Income Tax Severed Letters - 2013-09-18

Ruling

2013 Ruling 2012-0453501R3 - Canadian Exploration Expenses--New Mine

CRA Tags
66.1(6)

Principal Issues: Whether expenses relating to a proposed new mine will qualify for inclusion under paragraph (g) of the definition of CEE.

Position: Yes.

Reasons: Based upon the facts and a written opinion from Natural Resources Canada.

2013 Ruling 2013-0485571R3 - Internal Reorganization - 55(3)(a)

CRA Tags
112(1), 55(3)(a), 84(4), 212.1

Principal Issues: Internal reorganization involving subsidiaries of a public corporation.

Position: Favourable rulings provided.

Reasons: In compliance with the law and previous positions.

2013 Ruling 2012-0441771R3 - Canadian Exploration Expenses

CRA Tags
66.1(6)

Principal Issues: Whether the expenses relating to a proposed exploration program will qualify as Canadian exploration expenses under paragraph (f) of the definition of CEE, and will not be considered to be related to a mine that has come into production in reasonable commercial quantities or to a potential or actual extension thereof.

Position: The proposed exploration expenses will qualify as CEE under section 66.1(6) of the Act.

Reasons: Based on the facts presented and the XXXXXXXXXX opinion provided to us by Natural Resources Canada.

2013 Ruling 2012-0463611R3 - Foreign Divisive Reorganization

CRA Tags
246(1), 53(2)(b)(ii), 40(3), 245(2), 56(2), 95(6), 15(1), 95(1) foreign accrual property income
Summary Under
Tax Topics - Income Tax Act - Section 15 - Subsection 15(1) - Paragraph 15(1)(b)
Summary Under
Tax Topics - Income Tax Act - Section 90 - Subsection 90(2)

Principal Issues: 1. What is the distributing corporation's proceeds of disposition of the property being transferred to the transferee corporation? 2. What is the transferee corporation's cost of the property it acquires from the distributing corporation? 3. What is the cost of the shares of the transferee corporation to each of its shareholders? 4. Does the divisive reorganization give rise to FAPI? 5. Does the divisive reorganization result in benefits under subsections 15(1), 56(2) or 246(1)? 6. Does 95(6) apply? 7. Does GAAR apply?

Position: 1.The fair market value of the property transferred. 2. The fair market value of the shares issued by the transferee corporation on acquisition of the property. 3. The fair market value of the shares acquired. 4. No 5. No 6. No 7. No

Reasons: 1. The distributing corporation's proceeds of disposition of the property transferred will be determined by reference to the terms of the Division. Subparagraph 69(1)(b)(i) will apply so that the distributing corporation's proceeds of disposition will be equal to the fair market value of the transferred property. 2. The cost of the property acquired by the transferee corporation from the distributing corporation will be determined by reference to general principles of cost determination. 3. General principles of cost determination. 4. No income arises that is described in the definition of FAPI. 5. Conditions precedent to the application of subsections 15(1), 56(2) and 246(1) are not met. 6. Conditions precedent to the application of 95(6) are not met. 7. There is no avoidance transaction.

2013 Ruling 2012-0449611R3 - single-wing butterfly reorganization

CRA Tags
55(3)(b), 55(2)
Summary Under
Tax Topics - Income Tax Act - Section 186 - Subsection 186(1)
Summary Under
Tax Topics - Income Tax Act - Section 55 - Subsection 55(1) - Distribution
single-wing b/f with acquisition of control of DC by its remaining shareholder (helpful re circularity issue)

Principal Issues: Whether the dividends arising on the single-wing butterfly reorganization as described in the Proposed Transactions are exempt from the application of subsection 55(2) by virtue of paragraph 55(3)(b)?

Position: Yes.

Reasons: Wording of the provision.

2013 Ruling 2013-0491061R3 - Upstream Loans

CRA Tags
212.3(18), 90(6)
Summary Under
Tax Topics - Income Tax Act - Section 212.3 - Subsection 212.3(25) - Paragraph 212.3(25)(b)
s. 212.3(25)(b) avoids acquisition on partnership winding-up
Summary Under
Tax Topics - Income Tax Act - Section 90 - Subsection 90(8) - Paragraph 90(8)(a)
yo-yo transaction: US Salesco is repaid upstream loan by Can Opco 1, and then relends to Can Opco 1 when no longer a parent

Principal Issues: 1. Will subsection 212.3(2) apply to the proposed transactions?
2. Will the exception in paragraph 90(8)(a) apply to the specified debtors' proposed repayment of its debt to the creditor affiliates such that subsection 90(6) will not apply to the proposed transactions?

Position: 1. No. 2. Yes.

Reasons: 1. Although the proposed transactions include investments in subject corporations made by a CRIC which is controlled by a non-resident corporation, subsections 212.3(18) and 212.3(25) apply in such a manner that subsection 212.3(2) will not apply to any of the investments.
2. The proposed transactions of:
a) a specified debtor repaying its debt to a creditor affiliate; and
b) the Canco disposing of its interest in the creditor affiliate for FMV consideration in the form of cash resulting in the Canco having no FAs,
would result in the bona fide repayment of the upstream loan such that the previous debtor's subsequent borrowing from the previous FA would not constitute a loan within a series of loans and repayments which included the repayment of the upstream loan.

2013 Ruling 2012-0471921R3 - Deemed dividend on return of capital

CRA Tags
Treaties Article X(3), 84(1), Treaties Article XXIX A(4), 245(2), 212(2)(a), Treaties Article IV(7)(b)
Summary Under
Tax Topics - Treaties - Income Tax Conventions - Article 29A
base erosion test to be satisfied in current year
Summary Under
Tax Topics - Treaties - Income Tax Conventions - Article 4
PUC increase and distribution

Principal Issues: A & B: Whether a subsection 84(1) deemed dividend is a dividend for the purposes of Article X of the Canada-U.S. Treaty?
C. Whether subparagraph 7(b) of Article IV of the Treaty applies to the deemed dividend?
D. Whether a non-qualifying person in this situation will be entitled to treaty benefits?
E. Whether 245(2) applies to the proposed transactions?

Position: A & B: Yes
C. No
D. Yes
E. No

Reasons: A & B: Since the PUC account is increased and none of the exceptions in 84(1) are met, a deemed dividend arises. The definition of "dividends" in paragraph 3 of Article X is broad enough to include a subsection 84(1) deemed dividend. The deemed dividend will be subjected to the same tax treatment as income from shares under the ITA and therefore meets the requirements of paragraph 3 of Article X of the Treaty.
C. The tax treatment of the deemed dividend income under the taxation laws of the U.S. from the payer who is fiscally transparent would be the same if the deemed dividend payer were not fiscally transparent.
D. All the criteria in paragraph 4 of Article XXIX A of the Treaty have been met.
E. The proposed transactions do not result in a misuse or abuse of the provisions of the Income Tax Act or Treaty.

2013 Ruling 2012-0435341R3 - Single-Wing Split-up Farm Butterfly

CRA Tags
55(3)(b), 55(2)

Principal Issues: Whether the butterfly dividends are exempt from the application of subsection 55(2) by virtue of paragraph 55(3)(b)?

Position: Yes, favourable Rulings given.

Reasons: Complies with paragraph 55(3)(b) and previous CRA positions.

2013 Ruling 2010-0362481R3 - New Mine

CRA Tags
66.1(6)

Principal Issues: Whether the expenses relating to a proposed exploration program will qualify as Canadian exploration expenses under paragraph (f) of the CEE definition, and will not be considered to be related to a mine that has come into production in reasonable commercial quantities or to a potential or actual extension thereof.

Position: The mine will be considered to be a new mine and not a mine that has come into production in commercial quantities or an extension thereto. No position taken with respect to expenses incurred.

Reasons: Based upon the facts and a written opinion from Natural Resources Canada.

2012 Ruling 2010-0376811R3 - Greenhouse Gases Act

CRA Tags
127(9), 227(14), 149(8), 67.6, 149(1)(f), 20(1)(hh), 18(9), 9, 127(10.1), 53(2.1), 12(1)(x), 149(1)(l), 37(1), 149(9), 13(7.4), 248(1), 149.1(1), 149(1)(j), 127(11.1)

Principal Issues: The tax treatment of the Province XXXXXXXXXX's plan to reduce carbon emissions.

Position: See Document

Reasons: See Document

Technical Interpretation - External

6 September 2013 External T.I. 2013-0478241E5 - U.K. Individual Savings Account (ISA)

CRA Tags
Treaties Article XI, Treaties Article XVII, 12(1)(c)
Summary Under
Tax Topics - Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(c)
Summary Under
Tax Topics - Treaties - Income Tax Conventions - Article 11
Summary Under
Tax Topics - Treaties - Income Tax Conventions - Article 18

Principal Issues: Is interest income earned by a person resident in Canada for the purposes of the Act, in a U.K. ISA taxable in Canada?

Position: Yes

Reasons: Under the Act, Canadian residents must report their worldwide income, including interest income earned in an U.K. ISA.

6 September 2013 External T.I. 2013-0474671E5 - "more closely connected business activities"

CRA Tags
212.3(16)
Summary Under
Tax Topics - Income Tax Act - Section 212.3 - Subsection 212.3(16) - Paragraph 212.3(16)(a)

Principal Issues: For purposes of the "more closely connected business activities" test in paragraph 212.3(16)(a), is the subject corporation required to carry on active business activities itself?

Position: No

Reasons: To determine whether the investment of a particular corporation resident in Canada ("CRIC") in a particular subject corporation meets the business activities test contained in paragraph 212.3(16)(a), the business activities of the subject corporation and all subject subsidiary corporations (as that term is described in paragraph 212.3(16)(a)), on a collective basis, must be considered

28 August 2013 External T.I. 2013-0498701E5 - Principal Residence Exemption - Excess Land

CRA Tags
54, 40(2)(b), 38(a), 39(1)(a), 248(1)
Summary Under
Tax Topics - Income Tax Act - Section 54 - Principal Residence

Principal Issues: Clarification of our position taken in 2011-041748.

Position: Clarification provided.

Reasons: N/A.

27 August 2013 External T.I. 2013-0501311E5 - Income or Capital account

CRA Tags
18(1)(a), 9(1)

Principal Issues: Whether the disposition of a property would be on account of income or capital.

Position: General comments provided.

Reasons: Question of fact

26 August 2013 External T.I. 2013-0502151E5 - Deductible Business Expenses

CRA Tags
15(1), 18(1)(a), 18(1)(h), 56(2)

Principal Issues: Whether amounts paid by a corporation for university tuition and living expenses of a relative of the corporation's shareholder are deductible? Are these amounts taxable to either the shareholder or the shareholder's relative?

Position: The amounts paid by the corporation are not deductible. They would also be considered benefits conferred by the corporation to the shareholder by virtue of subsection 15(1) and 56(2).

Reasons: The law.

22 August 2013 External T.I. 2013-0501471E5 - Principal Residence

CRA Tags
54

Principal Issues: General information on the principal residence exemption.

Position: See below.

Reasons: See below.

21 August 2013 External T.I. 2013-0486441E5 - CCA and ITCs on anaerobic digester

CRA Tags
127(9), 125.1(3), 127(5), ITR Schedule II - Class 43.1, ITR Schedule II - Class 43.2, ITR 4600
Summary Under
Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 43.2

Principal Issues: Is the anaerobic digester of the taxpayer eligible for ITCs and Class 43.1/43.2 CCA?

Position: Maybe

Reasons: Mixed question of facts and law

18 June 2013 External T.I. 2013-0480951E5 - MicroFIT program

CRA Tags
13(5)(6), 54(1), 40(2)(7.1), 20(1)(a)

Principal Issues: Tax consequences where a solar pv system is installed on the roof of a principal residence.

Position: The principal residence exemption will not be affected.

Reasons: Administrative position will cover this situation.

3 April 2013 External T.I. 2012-0469941E5 - CCA class and rate

CRA Tags
ITR 1100, ITR Schedule II - Class 8, ITR Schedule II - Class 43.1, ITR Schedule II - Class 43.2, ITR Schedule II - Class 1
Summary Under
Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 43.1

Principal Issues: Whether waste water treatment equipment is included under Class 43.1.

Position: No

Reasons: Waste water treatment equipment may be included under Class 1 or 8.

Technical Interpretation - Internal

28 May 2013 Internal T.I. 2013-0476381I7 - Deemed Resident Trusts & Foreign Tax Credit

CRA Tags
94(3), 94(1)(c), 126(1)
Summary Under
Tax Topics - Income Tax Act - Section 126 - Subsection 126(1)
no pro-ration of FTC by s. 94 trust where Canadian gain was smaller than US gain
Summary Under
Tax Topics - Income Tax Act - Section 20 - Subsection 20(12)
no s. 20(12) deduction available where only a capital gain
Summary Under
Tax Topics - Income Tax Act - Section 94 - Subsection 94(3) - Paragraph 94(3)(b)

Principal Issues: For the purposes of the foreign tax credit, will the amount of U.S. taxes paid on the actual disposition of marketable securities by the deemed resident trust need to be pro-rated to reflect the portion of the taxable capital gain that is subject to tax in Canada under proposed 94(3)(b)?

Position: No

Reasons: Under the new proposed legislation, the wording of the new legislation makes no reference to the income subject to tax in Canada, thus the full amount of the U.S. taxes paid is creditable subject to the limitations in section 126.

23 April 2013 Internal T.I. 2013-0485161I7 - Calculation of Gross Negligence Penalty

CRA Tags
111, 163(2), 163(2.1)
Summary Under
Tax Topics - Income Tax Act - Section 163 - Subsection 163(2)

Principal Issues: How is the gross negligence penalty calculated?

Position: The penalty is calculated by adding to taxable income reported by the taxpayer the full amount of the taxpayer's understatement of income for a particular year.

Reasons: Subsection 163(2.1) includes in understatement of income the full amount deducted by the taxpayer in computing income for the year.

9 April 2013 Internal T.I. 2012-0480021I7 - Section 35--Prospectors

CRA Tags
110(1)(d.2), 35

Principal Issues: Would the terms of an agreement relating to the granting of an option by a prospector to a corporation result in the prospector disposing of a mineral property or interest therein?

Position: Yes.

Reasons: Wording of section 35 and case law.