Income Tax Severed Letters - 2015-11-11

Technical Interpretation - External

2 October 2015 External T.I. 2015-0595111E5 F - Amount paid pursuant to 104(24)

CRA Tags
248(1) "amount", 104(24)
amount payable can include a payment in kind if authorized by trust deed

Principales Questions: Is a transfer of a property of a trust to a beneficiary considered to be an amount paid pursuant to subsection 104(24)?

Position Adoptée: Yes.

Raisons: For the purpose of subsection 104(24), an amount paid can include a payment in kind.

30 September 2015 External T.I. 2015-0590501E5 F - Spousal sharing

CRA Tags
118.1(1) "total charitable gifts", 118.1(3), 248(31)
gift allocation between spouses still permitted after 2015

Principales Questions: (1) For the purpose of calculating a charitable gifts tax credit, as provided in subsection 118.1(3), whether the eligible amount of a gift may be allocated between spouses in the most advantageous way to them, based on the current CRA administrative position in that regard? (2) Whether our position remains the same if the donation is made in 2016 or in a subsequent taxation year, considering the definition of the term "total charitable gifts" applicable after December 31, 2015?

Position Adoptée: (1) Yes. (2) Yes.

Raisons: (1) Based on the CRA administrative position, we allow a donation to be split between the two spouses in a way that is the most beneficial. (2) Based on our interpretation of the amendments to the definition of "total charitable gifts" provided in subsection 118.1(1) that is applicable for the 2016 and subsequent taxation years.

15 September 2015 External T.I. 2015-0583221E5 F - Redemption by a cooperative of its own shares

CRA Tags
39(1)(a), 136(2), 40(1)(a), 248(1)(m) disposition
no gain to cooperative corporation from redemption of its own preferred shares

Principales Questions: Is a gain realized by a cooperative corporation on the redemption of its own preferred shares taxable?

Position Adoptée: No.

Raisons: The Act. No provision of the Act mentions a gain or capital gain with respect to the redemption by a cooperative corporation of its preferred shares.

10 June 2015 External T.I. 2015-0578041E5 - Designation of an ERI

CRA Tags
Ontario Taxation Act Regulation 37/09 - 38(8), 149(1)(f), Ontario Taxation Act Regulation 37/09 - 38(11), Ontario Taxation Act Regulation 37/09 -, Ontario Taxation Act Regulation 37/09 - 38(7), Ontario Taxation Act 97(27)

Principal Issues: Client wishes to be designated as an Eligible Research Institute (ERI) for purposes of the OBRI tax credit.

Position: Review of documentation submitted fulfils the requirements for being designated as an ERI.

Reasons: Legislation

Conference

18 June 2015 STEP Roundtable Q. 1, 2015-0572131C6 - 2015 STEP Q1- Tax Year of Graduated Rate Estate

CRA Tags
s.249(1), 248(1) "graduated rate estate", s.249(4.1)
4th taxation year will also be short if executors adopt fore-shortened 1st estate year end

Principal Issues: Where an individual dies after 2015, is it possible that graduated rates may apply to four taxation years of an estate that has been designated as the graduated rate estate of that deceased individual?

Position: Generally yes, where an executor chooses a taxation year end for the graduated rate estate which results in a first taxation year which is less than 12 months.

Reasons: The fourth taxation year of the estate will be deemed to end when the estate ceases to be a graduated rate estate. Therefore, the fourth taxation year will also be a short taxation year. The estate will be subject to graduated rates only for a total of 36 months, even though the 36 months is spread over four taxation years.

18 June 2015 STEP Roundtable Q. 2, 2015-0572091C6 - 2015 STEP – Q2 – Meaning of Graduated Rate Estates

CRA Tags
248(1)

Principal Issues: CRA comments requested on meaning of graduated rate estate, including what property is included & what happens when there are 2 wills.

Position: General comments provided

Reasons: See below.

18 June 2015 STEP Roundtable Q. 3, 2015-0572201C6 - 2015 STEP Q3 Redeemable Preferred Shares and 18(4)

CRA Tags
18(4)
equity/debt classification based on legal form

Principal Issues: Whether the classification of redeemable preferred shares in the context of the application of the thin capitalization rules under subsection 18(4) of the Act is affected by the accounting classification?

Position: The legal form of a particular financial instrument, and not its accounting treatment, governs the classification as either debt or equity for income tax purposes.

Reasons: Consistent with long standing position.

18 June 2015 STEP Roundtable Q. 4, 2015-0581931C6 - 2015 STEP Q4 - Competent Authority Assistance

CRA Tags
Treaties Article XXIX

Principal Issues: Guidance on how to request assistance from the Canadian Competent Authority with respect to paragraph 5 of Article XXIX of the Canada – US Tax Convention.

Position: Response provided by CPB - General comments provided

Reasons: See below.

18 June 2015 STEP Roundtable Q. 5, 2015-0572101C6 - 2015 STEP - Q5 - Subsection 104(13.3)

CRA Tags
104(13.1), 104(13.2), 104(6), 104(13.3)

Principal Issues: Impact on subsection 104(13.1) and (13.2) designations.

Position: See comments

Reasons: See below.

18 June 2015 STEP Roundtable Q. 6, 2015-0572121C6 - 2015 STEP - Q6- Subsection 104(13.4)

CRA Tags
104(24), 104(13.1), 104(4), 104(13.2), 104(13.4)

Principal Issues: 1. Can a designation under subsection 104(13.1) or (13.2) be made where subsection 104(13.4) applies? 2. Subparagraph 104(13.4)(b)(i) deems the income to have become payable in the year to the individual. However, at that time the individual is deceased. So does the income become that of the individual, or his or her estate?

Position: 1. Yes. 2. Income of the individual.

Reasons: 1. Paragraph 104(13.4)(b) deems the trust's income for that taxation year to have become payable in the year to the individual and not to another beneficiary (notwithstanding subsection (24)). As a result, in that taxation year, an amount may be designated by the trust under subsections 104(13.1) and (13.2) only in respect of the deceased beneficiary. 2. Even though the individual may be deceased at the time at which this provision becomes operative, it functions as if the individual was alive at that instance, i.e., the income is deemed to have been made payable to the individual while still alive. Thus the income in the year of death will be included in the income of the beneficiary pursuant to paragraph 104(13)(a).

18 June 2015 STEP Roundtable Q. 7, 2015-0572141C6 - 2015 STEP– Q7-Deemed Res Trust-subsection 94(10)

CRA Tags
94(3), 94(10)
retroactive application of s. 94(3)(a) to immigration trust to beginning of year
retroactive application of s. 94(3)(a) to immigration trust to beginning of year

Principal Issues: Retroactive application of subsection 94(3) when an individual leaves Canada, makes a contribution to a trust, and subsequently returns to Canada within 60 months of making the contribution.

Position: Where the individual was a non-resident of Canada for 60 months prior to making the contribution to the trust and returns to Canada within 60 months of making the contribution, there will be a retroactive application of subsection 94(3) for each taxation year commencing in the year the contribution is made provided that the trust has a resident beneficiary.

Reasons: See below.

18 June 2015 STEP Roundtable Q. 8, 2015-0581961C6 - 2015 STEP – Q8 - Foreign entity classification

Principal Issues: Does CRA keep a list of foreign entities that it generally considers to be trusts.

Position: No.

Reasons: It will be a question of fact whether a trust relationship exists.

18 June 2015 STEP Roundtable Q. 9, 2015-0581921C6 - 2015 STEP - Q9 - Non-Qualifying Country

Principal Issues: Are there any non-qualifying countries, and if so is CRA able to provide a list of them?

Position: Response provided by LPD. As of May 6, 2015, the only non-qualifying country is Liberia, which has been a non-qualifying country since February 24, 2015.

Reasons: See below.

18 June 2015 STEP Roundtable Q. 10, 2015-0578541C6 - 2015 STEP – Q10 - Interest in a Trust as TCP

CRA Tags
116(5.01), 116(6.1), 116(5.02), 116(6), 116(5), 248(1)

Principal Issues: A testator leaves an estate, more than 50% of which is comprised of real property situated in Canada, (the testator's principal residence). The testator's will directs that on completion of the estate administration, the executors shall transfer one half of the residue, comprised entirely of cash, to a Canadian resident trust for the benefit of a non-resident beneficiary son. The estate is administered within one year of the testator's death, one half of the cash residue is transferred from the estate to Son's Trust and one year later the Trust makes a capital distribution to the non-resident son. Would the son's interest in Son's Trust be taxable Canadian property (TCP)?

Position: We would consider son's interest in Son's Trust, or son's interest in the estate, to be TCP.

Reasons: Where the transfer of the cash from the estate to Son's Trust meets all of the conditions of paragraph (f) of the definition of "disposition" in subsection 248(1) there would be no change in the beneficial ownership of the property. Subsection 248(25.1) deems Son's Trust to be the same trust and a continuation of the estate. Since the distribution of cash by Son's Trust to the son occurs within 60 months of the sale of the principal residence and the son's interest in Son's Trust is derived directly or indirectly from that real property, the 60-month look-back rule in paragraph (d) of the definition of TCP in subsection 248(1) is met. Alternatively, where the transfer of son's share of the cash from the estate to Son's Trust does not meet all of conditions in paragraph (f), we would determine whether the son's interest in the estate is TCP. Since the son's interest in the estate is derived within 60 months from the sale of the principal residence, the 60-month look-back rule is met.

18 June 2015 STEP Roundtable Q. 11, 2015-0578551C6 - 2015 STEP–Q11-Subsection 118.1(5.1)-sub property

CRA Tags
118.1(5.1)
share redemption proceeds – but not by a dividend – are substituted property
Words and Phrases
substituted

Principal Issues: Whether cash received by the Estate constitutes substituted property for the purpose of paragraph 118.1(5.1)(b).

Position: A cash dividend does not constitute substituted property for the shares received by the Estate. Cash received on the purchase for cancellation of shares received by the Estate does constitute substituted property.

Reasons: See below.

18 June 2015 STEP Roundtable Q. 12, 2015-0578561C6 - 2015 STEP - Q12 - Gift to public foundation

CRA Tags
118.1(18), 248(25), 118.1(19), 118.1(5), 251(1)

Principal Issues: Will the gift of a share of the capital stock of a corporation to a public foundation to which subsection 118.1(5) applies after 2015, qualify as an "excepted gift" as defined in subsection 118.1(19) of the Act?

Position: No, if the share is considered to be a "non-qualifying security" ("NQS") as defined in subsection 118.1(18) of the Act.

Reasons: For a gift of a share, which is a NQS, to qualify as an excepted gift, the taxpayer, i.e., the estate in this instance, must deal at arm's length with the donee, i.e., the public foundation, pursuant to paragraph 118.1(19). However, the estate and the public foundation are deemed not to deal at arm's length pursuant to paragraph 251(1)(b) of the Act.

18 June 2015 STEP Roundtable Q. 13, 2015-0581941C6 - 2015 STEP - Q 13- T3 return Q 10

CRA Tags
94(1), 122(2)(d.1)

Principal Issues: Does question 10 on the T3 return, about the trust having received any contribution of property since June 22, 2000, have any relevance to a trust that is factually resident in Canada?

Position: Yes. It is relevant to a trust that is factually resident in Canada.

Reasons: The question pertains to one of the conditions laid out in subsection 122(2) of the Act to determine if the trust qualifies as a grandfathered inter vivos trust.

18 June 2015 STEP Roundtable Q. 14, 2015-0581951C6 - 2015 STEP – Q14 - Question 6 on the T3 Return

CRA Tags
122(2)(e)

Principal Issues: Where a trust has made an income amount payable to a beneficiary, but the amount has yet to be paid, should this be disclosed in response to question 6 when filing the T3 return?

Position: Yes, if the beneficiary is not at arm's length with the trust.

Reasons: A debt has been incurred by the trust.

18 June 2015 STEP Roundtable Q. 15, 2015-0572151C6 - 2015 STEP – Q15 - Tax Audit & Net Worth Statements

CRA Tags
241, 231.1(1)

Principal Issues: Can CRA comment on auditors requesting personal financial information and/or furnishing statements of net worth of the shareholders of Canadian corporations?

Position: Response provided by CPB - General comments provided

Reasons: See below.

18 June 2015 STEP Roundtable Q. 16, 2015-0572181C6 - 2015 STEP - Q16 - Offshore Tax Informant Program

Principal Issues: Overview of the Offshore Tax Informant Program.

Position: Response provided by CPB - General comments provided

Reasons: See below.

18 June 2015 STEP Roundtable Q. 17, 2015-0572191C6 - 2015 STEP - Q17 - Update on FATCA Info Exchange

Principal Issues: Given that the deadline for 2014 information exchange has already passed, can the CRA provide any comments on how the information exchange procedures / obligations has been proceeding?

Position: Response provided by CPB - General comments provided.

Reasons: See below.

Technical Interpretation - Internal

24 August 2015 Internal T.I. 2015-0592051I7 - Medical residents– situations similar to Kandasamy

CRA Tags
118.6

Principal Issues: Whether the Income Tax Rulings Directorate recognizes the Kandasamy decision regarding the eligibility of medical residents for the education and textbook tax credits.

Position: Yes

Reasons: Previous position in F 2014-0551931E5