Income Tax Severed Letters - 2014-12-03

Ruling

2014 Ruling 2012-0446701R3 - Butterfly reorganization

CRA Tags
55(3)(b)

Principal Issues: Whether DC's distribution to BCo and CCo qualifies for the butterfly exemption found in paragraph 55(3)(b)

Position: Yes

Reasons: The proposed reorganization satisfies all the requirements governing the butterfly exemption

2014 Ruling 2014-0517691R3 F - Butterfly Transaction

CRA Tags
55(3.1), 55(2), 55(3)(b)

Principales Questions: Split-up butterfly transaction.

Position Adoptée: Favourable rulings provided.

Raisons: Meets the requirements of the law.

2014 Ruling 2014-0523221R3 - Amalgamation of mutual funds

CRA Tags
256(7)(b), 69(11), 87, 111(5.5)
amalgamation of two mutual fund corporations each with capital losses
amalgamation of two mutual fund corporations each with capital losses
amalgamation of two mutual fund corporations each with capital losses

Principal Issues: 1. Whether acquisition of control of smaller fund. 2. Application of 69(11). 3. Application of 111(5.5).

Position: 1. Yes 2. No. 3. No.

Reasons: Application of relevant provisions of the Act.

2014 Ruling 2013-0500251R3 - Butterfly Reorganization

CRA Tags
55(3)(b), 55(3.1)(b), 55(3.1)(c), 55(2), 55(3.1)(a)

Principal Issues: Whether the proposed transaction qualifies for the butterfly exemption found in paragraph 55(3)(b)

Position: Yes

Reasons: The proposed transaction meets the requirements found in paragraph 55(3)(b), and is not subject to any of the butterfly exemption denial rules found in 55(3.1)(a), (b) and (c)

2014 Ruling 2014-0529291R3 F - Use of a trust by a charitable organization

CRA Tags
245(2), 149.1(2)(a)
real estate development properties transferred by charitable organization to LP held by discretionary trust of which it is beneficiary

Principales Questions:
1.Whether the proposed transactions, in and of themselves, would be considered activities that would constitute the carrying on a business that is not a related business of the Charitable Organization for the purposes of paragraph 149.1(2)a)?
2.Whether GAAR is applicable where a trust is used by the Charitable Organization to participate in a business venture in order to avoid the rules in paragraph 149.1(2)(a)?

Position Adoptée:
1. No.
2. XXXXXXXXXX.

Raisons: See below.

Technical Interpretation - External

17 November 2014 External T.I. 2014-0555061E5 - Canada-Japan Income Tax Convention, Article 13

CRA Tags
115, 248(1) "taxable Canadian property", Income Tax Convention Interpretation Act 6.3, Treaties XIII(4)
tcp gain arising in Canada

Principal Issues: Meaning of expression "arising in the other Contracting State"

Position: Gains from the disposition of TCP arise in Canada

Reasons: See below

17 November 2014 External T.I. 2014-0553131E5 - Change in legal title

CRA Tags
73(1), 69(1), 54, 40(1), 40(2)(g), 248(1), 251

Principal Issues: Whether the change in legal title of the property will trigger a disposition resulting in a capital gain to the taxpayer under the Income Tax Act ("the Act")?

Position: Question of fact and law.

Reasons: The law.

10 November 2014 External T.I. 2014-0526781E5 - Employee benefit - RESP donation

CRA Tags
56(1)(q), 6(1)(a)(vi), 56(2), 146.1(1), 56(1)(n)

Principal Issues: Whether an employer's gift towards an RESP for an employee's child is taxable?

Position: In this case, most likely yes.

Reasons: See response below.

6 November 2014 External T.I. 2014-0528521E5 F - Payment of management fees by employer

CRA Tags
6(1)(a)
taxable benefit on employer payment of RRSP (including LIRA) and TFSA fund management fees but not those of DPSPs or SERPs

Principales Questions: Whether the payment, by an employer, of management fees relating to certain retirement plans sponsored by the employer (DPSP, RRSP TFSA, unfunded SERP and LIRA) result in a taxable benefit for the employees who are beneficiaries under the plan?

Position Adoptée: Yes, in the case of RRSP, TFSA and LIRA.

Raisons: Prior positions.

30 October 2014 External T.I. 2013-0488881E5 - Upstream Loan

CRA Tags
90(14), 90(6), 90(7), 90(11), 90(10), 90(13), 90(9), 90(12), 90(15), 90(8)
no double inclusion following FA creditor wind-up
notional s. 40(3) gain does not generate surplus
no double inclusion following FA creditor wind-up or for 2nd loan in series
notional election and double taxation issues

Principal Issues: The application of the upstream loan rules in subsections 90(6) to 90(15) in the following scenarios.
Scenario1: For the purposes of determining the deduction under subsection 90(9), will the "90-day" rule in paragraph 5901(2)(a) of the Regulations apply to the notional dividend contemplated in paragraph 90(9)(a)?
Scenario 2: For the purposes of determining the deduction under subsection 90(9), can the taxpayer be considered to have taken all the necessary steps to have made the "disproportionate election" under paragraph (b) of the definition of "underlying foreign tax applicable" in subsection 5907(1) of the Regulations?
Scenario 3: For the purposes of determining the deduction under subsection 90(9), can the taxpayer be considered to have taken all the necessary steps to have made the election in paragraph 5901(2)(b) of the Regulations that deems a dividend to be paid from pre-acquisition surplus?
Scenario 4: For the purposes of determining the deduction under subsection 90(9), can the taxpayer be considered to have taken all the necessary steps to have made the election in subsection 5901(1.1) of the Regulations that deems a dividend to be paid from taxable surplus before hybrid surplus?
Scenario 5: Are gains which are deemed to arise by virtue of the application of subsection 40(3) as a result of notional dividends between lower tier foreign affiliates relevant for the purposes of determining the deduction under subsection 90(9)?
Scenario 6: Is there relief from a multiple income inclusion arising as a result of the transfer of a loan within a foreign affiliate group on the liquidation of the creditor foreign affiliate?
Scenario 7: Where there is a series of loans and other transactions and repayments, would 90(6) apply to each loan in the series notwithstanding that there is no deduction under 90(14) in respect of the repayments in the series?

Position: Scenario 1: No. Scenario 2: Yes. Scenario 3: Yes. Scenario 4: Yes. Scenario 5: No. Scenario 6: Yes. Scenario 7: No.

Reasons: Scenario 1: Clause 90(9)(a)(i)(A) refers to the "exempt surplus – at the lending time in respect of the corporation – of a foreign affiliate of the corporation". The Technical Notes to subsection 90(9) also specify that the earnings of the foreign affiliate after the date of the Loan are not to be considered for the purposes of determining the deduction under subsection 90(9). See also 2014-0526721C6.
Scenario 2: Canco could be considered, hypothetically, to have taken all the necessary steps to make the disproportionate election. This view is consistent with the Technical Notes.
Scenario 3: Since Canco would have been in a position elect under paragraph 5901(2)(b) of the Regulations, it is our view that for the purposes of subsection 90(9) an amount may "reasonably be considered to have been deductible in respect of the dividend under paragraph 113(1)(d).
Scenario 4: Since Canco would have been in a position to make an election under subsection 5901(1.1) of the Regulations, it is our view that for the purposes of subsection 90(9) an amount may "reasonably be considered to have been deductible" in respect of the dividend under paragraph 113(1)(b).
Scenario 5: The provisions of subsection 90(9) contemplate only the actual ES, HS, HUT, TS, UFT and ACB amounts at the lending time. This view is consistent with the Technical Notes. As FA1 has no HUT there can be no amount determined under clause 90(9)(a)(i)(B).
Scenario 6: Subsection 248(28).
Scenario 7: Consistent with our position on subsection 15(2) as described in Interpretation Bulletin IT-119R4. See 9219115.

15 October 2014 External T.I. 2014-0547551E5 F - Acquisition of Control

CRA Tags
111, 249(4)
shrinking of CCPC control group likely was AOC if sufficiently material
reduction in CCPC shareholders from 7 to 4 likely would result in AOC

Principales Questions: 1) Whether an acquisition of control of a corporation arises where three out of seven shareholders of the corporation sell their shares directly to another shareholder. 2) Whether an acquisition of control of the corporation arises where the departing shareholders sell their shares indirectly to another shareholder. 3) Whether an acquisition of control of the corporation arises where the three departing shareholders sell their shares to the remaining shareholders in proportion to their interest in the corporation.

Position Adoptée: 1) Yes. 2) Yes. 3) Most probably yes.

Raisons: 1) A group does not control a corporation when a single person controls the corporation (Southside Car Market) 2) Indirect control must be considered. 3) Examination of the circumstances of the given situation.

2 October 2014 External T.I. 2013-0513281E5 F - Interaction entre 42(1) et 39(1)c)

CRA Tags
39(1)(c), 42
s. 42(1)(b)(ii) payments currently do not qualify as BILs
no deeming of s. 42(1)(b)(ii) loss to arise from the SBC shares, so that not a BIL

Principales Questions: Est-ce qu'une perte en capital réputée conformément à l'article 42 pourrait se qualifier à titre de PTPE pour un particulier?/Whether a deemed capital loss under section 42 can be qualified as BIL for an individual?

Position Adoptée: Pour les dépenses payées ou payables après la date d'échéance de production, effectuées dans une année d'imposition qui se termine après le 27 février 2004 et avant le 5 novembre 2010, oui, si toutes les conditions de l'alinéa 39(1)c) sont satisfaites. Pour les autres années d'imposition, non./ For expenses paid or payable on or before the filing-due date, incurred in taxation years that end after February 27, 2004 and before November 5, 2010, yes, if all conditions of paragraph 39(1)c) are met. For other taxation years, no.

Raisons: Libellé de la Loi./ Wording of the act.

26 September 2014 External T.I. 2014-0534001E5 - Taxability of safety incentive awards and prizes

CRA Tags
6(1)(a)

Principal Issues: Whether a safety award received through a prize draw is taxable to the recipient?

Position: Yes.

Reasons: See response.