Income Tax Severed Letters - 2014-09-24

Technical Interpretation - External

9 September 2014 External T.I. 2014-0537371E5 - Approved Research Institute Status

CRA Tags
248(1), 37(1)(a)(ii)(B), 37(7)
Summary Under
Tax Topics - Income Tax Act - Section 37 - Subsection 37(1) - Paragraph 37(1)(a) - Subparagraph 37(1)(a)(ii) - Clause 37(1)(a)(ii)(B)
conversion of institute to registered charity

Principal Issues: Will the changes proposed above to the Letters Patent in order for the Institute to obtain status as a registered charity under the Act affect the status of approved research institute for purposes of clause 37(1)(a)(ii)(B) of the Act?

Position: No.

Reasons: No change to the entity's activities.

8 September 2014 External T.I. 2014-0529231E5 - Partnership to Sole Proprietorship

CRA Tags
98(5)
Summary Under
Tax Topics - Income Tax Act - Section 98 - Subsection 98(5)
farm partnership

Principal Issues: Where a partnership business is continued as a sole proprietorship, can the depreciable property of the partnership be transferred to the sole proprietorship on a tax-deferred basis?

Position: Yes, provided the conditions under subsection 98(5) are met.

Reasons: Subsection 98(5), which is a non-elective provision, contains rules which provide a tax-deferred transfer or "rollover" of a Canadian partnership's property where the partnership has ceased to exist and the transfer is to one member of the partnership who continues to carry on the business of the partnership as a sole proprietor.

8 September 2014 External T.I. 2013-0482991E5 - 15(2) and related provisions

CRA Tags
215, 15(2.11), 15(2.6), 221.2(1), 227(6.1), 15(2), 214(3)(a)
Summary Under
Tax Topics - Income Tax Act - Section 15 - Subsection 15(2.11)
novation of pre-2012 loan
Summary Under
Tax Topics - Income Tax Act - Section 15 - Subsection 15(2.6)
assignment of debt not its repayment
Summary Under
Tax Topics - Income Tax Act - Section 221.2 - Subsection 221.2(1)
no unpaid liability of non-resident to be reduced re appropriation of unrefunded s. 214(3)(a) tax

Principal Issues: 1. Does the transfer of a debt to which 15(2) attaches to a foreign corporate parent in repayment of another debt constitute repayment of the debt to which subsection 15(2) attaches?
2. Is an amount that would be refundable under subsection 227(6.1) available for appropriation under subsection 221.2(1) if the time for a refund under 227(6.1) has expired?
3a. If a pre-March 28, 2012, loan otherwise has all the characteristics of a PLOI would subsection 15(2) still apply? 3b. If so, can the debt be replaced with a post-March 28, 2012, debt in order to make a PLOI election and take advantage of one or more of subsections 15(2.6) or 227(6.1).

Position: 1. No.
2. Yes, but only by the non-resident Part XIII taxpayer, and only if no refund becomes available.
3a. 15(2) still applies. 3b. The requirements of 15(2.6) and 227(6.1) may not be met.

Reasons: 1. Assumption of the debt receivable by another party is not considered payment of the debt by the borrower.
2. Words of the Act state to whom the tax applies and who may request a refund or appropriation. Appropriation should not be allowed to circumvent the statute barring of refunds.
3a. The limitations set by Parliament must be respected. 3b. The transaction may constitute part of a series of loans or other transactions and repayments.

25 August 2014 External T.I. 2014-0526891E5 - Investment counselling fees for RDSP

CRA Tags
20(1)(bb), 18(1)(u)
Summary Under
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(bb)
fees paid by RDSP holder not deductible

Principal Issues: Whether investment counselling fees paid in respect of securities of an RDSP are deductible if they are paid by the holder of the RDSP?

Position: No.

Reasons: The requirements of 20(1)(bb) are not met.

22 August 2014 External T.I. 2014-0540751E5 F - Acquisition of control

CRA Tags
251(2), 256(6.1), 256(7)
Summary Under
Tax Topics - Income Tax Act - Section 251 - Subsection 251(2) - Paragraph 251(2)(b) - Subparagraph 251(2)(b)(iii)
cousins part of related control group while fathers alive
Summary Under
Tax Topics - Income Tax Act - Section 256 - Subsection 256(7) - Paragraph 256(7)(a)
addition of cousin to control group would taint it/cousins part of related control group while fathers alive

Principales Questions: Whether there would be an acquisition of control of two holding corporations and of an operating corporation held by the two holding corporations in a given situation?

Position Adoptée: There would be an acquisition of control of one of the holding corporations. As for the second holding corporation, it would depend on who form the groups of control. Control of Opco would be deemed not to have been acquired pursuant to subsection 256(7).

Raisons: The wording of the Act and specifically of paragraph 256(7)(a).

18 August 2014 External T.I. 2014-0540361E5 F - CDA and the deeming rules of 40(3.6) or 112(3)

CRA Tags
112(3), 39(1)(b), 40(3.6), 89(1), 40(1)(b)
Summary Under
Tax Topics - Income Tax Act - Section 40 - Subsection 40(1) - Paragraph 40(1)(b)
ss. 112(3) and 40(3.6) stop-loss rules modify operation of s. 40(1)(b)
Summary Under
Tax Topics - Income Tax Act - Section 89 - Subsection 89(1) - Capital Dividend Account
no capital loss for CDA purposes where ss. 112(3) and 40(3.6) stop-loss rules apply

Principales Questions: Whether the CDA will be reduced by a loss that results from the redemption of shares where such loss is deemed to be nil pursuant to subsection 40(3.6) or 112(3).

Position Adoptée: No.

Raisons: Where subsection 40(3.6) or 112(3) applies to deem a taxpayer's loss to be nil, the taxpayer is not considered to have sustained a loss for the purpose of paragraph 39(1)(b). If the redemption of the shares does not result in a capital loss under paragraph 39(1)(b), there will be no reduction of the CDA.

28 July 2014 External T.I. 2014-0532651E5 - Loan to charitable foundation

CRA Tags
69(1)(a), ITR 7000(2)(a), ITR 7000(1)(a), 52(1), 129
Summary Under
Tax Topics - Income Tax Act - Section 69 - Subsection 69(1) - Paragraph 69(1)(a)
non-interest bearing term loan could trigger PDO rules
Summary Under
Tax Topics - Income Tax Regulations - Regulation 7000 - Subsection 7000(2) - Paragraph 7000(2)(a)
non-interest bearing and non-arm's length term loan could trigger PDO rules

Principal Issues: Whether interest would be deemed to accrue on a non-interest bearing loan?

Position: It may.

Reasons: 69(1)(a) may deem the holder to acquire the loan at a cost that is less than the principal amount.

Technical Interpretation - Internal

14 July 2014 Internal T.I. 2014-0537701I7 F - Voluntary disclosure - T1134 and FAPI

CRA Tags
16(1), 220(3.1), ITR 5903.1, 15(2), 95(1), 163, ITR 5903, 162, 233.4
Summary Under
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) - Paragraph 152(4)(a) - Subparagraph 152(4)(a)(i)
no time limitation for s. 162(10) penalty
Summary Under
Tax Topics - Income Tax Act - Section 162 - Subsection 162(10)
s. 162(10) penalty for failure to file T1134s
Summary Under
Tax Topics - Income Tax Act - Section 162 - Subsection 162(7)
penalties under ss. 162(10), (10.1) or 163(2.4) for failure to file T1134s
Summary Under
Tax Topics - Income Tax Act - Section 163 - Subsection 163(2.4)
penalties for failure to file T1134s
Summary Under
Tax Topics - Income Tax Act - Section 220 - Subsection 220(3.1)
requirements where undisclosed FAPI
Summary Under
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) - Paragraph 152(4)(b) - Subparagraph 152(4)(b)(iii)
Ho acknowledged

Principales Questions: (1) How many years of outstanding forms T1134 and adjusted income tax returns must be included in a voluntary disclosure? (2) What are the time limitations for assessing a penalty with respect to outstanding forms T1134 and unreported FAPI? (3) Whether FAPLs or FACLs can be claimed in the computation of the foreign affiliate's FAPI?

Position Adoptée: (1) In the context of a voluntary disclosure, forms T1134 and adjusted income tax returns should be filed for all taxation years or reporting periods where there was previously inaccurate, incomplete or unreported information. (2) If the taxpayer is liable to a penalty under subsection 162(7), the assessment must be made within the normal reassessment period, pursuant to subsection 152(3.1), unless one of the exceptions provided for in subsection 152(4) applies. If the taxpayer is liable to a penalty under subsection 162(10) or (10.1) or 163(2.4), the penalty may be assessed at any time. A taxpayer who has unreported FAPI may be liable to a penalty under section 163, if the conditions stated herein are satisfied. Interest on late balance may also apply pursuant to section 161. (3) FAPLs and FACLs may be claimed in accordance with the provisions of subsection 95(1) (elements "F" and "F.1" of the formula in the definition of "FAPI") and sections 5903 and 5903.1 RIR.

Raisons: (1) Consistent with the VDP principles stated in IC00-1R4. (2) The penalties are assessed under Part I and are subject to the same limitations as any other assessment under that Part. (3) Application of subsection 95(1) (elements "F" and "F.1" of the formula in the definition of "FAPI") and sections 5903 and 5903.1 RIR and consistent with the technical notes related to such provisions.