Income Tax Severed Letters - 2014-04-23

Ruling

2014 Ruling 2013-0483491R3 - Loss Consolidation Arrangement

CRA Tags
20(1)(c)
Summary Under
Tax Topics - Income Tax Act - Section 111 - Subsection 111(1) - Paragraph 111(1)(a)
limited recourse loan to LP subsidiary of Profitco to comply with debt indenture

Principal Issues: Is the LCA acceptable

Position: Yes

Reasons: Within established parameters. Similar to past Rulings.

2013 Ruling 2013-0515351R3 - Supplemental to Ruling 2012-0437881

CRA Tags
112(1), 245(2), 15(1), 20(1)(c), 12(1)(c)

Principal Issues: Request for confirmation from CRA that events subsequent to the issuance of advance income tax ruling 2012-0437881 would not affect the ruling given.

Position: The subsequent events do not affect the validity of the ruling given.

Reasons: See below.

2013 Ruling 2013-0502921R3 - Split-Up Butterfly - Farm

CRA Tags
55(3)(b), 55(2)
Summary Under
Tax Topics - Income Tax Act - Section 186 - Subsection 186(1)
split-up b/f of farm CCPC with unresolved circularity issue
Summary Under
Tax Topics - Income Tax Act - Section 55 - Subsection 55(1) - Distribution
split-up b/f of CCPC with discontinued farm and unresolved circularity issue

Principal Issues: Whether the butterfly dividends are exempt from 55(2) as a result of qualifying under 55(3)(b)?

Position: Yes

Reasons: Proposed transactions meet the requirements of 55(3)(b)

2013 Ruling 2013-0504301R3 - Loss Consolidation

CRA Tags
246(1), 251.1, 245(2), 89(1), 112(2.4), 88(1), 129(3), 12(1)(x), 20(1)(c), 15(1), 111(8), 186(3), 112(2.1), 54, 251(2), 248(1), 112(2.2), 112(2.3), 56(2), 12(1)(c)
Summary Under
Tax Topics - Income Tax Act - Section 111 - Subsection 111(1) - Paragraph 111(1)(a)
Lossco sale of Newco pref to profitco for profitco note; provincial GAAR ruling
Summary Under
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4)
provincial GAAR ruling re loss shift

Principal Issues: Is the Loss Consolidation arrangement acceptable?

Position: Yes

Reasons: Within established parameters. Similar to past Rulings.

2013 Ruling 2012-0458091R3 - XXXXXXXXXX - loss consolidation

CRA Tags
111
Summary Under
Tax Topics - Income Tax Act - Section 111 - Subsection 111(1) - Paragraph 111(1)(a)
use of LP to consolidate loss transfers

Principal Issues: Whether a loss consolidation could be set up using a limited partnership of Profitcos (the "New LP") to acquire preferred shares from Losscos using money borrowed from such Losscos (the "NewLP Loans"). The Profitcos would utilize the losses from the limited partnership related to the interest payable on the NewLP Loans and the Losscos would utilize their losses to offset the interest income earned on the NewLP Loans.

Position: Yes.

Reasons: The ruling conforms to our requirements for these types of rulings.

2013 Ruling 2013-0498961R3 - Partner creating a professional corporation

CRA Tags
246(1), 103(1), 96(1), 56(4), 56(2), 125(7), 256(2.1)
Summary Under
Tax Topics - Income Tax Act - Section 125 - Subsection 125(7) - Specified partnership income
professional partner services corp
Summary Under
Tax Topics - Income Tax Act - Section 256 - Subsection 256(2.1)
incorporated partners of professional partnership

Principal Issues: Will the fees earned by a professional corporation created by a partner to provide professional services to the professional partnership (as an independent contractor) be considered specified partnership income?

Position: Question of fact. Generally no, if certain conditions are met.

Reasons: Consistent with prior rulings.

2013 Ruling 2013-0476331R3 - Split-up Butterfly

CRA Tags
55(3.1), 55(3), 55(2), 55(3.2)

Principal Issues: Whether the butterfly dividends arising on the proposed transactions are exempt from the application of subsection 55(2) under paragraph 55(3)(b).

Position: Yes.

Reasons: Meet the requirements of paragraph 55(3)(b).

Technical Interpretation - External

9 April 2014 External T.I. 2013-0503421E5 F - Transitional reserve

CRA Tags
34.2
Summary Under
Tax Topics - Income Tax Act - Section 34.2 - Subsection 34.2(11)
transitional adjustment where partnership loss in year 1 followed by 2 profitable years

Principales Questions: Whether a corporation is entitled, for a particular taxation year, to claim a transitional reserve under section 34.2 when there is no multi-tier alignment and the partnership, in which the corporation has a significant interest, realizes a loss during the corporation's first taxation year that ends after March 22, 2011, but earns income in the second and third taxation year. In the actual situation, the corporation's qualifying transitional income in respect of the partnership has been adjusted under subsection 34.2(17) and the reserve is not limited under subparagraph 34.2(11)(a)(iii) nor prohibited due to subsection 34.2(13).

Position Adoptée: Yes, unless there is no reserve due to subsection 34.2(13).

Raisons: Based on the wording of subsection 34.2(16), which refers to the taxation year in which the corporation would have an adjusted stub period accrual if the partnership had income, and consistent with the underlying tax policy.

28 March 2014 External T.I. 2014-0525191E5 - Virtual Currencies (Bitcoins)

CRA Tags
10, 3, ITR 1801, 9, 248
Summary Under
Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit
bitcoin mining business

Principal Issues: Various issues.

Position: See below.

Reasons: See below.

27 March 2014 External T.I. 2013-0512921E5 - Withholding tax on relicensing fee

CRA Tags
212(1)(d)(i)
Summary Under
Tax Topics - Income Tax Act - Section 212 - Subsection 212(1) - Paragraph 212(1)(d)
franchise renewal fees

Principal Issues: Whether a franchise relicensing fee payment is considered a "rent, royalty or similar payment" for the purposes of paragraph 212(1)(d)?

Position: Yes.

Reasons: Any payment of the nature of a rent or royalty or similar payment is subject to 212(1)(d).

4 March 2014 External T.I. 2013-0506351E5 - Self-directed RRIF trust

CRA Tags
ITR 4900, 146.3(1), 146.3(2), 204

Principal Issues: Whether a particular transaction, involving participation in the Ontario microFIT program, would result in a self-directed RRIF trust holding a "qualified investment" under the Act.

Position: No.

Reasons: The proposed transaction would not result in a qualified investment, as defined in the Act, being held by the RRIF trust.

31 January 2014 External T.I. 2013-0500501E5 F - Indien - Retenues à la source - RPA

CRA Tags
153(1.1), 81(1)(a), 152(4.2), 152(4), ITR 101, ITR 100, ITR 102, Indian Act - 87, 153(1)
Summary Under
Tax Topics - Other Legislation/Constitution - Federal - Indian Act - Section 87
procedure for adjusting exempt portion of prior years’ RPP pension payments made to Indian

Principales Questions: Questions diverses – Multiple questions.

Position Adoptée: Positions antérieures avec certaines précisions ajoutées- [TRANSLATION] Previous positions with clarification added.

Raisons: Consultation avec la Direction des comptes de fiducie. [TRANSLATION] Consultation with Trust Accounts.

12 November 2013 External T.I. 2012-0471621E5 F - Moving expenses - eligible relocation

CRA Tags
6(2), 248(1), 67
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Eligible Relocation
a multiple move may consist of one or more eligible relocations, and if there is one eligible relocation from Residence 1 to 3, the intermediate moving costs can be deductible
Words and Phrases
ordinarily reside
Summary Under
Tax Topics - Income Tax Act - Section 62 - Subsection 62(3) - Paragraph 62(3)(a)
costs of moving pets by air could qualify
Summary Under
Tax Topics - Income Tax Act - Section 62 - Subsection 62(3) - Paragraph 62(3)(b)
moving furniture to ultimate residence could qualify if not ordinarily residing at intermediate residence
Summary Under
Tax Topics - Income Tax Act - Section 62 - Subsection 62(3)
reasonable gas expenses but not car tune-up costs can qualify

Principales Questions: Les frais de déménagement sont-ils admissibles aux fins de la déduction prévue au paragraphe 62(1) dans une situation donnée où il y a eu deux déménagements au cours de deux années consécutives? / Are moving expenses eligible for the deduction under subsection 62(1) in a particular situation which involves two moves within two consecutive years?

Position Adoptée: Question de fait. Il faudrait suivre les étapes suivantes afin de déterminer quels frais sont admissibles aux fins de la déduction prévue au paragraphe 62(1):
1. Déterminer, d'après les faits, dans quelle(s) résidence(s) le contribuable « habitait ordinairement » (ou « résidait habituellement ») avant et après chaque déménagement. 2. Déterminer s'il s'agissait de deux réinstallations admissibles distinctes, ou plutôt d'une seule réinstallation en deux étapes. 3. Déterminer lesquels des frais admissibles en vertu du paragraphe 62(3) se rapportent à une réinstallation admissible. / Question of fact. The following steps could be followed to determine which expenses are eligible for the purpose of the deduction under subsection 62(1): 1. Determine, based on the facts, at which residence(s) the taxpayer "ordinarily resided" before and after each move. 2. Determine whether there were two separate eligible relocations, or rather a single eligible relocation in two stages. 3. Determine which eligible expenses under subsection 62(3) are associated with an eligible relocation.

Raisons: Selon 62(3), les frais de déménagement comprennent notamment les frais de transport et d'entreposage du contribuable qui doivent être tranportés de son ancienne résidence à sa nouvelle résidence. / Under subsection 62(3), deductible moving expenses include among others any expense incurred as or on account of the cost to the taxpayer of transporting or storing household effects in the course of moving from the old residence to the new residence.

Conference

24 November 2013 Roundtable, 2013-0508141C6 - upstream loans and set-off

CRA Tags
90(8)(a), 90(6)

Principal Issues: Can an upstream loan be considered "repaid" for the purposes of paragraph 90(8)(a) when set off against another obligation or debt between the same parties?

Position: Yes

Reasons: Consistent with case law and our previous positions on the application of subsection 15(2).

Technical Interpretation - Internal

2 April 2014 Internal T.I. 2014-0520921I7 - Compensation for damages to crops and lost profits

CRA Tags
16(1), 39, 38, 28(1), 18(1), 54, 9, 248(1) - "farming"

Principal Issues: 1.) What is the treatment for income tax purposes of amounts received as compensation for damages to crops and for lost profits? 2.) What is the treatment of the expense to the payer?

Position: 1.) Question of fact, but given the same treatment as what it compensates for (surrogatum principle). 2.) See IT-467R2.

Reasons: 1.) Surrogatum principle. 2.) IT-467R2 provides a comprehensive review of the treatment of damage and settlement payments.

19 March 2014 Internal T.I. 2013-0506271I7 - "Working Income" for Working Income Tax Benefit

CRA Tags
122.7(1), 108(5), 143(1)

Principal Issues: Is income allocated by a communal organization to a participating member of the congregation, and reported on a T3 slip as "self-employment earnings for CPP" considered working income for the WITB?

Position: No.

Reasons: Except as otherwise provided in Part I of the ITA, subsection 108(5) deems amounts received by a beneficiary from a trust to be income from a property that is an interest in a trust. This treatment is not varied where the income is considered self-employment income for CPP purposes.

14 March 2014 Internal T.I. 2013-0507661I7 - Foreign Exchange - Loan Renewal

CRA Tags
9, 20(1)(c)
Summary Under
Tax Topics - Income Tax Act - Section 39 - Subsection 39(2)
loan renewal v. novation

Principal Issues: Does the automatic renewal of a loan, in and of itself, trigger a disposition and requiring the recognition of a gain or loss?

Position: Question of fact.

Reasons: Whether a loan has been disposed of or not depends on a number of factors such the intention of the parties involved and whether there has been a significant material change in the contract such that there has been a novation.

March 14, 2014

5 March 2014 Internal T.I. 2013-0500891I7 - Hedging

CRA Tags
9, 38
Summary Under
Tax Topics - Income Tax Act - Section 85 - Subsection 85(1.1)
s. 85(1) roll of FX forward to sub
Summary Under
Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Foreign Exchange
s. 85(1) roll of FX forward to sub
Summary Under
Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Futures/Forwards/Hedges
s. 85(1) roll of FX forward to sub

Principal Issues: Is the gain arising on the disposition of a forward contract on account of income or capital?

Position: The gain is on account of capital in the hands of the subsidiary.

Reasons: See 1980 Revenue Canada Round Table - Section 85 Rolls.

12 February 2014 Internal T.I. 2013-0508841I7 F - Application of subsection 75(2)

CRA Tags
110.6(1), 75(2), 96(1), 110.6(12), 96(1.8), 104, 105
Summary Under
Tax Topics - Income Tax Act - Section 75 - Subsection 75(2)
s. 75(2) does not apply to attribute business losses allocated to the trust by an LP

Principales Questions: 1. Considering the status of limited partner of the trust, whether the business loss allocated to the trust is considered a business loss?
2. Based on the definitions of "investment expense", "investment income" or "cumulative net investment loss" in subsection 110.6(1) can we conclude that the business loss of a limited partnership attributed to a trust (the sole limited partner) is a loss from property?
3. If the losses are business losses, will the provision of subsection 75(2) be applicable?

Position Adoptée: 1. Yes, pursuant to subsection 96(1).
2. No. These definitions are for the purposes of section 110.6 only. The trust is not subject to section 110.6.
3. No.

Raisons: 1. Jurisprudence and previous positions.
2. Application of subsections 110.6(1) and 110.6(12).
3. Jurisprudence and previous position.

19 December 2013 Internal T.I. 2013-0490751I7 - Adjustment to a taxpayer`s CDA

CRA Tags
69(1), 247(2), 83(2), 14(5), 247(8), 89(1)(c.2), 14(1)(b)
Summary Under
Tax Topics - Income Tax Act - Section 247 - New - Subsection 247(8)
s. 247(2) trumps s. 69(1)
Summary Under
Tax Topics - Income Tax Act - Section 89 - Subsection 89(1) - Capital Dividend Account
s. 247(2) increase to ecp proceeds increased CDA on transaction effective date

Principal Issues: (1) Whether an adjustment to the amount described in variable E of the definition of CEC in subsection 14(5) in respect of eligible capital property transferred to a non-arm`s-length non-resident person should be made pursuant to subsection 247(2); (2) Whether such an adjustment results in an increase of the transferor`s outstanding balance of its CDA effective to the day of the transaction under review.

Position: (1) Yes, (2) Yes

Reasons: (1) Subsection 247 (8) provides support for the view that a transfer pricing adjustment should be made pursuant to subsection 247(2); (2) The preamble and paragraph (c.2) of the definition of capital dividend account in subsection 89(1) provide support for the view that an adjustment made to variable E of the definition of cumulative eligible capital found in subsection 14(5), and the income inclusion under paragraph 14(1)(b) resulting from the disposition of an eligible capital property pursuant to subsection 247(2) will be effective to the day of the transaction under review

17 December 2013 Internal T.I. 2013-0510111I7 F - Automobile mise à la disposition d'un employé

CRA Tags
6(1)(a), 6(1)(k), 6(1)(e), 6(2)
Summary Under
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(k)
administrative office and third-party office in another city could both be workplaces
Words and Phrases
workplace

Principales Questions: Est-ce qu'un bureau situé dans la ville A et mis à la disposition d'un employé constitue un lieu de travail dans le contexte où il doit s'y rendre 3,5 jours par semaine et ce, à chaque semaine durant XXXXXXXXXX ans pour y exercer ses fonctions alors qu'il doit également se rendre à un autre bureau situé dans la ville B (près de sa résidence) pour les autres 1,5 jour de la semaine pour compléter divers rapports, rencontrer son superviseur...etc. ?
Would an office located in Town A which is available to an employee constitute a place of work in a context where he has to travel to this particular office 3.5 days per week, every week for XXXXXXXXXX years to perform its functions and where he also travels to another office located in Town B (close to his home) for the remaining 1.5 days per week to complete reports, meet with his supervisor...etc.?

Position Adoptée: Question de fait/Question of fact.

Raisons: De manière générale, tout endroit où ou d'où un employé se rapporte régulièrement ou effectue les fonctions de son emploi est habituellement considéré comme son lieu de travail. L'ARC est d'avis qu'un employé peut avoir plus d'un lieu de travail. Generally, any location to or from which an employee regularly reports for work or performs the duties of employment is considered a place of employment. The CRA is of the opinion that an employee may have more than one

19 August 2013 Internal T.I. 2013-0474031I7 - Ontario Transitional Tax Debit/Credit

CRA Tags
Ontario Taxation Act 46(2)(b)(v), Ontario Taxation Act 50(2)
Summary Under
Tax Topics - Other Legislation/Constitution - Ontario - Taxation Act 2007 - Subclause 46(2)(h)(v)
tainting transactions

Principal Issues: Whether the taxpayer's three separate requests to amend its federal and Ontario CCA/CEC claims and non-capital loss applications in years prior to the reference period are "tainting" transactions?

Position: Certain requested adjustments are tainting transactions. Subclause 46(2)(b)(v) and subsection 50(2) of the Ontario Act apply.

Reasons: One of the main reasons for requesting the change is to increase the transitional tax credit.