Income Tax Severed Letters - 2013-12-04

Ruling

2012 Ruling 2011-0429611R3 - Variation of Trust Indenture

CRA Tags
104(7.1), 108(2)(a), 108(2)(b)
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(7.1)
addition of preferred units
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 108 - Subsection 108(2) - Paragraph 108(2)(b)
application of asset tests to sub LPs on look-through basis; special voting unit
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Disposition
addition of preferred REIT units not disposition/ exercise of right to redesignate fixed preferred units as floating rate, is disposition

Principal Issues: Whether the variation of a trust indenture to create and issue a new class of preferred units would result in: 1. a disposition by existing unitholders of their units. 2. a disposition by the trust of its property or in a resettlement of the trust for purposes of the Act. 3. the application of subsection 104(7.1) so as to deny the deduction by the trust of any amount it is otherwise entitled to deduct under paragraph 104(6)(b).

Position: 1. No. 2. No. 3. No.

Reasons: 1. No cash consideration or other proceeds of disposition will be received by the unitholders in respect of the removal of the redemption right or the issuance of the preferred units. Moreover, the changes to the trust indenture in this case, as a whole, are not viewed as sufficiently material to take the position that the amended units would be proceeds of disposition. 2. The changes are not so extensive so as to result in a resettlement of trust and it is submitted that there will be no resettlement as a matter of provincial law. 3. Consistent with previous rulings.

Technical Interpretation - External

19 November 2013 External T.I. 2012-0455731E5 F - Interprovincial income allocation

CRA Tags
12(4), ITR 402
Summary Under
Tax Topics - Income Tax Regulations - Regulation 402 - Subsection 402(3)
where franchisor takes over Ontario franchisee's operations, its royalties from other Ontario franchisees are not assimilated to the Ontario PE

Principales Questions: How to allocate income between two provinces in a particular situation where a corporation that is a franchisor and had a PE only in Québec and franchisees in Québec and other provinces if the franchisor takes over the activities of one of its franchisees in Ontario?

Position Adoptée: The only income that is reasonably attributable to the PE in Ontario would be the income earned with respect to the activities of its former franchisee.

Raisons: Wording of the Act.

19 November 2013 External T.I. 2013-0510351E5 - Steel Tanks and Oak Barrels of a Winery Business

CRA Tags
125.1(3) "manufacturing or processing", ITR Schedule II - Class 29, 125.1(3) "Canadian manufacturing and processing profits", ITR 1109 "manufacturing or processing", ITR Schedule II - Class 28, 248(1) - "farming"
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Farming
wine fermentation not farming
Summary Under
Tax Topics - Income Tax Act - Section 4 - Subsection 4(1) - Paragraph 4(1)(a)
grape farming and wine production separate
Summary Under
Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 29
wine fermentation not processing
Summary Under
Tax Topics - Income Tax Regulations - Regulation 1104 - Subsection 1104(9) - Paragraph 1104(9)(a)
wine production not farming

Principal Issues: Follow-up letter concerning technical interpretation letter to 2013-050331.

Position: None taken - some general comments regarding situation where a taxpayer carries on a business that involves farming activities (growing grapes) and non-farming activities (i.e. processing of farm product – producing wine for sale).

Reasons: See general comments

19 November 2013 External T.I. 2011-0414201E5 F - Coop, ristournes, société de personne

CRA Tags
135(2), 135(4), 96
Summary Under
Tax Topics - Income Tax Act - Section 135 - Subsection 135(1)
a Coop dealing with an LP of which it is a partner has the LP as its customer, and not the LP customers
Summary Under
Tax Topics - Income Tax Act - Section 96 - Subsection 96(1) - Paragraph 96(1)(a)
customers of LP rather than of members

Principales Questions: Pour les fins de l'article 135, lorsqu'une coopérative fait affaire avec une société en commandite dont elle est un associé, qui sont les clients de la coopérative, la société en commandite ou les clients de la société en commandite?
When a cooperative is doing business with a limited partnership of which the cooperative is a partner, who are the customers of the cooperative for the application of section 135, the partnership or the customers of the partnership?

Position Adoptée: En général, le client de la coopérative serait la société en commandite.
In general, the limited partnership would be the client of the cooperative.

Raisons: Selon l'alinéa 96(1)a), lorsqu'un contribuable est un associé d'une société de personnes, son revenu est calculé comme si la société de personnes était une personne distincte. Cette règle s'applique au paragraphe 135(1) qui vise une déduction dans le calcul du revenu.
Pursuant to subsection 96(1), where a taxpayer is a member of a partnership, the taxpayer`s income shall be computed as if the partnership were a separate person. This rule applies to subsection 135(1) because it provides a deduction in computing income of a taxpayer.

13 November 2013 External T.I. 2013-0482431E5 - Subsection 100(1) and trusts under RRSP

CRA Tags
100(1.1), 100(1.2), 149(1)(r), 100(1)
Summary Under
Tax Topics - Income Tax Act - Section 100 - Subsection 100(1.1)
acquiring partnership with RRSP member

Principal Issues: Whether subsection 100(1) would apply because of subsection 100(1.1) in respect of a disposition of a partnership interest by a taxpayer where the interest is acquired by a partnership whose members include trusts under RRSP?

Position: Yes, but subject to a de minimis rule.

Reasons: Subject to the de minimis rule in subsection 100(1.2), subsection 100(1) would apply because of subparagraph 100(1.1)(c)(i) to the extent that the partnership interest is held by persons exempt from tax under section 149, including RRSP trusts exempt under paragraph 149(1)(r).

7 November 2013 External T.I. 2013-0501021E5 - Eligible income for pension income splitting

CRA Tags
118(7), 60.03(1)
Summary Under
Tax Topics - Income Tax Act - Section 60.03 - Subsection 60.03(1) - Eligible Pension Income
unfunded SERP

Principal Issues: Whether amounts received out of a supplementary employee retirement plan (SERP) are eligible for pension income splitting under the Act?

Position: Where the plan is funded, the arrangement is considered to be an RCA and amounts reported on the T4A-RCA are eligible for income splitting. Where the plan is unfunded, the amounts are not reported on a T4A-RCA and are not eligible for income splitting.

Reasons: The amended definition of eligible pension income in subsection 60.03(1) does not include payments out of an unfunded SERP.

22 October 2013 External T.I. 2013-0503311E5 - Class. of steel tanks & oak barrel for CCA purpose

CRA Tags
125.1(3) "manufacturing or processing", ITR 1109 "manufacturing or processing", ITR Schedule II - Class 8, ITR Schedule II - Class 29, ITR Schedule II - Class 43
Summary Under
Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 29

Principal Issues: Whether steel tanks and oak barrels used for fermenting/clarifying/blending and/or aging wine, and acquired after March 18, 2007 and before 2016, would be included in class 29 of Schedule II of the Income Tax Regulations.

Position: In this particular case, likely yes.

Reasons: See comments

18 October 2013 External T.I. 2012-0451081E5 - Clergy Residence Deduction

CRA Tags
8(1)(c)

Principal Issues: Whether an organization is a religious order for purposes of the clergy residence deduction provided by paragraph 8(1)(c) of the Act?

Position: See response.

Reasons: See response.

1 October 2013 External T.I. 2013-0502031E5 - Health Welfare Trust/Private Health Services Plan

CRA Tags
248(1) private health services plan, 20.01(2), 118.2(2)

Principal Issues: Whether various plans are considered either a health and welfare trust or a private health services plan.

Position: It depends.

Reasons: It is a question of fact.

2 August 2013 External T.I. 2013-0475041E5 - NPO - rental income

CRA Tags
149(5), 149(1)(l)
Summary Under
Tax Topics - Income Tax Act - Section 149 - Subsection 149(1) - Paragraph 149(1)(l)
incidental rental activity

Principal Issues: 1. Whether the NPO can rent vacation properties to non-members and still be exempt from tax. 2. Whether the NPO would pay tax on rental income pursuant to 149(5).

Position: 1. Depends. 2. Yes, would likely be considered income from property.

Reasons: 1. Could indicate a profit purpose. 2. If business income, would likely indicate a profit purpose organization and would not be considered an NPO.

Conference

11 October 2013 Roundtable, 2013-0495801C6 F - Dividend Paid to Trust and Schedule 3 of T2

CRA Tags
104(19), 104(13)
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(19)
s. 104(19) designation is not effective until year end of trust
Summary Under
Tax Topics - Income Tax Act - Section 186 - Subsection 186(1) - Paragraph 186(1)(b)
s. 104(19)-designated dividend is not received for s. 186(1)(b) purposes until year end of trust

Principal Issues: a) Whether the position taken in document No. 2011-0392661E5 is still valid and if so, what would the CRA do in order to avoid audit issues pointed out by certain tax practitioners? b) A portion of a taxable dividend received by a trust in a particular taxation year can be designated under subsection 104(19) at the end of the trust's taxation year. In a particular situation a trust received a taxable dividend and the trust paid the amount of the taxable dividend to its corporate beneficiary. The taxable dividend initially received by the trust was designated by the trust pursuant to subsection 104(19). When will the taxable dividend be considered to have been received by the corporate beneficiary?

Position: a) Yes. General comments provided; b) In the particular situation, June 30, 2014.

Reasons: a) and b) According to the law and previous positions.

11 October 2013 APFF Roundtable, 2013-0495811C6 F - De Facto Control

CRA Tags
256(5.1)
Summary Under
Tax Topics - Income Tax Act - Section 256 - Subsection 256(5.1)
statutory right of chair to tie-breaking vote does not per se confer de facto control

Principal Issues: In a particular situation, the voting shares of a corporation are divided evenly between two shareholders. Section 188 of the QBCA provides that unless otherwise provided in the by-laws, in the case of a tie, the chair of the meeting casts the tie-breaking vote. Whether in the particular situation, the chair of the meeting has de facto control of the corporation pursuant to paragraph 256(5.1)?

Position: General comments provided.

Reasons: According to the law and previous positions.

Technical Interpretation - Internal

5 November 2013 Internal T.I. 2013-0494611I7 - Religious order

CRA Tags
8(1)(c)
Summary Under
Tax Topics - Income Tax Act - Section 8 - Subsection 8(1) - Paragraph 8(1)(c)

Principal Issues: Is a particular organization a religious order for purposes of paragraph 8(1)(c) of the Act?

Position: Likely no.

Reasons: Question of fact. The information provided does not demonstrate that the organization embodies all six characteristics (outlined in paragraph 9 of IT-141R) indicative of a religious order.