Income Tax Severed Letters - 2017-03-29

Ruling

2015 Ruling 2015-0596971R3 - Standard Loss Consolidation

Unedited CRA Tags
245; 20(1)(1); 112(1)

Principal Issues: Whether a 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

20 February 2017 External T.I. 2014-0534341E5 F - Partnership change of fiscal period

Unedited CRA Tags
96(3); 150(1); 248(1) "filing-due date"; 249.1(1); 249.1(4); 249.1(6); 249.1(7)
Summary Under
Tax Topics - Income Tax Act - Section 249.1 - Subsection 249.1(4)
a partnership of individuals can change with CRA’s permission to a different non-calendar year end
Summary Under
Tax Topics - Income Tax Act - Section 249.1 - Subsection 249.1(7)
requirement for serious commercial reason for change in non-calendar year end

Principal Issues: 1- Whether a partnership can modify its fiscal period where it has previously elected for an alternative fiscal period pursuant to 249.1(4). 2- Whether a partnership can modify its fiscal period where it has not previously elected for an alternative fiscal period pursuant to 249.1(4). 3- What is the time limit to make an election pursuant to 249.1(4) and what is the method to file such an election?

Position: 1- Yes, subject to the concurrence of the Minister. 2- No. 3- The election has to be filed by a partner with authority to act for the partnership on or before its filing-due date for its taxation year that includes the first day of the first fiscal period of the partnership. The election must be filed with the partner’s tax return for that taxation year using the prescribed form T1139.

Reasons: Provisions of the Act.

27 January 2017 External T.I. 2013-0482351E5 - Clause 95(2)(a)(ii)(D)

Unedited CRA Tags
95(2)(a)(ii)(D), 18(9.1)
Summary Under
Tax Topics - Income Tax Act - Section 95 - Subsection 95(2) - Paragraph 95(2)(a) - Subparagraph 95(2)(a)(ii) - Clause 95(2)(a)(ii)(D)
s. 95(2)(a)(ii)(D) can recharacterize a loan prepayment penalty as active business income
Summary Under
Tax Topics - Income Tax Act - Section 18 - Subsection 18(9.1)
s. 18(9.1) applied where loan prepayment penalty was equal to PV of interest thereon
Summary Under
Tax Topics - Income Tax Regulations - Regulation 5907 - Subsection 5907(2.7)
loan prepayment penalty fully deducted from surplus when paid

Principal Issues: Whether clause 95(2)(a)(ii)(D) applies to recharacterize a penalty for early repayment of a loan paid by a foreign affiliate to another foreign affiliate as income from an active business.

Position: Yes.

Reasons: Based on a textual, contextual and purposive analysis of the Act.

7 September 2016 External T.I. 2014-0563781E5 - Articles 10 and 11 of Canada-UK Treaty

Unedited CRA Tags
Article 10, subparagraphs (2)(a) and 3(b) and Article 11, subparagraph 3(c) of the Canada-UK Treaty.
Summary Under
Tax Topics - Treaties - Income Tax Conventions - Article 11
limited partners of an LP can deal at arm’s length with a Canadian subsidiary of the LP
Summary Under
Tax Topics - Treaties - Income Tax Conventions - Article 10
limited partners generally do not have control over a company’s voting power/an over-10% limited partner is considered to “indirectly” own over 10% of an LP subsidiary
Summary Under
Tax Topics - Income Tax Act - Section 251 - Subsection 251(1) - Paragraph 251(1)(c)
limited partners of an LP could deal at arm’s length with a Canadian sub of the LP

Principal Issues: Whether the particular partners of a UK LP (a) have indirect control over the voting power of Holdco held by the UK LP; (b) considered to indirectly own more that 10% of the shares and capital of Holdco; and (c) considered to be dealing at arm's length with Canco, a subsidiary of Holdco.

Position: (a) Only the general partner would be considered to control directly or indirectly at least 10% of the voting power in Holdco; (b) LP3 would be considered to indirectly own more than 10% of the capital of Holdco while LP1 would not exceed this threshold; (c) Likely yes, but it is a question of fact.

Reasons: (a) Consistent with prior views. (b) "directly or indirectly" modifies the ownership test. (c) It's a question of fact.

12 July 2016 External T.I. 2014-0560361E5 - Cdn beneficiary of US living trust

Unedited CRA Tags
104(4); 104(2); 108(1); 122(1); 233.3(1); 75(2); 104(13)
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(1)
question of fact whether a U.S. revocable living trust is an excluded trust
Summary Under
Tax Topics - Income Tax Act - Section 75 - Subsection 75(2)
potential application to U.S. revocable living trust
Summary Under
Tax Topics - Income Tax Act - Section 126 - Subsection 126(1)
whether there is a foreign tax credit for US tax paid by the grantor of a revocable US living trust

Principal Issues: Discussion of tax treatment of an interest in a U.S. revocable living trust (also known as a grantor trust) held by a Canadian resident beneficiary.

Position: General comments given.

Reasons: Fact specific information would require a ruling.

Conference

15 November 2016 Roundtable, 2016-0672321C6 - Guidance on determination of safe income

Unedited CRA Tags
55(2), 55(5)(b), 55(5)(c), 152(2), 163(2), 239(1)
Summary Under
Tax Topics - Income Tax Act - Section 55 - Subsection 55(2.1) - Paragraph 55(2.1)(c)
annually recurring dividends are not a series of transactions for safe-income determination purposes/CRA provision of old returns/safe income reduced by contingent amounts
Summary Under
Tax Topics - Income Tax Act - Section 55 - Subsection 55(1) - Safe-Income Determination Time
safe income determination time does not commence at beginning of series of regular annual dividends

Principal Issues: Various questions raised regarding the calculation of safe income - see document

Position: see document

Reasons: see document

15 November 2016 Roundtable, 2016-0673001C6 - 2016 TEI - Question D4 - GAAR Assessment Process

Principal Issues: Can the CRA comment on what procedures must be followed before a taxpayer can be reassessed under GAAR?

Position: General comments provided.

15 November 2016 TEI Roundtable Q. 1, 2016-0670911C6 - Agenda questions for November 2016 liaison meeting

Summary Under
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a)
reduced benefit from incentive trip where employment performance/detailed receipts/$500 exception for 3rd party benefit reporting/benefits at FMV

Principal Issues: Question 2, under Technical matters.

Position: See response.

Reasons: See response.