Income Tax Severed Letters - 2014-05-28


2014 Ruling 2013-0496831R3 - Irish Common Contractual Fund

CRA Tags
Irish contractual fund respected as co-ownership
Irish common contractual fund respected as co-ownership

Principal Issues: What is the characterization of an Irish Common Contractual Fund for purposes of the Act?

Position: The Irish Common Contractual Fund itself is an unincorporated body and each investor in the fund is a co-owner in the properties of the fund.

Reasons: The fund is being established such that each investor has an undivided co-ownership interest in the properties of the fund.

Ministerial Correspondence

19 March 2014 Ministerial Correspondence 2014-0523371M4 - Indian – Education Assistance

CRA Tags

Principal Issues: Whether T4A slips should be issued to Indian students for education assistance provided under AANDC's PSSSP program.

Position: T4A slips are not required.

Reasons: The CRA has a longstanding position that T4A slips are not required for education assistance provided to an Indian from certain AANDC's programs.

Technical Interpretation - External

16 May 2014 External T.I. 2014-0526161E5 F - CII des places en garderie

CRA Tags
owner of child-care facility entitled to ITCs even though development work and operations conducted by its part-owned agent

Principales Questions: La société ABC aura-t-elle droit au crédit d'impôt à l'investissement (CII) pour des places en garderie si elle assume les coûts de développement et le coût des immobilisations mais qu'elle mandate la société XYZ, dont elle détient 25% des actions votantes, pour le développement et la gestion des places en garderie? / Is ABC Company eligible to an Investment Tax Credit (ITC) for child care spaces if ABC is responsible for development costs and depreciable property costs but XYZ Company, of which ABC owns 25% of the voting shares, is mandated to develop and manage the child care spaces?

Position Adoptée: La société ABC, et non son mandataire, pourrait avoir droit au CII pour des places en garderie quant aux dépenses admissibles engagées pour la création de places en garderie. / ABC Company, not its agent, could qualify for the ITC for child care spaces.

Raisons: Application des critères prévus au paragraphe 127(9) de la Loi de l'impôt sur le revenu. / Application of the criteria of subsection 127(9) of the Income Tax Act.

15 May 2014 External T.I. 2014-0520091E5 - Form T1134

CRA Tags
233.4(2), 95(4), 95(1), 88(3), 128.1(1)
FA does not cease to exist for T1134 purposes before formal dissolution

Principal Issues: Whether Form T1134: "Information return relating to controlled and not-controlled foreign affiliates" should be filed pursuant to subsection 233.4(4) of the Act in respect of a non-resident corporation that distributed its property in the process of a liquidation and dissolution prior to its non-resident corporate shareholder becoming a resident of Canada.

Position: Yes.

Reasons: Law.

13 May 2014 External T.I. 2014-0525491E5 - Emigration to Poland - Various tax considerations

CRA Tags
212(1)(h), Treaties Article XVII, Treaties Article XVIII, 212(1)(l), Treaties Article III
lump sum RRSP commutation not eligible for reduced withholding under Polish Treaty

Principal Issues: 1) Canadian withholding tax implications in respect of monthly RPP, RRSP, OAS, CPP and QPP payments and a RRSP lump sum payment received by an individual resident of Poland;
2) Canadian income tax implications in respect of sale of a piece of land situated in Canada by an individual prior to and after his/her emigration from Canada; and
3) Limitation period in paragraph 3 of Article 23 of the Canada-Poland Tax Treaty.

Position: General comments.

Reasons: The provisions of the Income Tax Act, Canada-Poland Tax Treaty and related legislation.

12 May 2014 External T.I. 2014-0517021E5 - 233.3 - Definition of Specified Foreign Property

CRA Tags
"interest in" non-resident does not include indirect shareholding

Principal Issues: Whether shares of a foreign corporation are specified foreign property of a taxpayer if the taxpayer holds them indirectly through a corporation resident in Canada?

Position: No.

Reasons: The taxpayer does not have an interest in, or right with respect to those shares, as required by paragraph (f) of the definition of specified foreign property in subsection 233.3(1).

8 May 2014 External T.I. 2014-0516711E5 F - Accord écrit et Pension alimentaire

CRA Tags
56.1(4), 118(1)(b), 118(5)
court-ordered support amount obligation cannot be eliminated by agreement

Principales Questions: 1. La position de l'ARC telle qu'émise dans l'interprétation technique 2001-0095617 est-elle toujours valable à la lumière des trois décisions récentes de la Cour canadienne de l'impôt? Does CRA's position as stated in technical interpretation 2001-0095617 still valid in light of the Tax Court of Canada's three recent judgments?
2. L'accord entre les parties suffit-elle pour dégager Monsieur de son obligation de payer la pension alimentaire pour enfants aux fins du paragraphe 118(5)? Is the written agreement between the parties sufficient to release M. from its obligation to pay child support for the purpose of subsection 118(5)?

Position Adoptée: 1. Position inapplicable en l'espèce. Position not applicable in this case. 2. Non. No.

Raisons: 1. La position de l'ARC à laquelle le contribuable nous réfère porte sur la validité d'un accord écrit aux fins du sous-alinéa b)(iii) de la définition « date d'exécution » prévue au paragraphe 56.1(4), visant essentiellement à déterminer si la pension alimentaire pour enfants est assujettie ou non à l'impôt. CRA's position as referred to by the taxpayer relates to the validity of a written agreement for the purpose of subparagraph (b)(iii) of "commencement day" definition as provided under subsection 56.1(4), designed primarily to determine if child support is subject to taxation or not.
2. Positions antérieures et jurisprudence. Previous positions and jurisprudence.

25 April 2014 External T.I. 2013-0485421E5 - Payments to Spouse for Attendant Care

CRA Tags
9, 3(a), 5
Maurice and Pellerin personal care cases accepted

Principal Issues: Are payments received by a spouse for personal care of the ill person taxable?

Position: Question of fact.

Reasons: Tax Court of Canada (Informal Procedure) decision in Maurice v. The Queen [2002] 1 TCC 2172 and Pellerin v. The Queen 2008 DTC 3210.

25 April 2014 External T.I. 2014-0528011E5 F - Subsection 55(2) - redemption of shares

CRA Tags
55(3)(a)(v), 55(3)(a)(ii)
increase in direct interest under s. 55(3)(a)(ii) or (v) with no increase in indirect interest; tainting effect on redemption occurring as part of series

Principales Questions: In the hypothetical situations described, whether subparagraph 55(3)(a)(ii) would apply.

Position Adoptée: In the situation described, there is a possibility that subparagraph 55(3)(a)(ii) would apply. We do not have sufficient information to reach a definitive conclusion.

Raisons: It may be argued that the two redemptions of shares are part of the same series of transactions or events. There may be an increase of interest resulting from the second redemption of shares by persons who are not related to the dividend recipients. If that increase is significant, subparagraph 55(3)(a)(ii) would apply. Subparagraph 55(3)(a)(v) could also apply with respect to the dividend resulting from the second redemption.

15 April 2014 External T.I. 2014-0527231E5 F - Acquisition of control and amalgamation

2014-0523251E5 F is quite similar to this except that it deals with the situation where a s. 256(9) election is instead made
CRA Tags
87(2)(a), 256(9)
key corporate transactions moments before acquisition of control and amalgamation result in such transactions falling in a stub year
same day amalgamation following control acquisition gives rise to two taxation year ends if out-of-normal course transactions occur on day of closing

Principales Questions: 1. Under the specific circumstances described in the letter, whether there would be more than one taxation year resulting from the acquisition of control and the amalgamation. The acquisition of control and the amalgamation would occur on the same date. The corporation would not elect pursuant to subsection 256(9).
2. In which taxation year would the transactions completed at the same date but before the acquisition of control be included?

Position Adoptée: 1. Under the assumptions of the hypothetical situation described in the letter, the position taken in paragraphs 9 and 11 of IT-474R2 do not apply. Under such circumstances, we would consider that two taxation years end because of the acquisition of control and the amalgamation. One taxation year would end immediately before the beginning of the day in which control is acquired. The other taxation year-end would occur immediately before the amalgamation, which time would be determined according to the ordering provided for in the plan of arrangement or the closing agenda of the transactions completed during the day (therefore not before the completion of the transactions that occurred before the amalgamation according to the arrangement or the closing agenda).
2. The transactions completed during the day before the acquisition of control and the amalgamation would have to be considered for tax purposes in the taxation year ending immediately before the amalgamation, assuming that the order of the transactions is logical.

Raisons: Wording of the Act and previous positions.

Technical Interpretation - Internal

6 May 2014 Internal T.I. 2014-0521261I7 - Biomass Electrical Facility Owned by First Nation

CRA Tags
ITR - Schedule II - Class 43.1 43.2, ITR 1104(13), ITR Schedule II - Class 43.1

Principal Issues: What is the appropriate Capital Cost Allowance Class for biomass electrical facility owned by a First Nation?

Position: Class 43.1 or 43.2

Reasons: Meets the legislative requirements.

25 April 2014 Internal T.I. 2014-0524191I7 - Deductibility of legal fees

CRA Tags
legal costs and adverse cost award of unsuccessful TCC appeal

Principal Issues: Are the legal costs awarded to the respondent deductible to the appellant?

Position: Yes

Reasons: Subparagraph 60(o)(i) entitles a taxpayer to deduct fees or expenses incurred in preparing, instituting or prosecuting an objection or an appeal in relation to an assessment of tax, interest or penalties under the Act or an Act of a Province that imposes a tax similar to the tax imposed under the Act.

14 March 2014 Internal T.I. 2013-0499141I7 - IRC 338(h)(10), "earnings" and safe income

CRA Tags
55(5)(d), 55(2), 5907(1), 5907(2)
goodwill gains which accrued prior to purchase of FA and which were included under s. 55(5)(d) did not contributed to gain on Canco shares
"notional" deduction arising from Code s. 338(h)(10) step-up excluded
"notional" deduction arising from Code s. 338(h)(10) step-up of non-purchased goodwill reversed under Reg. 5907(2)(f) rather than (b)

Principal Issues:

  1. What is the impact of a U.S. Internal Revenue Code 338(h)(10) election made by the purchaser and seller of a target foreign affiliate on the computation of the target's subsidiaries' earnings from an active business carried on by them subsequent to the target's acquisition by the purchaser?
  2. Could the income earned or realized ("Intangible Property Safe Income") by the target's subsidiaries on the disposition of the intangible property of the subsidiaries, in a period after the purchaser acquired the target shares ("post-acquisition period"), that is in respect of gains that accrued on the intangible property of the subsidiaries, in a period before the purchaser acquired the target shares ("pre-acquisition period"), contribute to a gain that accrued on the shares of the purchaser in the post-acquisition period?


  • 1(a). To the extent the actual expenditure made by the target with respect to a depreciable property or an intangible property has been fully depreciated or amortized, respectively, any further depreciation or amortization taken in excess of the actual expenditure, as the result of the Stepped-up Tax Basis resulting from the IRC 338(h)(10) election, may be added to the earnings amount pursuant to paragraph 5907(2)(b) of the Regulations.
  • 1(b). To the extent an intangible property having no actual expenditure (i.e., goodwill) has been amortized, the amortization taken on the Stepped-up Tax Basis resulting from the IRC 338(h)(10) election should be added to the earnings amount pursuant to paragraph 5907(2)(f) of the Regulations (or, in the alternative, should not be considered in computing the earnings amount determined under subparagraph (a)(i) of the definition of "earnings" in subsection 5907(1) of the Regulations).
  • 1(c). To the extent non-depreciable property (i.e., intangibles including goodwill) was disposed of resulting in income or profit from an active business, the increase in tax basis, as the result of the IRC 338(h)(10) election, of intangible property disposed of other than goodwill may be added to the earnings amount pursuant to paragraph 5907(2)(b) of the Regulations and the Stepped-up Tax Basis (as the result of the IRC 338(h)(10) election) of the goodwill disposed of should be added to the earnings amount pursuant to paragraph 5907(2)(f) of the Regulations (or, in the alternative, should not be considered in computing the earnings amount determined under subparagraph (a)(i) of the definition of "earnings" in subsection 5907(1) of the Regulations).
  • 2. No, any capital gain realized on a subsequent disposition of the shares of the purchaser could not reasonably be considered to be attributable to the Intangible Property Safe Income for purposes of subsection 55(2) of the Act.


  1. As noted in the text Canadian Taxation of Foreign Affiliates by K.J. Dancey, R.A. Friesen and D.Y. Timbrell: "In general, the types of income and expenditure included in the earnings amount are governed by the Canadian tax law, but the timing of their inclusion or deduction is governed by the foreign tax law."
  2. The Intangible Property Safe Income should be allocated to the purchaser's ACB of the shares of target.

25 February 2014 Internal T.I. 2013-0475161I7 - Whether USCo has a PE in Canada

CRA Tags
Treaties Article V
offsite project services re mooted Canadian construction site p.e., separate "enterprise" and "connected project" under Art. V. para. 9 of U.S. Treaty

Principal Issues: 1. Whether services have to be rendered at the construction site to be subject to Article V(3)? 2. Does Article V(3) apply to planning and supervision by a subcontractor? 3. Does the position in 2. apply, given that Article V(3) was drafted before the change to paragraph 17 of the OECD Commentary on Article 5? 4. Are paragraphs 17 and 19 of the OECD Commentary on Article 5 contradictory? 5. Does USCo have XXXXXXXXXX separate functions? 6. Are the various operations the "same or connected" projects?

Position: 1. Yes 2. Yes 3. Yes 4. No 5. Likely not. 6. Unable to conclude.

Reasons: 1. Article V(9) applies to services that are not covered by Article V(3) 2. Paragraph 17 of the OECD Commentary on Article 5 3. Both Canada and the US take this view. 4. Paragraph 19 deals only with duration. 5. Based on guidance from the FCA in Du Pont. 6. We have provided some guidance on how to make the determination.