Income Tax Severed Letters - 2013-05-15


2012 Ruling 2012-0464501R3 - Post-mortem planning

CRA Tags
84.1, 245(2), 84(2)

Principal Issues: Post-mortem pipeline planning.

Position: Favourable rulings provided except for the application of section 84.1 with respect to the transfer of the Class A shares of the capital stock held by the Estate (dividend corresponding to the V-day value of the shares for which the Class A shares were substituted).

Reasons: In accordance with the provisions of the Act and our previous positions.

Technical Interpretation - External

5 April 2013 External T.I. 2012-0471151E5 F - Binding Agreement

CRA Tags
Quebec Civil Code 1451, Quebec Civil Code 1452
side letter would not reduce owner’s entitlement to rents from property if not entered into at same time as property acquisition
counter letter payments non-deductible because Quebec counter letter entered into after apparent letter

Principales Questions: In a particular situation, a corporation (hereinafter "Opco") is the sole owner of a building. However, an agreement provides that net rental income and the proceeds to be received from a future sale of the property have to be split between Opco and an unrelated individual in the proportion of 60% and 40% respectively. Whether, in the particular situation, the CRA would accept to apply the terms of the agreement.

Position Adoptée: No. Agreement would not qualify as a counter-letter.

Raisons: Agreement not concluded at the time of the apparent contract or before.

2 April 2013 External T.I. 2013-0478221E5 F - CIAPH - acquisition pour une somme nominale

CRA Tags
purchase for nominal consideration still generates the credit

Principales Questions: Est-ce qu'un contribuable peut demander le CIAPH lorsque ce dernier achète une habitation pour la somme d'un dollar?
Whether a taxpayer is eligible to the HBTC when he bought a dwelling for an amount of one dollar?

Position Adoptée: Oui sous réserve de respecter toutes les autres conditions du CIAPH.
Yes, if all other conditions of the HBTC are met.

Raisons: Acquérir une habitation pour la somme d'un dollar est une acquisition aux fins du CIAPH. Utilisation du terme acquisition dans la LIR.
A dwelling acquired for an amount of one dollar is an acquisition for the purpose of the HBTC. Use of the term acquisition in the ITA.

28 March 2013 External T.I. 2012-0460481E5 F - Allocation pour usage d'un véhicule à moteur

CRA Tags
8(1)(h.1), 6(1)(b)(x), 6(1)(b)(vii.1)
fixed allowance of $4.60 for each trip under 10 kilometres deemed unreasonable

Principales Questions: Lorsqu'un employé utilise son automobile pour faire des commissions pour son employeur, une allocation fixe de 4,60 $ par déplacement de moins de 10 kilomètres constituerait-elle un avantage imposable pour l'employé? [TRANSLATION] When an employee uses their own automobile to run errands for their employer, would a fixed allowance of $4.60 per trip under 10 kilometres constitute a taxable benefit for the employee?

Position Adoptée: Oui. [TRANSLATION] Yes.

Raisons: En raison de l'application du sous-alinéa 6(1)b)(x), l'allocation est réputée ne pas être raisonnable puisqu'elle n'est pas calculée uniquement en fonction du nombre de kilomètres parcourus par l'employé dans l'accomplissement des fonctions de sa charge ou de son emploi. Ainsi, le caractère non raisonnable de l'allocation ferait en sorte que celle-ci ne ferait pas partie des exceptions aux sous-alinéas 6(1)b)(v), (vi) ou (vii.1). L'allocation devrait donc être incluse dans le calcul du revenu de l'employé en vertu de l'alinéa 6(1)b). [TRANSLATION] Given the application of subparagraph 6(1)(b)(x), the allowance is deemed not to be reasonable since it is not solely based on the number of kilometres that the employee travels in the course of their office or employment. Accordingly, the non-reasonable nature of the allowance precludes it from being part of the exceptions under subparagraphs 6(1)(b)(v), (vi) or (vii.1). As such, the allowance must be included in computing the employee's income under paragraph 6(1)(b).

28 March 2013 External T.I. 2012-0460031E5 F - Prime pour partager chambre à deux

CRA Tags
allowance paid by 3rd-party customer to employees re double-occupancy rooms was taxable
T4As to be issued by employer for allowance paid by 3rd-party customer to employees

Principales Questions: La prime octroyée par un client de l'employeur aux employés de ce dernier qui acceptent de partager une chambre à deux sur le chantier de travail nordique où l'hébergement est fourni gratuitement par le client, est-elle un avantage imposable pour les employés? [TRANSLATION] Does an allowance constitute a taxable benefit when it is granted by an employer's client to the employer's employees who accept to share a double occupancy room in a northern work site where accommodation is provided free of charge by the client?

Position Adoptée: Question de fait, mais possiblement que oui. [TRANSLATION] Question of fact, but possibly yes.

Raisons: La portée d'application très large de l'alinéa 6(1)a). [TRANSLATION] The broad scope of application of paragraph 6(1)(a).

19 March 2013 External T.I. 2012-0444001E5 F - Dépenses d'adoption lors de démarches abandonnées

CRA Tags
expenses must be incurred in relation to successfully-adopted child

Principales Questions: 1.Dans une situation donnée, un contribuable peut-il demander à titre de dépenses d'adoption admissibles les dépenses qu'il a engagées pour adopter un enfant du pays A, sachant qu'il a fini par adopter un enfant du pays B? 2. Dans une situation donnée, un contribuable peut-il demander à titre de dépenses d'adoption admissibles les dépenses qu'il a engagées pour adopter un enfant du pays 1 et du Pays 2? [Translation]: 1. In a given situation, can a taxpayer claim as eligible adoption expenses the fees that they incurred to adopt a child from country A, knowing that the taxpayer ends-up adopting a child from country B? 2. In a given situation, can a taxpayer claim as eligible adoption expenses the fees that they incurred to adopt a child from country 1 and country 2?

Position Adoptée: 1. Non. 2. Non. [Translation]: 1. No . 2. No.

Raisons: 1. Pourvu que toutes les conditions à l'article 118.01 soient respectées, seules les dépenses d'adoption qui se rapportent à l'enfant adopté sont admissibles. 2. Par définition, les dépenses d'adoption doivent se rapporter à un enfant admissible pour qu'elles soient elles-mêmes admissibles. [Translation]: 1. Provided that all the conditions in section 118.01 are met, only those adoption expenses that are incurred with respect to the adopted child are eligible. 2. By definition, adoption expenses must be in respect of an eligible child in order for them to be eligible.

11 March 2013 External T.I. 2012-0469231E5 F - Deferred terminal loss

CRA Tags
13(21.2), 13(21.1)
notional properties fall in same class so that losses suspended until triggering events for all properties/ordering of dispositions to affiliated and unaffiliated transferees generally not relevant
s. 13(21.1)(a) adjusts the proceeds as determined under s. 85

Principales Questions: 1. Where subsection 13(21.2) applied with respect to the transfer of many properties held in the same prescribed class, whether a terminal loss will be recognized each time a "notional property" is deemed to cease being owned by the taxpayer according to clauses 13(21.2)(e)(iii)(A) to (E) or whether the terminal loss will only be recognized when all the "notional properties" are deemed to cease being owned by the taxpayer according to those clauses.
2. Where there are two transfers of properties of the same class in the same day, whether an ordering of the disposition is available.
3. Whether subsection 13(21.1) applies where the contiguous land is transferred to a corporation using the rules provided for in section 85.

Position Adoptée: 1. The terminal loss will be recognized only if, at the end of the taxation year, there is no property in the particular class (therefore, not before all the notional properties are deemed to cease being owned by the taxpayer according to subparagraph 13(21.2)(e)(iii)).
2. Where the transfers are not done at the same time, the actual timing of the transfers would be important. However, when the transfers are done at the same time, an ordering is available pursuant to subsection 13(21.2)(e)(ii).
3. Yes.

Raisons: 1. Subsection 20(16). Subparagraph 13(21.2)(e)(iii) does not provide for a separate class for each notional property.
2. The proportion described in subparagraph 13(21.2)(b)(ii) is computed considering the situation immediately before the disposition of the property.

4 March 2013 External T.I. 2012-0447371E5 - Payments made by a Union

CRA Tags
6(1)(a), 3, 85, 8(1)(i)

Principal Issues: Is an employee in receipt of a taxable benefit where the employee's union reimburses the employer for the employee's share of premiums for various group benefit plans during the period of time when the employee is not working due to illness?

Position: Question of fact, but likely no.

Reasons: Based on the principles of the Fries case, the amounts received from the union are not income from a source and are consequently not taxable under the Act. However, a portion of the union dues paid may not be deductible by the employee pursuant to subparagraph 8(1)(i) and subsection 8(5) of the Act.

13 February 2013 External T.I. 2011-0430921E5 F - S. 261 - Loss carry-back & loss carry-forward

CRA Tags
261(5), 261(2), 261(3), 261(15), 261, 261(12), 261(7)
conversion to U.S. dollar and back again changed non-capital losses
carryback of non-capital loss following revocation of functional currency election to functional currency year

Principales Questions: 1) How does section 261 apply with respect to loss incurred in a Canadian currency year and carried forward in a reversionary year? 2) How does section 261 apply with respect to a loss incurred in a reversionary year of a taxpayer and carried-back in a Canadian currency year?

Position Adoptée: 1) The losses available for carry-forward at the end of the last Canadian currency year must be converted in functional currency using the applicable exchange rate on the last day of this last Canadian currency year, and converted back in Canadian currency using the exchange rate applicable on the last day of the last functional currency year of the taxpayer. 2) A similar double conversion must be made. Losses available for carry back at the beginning of the first reversionary year must be converted in functional currency using the exchange rate applicable on the last day of the last functional currency year of the taxpayer and then converted in Canadian currency using the exchange rate applicable on the last day of the last Canadian currency year of the taxpayer.

Raisons: Wording of the ITA

11 January 2013 External T.I. 2012-0436771E5 - Sale of a business

CRA Tags
54, 20(1)(e), 249(4), 256(9), 18(9.1), 80, 40(1)(a)(i)
penalty paid by shareholder
continued deduction where debt settlement by shareholder rather than taxpayer

Principal Issues: 1) Would the repayment of Aco's debt and the associated early repayment penalty be considered a reduction in the proceeds received for the purposes of calculating the Shareholder's capital gain on the transaction?
2) In which period can the remainder of the unamortized financing fees be claimed?
3) Are the penalties related to the early retirement of the debt deductible in Aco and if so, in which tax year (on the closing date or subsequent to closing)?
4) How does the fact that the long term debt of Aco is being settled by Shareholder affect the deductibility of the penalties associated with the early debt retirement with the early debt retirement?
5) Since the Shareholder is paying the debt personally, without a corresponding amount payable by Aco to Shareholder, is this debt repayment considered income in Aco in the period subsequent to closing?

Position: 1) Yes. 2) A prorated portion in the DYE taxation year. Balance amortized over future periods pursuant to subparagraph 20(1)(e)(iii) of the Act. 3) No. 4) Not deductible by Aco. 5) No. The Forgiveness of debt rules in section 80 do not apply.

Reasons: Question of fact. Legislation

6 December 2012 External T.I. 2012-0461711E5 F - Paiements indirects / Indirect payments

CRA Tags
9, 18(1), 56(2)
56(2) inapplicable to incorporated artist respecting producer paying mandatory contributions to the fund for the artist’s union
no T4A slip to be issued by producer paying mandatory contributions to the fund for the union of the artist whose corporation receives fees from the producer

Principales Questions: (1) Quelles sont les conséquences fiscales d'un paiement versé par un producteur à la Caisse de sécurité des artistes (CSA) pour le bénéfice d'un artiste constitué en société (contribuable)? / What are the tax consequences when a producer makes a contribution to the CSA for the benefit of an incorporated artist (taxpayer)?
(2) Le contribuable doit-il s'imposer sur la part du producteur qui est versée à la CSA? Existe-il des obligations de production de feuillet de renseignements de la part du producteur? / Should the contribution paid by the producer to the CSA be included in the revenue of the taxpayer? Should the producer issue an information return to the corporation or the individual artist with respect to the contribution paid to the CSA?

Position Adoptée: (1) Question de fait, ces montants seraient non imposables pour la société ou le contribuable, s'ils ne contrôlent pas son versement. / Question of fact. These payments would be not taxable for the corporation or the incorporated individual, if they do not control these payments.
(2) Selon la réponse à la question 1, non, pas au moment du versement de la contribution par le producteur à la CSA mais plutôt lorsque la CSA fournira des avantages à la société ou au directement à l'artiste constitué en société. / Pursuant to the answer in question 1, not at the time of the contribution by the producer to the CSA, but when the CSA will provide benefits to the corporation or incorporated artist.

Raisons: (1) Positions antérieures. Le paragraphe 56(2) de la Loi de l'impôt sur le revenu ne s'applique pas. / Previous positions. Subsection 56(2) of the Income Tax Act does not apply. (2) Réponse à la question 1. De plus, question de fait, nous n'en disposons pas de renseignements suffisants pour conclure quant aux obligations découlant des avantages de la CSA pour la société et le contribuable. / Answer to question 1, question of fact and insufficient information to comment on the obligations with respect to the benefits of the CAS for the corporation and the taxpayer.

23 November 2012 External T.I. 2012-0449101E5 F - Production exclue - CIPCMC

CRA Tags
87(2)(j.94), ITR 1106(1), 88(1)(e.2), 125.4, ITR 1106(4)
5-year test was violated when successor to production company became controlled by an unrelated person

Principales Questions: Dans le contexte où des droits d'auteur mondiaux sont disposés lorsque des sociétés de production sont fusionnées ou liquidées dans une société mère, est-ce que la règle de la propriété sur une période de 25 ans des droits d'auteur mondiaux énoncée à la définition de "production exclue" au paragraphe 1106(1) du Règlement de l'impôt sur le revenu pourrait s'appliquer ayant pour résulter de refuser le crédit d'impôt cinématographique ou magnétoscopique canadien? / In a context of the disposition of the ownership of the worldwide copyright in a production where corporate producers are amalgamated or wound-up into its parent corporation, does the 25 year period rule in the definition of "excluded production" of subsection 1106(1) of the Income Tax Regulations apply in order to deny the Canadian film or video production tax credit?

Position Adoptée: Oui dans la situation donnée. Le test de la période de 25 ans s'applique au moment où la société de production complète la production. De plus, la société fusionnée ou la société dans laquelle une société de production est liquidée sont réputées être la continuation des sociétés de production et sont considérées à titre de société admissible (société donnée) aux fins de la règle de la période de 25 ans pour déterminer si une production en particulier est une production exclue. / Yes, in the particular situation. The 25 year period of copyright ownership should be applied at the time the corporate producer completed the production. Moreover, the new amalgamated corporation, or the parent corporation in a case of the wind-up of a corporate producer, are deemed to be the continuation of the corporate producers and are considered the qualified corporations (particular corporations) with respect to the 25 year period rule.

Raisons: Application des alinéas 87(2)j.94) et 88(1)e.2). L'intention du législateur quant à la règle de 25 ans prévue à la définition de production exclue vise le transfert de la propriété des droits d'auteur mondiaux sur une production à l'intérieur du groupe corporatif lié. / Application of paragraphs 87(2)j.94) and 88(1)e.2). With respect to the 25 year period rule included in the definition of "excluded production", the legislator contemplates the transfer of the ownership of the worldwide copyright in a production within Canadian corporate families.

23 March 2012 External T.I. 2009-0327251E5 - Spousal Trust

CRA Tags
56(1)(a)(i), 147.3(5), 146.3(5), 56(1)(t), 146.3(1), ITR 8502(f)

Principal Issues: Whether payments received by an individual from 1. a RPP 2. a RRIF, can be reported and taxed as income of the individual's joint spousal trust.

Position: 1. No. 2. No.

Reasons: 1. The Act does not provide for payment of periodic retirement benefits to a spousal trust. 2. The annuitant under a RRIF does not include a spousal trust.


28 November 2010 CTF Roundtable, 2010-0387451C6 - Debt forgiveness and Bankruptcy Annulment

CRA Tags
80(2)(a), 80(1)

Principal Issues: Where the court approves a proposal under Part III of the BIA and annuls the bankruptcy of a corporate debtor such that the corporation's debts are restored but at reduced amounts, will the CRA confirm that paragraph (i) contained in the definition of forgiven amount would apply to the amount of the debt reduction?

Position: No.

28 November 2010 CTF Roundtable, 2010-0386351C6 - 2010 CTF Q#10 - T3 Reporting and 75(2)

CRA Tags

Principal Issues: 1. Can the CRA provide guidance on how to report income attributed to the settlor, who is not a beneficiary, pursuant to subsection 75(2), on a T3 return? 2. How does CRA suggest that situations where Alternative Minimum Tax (AMT) arises in the trust based on income which is attributed to the settlor are dealt with?

Position: 1. Guidance provided 2. See below.

Reasons: 1. As instructed in the T3 Trust Guide and on Schedule 9. 2. As instructed in Schedule 12 of the T3 Trust return.

28 November 2010 CTF Roundtable Q. 9, 2010-0387091C6 - Late filing of T1 returns

CRA Tags
Treaties Article V - 9(a)

Principal Issues: In light of the rolling 183 day test in subparagraph 9(a) of Article V of the Treaty, is the CRA developing a policy with respect to late filed T1 returns?

Position: The CRA may apply the taxpayer relief provisions to have any interest and/or penalties waived. Taxpayers will have to advise the CRA of their circumstances, and the CRA will review each request on the basis of the information provided.

28 November 2010 CTF Roundtable Q. 21, 2010-0386361C6 - 2010 CTF Q21 - Reasonable Salary for Inc. Prof.

CRA Tags
245, 125

Principal Issues: Whether paragraph 1(j) of IT-189R2 and paragraph 17 of IC 88-2 are contradictory with respect to whether a reasonable salary should be paid to an incorporated professional.

Position: Paragraph 1(j) of IT-189R2 and paragraph 17 of IC 88-2 are not contradictory.

Reasons: Each statement is correct in the context in which the comments are provided.

Technical Interpretation - Internal

18 April 2013 Internal T.I. 2013-0485481I7 F - Balance of sale price without interest

CRA Tags
s. 16(1) inapplicable if sale price including non-interest bearing balance does not exceed sold assets’ FMV

Principales Questions: What is the current position with respect to the application of subsection 16(1) in a situation where there is a balance of sale price receivable by a vendor and no interest is charged by the vendor on that balance?

Position Adoptée: The actual position remains as it was stated in paragraphs 8 to 10 of Interpretation Bulletin IT-265R3 that was cancelled (see below).

Raisons: Position based on case law.

20 March 2013 Internal T.I. 2012-0463181I7 F - Revenu des entrepreneurs

completion method unavailable for communication and electricity structure installations

Principales Questions: Est-ce que la méthode d'achèvement des travaux tel qu'il est indiqué au paragraphe 12 du bulletin d'interprétation IT-92R2 peut s'appliquer à la construction et l'installation de structures de communication et d'électricité?
Whether the completed contract method described in paragraph 12 of the Interpretation Bulletin IT-92R2 can apply to construction and installation of communication and electricity structures?

Position Adoptée: Non.

Raisons: Des structures de communication et d'électricité ne sont pas des structures similaires à un immeuble, une route, un barrage ou un pont.
Communication and electricity structures are not similar structure of a building, road, dam or bridge.

18 March 2013 Internal T.I. 2012-0470071I7 - Low-cost housing corporation for the aged

CRA Tags

Principal Issues: Comments to Charities Directorate on: 1) proposed eligibility criteria for application process to qualified donees list; and 2) application process and documentary requirements.

31 January 2013 Internal T.I. 2012-0437651I7 - NPO - Interest Expense

CRA Tags
149(5), 20(1), 149(1)(l), 18(3.1), 20(1)(c)

Principal Issues: Whether the interest expense incurred to renovate a building of a 149(1)(l) entity may be deducted from interest income earned on various GIC investments that is to be taxed in the deemed trust under 149(5).

Position: No.

Reasons: Interest expense incurred to renovate a building is not incurred to earn the revenue earned on GIC investments.

21 January 2013 Internal T.I. 2012-0442021I7 F - Assessing 163(2) penalty

CRA Tags
152(4)a)(i), 152(1.2), 163(2.1), 163(2)c.1, 163(2)(c.3), 163(2)(c.2), 152(1), 163(2)(c), 163(2), 163(2)(a)
penalty is computed on total RMES adjustment, not just the false portion
false RMES claim by husband does not generate any penalty for resulting overstatement of CCTB, WITB and GSTC by wife, assuming she made no false statement
deduction against increase to income attributable to a false statement can be reduced by QPP contribution increase or by discretionary CCA claim that is wholly related to that income source

Principal Issues: In different scenarios, how the penalty is calculated?

Position: Comments provided.

Reasons: Application of the Act.

21 December 2012 Internal T.I. 2012-0465561I7 - Hedging transaction

CRA Tags
12(1)(b), 38, 18(1)(b), 39(2), 18(1)(a), 9

Principal Issues: 1) What is the proper tax treatment for foreign exchange gains or losses incurred by XXXXXXXXXX as a result of the Hedging Agreement?
2) When should the gains or losses be reported by XXXXXXXXXX?

Position: 1) On account of income. 2) Reported on an annual basis.

Reasons: See response.

18 December 2012 Internal T.I. 2012-0461651I7 - Foreign Tax Credits - s. 126 vs. s. 110.5

CRA Tags
110.5, 126

Principal Issues: 1. Was there an abuse under the actual facts of using a loss-consolidation structure and section 110.5 of the Act?
2. If the loss-consolidation structure was successful in utilizing the foreign tax credits as planned, would there have been any abuse of the foreign tax credit provisions?

Position: 1. No
2. Maybe - although unlikely in this case.

Reasons: 1. The loss-consolidation structure used by the taxpayer to shift income between the parent and the subsidiaries is acceptable since it followed the steps of a typical loss-consolidation structure which CRA has held was acceptable. The use of section 110.5 is not offensive since the provision was enacted to prevent the wastage of foreign tax credits by converting foreign tax credits that would otherwise be wasted into non-capital losses.
2. If the loss-consolidation structure was successful in generating sufficient income to utilize the foreign tax credits, there may have been a need to consider whether additional credits specifically prohibited by paragraph (b) in 110.5 were obtained and if so, whether such result is appropriate given the purpose of those credits; and whether it would have been appropriate to allow a conversion of expiring foreign tax credits of one corporation to be turned into non-capital losses of another corporation. Since the loss-consolidation structure was not successful in this case, there is no need to consider this matter further.

12 December 2012 Internal T.I. 2012-0464411I7 - Indirect Benefit

CRA Tags
105(1), 246(1), 56(2), 15(1), 15(2), 80.4(2)

Principal Issues: Is a benefit conferred on an individual shareholder as a result of an interest-free inter-corporate loan?

Position: Not in these circumstances.

Reasons: Benefit not supported by current legislation.

13 September 2012 Internal T.I. 2012-0442671I7 F - Dédommagement pour la perte de bénéfices

CRA Tags
5(1), 56(1)(a)(iii), 63, 248(1), 8(1)(b)
damages received after 2011 by employees of an insolvent company for cancellation of their medical plan have become taxable
damages received for loss of life insurance coverage were not rendered a death benefit under the surrogatum principle
damages received by former employees of insolvent company for cancellation of their life insurance coverage were received in lieu of remuneration for their employment services
Words and Phrases
in lieu of arises pursuant to
legal fees paid to recover damages for employer cancellation of insurance coverage, and medical plan, qualified and did not qualify, respectively

Principales Questions: (1) Quel est le traitement fiscal à accorder à un montant forfaitaire reçu par des anciens employés pour la perte de bénéfices d'un régime privé d'assurance-maladie (RPAM) et des droits relatifs à une couverture dans une police d'assurance-vie collective temporaire? (2) Est-ce que les frais légaux encourus pour obtenir le dédommagement sont déductibles?

Position Adoptée: (1) La portion du montant forfaitaire reçue pour la perte de droits relatifs au RPAM n'est pas imposable. La portion du montant forfaitaire relative à la perte de droits dans une couverture d'assurance-vie collective temporaire est imposable. (2) La partie des frais légaux attribuable au dédommagement relatif aux droits dans le RPAM n'est pas déductible. Les autres frais légaux sont déductibles.

Raisons: (1) Application de la position administrative en vigueur pour l'année d'imposition XXXXXXXXXX et l'application du paragraphe 6(3). (2) La portion des frais légaux attribuable au dédommagement relatif aux droits dans le RPAM n'est pas déductible car le montant forfaitaire ne représente pas un traitement ou un salaire. Suggestion d'allouer la portion des frais légaux relative à la perte de droits dans une couverture d'assurance-vie collective temporaire compte tenu de la non-matérialité du montant. Le montant des autres frais légaux est déductible car il représente un traitement ou un salaire ou une allocation de retraite.