Income Tax Severed Letters - 2013-04-17


2013 Ruling 2012-0462141R3 - Forgiveness of debt

CRA Tags
80, 53(1)(f.1), 40(2)(e.1), 111(4)

Principal Issues: Supplemental Ruling to 2012-045282

Position: YES

Reasons: Changes are minor.

2012 Ruling 2012-0452821R3 - Forgiveness of debt

CRA Tags
80, 53(1)(f.1), 40(2)(e.1), 111(4)
debt for debt-and-equity exchange structured to reduce s. 80 hit
debt elimination through drop-down, transfer and wind-up

Principal Issues: In a recapitalization of a corporation contemplated by a Plan of Arrangement and the debts forgiven occurs immediately before the acquisition of control 1) is there a settlement of notes? 2) does paragraph 111(4)(d) apply?

Position: YES

Reasons: The New Aco shares will be delivered in satisfaction of the principal amount of the notes and the ordering respects the law and the transaction is very similar to one we previously ruled on.

2012 Ruling 2012-0451431R3 - Loss Consolidation

CRA Tags
40(2)(e.1), 88(1), 85(6), 187.1, 85(1)(e.2), 51.1, 80, 248(1), 12(1)(j), 245(2), 85(1), ITR 1100(2.2), 84(3), 191.1, 85(2.1), 112(1), 69(11), 186(4), 80.01(4), 53(1)(f.1), 187.2, 55(2), 84(3)(a)
ATR-66 elimination of debt to make Lossco solvent; roll-in/distribution out (one-day after roll in) of appreciated depreciables to use its losses
intercompany debt conversion to senior and junior note and elimination of junior note
intercompany debt conversion to senior and junior note and elimination of junior note

Principal Issues: Is the loss utilization arrangement acceptable?

Position: Yes.

Reasons: Within established parameters.

2012 Ruling 2012-0450371R3 - Structured Settlement

CRA Tags

Principal Issues: Will the payments to be received pursuant to the structured settlement agreement be taxable in the claimant's hands under the circumstances described?

Position: No

Reasons: The terms of the structured settlement are consistent with the CRA's position as set out in paragraph 5 of Interpretation Bulletin IT-365R2

2012 Ruling 2011-0426051R3 - Debt Restructuring

CRA Tags
12(1)(z.3), 61.3(1), 40(2)(e.1), 53(1)(f.11), 53(1)(f.1), 245(2), 80(13), 40(3.4), 80.01(4), 80(1)
use of s. 53(1)(f.11) bump on debt shuffle to avoid forgiveness under s. 80.01(4)
ATR-66 debt tuck-under and wind-up transactions

Principal Issues: 1. Will ATR-66 apply to the transfers and settlements of Loan 1 and Loan 2 such that the transferor's losses will be denied, the ACBs of the loans to the transferee will be increased by the transferor's denied losses, and there will be no forgiven amounts on the amalgamation of the transferee and the debtor? 2. Will the settlements of Loan 3 and the accrued and unpaid interest regarding Loan 3 result in forgiven amounts and will the debtor be entitled to a 61.3(1) deduction? 3. Will the creditor's loss on the settlement of Loan 3 including the accrued and unpaid interest thereon be deemed to be nil pursuant to 40(3.4)?

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

Reasons: 1. Requirements of the law are met. 2. The interest payable is deemed to be an obligation having a principal amount and there will be forgiven amounts to the extent the consideration given in settlement of Loan 3 and the accrued and unpaid interest regarding Loan 3 is less than their principal amounts. 3. The proposed transactions do not meet the requirements of subsection 40(3.3).

Technical Interpretation - External

27 March 2013 External T.I. 2012-0449661E5 F - Subparagraph 53(2)(c) ITA

CRA Tags
53(2)(c), 112(3.1), 40(3.4)
effect of ss. 40(3.4) and 112(3.1) on partnership ACB where dividends paid to partnership before share disposition was currently under audit

Principal Issues: What is the impact of the application of subsections 112(3.1) and 40(3.4) on the computation of the partnership interest ACB?

Position: N/A

Reasons: We have been made aware by the Compliance Programs Branch that a transaction similar to the one described in the taxpayer's technical interpretation request was currently under review, as such, no comments were provided. As mentioned in paragraph 22 of IC 70R6, the Rulings Directorate does not give written interpretation to the taxpayers on completed transaction.

25 March 2013 External T.I. 2012-0470501E5 - Manufacturing and processing

CRA Tags
ITR 1102(16.1), ITR 1100(1)(a.1), ITR Schedule II - Class 43, ITR 1100(26), ITR 5201, ITR 1104(9), 3, ITR 1100(1)(t)(a), ITR Schedule II - Class 29, ITR 5200, 125.1(1), ITR 5202

Principal Issues: 1. Does the process of converting water into ice cubes/blocks for sale by the particular taxpayer qualify as manufacturing and processing?
2. If so, would the equipment used for such purpose be eligible for inclusion in class 29/43?

Position: 1. May be. Question of fact and law. 2. Same as above.

Reasons: Mixed question of fact and law

25 March 2013 External T.I. 2012-0447171E5 - Creditor's Group Life Insurance and CDA

CRA Tags
89(1), 148
addition of full death benefit for creditors' insurance

Principal Issues: In the context of creditor's group life insurance policies, whether the death benefit added to the corporate debtor's capital dividend account is reduced by any adjusted cost basis?

Position: In circumstances involving this particular type of "pure" insurance product, the CRA is prepared to accept that the full amount of the death benefit be added to the corporate debtor's capital dividend account, without a reduction by the adjusted cost basis.

Reasons: Characteristics of the type of product described.


9 November 2012 Roundtable, 2012-0465931C6 - CTF Atlantic - Audit Queries

CRA Tags
118.1, 118.2

Principal Issues: Would CRA consider standardizing certain forms, and require that they be remitted electronically by the issuer, to allow for electronic matching and reduced need for post-assessing activities?

Position: The CRA is currently exploring options that will alleviate the burden associated with the submission of supporting documentation. We recently launched a service that allows taxpayers and their authorized representatives to submit supporting documentation electronically in response to various post-assessing review activities associated with the T2 return. This service will be extended to other Agency workloads in the near future including the T1 Processing Review program next spring. We are also looking at ways of extending this functionality in a manner that would allow taxpayers/reps to submit such supporting documentation electronically at the time of filing.

9 November 2012 Roundtable, 2012-0468251C6 - CTF Atlantic - Red Tape Reduction

Principal Issues: What is the Red Tape Reduction Commission?

Position: The Red Tape Reduction Commission (RTRC) was announced by the Government of Canada in January 2011. Its mandate was to identify irritants to small businesses that result from federal government rules and regulations. In January 2012, the RTRC released its final report in which it provided recommendations on how government departments and agencies could address the irritants identified by small businesses on a long-term basis.
The CRA is now holding consultation sessions to gain feedback and information from accountants and bookkeepers, small business owners that do their own books and use electronic services, small business owners that do their own books and don't use electronic tools, and small businesses that have recently been audited.

30 October 2012 Roundtable, 2012-0462881C6 - Ontario CTF ConferenceĀ Ā– October 2012

CRA Tags
Treaties Article IV(6), Treaties Article XXIX-A

Principal Issues: Why isn't the CRA following the outcome of the case: TD Securities (USA) LLC v. The Queen (2010 DTC1137)?

Position: It is the CRA's position that unless Article IV(6) applies and the shareholders of the LLC are either qualifying persons or Article XXIX(3), (4), or (6) apply, a fiscally transparent entity is not entitled to treaty benefits.

Reasons: Interpretation of the law. Consistent with previous written positions and statements made at prior conferences.

30 October 2012 Roundtable, 2012-0462831C6 - Ontario CTF Conference 2012- subsection 164(6)

CRA Tags

Principal Issues: Deductibility of probate and related fees by the estate.

Position: May be.

Reasons: Question of fact.

30 October 2012 Roundtable, 2012-0464011C6 - Red Tape Reduction Commission

Principal Issues: What is the Red Tape Reduction Commission

Position: See response

Reasons: See response

11 June 2012 Roundtable, 2012-0442961C6 - STEP 2012 CRA Roundtable Q7

CRA Tags
111(3)(a)(i.1), 111(8) and 152(4.2)

Principal Issues: Will the CRA allow a capital loss for worthless securities to be claimed by the deceased in the tax return for the year of death or is it possible for the statute barred taxation year to be re-opened for the purpose of carrying back the loss?

Position: It depends on when the loss was incurred.

Reasons: The legislation makes it quite clear what the timeframe is to make a reassessment.

11 January 2012 STEP Roundtable, 2011-0402291C6 - Subsection 248(8)-Intestacy-Transfer of Property

CRA Tags

Principal Issues: Where a taxpayer dies intestate and applicable provincial law specifies the ratio concerning the division of the deceased's assets, does CRA accept such an allocation for purposes of subsection 248(8) of the Act?

Position: In general, yes.

Reasons: Provided property of a deceased taxpayer is distributed to the deceased's beneficiaries in accordance with the proportions specified under applicable provincial intestacy law, and there are no agreements between beneficiaries that in any way alter the proportions of property distributed, the CRA will consider the property to be distributed as a consequence of the death of a taxpayer, in accordance with subsection 248(8) of the Act.

6 May 2012 TEI Roundtable, 2012-0468931C6 - TEI Conference Q#5 Settlement Date

Principal Issues: Does the CRA still consider the settlement date to be the date of disposition of shares for income tax purposes?

Position: Yes

Reasons: A disposition does not take place until the vendor is entitled to the proceeds of disposition (on the settlement date).

30 October 2012 Ontario CTF Roundtable, 2012-0463021C6 - Directorate policy - entity classification

CRA Tags
entity classification rulings: resumed

Principal Issues: Does the Rulings Directorate provide entity classification rulings.

Position: Yes

Reasons: September 2012 shift in policy.

30 October 2012 Ontario CTF Roundtable, 2012-0462901C6 - Waiver or Cancellation of Part XI.01 Taxes Payable

CRA Tags

Principal Issues: What is the process for applying for relief under section 207.06 (waiver or cancellation of taxes payable under Part XI.01)

Position: Taxpayer or their authorized representative should forward a detailed written request to the TFSA Processing Unit (for TFSAs) or the RRSP Return Processing Unit (for RRSPs or RRIFs)

Reasons: See response.

30 October 2012 Ontario CTF Roundtable, 2012-0462891C6 - Application of 56(2) to discretionary trust

CRA Tags
sole trustee as discretionary beneficiary

Principal Issues: Would we apply 56(2) where sole trustee & also beneficiary distributes trust income to other discretionary beneficiaries aside from him/herself

Position: Perhaps

Reasons: Depends on facts..... we would not automatically apply ss 56(2) in all situations...however we have seen several instances where elaborate arrangements are made to divert professional or business income where 56(2) would apply; also McClurg's outcome should be contained to similar situations...involving shares - not transferrable to trust situation where relationship between trustees & beneficiaries are different from those involving directors and shares.

25 September 2012 B.C. CTF Roundtable Q. 10, 2012-0457591C6 - B.C. CTF 2012 - Q.10 US LLC

CRA Tags
Treaties Article XXIX-A, Treaties Article IV
LLC not entitled to Treaty benefits except under IV.6

Principal Issues: Why CRA is not following TD Securities (USA) LLC Tax Court of Canada decision.

Position: It is CRA's position that unless Article IV(6) applies and the shareholders of the LLC are either qualifying persons or Article XXIX(3), (4) or (6) apply, a fiscally transparent entity is not entitled to treaty benefits.

Reasons: Interpretation of the law. Consistent with previous written positions and statements made at other conferences.

Technical Interpretation - Internal

25 March 2013 Internal T.I. 2013-0474111I7 - Amendment to Prior Years' CCA

CRA Tags
15(2), 13(21), 111
reversing CCA claims before acquisition of control

Principal Issues: Whether the CRA should agree to a request by a taxpayer to reduce the amount of CCA claimed and allowed in prior taxation years.

Position: No.

Reasons: To allow the request would be contrary to the specific provisions of section 111 and as well as the overall scheme of the Act.

31 August 2010 Internal T.I. 2009-0350531I7 - Tax Treatment of Signing Bonus

CRA Tags
54, 12(1)(x), 9(1), 56.4

Principal Issues: What is the appropriate tax treatment to be afforded compensation received in respect a "signing bonus" paid by a XXXXXXXXXX company in connection with an agreement which grants an easement and settles related damage claims

Position: The signing bonus constitutes an inducement pursuant to the express terms of the agreement. If the amount were not otherwise taxable under section 9, the signing bonus is taxable under pp. 12(1)(x).

Reasons: The tax treatment of compensation should be determined with reference to the purpose for which the amount was paid