Income Tax Severed Letters - 2014-06-25

Ruling

2014 Ruling 2014-0523551R3 - Disposition of a Former Business Property

CRA Tags
44(5), 13(4), 44(1), 13(4.1), 251(2)

Principal Issues: Whether a voluntary disposition of a particular property will meet the definition of a "former business property" in subsection 248(1) of the Act?

Position: Yes.

Reasons: Based on particular facts the property meets definition in subsection 248(1) of the Act.

2014 Ruling 2012-0462801R3 - Application of Part XIII

CRA Tags
212(1)(d)(vi)
distribution fees for delivering custom software copies in substance for right to reproduce copyright

Principal Issues: Where a non-resident payee holds the copyright to custom computer software, are payments made by Canco to the non-resident for the right to distribute that software exempt from Part XIII withholding tax?

Position: Yes, in the circumstances.

Reasons: Payment for distribution rights in this case are considered copyright royalties as the right to distribute is viewed as a component of the right to reproduce the software or is ancillary to such a right.

2014 Ruling 2013-0505181R3 - 15(2.6) Series of Loans and Repayments

CRA Tags
15(2), 15(2.6)
regular quarter-end advances to parent only for financial statement purposes

Principal Issues: Where a consolidated group of corporations participate in a notional cash pooling arrangement, do four short term loans (e.g., four days each) made over the course of a year by a Canco to its non-resident parent corporation constitute a "series of loans and or other transactions and repayments" as referred to in subsection 15(2.6) when each such loan is of an amount equal to the amount Canco has on deposit with an arm's length bank as part of the notional cash pooling at the time the loan is made and the loans are made for the purpose of satisfying financial reporting requirements that enable the non-resident parent's consolidated group to report the notional cash pooling arrangement on its consolidated balance sheet on a net basis?

Position: No.

Reasons: The "series of loans ... and repayments" referred to in subsection 15(2.6) is intended to prevent, by temporary repayment, a deferral of the recognition as income of amounts that are advanced as loans, rather than paid to the borrower as dividends, fees, bonuses or other amounts that would be included in the borrower's income. The four 4-day loans made in this case are not for the purpose of deferring the recognition of the loaned amounts as income, and the repayment of each loan in this case is not temporary.

2013 Ruling 2013-0492831R3 - Trust to trust transfer of property

CRA Tags
248(1), 104(4), 248(25.1), 104(5.8)
transfer to substantially similar new family trust with different Division Date

Principal Issues: Whether the transfer of trust property to a new trust will result in a disposition of property by the trust.

Position: No disposition of trust property on trust to trust transfer by virtue of paragraph (f) of the definition of "disposition" in subsection 248(1) of the Act.

Reasons: The new trust will be deemed to be the same trust and a continuation of the transferor trust pursuant to subsection 248(25.1). Subsection 104(5.8) will apply and result in the application of subsection 104(4) to the new trust on the same date that subsection 104(4) would have applied to the transferor trust.

2013 Ruling 2013-0512321R3 - Loss Consolidation

CRA Tags
20(1)(c)

Principal Issues: Is the loss utilization arrangement acceptable?

Position: Yes

Reasons: Within established parameters of our published position.

2013 Ruling 2012-0472151R3 - Supplemental Ruling

CRA Tags
246(1), 69(4), 89(1), 88(1), 245(2), 56(2), 15(1), 12(1)(x), 88(1.1), 112, 9, 20(1)(c), 69(11), 12(1)(c)

Principal Issues: Request for confirmation from CRA that certain proposed changes to the facts of the Advance Tax Ruling 2011-043185 would not affect the rulings and the opinion given.

Position: Confirmation that, subject to the conditions, limitations, qualifications, and comments set out therein, the original Ruling No. 2011-043185 will continue to be binding on the CRA.

Reasons: The supplemental facts do not affect the validity of the previous Ruling given.

2013 Ruling 2013-0513991R3 - Reg 1106 and excluded production

CRA Tags
ITR 1101(5k.1), ITR 1100(1)(m), 125.4, ITR 1106

Principal Issues: 1- Will the granting of the Option by the production company (Prodco), a qualified corporation, to a related company (Master Distributor), a prescribed taxable Canadian corporation, cause the 25-year copyright ownership requirement not to be met? 2- Will the exercise of the Option by Master Distributor cause the 25-year copyright ownership requirement not to be met? 3- Upon the exercise of the Option by Master Distributor, will the production be a Class 10(x) property to Master Distributor?

Position: 1 & 2 – No. 3 – Yes, provided the production does not subsequently become an excluded production (i.e. the 25-year copyright ownership requirement continues to be met) and the production meets the other requirements of a Canadian film or video production under subsection 1106(4) of the Regulations.

Reasons: 1 & 2 – Clause 1106(1)(a)(iii)(A) of the definition of "excluded production" in the Regulations contemplates a transfer of the copyright between a qualified corporation and a related prescribed taxable Canadian corporation. 3 – Wording of provisions (including subsection 1101(5k.1) of the Regulations which contemplates a transfer of the production between a qualified corporation and a related corporation).

2012 Ruling 2011-0431851R3 - Loss Consolidation

CRA Tags
69(1), 56(2), 245, 15(1), 12(1)(x), 112, 20(1)(c)

Principal Issues: Is the proposed loss consolidation acceptable?

Position: Yes.

Reasons: Consistent with similar previous rulings and tax policy.

Ministerial Correspondence

10 June 2014 Ministerial Correspondence 2014-0529961M4 - Capital gains on property in foreign currency

CRA Tags
261(2), 39(1)
translation on capital property disposition

Principal Issues: What is the correct method for computing gains or losses on the sale of capital property when the property is denominated in a foreign currency?

Position: All amounts are converted to Canadian dollars, then the adjusted cost base and outlays and expenses are deducted from the proceeds of disposition.

Reasons: Subsection 261(2) of the Act, and the Federal Court of Appeal case, Hope R. Gaynor v The Queen, 91 DTC 5288.

Technical Interpretation - External

12 June 2014 External T.I. 2014-0527651E5 - Whether keeping a zoo is a farming activity

CRA Tags
29(1), 28(1), 248(1) "inventory", ITR 1802, ETA Schedule VI - Part IV - 1, ETA, ITR Schedule II - Class 8, s. 123(1) "zero-rated supply", 20(1)(a), 28(1.2), 248(1) - "farming", 28(1.1)

Principal Issues: 1.) Whether zoo keeping is a farming activity. 2.) Whether animals are capital assets or inventory. 3.) If capital, which CCA class.

Position: 1.) Zoo keeping is not farming. 2.) Non-depreciable capital assets. 3.) None.

Reasons: 1.) Zoo animals are not "livestock", hence exhibiting them is not farming under the definition in Act. 2.) The Act and our previous position. 3.) n/a.

4 June 2014 External T.I. 2013-0513761E5 - Meaning of "cost" in determining "equity amount"

CRA Tags
18(5)

Principal Issues: Whether the term "cost" in the definition of "equity amount" in subsection 18(5) of the Act, as applicable to depreciable property, takes into account any depreciation claimed in respect of the property.

Position: No.

Reasons: The term "cost" used in the definition of "equity amount" means the original acquisition cost of the property.

3 June 2014 External T.I. 2014-0518911E5 F - Grand routier / long-haul truck

CRA Tags
67.1(1.1)
weight reference is to loaded weight determined by manufacturer

Principales Questions: Qu'est-ce qu'un « grand routier » dans le contexte de la définition de « grand routier » énoncée au paragraphe 67.1(5)? / What is a "long-haul truck" in the context of the definition of a "long-haul truck" in subsection 67.1(5)?)

Position Adoptée: Il s'agit du poids d'un véhicule auquel on additionne la charge maximale que celui-ci peut tirer selon les indications du fabricant. / It is the weight of a vehicle to which is added the maximum load that the vehicle can pull, based on the manufacturer's specifications.

Raisons: Voir paragraphe 2(1) du Règlement sur la Sécurité des véhicules automobile. / See subsection 2(1) of the Motor Vehicle Safety Regulations.

23 May 2014 External T.I. 2014-0518921E5 F - Calcul de l'élément A du MCIA

CRA Tags
14(5), 143, 14(1)
A.1 of A reduction does not apply in year of sale

Principales Questions: Est-ce que le contribuable doit tenir compte de l'élément A.1 dans le calcul de la valeur de A de la définition du MCIA au paragraphe 14(5) pour l'année de disposition? / Should the taxpayer take into account the item A.1 in the calculation of the value of A in the definition of CEC at subsection 14(5) in the year of disposition?

Position Adoptée: Non / No

Raisons: La loi / The law

22 May 2014 External T.I. 2014-0525361E5 - Bad Debts and Reserves for Doubtful Debts

CRA Tags
20(1)(p)

Principal Issues: General questions concerning the treatment of a loan as a bad debt.

Position: General comments provided.

Reasons: See below.

31 March 2014 External T.I. 2013-0515661E5 - Subsection 247(7.1) coming into-force rule

CRA Tags
Bill C-4 88(2), Bill C-4 88(1), 247(7.1), 247(2)
"that day" in transitional election refers to Royal assent

Principal Issues: Which date is meant by the phrase "that day" used in the coming into-force rule in paragraph 88(2)(a) of Bill C-4 in the application of subsection 247(7.1)?

Position: The relevant coming into-force date referenced by the phrase "that day" is the date of Royal Assent, that is, December 12, 2013.

Reasons: The wording of the provision. Also, the purpose of this election is to give effect to the legislation prior to the coming into-force date.

Technical Interpretation - Internal

6 June 2014 Internal T.I. 2013-0483201I7 - Retroactive Support Payments

CRA Tags
56.1(4), 60(b)

Principal Issues: Clarification regarding our position concerning retroactive support payments.

Position: See details of letter.

Reasons: See details of letter.
June 6, 2014

27 May 2014 Internal T.I. 2014-0521631I7 F - Déductibilité d'un alcoomètre

CRA Tags
6(1)(a), 18(1)(a)
not necessary to show that expenditure generated income - and potential deduction where 20% personal use
full personal element if the expense would have otherwise been paid by the employee

Principales Questions: Est-ce qu'un employeur peut déduire dans le calcul de son revenu d'entreprise, une dépense pour l'installation et le recalibrage mensuel d'un alcoomètre dans un véhicule utilisé par un employé? / Can an employer, in computing its business income, deduct expenses related to the installation and recalibration of a alcoholmeter in a vehicle used by an employee?

Position Adoptée: Question de fait / Question of fact

Raisons: La Loi / The Law

6 May 2014 Internal T.I. 2014-0524651I7 - Loss on conversion

CRA Tags
51(1), 40(2)(g)(ii)
s. 51 applies where issuer had a cash redemption override
conversion not under Note terms

Principal Issues: 1. Whether subsection 51(1) applied to the conversion of a debt into a share. 2. Whether subparagraph 40(2)(g)(ii) applied to deny the loss.

Position: 1. No. 2. question of fact.

Reasons: 1. The debt was not converted pursuant to its terms. 2. The absence of interest on a debt does not necessarily trigger paragraph 40(2)(g)(ii).

29 April 2014 Internal T.I. 2013-0481581I7 - Under Remittance of Part XIII Tax

CRA Tags
212(2), 215(6), 227(10), 215(1), 212(1)(b)
normal reassessment period for Part XIII tax
acceptance by CRA of remittance and resulting notification is not an assessment

Principal Issues: Whether the Minister could assess a corporation at any time for under remitting Part XIII tax for the XXXXXXXXXX to XXXXXXXXXX taxation years.

Position: Yes.

Reasons: Under subsection 227(10), an assessment of Part XIII tax may be raised at any time. Once raised, Divisions I and J of Part I apply, and the assessment will be treated as though it were issued under section 152. The normal reassessment period, as defined in subsection 152(3.1), would apply once an amount has been assessed under Part XIII.

25 April 2014 Internal T.I. 2014-0521541I7 - Requirement for Crown corporations to file T2

CRA Tags
150(1.1), 220(2.1), 149(1), 27(2), 150(1)

Principal Issues: 1) Whether a corporation owned by Her Majesty in right of Canada or a province or both is exempt by the Act from filing T2 returns. 2) Whether any exemption would extend to wholly-owned subsidiaries of a corporation owned by the Crown.

Position: 1) No. However, the requirement to file can be waived. 2) Unable to comment.

Reasons: 1) Subsection 220(2.1) provides the authority for the Minister to waive the requirement to file a T2 return under subsection 150(1). 2) Administration of this authority is primarily the responsibility of the Assessment and Benefit Services Branch, including any decision to extend its application.

21 March 2014 Internal T.I. 2013-0504491I7 - Change to loss application in a nil assessed year

CRA Tags
152(4), 111(3)
reduce non-capital loss utilization in statute-barred return

Principal Issues: Whether changes may be made to a loss application after the end of the normal reassessment period where a nil assessment was issued.

Position: Taxpayers may request changes. Although the Minister is not obligated to accede to the request, the Minister may do so where it is appropriate in the circumstances.

Reasons: Where a nil assessment has been issued, changes that do not result in tax payable do not require the Minister to issue an assessment, reassessment or additional assessment. Therefore, the restrictions in subsection 152(4) of the Act do not apply. However, where it would be inappropriate to accept the request, the Minister can deny it.

11 March 2014 Internal T.I. 2013-0499421I7 - Application of subsection 220(2.1) to 129(1)

CRA Tags
220(2.1), 220(3), 150(1), 129(1)
no discretion to extend three year deadline

Principal Issues: Whether subsection 220(2.1) of the Income Tax Act (the "Act") provides the Minister with the discretion to waive the three year filing requirement in subsection 129(1), and therefore allow the Minister to issue a dividend refund.

Position: No.

Reasons: The provisions of subsection 220(2.1) may allow the Minister the discretion to waive the requirement to file a prescribed form, receipt or other document, but does not alter or affect whether a corporation has factually filed its return of income within the three years after the end of the year as required by subsection 129(1).

19 February 2014 Internal T.I. 2013-0508121I7 - Provincial Income Allocation among Joint Venturers

CRA Tags
402(3)
pro rata share of JV payroll if shared responsibility

Principal Issues: For provincial income allocation calculation purposes, how are salary and wages allocated among participants in a joint venture?

Position: It's a question of fact. It depends on the joint venture agreement.

Reasons: Where the participants agree to share legal responsibility for the salaries and wages of the employees of the joint venture, the participants would include their pro-rata share of the salary and wages in their respective provincial income allocation calculations.

12 February 2014 Internal T.I. 2012-0443391I7 - cross-border loans and deductibility of interest

CRA Tags
20(1)(c)
interest deductible when satisfied with common shares issued in pre-FAD-rule foreign afiliate dumping transactions

Principal Issues: Whether interest payments on loan agreements which include certain equity like features are deductible under paragraph 20(1)(c)?

Position: Question of fact. General comments provided.

Reasons: The deductibility of interest under paragraph 20(1)(c).