Income Tax Severed Letters - 2015-01-28

Ruling

2014 Ruling 2014-0535661R3 - 73(3) Rollover of Farm Property to Child

CRA Tags
110.6(1), 73(3), 73(3.1), 69(11), 110.6(2), 110.6(1.3), 69(1)(b)

Principal Issues: Whether the specified property is QFP and whether the family farm rollover rules in 73(3) will apply on the Taxpayer's inter vivos transfer of the property to her adult children.

Position: Favourable ruling for the fact scenario provided.

Reasons: Based on the facts provided, the specified property appears to meet the definition of qualified farm property in 110.6(1) as well as the conditions of 73(3).

Technical Interpretation - External

17 December 2014 External T.I. 2014-0518931E5 - Adoption Expense Tax Credit-Surrogacy

CRA Tags
118.01, Assisted Human Reproduction Act

Principal Issues: Do costs for a surrogacy qualify as adoption costs for the adoption expense tax credit?

Position: No.

Reasons: Only expenses incurred in the process of an adoption are eligible for the adoption expense tax credit.

28 November 2014 External T.I. 2014-0540731E5 - Medical Tax Credit- Block Fees

CRA Tags
118.2(3), 118.2(2)(a), 118.2(2.1)

Principal Issues: 1. Do block fees qualify for the METC?

Position: 1. Block fees could qualify if the required conditions are met.

Reasons: 1. The block fees must be in respect of medical services to a medical practitioner.

20 November 2014 External T.I. 2013-0474101E5 - NPO wind-up - asset distribution

CRA Tags
149(10), 69(5), 83(2), 149(2), 15(1), 3, 149(1)(l), 84(2)

Principal Issues: In the various scenarios presented will the NPO lose its exemption under par. 149(1)(l)?

Position: It depends

Reasons: Distribution of income to members will cause NPO to lose exemption. The distribution from capital gain or capital is not a distribution of income.

13 November 2014 External T.I. 2014-0535041E5 F - Bien de remplacement – Location d'immeubles

CRA Tags
44(5)(a.1)
Summary Under
Tax Topics - Income Tax Act - Section 44 - Subsection 44(5) - Paragraph 44(5)(a.1)
rental property use before and after satisfies test

Principales Questions: Les chalets sont-ils des biens de remplacement au sens du paragraphe 44(5)? Are the cottage replacement properties within the meaning of subsection 44(5)?

Position Adoptée: Question de fait. Question of fact.

Raisons: Les nouveaux biens semblent être utilisés par les contribuables pour un usage semblable ou identique à l'usage qu'ils faisaient de l'ancien bien, soit la location d'immeubles. Bien qu'on s'attende généralement à ce que le nouveau bien ait les mêmes caractéristiques physiques que l'ancien bien, il peut arriver un genre différent de bien serve aux mêmes fins que l'ancien bien. The new properties seem to be used by the taxpayers for the same or similar use to the use to which the former was put, which is property rental. Although the property generally will bear the same physical description as the former property, there may be cases where a different type of property provides the same use or function as the former property.

13 November 2014 External T.I. 2014-0523581E5 F - Prestations de RPA - Exonération

CRA Tags
81(1)(a), Indian Act - 87
Summary Under
Tax Topics - Other Legislation/Constitution - Federal - Indian Act - Section 87
taxable portion of RPP benefits of reserve Indian determined based on portion of contributions paid out of taxable earnings

Principales Questions: Quelle portion des prestations de pension sera exonérée d'impôt si les cotisations proviennent d'un revenu exonéré et d'un revenu imposable? What portion of the pension benefits will be tax exempt if the contributions arise from both a non-taxable and a taxable income?

Position Adoptée: Les prestations d'un RPA sont exonérées dans la même proportion que le revenu d'emploi exonéré qui y a donné doit. Elles ont donc le même traitement que le revenu d'emploi qui a donné droit à ces prestations. The pension benefits have the same treatment as the employment income which entitled to those benefits. Thus, they have the same treatment as the employment income which gave rise to these benefits.

Raisons: La Loi et les Lignes directrices. The Law and the Guidelines.

10 November 2014 External T.I. 2014-0536851E5 F - Terre à bois et Plan d'aménagement forestier

CRA Tags
73(3.1), 73(3), ITR 7400, 248(1) "agriculture"
Summary Under
Tax Topics - Income Tax Act - Section 73 - Subsection 73(3) - Paragraph 73(3)(c)
mere absence of a FMP does not preclude the rollover

Principales Questions: 1. Que signifie « prenait part dans la mesure requise par un PAF » à l'alinéa 73(3)c)? What is the meaning of "was engaged to the extent required by a prescribed forest management plan" at paragraph 73(3)(c)?
2. Est-ce que l'absence d'un PAF empêchera le boisé de se qualifier pour le roulement prévu au paragraphe 73(3.1)? Will the absence of a prescribed forest management plan prevent the woodlot from qualifying for the rollover provided by subsection 73(3.1)?

Position Adoptée: 1. Aucune. None. 2. Non. No.

Raisons: 1. Question de fait. Question of fact.
2. L'alinéa 73(3)c) exige qu'une personne énumérée prenne une part active et continue dans l'entreprise agricole ou dans la mesure requise par un PAF. Paragraph 73(3)(c) requires that a listed person to be actively engaged on a regular and continuous basis in the farming business or to the extent required by a prescribed forest management plan.

7 November 2014 External T.I. 2014-0542061E5 - Section 15(2.12), follow up to 2014-051943

CRA Tags
15(2), 227(6), 15(2.12), 15(2.11)
Summary Under
Tax Topics - Income Tax Act - Section 15 - Subsection 15(2.11)
inability to refund Part XIII tax which disappears on late PLOI election if non-timely application
Summary Under
Tax Topics - Income Tax Act - Section 227 - Subsection 227(6)
inability to refund Part XIII tax which disappears on late PLOI election if non-timely application

Principal Issues: Whether the CRA would refund the excess Part XIII tax paid where a late-filed PLOI election and application for a refund of Part XIII tax are made more than two years after the end of the calendar year when the Part XIII tax was paid.

Position: No.

Reasons: In order for the Minister to refund an amount pursuant to subsection 227(6), the application must be made no later than two years after the end of the calendar year in which the Part XIII tax was paid.

5 November 2014 External T.I. 2014-0538901E5 - Refund Sought/Notices of Objection, ss. 164(1)

CRA Tags
164(1), 225.1(7), 221.1(1), 164(4.1), 164(7)
Summary Under
Tax Topics - Income Tax Act - Section 164 - Subsection 164(1)
no refund (following successful objections) of payments of assessments where returns filed too late

Principal Issues: A corporate taxpayer does not file returns of income within three years of the end of the taxation year. The Minister assesses the taxpayer using subsection 152(7). The taxpayer then pays the balance shown on the assessment and files a Notice of Objection. If the taxpayer's objection is allowed, can the Minister refund the resulting overpayment?

Position: No.

Reasons: Subsection 164(1) only permits the Minister to refund the overpayment if the corporation's return of income was filed within three years from the end of the taxation year.

4 November 2014 External T.I. 2014-0539191E5 - ASPA under 34.2(2)

CRA Tags
34.2(1) "adjusted stub period accrual", 87(2)(a), 34.2(2)
Summary Under
Tax Topics - Income Tax Act - Section 34.2 - Subsection 34.2(2)
no income inclusion where no partnership year end in corporate partner's year

Principal Issues: Is there an income inclusion under subsection 34.2(2) for a corporation's taxation year in respect of a particular partnership if no fiscal period of the partnership ends in that taxation year?

Position: No.

Reasons: The amount required under subsection 34.2(2) to be included in a corporation's income for a taxation year is the corporation's "adjusted stub period accrual" (ASPA) in respect of the partnership which is defined under subsection 34.2(1) and determined by formula with reference to the corporation's share of income of the partnership for a fiscal period of the partnership that ends in the year. Further, both subsection 34.2(2) and the preamble to the ASPA definition require that (i) the corporation have a significant interest in the partnership at the end of the last fiscal period of the partnership that ends in the corporation's taxation year and (ii) another fiscal period of the partnership begins in the taxation year and ends after the taxation year. Thus, a corporation will not have an income inclusion under subsection 34.2(2) in respect of a particular partnership for a taxation year if no fiscal period of the partnership ends in that taxation year.

30 October 2014 External T.I. 2013-0500491E5 - Pension from XXXXXXXXXX

CRA Tags
110(1)(f)(iii), 126(3), 110(1)(f)(i), 56(1)(a), 126(1)
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 110 - Subsection 110(1) - Paragraph 110(1)(f) - Subparagraph 110(1)(f)(i)
EU Treaty does not engage s. 110(1)(f)(i) exemption
Summary Under
Tax Topics - Income Tax Act - Section 126 - Subsection 126(1)
EU withholding does not qualify as state tax
Summary Under
Tax Topics - Income Tax Act - Section 126 - Subsection 126(3)
pension income not employment income

Principal Issues: Whether the tax withheld by the European Union on a pension received by a Canadian resident from XXXXXXXXXX would be considered an income tax paid by the taxpayer to the government of a country other than Canada, such that the foreign tax credit provided by subsection 126(1) or (3) of the Act would be applicable.

Position: No.

Reasons: The foreign tax credit provided by subsection 126(1) must be paid to a government of a country other than Canada. The tax withheld on the pension from XXXXXXXXXX is paid to the European Union. The European Union is an international organization as defined in section 2 of the Foreign Missions and International Organization Act, and in our view would not be considered a government of a country other than Canada. Therefore, the tax withheld by the European Union on the pension income is not considered an income tax paid to a government of a country, and the foreign tax credit provided by subsection 126(1) is not available. While subsection 126(3) provides a foreign tax credit for levies paid in lieu of taxes to international organizations such as the EU, it only applies to employment income.

29 October 2014 External T.I. 2014-0533871E5 - Corporation Loss Continuity and Application

CRA Tags
111(8), 111(1)(a)

Principal Issues: Where a non-capital loss is in dispute, whether non-capital losses incurred by a taxpayer are included in the taxpayer's non-capital loss balance for the years when the losses were incurred or the year when the amount of the losses are accepted by the Minister or determined by the courts?

Position: A taxpayer's non-capital loss is included in the taxpayer's non-capital loss balance for the years when the losses were incurred.

Reasons: There is no provision in the Act that permits the Minister to move a loss incurred in one taxation year to the taxation year the loss is accepted by the Minister or determined by the courts.

23 October 2014 External T.I. 2014-0522451E5 - 149(1)(l) - Admin Fund Management

CRA Tags
149(1)(l), 149(1)(k)

Principal Issues: Taxpayer requested information with respect to management of funds of an NPO.

Position: General information on NPOs provided.

Reasons: Not a specific tax question.

8 October 2014 External T.I. 2014-0539231E5 - Indian Employment Income

CRA Tags
81(1)(a)

Principal Issues: Can we issue an advance income tax ruling that the proposed employment income for an Indian will be exempt from income tax?

Position: No.

Reasons: The CRA only issues income tax rulings based on the income tax law. The exemption from income tax for Indians is based on guidelines that are not law. Based on the information provided, it appears that none of the guidelines will apply to exempt the employment income from income tax.

11 September 2014 External T.I. 2014-0540031E5 - Community Contribution Company (C3)

CRA Tags
149(1)(l)
Summary Under
Tax Topics - Income Tax Act - Section 149 - Subsection 149(1) - Paragraph 149(1)(l)
non-NPO status of community contribution company

Principal Issues: Whether a C3 that elects not to distribute any of its profits to its shareholders, but donates all of the profits to a charitable organization, will qualify for exemption from tax under par. 149(1)(l)?

Position: The C3 remains a taxable corporation not eligible for the exemption under par. 149(1)(l).

Reasons: A C3, like any other business corporation, operates for profit, and therefore does not satisfy the requirement of par. 149(1)(l) that a non-profit organization be organized and operated exclusively for purposes other than profit. In addition, the destination of funds test has been discarded as a valid criterion for determining whether an entity qualifies as a non-profit organization within the meaning of par. 149(1)(l).

10 September 2014 External T.I. 2014-0539641E5 - Employment Income Earned by a Nisga'a citizen

CRA Tags
81(1)(a), Indian Act 87(1)(b)

Principal Issues: Whether the employment income earned by a Nisga'a citizen after section 87 of the Indian Act ceases to apply to Nisga'a citizens, pursuant to an agreement with the province of British Columbia and the Government of Canada, is exempt from tax where the duties of employment are performed on another First Nation land.

Position: No.

Reasons: According to paragraph 6 of the Taxation Chapter of the Nisga'a Final Agreement, as of January 1, 2013, section 87 of the Indian Act does not apply to Nisga'a citizens to provide an exemption from tax.

26 August 2014 External T.I. 2014-0529281E5 - Employee Stock Option Plan and T1135 reporting

CRA Tags
233.3
Summary Under
Tax Topics - Income Tax Act - Section 233.3 - Subsection 233.3(1) - Specified Foreign Property

Principal Issues: Where an employee is granted stock options in a foreign corporation, do those stock options have to be reported on the Form T1135?

Position: Yes, where the employee is resident in Canada and the cost amount of the employee's specified foreign property is more than $100,000.

Reasons: In the scenario presented, the employee stock options are options to acquire shares of the capital stock of a non-resident corporation. Such options would fall into the definition of "specified foreign property" in subsection 233.3(1) of the Act by virtue of paragraph (i) of that definition, which states that "property that, under the terms or conditions thereof or any agreement relating thereto, is convertible into, is exchangeable for or confers a right to acquire, property that is specified foreign property". Where an employee is resident in Canada, owns specified foreign property at any time in the year, and the cost amount to the individual of all the specified foreign property owned totals more than $100,000, then the employee must complete and file the Form T1135.

Conference

16 June 2014 STEP Roundtable, 2014-0522991C6 - Safe Income

CRA Tags
55(2)(b), 55(5)(f), 112(1), 245(1), 55(2), 55(2)(c)
Summary Under
Tax Topics - Income Tax Act - Section 55 - Subsection 55(2)
s. 55(5)(f) designation unnecessary
Summary Under
Tax Topics - Income Tax Act - Section 55 - Subsection 55(5) - Paragraph 55(5)(f)
s. 55(5)(f) designations are unnecessary

Principal Issues: Can a recipient of a dividend, which exceeds the amount of safe income on hand, self-assess the dividend as proceeds of disposition?

Position: Question of fact. See below.

Reasons: CRA's long standing practice is to apply subsection 55(2) only to the excess of the taxable dividend paid on a share over the safe income on hand attributable to that share. In a situation where a recipient corporation self-assesses the entire amount of a dividend received on a share as a gain under paragraph 55(2)(c) or as proceeds of disposition under paragraph 55(2)(b), CRA could reassess the recipient corporation and reduce the amount of the gain subject to paragraph 55(2)(c) by applying the purpose test provided under subsection 55(2) or, in other circumstances involving a surplus stripping scheme, by applying the GAAR.

Technical Interpretation - Internal

4 December 2014 Internal T.I. 2014-0531251I7 - Directors' Liability

CRA Tags
227.1
Summary Under
Tax Topics - Excise Tax Act - Section 323 - Subsection 323(3)
directors of GP potentially liable for GST remittance failures of LP
Summary Under
Tax Topics - Income Tax Act - Section 153 - Subsection 153(1) - Paragraph 153(1)(a)
GP generally liable for source deduction failures of LP
Summary Under
Tax Topics - Income Tax Act - Section 227.1 - Subsection 227.1(1)
directors of GP potentially liable for source deduction and GST remittance failures of LP

Principal Issues: Whether the directors of a corporation which is the general partner of the limited partnership, may be liable for the source deductions and GST/ HST debt of the limited partnership?

Position: Yes.

Reasons: Where the general partner of the limited partnership is a corporation, and the terms of the partnership agreement provide the general partner with powers and duties to manage, control, and administer and operate the business and affairs of the limited partnership, the general partner will be viewed as the payor of the salaries and wages of the employees. Furthermore, subsection 227.1(1) of the Income Tax Act and 323(1) of the Excise Tax Act provide that the directors of a corporation are liable for the debts of the corporation for unremitted source deductions and GST/HST.

24 October 2014 Internal T.I. 2013-0473751I7 - Gold Indian investment

CRA Tags
81(1)(a)

Principal Issues: Income tax treatment of gold investment by status Indian

Position: It depends on application of connecting factors to each case

Reasons: Gold-trading considered an adventure or concern in the nature of trade (business). Therefore, connecting factors relating to Indian business income must be applied to each individual case in order to establish sufficient connection of the income to a reserve.

October 24, 2014

17 October 2014 Internal T.I. 2014-0535561I7 F - Application du paragraphe 249(3)

CRA Tags
249(3)
Summary Under
Tax Topics - Income Tax Act - Section 249 - Subsection 249(3)
subsequent stub period income is excluded

Principales Questions: Quelle est la politique fiscale suite à la modification du paragraphe 249 (3) par le projet de loi C-48? What is the tax policy underlying subsection 249(3) following Bill C-48?

Position Adoptée: Voir lettre ci-dessous. See letter below.

Raisons: Voir lettre ci-dessous. See letter below.

16 October 2014 Internal T.I. 2014-0539401I7 - Request for retroactive change in fiscal period

CRA Tags
249.1(7)

Principal Issues: 1. Whether the Minister can or should concur where a corporation makes a request to retroactively change its fiscal period under subsection 249.1(7) in order to obtain a tax benefit after the corporate tax return had been assessed. 2. What constitutes "sound business reasons" to approve a retroactive change request to a corporate taxpayer's fiscal year-end?

Position: 1. No. 2. General comments provided.

Reasons: 1. There is no provision in the Act that allows a taxation year that has been assessed to be reversed and a different fiscal period assessed. Where the taxpayer's request to change its fiscal period has been prompted by the taxpayer's desire to engage in retroactive tax planning in order to obtain a tax benefit, it is our view that the taxpayer's request to change its fiscal period should be denied. 2. The fiscal period can only be changed when the request is prompted solely on sound business reasons other than to obtain a tax benefit. Retroactive changes in FYE, changes in FYE for the personal convenience of the taxpayer and changes to defer taxes are not permitted.

3 October 2014 Internal T.I. 2014-0532051I7 - Rent and Part XIII Tax

CRA Tags
212(1)(d)
Summary Under
Tax Topics - Income Tax Act - Section 212 - Subsection 212(1) - Paragraph 212(1)(d)
non-commercial arrangement not subject to s. 247 but is subject to Part XIII/property taxes included in rent/no Part XII tax on imputed rent
Summary Under
Tax Topics - Income Tax Act - Section 247 - New - Subsection 247(2)
non-commercial arrangement not subject to s. 247
Summary Under
Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit
rents from personal rental property not required to be reported

Principal Issues: Whether Part XIII tax applies to certain payments made by a Canadian resident individual under a rental arrangement for a real property situated in Canada and owned by a related non-resident individual.

Position: Payments of rent to the non-resident individual and payments made by the Canadian resident individual for and on behalf of such non-resident individual to third parties that are attributable to the ownership of the real property rather than the occupation of the property are subject to Part XIII tax.

Reasons: The payments meet the requirements of paragraph 212(1)(d).

15 September 2014 Internal T.I. 2014-0533091I7 - First Nation - Penalty Exemption

CRA Tags
149(1)(c)

Principal Issues: Are First Nations subject to penalties for failure to withhold tax pursuant to section 105 of the regulations

Position: Yes, however the CRA has an administrative policy to exempt First Nations

Reasons: 149(1)(c) entities are exempt from Part I tax, but not from penalties for failure to withhold taxes.

23 July 2014 Internal T.I. 2014-0525231I7 - Foreign tax credit

CRA Tags
90(1), 108(5), 40(3), 126(1), (4)., 121, 3, 2, 113(1)
Summary Under
Tax Topics - Income Tax Act - Section 126 - Subsection 126(1)
s. 40(3) gain had Cdn source/foreign tax not a "tax" if no refund sought
Summary Under
Tax Topics - Income Tax Act - Section 126 - Subsection 126(7) - Non-Business-Income Tax
foreign tax not a "tax" if no refund sought
Summary Under
Tax Topics - Treaties - Income Tax Conventions - Article 24
s. 40(3) gain had Cdn source because not taxed in Japan

Principal Issues: Can a foreign tax credit be claimed against Canadian income tax on a deemed gain arising under ss.40(3) in the circumstances described?

Position: No.

Reasons: Foreign tax is likely a voluntary payment and not a "tax" within the meaning of ss. 126(1); ss. 40(3) deemed gain is not foreign source income.

July 23, 2014