Income Tax Severed Letters - 2014-07-23

Technical Interpretation - External

30 June 2014 External T.I. 2014-0522181E5 F - Legal status of partnership and application of 98(6)

CRA Tags
98(6)
Summary Under
Tax Topics - Income Tax Act - Section 98 - Subsection 98(6)
rollover on dissolution of general partner

Principales Questions: (1) What is the legal status of the partnership considering its obligation to make a declaration in accordance with the provisions of article 118 of the Act respecting the implementation of the reform of the Civil Code? (2) Whether subsection 98(6) applies when a limited partnership becomes a general partnership following the dissolution of its sole corporate general partner?

Position Adoptée: (1) The determination of the legal status of a partnership is a question of fact and law that can only be resolved after a full examination of all facts and circumstances surrounding the relevant situation. (2) Yes, if all conditions provided in subsection 98(6) are satisfied. We do not have enough facts to conclude. If the outgoing partner was provided with his share of the partnership property before the partnership ceases to exist, Canada Revenue Agency would administratively consider the term "all of the property" in subsection 98(6) satisfied if all of the property of the old partnership was directly transferred by the predecessor partnership to the new partnership immediately after the settlement of the outgoing partner's interest.

Raisons: Based on our interpretation of subsection 98(6) and consistent with our positions in previous technical interpretations.

24 June 2014 External T.I. 2014-0524331E5 - definition of excluded interest

CRA Tags
40(3.15), 40(3.16)(d)
Summary Under
Tax Topics - Income Tax Act - Section 40 - Subsection 40(3.15)
40% indebtedness increase to below original amount was "substantial"
Summary Under
Tax Topics - Income Tax Act - Section 40 - Subsection 40(3.16)
distribution not a qualifying use

Principal Issues: Whether the refinancing of a debt would be considered a "substantial increase" in the indebtedness of a partnership for purposes of the definition of an "excluded interest" in subsection 40(3.15).

Position: It is a question of fact whether the refinancing of a debt would be considered to be a substantial increase in the indebtedness of a partnership for the purposes of the definition of "excluded interest" in subsection 40(3.15). In this particular scenario, it is our view that there is a substantial increase. Therefore, subsection 40(3.1) would apply.

Reasons: In this particular scenario, the refinancing results in an increase of over 40% in the indebtedness of the partnership.

23 June 2014 External T.I. 2014-0519401E5 - Settlement payment for cancellation of lease

CRA Tags
9(1), 39(1)
Summary Under
Tax Topics - Income Tax Act - Section 9 - Compensation Payments
lease cancellation payment

Principal Issues: How should an amount received by a taxpayer from a landlord for the cancellation of the taxpayer's lease be treated?

Position: Question of fact.

Reasons: Generally, the treatment of a settlement payment is determined by reference to the surrogatum principle. According to this principle, a settlement payment is determined by reference to the amount it is intended to replace.

2 May 2014 External T.I. 2012-0434151E5 - Indian Act Exemption - Guideline 2

CRA Tags
81(1)(a)

Principal Issues: Whether Guideline 2 will apply such that the employment income is exempt where the employees are leased through an on-reserve employer?

Position: Generally the Guidelines do not apply in an employee leasing situation.

Reasons: See discussion.

31 March 2014 External T.I. 2014-0516981E5 - Advanced Income Tax Ruling Request

CRA Tags
149(1)(l)

Principal Issues: Why ruling could not be provided and 149(1)(l) concerns.

Position: No ruling can be provided and there are some concerns as to whether 149(1)(l) requirements are met.

Reasons: See below.

Conference

16 June 2014 Roundtable, 2014-0523051C6 - Registration of Tax Preparers - STEP Q 14

Principal Issues: Registration of Tax Preparers in Canada.

Position: General response provided by CPB.

Reasons: See below.

16 June 2014 STEP Roundtable, 2014-0526561C6 - Capital interest as eligible property for s 85

CRA Tags
108(1) "capital interest", 85(1), 85(1.1), 54(1)(b)
Summary Under
Tax Topics - Income Tax Act - Section 85 - Subsection 85(1.1)
trust capital interest as eligible property

Principal Issues: Can a capital interest in a personal trust held by a taxpayer qualify as "eligible property" for purposes of the rollover in section 85 of the Act?

Position: Yes, provided it is capital property of the taxpayer.

Reasons: See below.

16 June 2014 STEP Roundtable, 2014-0529821C6 - Cancellation of Immigrant Trust

CRA Tags
94(3)
Summary Under
Tax Topics - Income Tax Act - Section 94 - Subsection 94(1) - Resident Contributor
January 1 effective date where 60th month falls in 2014

Principal Issues: Elimination of 60 month Immigrant trust exemption & timing of beginning of resident trust year

Position: Depends on whether contributions were made to the trust before or after budget date & when the actual 60 month expiry would have been.

Reasons: See paragraphs 28 & 29 of NWMM

16 June 2014 STEP Roundtable, 2014-0522971C6 - STEP CRA Roundtable – June 2014 - Question 3

CRA Tags
93.3
Summary Under
Tax Topics - Income Tax Act - Section 93.2 - Subsection 93.2(2)
deemed share classes of LLC with Manager carry

Principal Issues: How are equity interests in foreign corporations without share capital divided into deemed classes of capital stock?

Position: Equity interests are divided into deemed classes of capital stock based on their actual underlying rights and obligations as compared to all other equity interests in the corporation. Equity interests are considered to have identical rights and obligations provided any differences in those rights and obligations are proportionate.

Reasons: Text of proposed 93.3

16 June 2014 STEP Roundtable, 2014-0523001C6 - Trusts structured to invoke 75(2)

CRA Tags
12(1)(j), 75(2) and 104(13)
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(13)
Brent Kern schemes don't work even if Sommerer issue fixed
Summary Under
Tax Topics - Income Tax Act - Section 75 - Subsection 75(2)
Brent Kern schemes don't work even if Sommerer issue fixed

Principal Issues: Can CRA provide its views of structures using trusts to purposely attribute dividend income by virtue of subsection 75(2)?

Position: Views provided.

Reasons: See below.

16 June 2014 STEP Roundtable, 2014-0523011C6 - STEP Roundtable 2014-7(1)(e)

CRA Tags
7(1)(e), 164(6.1)
Summary Under
Tax Topics - Income Tax Act - Section 164 - Subsection 164(6.1)
overview
Summary Under
Tax Topics - Income Tax Act - Section 7 - Subsection 7(1) - Paragraph 7(1)(e)
nil valuation of unvested options

Principal Issues: What are the tax consequences where an employee dies and the employee held unexercised stock options at the time of the employee's death?

Position: The FMV of the stock option immediately after the employee's death is deemed to be received in the year of death.

Reasons: Application of paragraph 7(1)(e) of the Act.

16 June 2014 STEP Roundtable, 2014-0522961C6 - STEP CRA Roundtable - June 2014

CRA Tags
56.4(6), 56.4(7), 56.4(2), 56.4(3), 68
Summary Under
Tax Topics - Income Tax Act - Section 56.4 - Subsection 56.4(6) - Paragraph 56.4(6)(e)
nominal consideration tainting of non-compete - partly reversed immediately above
Summary Under
Tax Topics - Income Tax Act - Section 56.4 - Subsection 56.4(7) - Paragraph 56.4(7)(d)
nominal consideration tainting of non-compete

Principal Issues: Final answer to question 15 (Restrictive Covenants) of the June 2014 CRA STEP Roundtable.

Position: See response.

Reasons: Wording of paragraph 56.4(7)(d).

16 June 2014 STEP Roundtable, 2014-0523061C6 - Trust audit issues

Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(21)
capital gain distributed to different beneficiary
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 105 - Subsection 105(1)
benefit conferred when trust shares redeemed at undervalue
Summary Under
Tax Topics - Income Tax Act - Section 112 - Subsection 112(3.2)
taxpayer stuck with two-transaction form
Summary Under
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(1) - Total Charitable Gifts
executors lacked power to make gift
Summary Under
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Legal and other Professional Fees
legal and accounting expenses
Summary Under
Tax Topics - Income Tax Act - Section 75 - Subsection 75(2)
settlor taking back undervalued freeze shares

Principal Issues: Can CRA provide an update on common audit issues it finds/reviews regarding trusts?

Position: Various audit issues considered by ITRD in recent years discussed.

Reasons: See below.

16 June 2014 STEP Roundtable, 2014-0523031C6 - 2014 STEP CRA Roundtable Question

CRA Tags
104(4)(a)(iv)(B), 104(4)(a)(iv)(C), 73(1.01)(c)(iii)(B), 248(1), 73(1.01)(c)(iii)(A)
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Joint Spousal or Common-law Partner Trust
"combination" requirement satisfied where predeceased spouse
Summary Under
Tax Topics - Income Tax Act - Section 73 - Subsection 73(1.01) - Paragraph 73(1.01)(c)
"combination" requirement satisfied where predeceased spouse

Principal Issues: If terms of the trust provide that the individual who transferred property to the trust is entitled to receive all of the income of the trust during his lifetime and the surviving spouse or common-law partner is only entitled to receive income thereafter, does the trust qualify as a "joint spousal or common-law partner trust" and can this arrangement meet the requirement that the two persons are entitled to receive the income of the trust "in combination with the other" as stated in 73(1.01)(c)(iii)?

Position: Such terms would not prevent a trust from qualifying as a joint spousal or common-law partner trust.

Reasons: Previous positions.

16 June 2014 STEP Roundtable, 2014-0523021C6 - Multiple assessments - STEP Q19

CRA Tags
220(3.1), 152(4)
Summary Under
Tax Topics - Income Tax Act - Section 220 - Subsection 220(3.1)
embedded duplicative interest in multiple assessments

Principal Issues: Where multiple assessments are issued involving a series of transactions, is there any relief to taxpayers with respect to interest expense where one or more of the reassessments are determined to be incorrect?

Position: Response provided by CPB - General comments provided.

Reasons: See below.

16 June 2014 STEP Roundtable, 2014-0530571C6 - Voluntary Disclosures - Q13

Summary Under
Tax Topics - Income Tax Act - Section 220 - Subsection 220(3.1)
Bozzer accepted

Principal Issues: CRA's position on voluntary disclosures - post Bozzer decision.

Position: General comments provided by VDP section.

Reasons: See below.

16 June 2014 STEP Roundtable, 2014-0523041C6 - LLLPs

Summary Under
Tax Topics - Income Tax Act - Section 96
classification of U.S. LLLP

Principal Issues: Whether a US LLLP is a partnership, corporation or something else?

Position: None taken.

Reasons: The CRA will consider the classification in the context of an advance income tax ruling.

16 June 2014 STEP Roundtable Q. 8, 2014-0526551C6 - STEP CRA Roundtable Q8 - June 2014

CRA Tags
108(1) "capital interest", 107(2)
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 107 - Subsection 107(2)
transfer to settle debt not a distribution

Principal Issues: Can a transfer of property from a personal trust to a beneficiary be both a settlement of debt and a rollover pursuant to subsection 107(2)?

Position: No.

Reasons: It cannot be both simultaneously.

16 June 2014 STEP Roundtable Q. 11, 2014-0529831C6 - STEP - Q 11- Immigration trust exemption

CRA Tags
94(3)(a), 128.1(1)
Summary Under
Tax Topics - Income Tax Act - Section 94 - Subsection 94(1) - Resident Contributor
immigration trust becomes resident effective January 1 of immigration year
Summary Under
Tax Topics - Income Tax Act - Section 94 - Subsection 94(3) - Paragraph 94(3)(a)
immigration trust becomes resident effective January 1 of immigration year

Principal Issues: As a result of the proposed termination of the immigrant trust exemption in the 2014 Budget, will the foreign trust be deemed to be resident in Canada from the beginning of the year in which the individual contributor immigrates to Canada?

Position: Question of fact.

Reasons: Yes, if subsection 94(3) applies; No if the trust is factually resident in Canada and 94(3) does not apply.

16 June 2014 STEP Roundtable Q. 12, 2014-0523071C6 - STEP Q12 - Non-resident trust

CRA Tags
94(2)(n), 94(2)(g), 94(1)
Summary Under
Tax Topics - Income Tax Act - Section 94 - Subsection 94(2) - Paragraph 94(2)(g)
resident estate as deemed contributor to non-resident trust
Summary Under
Tax Topics - Income Tax Act - Section 94 - Subsection 94(2) - Paragraph 94(2)(n)
resident estate as deemed contributor to non-resident trust

Principal Issues: Is the estate of a Canadian resident considered to be a "contributor" to a child's trust in a foreign jurisdiction?

Position: Yes.

Reasons: Pursuant to the definitions of "contributor" and "contribution" in subsection 94(1) and the application of paragraph 94(2)(g) of the Act.

26 November 2013 Annual CTF Roundtable, 2013-0493811C6 - Change in use

CRA Tags
13(7), 45(1)
Summary Under
Tax Topics - Income Tax Act - Section 13 - Subsection 13(7) - Paragraph 13(7)(a)
CAE not followed
Summary Under
Tax Topics - Income Tax Act - Section 45 - Subsection 45(1) - Paragraph 45(1)(a)
CAE not followed

Principal Issues: Can the CRA provide any guidance or clarification following the comments made by the Federal Court of Appeal on the application of the change in use rules?

Position: See letter.

Reasons: See letter.

Technical Interpretation - Internal

10 March 2014 Internal T.I. 2013-0507901I7 - Indian Employment Income

CRA Tags
81(1)(a)

Principal Issues: Whether any of the guidelines or the decision in the Folster case will apply to exempt the employment income and pension income earned by an Indian from employment at a XXXXXXXXXX near a reserve?

Position: No.

Reasons: None of the guidelines apply and the facts are not similar to Folster.