Income Tax Severed Letters - 2013-11-20

Technical Interpretation - External

6 November 2013 External T.I. 2013-0485691E5 - Connected Corporation and Part IV Tax

CRA Tags
186(1), 186(2), 186(3), 186(4), 186(6)
Summary Under
Tax Topics - Income Tax Act - Section 186 - Subsection 186(6)
shares held directly and through LP

Principal Issues: 1. Should the shares of a payer corporation held through a partnership be considered when determining whether or not the payer corporation is connected with the recipient corporation for the purposes of computing the Part IV tax liability of the recipient corporation? 2. Where the payer corporation is connected with the recipient corporation, should the taxable dividends received through the partnership be included in determining the Part IV tax liability?

Position: 1 - Yes. 2 - Yes.

Reasons: For the purposes of Part IV, subsection 186(6) provides a deeming rule such that each member of the partnership is deemed to have received its proportionate share of the taxable dividends received by the partnership, and further, each member is deemed to own a proportion of the shares owned by the partnership based on that member's share of all dividends received on such shares by the partnership.

5 November 2013 External T.I. 2013-0501241E5 F - Application of subsection 39(2)

CRA Tags
39(2)
Summary Under
Tax Topics - Income Tax Act - Section 39 - Subsection 39(2)
declared dividend is a debt to which s. 39(2) applies
Words and Phrases
debt
Summary Under
Tax Topics - Income Tax Act - Section 12 - Subsection 12(11) - Investment Contract
dividend becomes debt when declared

Principales Questions: Whether subs. 39(2) ITA applies to a f/x gain or loss with respect to a unpaid dividend?

Position Adoptée: yes

Raisons: The gain is with respect to the debt created on the declaration of the dividend, not with respect to a transaction or event in respect of shares of the capital stock of the taxpayer

29 October 2013 External T.I. 2013-0507881E5 - Price adjustment clause

CRA Tags
16(1), 84(3), 162, 163
Summary Under
Tax Topics - General Concepts - Effective Date
Summary Under
Tax Topics - Income Tax Act - Section 84 - Subsection 84(3)
price adjustment payment recognized as s. 84(3) dividend when received

Principal Issues: Preferred shares are issued to a taxpayer in consideration for property. The redemption value of those shares would be equal to the fair market value of the property acquired by the corporation. Pursuant to a price adjustment clause contained in the articles of incorporation, the redemption value of the preferred shares would be adjusted to reflect the fair market value of the consideration if the amount considered to be the fair market value is changed. If the preferred shares are redeemed before an upward adjustment to the redemption value is made, the corporation would pay an additional amount to the taxpayer. If the price adjustment clause meets the requirements to be considered valid by the CRA,
1. In which year would the additional payment be included in income?
2. Would there be any penalty on income tax resulting from the application of the price adjustment clause?
3. Would there be any interest on income tax resulting from the application of the price adjustment clause?

Position: 1. In the year of the receipt of the additional payment.
2. There would be no penalty for false statement or omission and if the tax return is produced within the deadline provided for in the Act, there would be no late-filing penalty.
3. If the tax return is produced within the deadline provided for in the Act and if the instalments were paid during the year as provided for in the Act, there would be no interest with respect to the tax on the additional payment.

Reasons: 1. Previous position.
2. Wording of the Act. If the CRA recognizes the validity of the price adjustment clause, it means that the taxpayers have made a real effort to determine the fair market value and that such determination was performed in good faith.
3. Wording of the Act.

29 October 2013 External T.I. 2013-0509101E5 - Crowdfunding

CRA Tags
9, 248(1), 18(1)(a)
Summary Under
Tax Topics - Income Tax Act - Section 9 - Exempt Receipts/Business

Principal Issues: What is the tax treatment of amounts received through crowdfunding?

Position: Question of fact.

Reasons: See below.

29 October 2013 External T.I. 2013-0489911E5 - Disposition of CRCE intangibles

CRA Tags
ITR 1219, 66.1, 66(12.1), 85(1), 54, 14(5), 85(1.1), 97(2), 14(1)
Summary Under
Tax Topics - Income Tax Act - Section 14 - Subsection 14(5) - Cumulative Eligible Capital
CRCE intangibles

Principal Issues: Whether the intangible CRCE derived property could be rolled over under s.85(1) or 97(2)?

Position: No

Reasons: Facts and law

25 October 2013 External T.I. 2013-0508971E5 - Crowdfunding

CRA Tags
9, 248(1), 18(1)(a)
Summary Under
Tax Topics - Income Tax Act - Section 9 - Exempt Receipts/Business

Principal Issues: What is the tax treatment of amounts received through crowdfunding?

Position: Question of fact.

Reasons: See below.

8 October 2013 External T.I. 2013-0500511E5 - Withholding on forfeited DPSP amount

CRA Tags
153(1)(h), ITR 100(1), ITR 103(4), ITR 200(1), ITR 103(6)(b), 147(2)(i.1)

Principal Issues: What are the withholding tax requirements on forfeited amounts paid out of a deferred profit sharing plan (DPSP) to the employer?

Position: Forfeited amounts are subject to reporting and tax withholding under Part 1 of the Regulations.

Reasons: As required under paragraph 153(1)(h) of the Act.

7 October 2013 External T.I. 2013-0500941E5 F - Actif utilisé dans une entreprise active

CRA Tags
110.6(1)
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 110.6 - Subsection 110.6(1) - Qualified Small Business Corporation Share
rental property of partnership leased as to 15% to an active business partner did not qualify as active business asset

Principales Questions: Est-ce que la participation qui est détenue par une société dans une société en nom collectif constitue un actif qui est attribuable à des éléments utilisés principalement dans le cadre d'une entreprise exploitée activement? Is a participation in a partnership held by a corporation an asset attributable to assets used principally in an active business?

Position Adoptée: Question de fait. Il faut examiner l'utilisation des actifs de la société en nom collectif avant de se prononcer sur la qualification de la participation aux fins de la déduction pour gains en capital. Question of fact. We must look at the use of the partnership's assets before determining whether the participation in the partnership is a qualifying asset for purposes of the capital gains deduction.

Raisons: Loi de l'impôt sur le revenu. Income Tax Act.

15 January 2013 External T.I. 2012-0439641E5 - UK pension transfer to Canada

CRA Tags
60(j)(i), 56(1)(a)(i), Treaties Article XVIII
Summary Under
Tax Topics - Income Tax Act - Section 60 - Paragraph 60(j)

Principal Issues: Whether a Canadian resident would be entitled to claim a deduction under paragraph 60(j) of the Income Tax Act for a lump-sum transfer from a United Kingdom pension plan to an RRSP? Would this transfer impact the individual's regular RRSP deduction limit?

Position: Where the individual transfers the amount of the lump-sum pension benefit to an RRSP and all of the conditions under subparagraph 60(j)(i) of the Income Tax Act are met, the individual is eligible for a deduction and the corresponding transfer does not impact the unused RRSP deduction room of that individual.

Reasons: Provided for under paragraph 60(j) of the Income Tax Act.

Conference

11 October 2013 Roundtable, 2013-0493701C6 F - Amount paid or credited - Reg. 202

CRA Tags
ITR 202
Summary Under
Tax Topics - Income Tax Regulations - Regulation 202 - Regulation 202(1) - Paragraph 202(1)(b)
accounting method used by recipient does not affect which items are reported on NR4

Principal Issues: Does Reg. 202 apply in respect of amounts computed on a cash basis or on an accrual basis?

Position: Generally, amounts paid or credited.

Reasons: Wording of the Reg.

Technical Interpretation - Internal

23 September 2013 Internal T.I. 2012-0471531I7 F - Non-profit organization

CRA Tags
149(10), 149(1)(l)
Summary Under
Tax Topics - Income Tax Act - Section 149 - Subsection 149(1) - Paragraph 149(1)(l)
taxable member of an NPO can make loans at interest to it and receive repayment of the loan on the NPO’s winding-up

Principales Questions: Whether the distribution of the assets of the NPO to one of its creditor would cause the NPO to lose its tax exempt status under paragraph 149(1)(l)?

Position Adoptée: Generally, such a distribution would not cause the NPO to lose its tax exempt status under paragraph 149(1)(l).

Raisons: In agreement with applicable legislations which require that all interest of creditors be satisfied in order to proceed with the corporation wind-up.