Income Tax Severed Letters - 2008-09-19


2008 Ruling 2008-0280041R3 - Series of loans and repayments

Unedited CRA Tags
15; 17(1); 80.4(2); 115; 212; 214(3); 247(2)

Principal Issues: (1) Does interest free loan to Parentco give rise to a deemed benefit to Parentco? (2) Is withholding tax at XXXXXXXXXX % applicable on benefit? (3) Do the transactions constitute a series of loans and repayments? (4) Does ss.15(1) apply to Parentco as a result of the proposed transactions? (5) Does ss. 17(1) apply to the loan? (6) Will subsection 247(2) apply to the proposed transactions?

Position: (1) Yes. (2) Provided Parentco is the beneficial owner of the dividends, yes. (3) No. (4) Only by virtue of subsection 15(9). (5) No. (6) No.

Reasons: (1) Yes, subsection 80.4(2) of the Act deems a shareholder to have received a benefit equal to the interest it should have paid at a prescribed rate on a loan from the corporation. Such benefit is to be included in the shareholder's income as a deemed benefit through the combined operation of subsections 15(9) and 15(1) of the Act. While sections 15 and 80.4 (in Part I of the Act) generally do not apply to non-residents by virtue of section 115, subsection 214(3) incorporates section 15 by reference. (2) Application of XXXXXXXXXX of the Canada-XXXXXXXXXX Tax Convention and subsection 212(2) of the Act. (3) Based on the reasoning in Uphill and Attis. (4) Application of subsections 15(9) and 15(1). (5) The loan will be repaid within 365 days. (6) Subsection 15(9) is a more specific provision that applies to the loan.

2008 Ruling 2008-0284611R3 - Structured Settlement

Unedited CRA Tags
12.2(1) 56(1)(d) 60(a)

Principal Issues: An individual (Plaintiff) was injured when a XXXXXXXXXX . The Plaintiff commenced an action for damages against various defendants. Pursuant to an out of court settlement, the casualty insurer of the defendants will assign their rights and obligations to an assignment company who will purchase a single premium annuity contract with a life insurance company to provide the proposed periodic payments to be received under a structured settlement arrangement. The assignment company will direct the life insurance company to pay the periodic payments under the annuity contract to the Plaintiff or the Plaintiff's estate. Will such payments be taxable in the hands of the recipient?

Position: No.

Reasons: The terms of the structured settlement are consistent with the CRA's position as set out in paragraph 5 of Interpretation Bulletin IT-365R2.

Technical Interpretation - External

16 September 2008 External T.I. 2008-0268021E5 F - Catégorie 43 - poinçon hydraulique

Unedited CRA Tags
CAT. 43 CAT. 29

Principales Questions: Un poinçon hydraulique, qui est prêté par le contribuable à des fabricants de portes et fenêtres, doit-il être inclus par le contribuable dans la catégorie 43 du Règlement de l'impôt sur le revenu?

Position Adoptée: Oui.

Raisons: Les poinçons hydrauliques sont acquis après le 25 février 1992 et, malgré qu'ils ne soient pas compris dans la catégorie 29 du Règlement de l'impôt sur le revenu, le seraient en l'absence des sous-alinéas b(iii) et (v) et de l'alinéa c) de cette dernière catégorie.

12 September 2008 External T.I. 2007-0228931E5 - Money borrowed to pay dividend

Unedited CRA Tags

Principal Issues: Can a corporation, when determining whether interest is deductible on money borrowed to pay a dividend, ignore, that is, reverse, a reduction to retained earnings caused by the application paragraphs .08 and .09 of Section 3840 of the CICA Handbook to a taxable-related-party transaction?

Position: Generally no, but not enough information to conclude on the application of the "fill the hole" concept.

Reasons: Matter should be determined in the context of an advance income tax ruling request submitted in accordance with IC 70-6R5 or, if the transaction is completed, by submission to the appropriate TSO.

3 September 2008 External T.I. 2008-0280721E5 - Repairs to Part of a Motel Sewage Installation

Unedited CRA Tags
18(1)(a) 18(1)(b)

Principal Issues: Whether the expenditures incurred to replace the distribution line in the existing on-site sewage disposal system should be on capital account or current account.

Position: Question of fact but, based on supplied information, likely on income account

Reasons: IT-128R, paragraphs 4(b)-(d).

28 August 2008 External T.I. 2008-0287611E5 F - Surplus Stripping

Unedited CRA Tags
84 245

Principal Issues: Whether either subsection 84.1(1) or the GAAR applies to the proposed transactions?

Position: Yes.

Reasons: The purpose of the proposed series of transactions is to convert a taxable dividend that would otherwise have been paid by a corporation (Opco), into a proceeds of disposition the shareholders of Opco would have received from the sale, in favour of an unrelated purchaser corporation, of freeze shares of the capital-stock of Opco. In our view, the proposed series of transactions corresponds to a dividend stripping arrangement of Opco to which all the conditions under either subsection 84.1(1) or the GAAR would be met.

26 August 2008 External T.I. 2008-0280781E5 - 128.1(1)(b) - Power of Appointment

Unedited CRA Tags
128.1(1) 128.1(10) 248(25)

Principal Issues: Is there a deemed disposition of a general power of appointment held by a person on immigration?

Position: No.

Reasons: A power of appointment is not considered to be property in itself.

Technical Interpretation - Internal

25 August 2008 Internal T.I. 2008-0283901I7 - Replacement Property

Unedited CRA Tags
70(6) 70(5) 40(4) 40(2)

Principal Issues: Whether there is support for the sentence in paragraph 3 of Interpretation Bulletin IT-259R4 which states, "In order to alleviate the financial burden that might ensue from this situation, acceptable security may be provided in lieu of payment of taxes owing until the time for the final determination of taxes is made or the time period for acquiring the replacement property has expired."

Position: Yes.

Reasons: Subsection 220(4) is the provision that allows the Minister to accept security for payment of any amount that is or may become payable under the Income Tax Act and subsection 220(2.01) allows the Minister to authorize an officer or a class of officers to exercise powers or perform duties of the Minister.

13 August 2008 Internal T.I. 2008-0267061I7 - Application of Guideline 4

Unedited CRA Tags
81(1) (a)

Principal Issues: Would Guideline 4 apply to the staff of a Band Office, which is currently located on the reserve, if the office is moved to a location which is not a reserve?

Position: Based on the limited facts provided, it has not been established that the employees satisfy the requirements of Guideline 4.

Reasons: It is not clear from the facts provided that the employees of the Band Office will be completing duties in connection with the employer's non-commercial activities carried on exclusively for the benefit of Indians who for the most part live on reserves. As well, it is not clear that the employer is resident on reserve. These criteria must be clearly satisfied if Guideline 4 is to apply.

15 May 2008 Internal T.I. 2008-0274421I7 - Taxable Income of Non-residents

Unedited CRA Tags

Principal Issues: Whether a not-for-profit entity can carry on a business.

Position: Generally, yes.

Reasons: See memo