Income Tax Severed Letters - 2012-12-05

Ruling

2012 Ruling 2011-0427951R3 - Loss Consolidation

CRA Tags
246(1), 245(2), 56(2), 111(1)(a), 15(1), 111(3)(b), 112, 111(5)(a), 20(1)(c)
Summary Under
Tax Topics - Income Tax Act - Section 111 - Subsection 111(1) - Paragraph 111(1)(a)
loss shift from grandchild to child

Principal Issues: Is the proposed loss consolidation acceptable?

Position: Yes

Reasons: Within established parameters.

2012 Ruling 2012-0437881R3 - Loss Utilization

CRA Tags
112(1), 245(2), 15(1), 20(1)(c), 12(1)(c)
Summary Under
Tax Topics - Income Tax Act - Section 111 - Subsection 111(1) - Paragraph 111(1)(a)
classic triangular loss shift

Principal Issues: Is the loss utilization arrangement acceptable?

Position: Yes.

Reasons: Meets the established positions.

2012 Ruling 2011-0426581R3 - Loss and XXXXXXXXXX tax consolidation

CRA Tags
15, 112(1), 245, 69, 20(1)(c)
Summary Under
Tax Topics - Income Tax Act - Section 111 - Subsection 111(1) - Paragraph 111(1)(a)
loss shift does not detract from principal business
Summary Under
Tax Topics - Income Tax Act - Section 125.4 - Subsection 125.4(1) - Qualified Corporation

Summary under s. 111(1)(a).

Principal Issues: Is the loss and XXXXXXXXXX tax credits utilization arrangement acceptable?

Position: Yes.

Reasons: Meets our published position.

2012 Ruling 2011-0423511R3 - Contingent capital

CRA Tags
20(1)(c)

Principal Issues: Are the Notes which contain XXXXXXXXXX Conversion clause considered debt?

Position: YES

Reasons: XXXXXXXXXX.

Technical Interpretation - External

7 November 2012 External T.I. 2012-0468101E5 - Year End of Inter Vivos Trust on Wind Up

CRA Tags
150(1)(c)
Summary Under
Tax Topics - Income Tax Act - Section 249 - Subsection 249(1)

Summary under s. 249(1).

Principal Issues:
Year end of an inter vivos trust on effectively wound up during the year all assets distributed

Position:
Calendar year end

Reasons:
The Act does not support year-end other than calendar year end

7 November 2012 External T.I. 2012-0437821E5 F - Registered Plan - Advantage

CRA Tags
207.01(1) "swap transaction", 207.0(1) "advantage", 207.01(1) "RRSP strip"
Summary Under
Tax Topics - Income Tax Act - Section 207.01 - Subsection 207.01(1) - Advantage - Paragraph (b)
advantage from swap transaction includes 100% of resulting value increase, income on transferred property and income on income

Principal Issues: Whether the transfer of a share of a credit union can be subject to the advantage rules pursuant to Part XI.01?
POSITION ADOPTÉE: Yes

Raisons: Application of the Law.

2 November 2012 External T.I. 2012-0438961E5 - RRIF payment to a non-resident

CRA Tags
Income Tax Conventions Interpretation Act – Section 5., 146.3(1), Convention between the Government of Canada and the Government of the United Mexican States - Article 17, 212(1)(q)

Principal Issues: Withholding tax applicable to a RRIF payment to a non-resident.

Position: General comments provided.

Reasons: Legislation.

29 October 2012 External T.I. 2012-0440061E5 - Family Farm Corporation

CRA Tags
110.6(1), 70(10), 73(4.1), 110(1.3), 73(4), 110.6(2)

Principal Issues: 1.Whether the shares of a grazing cooperative corporation are shares of capital stock of a family farm corporation.
2. Whether shares of a grazing cooperative can qualify as property used by a corporation, the shares of which are shares of the family-owned corporation.

Position: 1.No. 2. No.

Reasons: See response.

Conference

5 October 2012 Roundtable, 2012-0453131C6 F - Gift by will

CRA Tags
118.1(5)

Principal Issues: Whether a will that provides for a gift to a charity equal to 100,000$ less the amount that has been given by a specific corporation after the death of the testator would be a gift by will for the purpose of subsection 118.1(5)?.
POSITION ADOPTÉE: Maybe.

Raisons: Question of fact and law.

5 October 2012 APFF Roundtable, 2012-0454091C6 F - GRIP and deemed dividend pursuant to 84.1(1)(b)

CRA Tags
89(14), 84.1
Summary Under
Tax Topics - Income Tax Act - Section 89 - Subsection 89(14)
s. 84.1 deemed dividend paid to an individual could be an eligible dividend notwithstanding him not being a shareholder of the payer
Summary Under
Tax Topics - Income Tax Act - Section 84.1 - Subsection 84.1(1) - Paragraph 84.1(1)(b)
unnecessary in s. 89(14) for s. 84.1 to have deemed dividend to be paid on shares

Summary under s. 89(14).

Principal Issues: Where an individual (resident of Canada) is deemed to have received a dividend from a corporation (resident in Canada) after 2005 under paragraph 84.1(1)(b) of the Act, whether such dividend can be designated as an "eligible dividend" pursuant to subsection 89(14) even if the individual does not hold any shares of the capital stock of the corporation.
POSITION ADOPTÉE: Yes.

Raisons: Subsection 89(14) and the definition of "eligible dividend" in subsection 89(1) do not refer to dividends paid (or received, as the case may be) "to a shareholder of any class of shares of its capital stock" as provided in subsection 83(2) nor to a dividend paid "on shares of its capital stock" as provided in subsection 129(1). The wording used in the "eligible dividend" provisions is different. Therefore, to be an "eligible dividend" as defined in subsection 89(1) and pursuant to the designation provided for in subsection 89(14), the individual does not have to be a shareholder of any class of shares of the capital stock of the corporation and the deemed dividend paid or received pursuant to paragraph 84.1(1)(b) does not have to be paid by the corporation on shares of its capital stock.

5 October 2012 APFF Roundtable Q. 13, 2012-0454181C6 F - Discretionary Dividend Shares

CRA Tags
15(1), 245(2), 110.6(7)
Summary Under
Tax Topics - Income Tax Act - Section 15 - Subsection 15(1)
discretionary dividend shares issued for nominal consideration
Summary Under
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4)
general policy against conferring a benefit on a corporation
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 110.6 - Subsection 110.6(7) - Paragraph 110.6(7)(b)
acquisition by Holdco of discretionary dividend shares of Opco at undervalue could engage s. 110.6(7) application to Opco commons

Principal Issues: Whether the issuance by an operating corporation of discretionary dividend shares of its capital stock to a holding corporation for nominal consideration, as part of an asset protection plan, would be subject to any anti-avoidance provisions of the Act or would be acceptable in terms of tax policy?
POSITION ADOPTÉE: General comments provided.

Raisons: Question of fact.

5 October 2012 APFF Roundtable Q. 17, 2012-0454111C6 F - Power of attorney and acquisition of control

CRA Tags
251(5)b), 256(7), 256(1.4)
Summary Under
Tax Topics - Income Tax Act - Section 251.2 - Subsection 251.2(2) - Paragraph 251.2(2)(a)
power of attorney in event of capacity is an external document which, when judically approved, does not effect a change of control

Summary under s. 249(4).

Principal Issues: Whether there is an acquisition of control of a corporation for income tax purposes in the event of the homologation of the mandate given in anticipation of the mandator's incapacity where the mandator is the sole shareholder of the corporation.
POSITION ADOPTÉE: No.

Raisons: The ownership of the shares with the right to a majority of the votes in the election of the board of directors remains with the mandator. Moreover, the mandate given in anticipation of the mandator's incapacity should not be considered as an "external document" (i.e. agreements that are not constating documents of a corporation) that should be examined to determine de jure control of a corporation.

Technical Interpretation - Internal

18 July 2012 Internal T.I. 2012-0440681I7 - Distributions from deemed RCA; withhold & report

CRA Tags
153(1)(q), 207.6(5), (5.1)

Principal Issues: Is the custodian of a foreign pension plan, part of which is a residents' arrangement deemed to be an RCA under the Act, required to file T4A-RCAs when paying distributions out of the deemed RCA?

Position: Yes.

Reasons: The deemed RCA is subject to the rules applicable to RCAs under the Act, including paragraph 153(1)(q) of the Act and subsection 200(1) of the Regulations.

July 18, 2012