Income Tax Severed Letters - 2012-04-13

Ruling

13 April 2012 Ruling 2012-0440191R3 - limited partnership financing arrangement

Unedited CRA Tags

96(2.2), 237.1

Principal Issues: Rulings request on application of subsection 96(2.2)

Position: No ruling issued.

Reasons: Policy is to no longer rule on such arrangements due to uncertainties.

2012 Ruling 2011-0416821R3 - Article XII of Canada-US Tax Convention

Unedited CRA Tags

212(1)(d); Article XII - Canada-US Treaty

Summary Under

Tax Topics - Treaties - Income Tax Conventions - Article 12

sales-related payments for designs needed to manufacture a product exempted under 3(c) of the Canada-US Treaty

Principal Issues: Whether certain payments from a Canadian payor to an arm's length US corporation are in respect of a franchise

Position: No

Reasons: This was a factual determination

Technical Interpretation - External

3 April 2012 External T.I. 2011-0422971E5 - Active business income

Unedited CRA Tags

9, 12(1)(g), 125(7), 248(1)

Principal Issues: Whether the taxpayer's income under Renewable Biomass Energy Program of Ontario would qualify as active business income.

Position: Depends on the facts of the case.

Reasons: Question of mixed fact and law

29 March 2012 External T.I. 2011-0427821E5 F - Biens agricoles admissibles

Unedited CRA Tags

110.6(1); 110.6(1.3); 110.6(2); 69; 30

Summary Under

Tax Topics - Income Tax Act - Section 30

s. 30 expenses can be claimed by farming lessee or carried forward

Summary Under

Tax Topics - Income Tax Act - 101-110 - Section 110.6 - Subsection 110.6(1) - Interest in a Family Farm or Fishing Partnership

potential qualification where farm property of partnership is leased to farming corp. with same family owners

Principales Questions: 1. Quel sera le traitement fiscal des dépenses engagées par une société qui exploite une entreprise agricole sur un terrain loué et utilisant des bâtiments loués?
2. Quelles seront les conséquences fiscales pour le locateur lorsque ce dernier disposera du terrain et des bâtiments?
3. Les associés de la société de personnes à qui appartiennent le terrain et les bâtiments pourront-ils réclamer la déduction pour gains en capital?

Position Adoptée: 1. Ces dépenses pourront être déduites conformément à l'article 30 de la LIR.
2. Gain en capital pour le locateur, basé sur la JVM du terrain et des bâtiments.
3. Oui, dans la mesure où le terrain et les bâtiments sont des biens agricoles admissibles.

Raisons: Loi de l'impôt sur le revenu.

29 March 2012 External T.I. 2011-0415641E5 - Mortgage Investment Corporation

Unedited CRA Tags

130.1(6)

Summary Under

Tax Topics - Income Tax Act - Section 130.1 - Subsection 130.1(6)

offshore real estate investments contrary to policy

Principal Issues: Would a corporation's status as a "mortgage investment corporation" be affected if the corporation invests in a limited partnership or trust that holds property that would otherwise not be permitted to be held by a mortgage investment corporation.

Position: General comments provided.

Reasons: Consistent with previous opinions, the determination is a question of fact.

29 March 2012 External T.I. 2011-0403161E5 - Meaning of "shareholder" in 130.1(6)(d)

Unedited CRA Tags

130.1(6); 130.1(7); 104(2)

Summary Under

Tax Topics - Income Tax Act - Section 130.1 - Subsection 130.1(6)

individual and RRSP counted separately

Summary Under

Tax Topics - Income Tax Regulations - Regulation 4801 - Paragraph 4801(a)

RRSP is separate unitholder

Principal Issues: Whether the same person having shares in their own name, in a RRSP under their own name, and in a TFSA under their own name counts as 3 shareholders for the purposes of the MIC definition in 130.1(6)?

Position: Subject to 104(2), yes. However the prohibited investment tax and advantage tax rules may apply to investments and earnings in the RRSP and the TFSA.

Reasons: 130.1(6); 207.01(1) "advantage" and "prohibited investment"

26 March 2012 External T.I. 2012-0440441E5 F - Déduction accordée aux petites entreprises

Unedited CRA Tags

125(7); 125(1); 125(1.1)

Summary Under

Tax Topics - Income Tax Act - Section 125 - Subsection 125(1)

trite SBD overview

Principales Questions: Est-ce qu'une société par action peut bénéficier du taux d'imposition fédéral de 11%, c'est-à-dire celui applicable aux SPCC tirant un revenu d'une entreprise exploitée activement qui bénéficient de la déduction accordée aux petites entreprises?

Position Adoptée: Question de fait.

Raisons: Nous avons repris les grands principes qui se trouvent dans la Loi.

23 March 2012 External T.I. 2012-0439171E5 - Test Wind Turbines

Unedited CRA Tags

1219(3)

Principal Issues: Whether each of XXXXXXXXXX proposed wind turbines will qualify as a test wind turbine within the meaning of subsection 1219(3) of the Regulations.

Position: Yes, provided that the facts and representations relating to the project remain as stated.

Reasons: Satisfies the criteria in the Regulations and a favourable opinion from NRCan.

20 March 2012 External T.I. 2011-0407071E5 - Reporting Requirements for Services Contract

Unedited CRA Tags

56(1)(u), 81(1)(h), 153(1)(g), 233(1), 251(2)(a)

Principal Issues: Is a T4A slip required to be issued for amounts paid under a service contract to care for a disabled adult

Position: Question of Fact

Reasons: Where the income is exempt under 81(1)(h), no reporting requirement. Where 56(1)(u) applies, payer is required to file form T5007. Where the amount is considered income from a business, payer is required to issue a T4A slip.

20 March 2012 External T.I. 2011-0418701E5 - Social Assistance Payments

Unedited CRA Tags

ITA 56(1)(u), 110(1)(f), Income Tax Regulations 233(1) & 233(2)

Principal Issues: 1. Is the recipient of assistance required to include an amount received in net income on his/her income tax return?
2. Is the payer required to issue a T5007 slip to each recipient of assistance from a designated fund?

Position: 1. Yes to the extent that a payment is a social assistance payment and is made on the basis of a means, needs or income test.
2. It is a question of fact.

Reasons: Paragraph 56(1)(u)

19 March 2012 External T.I. 2011-0402091E5 - tuition education and textbook tax credit

Unedited CRA Tags

118.6

Principal Issues: 1. What additional claim or benefit, beyond the costs incurred, does full-time or part-time status provide to the individual that is enrolled at a flight training school?
2. What constitutes course instruction in a flight training school? Does it include ground school and ground briefing?

Position: 1. The individual may be able to claim the education and post-secondary textbook tax credit if certain conditions are met. 2.Course instruction includes the hours spent on the dual and solo flying hours required to obtain the licence or rating, to the minimum flight training requirements of Transport Canada set out in paragraph 29 of IT-516R2 and hours spent in ground school, ground briefings and flight simulators that are part of the licence or rating program.

Reasons: The legislation.

19 March 2012 External T.I. 2011-0404311E5 - child care expenses

Unedited CRA Tags

Principal Issues: Are payments that have been made to hold a day care position during a maternity leave of absence from employment deductible under subsection 63(1) of the Income Tax Act?

Position: Assuming all other conditions to qualify as a child care expense are met, with respect to child care payments being made during a taxpayer's temporary leave of absence from employment, fees paid to maintain a place in a day nursery or to ensure babysitting services would qualify as a child care expense where the taxpayer remained employed during the temporary leave of absence and the payments were made with the eventual aim of enabling the taxpayer to return to work with the same employer.

Reasons: The purpose test in section 63 of the ITA would not require that the child care expense be incurred at the same time as the resumption of the activity carried on before the temporary leave of absence.

Conference

6 December 2011 Roundtable, 2011-0427231C6 - 2011 TEI-CRA Liaison Meeting: Qu. 1

Principal Issues: Question 1 of this meeting follows up on questions raised in prior years, including issues relating to international tax forms simplification, the Advisory Panel on Canada's System of International Taxation, partnership returns and My Business Account.

Position: See Response.

6 December 2011 Roundtable, 2011-0427241C6 - 2011 TEI-CRA Liaison Meeting - Qu.2

Principal Issues: Efile and Form T106
1. Will CRA consider expanding the EFILE process to include Form T106 in order to eliminate the separate paper filing requirement? If so, when might the system be updated to permit this?
2. Will the EFILE process be expanded to facilitate electronic filing of other forms, such as Forms T1134A, T1134B, and T5013? Is there a timetable for facilitating electronic filing of such forms and eliminating paper filing?
3. Will CRA update the filing instructions on its website to clarify and confirm that Form T106 must be filed on paper even where EFILE is employed?

Position: See Response.

6 December 2011 Roundtable, 2011-0427251C6 - 2011 TEI-CRA Liaison Meeting Qu. 3

Principal Issues: How should taxpayers obtain details underlying a Part XIII tax reassessment?

Position: See Response.

6 December 2011 Roundtable, 2011-0427091C6 - TEI - Dec 6, 2011 - Qu 13. Publications

Principal Issues: Can CRA provide a status report on its ongoing efforts to update its Interpretation Bulletins (ITs) and Information Circulars (ICs)? Has CRA developed a priority list of critical and high priority updates and can it share the list?

Position: Yes, see response.

6 December 2011 Roundtable, 2011-0427271C6 - 2011 TEI-CRA Liaison Meeting: Qu 7

Principal Issues: Risk Based Audit Approach
i) Will CRA disclose the criteria used in evaluating the risk of a particular taxpayer, and if so, supply that information to the taxpayer?
ii) Will CRA identify which of its personnel are involved in a particular taxpayer's risk evaluation? When will taxpayers be informed of the identity of all CRA individuals making the risk-assessment?
iii) Will CRA share the outcome of the risk-based evaluation with specific taxpayers?
iv) Is CRA implementing a process to ensure consistent application of its criteria across all large business audit teams, TSOs, and, to the extent they are involved, Headquarters personnel?
v) Will CRA conduct a post-evaluation review of the consistency of the application of the criteria for its program?
vi) Is CRA considering any steps to improve the transparency of the program to taxpayers?

Position: See response.

6 December 2011 Roundtable, 2011-0427301C6 - 2011 TEI-CRA Liaison Meeting: Qu.11

Summary Under

Tax Topics - Income Tax Act - Section 247 - New - Subsection 247(2)

Principal Issues: Transfer Pricing
a) Would CRA be willing to apply the approach (or results) achieved in a negotiated Competent Authority agreement between treaty countries to all identical transactions, even for transactions with non-treaty countries?
b) Would CRA develop audit guidelines to ensure the efficient use of limited taxpayer resources and curb the issuance of overboard Information Requests? Will CRA consider staffing the Competent Authority proceeding with an economist who is independent from the audit team?
c) Would CRA consider deferring its reassessment of the Part XIII amounts until the underlying transfer pricing issue has been resolved? Alternatively, would CRA consider applying collection rules similar to subsection 225.1(7) to Part XIII tax so that the amount of Part XIII payable by a taxpayer during the pendency of an Appeal or Competent Authority proceedings is limited to 50% of the tax amount?

Position: See response.

6 December 2011 Roundtable, 2011-0427281C6 - 2011 TEI-CRA Liaison Meeting - Qu. 9

Principal Issues: Advance Deposit Accounts
a) Would CRA please clarify the procedure for transfers of advance deposits to payroll accounts?
b) Would CRA reconsider its administrative requirement that taxpayers allocate prepayments to specific tax years, revert to its prior process of holding taxpayer funds in an undesignated account as of the effective interest date, and apply the funds when and as reassessments are made?
c) Would CRA confirm whether transfers are permitted among related parties in a corporate group? In addition, would CRA confirm that the transfers are permitted between corporate entities and partnership entities?
d) Where there is no credit or collection risk (e.g., in respect of large corporate groups), would CRA consider instituting a process check to cease automatic transfers to settle offsetting tax liabilities of large corporations?

Position: See Response.

6 December 2011 TEI Roundtable Q. 5, 2011-0427001C6 - 2011 TEI Q#5 - Distributions from Foreign Corp.

Unedited CRA Tags

12(1)(k); 15(1); 53(2)(b)(ii); 90; 90(2); 90(3)

Summary Under

Tax Topics - Income Tax Act - Section 15 - Subsection 15(1)

share premium

Summary Under

Tax Topics - Income Tax Act - Section 90 - Subsection 90(3)

2-step approach

Principal Issues: How to characterize a distribution from a foreign corporation for Canadian tax purposes

Position: The same two-step approach as set out in ITTN #38 will be used

Reasons: Recent case law

6 December 2011 TEI-CRA Liason Meeting Roundtable Q. 4, 2011-0426981C6 - Functional Currency Reporting

Unedited CRA Tags

261(20), 261(21)

Summary Under

Tax Topics - Income Tax Act - Section 261 - Subsection 261(20)

Principal Issues: Whether subsection 261 applies to a transaction involving the repayment of a Canadian dollar loan owed by subsidiary using US dollar tax reporting currency to parent company using Canadian dollar tax reporting currency.

Position: Yes.

Reasons: Based on the example described in the November 2008 Explanatory Notes, the arrangement meets the conditions outlined in subsection 261(20).

6 December 2011 TEI-CRA Liason Meeting Roundtable Q. 6, 2011-0427261C6 - 2011 TEI-CRA Liaison Meeting: Qu. 6

Summary Under

Tax Topics - Income Tax Act - Section 247 - New - Subsection 247(2)

Principal Issues: Advance Pricing Agreement Program
Has there been a change in CRA's policy on the availability of the Advance Pricing Agreement Program or changes in the criteria for acceptance into the program?

Position: See response.

6 December 2011 TEI-CRA Liason Meeting Roundtable Q. 10, 2011-0427291C6 - 2011 TEI-CRA Liaison Meeting: Qu. 10

Summary Under

Tax Topics - Income Tax Act - Section 247 - New - Subsection 247(2)

Principal Issues: Transfer Pricing
Would CRA consider working with the IRS to develop a coordinated approach to transfer pricing audits that minimizes transfer pricing reassessments based on differing assumptions, especially where the taxpayer has not attempted to use transfer pricing to reduce its overall tax liabilities and has fully documented its analysis in establishing arm's length pricing with its U.S. entities?

Position: See response.

6 December 2011 TEI-CRA Liason Meeting Roundtable Q. 12, 2011-0427311C6 - 2011 TEI-CRA Liaison Meeting: Qu.12

Summary Under

Tax Topics - Income Tax Act - Section 247 - New - Subsection 247(2)

Principal Issues: 2010 OECD Transfer Pricing Guidelines
a) What is CRA's view of the 2010 Transfer Pricing Guidelines (TPG) with its de-emphasis of the hierarchy of methods vis-a-vis the stricter approach of the 1995 guidelines? Does CRA accept the 2010 TPG's de-emphasis of the hierarchy of methods?
b) What is CRA's view about using data segmentation approach for the tested party? Does CRA accept that data segmentation is more appropriate when available?
c) What is CRA's view about the use of statistical tools to enhance the reliability of a comparability analysis?
d) Does CRA subscribe fully to the 2010 version of the TPG or does CRA object to or have reservations about any of the guidelines or commentary in the 2010 TPG? What is CRA's position in respect of the guidelines or commentary to which it objects or has reservations about applying?

Position: See response.

Technical Interpretation - Internal

22 March 2012 Internal T.I. 2011-0412051I7 - Application of Subsection 149(5)

Unedited CRA Tags

149(1)(l); 149(5)

Principal Issues: Was the main purpose of the Corporation to provide dining, recreational or sporting facilities to its members such that subsection 149(5) applied to the Corporation?

Position: Likely, yes.

Reasons: Facts.

19 March 2012 Internal T.I. 2011-0430791I7 - education tax credit and scholarship exemption

Unedited CRA Tags

56(1)(n), 56(3), 118.6

Principal Issues: Is a teacher that is studying at a XXXXXXXXXX College entitled to the education tax credit and the scholarship exemption?

Position: It depends on the facts.

Reasons: A teacher that is enrolled at a HRSDC-certified institution must be enrolled in the course(s) for the purpose of gaining or improving skills in an occupation and either as a full-time student in qualifying educational program or as a part-time student in a specified educational program to qualify for the education tax credit. If the amount received by the teacher from the HRSDC-certified institution is a scholarship the teacher should be allowed the scholarship exemption in accordance with subsection 56(3) of the Act.

1 March 2012 Internal T.I. 2012-0437901I7 F - Timing of the adjustments pursuant to 111(5)

Unedited CRA Tags

111(1)(a); 111(5)

Summary Under

Tax Topics - Income Tax Act - Section 111 - Subsection 111(5) - Paragraph 111(5)(a)

acquisition of control of target does not reduce its NCLs at that time – streaming rules apply prospectively

Principales Questions: Whether the CRA should assess a corporation the control of which was acquired by another corporation (or the amalgamated corporation, as the case may be) in the taxation year that includes the time of the acquisition of control in order to reduce the non-capital loss of the acquired corporation (for the taxation year ending before the acquisition of control) if the acquired corporation (or the amalgamated corporation, as the case may be) does not deduct any part of the non-capital loss in that taxation year.

Position Adoptée: No. If the non-capital loss is not deductible in computing the taxable income of the corporation for a taxation year ending after the acquisition of control pursuant to subsection 111(5) and if part of the non-capital loss has effectively been deducted from its taxable income in that year, the CRA should assess the taxation year in which the deduction has been claimed, assuming that such taxation year is not statute-barred.

Raisons:Wording of the Act.