Income Tax Severed Letters - 2016-06-08

Ruling

2015 Ruling 2015-0576421R3 - Standard Loss Consolidation

CRA Tags
245, 112(1)

Principal Issues: Whether 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 the corresponding interest expense.

Position: Yes.

Reasons: Conforms to our requirements for such rulings.

Technical Interpretation - External

13 May 2016 External T.I. 2016-0626371E5 - Subsection 185.1(2) election

CRA Tags
89(1), 84(3), 185.1(1)
Summary Under
Tax Topics - Income Tax Act - Section 185.1 - Subsection 185.1(2) - Paragraph 185.1(2)(a)
election cannot disproportionately allocate to one of three separate dividends/manner of filing

Principal Issues: 1. In the scenarios described, is it possible to use the election in subsection 185.1(2) to stream all excessive eligible dividend designations in respect of three separate eligible dividends paid in a year to one eligible dividend paid, deeming it to be an ordinary dividend, while the other two dividends remain eligible? 2. If not, do three separate elections under subsection 185.1(2) need to be made, or can the corporation file one election for all eligible dividends?

Position: 1. No, the election under subsection 185.1(2) does not operate in that manner because an excessive eligible dividend designation is made in respect of each eligible dividend paid in the year pursuant to the definition of "excessive eligible dividend designation" in subsection 89(1), and the election only permits the corporation to elect up to the amount of the excessive eligible dividend designation in respect of each eligible dividend paid. 2. While the election must be made in respect of each excessive eligible dividend designation on each eligible dividend, these elections can be combined into one letter to your tax centre, provided that all of the required information in respect of each dividend is provided, in accordance with the instructions at http://www.cra-arc.gc.ca/tx/bsnss/tpcs/crprtns/dvdnds/lctn-eng.html.

Reasons: 1. Wording of the legislation. 2. Currently there is no prescribed form and no prescribed manner for making this election, therefore administrative guidance is provided on the CRA website.

13 April 2016 External T.I. 2015-0614371E5 - Specified foreign property - Form T1135

CRA Tags
233.3, 54

Principal Issues: Whether certain property described is “specified foreign property” for purposes of the Form T1135 reporting requirements.

Position: General comments provided.

Reasons: Section 233.3 of the Act provides reporting requirements in respect of “specified foreign property”, as defined in subsection 233.3(1) of the Act. Specified foreign property does not include personal-use property. Personal-use property is defined in section 54 of the Act to include property owned by the taxpayer that is used primarily for the personal use or enjoyment of the taxpayer or a person related to the taxpayer. Whether a particular property is primarily for personal use and enjoyment is a question of fact that is determined on a case-by-case basis.

1 April 2016 External T.I. 2014-0537691E5 F - Succession, administration of property of others

CRA Tags
104(1), 159(2), ITR 201(2)

Principal Issues: A testamentary provision creates a regime that is an administration of the property of others ("Regime") that is not a trust, not a prolongation of a succession, not a usufruct, a right of use or habitation or a substitution, under the civil law.
1) Whether the Regime is a trust for the purpose of the Act?
2) Whether the income from the property administered under the Regime is taxable in the hands of the legatee?
3) Whether the end of the Regime triggers a disposition of the property administered?
4) Whether the administrator is required to obtain a clearance certificate pursuant to subsection 159(2) before distributing the property administered under the Regime?

Position:
1) Subject to the application of private law, no.
2) Yes
3) No
4) Yes

Reasons:
1) Definition of trust in subsection 248(1).
2) The legatee is the owner of the property.
3) The legatee is already the owner of the property.
4) The administrator is a legal representative of the legatee as defined in subsection 248(1) and the administrator is distributing the property in his/her possession or control.

14 March 2016 External T.I. 2016-0626781E5 - Neuman Type Situation

CRA Tags
56(2), 15(1), 73(1), 69(1), 74.1(1), 74.4(2), 245(2)
Summary Under
Tax Topics - Income Tax Act - Section 15 - Subsection 15(1)
s. 15(1) might apply where spouse subscribes nominal consideration for Opco shares and receives a large discretionary dividend
Summary Under
Tax Topics - Income Tax Act - Section 56 - Subsection 56(2)
s. 56(2) likely non-applicable where spouse subscribes nominal consideration for Opco shares and receives a large discretionary dividend
Summary Under
Tax Topics - Income Tax Act - Section 246 - Subsection 246(1)
Kieboom treated as entailing disposition of right to receive dividends
Summary Under
Tax Topics - Income Tax Act - Section 73 - Subsection 73(1)
spousal rollover for Kieboom disposition of economic interest

Principal Issues: What are the tax consequences for the shareholders of a corporation and the corporation that may arise on the issuance of shares which carry an entitlement to discretionary dividends for nominal consideration and the payment of any discretionary dividends from such shares.

Position: See analysis below.

Reasons: See analysis below.

Technical Interpretation - Internal

24 March 2016 Internal T.I. 2016-0634191I7 - Income from a U.S. trust

CRA Tags
108(5)
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 108 - Subsection 108(5) - Paragraph 108(5)(a)
income distributions from non-resident trust were property income
Summary Under
Tax Topics - Treaties - Income Tax Conventions
all U.S. Treasury Technical Explanations accepted

Principal Issues: Whether income allocated by a U.S. trust to a resident of Canada retains its nature as a dividend?

Position: No

Reasons: Subsection 108(5) recharacterizes the income to be income from property that is the interest in the trust.

2 February 2016 Internal T.I. 2015-0616341I7 - Ontario healthy home renovation tax credit

Principal Issues: Are expenses incurred to install a backup power generator, a skylight and a sun tunnel qualifying expenditures for the Ontario healthy home renovation tax credit?

Position: Although it is a question of fact, it is unlikely that these types of expenditures are qualifying expenditures for the OHHRTC.

Reasons: Do not meet all the conditions in section 103.1.1 of the Ontario Taxation Act, 2007.