Income Tax Severed Letters - 2014-01-22

Ruling

2013 Ruling 2012-0470801R3 - Employee Benefit Plan - Redemption Window

CRA Tags

6(1)(g)(ii), 6(1)(a), 6(1)(g), 5(1), 32.1, 248(1)

Summary Under

Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Employee Benefit Plan

redemption of notional units

Principal Issues: (1) Do the conditions, limitations, qualifications and comments set out in the original ruling continue to apply with respect to the amended Plan? (2) Pursuant to subsection 5(1) and paragraph 6(1)(a) of the Act, there is no amount included in the income of a participant on the redemption of the participant's notional units in the participant's account that are distributed by the Trustee as a return of a participant's capital contributions? (3) Pursuant to paragraph 6(1)(g) of the Act, amounts distributed to a participant on the redemption of notional units in the participant's employer contribution account are included in the participant's income in the year in which those notional units are redeemed?

Position: (1) Yes; (2) Yes; (3) Yes

Reasons: (1) The amended Plan continues to constitute an employee benefit plan as defined in subsection 248(1) of the Act. (2) Under the amended plan, no amount of the redemption of the participant's notional units in the participant's account will be included in income under subsection 5(1) or paragraph 6(1)(a) of the Act. The redemption of a participant's notional units in the participant's account is a return of the participant's capital contribution and is excluded from income by virtue of 6(1)(g)(ii). (3) Under the amended plan, the redemption of notional units in the participant's employer contribution account will be included in the participant's income pursuant to paragraph 6(1)(g) of the Act.

2013 Ruling 2013-0512531R3 - Supplement ruling request

Principal Issues: Changes to ruling 2012-044308

Position: Ruling modified.

Reasons: See below

Ministerial Correspondence

12 December 2013 Ministerial Correspondence 2013-0512621M4 - Income averaging for professional artists

Principal Issues: Client requests changes to bulletins to put into effect the proposals on income averaging for professional artists.

Position: General comments provided

Reasons: Previous position

6 December 2013 Ministerial Correspondence 2013-0511691M4 - Transfer of a superannuation

Principal Issues: 1. Taxpayer requested information about transferring a foreign superannuation.

Position: 1. No position taken.

Reasons: 1. Referred to CRA for reply.

4 December 2013 Ministerial Correspondence 2013-0510401M4 - Identical Properties

CRA Tags

47(1)

Principal Issues: 1. Taxpayer requested background information on the identical property rules for shares.

Position: 1. No position taken.

Reasons: 1. Provided references to existing published material.

Technical Interpretation - External

8 January 2014 External T.I. 2014-0516731E5 - Error correction to capital cost of an asset

Principal Issues: Confirmation of the steps taken in file XXXXXXXXXX.

Position: See below.

Reasons: See below.

7 January 2014 External T.I. 2013-0515361E5 - CCA and Manufacturing or Processing of Malt

CRA Tags

1101(5b.1), ITR 1100(1)(a.1), 1104(2), ITR Schedule II - Class 43, ITR Schedule II - Class 29, ITR 1100(1)(a.2), ITR Schedule II - Class 1

Summary Under

Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 29

Principal Issues: Would machinery and equipment that is used in the manufacturing or processing of malt be eligible for inclusion in class 29 or 43 and would buildings used in manufacturing or processing activities be eligible for additional CCA under 1100(1)(a.1) or (a.2)?

Position: General comments - Question of fact.

Reasons: See response

6 January 2014 External T.I. 2013-0512041E5 F - Dividend Designation under subsection 89(14)

CRA Tags

89(14), 89(1)

Summary Under

Tax Topics - Income Tax Act - Section 89 - Subsection 89(14)

designation can be on all (rather than just part) of the dividend

Words and Phrases

portion

Principales Questions: Whether a corporation can designate the total amount of a dividend it pays to be an eligible dividend?

Position Adoptée: Yes.

Raisons: The law.

6 January 2014 External T.I. 2013-0477711E5 - Limited partnership losses and dissolution

CRA Tags

96(2.1), 98(1), 99(1), 99(2), 111(1)(e), 96(2.2)

Summary Under

Tax Topics - Income Tax Act - Section 96 - Subsection 96(2.1)

partnership termination

Summary Under

Tax Topics - Income Tax Act - Section 99 - Subsection 99(1)

2 taxation years if s. 98(1)(a) operates to deem partnership to continue after its termination

Principal Issues: Can a limited partner deduct, in the limited partner's taxation year in which the partnership ceases to exist, the portion of the limited partner's share of the partnership loss for its final fiscal period that is in excess of that limited partner's at-risk amount in respect of the partnership at the end of that fiscal period?

Position: No.

Reasons: Wording of 96(2.1) and 111(1)(e).

3 January 2014 External T.I. 2013-0514021E5 F - Subsection 55(2) - redemption of shares

CRA Tags

55(3)(a), 55(2), 55(5)(f)

Summary Under

Tax Topics - Income Tax Act - Section 55 - Subsection 55(3) - Paragraph 55(3)(a)

dividend recipient unrelated to nephew's company; "small" percentage not "significant;" previous estate freeze might be part of series

Principales Questions: In the hypothetical situations described, whether subsection 55(2) would apply.

Position Adoptée: In the first situation, no because of the application of paragraph 55(3)(a). In the second situation, possibly yes.

Raisons: In the second situation, there may be a significant increase in interest described in subparagraphs 55(3)(a)(ii) and (v).

3 January 2014 External T.I. 2013-0482081E5 - Nil value partnership units

CRA Tags

98(1), 50(1)

Summary Under

Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Disposition

no disposition of interests in inactive partnership until dissolution

Summary Under

Tax Topics - Income Tax Act - Section 50 - Subsection 50(1)

nil value partnership

Principal Issues: Whether the Act contains a provision that provides for a deemed disposition of nil value limited partnership units where the partnership has not yet ceased to exist?

Position: No.

Reasons: Subsection 50(1) does not apply and there is no similar provision in the Act that would deem a disposition of nil value limited partnership units where the partnership has not yet ceased to exist.

20 December 2013 External T.I. 2013-0501831E5 - Partnership - 85(2), (3) and 100(2)

CRA Tags

85(2), 85(3), 40(1), 100(2), 248(1) "disposition"

Summary Under

Tax Topics - Income Tax Act - Section 85 - Subsection 85(3)

negative ACB partnership interest

Principal Issues: (1) Can a partnership transfer property to a corporation under subsection 85(2) without any tax consequences where the non-share consideration is in excess of the elected amount? (2) Where subsection 85(3) is applicable, does the wind-up of the partnership result in a disposition of the partnership interest? If yes, what are the tax consequences where a general partner has a negative adjusted cost base?

Position: (1) No. (2) Yes, the wind-up would result in a disposition of the partnership interest and a general partner with a negative adjusted cost base would have a gain pursuant to subsection 100(2).

Reasons: (1) Subject to paragraph 85(1)(c), paragraph 85(1)(b) provides that the elected amount cannot be less than boot. (2) The definition of "disposition" under subsection 248(1) includes any transaction or event entitling a taxpayer to proceeds of disposition of the property and paragraph 85(3)(g) deems the amount of the proceeds of disposition where subsection 85(3) is applicable. Further, paragraph 85(3)(g) specifically refers to "the disposition of the interest". Thus, subsection 100(2) would apply.

19 December 2013 External T.I. 2013-0503481E5 - Distribution of property by a trust

CRA Tags

107(4.1), 107(2)

Summary Under

Tax Topics - Income Tax Act - 101-110 - Section 107 - Subsection 107(2)

transfer to settle debt

Words and Phrases

distribution

Principal Issues: Can a transfer of a property from a personal trust to a beneficiary constitute both a settlement of a debt owing to the beneficiary and a distribution that meets the requirements for a rollover under subsection 107(2)?

Position: No.

Reasons: It cannot simultaneously be both.

18 December 2013 External T.I. 2011-0414841E5 F - All interests vested indefeasibly

CRA Tags

108(4), 248(9.2), 108(1)(g), 108(6)

Summary Under

Tax Topics - Income Tax Act - 101-110 - Section 108 - Subsection 108(1) - Trust - Paragraph (g)

s. 75(2) trust made non-discretionary to avoid 21-year rule

Words and Phrases

vested indefeasibly

Principales Questions: 1. In a context where a discretionary trust will be amended to become a non-discretionary trust, will the trust be an excluded trust pursuant to paragraph g) of the definition of trust in subsection 108(1) of the Income Tax Act? 2. What are the tax consequences of modifications to a trust indenture in a situation where a discretionary trust becomes a non-discretionary trust?

Position Adoptée: 1. General comments. 2. None.

Raisons: 1. Previous positions. 2. Question of facts and law.

13 December 2013 External T.I. 2013-0500821E5 - Shared-custody parent for CCTB

CRA Tags

122.61, 122.6, 122.62

Principal Issues: Whether an individual who becomes an "eligible individual" as a "shared-custody parent" for purposes of the CCTB can retroactively claim for the benefit, assuming all eligibility criteria are met?

Position: Generally yes

Reasons: An individual cannot be considered an eligible individual for a particular month until they meet the eligibility criteria for being an eligible individual in that month, and apply for the CCTB for that month. An individual cannot be considered to be an eligible individual at the beginning of a month, unless they have filed the prescribed forms and prescribed information within 11 months of the end of that month.

12 December 2013 External T.I. 2013-0500991E5 - Employer-Paid Tuition

CRA Tags

118.6(2.1), 6(1)(a), 56(3), 118.6(2), 118.5(1)(a), 18(1)(a), 67, 118.6(1), 56(1)(n)

Principal Issues: 1. Whether the payments or reimbursements for an employee's tuition fees are deductible by the employer?
2. Whether employer-paid tuition fees are taxable benefits to the employee?
3. Which tax credits are available to an employee for tuition fees?

Position: 1. Normally deductible.
2. Question of fact.
3. Depends on the situation.

Reasons: 1. Payments or reimbursements for an employee's tuition fees which are incurred for business purposes are generally deductible under paragraph 18(1)(a).
2. Question of fact whether primarily for the benefit of the employer or employee.
3. Tax credits available depend on situation.

12 December 2013 External T.I. 2013-0509161E5 - Indian - CPP and OAS

CRA Tags

81(1)(a)

Summary Under

Tax Topics - Other Legislation/Constitution - Federal - Indian Act - Section 87

CPP and OAS

Principal Issues: Whether CPP and OAS payments received by an Indian are exempt from tax?

Position: Depends on the situation for CPP. No for OAS.

Reasons: CPP payments that relate to employment income that was exempt from tax will be exempt from tax. OAS payments will not be exempt from tax since it is available to all Canadians who qualify, it is not related to previous employment, and there are insufficient factors connecting it to a reserve.

10 December 2013 External T.I. 2013-0513361E5 - Personal-use property

CRA Tags

46, 18(1)(h), 50, 54 "personal-use property", 248(1) "personal-use property", 18(1)(a), 40(2)(g), 233.3, 251(2)

Principal Issues: Are non-interest bearing loans made to related persons personal-use property?

Position: No.

Reasons: Personal-use property requires actual use or enjoyment. Absence of income earning purpose is insufficient.

9 December 2013 External T.I. 2013-0507931E5 F - Financing fees

CRA Tags

20(1)(e.1), 20(1)(e), 18(1)(b)

Summary Under

Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Expenditure v. Expense - Financing Expenditures

intragroup cash pool utilization fees are capital expenditures

Summary Under

Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(e.1)

annual internal cash pool utilization fees likely are deductible under s. 20(1)(e.1)

Summary Under

Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(e)

cash pool utilization fees could be deductible under s. 20(1)(e)

Principales Questions: The debts owed by some corporations of a group to a financial institution, are reduced by the amount of cash held by another corporation of the group and deposited in that same financial institution, in order to compute the interests charged to the debtors with respect to their debts. To compensate for the service rendered by the corporation holding the cash, that corporation charges a fee to the debtors equal to the amount of cash held by the corporation and deposited in the financial institution multiplied by the rate of interest charged by the said financial institution.
1. Whether the debtors can deduct those financing fees?
2. Whether the fees are reasonable?

Position Adoptée: 1. The fees would constitute capital expenditures. However, depending on the agreements between the parties (and all the relevant facts and circumstances of a particular situation), such fees may arguably be deductible pursuant to paragraph 20(1)(e.1).
2. No position taken.

Raisons: 1. It can be argued that these annual fees are service fees or similar fees that the corporations incur for the purpose of borrowing money used by the debtors to earn income from their business.
2. Question of fact.

6 December 2013 External T.I. 2013-0511591E5 - Political contributions

CRA Tags

127(3)

Principal Issues: Taxpayer requested clarification on the reporting and deductibility of federal political party contributions.

Position: General comments provided.

Reasons: See below.

14 November 2013 External T.I. 2013-0500641E5 - Subsections 7(6) and 153(1) - Withholding

CRA Tags

7(1), 153(1.01), 7(6), 153(1)

Summary Under

Tax Topics - Income Tax Act - Section 153 - Subsection 153(1) - Paragraph 153(1)(a)

employer rather than s. 7(6) trust withholds

Summary Under

Tax Topics - Income Tax Act - Section 7 - Subsection 7(6)

employer rather than s. 7(6) trust withholds

Principal Issues: Where an arrangement described in subsection 7(6) of the Income tax Act (the "Act") exists, is it the employer/corporation or the trustee who has the obligation to withhold tax for purposes of subsection 153(1) of the Act?

Position: The corporation/employer.

Reasons: The provisions of subsections 7(6), 7(1), 153(1.01) and 153(1) of the Act.

15 October 2013 External T.I. 2013-0496481E5 - Home Buyers Plan and Specified Disabled Person

CRA Tags

146.01

Principal Issues: Whether a withdrawal from an RRSP can be made under the HBP to contribute to the purchase of a more accessible home for a disabled grandchild, when neither the taxpayer nor the disabled grandchild are purchasing the home.

Position: No.

Reasons: Either the individual (ie. the annuitant) or the specified disabled person must enter into an agreement to acquire the qualifying home, and must subsequently acquire the qualifying home.

17 October 2012 External T.I. 2012-0437691E5 - Factual Resident - Missionary

CRA Tags

250(3)

Summary Under

Tax Topics - Income Tax Act - Section 2 - Subsection 2(1)

missionary electing to be resident

Principal Issues: Would a Taxpayer be considered a factual resident of Canada given a particular set of facts which includes the Taxpayer performing missionary work in XXXXXXXXXX for a number of years?

Position: Question of fact. Taxpayer needs to request determination of residency from ITSO.

Reasons: Question of fact.

Technical Interpretation - Internal

24 December 2013 Internal T.I. 2013-0512551I7 - Thin Cap and partnership income

CRA Tags

18(4)

Summary Under

Tax Topics - Income Tax Act - Section 18 - Subsection 18(4)

stub period partnership income inclusion in r/e

Principal Issues: What amount of partnership income is to be included in determining the amount of a corporate partner's retained earnings for the purpose of the thin capitalization rules?

Position: Whichever basis of accounting is established by Canadian GAAP as being appropriate for a corporation's investment in a partnership would govern the determination of that corporation's retained earnings for the purposes of the thin capitalization rules.

Reasons: CRA's position that Canadian GAAP governs in determining a corporation's retained earnings for the purpose of the thin capitalization rules extends to the impact a corporation's interest in a partnership has on its retained earnings.