Income Tax Severed Letters - 2012-08-24


2011 Ruling 2011-0392171R3 - XXXXXXXXXX

Unedited CRA Tags
Subsection 111(5) and sections 245 and 80

Principal Issues: Whether losses of a predecessor corporation will be available to offset income from the amalgamated entity's business after an amalgamation and whether certain "debt capitalization" transactions completed in advance of the amalgamation violate the GAAR.

Position: Subsection 111(5) will not apply to prevent the amalgamated entity from using the predecessor's losses after the amalgamation against income from its XXXXXXXXXX business. The GAAR will apply to deny the tax benefit associated with the debt capitalization transaction.

Reasons: The amalgamated entity will carry on the business of its predecessors throughout the year as required by paragraph 111(5)(a) and the income of the amalgamated entity from carrying on its business meets the similarity test in paragraph 111(5)(b). The debt capitalization transactions are essentially the same as transactions that the GAAR committee previously determined resulted in an abuse of section 80.

Ministerial Correspondence

19 June 2012 Ministerial Correspondence 2012-0442681M4 - Deductibility of Golf Entertainment Expenses

Unedited CRA Tags
18(1)(l) and 67.1

Principal Issues: Tax policies relating to the deductibility of entertainment expenses business people make when entertaining their clients at golf clubs.

Position: For policy on meals and beverages we referred to ITTN#12. For the fairness of paragraph 18(1)(l) of the Act allowing other forms of entertaining clients at a golf club as deductible expenses relate to tax policy this is the responsibility of the Department of Finance Canada.

Reasons: See above.

11 June 2012 Ministerial Correspondence 2012-0446521M4 - Capital Improvements to a Rental Property

Unedited CRA Tags
18(1)(a), 18(1)(b) and 20(1)(a)

Principal Issues: Why are capital improvements to a rental property not immediately deductible.

Position: General comments as a matter of tax policy. Taxpayers could ask Finance Canada for change in law.

30 May 2012 Ministerial Correspondence 2012-0442371M4 - Pursuit of Profit vs. Personal Endeavour

Principal Issues: How an activity undertaken for profit is distinguished from a personal endeavour for income tax purposes.

Position: A personal endeavour is an activity primarily undertaken for pleasure, entertainment, or enjoyment rather than for profit, business, or commercial reasons.

Reasons: Court cases.

10 May 2012 Ministerial Correspondence 2012-0439001M4 - Canada-Singapore Tax Treaty

Unedited CRA Tags
2(1), 2(3), Article IV & XIV of the Can-Singapore tax treaty

Principal Issues: Whether you will be subject to Canadian taxation under the Canada-Singapore tax treaty where you are working in Singapore for greater than 183 days in a calendar year.

Position: Question of Fact

Reasons: see below.

24 April 2012 Ministerial Correspondence 2012-0439611M4 F - Crédit pour la condition physique

Unedited CRA Tags
118.03, 118.031

Principales Questions: Est-ce qu'une entité admissible qui offre un programme d'activités physiques visés par règlement est obligé d'émettre un reçu?

Position Adoptée: Non.

Raisons: La LIR n'oblige pas les organismes à remettre un reçu aux particuliers pour une dépense liée à un programme d'activités physiques.

Technical Interpretation - External

9 August 2012 External T.I. 2012-0455341E5 - CEE/CDE incurred by Subsidiary

Unedited CRA Tags
66(12.6); 66(12.601); 66(12.61); 66(15)

Principal Issues: 1. Can a corporation incur CEE/CDE for property it does not own? 2. Can this CEE/CDE be flowed out to its shareholders?

Position: 1. Depends 2. Maybe.

Reasons: 1. Would need to look at the legal arrangements. 2. Related persons can use “back-to-back renunciations”.

31 July 2012 External T.I. 2012-0449871E5 F - Attribution rules - transfer to corporation

Unedited CRA Tags
74.4(2); 74.4(3)

Principales Questions: In a situation where the purpose test set out in subsection 74.4(2) is met with respect to a transfer of property by X, how would be computed the amount to be included in X's income by virtue of subsection 74.4(2) after the transfer of the excluded consideration received by X from the corporation in favour of another corporation controlled by X?

Position Adoptée: General information provided.

Raisons: Wording of the Act.

26 July 2012 External T.I. 2012-0440261E5 F - Crédit d'impôt pour enfants

Unedited CRA Tags
118(1)b.1), 118(9.1)
end-of-year requirement not satisfied when child died in year before attaining 18

Principales Questions: Un contribuable peut-il réclamer le crédit d'impôt pour enfants relativement à un enfant décédé dans l’année au cours de laquelle il aurait atteint l'âge de 18 ans, mais avant d'avoir atteint l'âge de 18 ans?

Position Adoptée: Non.

Raisons: Sous-alinéas 118(1)b.1)(i) et (ii).

6 July 2012 External T.I. 2012-0433841E5 - "Approved" Status

Unedited CRA Tags
37(1)(a)(ii); 37(7); 248(1)

Principal Issues: "Approved" status requested XXXXXXXXXX.

Position: Approval recommended.

Reasons: Information submitted meets the conditions for approval, as set out in Application Policy Paper 96-10 which provides certain requirements to be met in respect of (a) SR&ED, (b) facilities and personnel (c) non-profit status (d) the public as beneficiary and (e) adequate funding for the SR&ED activities. These requirements are described in this letter.

25 June 2012 External T.I. 2012-0446361E5 - Determination of residency Status

Unedited CRA Tags
s. 250

Principal Issues: Whether an individual is a non-resident of Canada.

Position: It is not the policy of the Income Tax Rulings Directorate to comment on the residency of a specific individual for a particular taxation year.

Reasons: General comments provided.

22 June 2012 External T.I. 2011-0416521E5 - Share Options and Taxable Canadian Property

Unedited CRA Tags
ITA: 248(1); former 115(1)(b), 115(3); Article III(2), Article VI(2), and Article XIII(3) of the Treaty.

Principal Issues: Whether the term “share” as described in subparagraph 3(b)(ii) of Article XIII(3) of the Canada-U.S. Tax Convention (1980) includes an option in respect thereof.

Position: No

Reasons: Under the Treaty, real property situated in Canada generally includes a share of the capital stock of a company resident in Canada. However, “a share” is defined under the Treaty to have the same meaning which it has under the Income Tax Act, which does not include an option in a share.

14 June 2012 External T.I. 2012-0443711E5 F - RAP - Annulation de la vente de l'immeuble

Unedited CRA Tags
subsequent court-ordered voiding of home purchase funded with HBP does not affect satisfaction of the HBP conditions
subsequent court-ordered voiding of home purchase did not retroactively void satisfaction of the HBP conditions at home purchase time

Principales Questions: Est-ce qu’un jugement qui prononce l'annulation de la vente de l'habitation admissible acquise dans le cadre du RAP entraîne l'annulation de la participation au RAP?

Position Adoptée: Non

Raisons: L’admissibilité du retrait des fonds d’un REER au RAP est établie en fonction du respect des conditions lors de moments précis. Cette admissibilité n’est généralement pas affectée par la survenance d’événements ultérieurs.

12 June 2012 External T.I. 2012-0432281E5 - Foreign pension plan

Unedited CRA Tags
6(1)(a)(ii), 6(1)(g), 6(1)(i), 56(1)(a), 110(1)(f), 248(28), 248(1) "employee benefit plan", XVIII(10) of Can-US treaty

Principal Issues: What are the Canadian tax implications for a Canadian resident (“Taxpayer”) who works as a full-time employee at a corporation resident in the United States (“US”) and participates in its 401(k) plan?

Position: It is question of fact how a 401(k) plan will be treated under the Act. If there are no employer contributions to a 401(k) plan, the employee contributions will not be deductible under the Act. If there are employer contributions, a 401(k) plan will be considered an EBP.
However, despite this determination, paragraph 10 of Article XVIII of the Canada-US Convention states that all Taxpayer and employer contributions to “qualifying retirement plan” (“QRP”) will be deductible/excludible from the Taxpayer’s income. A 401(k) plan is considered a QRP.
The amount of contributions otherwise allowable as a deduction under paragraph 10 of Article XVIII may not exceed the individual's deduction limit for contributions to registered retirement savings plans (RRSPs) remaining after taking into account the amount of contributions to RRSPs deducted by the individual under the law of Canada for the year. The amount deducted by the individual under paragraph 10 of Article XVIII will be taken into account in computing the individual's deduction limit for subsequent taxation years for contributions to RRSPs.

Reasons: See below.

30 May 2012 External T.I. 2012-0447961E5 - Winding-up-Carryover of Non-Capital Losses

Unedited CRA Tags

Principal Issues: Whether in the circumstances described in two particular situations, the election provided in paragraph 88(1.1)(f) is available to a parent corporation.

Position: Not in the first situation. Yes in the second situation.

Reasons: Wording of the Act.

24 May 2012 External T.I. 2012-0441941E5 - Tax treatment of e-commerce by a sole proprietor

Unedited CRA Tags
2(1), 2(3)

Principal Issues: Whether the internet business of a non-resident individual is subject to tax in Canada?

Position: In general, where a business is a sole proprietorship and not a separate entity such as a corporation, the income of the business is required to be reported by the individual in their country of residence but may also be taxed in the country in which the business is being carried on, subject to the provisions of a tax treaty. Residence of an individual is a question of fact.

Reasons: Sole proprietorship is not a separate entity.

Technical Interpretation - Internal

30 July 2012 Internal T.I. 2012-0436711I7 F - Reassessment beyond the normal reassessment period

Unedited CRA Tags
CRA could reassess beyond normal reassessment period based solely on an ARQ audit report showing error and carelessness of the taxpayer

Principales Questions: Can the Minister issue a notice of reassessment beyond the normal reassessment period based on a Quebec reassessment?

Position Adoptée: Question of fact. Yes if all the conditions are met.

Raisons: Application of the Act to the facts of the situation.

28 May 2012 Internal T.I. 2011-0421441I7 - Travel btwn temp residence and special work site

Unedited CRA Tags
6(1)(b); 6(6)

Principal Issues: Is a transportation allowance paid to an employee working at a special work site, for the purpose of travelling between the work site and the employee’s temporary accommodations, included into income as a taxable benefit under the Act?

Position: Question of fact to be determined on a case-by-case basis; however, travel between an employee’s residence and the place where the employee regularly reports for work is generally considered to be personal travel and not employment-related travel.

Reasons: If an employee works at a special worksite for an extended period of time, it is our view that the special worksite will most likely be that employee’s regular place of employment.

May 28, 2012