24 November 2015 Annual CTF Roundtable
Email this ContentThis shows the question posed together with an edited transcript of the oral responses provided by Randy Hewlett ("RH"), Director, Financial Industries and Trusts Division and Stéphane Prud-Homme ("SP"), Director, Reorganizations Division. The wording of oral supplementary questions posed by panelists (Mark Jadd or Buce Ball) is substantially truncated. The CRA oral responses are followed by links to the somewhat more precise (but also more pasteurized) written responses (and revised questions) which were provided to Conference attendees on December 3, 2015.
Q1: T2 Late-Filing: Dividend Refund & RDTOH
(a) Two recent Tax Court cases, Presidential MSH Corporation and Nanica Holdings Limited have held that a corporation’s RDTOH balance is only reduced by the amount of the dividend refund actually received by that corporation. This differs from CRA’s position that the RDTOH balance must be reduced even where the dividend refund is denied as a result of the corporation not filing its income tax return within the three-year period required by subsection 129(1) of the ITA.
Can you confirm whether CRA has revised its position in light of these cases?
(b) Similarly, CRA required the recipient of a dividend to pay Part IV tax on dividends received from a connected corporation in situations where the payer’s dividend refund is denied due to a failure to file a tax return within the required period.
Has CRA changed its position in these situations in light of these cases?
Oral Response
Given in French. See CRA's response to the same question at the 2015 APFF Roundtable (translation provided).
Official response
Q2: Salary deferral arrangement rules
(a) [RSU conversion to DSU]
In the past, CRA has provided rulings [e.g. 2005-0144541R3] where units of a 3-year bonus plan that satisfied the conditions of paragraph (k) in the definition of SDA contained in subsection 248(1) of the ITA could be converted, without realizing tax, to units of a DSU plan that satisfied the conditions of paragraph 6801(d) of the Regulations.
Can you advise why CRA has discontinued to issue such rulings?
Oral Response
Under a paragraph (k) plan, the bonus must be paid before the end of the third calendar year. Under a 6801(d) plan, the payment can be made after the participant’s death, retirement or loss of employment. We did issue a number of rulings years ago. These rulings no longer reflect the position of the Agency. We want to take this opportunity to refer in a more formal environment to what our views are. Essentially, those previous rulings provided for the conversion of rights under a three-year bonus plan to a DSU plan. Our view is that they no longer satisfy the conditions of either para. (k) or 6801(d) because the conversion of the rights under the three year bonus plan would effectively permit the payment of an amount after the third calendar year, and the conversion of rights under the DSU plan could result in a payment of an amount prior to the death, retirement or termination of the employment. Our sense is that the Act does not provide for that flexibility for conversions.
Official Response
24 November 2015 CTF Roundtable Q. 2, 2015-0610801C6 - Salary Deferral Arrangements
Supp. Q. [grandfathering]
What happens for the plans that are still around and for which rulings were previously given, and what happens to future conversions where the plan permits conversions – or where the participants have already converted?
Oral Response
RH: For plans where there was a ruling issued and units were in the plan prior to the date for which we then revoked the ruling (or are going to revoke the ruling), i.e., for units that are in the plan before the date of revocation, they still can be converted – but any units that are added subsequently, we won’t provide for the conversion.
(b) [409A plans]
Where a DSU plan includes participants who are subject to income taxation in the United States, the plan must meet the requirements of section 409A of the Internal Revenue Code in addition to those of paragraph 6801(d) of the Income Tax Regulations to qualify for a deferral in the U.S.
Can a DSU plan provide for payments to be made in accordance with the permissible distributions events in section 409A and still comply with the requirements of paragraph 6801(d)?
Oral Response
It is important to note at the outset that the timing of payments under a 409A plan can be earlier than the timing of the factual loss of an office or employment required under 6801(1)(d). For example, 409A permits payments to be made as a result of a reduction in service to less than 20% of the previous level, a change in control of the employer or an unforeseeable emergency. Our view is that a DSU plan could not provide for the full range of distribution events permitted by section 409A of the Code with respect to participants who are subject to both Canadian and US taxation and still then still comply with 6801(d). We did issue a ruling in this respect back in 2011, and we have been asked a number of times since what our position would be, and we communicated that position verbally and now we have had an opportunity to formalize that position.
Official Response
24 November 2015 CTF Roundtable Q. 2, 2015-0610801C6 - Salary Deferral Arrangements
Supp. Q. [s. 6(11)]
What is the impact if CRA determines that an existing plan uses the more permissive 409A language?
Oral Response
RH: Technically, an amount that is includible in income in a year that is statute barred year is brought forward by s. 6(11) of the SDA rules so that it can be included in income in the earliest non-statute-barred year - because under that rule the right is still in existence.
Q3: Residency of a Trust for Provincial Income Tax Purposes
In Fundy Settlement v. Canada, the SCC set out the central management and control test ("CMC") for determining the residence of a trust.
This test was applied by provincial courts for determining provincial residency in Discovery Trust v. Canada (National Revenue) and in Boettger c. Agence du revenu du Québec.
Can CRA provide its views regarding the application of the central management and control test in establishing the residency of a trust for provincial income tax purposes in light of these two decisions?
Oral Response
CRA's view regarding the application of "central management and control" in establishing the residency of a trust for provincial tax purposes hasn't changed because of those decisions. We're still going to be guided by the principles in Garron [i.e. Fundy] - we're going to look at: who makes the substantive decisions; where is the power and discretion really being exercised; where is the real business being carried on.
Our view is that the CMC encompasses the concept of high-level, strategic decision-making and governance rather than day-to-day functions. In our view, the fact that a trustee discharges its administrative fiduciary obligations doesn't necessarily lead to the conclusion that it exercises the level of substantive decision-making that meets the CMC test.
It will generally be a question of fact in each case - we're obviously gong to continue to look closely at situations where the beneficial interests in a trust are closely held, such as in a personal or family trust arrangement, where the beneficiaries or the settlor might be in a position to exercise central management and control of the trust.
Official response
24 November 2015 CTF Roundtable Q. 3, 2015-0610791C6 - Provincial residency of a Trust
Q4: GAAR & Planning Involving 55(2)
One issue considered by the GAAR Committee is a situation where subsection 55(2) is intentionally triggered in the following scenario in which surplus in excess of safe income on hand is indirectly distributed by OPCO to the ultimate arm’s-length shareholder (Mr. A):
- Mr. A transfers some of the shares of OPCO to Holdco under section 85.
- Opco then redeems the shares and no designation is made under paragraph 55(5)(f)
- Holdco is deemed by subsection 55(2) to have realized a capital gain and adds the non-taxable portion to its capital dividend account
- Holdco pays a capital dividend to Mr. A.
The overall result is a reduction of the aggregate amount of tax that would otherwise be paid on an ordinary dividend from Opco to Mr. A.
Is CRA of the opinion that the GAAR applies to this particular series of transactions?
Oral Response
A file with a similar series of transactions was recently referred to the GAAR committee for consideration. Although the committee considered that the transaction circumvented the integration principle, it recommended that the GAAR not be applied. The committee was of the view that it would be unlikely that the GAAR could be successfully applied to the transactions, given the current state of the case law.
It was also recognized that results similar to those obtained from the transactions could be achieved in a variety of ways. For example, Holdco could realize a capital gain by simply selling its Opco shares to new sister corporation.
The CRA is nevertheless concerned with this kind of surplus-stripping arrangement, and we have expressed those concerns to the Department of Finance. The CRA will also maintain its position of applying the GAAR and/or 84(2) in cases like MacDonald, where the taxpayer uses losses or other tax shelter to offset the capital gain that is, basically, triggered as part of a surplus stripping arrangement.
Of course, the CRA would also rely on the reasoning in the Descarries decision where a taxpayer seeks to extract corporate surplus in a manner that would be contrary to the object, spirit or purpose of a specific anti-avoidance provision such as 84.1 or 212.1
Similar answer given in the 2015 APFF Roundtable (translation provided).
Official response
24 November 2015 CTF Roundtable Q. 4, 2015-0610701C6 - Surplus Stripping and GAAR
Q5: Private health services plans
Does CRA have an update regarding its position on what qualifies as a private health services plan (PHSP)?
Oral Response
After a response was read in French, the following oral English response was given (in 17 fewer seconds):
RH: Effective January 1, 2015, we're going to consider a plan to be a PHSP as long as premiums paid under the plan relate, all or substantially all, to medical expenses that would qualify for the medical expense tax credit.
Why we changed our position is that we did not want plans to be considered offside on the basis of nominal or incidental non-METC coverage. In addition, we believe that "all or substantially all" provides more flexibility in designing plans to handle incidental or nominal non-METC expenses.
[See also: New position on private health services plans - Questions and answers 25 November 2015.]
Official response
24 November 2015 CTF Roundtable Q. 5, 2015-0610751C6 - PHSP update
Q6: Amendments to Section 55
(a) Significant Reduction of FMV Purpose Test
The proposed amendments to section 55 provide that subsection 55(2) may apply to recharacterize an intercompany dividend received on a share even where there has not been a reduction in any capital gain that would otherwise be realized on the disposition of the share.
For subsection 55(2) to apply, the dividend must meet the tests in proposed subsection 55(2.1). The most significant change is in proposed clause 55(2)(b)(ii)(A) which contains the following condition:
the dividend (other than a dividend that is received on a redemption, acquisition or cancellation of a share, by the corporation that issued the share, to which subsection 84(2) or (3) applies) is received on a share that is held as capital property by the dividend recipient and one of the purposes of the payment or receipt of the dividend is to effect:(A) a significant reduction in the fair market value of any share;
Can CRA describe the factors or tests they would consider in deciding whether the purpose test has been met?
Can CRA describe the factors or tests they would consider in deciding whether a reduction of fair market value is “significant”?
Oral Response
The determination of purpose is based on facts that are particular to a situation including, but not limited to, the actions taken by the parties to a dividend and their implementation. In Ludco, the Supreme Court of Canada stated that the determination of purpose should be guided by objective and subjective manifestations of purpose.
Although a dividend will normally result in a reduction in value or an increase in the cost of property, it is not the result which drives the application of proposed subsection 55(2.1): it is the purpose, and the motivation behind the purpose. That purpose, or motivation behind the purpose, can be established by answering questions such as:
- What did the taxpayer intend to accomplish with the reduction in value or increase in cost?
- How would such reduction in value or increase in cost be beneficial to the taxpayer?
- What actions did the taxpayer take in connection with the reduction in value or the increase in cost?
Without limiting the application of the purpose test, a dividend that is instrumental in creating a capital loss on a share, which could be used to shelter a gain on another property, would be, in our view, an indication that the fair market value reduction purpose is there. Also, the use, or the possibility of using, increased cost amounts of properties in order to shelter a gain, would also be an indication that the purpose of the dividend is to increase cost.
Where a dividend is paid pursuant to a well-established dividend policy, and the amount of the dividend does not exceed a reasonable dividend return on the equity, on a comparable listed share issued by a comparable corporation in the same or similar industry, the CRA would consider that the purpose of such dividend would not be described in proposed paragraph 55(2.1)(b).
The CRA Rulings will consider issuing favourable opinions under proposed 55(2) where all manifestations of purpose, and the facts and circumstances that are particular to the situation, support the absence of the purposes described in proposed 55(2.1). Such an opinion would be conditional on two things. The first one would be a representation by the taxpayer that the purposes of the dividend are not described in proposed 55(2.1). The opinion would also be conditional on the completeness of the description of the facts and the circumstances. The representation of the taxpayer is provided among, other things, to make sure that we have a subjective analysis at hand in addition to the objective analysis.
The “significant” reduction in value or increase in cost test was there under former subsection 55(2). This is a question of fact. The “significant” aspect can be measured both in terms of significant dollar amounts or on a percentage basis.
In summary, this is a purpose test, it is not a results test. As discussed yesterday, a purpose test is a purpose test is a purpose test.
Official response
24 November 2015 CTF Roundtable Q. 6(a), 2015-0610651C6 - Purpose Test
Supp. Q. ["normal course"]
Therefore normal course dividends are excepted?
Oral Response
SP: From the taxpayer’s perspective, a normal course dividend should not be subject to 55(2). The issue we will have in practice is that we have the same [understanding as practitioners of the] conditions as to what is a normal course dividend. Today is a beginning, and we will be in the business of providing favourable opinions.
(b) Impact on In-House Loss Consolidations
Can CRA confirm that standard in-house loss consolidation arrangements whereby dividends are paid on preferred shares between related companies would not be considered to meet the purpose test in proposed clause 55(2.1)(b)(ii)(A)?
Oral Response
Here you have good news - in-house loss-consolidations that were only designed to move losses between related or affiliated corporations, on which we have ruled favourably in the past under former 55(2), would not be considered to have a purpose described in proposed 55(2.1). An indication that such purpose is absent is the fact that normally the ACB that is created as part of the loss consolidation is eliminated on the unwind of the loss consolidation structures - I think that's an important element.
This was confirmed in favourable opinions that were provided by the CRA, in rulings recently issued in loss-consolidation transaction.
Official response
24 November 2015 CTF Roundtable Q. 6(b), 2015-0610671C6 - Loss Consolidation and Section 55
(c) Safe Income and Discretionary Dividend Shares
Assume that ACo has outstanding common shares and nonparticipating, discretionary shares. Assuming that the nonparticipating shares have no accrued gain, no safe income would be attributable to those shares.
Can CRA confirm whether or not subsection 55(2) would apply to dividends received on the non-participating shares?
Can CRA confirm whether the dividend would result in a loss of safe income on hand otherwise available for dividends on the common share?
Oral Response
Whether participating or non-participating shares, that are entitled to a discretionary dividend, have a value immediately before a dividend is paid, is a valuation issue. Where you have non-participating discretionary shares that have no accrued gain, then it is clear that no safe income would be available on those shares, so a dividend that would be paid on such shares would be subject to the purpose test. Of course, a dividend paid on these non-participating shares would normally reduce the safe income on the participating shares, because the capital gain on the participating shares would be reduced.
That being said, if the dividend on the non-participating shares is subject to 55(2), we are prepared to accept that the safe income on the participating shares will not be affected.
Official response
24 November 2015 CTF Roundtable Q. 6(c), 2015-0610661C6 - Safe Income
(d) Creating deemed dividends
Since proposed paragraph 55(2.1)(b) does not apply to a deemed dividend under subsection 84(3), could share redemptions be used as an alternative to regular dividends in order to avoid the application of subsection 55(2)?
Oral Response
Let's start by discussing the scheme of proposed 55(2). Subsection 55(2) is there to prevent capital gain-strips. New proposed 55(2) is also there to counter the artificial increase or manipulation of cost or ACB. It is also there to prevent the reduction in value of a share in order to create or fabricate a loss on such a share.
The scheme of proposed 55(2) is supported, for example, by proposed 55(2.2), which prevents the use of high-low stock dividends in order to reduce the value of a share. It's also supported by 55(3)(a), which has been restricted to the redemption, acquisition or cancellation of shares. Of course, when you redeem or cancel a share, that would normally result in an elimination of the basis of the share, which would normally not be very helpful in achieving ACB creation.
I would also like to point out that the technical notes indicate that the amended exception in 55(3)(a) is intended to facilitate bona-fide corporate reorganizations by related persons It is not intended to be used to accommodate transactions that seek to increase, manipulate, manufacture or stream cost-base. In our view, an attempt to artificially create, or unduly preserve, ACB in a reorganization that is exempt under 55(3)(a) or (b), would frustrate the object, spirit and purpose of those provisions, and CRA would normally seek to apply GAAR to those transactions.
I'll mention a couple examples of situations we consider offensive:
- A situation where you have a redemption of a share in consideration for a note in a reorganization that would be exempt under 55(3)(a), and the note would be used to generates basis that would be in excess of the ACB of the shares being redeemed.
- ACB streaming prior to a reorganization under 55(3)(a) or (b), where the redemption would be of low-ACB shares, while the high ACB shares would be preserved.
Official response
24 November 2015 CTF Roundtable Q. 6(d), 2015-0610681C6 - Use of 84(3) Dividend
(e) Creditor proofing
A common creditor proofing technique involves the declaration of a large cash dividend by an operating company to a holding company. The holding company then lends the cash back to the operating company and takes security against the assets of the operating company. These dividends typically exceed the safe income on hand of the payer.
Assuming that there are no current plans to sell the operating company, can CRA confirm that this type of planning will not run afoul the purpose test in proposed clause 55(2.1)(b)(ii)(A)?
Oral Response
When Opco pays a lumpy dividend in a creditor-proofing transaction in order to reduce the value of the Opco shares, the apparent purpose is to reduce the value of the Opco shares; if such a purpose is present, 55(2) would apply to the dividend.
I would also like to add that the purpose of the deduction in 112(1), with respect to inter-corporate dividends, is to avoid double-taxation at the corporate level. Now, 55(2) establishes limits to such a deduction. So, it cannot be said that the scheme of the Act is to exempt all payment between corporations that could be considered as dividends for corporate-law purposes.
The second point is that the scheme of the Act limits the increase in tax-free amounts that can be derived from a corporation by a shareholder. For example, an exchange of shares would be subject to tax if the amount of the non-share consideration received exceeds the ACB of the shares being exchanged. Consequently, where there is the payment of a dividend that is in excess of the after-tax income of the corporation, for the purpose of significantly reducing the value of the corporation by essentially converting accrued value into full ACB debt, that can be repaid or sold without tax implications, such dividend should be subject to tax under the scheme of the Act, as supported by 55(2).
CRA also addressed the creditor-proofing topic in the 2015 APFF Roundtable (translation provided).
Official response
24 November 2015 CTF Roundtable Q. 6(e), 2015-0623551C6 - Creditor Proofing
Q7: Entity Classification
(a) [Anson]
The recent U.K. Supreme Court decision in Anson v. HMRC held that a Delaware LLC was a partnership for the purposes of the tax treaty between the U.K. and the United States. Has this case changed CRA’s position that LLCs will generally be treated as corporations for Canadian tax purposes?
Oral Response
We find the case informative and it is valuable, but our sense is that it deals more with Treaty interpretation – and that it is not going to affect our view that LLCs will be considered corporations under the Act, based on the two-step approach that we follow. We have not analyzed every LLC statute, and we have not updated many of our interpretations for changes in those statutes that we did not previously consider, but it is still the “status quo.”
Official Response
(b) [LLPs]
Can CRA also provide us with an update of its deliberations on the status of Florida “limited liability partnerships” (“LLPs”) and “limited liability limited partnerships” (“LLLPs”) for Canadian tax purposes?
Oral Response
As mentioned at IFA [see 2015-0581511C6], we haven’t concluded our analysis, but I can tell you that we are heavily leaning towards treating them as corporations. We have received one good submission, which for us is surprising, as we did ask for submissions – so that we don’t know whether people aren’t concerned about it, or just haven’t encountered it (which I would find surprising). We are going to hold off making a definitive conclusion for a few weeks (not a few months).
We have also been recently asked to consider the tax treatment of similar entities under Delaware law, and our preliminary view is that they are essentially the same as their Florida counterparts – but we are going to wait a little bit longer before we make any conclusions.
Official response
24 November 2015 CTF Roundtable Q. 7, 2015-0610611C6 - Entity Classification
Q8: Liquidation of a foreign affiliate and upstream loans
Assume that foreign affiliate has made a loan to its Canadian parent. If the loan is not repaid within two years, the loan would be subject to the upstream loan rules such that the amount of the loan is included in the Canadian parent’s income pursuant to subsection 90(6). The parent is entitled to a deduction once the loan is repaid.
If the foreign affiliate is wound up while the debt remains outstanding, would the loan be considered to have been repaid at such time, thereby entitling the parent to the deduction?
Oral Response
RH: We are not inclined to take an administrative position on this case. To quote the recording artist Taylor Swift (favoured by Stéphane): “Band-Aids don’t fix bullet holes” [laughter].
In this particular case, Canco would not be entitled to a deduction. As you are aware, this issue and many other upstream loan issues have been brought to Finance’s attention by the Joint Committee, and our sense is that they will likely be resolved eventually through legislative amendment.
Official response
24 November 2015 CTF Roundtable Q. 8, 2015-0610621C6 - FA Liquidation and upstream loans
Q9: Exemption from FAPI
Paragraph 95(2)(a) treats certain types of property income earned by a foreign affiliate as income from an active business and therefore not subject to FAPI.
Clause 95(2)(a)(ii)(D) applies to interest payments received by FA #1 from FA #2 on money borrowed for the purpose of acquiring shares of another company that is a foreign affiliate(Target) throughout the period for which the interest was payable, provided that a number of conditions are met.
One of the conditions which is set forth in subclause 95(2)(a)(ii)(D)(IV) requires that in respect of both FA #2 and Target, either:
- the company be subject to income taxation in a country other than Canada in the relevant taxation year; or
- the members or shareholders of the affiliate be subject to income taxation in a country other than Canada on all or substantially all of the income of that affiliate for the relevant taxation year.
It is somewhat unclear on how to apply the test in subsubclause 95(2)(a)(ii)(D)(IV)(2) where both FA #2 and Target are U.S. limited liability companies.
Assume that FA #2 acquires a 95% interest in Target such that Target is considered to be a partnership for US tax purposes. FA #2 is a disregarded entity for US tax purposes. The sole member of FA #2 is a U.S. Corporation that will ultimately be taxable on its share of Target’s net income.
Can CRA confirm that in this example, Target LLC would be considered as meeting the requirement in sub-subclause 95(2)(a)(ii)(D)(IV)(2) even if FA #2 has deductible expenses, including the interest paid to FA #1, such that the total amount of Target LLC’s net income that is ultimately included in US Holdco’s income is less than 90% of Target LLC’s net income?
Oral Response
There was insufficient time for the prepared response but the following brief comments were made:
CRA (RH): Briefly, the answer is favourable - it's the computation of income which is important; it's not the fact that the income has been essentially reduced by interest deductibility.
One of the panel-hosts elaborated:
What we're talking about in this picture, for those practising in the area - the issue was whether all or substantially all of its income was subject to tax, either in its hands or in the hands of a member in US Holdco, and the issue was, what if its direct parent, FA #2, had deductible expenses and, as a result, not all or substantially all of Target's income was eventually taxed in Holdco's hands.
The answer was that, as long as all or substantially all of Target's income is included in the computation, then whether or not there are other deductible expenses to reduce that income doesn't really create an impact.
CRA (RH): There could be a problem, obviously, if the tax-exempt entity that owns part of Target was over 10%. Likewise, you'd have a similar problem if, in FA #2, there was a tax-exempt that held ownership.
Official response
24 November 2015 CTF Roundtable Q. 9, 2015-0610561C6 - s. 95(2)(a)(ii)(D)(IV)(2)
Q10: Thin Cap & Foreign Currency Debt
Non-resident parent makes a U.S. dominated loan to its Canadian subsidiary.
Based on the f/x rates at the time of the loan, the ratio of “outstanding debts to specified non-residents” to the subsidiary’s “equity amount” was less than the 1.5 to 1 ratio required for the purposes of the thin capitalization rules.
Due to currency change, the current value of the loan expressed in Canadian dollars is in excess of 1.5 times the equity amount of the subsidiary.
CRA has previously stated that the amount of the “outstanding debts to specified non-residents” at any particular time, should be recalculated on each calculation date based on the current exchange rate and that interest rate fluctuations could trigger the application of the thin cap rules.
CRA’s previous comments predated the enactment of section 261 which provides that an amount should be expressed in Canadian currency based on the relevant spot rate on the date the amount arose.
Can the CRA advise whether it has changed its position on the calculation of the debt/equity ratio in light of subsection 261(2)?
Oral Response
I wouldn't really call it a change in position, but obviously the change in the law has caused us to change how we would apply the thin-cap rules in this particular example.
As you know, 261(2) is applicable to all taxation years so, if a taxpayer doesn't make a functional currency election, 261(2) is going to require that the Canadian currency be used, and an amount expressed in foreign currency will have to be converted to Canadian currency on the relevant spot rate on the day that the particular event arose. So, in the situation described, the amount of the debt arose when the loan was issued, and that date would be used for purposes of the thin-cap rules.
Official response
24 November 2015 CTF Roundtable Q. 10, 2015-0610601C6 - Thin cap - foreign currency debt
Q11: Effect of Descarries Decision
In 2005, CRA issued a ruling (2005-0134731R3) regarding a series of transactions pertaining to an intergenerational transfer of shares of a business. The ruling confirmed that GAAR would not apply to proposed transactions.
In Descarries, the Tax Court held that GAAR did apply to a series of transactions similar to those described in the 2005 ruling on the basis that the transactions violated the object and spirit of section 84.1.
In light of the Descarries decision, is CRA still willing to issue favourable rulings in situations similar to those in the 2005 ruling?
Oral Response
Cut for time. See CRA's response to the same question in the 2015 APFF Roundtable (translation provided).
Official response
24 November 2015 CTF Roundtable Q. 11, 2015-0610711C6 - Impact of the Descarries decision
Q12: T1135 - Jointly Held Property
Can CRA provide guidance on how to report specified foreign property (SFP) that is jointly held by spouses?
Example #1: A and B (who are spouses) intend to purchase a SFP as joint property. The property has a cost of $150,000. First A gifts $75,000 to B and then each of A and B pay $75,000 to jointly acquire the property. Assume that neither A nor B has any other SFP.
Example #2: A and B intend to increase their joint investment in the SFP from $150,000 to $400,000. To do this, A gifts another $125,000 to B and then each of A and B pay $125,000 to jointly acquire the additional SFP.
Oral Response
In general, if there's a joint-ownership of SFP between spouses, we're going to compare each spouse's share of the property to the $100,000 threshold.
- In the first case, the amount of the SFP to each spouse is $75,000, so neither spouse would be required to file the T1135.
- In the second case, each spouse's share of the SFP exceeds the $100,00 threshold, so each spouse is going to be required to file a T1135.
Our sense is that this question is really getting at the attribution of the income, and how this impacts the SFP rules. Reporting an SFP is independent of the application of the attribution rules.
Official response
24 November 2015 CTF Roundtable Q. 12, 2015-0610641C6 - Form T1135 - Jointly held property
Q13: Snowbirds and Medical Expenses
When a patient travels to a warm climate for the beneficial effects on his or her health, can the transportation and travel expenses qualify as “medical expenses” for the purposes of the medical expense tax credit in section 118.2 by virtue of paragraphs 118.2(2)(g) and (h)?
Oral Response
There was insufficient time for the prepared response. This brief jocular exchange occurred, indicating likely agreement with Tallon:
Q: "When I looked out this morning and I saw that it was snowing, I immediately went to my doctor and got a note that said I need to go to Florida for rest & relaxation. I want to know whether or not I can write off those expenses." [laughter]
Oral Response: "Enjoy your trip, but it's not a medical expense."
Official response
24 November 2015 CTF Roundtable Q. 13, 2015-0610741C6 - 2015 CTF Q. 13 medical expense tax credit