Income Tax Severed Letters - 2023-09-06

Ruling

2023 Ruling 2022-0949841R3 - Loss Consolidation Ruling

Unedited CRA Tags
20(1)(c), 9, 12(1)(c), 12(1)(x), 18.2(2), 55, 88(1), 112, Part IV.1, Part VI.1, 245
Summary Under
Tax Topics - Income Tax Act - Section 111 - Subsection 111(1) - Paragraph 111(1)(a)
triangular transfer of Lossco losses to Newcos which are then annually transferred to Profitco (with a different functional currency) for s. 88(1.1) wind-up
Summary Under
Tax Topics - Income Tax Act - Section 261 - Subsection 261(16) - Paragraph 261(16)(a)
transfer of losses to a Profitco with a different functional currency

Principal Issues: Whether Newco 2 would be entitled to deduct interest paid as part of a loan under the loss consolidation transactions and whether Profitco will be entitled to deduct the non-capital losses of Newco 2 on winding-up Newco2.

Position: Yes.

Reasons: The proposed transactions conform to our requirements for these types of loss consolidation rulings. The proposed transactions would be legally effective and commercially plausible.

Technical Interpretation - External

24 March 2023 External T.I. 2023-0960171E5 - Immediate expensing rules

Unedited CRA Tags
20(1)(a); 96(1); 127.42; 1100(0.1)
Summary Under
Tax Topics - Income Tax Regulations - Regulation 1100 - Subsection 1100(0.1) - Paragraph 1100(0.1)(c)
income disregarding s. 20(1)(a) includes recapture or terminal loss/ immediate expensing CCA is claimed first/ partner's share of income not reduced by partner level expenses for limit purposes

Principal Issues: 1) Whether any recapture or terminal loss is included when determining income for purposes of paragraph 1100(0.1)(c) of the Regulations. 2) Whether the immediate expensing CCA deduction is deducted prior to regular CCA and whether regular CCA can still be used to create or increase a loss from self-employed business income. 3) What income amount an individual partner of a partnership should be using for the purposes of paragraph 1100(0.1)(c). 4) Whether income used for the purpose of paragraph 1100(0.1)(c) should be adjusted for the 12(1)(x) income inclusion related to the Return of Fuel Charge Proceeds to Farmers Tax Credit.

Position: 1) Yes 2) Immediate expensing CCA is deducted first, regular CCA can then be used to create or increase a loss from self-employment income subject to existing CCA restriction rules. 3) Where a partnership is involved, the immediate expensing rules apply at the partnership level as though the partnership were a separate tax payer. Therefore, any immediate expensing deduction for partnership property is made at the partnership level. 4) Provided an EPOP’s Return of Fuel Charge Proceeds to Farmers Tax Credit and DIEP relate to the same business, the credit is included in income for purposes of paragraph 1100(0.1)(c).

Reasons: 1)Wording of the Act. 2) Wording of the Act 3) Subsection 96(1), subsection 1100(0.1) of the Regulations. 4) Wording of the Act.

10 February 2022 External T.I. 2019-0819651E5 F - Pension from China

Unedited CRA Tags
Articles 18 and 20 of the Canada-China Income Tax Convention
Summary Under
Tax Topics - Treaties - Income Tax Conventions - Article 19
pension from China paid to former civil servant now resident in Canada was not exempted under Art. 18 of the Canada-China Treaty

Principal Issues: Whether a pension paid to a Canadian resident individual in respect of services rendered as a public servant employee of the State of China is exempt from Canadian taxation pursuant to Article 18 of the Convention?

Position: The Pension is subject to tax in Canada by virtue of Article 20 of the Treaty.

Reasons: Article 18 of the Treaty expressly excludes pensions from its application.