Income Tax Severed Letters - 2014-09-03

Ruling

2014 Ruling 2014-0518451R3 - Loss consolidation

CRA Tags
55(3)(a), 88(1.1), 20(1)(c)
Summary Under
Tax Topics - Income Tax Act - Section 111 - Subsection 111(1) - Paragraph 111(1)(a)
losses transferred to new "Aco" which is wound-up into profitco – but borrowing capacity rep of Lossco not Aco/ provincial GAAR ruling/ cashless un-wind

Principal Issues: Loss consolidation

Position: Favourable rulings issued.

Reasons: Meets statutory and administrative requirements.

2014 Ruling 2013-0491331R3 - Introduction of a partnership and Art.IV(7)(b)

CRA Tags
212(2), Treaties Article XI(1), 84(1), 245, Treaties Article X(2), Treaties Article IV(7)(b)
Summary Under
Tax Topics - Treaties - Income Tax Conventions - Article 4
Art. IV(7)(b) avoided on note owing by ULC to S Corp through contributing note to partnership

Principal Issues: 1. Whether Article IV(7)(b) applies to a subsection 84(1) deemed dividend. 2. Whether Article IV(7)(b) applies to interest payments from a fiscally transparent ULC to a U.S. limited partnership, where the partners of the limited partnership are a U.S. resident S-Corporation and a U.S. resident shareholder of the S-Corporation. 3. Whether 245(2) applies to the proposed transactions.

Position: 1. No. 2. No. 3. Not in these circumstances.

Reasons: 1. Article IV(7)(b) does not apply because the deemed dividend is subject to the same treatment under the taxation laws of the United States as it would be if the dividend payer were not fiscally transparent. 2. The U.S. resident S-Corporation is required to include the interest in the computation of its United States income tax liability for U.S. federal income tax purposes. 3. Does not frustrate or defeat the underlying purpose/rationale of Article IV(7)(b), provided the full income of ULC and ULC-2 is subject to tax in the U.S. on a current basis.

Technical Interpretation - External

22 August 2014 External T.I. 2014-0541171E5 - Late 45(2) Election filed by executer

CRA Tags
220(3.2), 54 "principal residence", 220(3.5), ITR 600, 45(2)
Summary Under
Tax Topics - Income Tax Act - Section 220 - Subsection 220(3.2)
late s. 45(2) election filed by executor
Summary Under
Tax Topics - Income Tax Act - Section 45 - Subsection 45(2)
late s. 45(2) election filed by executor

Principal Issues: Whether the CRA has the authority/discretion to accept from an executer of the estate of a deceased taxpayer, a late-filed subsection 45(2) election so that, for purposes of completing the final tax return of the deceased, the deceased taxpayer can claim the principal residence exemption for up to 4 years during which the election, if accepted, is in force.

Position: Yes.

Reasons: See 2008-026574

11 August 2014 External T.I. 2014-0540041E5 - Small Business Deduction

CRA Tags
248(1), 125(1), 125(7), 129(4)

Principal Issues: Whether rental income received by a taxpayer can be considered active business income under the Act for purposes of the small business deduction ("SBD")?

Position: Question of fact.

Reasons: The law.

7 August 2014 External T.I. 2014-0528841E5 F - Changement à une résidence principale

CRA Tags
13(7), 15(1), ITR 1102, 18(1), 45(1)
Summary Under
Tax Topics - Income Tax Act - Section 45 - Subsection 45(1) - Paragraph 45(1)(c)
addition of a door to an exterior wall could be considered a structural change triggering a change of use
Summary Under
Tax Topics - Income Tax Act - Section 15 - Subsection 15(1)
taxable benefit if renovations paid for by tenant-corporation increase the FMV of property to owner-shareholder
Summary Under
Tax Topics - Income Tax Regulations - Regulation 1102 - Subsection 1102(5)
Reg. 1102(5) not applicable where door added by tenant to basement rental property

Principales Questions: 1) Est-ce qu'il y a un changement structurel à la résidence principale lorsqu'une porte extérieure est ajoutée pour donner un accès direct au nouveau bureau d'une société? / Is there a structural change to a principal residence when an exterior door is added to give a direct access to the new office of a corporation? 2) Est-ce qu'il y a un avantage conféré à l'actionnaire si les rénovations sont payées par la société? / Is there a benefit conferred to the shareholder if the renovations are paid by the corporation? 3) Est-ce que la société peut réclamer l'amortissement sur les améliorations locatives? / Can the corporation claim the depreciation on the leasehold improvement?

Position Adoptée: Aucune puisque c'est une question de fait / None since it is a question of fact

Raisons: Voir la lettre ci-dessous / See the letter below

7 July 2014 External T.I. 2013-0511061E5 - Change in custodian of an RCA

CRA Tags
207.5(2), 207.5(3), 207.5(1), 207.6(7), 248(1)
Summary Under
Tax Topics - Income Tax Act - Section 207.5 - Subsection 207.5(2)
new custodian and replacement LCs do not generate refund

Principal Issues: The taxpayer requests our opinion regarding whether the CRA will permit a refund of the refundable tax in the situation outlined in their correspondence.

Position: There would be no entitlement to a refund of refundable tax.

Reasons: There would simply be a change of the custodian of the RCA. This does not result in the termination of the RCA itself (or a distribution from the RCA).

4 July 2014 External T.I. 2013-0515541E5 - Life annuity payment out of an RCA

CRA Tags
ITR 8501(1), ITR 8500(1), ITR 8502, ITR 8503, ITR 8506, 248(1)
Summary Under
Tax Topics - Income Tax Act - Section 60.03 - Subsection 60.03(1) - Eligible Pension Income
lifetime annuity is periodic for life/to be eligible must be in equal amounts

Principal Issues: The taxpayer requests clarification of the meaning of a payment in the form of a life annuity out of or under an RCA that meets the conditions in the definition of "eligible pension income" in subsection 60.03(1) of the Act.

Position: The term "life annuity" is not defined in the Act. A definition of the term "annuity" is provided in subsection 248(1) of the Act. The Act considers certain annuities to be lifetime pensions under a pension plan where payments are made to the member until the member's death.

Reasons: In order for payments from an RCA to be in the form of a life annuity, the benefits payable must be payable on a periodic basis, payable to the member of the RCA for his or her lifetime or jointly for the lifetimes of the member and his or her spouse or common-law partner and supplemental to pension benefits provided under the individual's RPP.

Conference

22 May 2014 Roundtable, 2014-0528601C6 - Ponoka Tax Conference- Question 11

CRA Tags
6(1)(a), 63(1)

Principal Issues: 1. Question regarding CRA's treatment of child care expenses where an amount in respect of child care is included in the employee's income under paragraph 6(1)(a).

Position: 1. The amount included as a taxable benefit is considered to be an amount paid for the purposes of the child care expense deduction.

Reasons: See below.

6 May 2014 Roundtable, 2014-0523291C6 - 2014 CALU Conference - Folio Update

Principal Issues: CALU requested an update on the publication of Folios.

Position: General comments provided.

Reasons: See below.

3 December 2013 TEI Roundtable, 2013-0510851C6 - 2013 TEI – Question 9: Tax residency certificates.

CRA Tags
Section 250
Summary Under
Tax Topics - Income Tax Act - Section 2 - Subsection 2(1)
no residency certificates for partnerships

Principal Issues: Whether a certificate of residency can be issued in the name of a Canadian partnership on the basis of the Canadian residency of all its partners?

Position: No.

Reasons: A partnership, in itself, is not considered resident.

6 May 2014 CALU Roundtable, 2014-0523301C6 - Control - unanimous shareholders agreement

Summary Under
Tax Topics - Income Tax Act - Section 125 - Subsection 125(7) - Canadian-Controlled Private Corporation
Bagtech accepted "where appropriate"

Principal Issues: Bagtech case

Position: General comments

Reasons: See below

6 May 2014 CALU Roundtable, 2014-0523321C6 - 2014 CALU Conference

CRA Tags
20(1)(bb), 138.1(1)
Summary Under
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(bb)
segregated fund not a "security"
Words and Phrases
security

Principal Issues: Can an investor in a segregated fund deduct fees in respect of the advisability of entering into or redeeming out of, or the administration or management of, segregated funds under paragraph 20(1)(bb).

Position: No, the requirements in paragraph 20(1)(bb) are not met.

Reasons: Paragraph 20(1)(bb) applies in the context of shares or securities of a taxpayer. An investor in a segregated fund enters into an insurance contract, which, in our view, is not a security of the investor.

6 May 2014 May CALU Roundtable, 2014-0523331C6 - CALU CRA Roundtable Q

CRA Tags
73(1), 73(1.01) and 73(1.02)
Summary Under
Tax Topics - Income Tax Act - Section 73 - Subsection 73(1.01) - Paragraph 73(1.01)(c)
transfer of taxpayer property to alter ego trust by taxpayer's attorney

Principal Issues: Can an attorney under a power of attorney create an alter ego or joint partner trust, such that the property transferred to such trust will constitute a qualifying transfer

Position: It would depend on the unique facts and legislation.

Reasons: See comments below.

6 May 2014 May CALU Roundtable, 2014-0523311C6 - CALU Pension splitting - question 4

CRA Tags
118(3), 56(1)(a)(i), 146.3(5), 188(7), 146(8)
Summary Under
Tax Topics - Income Tax Act - Section 118 - Subsection 118(7) - Pension Income
LRIF/LIF payments not of life annuity in respect of pension plan

Principal Issues: Whether "qualified pension income" as defined under subsection 118(7) of the Act would include payments in respect of a life annuity out of a LRIF or LIF where the locked-in account is funded with amounts transferred from a RPP and the recipient is under 65 years of age.

Position: No

Reasons: Where a recipient is under 65 years of age and is not receiving the amount as a consequence of the death of their spouse or common-law partner, the payment in respect of an annuity from the locked-in account is not considered "qualified pension income".

6 May 2014 May CALU Roundtable, 2014-0523261C6 - Grandfathered status of LIA policy

CRA Tags
248(1)
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - LIA Policy
scope of changes to lose grandfathered status

Principal Issues: Whether some transactions occurring after March 20, 2013, with respect to a "leverage insured annuity" (LIA) entered into before March 21, 2013 will impact its grandfathered status?

Position: Mixed question of fact and law.

Reasons: Need to determine if a person or a partnership has become obligated, after March 20, 2013, to repay an amount to another person or partnership at a time determined by reference to the death of a particular individual whose life is insured under the life insurance policy.

6 May 2014 May CALU Roundtable, 2014-0523341C6 - CALU - Insurance Death Benefit received by FA

CRA Tags
ITR 5907(1), 113(1)(d), 40(3), 89(1), 20(1)(e.2), ITR 5907(5), ITR 5907 (5.1), 95(1), ITR 5907(2)(f)
Summary Under
Tax Topics - Income Tax Regulations - Regulation 5907 - Subsection 5907(2) - Paragraph 5907(2)(f)
life insurance policy unlikely to pertain to CFA's active business

Principal Issues: a) When a foreign affiliate receives the proceeds of an exempt life insurance policy, which surplus account of the foreign affiliate will such proceeds go into?
b) Assuming the foreign affiliate does not otherwise have an exempt, hybrid, or taxable surplus balance, if the proceeds of the life insurance policy are distributed by way of dividend, will the full amount of the dividend result in a capital gain to the Canadian parent?

Position: a) Pre-acquisition surplus pool.
b) Yes

Reasons: a) Since the proceeds received by the foreign affiliate are exempt from taxation in the foreign country and the facts do not otherwise indicate that the insurance policy was related to the active business of the foreign affiliate, such proceeds are not included in the earnings from an active business of the foreign affiliate. Moreover, since no capital gain or foreign accrual property income arises in respect of such life insurance proceeds, there is no adjustment to the foreign affiliate's surplus balances.
b) Since the Canadian parent's adjusted cost base in the shares of the foreign affiliate is nominal, a capital gain will result by virtue of paragraph 113(1)(d), subsection 92(2) and subsection 40(3) of the Act equal to the amount of dividend paid by the foreign affiliate to the parent (less foreign withholding tax, if any) less the nominal ACB of the shares of the foreign affiliate.