Income Tax Severed Letters - 2010-02-12

Principales Questions: At the 2007 APFF Round Table, the CRA has confirmed that where a corporation incurs borrowing expenses described in subparagraph 20(1)(e)(ii) in a particular taxation year, the corporation's safe income on hand must be reduced in such a year to reflect the total amount of the cash outflows relating to the borrowing costs. Whether, in each of the four taxation years that follows, the CRA would administratively allow for a positive adjustment to the corporation's safe income on hand corresponding to the amounts deducted under paragraph 20(1)(e) in each of these subsequent taxation years.

Position Adoptée: Yes. The purpose of these positive adjustments is to avoid excessive reductions to the corporation's safe income on hand, the cash outflows relating to the borrowing costs already being fully reflected in the computation of the safe income on hand for the first year, at the time these borrowing costs are effectively incurred.

Raisons: Wording of the Act and previous positions.

Principales Questions: 1. Est-ce que l'ARC continue d'appliquer le décret de 1988 concernant la remise d'impôt sur certains revenus de particuliers gagnés dans la province de Québec? Does the CRA continue to apply the Order Respecting the Remission of Income Tax in Respect of Certain Income of Individuals Earned in the Province of Québec (1988)?
2. Est-ce que le décret de remise de 1988 s'applique aux revenus de loyers gagnés au Québec par un particulier qui n'exploite pas d'entreprise et dont l'activité de loyer n'est pas vu comme une entreprise? Does the 1988 Order apply in respect of rental income in a situation where the individual does not carry on a business and where the undertaking is not considered to be a business?

Position Adoptée: 1. Oui. Yes.
2. Non. No.

Raisons: 1. Le ministère des Finances a l'intention de prolonger l'application d'un tel décret aux années d'imposition se terminant après 1996. The Department of Finance intends to extend the application of such an order to the taxation years following 1996.
2. L'expression "revenu gagné durant l'année dans une province" utilisée au paragraphe 2602(1) du Règlement ne comprendrait que le revenu de loyers qui est tiré d'une entreprise, gagné dans une province. According to the definition found in subsection 2602(1) of the Regulations, "income earned in the taxation year in a province" would only include rental income which is income from carrying on a business earned in a province.

Principales Questions: In the particular situation, whether the employment of each shareholder is not an insurable employment under paragraph 5(2)(b) of the Employment Insurance Act.

Position Adoptée: See response below.

Raisons: See response below.

Principales Questions: In a situation where Opco has been experiencing financial difficulties for the past 18 months and Holdco owns 40 % of Opco's issued and outstanding capital-stock, in order to determine if Opco is connected, as defined under subsection 186(4), to Holdco, whether the test under subparagraph 186(4)(b)(ii) is met, if the liquidation value of Opco's shares is nil?

Position Adoptée: Technically, no.

Raisons: The test makes sense only if the shares of the payer corporation has a fair market value greater than nil. However, we believe that in practice it is doubtful that the fair market value of the shares of a corporation, that has unused tax accounts, is nil.

Principales Questions: Quel sens faut-il donner à l'expression " année donnée " au paragraphe 74.5(2) pour établir le montant des intérêts payables?

Position Adoptée: C'est l'année civile

Raisons: Le paragraphe introductif réfère à l'année d'imposition du particulier qui, selon l'alinéa 249(1)b) est l'année civile. L'année donnée à l'alinéa 74.5(2)b) est cette année d'imposition.

Principales Questions: A partnership owns all of the issued and outstanding shares of the capital stock of a Canadian-controlled private corporation ("CCPC Co."). Except for one partner which is a non-resident corporation owning a minority interest in the partnership, all of the partners of the partnership are corporations resident in Canada. The partnership is a "Canadian resident partnership" as defined in subsection 248(1). CCPC Co. pays a dividend to the partnership and designates it as an "eligible dividend" pursuant to subsection 89(14). 1) For the purposes of subsection 89(14), whether CCPC Co. should notify in writing the partnership. 2) Whether there should be a reduction of the GRIP of CCPC Co. in respect of the portion of the dividend which is paid to the non-resident corporation.

Position Adoptée: 1) Yes. 2) No, provided that CCPC Co. is in a position to establish that such portion of the dividend was effectively distributed by the partnership to the non-resident corporation and received by such corporation.

Raisons: Wording of the Act and previous positions.

Principales Questions: Si le prix de base rajusté des unités d'une fiducie détenues par un bénéficiaire est nul et que le coût de l'achalandage de l'entreprise de la fiducie est nul, est-ce que le bénéficiaire sera imposé sur un montant total de 75 000 $ si la fiducie vend son achalandage 100 000 $ et distribue cette somme à son bénéficiaire à titre de distribution de revenu et de capital; le montant de 75 000 $ se composant d'une attribution de revenu de 50 000 $ provenant de la fiducie et d'un gain en capital imposable de 25 000 $ provenant du prix de base rajusté négatif suite à la distribution de capital. If the adjusted cost base of the trust units held by a beneficiary is nil and if the cost of the goodwill in respect of the business of the trust is nil, will the beneficiary be liable to tax on a total amount of $75,000 in a situation where the trust sells the goodwill for a consideration of $100,000 and distributes that amount to its beneficiary qua income and capital distribution; the amount of $75,000 being composed of an income distribution of $50,000 and of a taxable capital gain of $25,000 resulting from the negative ACB of the trust units after the capital distribution.

Position Adoptée: Nous sommes d'accord avec cette conclusion à condition que la participation dans la fiducie ne soit pas exclue de l'application de l'alinéa 53(2)h) de la Loi et que la distribution ne soit pas considérée comme étant le produit de disposition de la participation ou d'une partie de celle-ci. We agree with the conclusion provided that the interest in the trust is not excluded from the application of paragraph 53(2)(h) of the ITA and provided that the amount distributed is not considered to be the proceeds of disposition of the interest or part thereof.

Raisons: Libellé du paragraphe 104(13) et de l'alinéa 53(2)h). Wording of subsection 104(13) and of paragraph 53(2)(h)

Principales Questions: Une organisation à but non lucratif doit-elle obtenir un avis du ministre à l'effet qu'elle n'est pas un organisme de bienfaisance au sens du paragraphe 149.1(1)?

Position Adoptée: Non

Raisons: La L.I.R. n'impose pas à un contribuable l'obligation d'obtenir un tel avis à moins qu'il n'exerce que des activités de bienfaisance.