Income Tax Severed Letters - 2012-10-17

Ruling

17 October 2012 Ruling 2010-0376681R3 - Internal reorganization - 55(3)(a)

CRA Tags
55(3)(a)
Summary Under
Tax Topics - Income Tax Act - Section 54 - Adjusted Cost Base
avoidance of ACB averaging

Principal Issues: Internal reorganization.

Position: Favourable rulings issued.

Reasons: In compliance with the law and previous positions.

17 October 2012 Ruling 2011-0428321R3 - qualifying disposition -mutual fund trust

CRA Tags
107.4
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 107.4 - Subsection 107.4(1)

See Summary: Income Tax Act s. 107.4(1)

Principal Issues: 1. will transfer of portion of assets by a certain class of unitholders to a new Pooled fund result in a qualifying disposition?

Position: 1. Yes

Reasons: 1. all conditions are met

2011 Ruling 2010-0374221R3 - XXXXXXXXXX

CRA Tags
ITR 1100
Summary Under
Tax Topics - Income Tax Regulations - Regulation 1100 - Subsection 1100(1) - Paragraph 1100(1)(c)

See Summary: Income Tax Regulations s. 1100

Principal Issues: 1) Whether the cost of the Distribution Licence acquired by the Partnership will be added to the capital cost of the Partnership’s Class 14 assets for the purposes of paragraph 20(1)(a) of the Act and Schedule II to the Regulations. 2) In accordance with the provisions of paragraph 1100(1)(c) of the Regulations, whether the Partnership will be entitled to deduct amounts in respect of the capital cost of the Distribution Licence using a gross income forecast method of depreciation resulting in the apportionment of the cost in accordance with revenue projections over its ten-year term described. 3) Whether the Distribution Licence will be a “leasing property” to the Partnership within the meaning of the term as defined in subsection 1100(17) of the Regulations.

Position: 1) Yes; 2) Fact dependent; and 3) No.

Reasons: 1) Meet the Class 14 definition. 2) we are not able to give an advance income tax ruling that would be binding on the CRA on this issue because our opinion is that such a determination can only be made on an audit basis and will depend on a number of factors, which will include a verification of the Partnership’s gross revenue projections and whether these gross revenue projections have been properly attributed to the appropriate fiscal year of the Partnership. 3) The Partnership will earn revenues from its exploitation of the Distribution Licence.

Technical Interpretation - External

2 October 2012 External T.I. 2012-0448021E5 - Distribution by a non-resident trust

CRA Tags
250.1, 108(3), 104(21), 104(13)
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(13)
income of non-resident trust determined under ITA principles (inclusion of 1/2 capital gains)
Summary Under
Tax Topics - Income Tax Act - Section 250.1 - Paragraph 250.1(b)
only 1/2 of capital gains of NR trust included in income

See Summary: Income Tax Act s. 104(13)

Principal Issues: Is 100% distribution of its gain by a non-resident trust taxable in the hands of a Canadian resident beneficiary?

Position: No.

Reasons: Where the trust is a non-resident trust, the income of the trust, for the purpose of subsection 104(13) of the Act, will be computed according to the provisions of the Act, pursuant to section 250.1. Pursuant to clause 3(b)(i)(A) of the Act, only the taxable portion of the capital gain is considered in computing the income of the trust under Part I of the Act. Accordingly, only the taxable portion of the distribution will be included in the beneficiary's income.

2 October 2012 External T.I. 2012-0446671E5 F - Subsection 78(4)

CRA Tags
78(4)
Summary Under
Tax Topics - Income Tax Act - Section 78 - Subsection 78(4)
s. 78(4) inapplicable where payment made on 180th day

See Summary: Income Tax Act s. 78

Principal Issues: Whether the period in subsection 78(4) is 179 or 180 days?

POSITION ADOPTÉE: 180 days

Raisons: Subsection 78(4) and intent of provision (see Finance's technical notes).

2 October 2012 External T.I. 2012-0455621E5 - post immigration losses

CRA Tags
114, 54, 40(2)(g)(iii), 128.1

Principal Issues: A Canadian resident individual who recently immigrated disposes of a home situated in XXXXXXXXXX which remained vacant following his immigration to Canada. In such case would any loss, otherwise determined, be deemed nil pursuant to subparagraph 40(2)(g)(iii)?

Position: Yes.

Reasons: A property (i.e., a home) which is used primarily for the use and enjoyment of its owner is a "personal use property" within the meaning of section 54; this is so, despite the fact that it remained vacant for a period of time prior to its disposition. A loss on the disposition of personal-use property is deemed to be nil by virtue of subparagraph 40(2)(g)(iii).

23 August 2012 External T.I. 2011-0427181E5 - Computer Software Licence Fee

CRA Tags
212(1)(d)
Summary Under
Tax Topics - Income Tax Act - Section 212 - Subsection 212(1) - Paragraph 212(1)(d) - Subparagraph 212(1)(d)(vi)
distribution right implicated copyright

See Summary - Income Tax Act s. 212(1)(d)(vi)

Principal Issues: Whether a non-resident corporation would be subject to tax in Canada on a bundled “licence fee” payment it receives from a corporation resident in Canada. The “licence fee” can be considered to have the following components:
1. A payment for the right to sublicense the right to download and use the custom computer software by end-users in Canada.
2. A payment for the exclusive right to market and distribute custom computer software in Canada.
3. A payment for ongoing software upgrades and support of the custom computer software through the non-resident corporation's website and telephone lines.

Position: General comments provided

15 August 2012 External T.I. 2012-0443581E5 - Shareholder Loans

CRA Tags
15(2), 80.4(2), 15(2.6)
Summary Under
Tax Topics - Income Tax Act - Section 15 - Subsection 15(2.6)
FIFO presumption; concern re year end straddles

See Summary: Income Tax Act s. 15(2.6)

Principal Issues: What is the meaning of "a series of loans or other transactions and repayments" under subsection 15(2.6)?

Position: A "series" is generally restricted to a repayment shortly before the year-end of the corporation and the same amount, or substantially the same amount, is borrowed shortly thereafter in the immediately following year.

Reasons: CRA policy based in case law.

15 August 2012 External T.I. 2012-0442521E5 - Shareholder Loans

CRA Tags
15(2), 80.4(2), 15(2.6)

Principal Issues: Where an amount is loaned to a shareholder in January 2011 and is repayable to the corporation in five equal payments per year commencing December 31, 2011, and the corporation has a December 31 year-end, how much of the loan must be included in the shareholder’s income under 15(2) for the 2011 taxation year.

Position: The shareholder would have one year from December 31, 2011 (i.e. until December 31, 2012) to make a repayment. Any part of the indebtedness that remains outstanding on January 1, 2013 (in this case the original loan less two payments will be brought into the shareholder’s income under subsection 15(2) in the shareholder’s 2011 taxation year.
It should be noted that, where the indebtedness is not included under subsection 15(2), the shareholder would be subject to a taxable interest benefit calculated under section 80.4(2) for the number of days that the amounts remained owing each year. The interest benefit would be calculated as the amount, if any, by which the interest on the debt computed at the prescribed rate exceeds the amount of the interest actually paid by the shareholder not later than 30 days after the end of the corporation’s taxation year.

Reasons: CRA policy.

Technical Interpretation - Internal

27 August 2012 Internal T.I. 2012-0442831I7 - Audit referral on prepaid rent

CRA Tags
18(9)(a)(ii), 18(1)(b), 18(1)(a), 20(1)(a), ITR 1100(1)(b)
Summary Under
Tax Topics - Income Tax Act - Section 18 - Subsection 18(9)

See Summary: s. 18(9)

Principal Issues: Does subparagraph 18(9)(a)(ii) of the Income Tax Act deny the rental expense deduction of $XXXXXXXXXX?

Position: Perhaps. Dependent on the facts in the lease agreements.

Reasons: It is a question of fact whether or not an expense is a prepaid expense or a period expense.

13 August 2012 Internal T.I. 2012-0453481I7 - Accumulated Profits

Summary Under
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c)
instalment payments of dividend in excess of accumulated profits

See Summary: s. 20(1)(c)

Principal Issues: Where Canco uses borrowed money, commingled with cash on hand, to fund a dividend in excess of its accumulated profits, to what extent may the taxpayer deduct interest on the borrowed money?

Position: Given the facts as we understand them to be, $XXXXXXXXXX of the borrowed money could be traced to the in-direct eligible use of filling the hole.

Reasons: Canco may link a portion of the borrowed money, commingled with cash on hand and used for the purposes of paying a dividend in excess of its accumulated profits, to the eligible use of filling the hole created upon the distribution of its accumulated profits; and where the dividend is paid in instalments, the better view is that each commingled dollar used to reduce the dividend payable would first go to fill the hole created on the declaration of the dividend, followed by the payment of the portion of the dividend in excess of accumulated profits.

10 July 2012 Internal T.I. 2011-0418541I7 - XXXXXXXXXX hedges

CRA Tags
9, 18(1)(a), 38(a), 18(1)(b)
Summary Under
Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Commodities, and commodities futures and derivatives
insufficient linkage between Cdn hedge book and foreign mining subs

See Summary: Income Tax Act, s. 9 - Capital Gain vs. Profit - Commodities, and commodities futures and derivatives

Principal Issues: Should the gains and losses arising on the close out of certain XXXXXXXXXX derivative contracts by this Canadian taxpayer be treated as on account of income or on account of capital for Canadian federal income tax purposes.

Position: On account of income.

Reasons: Generally, unless a derivative contract is a hedge for tax purposes of a capital transaction, the closing out of a derivative contract is on account of income. There is no evidence that the XXXXXXXXXX derivative contracts in this file were hedges for tax purposes of capital transactions.

July 10, 2012

6 July 2012 Internal T.I. 2012-0440741I7 - stock option benefit derived by US resident

CRA Tags
ITR 101, Article XV of the Canada-US Income Tax Convention, ITR 102, ITR 153
Summary Under
Tax Topics - Income Tax Act - Section 115 - Subsection 115(1) - Paragraph 115(1)(a) - Subparagraph 115(1)(a)(i)
Summary Under
Tax Topics - Income Tax Act - Section 153 - Subsection 153(1) - Paragraph 153(1)(a)
employer reimburser of stock option benefit amount subject to withholding obligation
Summary Under
Tax Topics - Treaties - Income Tax Conventions - Article 15
U.S. subs qualifies as payer of (therefore exempt) stock option benefit/domestic v. Treaty method

See Summaries: Treaties - Article 15, ITA - s. 153(1)(a) and ITA s. 115(1)(a)(i).

Principal Issues: 1. Whether a stock option benefit realized by a US resident individual who performs part of his duties in Canada is subject to Canadian tax? 2. Whether, pursuant to paragraph 153(1)(a) of the Act, the non-resident employer of the US resident individual is required to withhold and remit Canadian tax on account of the US resident individual?

Position: 1. Not in this case. 2. Yes, unless a waiver from Canadian tax is obtained pursuant to section 102 of the Regulations. .

Reasons: 1. The stock option benefit is exempt from Canadian tax pursuant to the provisions of Article XV of the Canada-United States Income Tax Convention. 2. Even if pursuant to Article XV of the Treaty, the US resident employee’s remuneration (which includes the stock option benefit in respect of services provided in Canada) is only taxable in the U.S., paragraph 153(1)(a) of the Act and sections 101 and 102 of the Regulations, provide that the employer is required to withhold and remit Canadian tax on account of the US resident employee.

24 April 2012 Internal T.I. 2012-0441141I7 - Effect of A Requirement To Pay on Shareholder Loan

CRA Tags
224(4), 224(1)
Summary Under
Tax Topics - Income Tax Act - Section 224 - Subsection 224(1)
debtor is liable to pay even where no demand for payment has been made

See Summary: s. 224(1)

Principal Issues: Whether a Requirement To Pay could be issued to intercept an amount in respect of a shareholder loan payable to a shareholder indebted under the Act, if the loan has no repayment terms.

Position: Yes.

Reasons: Funds deposited in a corporation’s bank account are construed to be funds belonging to the corporation. In a debtor-creditor relationship, repayment terms of a loan do not have to be expressly stated. The application of subsection 224(1) does not hinge on any formal demand for payment of such a loan.