Income Tax Severed Letters - 2013-06-12

Technical Interpretation - External

31 May 2013 External T.I. 2013-0486011E5 - Loan to non-resident - Part XIII tax

CRA Tags
15(2), 214(3)(a), 56(2), Treaties Article X(2)
partnership fiscally transparent for Treaty withholding purposes re s. 15(2) loan made by it

Principal Issues: Whether the reduced rate of withholding tax as set out in the Canada-Netherlands Income Tax Convention would apply in respect of an amount that is deemed to be paid as a dividend pursuant to paragraph 214(3)(a) of the Income Tax Act in the context of a partnership making a loan to the non-resident corporate shareholder of the partnership's Canadian resident corporate partners.

Position: It is our view that in interpreting subparagraph 2(a) of Article 10 of the Treaty to a 214(3)(a) deemed dividend resulting from a loan from a partnership to the non-resident corporate shareholder of its Canadian resident corporate partners, one would apply the ownership and control thresholds therein to the Canadian resident corporate partners.

Reasons: In the context of applying the provisions of Article 10 of the Treaty, subsection 96(1) of the Act does not apply and the partnership is not considered a separate person. Therefore, each of the Canadian resident corporate partners would be viewed as having paid their pro rata share of the 214(3)(a) deemed dividend.

31 May 2013 External T.I. 2013-0480431E5 F - Deduction from business investment loss

CRA Tags
104(21), 104(21.2), 39(10), 39(9)
capital gains deduction previously claimed by individual re capital gain allocated by trust reduced BIL subsequently realized by each of individual and trust

Principales Questions: In a particular fact situation, does the capital gain deduction of $250,000 reduce the business investment loss of the individual and of the trust?

Position Adoptée: Yes.

Raisons: Interpretation of the Act.

30 May 2013 External T.I. 2013-0487301E5 - 3P Project

CRA Tags
ITR Schedule II
failure to state consideration for concession

Principal Issues: Would the CRA treat a concession or licence as a Class 14 asset where the particular agreement does not specifically state that the entity will agree to incur the costs to construct and operate the facilities during the term of the agreement in consideration for the Province's grant of the concession or licence?

Position: Question of fact.

Reasons: We don't have any facts.

29 May 2013 External T.I. 2013-0487671E5 - SR&ED Approved Status

CRA Tags
37(1)(a)(ii), 37(7)

Principal Issues: The client requested clarification of the criteria relating to "approved" status for SR&ED.

Position: General comments provided.

Reasons: The determination as to whether a particular entity can be approved can only be made following a review of a particular applicant's submission and related documentation as outlined in SR&ED's Third-Party Payments Policy.

14 May 2013 External T.I. 2012-0469591E5 F - Capital dividend received by a trust and CDA

CRA Tags
104(20), 89(1)
no recognition of capital dividend by corporate beneficiary where received by trust in Year 1 and distributed in Year 2
no addition for capital dividend received by trust in Year 1 and distributed in Year 2 to corporate beneficiary

Principales Questions: 1. Whether the trust may designate an amount pursuant to subsection 104(20) in respect of a particular beneficiary in the return of the taxation year of the trust that follows the taxation year during which the trust received a capital dividend from a corporation resident in Canada where the capital dividend was not paid and did not become payable to any beneficiary in the year the trust received the capital dividend.
2. Whether a corporation may add to its capital dividend account an amount received by it and equal to the capital dividend received by a trust in a previous year.

Position Adoptée: 1. No.
2. In the situation described, if the amount received from the trust by the corporation cannot be designated by the trust pursuant to subsection 104(20), that amount will not be added to the CDA of the corporation.

Raisons: 1. Wording of subsection 104(20) of the Act.
2. Wording of paragraph (g) of the definition of "capital dividend account" in subsection 89(1).

10 May 2013 External T.I. 2012-0442791E5 F - SENC - Revenu d'entreprise exploitée activement

CRA Tags
Norco applied to rent paid by Opco to partnership between Opco's Holdco and Holdco's shareholder's brother

Principales Questions: Est-ce que l'Agence reconnaît l'arrêt Norco Development Ltd afin d'appliquer le paragraphe 129(6) de façon à ce que le revenu de location de l'immeuble généré par SENC soit considéré payé ou payable à Gestion et puisse par conséquent être considéré comme étant un revenu tiré d'une entreprise exploitée activement au Canada par Gestion et non comme un revenu de bien?

Position Adoptée: Oui.

Raisons: Cette conclusion est cohérente avec la politique fiscale sous-jacente de 129(6). Autrement, l'interposition de la SENC entre Gestion et Opco pourrait entraîner qu'une dépense de loyer déductible dans le calcul d'Opco provenant de son entreprise exploitée activement soit imposée dans les mains de Gestion à titre de revenu d'une source qui est un bien.

2 May 2013 External T.I. 2013-0481361E5 F - Ordre de disposition d'actions AAPE

CRA Tags
110.6, 110.6(14)(a), 110.6(2.1), 248(1), 110.6(14)
FIFO method is applied to determine which of ideintical shares were disposed of first

Principales Questions: Est-ce que le transfert d'actions de catégorie A de la Société A à une société de gestion pour des fins de purification doit être fait selon la méthode PEPS ou DEPS? Does the transfer of class A shares from Corporation A to a holding corporation have to be done using the FIFO or LIFO method when purifying Company A?

Position Adoptée: Méthode PEPS. FIFO method.

Raisons: L'alinéa 110.6(14)a) de la Loi précise qu'un contribuable est réputé disposer des actions qui sont des biens identiques dans l'ordre où il les a acquises, c'est-à-dire sur une base PEPS au lieu de DEPS. Paragragh 110.6(14)(a) of the Income Tax Act specifies that a taxpayer shall be deemed to have disposed of shares that are identical properties in the order in which the taxpayer acquired them.

24 April 2013 External T.I. 2013-0476561E5 F - Coûts de drainage de terre agricole

CRA Tags
30, 18(1)(b), ITR 1102(1)(a)
costs of installing drainage tile deductible by tenant farmer, not lessor

Principales Questions: 1. Est-ce que le coût de tuyaux de drainage en plastique et l'installation de ceux-ci sont déductibles pour un propriétaire ou un locataire d'une terre agricole?/ Whether the costs of plastic pipes and installing a land drainage system are deductible by a landlord or tenant of farm land.

Position Adoptée: 1. Ces coûts sont généralement déductibles par un contribuable qui exploite une entreprise agricole dans le calcul du revenu provenant d'une entreprise agricole. Si le contribuable n'exploite pas d'entreprise agricole, les coûts d'installation seront de nature capitale et le coût des tuyaux en plastique pourront être considérés à titre d'un bien de la catégorie 8 /These costs are generally deductible if they are incurred by a taxpayer in a farming business. Otherwise the cost of installing of a land drainage system is generally capital in nature and the cost of the pipe may be considered in class 8.

Raisons: 1 L'article 30 permet la déduction de ces frais dans le calcul du revenu d'une entreprise agricole, sinon l'alinéa 18(1)b) s'applique. /Section 30 permits a deduction in calculating farming income business. Otherwise paragraph 18(1)b) would apply.

20 March 2013 External T.I. 2012-0442571E5 F - Coût d'acquisition d'un terrain

CRA Tags
ITR Schedule II - Class 17, 20(1)(aa), 54, 20(1)(ee), ITR Schedule II - Class 8
cost of water and sewer lines connecting mobile home units, included in Class 8
cost of land acquired from developer equal to total barter value minus amounts allocated to Classes 8 and 17

Principales Questions: Est-ce que le coût d'acquisition d'un terrain qui génère du revenu de location comprend certains frais de travaux. Whether the cost of a land which generates rental income includes some particular costs.

Position Adoptée: Question de fait. Possiblement dans certains cas et classement dans des catégories de biens amortissables dans d'autres cas. Commentaires généraux./ Question of fact. Maybe in certain cases and classification in classes of depreciable properties in other cases.

9 January 2013 External T.I. 2010-0384221E5 F - Paiements indirects

CRA Tags
9, 18(1)(h), 56(2)
payments rquired to be made by a collective agreement were not intended as redirected income

Principales Questions: Quelles sont les conséquences fiscales d'un paiement lié à la participation des XXXXXXXXXX au nouveau régime d'assurance collective offert par XXXXXXXXXX?

Position Adoptée: Pas imposable.

Raisons: Loi de l'impôt sur le revenu

Technical Interpretation - Internal

14 February 2013 Internal T.I. 2011-0424341I7 F - Amounts forwarded to trustee/beneficiary

CRA Tags
105(1), 75(2), 104(24), 104(13), 56(2), 104(6), 104(19)
s. 75(2) not applicable to dividends on common shares issued to discretionary family trust on estate freeze
s. 56(2) did not apply to trustee/beneficiary of discretionary trust who directed income to her children and did not exercise discretion in her own favour
income was received by children beneficiaries as agent for their mother
Quebec discretionary trust with two named trustees but, in fact, only one trustee, would not be entitled to s. 104(6)(b) deductions

Principales Questions: 1) Whether subsection 75(2) or subsection 56(2) applies to attribute to Mother the dividend income received by Trust?
2) If a principal-agent relationship prevailed between Mother and Children, should the income payable by Trust to the Children be included in Mother's income by virtue of subparagraph 104(13)?
3) If the parties did not comply with section 1275 of the Quebec Civil Code, whether the deduction claimed by the Trust under subsection 104(6) should be disallowed, as an alternative assessment method, on the basis that the amounts of dividends so designated to the beneficiaries were not in fact payable to them as contemplated under subsection 104(24)?

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

Raisons: Interpretation of the Act. See below.

20 November 2008 Internal T.I. 2008-0281411I7 - Addition of Beneficiaries

CRA Tags

Principal Issues: In the particular situation, the trustee/beneficiary exercised a power to add beneficiaries to the trust. We are asked if, having regard to all the circumstances, there was a disposition to the trust of its assets or, a disposition to any existing beneficiary of all or part of an interest held in the trust.

Position: 1. There is no disposition to the trust. 2. The trustee/beneficiary may be viewed as having made a gift inter vivos to the new beneficiaries of part of the interest the trustee held in the trust and as such there may be deemed proceeds of disposition pursuant to subparagraph 69(1)(b)(ii). The remaining existing beneficiaries may each be viewed as having disposed of part of an interest in the trust but there appear on the facts to be no proceeds of disposition for purposes of the Act.

Reasons: 1. No variation to the trust was needed to add the new beneficiaries. 2. The trustee who exercises the power to add beneficiaries may be viewed as having voluntarily transferred part of the interest held to the new beneficiaries. The existing beneficiaries, other than the trustee, do not direct to whom the interest is transferred; there is no basis in the facts given to find that the the existing and new beneficiaries do not deal at arm's length for purposes of subparagraph 69(1)(b)(i).