Income Tax Severed Letters - 2013-03-06

Ruling

2012 Ruling 2012-0432141R3 - Server as a permanent establishment

CRA Tags
Treaties Article XXIX-A, Treaties Article V
Summary Under
Tax Topics - Treaties - Income Tax Conventions - Article 5
Canadian data centre

Principal Issues: A Canadian company provides data hosting services to a related Non-Resident Company. The Non-Resident places its website on a server in Canada owned by the Canadian. Does the Non-Resident have a permanent establishment in Canada as a result?

Position: No

Reasons: The web-hosting services provided by the Canadian to the Non-Resident would not, in and of themselves, constitute a PE of the Non-Resident.

Technical Interpretation - External

26 February 2013 External T.I. 2012-0464171E5 - Group Sickness and Accident Insurance Plan

CRA Tags
6(1)(f), 6(1)(e.1)

Principal Issues: Whether 6(1)(e.1) applies to an employer's contribution to a group business travel accident insurance plan and a group occupational accident insurance plan.

Position: It is a question of fact but likely yes.

Reasons: Likely applies where the benefits are not payable on a periodic basis and/or the benefits are payable in respect of a sickness or accident when there is no loss of employment income.

21 February 2013 External T.I. 2011-0426041E5 - RRSP and RRIF investments

CRA Tags
207.01(1) "prohibited investment", 146.3(9), 207.05, ITR 4900(12), 146(10.1), ITR 5001, 207.06(2), ITR 4900(14), 207.04(3), ITR 4900(15)

Principal Issues: 1. Whether an investment acquired before March 23, 2011 by an RRSP or RRIF that was a qualified investment because of subsection 4900(12) of the Regulations will continue to retain its qualified investment status under that provision after March 22, 2011. 2. Whether section 5001 of the Regulations can apply to cause such an investment to become a prohibited investment after March 22, 2011. 3. Does the relieving rule in subsection 207.04(3) of the Act apply to an investment acquired before March 23, 2011 that was both a prohibited and non-qualified investment on that date?

Position: 1. Yes. 2. No. 3. No.

Reasons: Application of the law and coming-into-force provisions in Bill C-13.

18 February 2013 External T.I. 2012-0467121E5 - Associated corporations, Debt Forgiveness

CRA Tags
95(1), 256(1)(b)
Summary Under
Tax Topics - Income Tax Act - Section 95 - Subsection 95(1) - Foreign Affiliate

Principal Issues: 1. Whether a foreign corporation and a Canadian corporation that are jointly owned by a husband and wife are associated. 2. Whether the foreign corporation is a foreign affiliate of the Canadian corporation. 3. Application of debt forgiveness rules.

Position: 1. Yes. 2. General comment provided. 3. Possibly.

Reasons: 1. Pursuant to paragraph 256(1)(b)-(c). 2. Question of fact. 3. Question of fact.

19 December 2012 External T.I. 2012-0468511E5 F - GRIP addition for 2006

CRA Tags
249.1(1), 123.4(1), 125(7), 185(4), 89(7)
Summary Under
Tax Topics - Income Tax Act - Section 89 - Subsection 89(7) - Element A
no adjustment made for dividend received from connected CCPC sold over 4 years before 2006

Principal Issues: A corporation (Aco) owns 40% of the shares of the capital stock of another corporation (Bco). Aco is a CCPC. Aco receives a dividend from Bco on January 10, 2001. On January 26, 2001, all of the shares of the capital stock of Bco are acquired by a non-resident. Bco's full rate taxable income for its taxation year beginning on January 1, 2001 and ending on January 25, 2001 is nil. In determining the amount to be included in the GRIP addition for 2006 of Aco, whether the dividend paid by Bco would be described in paragraph (c) of variable A in subsection 89(7).

Position Adoptée: No.

Raisons: It is not reasonable to consider, having regard to all the circumstances, that the dividend was attributable to an amount that is described in paragraph (a), (b) or (c) of variable A in subsection 89(7) in respect of Bco.

5 December 2012 External T.I. 2012-0445891E5 - Contributed Surplus and Thin Capitalization

CRA Tags
18(4)(a)(ii)(B)
Summary Under
Tax Topics - Income Tax Act - Section 18 - Subsection 18(4)
IFRS not followed

Principal Issues: Whether amount purported to be added to corporation's contributed surplus would constitute contributed surplus for the purposes of clause 18(4)(a)(ii)(B).

Position: Unlikely.

Reasons: Does not appear that addition to contributed surplus account would conform to GAAP.

3 December 2012 External T.I. 2012-0457741E5 - Disposition of taxable Canadian property

Summary Under
Tax Topics - Income Tax Act - Section 116 - Subsection 116(1)
continuation amalgamation not a disposition
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Disposition
non s. 87 amalgamation

Principal Issues: Whether a disposition of taxable Canadian property results from the amalgamation of two corporations in a foreign country.

Position: Possibly.

Reasons: To be determined substantially by the legal consequences flowing from the foreign corporate law under which the predecessor corporations are amalgamated.

29 March 2012 External T.I. 2010-0385771E5 - Taxation of an Estate

CRA Tags
116(1), 104(24), 150(1.1)(b)(iii), 104(13), 108(1), 150(5), 212(1)(c), 248(1)
Summary Under
Tax Topics - Income Tax Act - Section 116 - Subsection 116(1)
application to non-resident beneficiary

Principal Issues: 1)Does the executor have any obligation to withhold any portion of the income or capital interest payable to the non-resident beneficiaries on the wind-up of the estate? 2) If so, what percentage must be withheld and how is this accomplished? 3) Does such an obligation exist if the estate retains the income and forwards the beneficiaries the full amount of the bequest? 4) Do the non-resident beneficiaries receive any recognition for the obligation met under the relevant tax treaty?

Position: 1) Yes, if any income is payable to the beneficiaries prior to the wind-up of the estate. 2) Article 21 of the Canada-Poland Tax Convention reduces the 25% rate to 15% where the income is taxable in Poland. The tax must be withheld by the trust and remitted to the Receiver General on behalf of the non-resident along with the NR4 form. 3) The income is taxable in the hands of the trust and the trust must file a T3 tax return for each taxation year. A T1 tax return is not required to be filed by the non-resident beneficiary unless the individual has a taxable capital gain or disposes of taxable Canadian property, otherwise from an excluded disposition. 4) See the answer to question 2.

Technical Interpretation - Internal

31 January 2013 Internal T.I. 2012-0470361I7 - PIA - Non-manufactured goods (ITR 402(4.1))

CRA Tags
ITR 402(4), ITR 402(4.1), ITR 402(3), 124(1)
Summary Under
Tax Topics - Income Tax Regulations - Regulation 402 - Subsection 402(4.1)

Principal Issues: 1. Does subsection 402(4.1) of the Income Tax Regulations apply to shipments of non-manufactured goods?
2. If so, how would gross revenue from such shipments be attributed to the permanent establishment(s)?

Position: 1. Yes, subsection 402(4.1) does apply to non-manufactured goods.
2. The taxpayer would return to the general rule found in subsection 402(3) and reasonably allocate the gross revenue to a permanent establishment.

Reasons: 1. Paragraph 402(4.1)(a) applies to "shipments of merchandise" and does not specify that the merchandise must be manufactured or produced by the corporation.
2. Based on operation of the provisions.

23 January 2013 Internal T.I. 2012-0465081I7 - Subsection 107(2) – a disposition by a NR Trust

CRA Tags
107(2), 116, 248(1) "disposition"
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 107 - Subsection 107(2)

Principal Issues: Does paragraph 107(2)(a) change the timing of the disposition for the purposes of section 116?

Position: No

Reasons: The deeming rule in paragraph 107(2)(a) only determines the proceeds of disposition of the property to the non-resident trust. It does not actually create a separate disposition apart from, or change the timing of, the actual disposition by the non-resident trust to the beneficiary.

17 December 2012 Internal T.I. 2011-0423801I7 - Ontario Transitional Tax Debit/Credit

CRA Tags
ITA 127(9), Ontario Taxation Act 49(1), Ontario Taxation Act 48(6), Ontario Taxation Act 49(7)

Principal Issues: 1.Whether variable "M" in the formula provided in subsection 49(7) can ever be zero or a negative amount. 2. Whether variable "M" is the ITC pool at the end of 2008. 3. Whether the ITCs claimed in 2008 are included in the "adjusted Ontario SR&ED incentive balance".

Position: 1. No 2. No 3. Yes

Reasons: 1. Variable "M" consists of cumulative unexpired ITCs earned at the end of 2008, it is not reduced by ITCs claimed. Variable "M" can not be zero or a negative amount 2. Variable "M" does not represent the ITC pool at the end of 2008 as it is not reduced by ITCs claimed. 3. Variable "M" includes ITCs earned up until the end of 2008, variable "P" generally excludes ITCs claimed in 2007 and prior years, and therefore the ITCs claimed in 2008 are included in the "adjusted Ontario SR&ED incentive balance".