Income Tax Severed Letters - 2013-08-21

Ruling

2013 Ruling 2013-0479481R3 - Structured Settlement

CRA Tags
56(1)(d)

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 2012-0456221R3 - Post Mortem Planning

CRA Tags
40(3.6), 40(3.4), 111(1)(b), 245(2), 112(3.3), 112(3.2), 15(1), 104(4), 69(5), 15(2), 84(2)
Summary Under
Tax Topics - Income Tax Act - Section 69 - Subsection 69(5)
shares of Holdco, stepped up to trust under s. 104(4)(a)(iii), are transferred to a Newco 2, and Newco 2 is wound-up under s. 69(5) to realize a capital loss, with s. 84(2) deemed dividend allocated to US trust beneficiaries
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(13)
testamentary trust was to make disproportionate allocation of dividends to US beneficiaries and of capital distributions to the resident beneficiary
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Disposition - Paragraph (b) - Subparagraph (b)(i)
disposition on s. 69(5) wind-up occurred at time of winding-up rather than subsequent filing of articles of dissolution

Principal Issues: Post Mortem Planning.

Position: Favourable rulings provided.

Reasons: Meets the requirements of the law and in accordance with previous positions.

Technical Interpretation - External

8 August 2013 External T.I. 2013-0477461E5 F - Foreign Tax Credit under 126(2) of ITA

CRA Tags
126(7), 126(2)
Summary Under
Tax Topics - Income Tax Act - Section 126 - Subsection 126(2)
taxes paid by non-resident parent on behalf of Canco re foreign country income tax on Canco’s foreign branch profits in that country could be creditable

Principales Questions: Is the payment of an amount of foreign tax by parent corporation on behalf its Canadian subsidiary having a branch outside Canada equivalent to payment by the taxpayer to the government of a country other than Canada ?

Position Adoptée: yes as discussed in Folio S5-F2-C1 no. 1.40.

Raisons: The parent corporation acts as an agent for the taxpayer

1 August 2013 External T.I. 2013-0495011E5 - Volunteer Firefighter Tax Credit

CRA Tags
118(1)(b), 118(1)(b.1)

Principal Issues: 1. Do a corporation's volunteer firefighters qualify for the volunteer firefighter tax credit?

Position: 1. If the individuals continue to be remunerated by the corporation while performing these duties, they do not qualify as volunteers.

Reasons: 1. Meaning of the word volunteer.

19 July 2013 External T.I. 2013-0493741E5 - RCA - Subsection 207.5(2)

CRA Tags
207.5(1), 207.5(2)

Principal Issues: Where the only property an RCA trust holds at the end of a year is an exempt insurance policy that has a cash value, with underlying investments being shares, bonds, mutual funds, etc., is an election under subsection 207.5(2) available?

Position: No.

Reasons: An election under subsection 207.5(2) is possible where the only property held by an RCA trust at the end of a taxation year consists of cash, debt obligations and shares listed on a designated stock exchange. Subsection 12.2(11) of the Act defines an "exempt policy" to have the meaning prescribed by regulation. In general, subsection 306(1) of the Regulations defines an "exempt policy" as a life insurance policy, other than an annuity contract, that satisfies certain conditions.

18 July 2013 External T.I. 2012-0463421E5 - Section 221.2

CRA Tags
227(6), 215, 221.2
Summary Under
Tax Topics - Income Tax Act - Section 221.2

Principal Issues: Where a payor has withheld an amount on account of Part XIII tax, in excess of the amount required, and remitted it to the Receiver General, can the excess amount be re-appropriated to another tax debt of the non-resident payee?

Position: An amount may be re-appropriated to another tax debt of a non-resident payee; however, there is no provisions in the Act that divests a payor from the requirement to withhold. As such, an overpayment could not be re-appropriated to reduce the amount which would have to be withheld in future.

Reasons: Section 215 requires a person who pays an amount to withhold the amount of tax and remit it on behalf of the non-resident to the Receiver General. There is no provision which removes this requirement and therefore, in this instance, there is no debt that "is or may become payable". As such, the provisions of 221.2 are not met.

9 July 2013 External T.I. 2013-0492721E5 - Interpretation bulletin IT-236R4

CRA Tags
39, 38, 3, 40(1), 110.6

Principal Issues: Whether certain statements contained in paragraphs 1 and 15 of IT-236R4 – Reserves – Disposition of Capital Property still represent the CRA's views?

Position: Yes.

Reasons: Wording of the Act.

10 June 2013 External T.I. 2012-0458651E5 - Requirement to file T5018 information returns

CRA Tags
238

Principal Issues: Would a manufacturer of prefabricated homes be obligated to file T5018 returns for the payments made to subcontractors in respect of the manufacturing of the pre-fabricated homes at the manufacturer's plant?

Position: Yes.

Reasons: It is our opinion that "construction activities" includes the manufacturing of pre-fabricated homes. As such, a manufacturer of pre-fabricated homes who derives business income primarily from construction activities would be required to complete T5018 information returns for payments made to subcontractors in respect of goods or services rendered in the course of construction activities, subject to the exemptions in subsection 238(5) of the Regulations.

14 May 2013 External T.I. 2013-0474741E5 - RRSP Limits after bankruptcy

CRA Tags
Bankruptcy and Insolvency Act 67, 146(5), Bankruptcy and Insolvency Act 158

Principal Issues: Can a taxpayer who has an undeducted RRSP contribution, exclude it from bankruptcy and claim the deduction following the taxpayer's discharge?

Position: The Act does not restrict when a deduction for a RRSP contribution must be made. However, such exclusion may not be allowed under the Bankruptcy and Insolvency Act.

Reasons: Subsection 146(5) does not restrict when the deduction may be made. Sections 67 and 158 of the Bankruptcy Act define property and the duties of a bankrupt to report all of its property accordingly. Undeducted RRSP contributions would arguably be property under the BIA. As such, the bankrupt would be required to disclose the undeducted RRSP contribution to the trustee in bankruptcy.

3 April 2013 External T.I. 2012-0470921E5 - Multi-tier alignment election and new partnership

CRA Tags
249.1(1)(c), 249.1(9)

Principal Issues: Whether a new partnership that has as a partner an existing partnership that was subject to a multi-tier alignment election under subsection 249.1(9) can adopt the fiscal period established under the latter provision.

Position: No.

Reasons: Subsection 249.1(9) does not contemplate the subsequent addition of new partnerships.

Technical Interpretation - Internal

7 August 2013 Internal T.I. 2013-0497961I7 - Refundable Capital Gains Tax On Hand

CRA Tags
132(4)
Summary Under
Tax Topics - Income Tax Act - Section 132 - Subsection 132(4) - Refundable Capital Gains Tax On Hand

Principal Issues: What happens to the balance of RCGTOH when MFT fails to meet prescribed conditions in 132(6)(c)

Position: Grace for 1 year and then frozen in time

Reasons: 132(6.2) provides a 1 year grace and the definition of RCGTOH in 132(4)

18 July 2013 Internal T.I. 2013-0482811I7 - Transitional Tax Provable in Bankruptcy

CRA Tags
Ontario Taxation Act 49, Ontario Taxation Act 48, Ontario Taxation Act 47, Ontario Taxation Act 46, Ontario Taxation Act 52, Bankruptcy and Insolvency Act: S. 121(1), Ontario Taxation Act 50, Ontario Taxation Act 51, Ontario Taxation Act 53

Principal Issues: What is the amount provable as transitional tax in a bankruptcy?

Position: 1. If a company, carrying on business in Ontario, is adjudged bankrupt in a particular year, and ceases to have a permanent establishment at that time, the provable claim is the total amount of transitional tax ordinarily payable over five years, less any amount paid in respect of earlier years.
2. If a company, carrying on business in Ontario, is adjudged bankrupt in a particular year, and maintains a permanent establishment at that time, the provable claim is the amount of transitional tax due for that year, plus any unpaid amount in respect of earlier years. Transitional tax for years, subsequent to the year of bankruptcy, are payable pursuant to section 47 and subsection 48(1) of the Ontario Act.

Reasons: 1. Subsection 121(1) BIA.
2. Subparagraph 46(2)(b)(ii) Taxation Act, RSO.
3. Subsection 121(1) BIA.

11 July 2013 Internal T.I. 2013-0490091I7 - Qualified Property

CRA Tags
127(9), 4600(2)
Summary Under
Tax Topics - Income Tax Act - Section 127 - Subsection 127(9) - Qualified Property

Principal Issues: Is the administrative position in paragraph 24 of cancelled IT-331R still valid?

Position: No

Reasons: The TCC decision in Pêcheries and the inherent difficulties in consistently applying this administrative position.

26 June 2013 Internal T.I. 2013-0478301I7 - Child Tax Credit

CRA Tags
118(1)(b), 118(1)(b.1)

Principal Issues: 1. Comments on content in Guide T4011 as they pertain to line 367.

Position: 1. Current content is correct but consideration should be given to expanding discussion in future publications.

Reasons: 1. Current content addresses only situations involving subparagraph 118(1)(b.1)(i) of the Act.

23 June 2004 Internal T.I. 2004-0067571I7 - Disposition of a property

CRA Tags
74.2, 39

Principal Issues: Can a taxpayer split the capital gain on the disposition of a cottage between him and his spouse?

Position: The whole capital gain resulting from the disposition of the cottage must be included in the taxpayer's income.

Reasons: The taxpayer is the sole holder of the title of the cottage. The taxpayer did not provide us with evidence that the cottage was not solely his property for the purpose of the Act or that the capital gain should be reattributed.