Income Tax Severed Letters

This Week's Release

Ruling

2019 Ruling 2019-0794571R3 - Cross-Border Butterfly

Unedited CRA Tags
55(2), 55(3)(b), 55(3.1), 55(3.2)(h), 212.1(1), 212.1(1.1), 212.1(1.2) *

Principal Issues: Whether the Canadian butterfly transactions, as described below, in the context of a cross-border butterfly, meet legislative and administrative requirements?

Position: Transactions meet requirements.

Reasons: Consistent with law and administrative requirements.

Technical Interpretation - External

23 February 2021 External T.I. 2020-0873491E5 - CERS - Energy Costs

Unedited CRA Tags
125.7

Principal Issues: 1. If a gross lease does not contain a requirement for a tenant to pay for utilities, would any payments made by the tenant to an energy distributor be a qualifying rent expense? 2. If a net lease requires a tenant to make payments for utilities directly to an energy distributor, is the energy distributor a “third party,” such that the payments are a qualifying rent expense? 3. Does the requirement to pay the third party need to be stated in the lease

Position: 1. No. 2. Maybe. 3. Yes.

Reasons: 1. Under the definition of “qualifying rent expense” in paragraph 125.7(1) only rent may be a qualifying rent expense under a lease that is not a net lease. 2. Provided the other conditions are met, a payment for utilities made directly to a third party such as an energy distributor may be a qualifying rent expense. 3. The payment must be a requirement under a net lease.

2 September 2020 External T.I. 2018-0738271E5 F - Taxable capital gain designation

Unedited CRA Tags
104(21), 104(21.2), 104(21.3), 108(1), 110.6(1) and 110.6(2.1) *
the QSBC character of capital gains can be flowed out through 2 levels of personal trusts

Principales Questions: Where a first trust makes a designation pursuant to subsection 104(21.2) with respect to an amount paid to a second trust, whether the second trust can make a designation pursuant to subsection 104(21.2) with respect to the same amount paid to its own beneficiaries to allow them to claim the capital gains deduction under subsection 110.6(2.1)?

Position Adoptée: Yes.

Raisons: To determine the "eligible taxable capital gains", as defined in subsection 108(1), of the second trust, it is necessary to take into account the effect of the designation under subsection 104(21.2) that the first trust has made in respect of its beneficiary, the second trust. The effect of paragraph 104(21.2)(b) is that, for the purposes of sections 3, 74.3 and 111 as they apply for the purposes of section 110.6, the beneficiary, the second trust, is deemed to have disposed of capital property that is qualified small business corporation shares, and have a taxable capital gain from such disposition equal to the amount determined by the formula set out in clause 104(21.2)(b)(ii)(B). Therefore, the second trust will be able to make a designation under subsection 104(21.2) in respect of its own beneficiaries as its "eligible taxable capital gains" include the amount designated by the first trust under subsection 104(21.2). This will allow the second trust’s beneficiaries, who are individuals other than trusts, to claim the capital gains deduction under subsection 110.6(2.1), provided all the other conditions are met. As a result of the above, the position set out in document 2016-0667361E5 no longer represents the position of the CRA.

6 July 2020 External T.I. 2020-0840271E5 - Indian Employment Income

Unedited CRA Tags
81(1)(a) *

Principal Issues: Whether the employment income earned by Indians that benefit Indigenous women who live off-reserve is exempt from tax.

Position: No

Reasons: There are not enough factors that connect the income to a reserve for it to be considered situated on a reserve.

Technical Interpretation - Internal

9 October 2019 Internal T.I. 2019-0800031I7 - Indian's employment income - Adjacent to reserve

Unedited CRA Tags
81(1)(a) of the Income Tax Act and 87(1)(b) of the Indian Act *

Principal Issues: Would employment income earned by a First Nation individual who works for XXXXXXXXXX in a facility that is located immediately adjacent to a reserve be exempt from tax under paragraph 87(1)(b) of the Indian Act?

Position: Unable to determine.

Reasons: Insufficient information

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