Income Tax Severed Letters - 2013-07-17

Technical Interpretation - External

12 July 2013 External T.I. 2013-0496281E5 - Disaster relief payment to employees

CRA Tags
5(1), 6(1)(a)
Summary Under
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a)

Principal Issues: Will a disaster relief payment made by an employer to an employee be subject to tax?

Position: It depends

Reasons: Where certain conditions are met the disaster relief payment will generally be considered to have been received qua individual.

8 July 2013 External T.I. 2012-0458601E5 F - T1134 and inactive FA

CRA Tags
96(1), 248(1) "prescribed", 233.4
Summary Under
Tax Topics - Income Tax Act - Section 233.4 - Subsection 233.4(4)
inactive FA gross receipts of $25,000 includes all partnership gross revenue
Summary Under
Tax Topics - Income Tax Act - Section 96 - Subsection 96(1) - Paragraph 96(1)(a)
partnership not a person for s. 233.4 purposes

Principal Issues: How the $25,000 of gross receipts used in the definition of a "dormant or inactive foreign affiliate" in the form T1134 is calculated when the FA is the general partner of a partnership?

Position: The total gross receipts of the partnership must be considered in the calculation of the gross receipts of the FA.

Reasons: In the case of a form, the term "prescribed" is defined in subsection 248(1) as the information authorized by the Minister of National Revenue. Furthermore, the subsection 96(1) does not deem the partnership to be a separate taxpayer for purposes of section 233.4.

4 July 2013 External T.I. 2013-0494661E5 - XXXXXXXXXX Relief - business

Principal Issues: Tax treatment of XXXXXXXXXX relief assistance payments.

Position: Various, see below.

2 July 2013 External T.I. 2013-0488061E5 - 107(2) distribution

CRA Tags
80, 107(2), 108(1)
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 107 - Subsection 107(2)
transfer to settle debt

Principal Issues: 1. Property transferred to beneficiary in satisfaction of capital interest with debt owing by the trust to that beneficiary eliminated.

Position: 1. Property transferred represents partial 107(2) distribution & partial payment of debt outstanding- "in kind".

Reasons: 1. Debt must be settled for face value = fmv or tax consequences of debt forgiveness may result; gain may occur on portion of the property disposed of by the trust in payment of debt.

6 June 2013 External T.I. 2012-0451801E5 F - deemed dividend, advantage

Summary Under
Tax Topics - Income Tax Act - Section 207.01 - Subsection 207.01(1) - Advantage
dividend derived from pre-March 2011 value not grandfathered

Principales Questions:
An RRSP trust owns a "pre-budget" prohibited investment that didn't increase in value since March 22, 2011.
1) Does the sale of that prohibited investment to a third party at fair market value result in an advantage subject to the tax under subsection 207.05(1)?
2) Does a deemed dividend, pursuant to subsection 84(3), on the redemption of that prohibited investment result in an advantage subject to the tax under subsection 207.05(1)? If yes, can subsection 207.05(4) apply?

Position Adoptée:
1) No
2) Yes, the deemed dividend will be an advantage subject to the tax under subsection 207.05(1). However, if all the conditions in subsection 207.05(4) are met, the dividend would not be subject to the tax under 207.05(1).

Raisons:
1) There is no capital gain that accrued after March 22, 2011.
2) A dividend is considered earned when it is received. Therefore, it will be an advantage at the time it is received.

16 April 2013 External T.I. 2013-0477771E5 F - Calculation of the general rate income pool

CRA Tags
89(4), 89(1)
Summary Under
Tax Topics - Income Tax Act - Section 89 - Subsection 89(1) - General Rate Income Pool
GRIP reduction for non-capital loss carried back against full-rate taxable income earned before becoming CCPC

Principales Questions: In a given situation where a corporation becomes a CCPC during a particular taxation year: (1) whether for the purpose of calculating the GRIP at the end of the particular taxation year, a carryback of losses against a corporation's full rate taxable income realized during the corporation's three preceding taxation years while the corporation was not a CCPC should reduce the GRIP under variable B in the GRIP definition in subsection 89(1); (2) from a tax policy perspective, whether non-capital losses that expired prior to the change in status of the corporation should increase the amount determined under subsection 89(4) that may be added to the GRIP under element F of variable A in the GRIP definition.

Position Adoptée: (1) Yes (2) Cannot answer.

Raisons: (1) Wording of the Act. (2) Tax policy concerns, not an interpretative issue.

21 March 2013 External T.I. 2013-0476901E5 F - GRIP addition under 89(7)

CRA Tags
89(7)
Summary Under
Tax Topics - Income Tax Act - Section 89 - Subsection 89(7)
determination of reasonable attribution of dividend to FRTI of payer corp

Principal Issues: (1) A corporation (Aco) owns 100% of the shares of the capital stock of another corporation (Pco). Aco receives a dividend from Pco on January 1st, 2001. On January 1st 2002, all the shares of the capital stock of Pco are acquired by another corporation. Variable A of the formula for computing the GRIP Addition in respect of Pco for 2006 pursuant to ss 89(7) for 2001 was $ 1,000,000 and was nil for the years 2002 to 2005. In determining the amount to be included in the GRIP addition for 2006 in respect of Aco, whether the dividend paid by Pco would be described in paragraph (c) of variable A in subsection 89(7). (2) Two corporations (Aco and Bco) own respectively 50% of the shares of the capital stock of another corporation (Pco). Aco and Bco receive a dividend from Pco on January 1st, 2001. On January 1st, 2002, all the shares of the capital stock of Pco held by Aco are acquired by Bco. Bco receives a dividend from Pco on January 1st for each year from 2002 to 2005. Variable A of the formula for computing the GRIP Addition for 2006 in respect of Pco pursuant to ss 89(7) for 2001 was $ 1,000,000 and was nil for the years 2002 to 2005. In determining the amount to be included in the GRIP addition for 2006 in respect of Aco and Bco, whether the dividends paid by Pco would be described in paragraph (c) of variable A in subsection 89(7). (3) Three corporations (Aco, Bco and Cco) own respectively 40%, 20% and 20% of the shares of the capital stock of another corporation (Pco). Pco paid a total dividend of $ 1,000,000 to Aco, Bco and Cco on January 1st, 2001. On January 1st 2002, 50% of the shares of the capital stock of Pco held by Cco are acquired by Aco and the other 50% is acquired by Nco. Pco paid a total annual dividend of $ 1,000,000 to Aco, Bco and Nco on January 1st for each years from 2002 to 2004. Variable A of the formula for computing the GRIP Addition in respect of Pco for 2006 pursuant to ss 89(7) for 2001 was nil for the years 2001 to 2003 and was $ 1,000,000 for the years 2004 and 2005. In determining the amount to be included in the GRIP addition for 2006 in respect of Aco, Bco, Cco and Nco, whether the dividends paid by Pco would be described in paragraph (c) of variable A in subsection 89(7).

Position: (1) No. (2) Aco: no; Bco: Possibly yes, depending on the circumstances. (3) Cco: No; Aco, Bco and Nco: reasonable proportion of variable A of ss 89(7) in respect of Pco.

Reasons: Wording of subsection 89(7).