Income Tax Severed Letters - 2014-12-23

Ruling

2012 Ruling 2011-0418571R3 - Amendment to 6801(d) Plan

CRA Tags
6801(d)
amendment to add stock settlement alternative
amendment to add stock settlement alternative

Principal Issues: Will the amendment to a 6801(d) plan that permits the value of a participant's DSUs to be paid in common shares result in a disposition of rights under the DSU plan and a resulting income inclusion to a plan participant?

Position: No.

Reasons: The plan amendment will not result in a disposition of a participant's rights under the DSU plan.

Technical Interpretation - External

4 December 2014 External T.I. 2014-0529681E5 - Non-qualified investments acquired by RRSP Trust

CRA Tags
207.04, 146(10.1)
non-qualified stock dividend on qualified or non-qualified shares
non-qualified stock dividend on qualified or non-qualified shares

Principal Issues: Whether subsection 146(10.1) and/or 207.04 of the Act would apply in two scenarios. In the first scenario, an RRSP trust holds shares of a corporation that are non-qualified investments and a stock dividend is paid on those shares; in the second scenario, an RRSP trust holds shares of a corporation that are qualified investments, and the corporation pays a dividend in-kind on those shares by distributing to the RRSP trust shares of another corporation that are not qualified investments.

Position: In both scenarios, the RRSP annuitant will be liable to pay the 50% tax under subsection 207.04(1) of the Act, subject to a possible refund of the tax pursuant to subsection 207.04(4). In the first scenario, subsection 146(10.1) of the Act will subject the RRSP trust to Part I tax on the income resulting from the stock dividend (i.e. this is income from a non-qualified investment). In the second scenario, the RRSP trust will not be subject to Part I tax on the income resulting from the in-kind dividend; however, subsection 146(10.1) of the Act will apply to the RRSP trust in respect of any income earned on the non-qualified shares received as an in-kind dividend.

Reasons: In both scenarios, the RRSP trust has acquired a non-qualified investment. In the first scenario, the non-qualified investment was received as income from a non-qualified investment. In the second scenario, the non-qualified investment was received as income from a qualified investment, thus subsection 146(10.1) of the Act does not apply.

Conference

10 October 2014 APFF Roundtable, 2014-0538261C6 F - Disposition of capital interest/personal trust

CRA Tags
107(1.1), 107(2), 248(1) "cost amount", 108(1), 107(1), 20(1)(c), 69(1)(c), 248(1) "disposition"
issuance of note by trust is not distribution of trust property
note issuance is not trust property distribution to a beneficiary
non-deductible interest on note issued to beneficiary

Principales Questions: 1. Whether subsections 107(1) and 107(2) will apply when a discretionary personal trust makes a distribution partly by way of cash and partly issues a promissory note representing an equivalent to a certain percentage of its capital to a beneficiary?
2. Whether the definition of cost amount pursuant to paragraph 108(1)a) apply in that context?
3. Whether the interest payable on a note issued by a trust in satisfaction of the capital interest of a beneficiary is deductible under paragraph 20(1)c).

Position Adoptée: 1. If conditions are otherwise satisfied, subsections 107(1) and 107(2) apply to a cash distribution but not to the issuance of a promissory note by the trust to the beneficiary.
2. Subparagraph 108(1)a)(i) (definition of cost amount) applies to a cash distribution but paragraph 108(1)a) (definition of cost amount) does not apply to the issuance of promissory note by the trust to its beneficiary.
3. No.

Raisons: 1. Wording of subsections 107(2). Meaning of "a property of a personal trust... distributed by the trust..."
2. Wording of paragraph 108(1)a).
3. See IT-533 and jurisprudence.

10 October 2014 APFF Roundtable, 2014-0538221C6 F - Day Trading in RRSP

CRA Tags
146(4), 146.3(3)
RRSP/RRIF day-trading of qualified investments is exempt

Principales Questions: Whether CRA accepts the comments in Prochuk v. R. 2014 D.T.C. 1050 that day trading in RRSP trust does not result to carrying on a business for the purpose of 146(4)b)?

Position Adoptée: The Prochuk case does not change our position regarding day trading in RRSP trust.

Raisons: In our view, the conclusion reached by the court is limited to the fact that trading in a registered plan is not a relevant factor to determine whether an individual is carrying on a business outside of a plan.