Income Tax Severed Letters - 2013-09-18

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.

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.

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

Position: Favourable rulings provided.

Reasons: In compliance with the law and previous positions.

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.