Income Tax Severed Letters - 2013-11-27

Technical Interpretation - External

29 October 2013 External T.I. 2013-0489771E5 F - Internal Reorganization - 55(3)(a)

CRA Tags
55(3)(a), 55(5)(e)(i), 55(2)
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(10)
estate distribution of corporation followed by transfer of assets from related corporation could be part of same series
Summary Under
Tax Topics - Income Tax Act - Section 55 - Subsection 55(3.2) - Paragraph 55(3.2)(d)
s. 55(3.2)(d) application to estate distribution of corporation to 3 sibling beneficiaries does not deem them to be related to each other
Summary Under
Tax Topics - Income Tax Act - Section 55 - Subsection 55(3) - Paragraph 55(3)(a) - Subparagraph 55(3)(a)(v)
relief under s. s. 256(7)(a)(i)(C) or (D) is relevant to s. 55(3.1)(b)(ii), but not to ss. 55(3)(a)(i) to (v)

Principales Questions: Whether a distribution of an interest in a corporation by an estate would be considered to be part of the same series of transactions that includes a subsequent internal corporate reorganization for the purpose of determining whether paragraph 55(3)(a) applies.

Position Adoptée: Probably.

Raisons: No definitive position taken. Additional facts would need to be provided in order to make a more precise determination.

22 October 2013 External T.I. 2013-0492901E5 - Motor vehicle - allowances & expenses

CRA Tags
6(1)(b), 6(1)(a), 5(1), 6(1)(b)(x), 8(1)(h.1), 6(1)(e), 6(1)(k)

Principal Issues: 1. Whether the comments in technical interpretation 9211550 continue to reflect CRA's position? 2. Do the comments in technical interpretation 9211550 apply to this case?

Position: 1. Yes. 2. Question of fact, in this case no.

Reasons: Technical interpretation 9211550 still reflects the CRA's position. The facts of this case are different.

5 September 2013 External T.I. 2013-0497041E5 - Nova Scotia Graduate Retention Rebate

CRA Tags
Nova Scotia ITA 36A

Principal Issues: Whether graduates of a certain program are entitled to receive the Nova Scotia graduate retention rebate?

Position: No.

Reasons: Although the program may be an eligible program, the program is not offered by an approved institution.

12 August 2013 External T.I. 2013-0498891E5 - public body performing a function of government

CRA Tags
149(1)(c)
Summary Under
Tax Topics - Income Tax Act - Section 149 - Subsection 149(1) - Paragraph 149(1)(c)

Principal Issues: 1 - Whether document 2009-0306281I7 still accurately reflects this Directorate's position regarding the relevant factors to consider when determining whether an entity is a public body performing a function of government; 2 - whether a particular corporation to be formed by provincial statute and whose mandate is to carry on activities previously carried out by a provincial ministry on behalf of municipalities may be considered a public body performing a function of government pursuant to 149(1)(c);

Position: 1 - yes; 2 - question of fact to be determined only after a review of all the relevant facts of the case

Reasons: 1 - No change in CRA's position; 2 - a specific 149(1)(c) determination must always be a question of fact

Conference

11 October 2013 Roundtable, 2013-0495281C6 F - Question 9 - APFF Round Table

CRA Tags
146, 146.3, 214(3.1), 212(1)(q), ITR 214.12, 237(1.1), 212(1)(l), 60(l), 214(3), 56(1)(t), 56(1)(h)
Summary Under
Tax Topics - Income Tax Act - Section 212 - Subsection 212(1) - Paragraph 212(1)(l)
transfer to RRSP or RRIF of surviving non-resident spouse: SIN required; payment can be made directly to RRSP/RRIF of surviving spouse in accordance with joint instructions even where no specific non-will designation is made
Summary Under
Tax Topics - Income Tax Act - Section 146 - Subsection 146(8.1)
deemed receipt of refund of premiums for amount paid to executor, with deemed benefit to recipient spouse
Summary Under
Tax Topics - Income Tax Act - Section 146.3 - Subsection 146.3(6.1)
transfer of RRIF by executor to RRIF of surviving spouse
Summary Under
Tax Topics - Income Tax Act - Section 212 - Subsection 212(1) - Paragraph 212(1)(q)
direct transfer to RRIF of surviving non-resident spouse

Principal Issues: Whether the CRA's comments in the technical interpretation 2002-0141355 are still valid?

Position: Yes, except our comments related to the S.I.N. requirement for a non-resident in order to be the annuitant of a RRSP and our comments related to the application of subparagraphs 212(1)(l)(i) and (ii) and 212(1)(q)(i) and (ii). A non-resident annuitant must provide a S.I.N. to the issuer of a RRSP who is required to prepare an information return pursuant to the subsection 214.1(1) of the Income Tax Regulations. If the surviving spouse is named as the beneficiary of the deceased's estate, the exceptions in paragraphs 212(1)(l) and 212(1)(q) are generally not satisfied and the payment out of the RRSP is subject to Part XIII withholding. However, when the legal representative and the spouse, as beneficiary of the estate, jointly direct that the amount that would otherwise be paid to the estate be transferred by the payer directly to a RRSP, a RRIF or a qualified annuity under which the surviving spouse is the annuitant, the CRA will generally accept that such amount be exempt from Part XIII withholding, provided that the requirements of subparagraphs 212(1)(l)(i) and (ii) or 212(1)(q)(i) and (ii), as the case may be, are satisfied.

Reasons: Application of the Act, the Income Tax Regulations and previous interpretations.

11 October 2013 APFF Roundtable, 2013-0495861C6 F - Question 20 - APFF Round Table

CRA Tags
40(3.11), 98(1)(c), 53(2)(c), 98.1(1)(c), (3.14), 40(3), 248(1) "specified member"
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Specified Member
specified member status determined re involvement in daily management or activities
Summary Under
Tax Topics - Income Tax Act - Section 40 - Subsection 40(3.14) - Paragraph 40(3.14)(a)
not a limited partner if unlimited liability to third parties

Principales Questions: Whether an "active" limited partner may cease to qualify as a limited partner within the meaning of 40(3.14)(a) of the ITA and thus may not have to include in his income tax return a deemed capital gain for the year equal to the negative ACB of his interest in the partnership?

Position Adoptée: Yes, provided that the partner is neither a limited partner under subsection 40(3.14) nor a specified member of the partnership as per the definition of the expression in subsection 248(1). A partner will not be considered as a limited partner under paragraph 40(3.14)(a) if his liability towards third parties is unlimited and if he is in fact liable for all obligations of the partnership under the law governing the partnership arrangement. The question of whether the liability of a partner is unlimited is a question of fact and law and can only be resolved after a full examination of all facts and circumstances surrounding the relevant situation.

Raisons: Application of the Act and previous technical interpretations.

11 October 2013 APFF Roundtable, 2013-0492791C6 F - Gift by will

CRA Tags
118.1(5)
Summary Under
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(5)
potential executor discretion re corporate/estate split of gift might preclude as "gift"

Principales Questions: Whether a will that provides for a gift to a charity equal to 100,000$ less the amount that has been given by a specific corporation within a year after the death of the testator would be a gift by will for the purpose of subsection 118.1(5)?

Position Adoptée: None.

Raisons: Question of fact and law.

11 October 2013 APFF Roundtable, 2013-0495721C6 F - APFF 2013- Round table question 7

CRA Tags
51(2), 75(2)
Summary Under
Tax Topics - Income Tax Act - Section 75 - Subsection 75(2)
Sommerer FMV sale exception maintained with price adjustment clause
Summary Under
Tax Topics - General Concepts - Fair Market Value - Shares
FMV is a question of fact within TCC's discretion

Principal Issues:
1. In the light of the decision of the Federal Court of Appeal in the case of the Queen v Sommerer, will subsection 75(2) apply in the two situations?
2. In the case of a poor valuation of the fair market value of the transferred assets, if a Price Adjustment Clause is provided for and the conditions listed in paragraph 1.5 of Income Tax Folio S4-F3-C1 are met, will CRA recognize the validity of the Price Adjustment Clause?

Position: General comments.

Reasons: Previous positions.

11 October 2013 APFF Roundtable, 2013-0493671C6 F - Testamentary trust beneficiary of inter vivos trust

CRA Tags
248(25), 108(1)
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 108 - Subsection 108(1) - Testamentary Trust
testamentary trust will lose its status if it is designated as the beneficiary of an inter vivos trust

Principal Issues:
1. In the light of CRA's position in the technical interpretation 2011-0417391E5, would any testamentary trust to be established in the future for one of the beneficiaries of an inter vivos trust lose its status as a testamentary trust or otherwise fail to qualify?
2. What follow up will CRA undertake to determine if a testamentary trust is a beneficiary of an inter vivos trust?
3. Whether a trust would keep its status as a testamentary trust, if it renounces its rights as a beneficiary at the time that the trust is established or created?

Position: 1. The position in 2011-0417391E5 is maintained.
2. and 3. General comments.

Reasons : See below.

11 October 2013 APFF Roundtable, 2013-0493651C6 F - Affiliated persons and de facto control

CRA Tags
256(5.1), 40(3.6), 251.1
Summary Under
Tax Topics - Income Tax Act - Section 256 - Subsection 256(5.1)
holding of relatively large note where debtor has a iliquid business could give rise to de facto control
Summary Under
Tax Topics - Income Tax Act - Section 40 - Subsection 40(3.61)
exception unavailable for inter vivos trust

Principal Issues: Whether or not a testamentary trust is part of an affiliated group that controls Opco and whether or not subsection 40(3.6) could apply to a redemption of preferred shares of Opco held by the testamentary trust in two scenarios, the first were the redemption is made for cash and the second were the redemption is settled by the issuance by Opco of a promissory note? Whether or not in scenario 2 the testamentary trust could be considered to have de facto control of Opco by holding a debt receivable from Opco after the redemption of the preferred shares?

Position: Limited information does not permit to conclude on the first issue. De facto control is a question of fact.

Reasons: General comments on the issue of de facto control.

11 October 2013 APFF Roundtable, 2013-0495781C6 F - GRIP Exceeds Safe Income

CRA Tags
89(1), 245, 185.1(1), 55(2), 89(14)
Summary Under
Tax Topics - Income Tax Act - Section 89 - Subsection 89(1) - Excessive Eligible Dividend Designation
detailed review required to determine whether creation of preferred share dividend to flow out GRIP in excess of SIOH generatd EEDD

Principal Issues: 1. Whether paragraph c) of the definition "excessive eligible dividend designation"("EEDD") in subsection 89(1) would apply in the particular situation? 2. Whether GAAR would apply in the particular situation?

Position: 1. No definitive position. However, paragraph c) of the definition would not apply to Cibleco solely because of the transactions described in the situation. 2. No position on GAAR.

Reasons: 1. Not enough information provided in this particular situation. Definition EEDD in subsection 89(1). 2. Not enough information provided in this particular situation.

Technical Interpretation - Internal

21 October 2013 Internal T.I. 2013-0505831I7 - Rollover and subsequent disposition of property

CRA Tags
69(11)(b)
Summary Under
Tax Topics - Income Tax Act - Section 69 - Subsection 69(11) - Paragraph 69(11)(b)
s. 69(11)(b) inapplicable to s. 85.1(3) drop-down of CF1 to CF2 followed by sale of CF1 "exempted" by s. 2(3)
Summary Under
Tax Topics - Income Tax Act - Section 85.1 - Subsection 85.1(3)
s. 69(11)(b) not applied

Principal Issues: Whether paragraph 69(11)(b) would apply when shares of a foreign affiliate are transferred by a Canadian corporation to a foreign affiliate pursuant to subsection 85.1(3) and when the foreign affiliate disposed of those shares (which are not taxable Canadian property) in favour of an arm's length person.

Position: In the situation described, there would be no exemption available to the foreign affiliate from tax payable under the Act on income arising from a subsequent disposition.

Reasons: In the situation described, the gain arising from the subsequent disposition is not considered to be income for the purposes of the Act (it is not included in the income of the foreign affiliate because there is no provision of the Act adding this gain to the income). Therefore, there is no tax payable under the Act. As there is no income and no tax payable under the Act, there is no exemption from tax payable available to the foreign affiliate.

October 21, 2013

1 August 2013 Internal T.I. 2013-0484061I7 - Alternative Minimum Tax - Health & Welfare Trusts

CRA Tags
127.52(1)

Principal Issues: Whether a HWT is permitted to deduct expenses in excess of gross trust income when determining adjusted taxable income for purposes of the AMT?

Position: Yes.

Reasons: Previous positions.

14 June 2013 Internal T.I. 2013-0478331I7 - Ontario research and development tax credit

Principal Issues: Do 2008 federal investment tax credits in respect of scientific research and experimental development (SR&ED) expenditures that are claimed in a corporation's 2009 taxation year reduce the eligible expenditures of a corporation for purposes of calculating the ORDTC in the corporation's 2009 taxation year?
The Ontario taxable income of a corporation includes a deduction for federal SR&ED expenditures and at the same time the taxpayer is claiming the ORDTC which is based on SR& ED expenditures. Your question is, is this allowed or is there a mechanism that reverses the federal SR&ED expenditures for Ontario tax purposes?

Position: No. No.

Reasons: The definition of government assistance for purposes of the ORDTC. The definitions of income and taxable income for a corporation under the Ontario Taxation Act, 2007.