Income Tax Severed Letters - 2011-01-14

Ruling

2010 Ruling 2010-0364531R3 - Deemed dividends derived by US Residents

Unedited CRA Tags
212(1)(d); 212(2); Articles IV, X and XII of the Treaty
PUC increase and distribution by ULC owned by S corp and US LP

Principal Issues: 1) Whether a subsection 84(1) deemed dividend is a dividend for the purposes of Article X of the Treaty; 2) Whether Article IV(7)(b) of the Treaty applies to the deemed dividend; 3) Whether GAAR applies to the series of transactions.

Position: 1) Yes 2) No

Reasons: 1) The definition "dividends" in Article X(3) is broad enough to include a subsection 84(1) deemed dividend; 2) Tax treatment of the deemed dividend income under the taxation laws of the United States would be the same if the deemed dividend payer were not fiscally transparent; 3) The proposed transactions do not result in a misuse or abuse of the provisions of the Income Tax Act or the Treaty

2010 Ruling 2010-0373801R3 - Conversion from a BV to a DC

Unedited CRA Tags
248(1) "disposition"; 85.1(3); 86(1); 95(6)
exchange of shares in Netherlands BV for membership interests in Dutch coop qualified under s. 86
membership interest in Dutch coop a share
conversion of Netherlands BV to Dutch co-op

Principal Issues: A. Will the members holding membership units of the Dutch Cooperative (DC) be considered to hold "shares" for the purposes of the Act?
B. Will the BV be considered to have disposed of any of its property on its conversion to a DC?
C. Will the cancellation of the shares in the capital of BV on the Conversion in exchange for a membership interest in the DC occur on a tax-deferred basis for the purposes of the Act, pursuant to section 86? D. Does 85.1(3) of the Act apply to the transfer(s) by Holdco of the shares in the capital of the FAcos to DC? E. Does 85.1(3) of the Act apply to the transfer(s) by Newco of the shares in the capital of the FAcos to DC? F. Does 95(6) of the Act apply to the Conversion or the Transfers?

Position: A. Yes B. No C. Yes D. Yes E. Yes F. No

Reasons: A. As long as the DC is treated as a corporation, then the comments in paragraph 3 of IT-392 will apply such that the members of the DC will be considered to own "shares". B. There is no disposition of its property on the conversion from the BV to the DC since the DC is the same corporation as the BV. C. The criteria in 86(1) have been met. D. The criteria in 85.1(3) have been met. E. The criteria in 85.1(3) have been met.
F. Based on the facts and circumstances surrounding the proposed transactions, there is no reason that 95(6) should be triggered.

2010 Ruling 2010-0361591R3 - Article IV(7)(b) Restructuring

Unedited CRA Tags
Article IV(7)(b) Canada-United States Tax Convention; s. 245
Art. IV(7)(b) not applicable to ULC interest owned by C-Corp paid to another C-Corp member of same US consolidated group

Principal Issues: Whether Article IV(7)(b) applies to interest paid by Canadian-resident company that is fiscally transparent under the taxation laws of the United States?

Position: No.

Reasons: United States income tax treatment of interest income to recipient will be the same whether or not Canadian-resident company is fiscally transparent.

Technical Interpretation - External

17 December 2010 External T.I. 2010-0381611E5 - Taxability of Co-Op Honorarium Payments

Unedited CRA Tags
3(a), 6(1)(a),8(5),153(1)

Principal Issues: Whether a $XXXXXXXXXX honorarium paid to participants in a XXXXXXXXXX -week co-op opportunity is taxable and how should it be reported.

Position: Depends on whether an individual is an employee. If amounts are income from employment then employer is required is withhold appropriate amounts and report them on a T4 slip.

Reasons: Honorariums are usually payments for services and are generally taxable as income from an office or employment.

16 December 2010 External T.I. 2010-0369721E5 - 146.2(2)(c) - Contributions to a TFSA

Unedited CRA Tags
146.2(2)(c).

Principal Issues: Can a parent write a cheque to her adult child, which the adult child directly deposits into her TFSA?

Position: Generally, yes.

Reasons: There is nothing in the Act preventing a parent from gifting money to an adult child for the purpose of contributing to the adult child's TFSA, provided the gift of money is an outright gift.

Technical Interpretation - Internal

20 December 2010 Internal T.I. 2010-0371291I7 - Prescribed International Organization

Unedited CRA Tags
110(1)(f)(iii); Regulation 8900; s.57 and 63 of the United Nations Charter

Principal Issues: 1. Whether the African Development Bank is a prescribed international organization such that its employees are entitled to a deduction under paragraph 110(1)(f)(iii). 2. If not, is their income exempt under the Foreign Missions & International Organizations Act?

Position: 1. No. 2. Question of Fact

Reasons: 1. Not one of the specialized agencies prescribed in paragraph 8900(1)(b) of the Regulations. 2. Only if the employee is not a Canadian citizen residing or ordinarily resident in Canada.

17 December 2010 Internal T.I. 2010-0380651I7 - Third Party Provisions to Collect Revocation Tax

Unedited CRA Tags
s. 160(1) & (2); s. 188(1), (1.1), & (2).

Principal Issues: Whether subsection 160(1) or 188(2) can be applied to collect revocation tax.

Position: Both provisions can be applied but the scope of subsection 188(2) is not as wide as the scope of subsection 160(1).

Reasons: Paragraph 160(1) can be used to collect any amount owing under the Act, while subsection 188(2) is limited to collect revocation tax from a person to whom property was transferred 120 days before a charity's deemed year-end.