXX for which she is the trustee.

Position: Guidance as to relevant information available on the CRA website provided along with suggestion that professional guidance may be appropriate.

Reasons: The enquiry raised no interpretive issues and asked questions that are not the mandate of the CRA; however, we have provided as much guidance as possible.

7 February 2013 External T.I. 2012-0436781E5 - Tax Treatment of Payment Received from Co-Tenant

Principal Issues: Is an amount paid to Company A from Company B to give up its share of office space under a co-tenancy received by Company A on account of income or capital for income tax purposes? If the amount is a capital receipt, is it taxed as a capital gain or a disposition of eligible capital property?

Position: It is likely received on account of capital and treated as a capital gain.

Reasons: The amount is a capital receipt received as replacement for the loss of a capital asset (a leasehold interest).

5 February 2013 External T.I. 2012-0446211E5 - Donation of flow-through shares

CRA Tags
38(a.1)(i), 40(12), 38, 54

Principal Issues: The taxpayer requested clarification of the rules relating to the donation of publicly-listed flow-through shares to qualified donees.

Position: General comments provided.

Reasons: Legislation.

5 February 2013 External T.I. 2012-0441801E5 - 149(1)(l) - Funds Payable to Members

CRA Tags
149(1)(l)

Principal Issues: 1. Whether an organization would lose its 149(1)(l) status if profits from the sale of auction items are shared with the contributing members.

Position: Maybe

Reasons: Depends on whether items are owned by members or by NPO.

4 February 2013 External T.I. 2012-0473561E5 - Corporate-owned life insurance

CRA Tags
110.6(1), 148(9), 89(1)(d), 148(1), 110.6(15)

Principal Issues: Various questions regarding the taxation of a life insurance policy held by a CCPC and the QSBC share definition.

Position: General comments provided.

Reasons: The legislation.

30 January 2013 External T.I. 2012-0449621E5 F - Belgian pension

CRA Tags
56(1)(a)(i), Treaties Article XVIII, 110(1)(f)(i)
Belgian social security payment received by Canadan resident must be included in the personal return, but with offsetting s 110(1)(f)(i) deduction claimed
Treaty-exempt receipt required to be reported, but with offsetting s 110(1)(f)(i) deduction

Principales Questions: Is a Belgian pension paid to a Canadian resident taxable in Canada?

Position Adoptée: No, as long as the pension is paid under the social security legislation of Belgium.

Raisons: A pension paid to a Canadian resident under the social security legislation of Belgium is only taxable in Belgium following the paragraph 2 of the article 18 of the Tax Convention between Canada and Belgium.

29 January 2013 External T.I. 2012-0470331E5 - S.116 - Qualified Business Exemption

CRA Tags
116

Summary under s. 116(5.3).

Principal Issues: Is withholding required under section 116 of the Income Tax Act in respect of land situated in Canada that is held in the inventory of a non-resident vendor who has obtained a "qualified business exemption" from CRA as outlined in paragraph 36 of IC72-17R6?

Position: No, where a "qualified business exemption" has been obtained from CRA and the vendor has provided a copy to the purchaser, the purchaser would be relieved of any liability under subsection 116(5.3) of the Act in respect of the purchase of any property set out in the exemption.

Reasons: The general procedures for issuing a "qualified business exemption" outlined in paragraph 36 of IC72-17R6 were confirmed with the Compliance Programs Branch.

21 January 2013 External T.I. 2012-0442171E5 - Door Prize received by an employee

CRA Tags
6(1)(a), 67.1(2)(f)

Principal Issues: Whether a door prize gifted to an employee, spouse and /or a board member at an employer held social event is taxable?

Position: Question of fact, but likely yes in this case.

Reasons: Where an employee or a board member receives a gift card by virtue of employment, the gift is a benefit received and will be included in the income of the employee or officer. A taxable benefit will also be assessed to the employee in respect of the cost of a gift card for the employee's spouse.

14 December 2012 External T.I. 2012-0459981E5 - Proration of Monthly Ceiling Amounts

CRA Tags
6(1)(a)

Principal Issues: Whether an employer may prorate the monthly ceiling amount in determining the value of a housing benefit received by an employee?

Position: No.

Reasons: It is the administrative practice of the CRA not to permit an employer to prorate the monthly ceiling amounts by the number of days in the month an employee does not occupy the premises.

12 December 2012 External T.I. 2012-0460611E5 - swap of securities between registered plans

CRA Tags
207.01(1), 207.05(1)

Principal Issues: Is the sale and purchase of securities between registered plans of the taxpayer at fair market value, a prohibited transaction as referred to in the 2011 Budget?

Position: Question of fact.

Reasons: Where the transfer is considered a "swap transaction" and an "advantage" is created, the fair market value of the "advantage" would be subject to tax under section 207.05.

29 November 2012 External T.I. 2012-0442231E5 - Amount received by employee use of Vehicle, Tools

CRA Tags
5(1), 6(1)(b), 6(1)(a)

Principal Issues: Whether rental payments made to an employee for the use of his or her vehicle and tools is employment income or rental income?

Position: Employment Income.

Reasons: The rental payments are received by virtue of an employer/employee relationship.

6 September 2012 External T.I. 2012-0446031E5 - Prohibited investments and convertible securities

CRA Tags
ITA 207.04

Principal Issues: Whether an RRSP or RRIF annuitant would be subject to the 50% tax on prohibited investments if the RRSP or RRIF were to exercise conversion rights and exchange a pre-March 23, 2011 prohibited investment for a new prohibited investment.

Position: Yes.

Reasons: Section 207.04 applies to RRSP and RRIF investments acquired after March 22, 2011 and the exchange would result in a new acquisition of a prohibited investment after that date. The same result would apply in the context of options, warrants and other exchanges of securities.

25 June 2012 External T.I. 2011-0404071E5 - Election to defer income in U.S. traditional IRA

CRA Tags
248(1) foreign retirement arrangement, Treaties Article XVIII(7), 56(1)(a)(i)(C.1), 81(1)(r), 12(11) investment contract, 94(1) exempt foreign trust

See summary under Treaties - Article 18.

Principal Issues: Whether an individual is required to file an election under paragraph 7 of Article XVIII of the Canada-U.S. Tax Convention to defer Canadian taxation with respect to undistributed income accrued in a traditional IRA, as is the case for a Roth IRA?

Position: No.

Reasons: There is no need for an individual to make the election because the Act already provides for a deferral of taxation with respect to income accrued in a traditional IRA until it is paid out of the plan.

25 June 2012 External T.I. 2011-0398691E5 - Conversion of U.S. Traditional IRA into Roth IRA

CRA Tags
248(1) foreign retirement arrangement, 56(1)(a)(i)(C.1), 56(12), Treaties Article XVIII, 118(7) eligible pension income, ITR 6803

See summary under Treaties - Article 18.

Principal Issues: Whether the income inclusion resulting from the conversion of a traditional U.S. Individual Retirement Account ("IRA") into a Roth IRA in 2010 may be spread out over the 2011 and 2012 taxation years in accordance with U.S. tax rules. 2. Whether IRA income is eligible for pension income splitting.

Position: 1. No. 2. No.

Reasons: 1. A Canadian resident who converts a traditional IRA into a Roth IRA in 2010 would generally be required to include the full conversion amount in their income for the 2010 taxation year in accordance clause 56(1)(a)(i)(C.1). There is nothing in the Canada-U.S. Tax Convention that would resolve this mismatch in the timing of the income inclusion. 2. The definition "eligible pension income" in subsection 118(7) does not include IRA income.

19 June 2012 External T.I. 2011-0407461E5 - Tax on 401(k) Transfer to IRA and IRA Withdrawal

CRA Tags
56(1)(a), 6(1)(g)

Summary under 56(1)(a)(i).

Principal Issues: What is the tax treatment to a Canadian resident taxpayer of (i) a transfer from his U.S. 401(k) plan to a U.S. IRA and (ii) the subsequent withdrawal of amounts from the IRA. Is the portion of the payment from the IRA that represents a return of the taxpayer's contributions to his 401(k) deductible from the amount required to be included in income?

Position: Provided general overview of the Canadian income tax treatment of 401(k) to IRA transfer and IRA withdrawals. It is our long established position that the entire amount received from an IRA, including the portion of that payment equal to the taxpayer's 401(k) contributions previously included in income, are to be included in the taxpayer's income under clause 56(1)(a)(i)(C.1).

Reasons: Amounts received from an IRA are included in income as a superannuation or pension benefit pursuant to clause 56(1)(a)(i)(C.1) of the Act and there is no provision in the Act allowing for a deduction of amounts equal to the employee's contributions to the 401(k) that were transferred to the IRA.

13 March 2012 External T.I. 2011-0420241E5 - Application of subsection 50(1) to section 180.01

CRA Tags
180.01, 50(1)

Principal Issues: Whether the deemed disposition rules in subsection 50(1) for shares of bankrupt corporations apply the purposes of the special relief provided in section 180.01 for stock option benefit deferrals.

Position: No.

Reasons: The preamble to subsection 50(1) restricts its application to the rules for determining capital gains and capital losses in subdivision c. It does not apply for the purposes of the Act as a whole.

Technical Interpretation - Internal

18 February 2013 Internal T.I. 2012-0456601I7 - Prohibited investment in locked-in RRSP

CRA Tags
207.05(4)

Principal Issues: How does an individual satisfy the mandated RRSP withdrawal in order to benefit from the transitional relief in subsection 207.05(4) if the prohibited investment is held in a locked-in RRSP?

Position: Several options are available under both income tax law and pension benefits law to mitigate potential adverse tax results.

Reasons: See reply.

17 December 2012 Internal T.I. 2011-0425081I7 - NPO

CRA Tags
149(1)(l)

Principal Issues: Does the corporation qualify for the exemption in paragraph 149(1)(l) of the Act?

Position: It appears to.

Reasons: The organization is not a trust. It appears to be operated for a purpose other than profit, no income is being made available to members. It is not a charity.