Income Tax Severed Letters - 2014-02-26

Ruling

2013 Ruling 2013-0487911R3 - Mortgage Investment Corporation

CRA Tags
253.1, 130.1(6)
Summary Under
Tax Topics - Income Tax Act - Section 130.1 - Subsection 130.1(6)
carrying on non-qualifying activities through subsidiary LP; GP held by relative of patriarch
Summary Under
Tax Topics - Income Tax Act - Section 253.1
carrying on non-qualifying activities through subsidiary LP; GP held by relative of patriarch

Principal Issues: Whether a MIC will be considered to be carrying on the business of a limited partnership for the purpose of paragraph 130.1(6)(b) by acquiring and holding a XXXXXXXXXX% limited partnership interest.

Position: No, based on the facts provided and section 253.1.

Reasons: Pursuant to section 253.1, for the purpose of paragraph 130.1(6)(b), a MIC that holds an interest in a partnership would not be considered to be carrying on the business of the limited partnership solely by acquiring and holding that interest, as long as the MIC's liability as a member of the partnership remains limited. However, it is a question of fact whether the MIC meets the requirements of subsection 130.1(6).

Ministerial Correspondence

10 January 2014 Ministerial Correspondence 2013-0513401M4 F - Pertes agricoles restreintes

CRA Tags
152(4), 152(3.1), 152(4.2)
Summary Under
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4.2)
CRA will not reassess old years based on a new precedent

Principales Questions: Peut-on émettre une nouvelle cotisation à l'égard d'un contribuable concernant des années antérieures en se basant sur une décision favorable d'un tribunal à l'égard d'un autre contribuable? Can CRA reassess a taxpayer for prior years based on a favorable decision of a court with respect to another taxpayer?

Position Adoptée: Non. No.

Raisons: Voir lettre ci-dessous. See letter below.

Technical Interpretation - External

12 February 2014 External T.I. 2013-0486931E5 - Distribution by ULC to a Trust to a NR beneficiary

CRA Tags
Treaties Article XXII(2), 84(1), Treaties Article IV(7)(b), 212(1)(c)(ii)
Summary Under
Tax Topics - Treaties - Income Tax Conventions - Article 4
hybrid trust holding ULC

Principal Issues: 1. Will subparagraph (7)(b) of Article IV of the Canada-U.S. Treaty apply to a distribution of dividend income received from a ULC, made by a Canadian trust to a U.S.-resident beneficiary?
2. If the answer to question 1 is in the affirmative, will a deemed dividend from the ULC created pursuant to subsection 84(1) of the Income Tax Act get around the application of subparagraph (7)(b) of Article IV of the Canada-U.S. Treaty?

Position: 1. Yes. 2. No

Reasons: 1. Since the U.S. tax treatment of the amount paid from the trust is not the same as a result of the fiscal transparency status of the trust compared to when it is not treated as fiscally transparent, subparagraph (7)(b) of Article IV of the Canada-U.S. Treaty applies and the non-resident beneficiary would not be entitled to the benefits of the Treaty.
2. It is irrelevant whether a deemed dividend is created under subsection 84(1) of the Act by having the ULC increase the PUC of its shares and thereafter reducing the PUC, and making a distribution of cash as a return of capital. What must be considered in an analysis under subparagraph (7)(b) of Article IV of the Canada-U.S. Treaty is whether from a U.S. tax perspective, there would be a difference in treatment of the trust distribution when the trust is treated as fiscally transparent and when it is not fiscally transparent. As there is a difference in treatment in such instance, subparagraph (7)(b) of Article IV of the Canada-U.S. Treaty will not be avoided.

12 February 2014 External T.I. 2013-0505511E5 - Cancellation fees paid to a non-resident artist

CRA Tags
OECD Model Tax Convention Article 17 Commentary, 153(1)(g), ITR 105, Treaties Article XVI
Summary Under
Tax Topics - Income Tax Regulations - Regulation 105 - Subsection 105(1)
cancellation fee following Canadian rehearsal

Principal Issues: Whether cancellation fees paid to a US non-resident artist are subject to Canadian withholding tax?

Position: Depends on the facts. The cancellation fees are not subject to Canadian taxation under section 105 of the Regulations when no service is rendered in Canada by an Artist or an Athlete.

Reasons: OECD commentaries to Articles 17, 15 and 7

7 February 2014 External T.I. 2014-0516921E5 F - Crédit et frais résiduels

CRA Tags
6(2), 6(1)(k), 6(1)(e), 9(1)
Summary Under
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Depreciable Property
lease/sale distinction established based on the legal relationship
Summary Under
Tax Topics - Income Tax Act - Section 6 - Subsection 6(2)
employer potentially can choose to prorate terminal credits or deficiencies (based on sale price on car lease termination relative to residual value) in applying formula
Summary Under
Tax Topics - General Concepts - Substance
lease characterized as lease unless its actual legal effects differ
Summary Under
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Undepreciated Capital Cost - A
lease under which lessee bore all risk implicitly treated as lease rather than purchase

Principales Questions: 1. Quelle est la nature des contrats conclus entre les parties? What is the nature of the contracts concluded between the parties?
2. Quel est le traitement fiscal du crédit et des frais résiduels découlant de la vente d'une automobile: a) pour l'employeur? b) pour l'employé? What is the income tax implications of a terminal credit and a teminal charge arising from the sale of the vehicle: a) for the employer? b) for the employee?

Position Adoptée: 1. Question de fait. Question of fact.
2. a) Le crédit résiduel réduit les frais de location et les frais résiduels augmentent les frais de location et ce, dans l'année de la remise de l'automobile au propriétaire. Toutefois, si des conditions sont réunies, l'employeur peut choisir de répartir ce montant au prorata sur la durée du bail. The terminal credit reduces the rental fees and the terminal charge increases the rental fees, in the year in which the vehicle was returned to the owner. However, if certain conditions are met, the employer can choose to apportion that amount on a prorated basis over the term of the lease.
2. b) Les avantages imposables pour l'employé au titre de frais pour droit d'usage et de frais de fonctionnement sont ajustés en conséquence, grâce à la formule prévue au paragraphe 6(2). The tax benefits for the employee under the standby charge and the automobile operating expense are adjusted accordingly through the formula provided under subsection 6(2).

Raisons: 1. Position antérieure de l'ARC. CRA's previous position.
2. Position antérieure de l'ARC. CRA's previous position.

3 February 2014 External T.I. 2012-0464541E5 - Article 15 of the Canada-Germany Income Tax Treaty

CRA Tags
Treaties Article XV, 115(1), 2(3)
Summary Under
Tax Topics - Treaties - Income Tax Conventions - Article 15
183-day test

Principal Issues: Whether the safe harbour rule in Article 15(2) of the Canada-Germany Treaty would apply under the circumstances?

Position: No.

Reasons: The conditions in Article 15(2) would not be satisfied where a German-resident employee is present in Canada for periods that exceed in the aggregate 183 days in any twelve month period commencing or ending in the particular fiscal year.

14 January 2014 External T.I. 2013-0510061E5 - Foreign doctors working in Canada

CRA Tags
149(1)(a)
Summary Under
Tax Topics - Income Tax Act - Section 149 - Subsection 149(1) - Paragraph 149(1)(a)
foreign-government-paid interns

Principal Issues: Whether employees of a foreign government who are working in Canadian hospitals as part of their post-graduate training are entitled to the exemption under paragraph 149(1)(a) of the Act?

Position: Yes, if all of the conditions in that paragraph are met.

Reasons: We will consider the "top-up" payment made to the doctors by the medical school from a fund provided by the foreign government to be paid by the foreign government.

23 December 2013 External T.I. 2013-0505481E5 F - Application des paragraphes 6(6) et 110.7(1)

CRA Tags
6(1), 110.7(4), 6(6), 110.7(1)
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 110.7 - Subsection 110.7(1)
interaction between ss. 6(6) and 110.7(1)(b)
Summary Under
Tax Topics - Income Tax Act - Section 6 - Subsection 6(6)
Treasury Board rates considered to be reasonable

Principales Questions: Sachant que l'ARC considère que les taux d'allocation pour déplacement établis par le Secrétariat du Conseil du Trésor du Canada sont raisonnables, est-ce qu'un montant de 70 $ sera jugé raisonnable? Advenant une réponse négative, est-ce que le paragraphe 6(1) s'applique ? Quelle est l'interaction entre le paragraphe 6(6) et la déduction prévue à l'alinéa 110.7(1)b)? Knowing the fact that the CRA considers the rates prescribed by the Treasury Board of Canada Secretariat as reasonable, will the CRA consider the amount of $70 as reasonable? If not, does subsection 6(1) apply? What is the interaction between subsection 6(6) and the deduction provided for at paragraph 110.7(1)(b)?

Position Adoptée: La question à savoir si les montants versés à titre d'allocation pour pension et logement sont raisonnables est une question de fait. Question of fact. La déduction à l'alinéa 110.7(1)b) sera réduite du montant exclu du revenu aux termes du sous-alinéa 6(6)a)(i). The amount of the deduction at paragraph 110.7(1)(b) will be reduced by the amount excluded from income by virtue of subparagraph 6(6)(a)(i).

Raisons: Question de fait. Question of fact. Puisque l'allocation versée est une allocation pour pension et logement, elle ne donne pas droit à une déduction l'alinéa 110.7(1)a). Quant à l'alinéa 110.7(1)b), 110.7(4) nous indique qu'il faut retrancher l'allocation visée ou sous-alinéa 6(6)a)(i) de la déduction prévue à l'alinéa 110.7(1)b)./ Since the amount paid is a housing allowance, no deduction will be permitted under paragraph 110.7(1)a), but paragraph 110.7(1)b) will apply. Subsection 110.7(4) indicates that the amount exempted under subparagraph 6(6)a)(i) will reduce the deduction available.

Technical Interpretation - Internal

14 November 2013 Internal T.I. 2013-0505111I7 - Mark-to-market property

CRA Tags
142.5, 142.6, 142.2, 142.3, 142.51
Summary Under
Tax Topics - Income Tax Act - Section 142.2 - Subsection 142.2(1) - Excluded Property
overview of excluded property
Summary Under
Tax Topics - Income Tax Act - Section 142.2 - Subsection 142.2(1) - Tracking Property
overview/purpose of tracking property
Summary Under
Tax Topics - Income Tax Act - Section 142.3 - Subsection 142.3(1)
overview of specified debt obligation rules

Principal Issues: Request from International Relations Office of Legislative Policy Directorate for information on the mark-to-market property rules XXXXXXXXXX.

Position: Provided some very general comments.

Reasons: See below.

5 September 2013 Internal T.I. 2013-0487491I7 - Eligible dividends - credit unions

CRA Tags
89(1), 137(4.1) 137(4.2), 125(7), 137(7)
Summary Under
Tax Topics - Income Tax Act - Section 137 - Subsection 137(7)
Sched.53 GRIP calculation for CCPC not generally required

Principal Issues: Is a credit union that is a CCPC required to file T2SCH53 (GRIP calculation)?

Position: No.

Reasons: Section 89 is not specifically listed in the exceptions described in subsection 137(7). In addition, under subsection 137(4.1), a payment by a credit union in respect of shares is generally deemed to be paid or payable as interest.