Income Tax Severed Letters - 2014-10-29


2014 Ruling 2014-0521831R3 - Withholding on interest payments

CRA Tags
interest paid within consolidated U.S. group re acquisition of Cdn hybrid LP is Treaty-exempt

Principal Issues: To the extent that subsection 212(13.2) of the Act deems a non-resident to be a person resident in Canada, will paragraph 1 of Article XI of the Canada-US Tax Treaty apply to exempt interest payments made by the non-resident to a US resident from Part XIII withholding?

Position: Yes

Reasons: Interest payments will be deemed to arise in Canada pursuant to Article XI, paragraph 4 of the Treaty where the indebtedness was incurred in connection with the non-resident's permanent establishment in Canada and interest on such indebtedness is borne by the permanent establishment.

Technical Interpretation - External

3 October 2014 External T.I. 2013-0476871E5 - Subsection 75(2)

CRA Tags
96(1)(f), 75(2)
s. 75(2) not applicable to business income allocated by LP held by s. 75(2) trust

Principal Issues: Whether subsection 75(2) applies where a settlor contributes an interest in a limited partnership to a trust and under the terms of the trust the partnership interest may revert back to the settlor.

Position: It depends on the income earned by the limited partnership.

Reasons: Pursuant to paragraph 96(1)(f) of the Act, the income of a partnership generally retains its character as it flows out to the partners. Where the limited partnership earns business income, that income will be business income to the trust and would not be subject to subsection 75(2). Where the limited partnership earns property income such as interest or dividend income, that income will flow to the trust as property income and subsection 75(2) will apply to that income.

2 October 2014 External T.I. 2013-0506551E5 - Transitioning from 15(2) to a PLOI

CRA Tags
212(2), 15(2.11), 15(2.6), 17.1(1), 15(2), 214(3)
PLOI election unavailable for pre-2012 loan that is repaid and relent/ s. 15(2) applies only to 1st loan
s. 15(2) applies only to 1st loan

Principal Issues: If a PLOI is part of a series of loans or other transactions and repayments that includes the repayment of a pre-March 29, 2012 loan, would the original loan be subject to subsection 15(2) and non-resident withholding, despite the income imputation in respect of the PLOI pursuant to subsection 17.1(1)?

Position: Yes, but 17.1(1) would not apply in respect of the new loan

Reasons: A PLOI election in respect of the new loan cannot be made or would be invalid because the requirement in paragraph 15(2.11)(a) would not be met.

Technical Interpretation - Internal

25 July 2014 Internal T.I. 2013-0513641I7 - Deemed resident trust under subsection 94(3)

CRA Tags
94(1), 94(3), 120(1), 104(6), 120(3), ITR 2601, 104(7.01), 215(1), 120(4)
meaning of "maximum amount...deductible"
addition for s. 94 deemed trust
required Part XIII withholding treated like Part I instalment

Principal Issues: 1. What is the meaning of the expression "maximum amount deductible under subsection 104(6)" in paragraph 104(7.01)a)?
2. Does an amount remitted by the Estate to CRA on filing its income tax and information return, based on the calculation of Part XIII withholding and an amount withheld pursuant to section 215, represent a payment of an amount of tax under Part I or under Part XIII?
3. Does subsection 120(1) apply to the income of the Estate?

Position: 1. The amount otherwise available for a deduction under subsection 104(6).
2. Part I tax.
3. Yes.

Reasons: 1. Wording of paragraph 104(7.01)(a).
2. Application of paragraph 98(3)(g) to the amount withheld pursuant to section 215 and payment on filing for the other amount.
3. Wording of subsections 120(1) and 120(3).