Income Tax Severed Letters - 2017-08-30

Ruling

2017 Ruling 2016-0675881R3 - Paragraph 55(3)(a) Internal Reorganization

Unedited CRA Tags
55(1), 55(2), 55(3)(a), 55(3.01), 55(5)(e), 85(1), 112
Summary Under
Tax Topics - Income Tax Act - Section 55 - Subsection 55(3) - Paragraph 55(3)(a)
division of rental real estate company between holdcos for 2 children but with parents' holdco retaining voting control
Summary Under
Tax Topics - Income Tax Act - Section 55 - Subsection 55(4)
s. 55(3)(a) split-up between Newcos for two siblings which were related due to multiple-voting shares held by the father’s and mother’s Holdco
Summary Under
Tax Topics - Income Tax Act - Section 85 - Subsection 85(1) - Paragraph 85(1)(e)
UCC on s. 55(3)(a) spin-off prorated based on relative capital cost rather than FMV
Summary Under
Tax Topics - Income Tax Act - Section 186 - Subsection 186(1) - Paragraph 186(1)(b)
where circular RDTOH calculation arises on spin-off transaction, it is for the TSOs to sort out which corporations should bear Part IV tax

Principal Issues: Did the proposed internal reorganization qualify for the exemption in paragraph 55(3)(a) from the application of subsection 55(2)?

Position: Yes.

Reasons: Meets the statutory requirements and our prior positions and rulings on paragraph 55(3)(a) reorganizations.

2017 Ruling 2017-0704351R3 - Paragraph 55(3)(a) - Supplemental Ruling

Unedited CRA Tags
55(1), 55(2), 55(3)(a), 55(3.01), 55(5)(e), 85(1), 112, 251(2)

Principal Issues: Did the change in facts affect rulings provided in 2016-067588?

Position: No

Reasons: Change in facts relate solely to legal title holder of property. Beneficial owners of property unchanged.

Conference

18 May 2017 Roundtable, 2017-0690311C6 - CLHIA 2017 - Q1 CDA

Unedited CRA Tags
89(1)
Summary Under
Tax Topics - Income Tax Act - Section 89 - Subsection 89(1) - Capital Dividend Account - Paragraph (d) - Subparagraph (d)(iii)
no ACB proration where multiple corporate beneficiaries

Principal Issues: Where there are two corporate beneficiaries, each designated for 50% of the death benefit under a life insurance policy held by a third corporation, will the increase to the capital dividend account be reduced by the full adjusted cost basis of the policyholder’s interest in the policy for each beneficiary?

Position: Yes.

Reasons: Paragraph (d) of the definition of "capital dividend account" in subsection 89(1).

18 May 2017 Roundtable, 2017-0692331C6 - CLHIA 2017 Q3 - RCAs

Unedited CRA Tags
248(1) "retirement compensation arrangement"; 207.5(1) "refundable tax"
Summary Under
Tax Topics - Income Tax Act - Section 207.5 - Subsection 207.5(1) - Refundable Tax - Paragraph (c)
post-retirement benefits paid directly by the employer under a SERP did not generate refunds of the Part XI.3 tax paid in connection with the RCA trust established to pay related LC fees

Principal Issues: Are the post-retirement benefits paid directly by the Employer to the retired employees in accordance with the Plan amounts paid as distributions to one or more persons under the RCA as described in paragraph (c) of the definition “refundable tax” in subsection 207.5(1)?

Position: No.

Reasons: As noted below.

18 May 2017 Roundtable, 2017-0690331C6 - CLHIA Q2 Dividend in kind transfer of policy

Unedited CRA Tags
148(1); 148(7); 82(1)
Summary Under
Tax Topics - Income Tax Act - Section 148 - Subsection 148(7) - Paragraph 148(7)(a)
avoidance of an FMV disposition on a dividend-in-kind of a life insurance policy

Principal Issues: On a transfer of an interest in a life insurance policy by way of a dividend in kind after March 21, 2016, what will be the proceeds of the disposition to the transferor; the income inclusion to the transferee; and the adjusted cost basis (ACB) of the policy to the transferee?

Position: The proceeds of the disposition to the transferor and the ACB to the transferee would be the greatest of the cash surrender value, the consideration given for the interest and the ACB of the interest in the policy. The income inclusion to the transferee would be based on the FMV of the interest in the policy received.

Reasons: Subsections 148(7) and 82(1)

18 May 2017 Roundtable, 2017-0692361C6 - CLHIA 2017 Q4 - Gift of a life insurance policy

Unedited CRA Tags
ITA 248(35), (36)
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(36)
adjusted cost basis of policy is a reasonable proxy for its cost
Words and Phrases
cost
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(35) - Paragraph 248(35)(b) - Subparagraph 248(35)(b)(i)
gifted policy deemed to have its nil adjusted cost basis to the NAL transferor to the donor

Principal Issues: Where subsection 248(35) applies to a gift of a life insurance policy, could subsection 248(36) apply to determine the “cost” of the policy for the purpose of applying the deemed fair market value rule in subsection 248(35)?

Position: Yes.

Reasons: Even though subsection 248(36) does not specifically refer to the adjusted cost basis (ACB) of an interest in a life insurance policy, it is our view that the ACB of an interest in a life insurance policy is generally a reasonable proxy for the "cost" of an interest in a life insurance policy for this purpose.