Income Tax Severed Letters - 2019-02-27

Ruling

2018 Ruling 2018-0742641R3 - Loss consolidation arrangement

Unedited CRA Tags
20(1)(c); 55(2); 112(1); 245(2)
Summary Under
Tax Topics - Income Tax Act - Section 111 - Subsection 111(1) - Paragraph 111(1)(a)
triangular loss shift with reps re independent financial capacity to pay the annual interest payments (at a senior secured financing rate) and annual pref dividends contributions
Summary Under
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c) - Subparagraph 20(1)(c)(i)
intercompany subordinated loan to bear interest at the rate for a senior secured financing

Principal Issues: Whether a loss consolidation arrangement involving a loan to buy preferred shares for the purposes of earning income would meet the CRA's requirement for acceptable loss consolidation transactions. As a result of the loan, interest income would be earned by Lossco and Profitco would incur interest expenses.

Position: Yes.

Reasons: Consistent with previous rulings.

Technical Interpretation - External

24 January 2019 External T.I. 2016-0651291E5 - Revised PHSP position - Self-insured plan

Unedited CRA Tags
ITA: 6; Quebec Taxation Act: 37.0.1.4
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Private Health Services Plan
measuring compliance with the 90% METC-eligible expense test
Summary Under
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) - Subparagraph 6(1)(a)(i)
employee allocated ceiling amounts do not affect application of 90% METC-eligible expense test where a self-inusred plan

Principal Issues: How does the revised PHSP position apply when determining whether a self-insured plan qualifies as a PHSP?

Position: Whether “all or substantially all” condition is satisfied is determined by looking at all the benefits paid out of the plan during the calendar year.

Reasons: This option provides consistency between insured and self-insured plans and with Revenu Québec’s administration of similar plans.

22 January 2019 External T.I. 2019-0791631E5 - Calculation of Capital Dividend Account

Unedited CRA Tags
89(1)
Summary Under
Tax Topics - Income Tax Act - Section 89 - Subsection 89(1) - Capital Dividend Account - Paragraph (a)
subsequent capital loss does not reduce capital dividend room
Summary Under
Tax Topics - Income Tax Act - Section 184 - Subsection 184(2)
subsequent capital loss did not generate excessive dividend

Principal Issues: If capital loss suffered in subsequent year after paying a capital dividend would trigger an excess amount.

Position: No.

Reasons: Calculation of CDA is "at any particular time" and therefore capital losses incurred in subsequent years affect from the time the loss was incurred forward.

15 November 2018 External T.I. 2017-0706531E5 - Research awards for undergraduate students

Unedited CRA Tags
56(1)(n); 56(1)(o); 5(1)

Principal Issues: Under which provision should research awards granted to undergrad students be included in the recipient's income?

Position: It is a question of fact.

Reasons: It is generally the primary purpose of the award that will determine whether the payment is the result of an employee-employer relationship, or is either a scholarship or a bursary.

5 November 2018 External T.I. 2018-0764761E5 - XXXXXXXXXX Disability Support Program Payments

Unedited CRA Tags
56(1)(u), 110(1)(f), 118.2(2)

Principal Issues: 1. What is the income tax treatment of a Disability Support Program payment made under a particular provincial government program? 2. Do payments made under the program have to be reported on a T5007 information return? 3. Do recipients have to report the payments received under the Program as income on their income tax return? 4. Will the payments reduce the eligible dependent tax credit a parent may otherwise be entitled to claim in respect of their child who receives payments under the program?

Position: 1. Question of fact, but in this case the payments appear to be social assistance payments. 2. It depends but likely not. 3. It depends but likely not. 4. It depends but likely not.

Reasons: 1. The payments appear to fall within the wording of subsection 56(1)(u). 2. Question of fact, but likely no based on Regulation 233(2)(a). 3. Question of fact but likely no based on CRA administrative practice, as long as the reporting exemption in Regulation 233(2)(a) applies in respect of the payment. 4. No, as long as the reporting exemption in Regulation 233(2)(a) applies in respect of the payment.