Income Tax Severed Letters - 2015-08-12

Ruling

2015 Ruling 2014-0559181R3 - Internal Reorganization

CRA Tags
112(1), 55(3)(a)
Summary Under
Tax Topics - Income Tax Act - Section 111 - Subsection 111(1) - Paragraph 111(1)(a)
internal spinoff by "profitco" for previous loss transfer rulings will not prejudice those rulings
Summary Under
Tax Topics - Income Tax Act - Section 55 - Subsection 55(3) - Paragraph 55(3)(a)
business division spin-offs by indirect public corp sub to new sisters

Principal Issues: Whether paragraph 55(3)(a) will apply in the context of an internal spin-off reorganization.

Position: Yes.

Reasons: There is no transaction described in subparagraphs 55(3)(a)(i) to (v) as part of the series of transactions as part of which the dividends will be received.

2014 Ruling 2014-0525081R3 - loss consolidation

CRA Tags
245, 20(1)(c)

Principal Issues: Whether a loss consolidation can be undertaken within a corporate group such that Lossco will be entitled to apply its non-capital losses against the interest income generated as part of the loss consolidation transactions and whether profitco will be entitled to deduct interest expense.

Position: Yes.

Reasons: Conforms to our requirements for such rulings.

2014 Ruling 2014-0556781R3 - Loss consolidation

CRA Tags
245, 20(1)(c)

Principal Issues: Whether Profitco can deduct the interest paid on a secured debenture issued to Lossco in return for Newco preferred shares that Lossco would transfer to it. Lossco would report the interest income on the debenture. XXXXXXXXXX.

Position: Yes.

Reasons: The proposed transactions conform to our requirements for loss consolidation transactions.

2014 Ruling 2013-0516071R3 - Reorganization

CRA Tags
55(3)(a), 245(2), 34.2
Summary Under
Tax Topics - Income Tax Act - Section 111 - Subsection 111(1) - Paragraph 111(1)(a)
transfer of already-earned profits to Lossco by transfer of LP units with income allocation at LP year end
Summary Under
Tax Topics - Income Tax Act - Section 34.2 - Subsection 34.2(14)
transfer by Profitco of profitable LP to Lossco which is affiliated by virtue of common NR indirect parent
Summary Under
Tax Topics - Income Tax Act - Section 96 - Subsection 96(1) - Paragraph 96(1)(f)
transfer of profitable LP to Lossco followed by allocation of previously-earned profits of LP to Lossco

Principal Issues: A series of transactions is undertaken to effect the sale of a partnership interest from a Profitco to a Lossco. Does section 245 apply to this series of transactions?

Position: No.

Reasons: No this series of transactions is undertaken as a loss consolidation and does not result in an abuse and misuse of the Act as a whole.

Technical Interpretation - External

5 July 2015 External T.I. 2015-0588201E5 F - Apportez vos appareils personnels / BYOD

CRA Tags
6(1)(a), 6(1)(b)
Summary Under
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(b)
fixed BYOD allowance not verified against receipts is taxable allowance

Principales Questions: Est-ce qu'un versement mensuel d'un montant fixe versé à des employés pour l'utilisation de leur téléphone cellulaire personnel dans l'accomplissement des fonctions de leur emploi représente un remboursement ou une allocation? / Does a monthly payment of a fixed amount paid to employees using their personal cell phone in the performance of the duties of their employment represent a reimbursement or an allowance?

Position Adoptée: Il s'agit d'une allocation. / The amount would be an allowance.

Raisons: Le fait que le contrat avec le fournisseur de service doit être remis à l'employeur n'est pas une preuve de paiement. Par conséquent, il ne peut pas s'agir d'un remboursement de dépenses. / The fact that the contract with the service provider must be given to the employer is not a proof of payment. Therefore, it cannot be a reimbursement of expenses.

Conference

14 May 2015 Roundtable, 2015-0573331C6 - Documentation re qualifying transfers to IPPs

CRA Tags
ITR 8304(10)

Principal Issues: Request for the Registered Plans Directorate (RPD) to provide a status update on issue identified in its November 2014 RPP Practitioner's Forum regarding cases of non-compliance with the rules governing qualifying transfers to individual pension plans (IPP) from registered retirement savings plans. In particular, RPD advised that in some cases the transfers were never completed as required (or only partially completed) and lump sum contributions were made instead for which business deductions were taken. The Director of Compliance had suggested that additional documentation may need to be provided to the CRA to ensure compliance. CLHIA is now asking for an update on what was discussed at the November 2014 forum.

Position: RPD will chair an ad-hoc committee comprising a small number of representatives from RPD and industry who specialize in IPPs to further explore options for how to best provide evidence to the CRA of the qualifying transfer. RPD confirmed that it has not recommended the creation of a new form, and will consult with stakeholders on any options explored in future.

Reasons: See below.

14 May 2015 CLHIA Roundtable, 2015-0573801C6 - Foreign affiliates - sale of property to taxpayer

CRA Tags
138(2), 95(2)(a.1)
Summary Under
Tax Topics - Income Tax Act - Section 138 - Subsection 138(2)
exclusion where sale to foreign branch of Cdn insurer
Summary Under
Tax Topics - Income Tax Act - Section 95 - Subsection 95(2) - Paragraph 95(2)(a.1)
exclusion where sale to foreign branch of Cdn insurer

Principal Issues: Whether the cost to Canco of property sold to it by a foreign affiliate is "relevant in computing the income" from Canco's business for the purposes of paragraph 95(2)(a.1) if subsections 138(2) and (9) apply to exclude the cost of the property from the computation of Canco's income for the purposes of Part I of the Act.

Position: In the circumstances described in this question, the cost of the property is not relevant in computing the income from a business carried on by Canco for the purposes of paragraph 95(2)(a.1).

Reasons: By virtue of subsections 138(2) and (9), Canco's income is unaffected by its acquisition of the property from the foreign affiliate.

14 May 2015 CLHIA Roundtable, 2015-0573841C6 - 2015 CLHIA Roundtable – Winding-up and ACB

CRA Tags
148(7), 88(2), 69(5)
Summary Under
Tax Topics - Income Tax Act - Section 148 - Subsection 148(7)
s. 69(5) generally prevails over s. 148(7)
Summary Under
Tax Topics - Income Tax Act - Section 69 - Subsection 69(5)
s. 69(5) generally prevails over s. 1487

Principal Issues: Does subsection 69(5) take precedence over subsection 148(7) in respect of the distribution of an interest in a life insurance policy by a corporation to a shareholder on a subsection 88(2) wind-up of the corporation?

Position: Likely

Reasons: Subsection 69(5) seems more specific, but an actual fact situation is required for a full analysis.

14 May 2015 CLHIA Roundtable, 2015-0573861C6 - 2015 CLHIA Roundtable-Regulation 2411(3)(a)election

CRA Tags
220(3.2), ITR 2411(3)(a), ITR 600
Summary Under
Tax Topics - Income Tax Regulations - Regulation 2411 - Subsection 2411(3) - Paragraph 2411(3)(a)
Summary Under
Tax Topics - Income Tax Regulations - Regulation 600

Principal Issues: Can an insurer elect under paragraph 2411(3)(a) of the Regulations subsequent to filing its income tax return and if not, why not?

Position: No

Reasons: There is no provision in the Act to allow for a late election under paragraph 2411(3)(a) of the Regulations.

14 May 2015 CLHIA Roundtable Q. 5, 2015-0573821C6 - Safe income

CRA Tags
148(7), 148(1), 55(1), 148(9)
Summary Under
Tax Topics - Income Tax Act - Section 148 - Subsection 148(7)
distribution to shareholder at CSV
Summary Under
Tax Topics - Income Tax Act - Section 55 - Subsection 55(2)
policy premiums reduce SIOH only if they do not increase CSV

Principal Issues: Opco transfers an interest in a life insurance policy to its parent, Holdco. (1) Incidence of the Dividend-in-Kind on Opco's safe-income for the purposes of determining the portion of the Dividend-in-Kind that would be subject to the application of subsection 55(2). (2) Incidence of the payment of insurance premiums on Opco's safe income on hand for the purposes of determining the portion of the Dividend-in-Kind that would be subject to the application of subsection 55(2).

Position: (1) The resulting income inclusion would not be part of the safe income at the safe income determination time. (2) The portion of the premiums that does not contribute to the increase of the cash surrender value would generally reduce the safe income on hand at the safe income determination time.

Reasons: 1) The safe income determination time precedes the moment of the transfer. (2) The safe income on hand would be reduced by the amount of the premiums that are not allocated to the cash surrender value.