Income Tax Severed Letters - 2018-01-10

Technical Interpretation - External

6 December 2017 External T.I. 2016-0667361E5 F - Taxable Capital Gains Designation

Unedited CRA Tags
104(21), 104(21.2), 110.6(1)
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(21.2)
eligibility of a gain for the capital gains deduction is lost when it is distributed by a lower-tier to upper-tier trust
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 110.6 - Subsection 110.6(1) - Annual Gains Limit
annual gains limit of upper-tier trust does not include QSBC gains distributed and designated by lower-tier trust

Principales Questions: Where a first trust makes designation pursuant to subsections 104(21) and 104(21.2) with respect to an amount paid to a second trust, whether the second trust can make a designation pursuant to subsection 104(21.2) with respect to the same amount paid to its own beneficiaries?

Position Adoptée: No.

Raisons: The preamble of subsection 104(21) provides that it does not apply for the purpose of section 110.6. Consequently, the amount of net taxable capital gains designated by the first trust pursuant to subsection 104(21) is not included in the second trust's "eligible taxable capital gains" as defined in subsection 108(1) which refers to the "annual gains limit" as defined in subsection 110.6(1).

27 November 2017 External T.I. 2017-0731441E5 - Interchange Canada and Business Number

Unedited CRA Tags
115(1)(a), 150(1)(a), 153(1)(g) Reg 102, Reg 105
Summary Under
Tax Topics - Income Tax Act - Section 150 - Subsection 150(1) - Paragraph 150(1)(a)
a non-resident corporation is carrying on business in Canada by virtue of being the legal employer of an employee seconded to Canada
Summary Under
Tax Topics - Income Tax Act - Section 2 - Subsection 2(3) - Paragraph 2(3)(b)
NR corp carrying on business in Canada by virtue of being reimbursed for payroll costs of seconded employee
Summary Under
Tax Topics - Income Tax Regulations - Regulation 102 - Subsection 102(1)
NR company seconding employee to Canada subject to Reg. 102 withholding requirement but not EI or CPP
Summary Under
Tax Topics - Income Tax Regulations - Regulation 105 - Subsection 105(1)
salary reimbursement payments made to seconding NR employer subject to withholding

Principal Issues: Whether a non-resident corporation would have to get a business number if it participates in an Interchange Canada program by sending a non-resident employee to Canada to render services for a year?

Position: Yes.

Reasons: On the proposed facts, it appears that the non-resident corporation would be rendering services in Canada. As a result, both the non-resident corporation and the non-resident employee would have filing requirements in Canada.

31 August 2017 External T.I. 2017-0695101E5 - Test Wind Turbine Determination

Unedited CRA Tags
Subsections 1219(1) and (3) of the Income Tax Regulations

Principal Issues: Whether each of the XXXXXXXXXX proposed wind turbines will qualify as a test wind turbine within the meaning of subsection 1219(3) of the Regulations.

Position: Yes.

Reasons: Satisfies the criteria in the Regulations and a favourable opinion from NRCan.

16 June 2017 External T.I. 2017-0698181E5 - New principal residence rules & trusts

Unedited CRA Tags
40(6.1); 54
Summary Under
Tax Topics - Income Tax Act - Section 40 - Subsection 40(6.1)
s. 40(6.1) protected trust gain that accrued up to December 31, 2016

Principal Issues: How do new principal residence rules apply to a Graduated Rate Estate with a non-calendar year-end?

Position: Special attention must be paid to wording of proposed 40(6.1).

Reasons: Transitional rules apply.

Technical Interpretation - Internal

31 August 2017 Internal T.I. 2016-0680801I7 - Interpretation- subclause 95(2)(a)(ii)(B)(II) Act

Unedited CRA Tags
95(2)(a)(ii)(B)(II); Regulation 5907(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)(B) - Subclause 95(2)(a)(ii)(B)(II)
where a partnership with FA1 as a 40% partner pays interest to FA2, only 40% of the interest can be recharacterized as active

Principal Issues: Whether 95(2)(a)(ii)(B)(II) only applies to 40% of the interest paid to a foreign affiliate by a partnership in which another foreign affiliate is a 40% member and a person other than a foreign affiliate is the 60% member.

Position: Yes.

Reasons: Textual, contextual and purposive reading of 95(2)(a)(ii)(B)(II) and the definition of "exempt earnings" in regulation 5907(1).