Income Tax Severed Letters - 2012-11-21

Ruling

2012 Ruling 2011-0402571R3 - De Jure Control - Debt Settlement

CRA Tags
111(5), 80.01, 256(7)(b)
Summary Under
Tax Topics - Income Tax Act - Section 251 - Subsection 251(2) - Paragraph 251(2)(b) - Subparagraph 251(2)(b)(i)
no immediate right to elect directors
Summary Under
Tax Topics - Income Tax Act - Section 256 - Subsection 256(7) - Paragraph 256(7)(b)

Summary under s. 251(2)(b).

Principal Issues: (1) Does a person have de jure control of a corporation where its shares only entitle it to elect a minority of the directors but those same shares give it ability, in the future, to elect a majority of the directors? (2) Does GAAR apply on the repayment of a debt of an insolvent predecessor by the amalgamated entity?

Position: (1) Yes, in these circumstances. (2) Not in these circumstances.

Reasons: (1) Consistent with the decision of the SCC in Donald Applicators Ltd. (1969). (2) the repayment of the debt is not against the scheme of the Act.

Ministerial Correspondence

6 October 2011 Ministerial Correspondence 2011-0420371M4 - Application of Bill C-3

CRA Tags
Bill C-3 (Amendment to Indian Act), Bill C-31, Indian Act - 87

Principal Issues: Whether ten year tax refund is available to Indian who is newly entitled to be registered under Bill C-3.

Position: No. Tax refund is only available back to effective date of Bill C-3 (January 31, 2011).

Reasons: Definition of Indian; section 2 of Indian Act. Tax exemption depends on when individual is entitled to be registered. This is consistent with application of tax exemption for Bill C-31 Indians (effective date of April 17, 1985).

Technical Interpretation - External

23 October 2012 External T.I. 2011-0429071E5 - Amalgamation of farming business

CRA Tags
28(1), 76(1), 80.01(3), 80(1)

Principal Issues: Would the amalgamation of Corp A and Corp B result in an income inclusion to Corp A in a situation where Corp A and Corp B each follow the cash basis of accounting, Corp B had issued a promissory note (the “Note”) to Corp A in consideration for a prior acquisition of inventory from a farming business, and the Note, or a portion thereof, was outstanding at the time of amalgamation?

Position: It is a question of fact.

Reasons: On amalgamation of Corp A and Corp B, pursuant to subsection 80.01(3) of the Act, Corp B would be deemed to have paid, and Corp A would be deemed to have received, an amount equal to Corp A’s cost amount of the Note. To the extent that Corp A’s cost amount of the Note is greater than zero, there could be an income inclusion pursuant to subparagraph 28(1)(a)(i) of the Act.

23 October 2012 External T.I. 2012-0433131E5 - NPO - Payments to Members

CRA Tags
149(1)(l)

Principal Issues: Whether a 149(1)(l) entity can pay surplus out to its members.

Position: No.

Reasons: The provisions of 149(1)(l) specifically prohibit payments of income to members.

18 October 2012 External T.I. 2012-0436181E5 - Part IV Tax / Denied Dividend Refund

CRA Tags
186(1), 129(1)
Summary Under
Tax Topics - Income Tax Act - Section 129 - Subsection 129(1)
no requirement that "refund" be received

Principal Issues: Whether a dividend-recipient corporation must pay Part IV tax on a dividend from a connected dividend-payer corporation if the dividend refund is not paid by the Minister to the dividend-payer corporation?

Position: Yes.

Reasons: The Law.

Conference

12 June 2012 Roundtable, 2012-0442891C6 - Questions concerning US revocable trust

CRA Tags
94(3), 75(3)(c.3), 75(2), 94(1)

Principal Issues:
1. Will 75(2) apply to the trust on immigration by the settlor?
2. Will settlor's power to revoke cause trust to be factually Canadian resident?

Position:
1. Application of proposed 75(3)(c.3) explained.
2. The power, in and of itself, and absent additional facts, would not lead to a conclusion of factual residence in Canada.

Reasons:
See document

12 June 2012 Roundtable, 2012-0449801C6 - STEP CRA Roundtable Question 5 - June 2012

CRA Tags
107(2), 40(3.6), 40(3.4), 164(6), 70(5), 40(3.61)

Principal Issues: How would CRA administer subsection 164(6) where a circularity issue arises in applying subsection 40(3.61)?

Position: We recognize that the circularity issue exists on a technical reading of 40(3.6), 40(3.61) and 164(6). Will review on a case-by-case basis.

Reasons: To date, we have never had an actual case referred to our directorate.

12 June 2012 Roundtable, 2012-0442871C6 - STEP CRA Roundtable Question 10 - June 2012

CRA Tags
70(5)

Principal Issues: Disposition of life estate & imminence of death

Position: Comments on valuing a life estate when disposition is deemed by 70(5)

Reasons: FMV of interest depends on the facts

12 June 2012 Roundtable, 2012-0442881C6 - STEP CRA Roundtable Question 11 - June 2012

CRA Tags
104(1), 116(3) and 248(1), 108(1)

Principal Issues: Can CRA comment on how it views the case of Lipson v R (2012 TCC 20)?

Position: Comments provided as to the relevant legislative provisions.

Reasons: The Act provides a logical flow for interpretive purposes of the facts in this case.

12 June 2012 Roundtable, 2012-0442991C6 - 2012 STEP Question 12

  • Principal Issues: General comments regarding the audit of high net worth individuals

Position: CPB provided general comments

12 June 2012 Roundtable, 2012-0449791C6 - STEP CRA Roundtable Question 1 - June 2012

CRA Tags
78(1), 104(13), 104(24), 104(6)

Principal Issues: Would 78(1) apply to amounts payable by a trust to a beneficiary that remain unpaid at the end of the second tax year following the year they were deducted?

Position: No.

Reasons: Not a "deductible outlay or expense" in the context of 78(1)

12 June 2012 Roundtable, 2012-0442951C6 - 2012 STEP Question 3

CRA Tags
248(1), 40(2)(g)(ii), 80

Principal Issues: Will an estate recognize a capital loss on the forgiveness of debt on the death of the testator?

Position: Question of fact as to the nature of the debt; but the creditor may incur a loss on the forgiveness of debt, the loss would be generally subject to the stop loss rules in subparagraph 40(2)(g)(ii)

Reasons: general comments and positions discussed

12 June 2012 Roundtable, 2012-0447551C6 - STEP CRA Roundtable Question 14 - June 2012

CRA Tags
70(2), 56(1)(a)(i)

Principal Issues: Can the executor choose to have the lump-sum amount that was paid to the designated beneficiary in respect of the deceased member of an RPP reported as income on the final return of the deceased?

Position: No. It is not a right or thing.

Reasons: It is clearly brought into income of the recipient pursuant to 56(1)(a)(i).

12 June 2012 Roundtable, 2012-0447571C6 - 2012 STEP Question 16

Principal Issues: Can the CRA provide an update on administrative initiatives of interest?

Position: Three changes will be highlighted with general comments (1) Mickey Sarazin as the new DG, (2) the new Folios project, (3) introduction of the email service

Reasons: General comments provided

12 June 2012 June STEP Roundtable, 2012-0449811C6 - Application of 20(1)(c) if 75(2) applies

CRA Tags
245, 75(2), 20(1)(c)
Summary Under
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c)

Principal Issues: Where subsection 75(2) applies to a situation, will 20(1)(c) apply to allow the person from whom the trust received the property claim a deduction for interest paid or payable?

Position: Generally yes, provided certain conditions are met

Reasons: no change to previous position - but a cautionary note included based on recent interest deductibility cases