Income Tax Severed Letters - 2018-01-17

Ruling

2017 Ruling 2016-0628181R3 - Donation of shares to private foundation

Unedited CRA Tags
ITA 118.1(5), 118.1(13), 118.1(15), 129(1.2)
Summary Under
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(13) - Paragraph 118.1(13)(c)
gift of NQS in portfolio company cured when company wound-up into charity
Summary Under
Tax Topics - Income Tax Act - Section 129 - Subsection 129(1.2)
s. 129(1.2) denies a dividend refund on the wind-up of a private company bequeathed (but not gifted) to a private foundation
Summary Under
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(1) - Total Charitable Gifts
residue paid under terms of spousal trust to charitable beneficiary was not a gift
Summary Under
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(15)
gift of shares (NQS) of portfolio company retroactively deemed to be made in terminal year once company wound up into charity

Principal Issues: 1) Whether subsection 129(1.2) applies to a situation where, pursuant to the terms of a will, an estate donates shares of a holding company to a private foundation and immediately after the donation, the holding company redeems the shares triggering a taxable dividend resulting in a dividend refund to the holding company.
2) Where a private foundation received a gift of non-qualifying securities to which paragraph 118.1(13)(a) applied, would paragraph 118.1(13)(c) apply to deem a gift of property to have been made when the foundation subsequently disposes of the non-qualifying securities? If so, would subsection 118.1(15) apply to deem the gift to have been made in the taxation year in which the taxpayer died?
3) Whether a distribution by a spousal trust to a private foundation, on the death of the surviving spouse, in accordance with the testator’s will, would be a gift by the spousal trust for the purpose of claiming a donation tax credit for the year by the spousal trust.

Position: 1) Subsection 129(1.2) does not apply to the acquisition by the private foundation of the shares held by the estate. However, if the spousal trust transfers the shares of the holding company to the foundation, we are of the view that subsection 129(1.2) will apply.
2) Yes, provided the conditions in paragraph 118.1(13)(c) and subsection 118.1(15) are met.
3) No.

Reasons: 1) The main purpose test in subsection 129(1.2) is not met where the estate transfers the shares of the holding company to the foundation because subsections 118.1(4.1) and (5), as amended by Budget 2014 second bill, do not apply to the estate. However, we are of the view that subsection 129(1.2) would apply to the transfer of shares held by the spousal trust to the foundation. Similarly, we are of the view that subsection 129(1.2) might have applied had the surviving spouse’s death occurred after 2015 as the estate would then have been governed by the amended wording of subsections 118.1(4.1) and (5).
2) Based on the facts and legislation.
3) The distribution by the spousal trust to the foundation was made in accordance with the terms of the testator’s will and therefore, the spousal trust would not be considered the donor.

2017 Ruling 2017-0687061R3 - Whether re-designation of LPUs is a disposition.

Unedited CRA Tags
248(1)
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1)
a partner’s election to have its Class A LP units redesignated as Class F units will not entail their disposition

Principal Issues: The Partnership will issue a new series of limited partnership units (“LPUs”) under an option provided for in the current partnership agreement. The question is whether the re-designation of LPUs that are held by existing partners would result in a disposition of those LPUs by the current partners.

Position: No.

Reasons: The rights that would be attached to the new LPUs are similar to the rights of the existing LPUs and as such the changes thereto would be within the parameters set out in previous rulings wherein it was confirmed that there would be no disposition of partnership units on the reclassifications of such units.

Technical Interpretation - External

18 December 2017 External T.I. 2017-0720731E5 F - Eligible dividend designation

Unedited CRA Tags
89(14)
Summary Under
Tax Topics - Income Tax Act - Section 89 - Subsection 89(14)
designations can be made before the dividend payment time and by email
Words and Phrases
at that time in writing

Principales Questions: How to notify the shareholders and when to have a designation qualifying under subsection 89(14).

Position Adoptée: See below.

8 September 2017 External T.I. 2014-0549771E5 - Article XXIX-A:3

Unedited CRA Tags
Article XXIX-A:3 of the Canada-US Tax Convention
Summary Under
Tax Topics - Treaties - Income Tax Conventions - Article 29A
a trust is related for purposes of Art. XXIX-A (3) of the Canada-U.S. Treaty to a corporation that is controlled by its corporate trustee
Summary Under
Tax Topics - Income Tax Act - Section 251 - Subsection 251(2) - Paragraph 251(2)(b) - Subparagraph 251(2)(b)(i)
a trust is related to a sub of its corporate trustee
Summary Under
Tax Topics - Treaties - Income Tax Conventions - Article 3
"person related thereto" defined by ITA meaning of "related person"

Principal Issues: Whether a trust may be considered related to its beneficiary for purposes of paragraph 3 of Article XXIX:A of the Canada-US Tax Convention?

Position: Yes.

Reasons: Consistent with our views in 2009-0311891I7, to the extent that a trustee of a trust solely controls the beneficiary, that is a corporation, of that trust, the trust and beneficiary may be related under subparagraph 251(2)(b)(i) for purposes of the Act and thus, the Trust and beneficiary may be related for purposes of paragraph 3 of Article XXIX:A of the Canada-US Tax Convention in connection with Canadian taxes to which the Treaty applies.

Technical Interpretation - Internal

16 February 2017 Internal T.I. 2016-0669881I7 - 75(2) applicability to trust

Unedited CRA Tags
75(2)
Summary Under
Tax Topics - Income Tax Act - Section 75 - Subsection 75(2)
requirement for unanimous decisions by trustees including the settlor did not engage s. 75(2) until coupled with broad amendment power

Principal Issues: 1. Does 75(2)(b) apply where the trust indenture requires unanimous agreement of the trustees, including the settlor, where the settlor can remove and replace the co-trustee at any time? 2. Does 75(2)(b) apply where the trust indenture requires unanimous agreement of the trustees, including the settlor, where the co-trustee is the settlor’s spouse, and therefore does not deal at arm’s length with the settlor? 3. Where the co-trustee is the settlor’s spouse, is there a presumption that the co-trustee does not deal at arm’s length with the settlor?

Position: 1. 75(2) likely applicable 2. Question of fact. 3. Yes.

Reasons: 1. Based on the facts, including the terms of the trust as a whole, the settlor has retained effective control over the property of the trust; and the settlor while alive retains broad power to amend the trust indenture. Accordingly, 75(2)(a)(i) and (ii) , and 75(2)(b) apply. 2. The fact that the co-trustee is the settlor’s spouse would mean that the co-trustee does not deal at arm’s length with the settlor. 3. Yes by virtue of 251(1)(a), but this does not directly impact on 75(2).