Income Tax Severed Letters - 2014-06-18


2014 Ruling 2014-0518521R3 - Issuance of a new class of units - Hedged Class

Principal Issues: Whether the issuance of a new class of units, being the hedged class of a mutual fund trust, would result in:
(1) a disposition by the existing unitholders of their beneficial interest in the fund; (2) a disposition by the fund of its assets; and, (3) the application of subsection 104(7.1).

Position: (1) No. (2) No. (3) No.

Reasons: (1) The existing unitholders will not receive any cash or other consideration for the issuance of the new class of units; (2) The issuance of the new class will not result in any significant change to the fund so as to cause a resettlement of the fund. Further, it is assumed that there will be no legal resettlement as a matter of provincial law. (3) Consistent with our position in earlier rulings.

Technical Interpretation - External

4 June 2014 External T.I. 2014-0517151E5 - S. 17.1 and debt denominated in foreign currency

CRA Tags
212.3(11), 15(2.11), 261(2), 212.3(2), 17.1(1), 261(1), 261(3), 15(2), 214(3)
prescribed interest on foreign currency PLOI translated at spot rate when loan made
prescribed interest on foreign currency PLOI translated at spot rate when loan made

Principal Issues: How is subs. 17.1(1) formula to be applied with respect to a PLOI denominated in foreign currency when no subs. 261(3) election has been made by the CRIC?

Position: For the purposes of element A of the formula, the prescribed rate for the quarter in which interest has been paid must be applied to the principal amount of the PLOI converted into CAN$ using the relevant spot rate on the day the indebtedness came into existence. For the purposes of element B of the formula, the amount included in the CRIC's income on account of interest on the PLOI must be converted into CAN$ using the relevant spot rate on the day the interest is paid or becomes payable.

Reasons: Wording of the ITA.

3 June 2014 External T.I. 2013-0504641E5 - RESP payments to a non-resident person

CRA Tags
146.1, Treaties Article XXII, 56(1)(q), 212(1)(r), 115, 217, 2(3)

Principal Issues: Whether a non-resident person can file a Canadian income tax return under Part I in order to be refunded Part XIII tax withheld at source on a payment made under an RESP.

Position: Educational assistance payments made from an RESP to a non-resident person are subject to a 25% withholding tax under Part XIII of the Income Tax Act, by virtue of paragraph 212(1)(r). Exceptions are provided to non-residents who are attending a Canadian university and other individuals who are deemed to be employed in Canada pursuant to subsection 115(2). The income tax paid pursuant to the application of paragraph 212(1)(r) constitutes a final and non-refundable tax, and a Canadian income tax return cannot be filed by the non-resident taxpayer in order to be refunded Part XIII tax withheld at source.

Reasons: No election under section 217 can be made with respect to amounts paid or credited in accordance with the provisions of paragraph 212(1)(r).

29 May 2014 External T.I. 2014-0520851E5 F - Deferred Salary Leave Plan

CRA Tags
ITR 6801(a)(iv)(B)
no requirement for employer to provide a return on the deferred amounts
terms cannot provide for voluntary withdrawal of employee except where hardship

Principales Questions: 1. Does the plan meet the requirements of clause 6801(a)(iv)(B) in specific situations?
2. Does an employer have the right to claim annual management fees or withdrawal fees with respect to amounts deferred?

Position Adoptée: 1. Likely yes. Clause 6801(a)(iv)(B) only indicates when interest must be paid if the plan requires an interest payment, and it does not require that deferred amounts be held in a segregated fund or generate additional income.
2. General comments. However, withdrawal fees to be paid by an employee would not appear to conflict with paragraph 6801(a). However, dispositions of a plan that allows withdrawal of the plan could result in the conditions of paragraph 6801(a) not being fulfilled.

Raisons: 1. Wording of clause 6801(a)(iv)(B) of the Regulations.
2. Previous positions.

29 May 2014 External T.I. 2014-0517371E5 - Manitoba Investment Tax Credit

CRA Tags
Manitoba ITA, 127(9) "qualified property", 125.1(3), section 7, 127(11), ITR 5202 "qualified activities"., ITR 4600(2) "manufacturing or processing"

Principal Issues: For purposes of determining whether a particular property is used principally in the manufacture or processing of goods for sale (for the purposes of Manitoba's manufacturing investment tax credit) is it reasonable to use the gross revenue method outlined in paragraph 13 of IT-147R3?

Position: Although a question of fact, in the particular situation the answer appears to be yes.

Reasons: Consistent with the law and paragraph 13 of IT-147R3.

28 May 2014 External T.I. 2013-0486111E5 F - RRSP, prohibited investment

CRA Tags
51(1), 207.05, 207.04, 207.01
s. 51 exchange of transitional prohibited property does not trigger s. 207.04(1) tax
s. 207.05(4) status is preserved following s. 51 exchange

Principales Questions: When a prohibited investment is exchanged under a transaction to which section 51 apply:
1) Does the exchange trigger the application of subsection 207.05(1)?
2) Does subsection 207.04(1) apply to the new property?
3) Does subsection 207.05(4) apply to the new property?

Position Adoptée: 1) No
2) No
3) Yes, if the requirements in paragraphs 207.05(4)(a) and (b) are met.

Raisons: 1) Paragraph 51(1)(a) and subsections 207.01(12) and 207.01(13).
2) Subsection 207.01(13).
3) Subsection 207.01(13) and the definition of "transitional prohibited investment benefit" in subsection 207.01(1).

28 May 2014 External T.I. 2014-0531461E5 - Paralegals and work in progress election

CRA Tags
Law Society of Upper Canada By-law 4, 232(1) "lawyer", 34, Ontario Law Society Act, 248(1) "lawyer"
paralegals do not qualify

Principal Issues: As paralegals are now licensed to provide legal services in Ontario, are they able to make the work in progress election under s. 34 available to "lawyers"?

Position: No, as the definition of "lawyer" in the Act combined with how Ontario licences lawyers and paralegals make clear paralegals do not meet that definition.

Reasons: The definition of "lawyer" in the Act pushes the determination whether someone is a "barrister or solicitor" to the provinces. The Ontario Law Society Act and By-law 4 of the Law Society of Upper Canada create two tracks: barristers and solicitors, who practise law, and paralegals, who provide legal services. Paralegals are therefore not barristers or solicitors and may not make the work in progress election.

20 May 2014 External T.I. 2013-0516121E5 F - Debt forgiveness

CRA Tags
12(1)(x), 80, 9(1)
BIA settlement of GST interest and penalties included under s. 12(1)(x)(iv)
s. 12(1)(x)(iv) inclusion from BIA settlement of GST interest and penalties could be offset against related expense
unremitted GST and QST were not obligation "issued" by debtor
BIA settlement of unremitted GST on sales was on capital account

Principales Questions: Whether subsection 9(1), paragraph 12(1)(x) or section 80 applies to a debt forgiveness in relation to unremitted GST and PST in the context of a bona fide compromise under Section I of Part III of the Bankruptcy Act.

Position Adoptée: Depends on facts. In the given situation the gain relating to the unremitted GST and PST would probably be on account of capital. However, section 80 would not apply to the gain since the unremitted GST and PST would not be considered to be an obligation issued by the debtor under subsection 248(26), as required by the definition of "commercial debt obligation" in subsection 80(1). The portion of the gain attributable to the reduction of the interest and penalties could be subject to paragraph 12(1)(x). An election under subsection 12(2.2) could be made in order to reduce the outlay or expense.

Raisons: Wording of the Act and previous positions.

16 April 2014 External T.I. 2013-0514521E5 - Employer-paid Personal Trainer and Nutritionist

CRA Tags
personal trainer/nutritionist not excluded as "counselling"
personal trainer/nutritionist not excluded as "counselling"

Principal Issues: Whether employer-subsidized personal training and nutritionist services are taxable employment benefits?

Position: Likely yes.

Reasons: See response.

10 April 2014 External T.I. 2013-0514321E5 - Donated vacation

CRA Tags
5(1), 248(1), 56(2), 6(1)(a)
donated vacation/no double taxation

Principal Issues: 1. Is an employee subject to tax on vacation donated to a co-worker? 2. Is an employee in receipt of a taxable benefit when a co-worker donates vacation for his or her use?

Position: 1. Yes. 2. In this case, likely no.

Reasons: See response

1 April 2014 External T.I. 2013-0513781E5 - Trade union dues

CRA Tags
8(1)(i)(iv), 85

Principal Issues: Whether annual dues paid by an employee in the year to an employee association are considered annual dues to maintain membership in a trade union and deductible from employment income under 8(1)(i)(iv)?

Position: It is a question of fact but likely yes.

Reasons: Although the association is not certified as a trade union, it appears to negotiate collectively with the employer for improvements in the members' working conditions.

13 March 2014 External T.I. 2013-0510791E5 - Non-cash long-service award and cash donation

CRA Tags
6(1)(a), 56(2)
employee-directed cash donation in lieu of long-service award

Principal Issues: Whether an employee will realize a taxable benefit if the employee opts to forego a non-cash gift valued over $500 that he or she is otherwise entitled to and directs the employer to make a cash gift of a specified amount to a specified registered charity?

Position: Yes.

Reasons: See response.

19 February 2014 External T.I. 2013-0484761E5 - Taxable Benefits – Employer-Provided Vehicles

CRA Tags
6(1)(a), 6(1)(k), 6(1)(e)

Principal Issues: Whether a taxable benefit would arise in connection with an employee's use of an employer-provided vehicle?

Position: Question of fact.

Reasons: Previous positions. Where the motor vehicle is an "automobile" as defined in subsection 248(1), a standby charge and operating benefit will arise under paragraphs 6(1)(e) and 6(1)(k) with respect to the personal use. Where the motor vehicle is not an "automobile", a taxable benefit will arise under paragraph 6(1)(a) with respect to any personal use.


22 May 2014 IFA Roundtable, 2014-0526751C6 - Adjusted cost base of foreign affiliate shares

CRA Tags
85(1), 85.1(3), 92(6), 92(5), 92(4)
no relief from interest and penalties
s. 90(6) relationship tested at time of loan
no administrative relief even where rollover at partnership level

Principal Issues: Will the CRA provide administrative relief in circumstances where the partnership interest or foreign affiliate shares are disposed of as part of an internal reorganization that, absent subsections 92(4) through (6), would occur on a tax-deferred basis?

Position: No administrative relief is available.

Reasons: Wording of the Act. Subsections 92(4) through (6) ensure that there is a tax consequence to extracting pre-acquisition surplus from foreign affiliates held through a partnership.

22 May 2014 IFA Roundtable Q. 1, 2014-0526691C6 - IFA 2014 - CRIC Guarantees of debt for no fee

CRA Tags
15(1), 212.3
reinstatement under s. 212.3(9)(c)(ii)(A)(II) through PUC distributions of dividends

Principal Issues: A.) Is the provision of a guarantee for no fee on the debt of a subject corporation by a CRIC a benefit conferred on the subject corporation and therefore an "investment" under 212.3(10)(b)? B.) Are there instances where the provision of a guarantee by the CRIC for no fee will not be a conferral of a benefit? C.) If the provision of the guarantee for no fee is a conferral of a benefit, what is the quantum of the benefit? D). Can CRA comment on the result of unavailability of a PUC reinstatement under subsection 212.3(9) upon payment of the underlying debt by the subject corporation?

Position: A). Yes. B). Possibly, where FMV consideration has otherwise been given and terms are identical to those of an arm's length transaction. C). Question of fact specific to each case, the fair market value of the benefit/investment at the time the benefit is conferred/investment is made. D). The result is not anomalous.

Reasons: A). Words of the Act and purpose of the provision. B). Prior CRA positions. C). Question of fact specific to each situation. D). The provision is intended to act as a deterrent.

22 May 2014 May IFA Roundtable, 2014-0526761C6 - Foreign affiliate share acquisition or disposition

CRA Tags

Principal Issues: Information regarding the paragraph 95(6)(b) committee.

Position: Please see attached document.

22 May 2014 May IFA Roundtable, 2014-0526771C6 - Application of paragraph 95(2)(i)

CRA Tags
delay before application of borrowed funds or disposition of non-qualifying assets

Principal Issues: Whether "at all times" condition in paragraph 95(2)(i) is not satisfied in certain circumstances.

Position: Question of fact.

Reasons: Previous CRA position. Document 95-5293.

22 May 2014 May IFA Roundtable, 2014-0526731C6 - IFA 2014 Q. 3b - Upstream Loan

CRA Tags
90(14), 90(8)(a), 90(6)
application to accruing interest

Principal Issues: Would accrued interest that is not yet due be treated as indebtedness for purposes of subsection 90(6)?

Position: Subsection 90(6) can apply to accrued interest that has not yet become payable under the terms of a loan.

Reasons: There need not be a payment due in respect of a liability in order for the liability to constitute a "debt".

22 May 2014 May IFA Roundtable, 2014-0526741C6 - Foreign affiliates - upstream loans

CRA Tags

Principal Issues: How the back-to-back loan rule in subsection 90(7) is applied in a cash pooling arrangement.

Position: No position taken.

Reasons: Position would require full knowledge of all the details of the particular situation.

22 May 2014 May IFA Roundtable, 2014-0526711C6 - Article XXIX-A(3) of the US Treaty

CRA Tags
Treaties Article XXIX-A
tcp gains on U.S. shares derived from Canada under para. 3

Principal Issues: Whether treaty benefits are available under Article XXIX-A(3) to a US resident corporation that disposes of its shares of a US holding company that owns shares of a Canadian corporation, where the shares of the US holding company are "taxable Canadian property" to the US resident, and in particular, whether the gain would be considered income derived from Canada for purposes of applying XXIX-A(3).

Position: Treaty benefits could be available, under the circumstances.

Reasons: Under the circumstances, where the other requirements of XXIX-A(3) are satisfied, the capital gain would constitute income derived from Canada for purposes of applying that provision.

22 May 2014 May IFA Roundtable Q. 3, 2014-0526721C6 - IFA 2014 Q. 3(a) - Upstream Loan

CRA Tags
90(12), 113(1)(a), 90(11), 5902(1)(a), 90(9), 90(6), 5901(2)(a)

Principal Issues: Would the application of paragraph 5901(2)(a) of the Regulations alter the computation of the amounts under clauses 90(9)(a)(i)(A) to (C)?

Position: No

Reasons: Paragraph 5901(2)(a) would not change the surplus accounts of the foreign affiliate at the "lending time" as that term is defined in subsection 90(9).

Technical Interpretation - Internal

7 May 2014 Internal T.I. 2012-0433731I7 - Application of subsections 92(5) and (6)

CRA Tags
85(2), 113(1)(d), 93.1, 92(6), 92(5), 92(2)
S. 85(2) transfer of shares on which previous pre-acq dividend triggered s. 92(5) gain to Canco partner

Principal Issues: Where the shares of a foreign corporation held by a partnership with a Canadian corporation as partner are transferred pursuant to subsection 85(2) to another Canadian corporation owned by the partnership, whether the deemed gain determined under subsections 92(5) and (6) results in an adjustment to the proceeds of disposition of the shares in the partnership, the cost of the shares to the recipient corporation, or the elected amount under subsection 85(1)(a).

Position: The deemed gain would not result in an adjustment to the transferor's proceeds of disposition, the transferee's cost of the transferred shares, nor the elected amount pursuant to 85(1)(a).

Reasons: 92(5) deems the amount determined under 92(6) to be a gain of the corporate partner from the disposition of the shares by the partnership, and does not affect amounts determined under 85(1)(a).