Income Tax Severed Letters - 2024-04-17

Technical Interpretation - External

18 November 2024 External T.I. 2021-0917031E5 - UK pensions and lifetime allowance charge

Unedited CRA Tags
56(1)(a)(i); 126(1); 126(7); 248(1) "superannuation or pension benefit"; Articles 17(1), 17(3) and 21(1)(a) of the Canada-UK Treaty.
Summary Under
Tax Topics - Income Tax Act - Section 126 - Subsection 126(7) - Non-Business-Income Tax
excess-value charges on UK-source pension payments imposed by HMRC did not qualify as foreign income tax
Summary Under
Tax Topics - Income Tax Act - Section 56 - Subsection 56(1) - Paragraph 56(1)(a) - Subparagraph 56(1)(a)(i)
deduction of excess-value charge on UK-source pension payments did not reduce pension income under s. 56(1)(a)(i)

Principal Issues: 1. Whether an individual resident in Canada in receipt of a UK pension who becomes subject to the "lifetime allowance charge" in the UK can claim a foreign tax credit in respect of the charge. 2. If no foreign tax credit can be claimed, whether the individual can reduce the amount of UK pension income by the amount of the lifetime allowance charge for Canadian tax purposes.

Position: 1. No. 2. No.

Reasons: 1. The UK's lifetime allowance charge is not an income or profits tax. 2. Any amount received, including constructively received, as a superannuation or pension benefit must be included in computing income for Canadian tax purposes pursuant to subparagraph 56(1)(a)(i).

11 March 2024 External T.I. 2022-0939331E5 - Workers’ Compensation Settlement

Unedited CRA Tags
s. 5; para. 6(1)(a); para. 56(1)(v); s. 110(1)(f)(ii); s. 153(1); reg. 200(1)
Summary Under
Tax Topics - Income Tax Act - Section 56 - Subsection 56(1) - Paragraph 56(1)(v)
worker’s compensation received by an estate was includible in its income
Summary Under
Tax Topics - Income Tax Act - Section 153 - Subsection 153(1) - Paragraph 153(1)(a)
no withholding on WSIA worker’s compensation

Principal Issues: 1) Whether a settlement payment to an injured worker’s estate is included in income under paragraph 56(1)(v), with a corresponding deduction under subparagraph 110(1)(f)(ii). 2) Whether an employer is required to withhold source deductions (income tax, CPP and EI) from a settlement payment made pursuant to an agreement under section 63 of the WSIA under various scenarios.

Position: 1) Yes, provided the settlement payment constitutes compensation under a workers’ compensation law of Canada or a province in respect of an injury, a disability or death. Paragraph 56(1)(v) of the Act does not specify to whom the compensation must be paid. 2) No. As subsection 153(1) of the Act does not apply to compensation, an employer is not required to withhold source deductions (i.e., income tax, Canada Pension Plan contributions, and Employment Insurance premiums) from such payments. This position applies regardless of whether the compensation is paid to a current employee, a former employee, or a former employee’s estate..

Reasons: See below.

25 October 2023 External T.I. 2022-0927891E5 - XXXXXXXXXX Program - Deductibility of Costs

Unedited CRA Tags
9(1), 12(1)(a) 18(1)(a), 18(1)(e), 20(1)(m) and 67
Summary Under
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a)
cardholder points did not represent an expense incurred by the taxpayer until the cardholder redeemed them

Principal Issues: To consider whether the proposed tax treatment in respect of the taxpayer's XXXXXXXXXX program is appropriate. In particular, whether for income tax purposes, the taxpayer can deduct an amount associated with XXXXXXXXXX earned by cardholders under the XXXXXXXXXX program on an accrual basis (i.e., as XXXXXXXXXX are earned) rather than as XXXXXXXXXX are redeemed, consistent with the treatment which is permitted for accounting purposes under IFRS.

Position: Mixed question of fact and law, however, in our view no.

Reasons: No cost in respect of unredeemed XXXXXXXXXX can be considered to have been “incurred” because until they are redeemed pursuant to the cardholder agreement, they do not create an absolute and unconditional liability for purposes of paragraph 18(1)(a) of the Act.