Income Tax Severed Letters - 2018-07-04

Ruling

2018 Ruling 2017-0681471R3 - Variation of Trust

Principal Issues: 1. Whether the amendment of the trust indenture will result in a resettlement of the trust or a disposition by the beneficiaries of their interest in the trust. 2. Whether the conversion of XXXXXXXXXX Class XX Units into XXXXXXXXXX Class U Units will result in a disposition.

Position: 1. There will be no resettlement of the trust or disposition by the beneficiaries of their interest in the trust. 2. There will be no disposition on the conversion of the Class XX Units into Class U Units.

Reasons: 1. Changes did not result in a fundamental change to the beneficiaries' rights or the terms of the trust. 2. The attributes of each class are substantially the same, the unitholder is not entitled to proceeds of disposition for the units and that the Class XX Units are not cancelled or redeemed.

Conference

8 May 2018 CALU Roundtable Q. 1, 2018-0745491C6 - Back-to-back loans

Unedited CRA Tags
Subsections 15(2.16) to 15(2.192), 18(5)
Summary Under
Tax Topics - Income Tax Act - Section 15 - Subsection 15(2.16) - Paragraph 15(2.16)(c)
the mere granting by a corporation of security for a bank loan to a shareholder did not engage the B2B loan rules

Principal Issues: 1. Is the condition in subparagraph 15(2.16)(c)(ii) met in the hypothetical scenario presented; notably, does the right to encumber described in the scenario constitute a "specified right", for the purposes of that subparagraph? 2. Is the condition in subparagraph 15(2.16)(c)(i) met in the hypothetical scenario presented?

Position: 1. Inconclusive based on the limited information provided in the hypothetical scenario. 2. If the right to encumber is not a specified right, then no; if the right to encumber is a specified right then it is not necessary to conclude.

Reasons: 1. A comprehensive review of all the terms and conditions of the funding arrangement between the relevant parties is required in order to determine if the right described in the hypothetical scenario is a "specified right", and consequently whether subparagraph 15(2.16)(c)(ii) applies. General comments provided. 2. If we assume that the right to encumber is not a specified right, then subparagraph 15(2.16)(c)(i) does not apply because the bank does not have an amount outstanding as or on account of a debt or other obligation connected to the shareholder debt in the manner described in that subparagraph. If we assume that it is a specified right, then it is not necessary to conclude whether subparagraph 15(2.16)(c)(i) applies because the condition in paragraph 15(2.16)(c) would already have been met because of subparagraph 15(2.16)(c)(ii).

8 May 2018 CALU Roundtable Q. 2, 2018-0745811C6 - CDA credit - joint ownership

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)
double deduction of the ACB of a joint corporate-held life insurance policy in computing the CDA addition to the two corporate beneficiaries of the proceeds

Principal Issues: Where there are two corporate beneficiaries and two joint owners in a life insurance policy, will the addition to each corporation’s capital dividend account be reduced by the total adjusted cost basis of the policy when the policyholders’ interests are reflected by ownership as tenants in common?

Position: Yes.

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

8 May 2018 CALU Roundtable Q. 3, 2018-0745831C6 - Subsection 148(8) transfer

Unedited CRA Tags
148(8)
Summary Under
Tax Topics - Income Tax Act - Section 148 - Subsection 148(8)
s. 148(8) rollover can apply on a policy transfer to a substituted child

Principal Issues: A father owns a life insurance policy on the life of a child (Child A). Child A is an adult but is improvident in financial matters. Child B is Child A’s adult sibling and is viewed by the father as being very responsible regarding financial matters. Will the transfer of the policy to Child B qualify for a rollover under subsection 148(8)?

Position: Yes.

Reasons: 148(8).

8 May 2018 CALU Roundtable Q. 4, 2018-0745851C6 - Timing of donations from an estate

Unedited CRA Tags
118.1
Summary Under
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(1) - Total Charitable Gifts - Paragraph (c) - Subparagraph (c)(i) - Clause (c)(i)(C)
CRA is reviewing its administrative practice that a gift can be claimed in a terminal return before it is made

Principal Issues: Whether the CRA will continue its administrative process with respect to gifts by will under the new provisions regarding gifts by GRE?

Position: General comments provided.

Reasons: The administrative process is under review.

8 May 2018 CALU Roundtable Q. 5, 2018-0745861C6 - Excess corporate holdings

Unedited CRA Tags
188.1(3.3), 149.2
Summary Under
Tax Topics - Excise Tax Act - Section 188.1 - Subsection 188.1(3.3)
s. 188.1(3.5) can apply where a private foundation is the residuary beneficiary of an alter ego trust holding freeze shares

Principal Issues: Does subsection 188.1(3.3) apply to a situation where a private foundation will receive the residue of an alter-ego trust following the death of the life interest beneficiary?

Position: General comments provided. Subsection 188.1(3.3) must be considered where a private foundation is a beneficiary under a trust.

Reasons: Whether subsections 188.1(3.3) to (3.5) apply to a particular situation is a mixed question of fact and law.

8 May 2018 CALU Roundtable Q. 6, 2018-0745871C6 - Tax on Split Income

Unedited CRA Tags
Subsection 120.4
Summary Under
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Shares - Paragraph (a) - Subparagraph (a)(i)
services/property distinction informed by rationale of the safe harbour exclusions
Summary Under
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Shares - Paragraph (c)
shares of a holding company generally do not qualify as excluded shares

Principal Issues: Interpretation of definition of excluded shares. Part (a) - What is included as income from the provision of services? Part (b) - Can shares of a holding corporation qualify as excluded shares?

Position: Part (a) - Whether income of a corporation is income from the provision of services will depend on the facts and circumstances of each case. Part (b) - Shares of a holding corporation will generally not qualify as excluded shares.

Reasons: Wording of the provisions.

8 May 2018 CALU Roundtable Q. 7, 2018-0752971C6 - Golini v. The Queen

Unedited CRA Tags
245

Principal Issues: Following the Golini case, can the CRA provide an update on tax concerns regarding any insurance products or strategies that are subject to specific audit programs?

Position: Comments provided below.