Principal Issues: Update on the CRA’s dedicated phone line for income tax service providers.
Position: The CRA’s Income Tax Rulings Directorate formally launched the new dedicated telephone service (DTS) pilot project in July of 2017. At first, the DTS serviced eligible CPAs in Ontario and Quebec. Expansion of the service followed quickly. The DTS was initially expanded in July of 2017 to include eligible CPAs in Manitoba and New Brunswick. The service was further expanded in March of 2018 to include non-CPAs in the four provinces we service. Feedback received from active registrants has been very encouraging.
Reasons: As a pilot project, the DTS has been expanding in order to service its targeted population and satisfy the program’s goals.
21-year rule’s application to testamentary trust is almost always computed from the testator’s date of death
294
Principal Issues: When is a testamentary trust considered to have been created for purposes of the deemed disposition in paragraph 104(4)(b)?
Position: Ultimately, it is a question of fact, but the CRA generally considers the trust to be created on the testator’s date of death. Where a new trust is created subsequent to the date of death, subsection 104(5.8) will likely apply.
a non-GRE trust can have a calendar tax year even where it was dissolved
193
Principal Issues: When is the final trust return due in the year of wind up of a personal trust?
Position: For a graduated rate estate, the final return is due 90 days from the date of wind up. For all other trusts, the final return is due 90 days from the end of the calendar year in which the wind up occurs; however, the trustee may choose to file the return early.
Reasons: The law does not allow for a trust, other than a graduated rate estate, to have a taxation year end other than a calendar year in the year of wind up.
safe income flow through on a s. 70(6), but not s. 70(5), transfer
114
Principal Issues: Flow-through of safe income
Position: Safe income does not flow through when crystallized in the ACB. It flows through when shares are transferred at ACB on a rollover basis, to the extent it can be considered to contribute to the gain on the shares.
Submitted by narmstrong on Sun, 06/03/2018 - 21:19
holding company shares do not qualify as excluded shares
In general terms, is it possible for shares of a holding company to qualify as "excluded shares"?
CRA indicated that the definition of excluded...
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Principal Issues: Whether shares of the capital stock of a corporation would qualify as "excluded shares". Does the answer depend on whether the holding corporation has income or not, such as dividend income from a subsidiary which might be a related business?
Position: Generally no.
Reasons: In accordance with the legislation and tax policy.
Submitted by narmstrong on Sun, 06/03/2018 - 23:08
a corporation with only property income does not accord excluded share status
Assume that a corporation has no business income because it derives income from property (possibly rental income from real property where the...
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Principal Issues: Where a business has no business income because it derives income from property, would the corporation's shares qualify as excluded shares.
Position: No.
Reasons: In accordance with the legislation and tax policy.
Submitted by narmstrong on Mon, 06/04/2018 - 02:40
in a pipeline ruling, the business must be continued for 12 months
In the course of confirming that its position on pipeline transactions has not changed as a result of s. 246.1 being proposed, nor of it being...
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Principal Issues: Given that proposed section 246.1 has been abandoned will the CRA still consider issuing favourable income tax rulings on post-mortem pipeline transactions?
Position: Yes.
Reasons: In accordance with the provisions of the Act and our previous positions.
Principal Issues: 1. For taxation years ending in 2016 and subsequent years, on the death of the primary beneficiary of an alter ego trust (AET) paragraph 104(13.4)(a) provides for a deemed year end of the trust. How is the trust income which became payable to the beneficiary prior to their death treated?
2. For an alter ego trust, are the taxable capital gains arising from a deemed disposition under subsection 104(4) taxed in the AET?
3. Does the result in 1 and 2 also occur where the AET is subject to subsection 75(2)?
4 Would the result for 1 and 2 also occur if the trust was a post-1971 spousal or common-law partner trust?
Position: 1. Income of the trust which became payable to the beneficiary prior to their death is included in the beneficiary’s income in their final T1 return. 2. Yes 3. The results in 1. and 2. are the same. 4. The results in 1, where subsections 104(13) and 104(6) apply, also apply to a post 1971 spousal or common law partner trust. The results in respect of capital gains or income arising from subsections 104(4) to 104(5.2) or subsection 12(10.2) also apply to a spousal or common law partner trust; however one additional result is available. Where certain conditions are met, a joint election may be made to have the income or gains caused by the deemed dispositions to be taxed in the beneficiary’s final T1 return.
Reasons: 1. The deduction available to the trust under subsection 104(6) may be claimed by the trust to the extent the income became payable to the primary beneficiary before death. 2. Clause (i)(B) of element B in paragraph 104(6)(b) denies the trust a deduction that arises from the application of any of subsections 12(10.2) or 104(4) to (5.2). 3. Where subsection 75(2) applies to the AET, income received by the trust prior to the primary beneficiary’s death is attributed to the beneficiary. Where subsection 75(2) otherwise applied to the trust, at the end of the day of the settlor’s death the settlor (person referenced in subsection 75(2)) no longer exists and, as a result, subsection 75(2) would no longer apply. Any taxable capital gains arising from the subsection 104(4) deemed dispositions would be taxed in the AET. 4. The conditions for the joint election are provided in paragraph 104(13.4)(b.1).
Submitted by narmstrong on Thu, 06/07/2018 - 02:57
generally Canadian residents who are subject to the U.S. transitional tax generally will not be entitled to a foreign tax credit
A U.S. citizen resident in Canada holds a controlling interest in a U.K. company. The U.S. imposes its one time transition tax on the "earnings...
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Principal Issues: Is the US transition tax, a "non-business-income tax" under subsection 126(7)?
Position: Yes but a foreign tax credit would likely not be available.
Reasons: In the example provided, the tax that is paid by the individual should qualify as a "non-business-income tax" under subsection 126(7) since it is substantially similar to the one under the Income Tax Act and it can reasonably be regarded as being attributable to income from a source outside of Canada. However, Subpart F income is not deemed to be income under Canadian domestic law and if the taxpayer does not have any non-business income that is US sourced income, a foreign tax credit under subsection 126(1) would not be available.
U.S.-dividend income attributed under s. 75(2) does not generate FTCs for the related withholding tax
181
Principal Issues: Where an alter ego trust under which dividends on foreign stocks it holds are attributed to the settlor, is the foreign tax paid by the trust attributed to the settlor as well?
effective date of deemed residency where NR contributor immigrates
423
Principal Issues: Retroactive application of subsection 94(3) when a non-resident individual makes a contribution to a trust and immigrates to Canada within 60 months of making the contribution.
Position: Where the non-resident individual immigrates to Canada within 60 months of making the contribution, there will be a retroactive application of subsection 94(3) for each taxation year commencing in the year the contribution is made provided that the trust has a resident beneficiary.
Submitted by narmstrong on Mon, 06/11/2018 - 03:48
s. 112(3.2) stop-loss rule does not apply where an estate s.84(3) dividend is indirectly designated to an individual through a spousal trust
The will of the deceased created an estate under which amounts are to be paid to a spousal trust. That trust may, in turn, pay amounts to...
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Principal Issues: Whether paragraph 112(3.2)(b) is applicable in respect of taxable dividends received on the share by a trust that designates the dividends under subsection 104(19) in respect of a beneficiary trust that in turn designates the dividends under subsection 104(19) in respect of an individual beneficiary.
Position: No.
Reasons: The exception in subsection 112(3.32) should be applicable to exclude from the calculation in paragraph 112(3.2)(b) any qualified dividends that are ultimately paid in the year to a beneficiary that is an individual (other than a trust).
Submitted by narmstrong on Mon, 06/11/2018 - 04:10
LLC election to be fiscally regarded does not trigger a disposition
Where a US LLC makes an election to be treated as a corporation for US tax purposes, will the making of the election have Canadian tax...
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Principal Issues: Whether the CRA agrees that generally there are no Canadian tax implications when a US LLC, which was previously regarded as a fiscally transparent entity for US tax purposes, elects to be treated as a corporation under the US check-the-box rules.
Position: Depends on facts and circumstances. The US check-the-box election generally would not impact upon the characterization of the entity as a corporation for Canadian tax purposes, and would not result in a disposition of the LLC units by the member. Other Canadian tax implications of an LLC making an election under the US check-the-box rules may result depending on the specific facts and circumstances.
Reasons: The check-the-box election does not alter the US legal characteristics of an LLC. When a US LLC is treated as a corporation for US tax purposes and pays US tax on its income, the LLC may qualify as a "resident" of the US under the Canada-US Tax Convention. Further, the application of the various provisions in the Income Tax Act relating to foreign tax credits and deductions may yield different Canadian tax results where it is the LLC, rather than its members, that is the person paying the US tax on the LLC's income.
Submitted by narmstrong on Tue, 06/12/2018 - 01:29
the claiming of a capital gains reserve on a s. 84.1 transfer can result in a s 84.1 deemed dividend on a subsequent transfer
S. 84.1(2.1) indicates that for purposes of the adjusted cost base reduction under s. 84.1(2)(a.1)(ii)) respecting a non-arm’s length transfer...
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Principal Issues: Whether subsection 84.1(2.1) will apply to deem a taxpayer to have taken a capital gains exemption in the event a taxpayer claims a subparagraph 40(1)(a)(iii) reserve on the disposition of shares to which section 84.1 applies, regardless of whether the taxpayer claims any capital gains exemption in respect of the disposition.
Principal Issues: Reliance on archived interpretation bulletins (ITs) and Income Tax Technical News (ITTNs).
Position: Taxpayers and their representatives may continue to refer to archived ITs or ITTNs, keeping in mind that the publication is only current up to its stated effective date and is not a substitute for the law.
Reasons: Public information available on the CRA website.
