2013 CTF Roundtable

CRA has published five of the Roundtable answers which it gave at the 2013 annual CTF conference:

• Q2(b).  Where there is a mismatch in the loans amounts comprising a back-to-back loan to which s. 90(7) applies, the pay-down in the larger loan amount is treated as not going first to reduce the notional upstream loan.
• Q5(a).  Where a U.S. public company has super-voting shares which are thinly traded or not at all, and subordinate voting shares which clearly are "regularly traded" on an exchange, CRA likely will not recognize it as a "qualifying person" under Art. XIXA, 2(c) of the Canada-US Convention.
• Q5(b).  CRA considers relative assets, revenues, income and payroll in assessing whether a US company’s business is "substantial" in relation to a connected Canadian business under Art. XXIX-A(3). However, this test can be satisfied by a US parent even if it now is bankrupt.
• Q9. CRA generally will accept that a gross revenue tax is an income tax if the taxpayer has an annual option to instead pay income tax at a reasonable rate.
• Q12. CRA would consider GAAR to apply to a transaction which avoids the stop-loss rule in s. 93(2.01) by creating a special class of shares to distribute exempt dividends prior to the sale of common shares of a foreign affiliate at a loss, even where the capital loss on such sale merely offsets an FX gain on a borrowing that was used to acquire the shares – unless such FX borrowing fits within the narrow confines of the s. 93(2.01)(b) safe harbor.
• Q12.  "It would be difficult to arrive at a different conclusion" for similar transactions in a s. 112(3) context. The absence of any safe harbour under s. 112(3) likely signifies an intention that nothing will work.
• Q15.  CRA does not accept using stock dividends to accomplish the approximate equivalent of a s. 85.1(3) drop-down.

These responses are now linked under the 2013 Roundtable summary.

Neal Armstrong.