Income Tax Severed Letters - 2011-08-26

Ruling

2011 Ruling 2011-0396421R3 - Permanent Establishment

Unedited CRA Tags
Articles XXXXXXXXXX of the Canada-XXXXXXXXXX Income Tax Convention

Principal Issues: Whether a non-resident company would be considered to carry on business through a PE in Canada

Position: No

Reasons: The activities to be carried out in Canada by PARENT under the Proposed Transactions would not give rise to a PE in Canada for purposes of the Treaty.

2011 Ruling 2011-0404701R3 - Structured Settlement

Unedited CRA Tags
56(1)(d)

Principal Issues: An individual (Plaintiff) who is a minor, suffered serious permanent injuries as a result of XXXXXXXXXX accident. The mother of the Plaintiff, on her own behalf and next friend to the Plaintiff, commenced an action for damages against XXXXXXXXXX and various other defendants. Pursuant to an out-of-court settlement, the casualty insurer of a certain defendant will assign (pursuant to an Assignment and Assumption Agreement) its rights and obligations to two assignment companies (the "Assignees"), who will each then 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 Assignees will direct the respective life insurance companies to pay the periodic payments under the annuity contract to the Plaintiff, such secondary payee(s) as may be directed by the Plaintiff or the Plaintiff's estate, as the case may be. Will such payments be taxable in the hands of the recipients?

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

15 August 2011 External T.I. 2011-0415071E5 F - 110.5 and safe income

Unedited CRA Tags
55(2); 55(5); 110.5; 111(8)
Summary Under
Tax Topics - Income Tax Act - Section 55 - Subsection 55(2.1) - Paragraph 55(2.1)(c)
safe income not increased by s. 110.5 addition

Principales Questions: Would the amount added to the taxable income pursuant to section 110.5 be added to the amount of the safe income and to the amount of the safe income on hand?

Position Adoptée: No.

Raisons: The amount is not included in the net income of the corporation and it is not available for distribution.

28 July 2011 External T.I. 2011-0401611E5 - Overseas Employment Tax Credit (OETC)

Unedited CRA Tags
ITA 122.3

Principal Issues: Whether an individual is eligible for the OETC.

Position: Question of fact.

Reasons: Insufficient information given by the taxpayer to determine eligibility for the OETC. A detailed analysis would be necessary.

Technical Interpretation - Internal

22 July 2011 Internal T.I. 2011-0397191I7 - Article 13 of Canada-Germany Tax Convention

Unedited CRA Tags
Article 13 of the Canada-Germany Income Tax Convention

Principal Issues: An individual resident in Germany disposed of shares of Holdco, a corporation resident in XXXXXXXXXX . Holdco owns two Canadian resident corporations, Canco1 and Canco2. Holdco's shares derive their value principally from immovable property situated in Canada. Is the gain on the disposition of the Holdco shares taxable in Canada by virtue of Article 13(1)?

Position: No. The gain on the disposition of the Holdco shares is taxable only in Germany pursuant to Article 13(6) of the Canada-Germany Tax Convention.

Reasons: Article 13(1) refers to the term "immovable property" as defined in Article 6(2) and that definition does not include shares. In the case of a share disposition, only Article 13(4)(a) can be considered. As Holdco is not resident in Canada, the gains are taxable only in the country of residence of the alienator, pursuant to Article 13(6).