Income Tax Severed Letters - 2019-04-17

Ruling

2018 Ruling 2018-0741691R3 - Loss consolidation arrangement

Unedited CRA Tags
20(1)(c); 112(1); 88(1); 245(1)

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 the lossco (“Lossco”) and the profitco (“Opco”) would access losses incurred by a corporation formed specifically to acquire the preferred shares (“Aco”). At the end of XXXXXXXXXX, ACo would be wound up into Opco, thus permitting Opco to claim Aco's non-capital losses.

Position: Yes.

Reasons: Consistent with previous rulings.

Ministerial Correspondence

11 February 2019 Ministerial Correspondence 2018-0789661M4 F - Report de perte rétrospectif

Unedited CRA Tags
111(1)(a) LIR; Financial Administration Act - Loi sur la gestion des finances publiques

Principales Questions: Is it possible to carry back non-capital losses more than three years? Est-il possible d'obtenir un report rétrospectif de perte autre qu'en capital au-delà de la période prévue de trois ans?

Position Adoptée: No. In certain circumstances, it is possible to get a remission order. Non. Dans certains cas particuliers, il est possible d'obtenir un décret de remise.

Raisons: No exception in the Act. Aucune exception prévue.

Technical Interpretation - External

26 March 2019 External T.I. 2017-0729441E5 - Employee insurance discounts

Unedited CRA Tags
6(1)(a)
Summary Under
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a)
policy re discounts on merchandise does not extend to discounted services, e.g., no commissions on insurance

Principal Issues: Whether the CRA’s administrative position concerning employee discounts would apply when an employer waives the commission that would generally be charged for the placement of insurance.

Position: No.

Reasons: The CRA’s administrative position does not apply to discounts on services. The value of a benefit received or enjoyed by virtue of employment is included in income under paragraph 6(1)(a) of the Act.

19 March 2019 External T.I. 2018-0748731E5 - Taxation of Settlement Amounts

Unedited CRA Tags
5(1); 6(1)(a); 6(3); 56(1)(a)(ii); 248(1) “retiring allowance”
Summary Under
Tax Topics - Income Tax Act - Section 3
award received by unionized employees based on an unfair labour practice of their employer was a non-taxable receipt
Summary Under
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a)
award received by unionized employees based on an unfair labour practice of their employer was not referable to lost remuneration

Principal Issues: The tax treatment of a lump-sum amount paid pursuant to an order.

Position: Question of fact.

Reasons: Generally, the tax treatment of a settlement amount should be the same as the amount it is intended to replace.

Technical Interpretation - Internal

6 February 2019 Internal T.I. 2018-0762101I7 - Ruling request - DSU plan and EPSP

Unedited CRA Tags
144; 248(1) “salary deferral arrangement”; ITR 6801(d)
Summary Under
Tax Topics - Income Tax Act - Section 144 - Subsection 144(3)
proposed use of EPSP trust to produce equivalent of CCPC stock option plan was abusive
Summary Under
Tax Topics - Income Tax Regulations - Regulation 6801 - Paragraph 6801(d)
conversion of SARs to DSUs triggered immediate inclusion under s. 6(1)(a) or 6(11)
Summary Under
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4)
use of EPSP trust to synthetically create the equivalent of a s. 110(1)(d.1) stock option plan would be a s. 245(4) abuse

Principal Issues: 1. Whether the proposed conversion of SAR units to DSUs and the adding of dividend equivalents result in an immediate income inclusion. 2. Whether the GAAR should be used to challenge the tax benefits obtained through a fully-leveraged EPSP structure.

Position: 1. Yes. 2. Recommend that matter be referred to the GAAR Committee.

Reasons: 1. The proposed changes represent a fundamental change to the units and therefore a disposition of the participants rights under the plan. 2. The proposed structure is highly artificial, provides significant tax deferral and rate reduction benefits on employment compensation and represents an abuse of the EPSP rules.

24 October 2018 Internal T.I. 2018-0741041I7 - Allocation of net premiums under s. 403(4)

Unedited CRA Tags
Regulation 400, 402, 403
Summary Under
Tax Topics - Income Tax Regulations - Regulation 403 - Subsection 403(4)
methodology for allocating out of Canada net premiums
Words and Phrases
reasonably attributable

Principal Issues: How should the out of Canada net premiums be allocated under subsection 403(4) of the Income Tax Regulations where the corporation has permanent establishments in several provinces of Canada?

Position: The premiums must be allocated to the PE to which they are reasonably attributable, based on facts of the situation. If the taxpayer's allocation is reasonable, it should be accepted.

Reasons: Subsection 403(4) of the Regulations.