Income Tax Severed Letters - 2014-05-14

Ruling

2013 Ruling 2013-0491651R3 - Cross-Border Butterfly

Summary Under
Tax Topics - Income Tax Act - Section 55 - Subsection 55(1) - Distribution
cross-border b/f with 3-party exchange, cash-out of ineligible shareholders, proportionate allocation of foreign spinco debt, pension liability classification, prelim non-series dividend
Summary Under
Tax Topics - Income Tax Act - Section 55 - Subsection 55(3.1) - Paragraph 55(3.1)(a)
preliminary LP acquisition, cross-border debt repayments and dividend: not part of series
Summary Under
Tax Topics - Income Tax Act - Section 55 - Subsection 55(3.1) - Paragraph 55(3.1)(b) - Subparagraph 55(3.1)(b)(i)
cross-border b/f with 3-party exchange, pro rata application of upper tier debt, cash-out of ineligible shareholders
Summary Under
Tax Topics - Income Tax Act - Section 86 - Subsection 86(1)
exchange for substantively identical common shares

Principal Issues: WHETHER TRANSACTION MEETS LEGISLATIVE AND ADMINISTRATIVE REQUIREMENTS.

Position: TRANSACTION MEETS REQUIREMENTS.

Reasons: CONSISTENT WITH LAW AND ADMINISTRATIVE REQUIREMENTS.

2012 Ruling 2011-0392041R3 - Incorporation of a Professional Partnership

CRA Tags
245(2), 125(7), 9(1)
Summary Under
Tax Topics - Income Tax Act - Section 125 - Subsection 125(7) - Specified partnership income
former partners providing services through separate corporations to a Newco replacement of their professional partnership
Summary Under
Tax Topics - Income Tax Act - Section 85 - Subsection 85(3)
non s. 85(2) property allocated exclusively to liability assumption, and share/note consideration pre-allocated

Principal Issues: Whether the incorporation of a professional partnership and the subsequent contracting out of the professional services of the new corporation to the professionals/shareholders will result in the application of the small business deduction limitations for "personal services business" or the "specified partnership income."

Position: No.

Reasons: The facts and proposed transactions are consistent with other rulings given on these issues.

Ministerial Correspondence

27 March 2014 Ministerial Correspondence 2014-0521731M4 - Prescribed Prizes - Olympic Athletes

CRA Tags
56(1)(n), ITR 7700

Principal Issues: 1. Taxation of cash prizes awarded to Olympic athletes.

Position: 1. Cash prizes do not qualify as a prescribed prize.

Reasons: 1. The legislation.

Technical Interpretation - External

2 May 2014 External T.I. 2014-0520551E5 F - Frais médicaux à l'extérieur du Canada

CRA Tags
248(1) "private health service plan", 118.2(2)(g), 118.2(2.1), 118.2(2)(a), 118.2(3)(b), 118.2(2)(q), 118.2(2)(h)
Summary Under
Tax Topics - Income Tax Act - Section 118.2 - Subsection 118.2(2) - Paragraph 118.2(2)(a)
hospitalization expenses at a foreign public hospital or a private licensed hospital could qualify
Summary Under
Tax Topics - Income Tax Act - Section 118.2 - Subsection 118.2(2) - Paragraph 118.2(2)(h)
accommodation re surgery abroad could qualify even if surgery available locally
Summary Under
Tax Topics - Income Tax Act - Section 118.2 - Subsection 118.2(2) - Paragraph 118.2(2)(g)
travel to get surgery abroad could qualify as reasonable even where available locally

Principales Questions: Questions diverses. [TRANSLATION] Multiple questions.

Position Adoptée: Basée sur des positions antérieures. [TRANSLATION] Based on previous positions.

Raisons: Voir ci-dessous. [TRANSLATION] See below.

1 May 2014 External T.I. 2013-0514291E5 F - Redevances sur une oeœuvre musicale dans un film

CRA Tags
212(1)(d)(vi), 212(5)
Summary Under
Tax Topics - Income Tax Act - Section 212 - Subsection 212(1) - Paragraph 212(1)(d) - Subparagraph 212(1)(d)(vi)
copyright royalty for music used in film is exempt notwithstanding s. 212(5) exclusion
Summary Under
Tax Topics - Income Tax Act - Section 212 - Subsection 212(5)
s. 212(5) exclusion does not apply to copyright royalty for music used in film

Principales Questions: 1) Est-ce qu'un montant versé à une personne non-résidente au titre d'une redevance afférent à un droit d'auteur sur une oeuvre musicale est exempté de l'impôt de la Partie XIII en vertu du sous-alinéa 212(1)d)(vi) 2) Si oui, est-ce que le paragraphe 212(5) s'applique lorsque la redevance se rapporte à une oeuvre musicale produite dans le contexte d'un film cinématographique?

Position Adoptée: 1) Oui. 2) Question de fait.

Raisons: 1) Une redevance afférent à un droit d'auteur sur une oeuvre musicale n'est pas assujetti à la retenue d'impôt de la Partie XIII aux termes du sous-alinéa 212(1)d)(vi). 2) Si les faits démontraient que le montant de redevance a été versé spécifiquement au titre ou en paiement intégral ou partiel d'un droit d'auteur concernant la production ou la reproduction de l'oeuvre musicale, il serait exclu du champ d'application du paragraphe 212(5) LIR même si l'oeuvre musicale a été produite ou reproduite dans le contexte d'un film cinématographique.

30 April 2014 External T.I. 2013-0515801E5 - Ontario energy and property tax credit

CRA Tags
103.11, 103.10, Ontario Taxation Act, 98, 103.6, 103.9

Principal Issues: Can two individuals claim a portion of the property tax amount for purposes of the Ontario energy and property tax credit where they each pay a portion of the property taxes on the principal residence?

Position: Depends on the facts, but likely not in this situation.

Reasons: An individual cannot include municipal taxes paid to determine occupancy costs if the individual is neither a beneficial owner nor an individual who pays rent, however, the beneficial owner of the residence for whom the payments were made may be able to include those amounts to determine his or her occupancy costs.

30 April 2014 External T.I. 2013-0515791E5 - Adoption Expense Tax Credit

CRA Tags
118.01

Principal Issues: How is the 2013 amendment to the definition of the start times for the adoption period applied? Is the definition applicable to an adoption period that starts before 2013; or only to an adoption period that begins in 2013 or later?

Position: The adoption period as defined by the 2013 amendment can start before 2013.

Reasons: Legislation and intent.

29 April 2014 External T.I. 2013-0504661E5 - Withholding tax on commissions and QSBCS

CRA Tags
153(1)(g), 110.6(1) "Qualified Small Business Share", ITR 105, 248(1)

Principal Issues: 1) Whether a Canadian-controlled private corporation ("OPCO") shall withhold tax on a payment to a non-resident person for a commission and referral fee in respect of services rendered outside of Canada. 2)Whether OPCO shares qualify as Qualified Small Business Corporation Shares ("QSBCS") as that term is defined in subsection 110.6(1) if OPCO is carrying on an active business in Canada and outside Canada.

Position: 1) Commission and referral fees are not subject to Canadian withholding under Regulation 105 when no service is rendered in Canada. 2) Depends on the facts.

Reasons: 1. Services are not rendered in Canada by non-residents. 2. Conditions stated in the Act.

10 April 2014 External T.I. 2013-0515681E5 - Death of RPP Member-56(1)(a)

CRA Tags
56(1)(a)
Summary Under
Tax Topics - Income Tax Act - Section 56 - Subsection 56(1) - Paragraph 56(1)(a) - Subparagraph 56(1)(a)(i)
beneficiary dispute/renunciation

Principal Issues: In a situation where there is a legal dispute concerning who is a deceased RPP member's common-law partner at the time of the RPP member's death, who is required to include the RPP death benefit in income?

Position: The taxpayer who is legally entitled to receive and is paid the pension benefit.

Reasons: Question of fact/law concerning who is a taxpayer's legal common-law partner at the time of the taxpayer's death. Paragraph 56(1)(a) requires a taxpayer receiving a superannuation of pension benefit in a year to include the pension in the taxpayer's income in the year received.

24 March 2014 External T.I. 2013-0495461E5 - Paragraph 260(11)(c) of the Income Tax Act

CRA Tags
18(6), 260(5.1), 260(7), 260(5), 129, 248(1), 260(1.1), 260(11)(c)
Summary Under
Tax Topics - Income Tax Act - Section 260 - Subsection 260(11) - Paragraph 260(11)(c)
dividend refund for partnership dividend compensation payments

Principal Issues: How does paragraph 260(11)(c) apply to a corporation that is a member of a partnership for purposes of claiming a dividend refund on dividend compensation payments paid by the partnership?

Position: Generally, pursuant to paragraph 260(11)(c) of the Act, a private corporation that is a member of a partnership is deemed, for the purposes of applying the dividend refund rules in section 129 of the Act, to have paid its specified proportion of the dividend compensation payments made by the partnership.

Reasons: See below.

21 March 2014 External T.I. 2013-0513061E5 - Tuition assistance

CRA Tags
6(1)(a), 56(1)(u), 56(3), ITR 200(2)(a), 56(1)(n)

Principal Issues: (i) Whether assistance provided by a private XXXXXXXXXX school (elementary and high school) would be taxable to the student and whether the school is required to provide a T4A to these students?
(ii) Would discounted tuition provided to faculty member's children be a taxable benefit to the faculty member?

Position: (i) The types of assistance provided would likely be considered bursaries under 56(1)(n) and would therefore be taxable to the student to the extent that the amount received exceeds the individual's scholarship exemption. The school would be required to provide T4A's for the amount of assistance provided.
(ii) No.

Reasons: (i) Where the primary purpose of the assistance provided is to enable an individual to pursue an education, the amount of the assistance would be considered to be a bursary.
(ii) Subparagraph 6(1)(a)(vi) excludes amounts provided to a family member of a taxpayer by the taxpayer's employer that assists the family member in furthering their education

19 March 2014 External T.I. 2014-0522681E5 - RA and Vesting of Employer Contributions

CRA Tags
60(j.1)

Principal Issues: Employee had transferred a lump sum from his previous employer's pension plan to a RRSP. Whether employer contributions have vested for the purposes of clause 60(j.1)(ii)(B)?

Position: Yes.

Reasons: Contributions have vested because the transferred lump sum included the employer's contributions.

19 March 2014 External T.I. 2014-0522671E5 - HK Pension and Tax Treaty

CRA Tags
56(1)(a)(i), Treaties Article XVIII
Summary Under
Tax Topics - Income Tax Act - Section 56 - Subsection 56(1) - Paragraph 56(1)(a) - Subparagraph 56(1)(a)(i)
Hong Kong pension received by Canadian resident

Principal Issues: Whether receipts from a Hong Kong pension plan are taxable in Canada under the Canada-Hong Kong Tax Convention?

Position: Yes.

Reasons: Art. 17 of the Tax Convention allows Hong Kong to tax amounts from pensions (including lump sums) arising in Hong Kong, but this does not eliminate Canada's right to tax the same amounts.

13 March 2014 External T.I. 2013-0510121E5 - Medical Expenses - Travel

CRA Tags
118.2(2)(g), 118.2(2)(h)

Principal Issues: Whether travel expenses to XXXXXXXXXX to obtain special contact lenses would qualify as a medical expense.

Position: Question of fact.

Reasons: Must meet the requirements under paragraph 118.2(2)(g) and 118.2(2)(h).

20 May 2010 External T.I. 2009-0315101E5 - Moving expenses and reimbursements

CRA Tags
6(1)(a), 248(1), 6(2), 6(1)(b)(iii)

Principal Issues:
1. Should the reimbursement of real estate and legal fees with respect to the sale of a taxpayer's rental property give rise to a taxable employment benefit in the circumstances provided?
2. Are long-term storage costs deductible moving expenses under subsection 62(3) of the Act?

Position:
1. In this case, yes.
2. No.

Reasons:
1. Where an employer pays or reimburses an employee for relocation expenses that would have otherwise qualified for a moving expense deduction under subsection 62(1), such payment or reimbursement will generally not result in a taxable benefit to the relocated employee under paragraph 6(1)(a). In this case, the selling costs would not qualify for a moving expense deduction under subsection 62(1) of the Act and therefore, the reimbursement is a taxable employment benefit.
2. Under subsection 62(3), deductible moving expenses include 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." In this case, the long-term storage costs are not incurred "in the course of moving" and are therefore not deductible as a moving expense under section 62.

Technical Interpretation - Internal

11 April 2014 Internal T.I. 2013-0474851I7 F - Permanent establishment in Canada

CRA Tags
Treaties Article V
Summary Under
Tax Topics - Treaties - Income Tax Conventions - Article 5
equipment installation project of Franceco lasting more than 12 months including preparing specs and final testing

Principales Questions: Whether a non-resident corporation has a permanent establishment in Canada at a particular time pursuant to paragraph 3 of Article 5 of the Canada-France Convention?

Position Adoptée: Yes.

Raisons: During the period related to the Project, the non-resident corporation had a permanent establishment as it carried on business through an installation project which lasted more than twelve months.