Income Tax Severed Letters - 2015-02-04


2014 Ruling 2013-0514551R3 - Convertible Debentures and Paragraph 212(1)(b)

CRA Tags
212(3), 212(1)(b), 215(1), 5(1)
Cdn$ convertible debenture with interest and make-whole payable in common shares or potentially cash and make-whole amount dependent on share price

Principal Issues: 1) Whether Aco will be required to withhold any amount in respect of the conversion of the Public and Private Debentures held by a non-resident of Canada or by virtue of any interest payment or any Make-Whole Amount made by Aco to arm's length entities pursuant to paragraph 212(1)(b) of the Income Tax Act (the "Act")?
2) Whether payments made by Aco to the Debenture holders are "participating debt interest" within the meaning of the definition in subsection 212(3) of the Act? 3) Can a resident of the United States rely on paragraph 1 of Article XI of the Canada-United States Tax Convention (1980)?

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

Reasons: The conditions of paragraph 212(1)(b) of the Act are not applicable.

2014 Ruling 2014-0525441R3 - loss consolidation arrangement

CRA Tags
losses utilized within a month by loans from lossco LP to sister profitco/no rep re independent borrowing capacity/loans to parent used as currency for cashless unwind/loans split up to avoid daylight loan

Principal Issues: Is the loss consolidation arrangement acceptable?

Position: Yes

Reasons: Within established parameters. Similar to past rulings.

2014 Ruling 2014-0536001R3 - Supplemental to Ruling 2013-051455

CRA Tags
212(3), 214(8)(c), 214(7), 215(1), 212(1)(b), 20(1)(c)

Principal Issues: Request for a confirmation that amendments subsequent to the issuance of advance income tax ruling 2013-051455 would not affect the validity of the rulings given.

Position: The subsequent amendments do not affect the validity of the previous rulings given.

Reasons: The supplemental amendments to the original request involve the same issue. The revised facts indicate that now the "Make-Whole Amount" can be paid in cash or common shares instead of just exclusively in common shares. This amendment does not affect the validity of the rulings given since any amount paid as a "Make-Whole Amount" whether paid in cash or in shares would be treated as interest.

2014 Ruling 2014-0520431R3 - Advanced Income Tax Ruling Request

CRA Tags

Principal Issues: Whether the corporation would be considered a public body performing a function of government.

Position: Yes.

Reasons: See facts in ruling.

2013 Ruling 2013-0498551R3 - Loss Consolidation

CRA Tags
loss shift to parent/loans to parent used to redeem prefs/no borrowing capacity rep
no forgiven amount on loan transfer to debtor

Principal Issues: Is the loss utilization arrangement acceptable?

Position: Yes

Reasons: meets our published position

Ministerial Correspondence

5 December 2014 Ministerial Correspondence 2014-0555801M4 - Kilometre rates for medical expenses

CRA Tags

Principal Issues: How are the kilometre rates determined that are used to calculate vehicle expenses for purposes of medical travel for the medical expense tax credit?

Position: The Canada Revenue Agency uses the rates established by the National Joint Council (NJC) of the Public Service of Canada.

Reasons: The CRA has accepted that the rates set by NJC are determined in a fair and reasonable manner.

Technical Interpretation - External

23 January 2015 External T.I. 2013-0509771E5 - Oil & gas payments made to U.S. resident

CRA Tags
248(1) "taxable Canadian property", Treaties Article V, ITR 202(1)(d), ITR 805, 115(1)(a), 212(1)(d)(v), 253(c)(i), 39(1)(a)(ii), Treaties Article VI, 2(3), 66(15), 59(3.2)(c), 66.2(1), 115(4), Treaties Article XIII, Income Tax Conventions Interpretation Act 5 - "real or immovable property", ITR 8201, 66.4(1)
FMV addition and subtraction where drilling rights are granted for royalty
application to resource royalties
non-application of Art. 12 of US Treaty to resource royalties
negative CCDE gain from grant of oil and gas royalty not exempt under US Treaty

Principal Issues: How are payments made by a Canadian oil and gas company to a U.S. resident taxed?

Position: If section 805 of the Regulations applies to the periodic royalty payments, the payments are taxable under s. 115 of the Act. Otherwise, they are taxable under s. 212(1)(d)(v) of the Act. There is no relief under the Canada-U.S. Tax Convention from the Part I tax or Part XIII tax payable. When the U.S. resident grants the rights to explore for, drill for or take petroleum, natural gas or related hydrocarbons in Canada to the Canadian company, s. 116 of the Act applies.

Reasons: Application of the Act and the Convention

20 January 2015 External T.I. 2014-0541921E5 - Whether a contingent amount is an excluded obligation?

CRA Tags
143.4(1), 80(1)

Principal Issues: Whether a contingent amount under the definition of this term in subsection 143.4(1) would be considered an excluded obligation within the meaning of the definition of this term in subsection 80(1)?

Position: Generally yes.

Reasons: Based on our response to Q. 15 of the 2014 APFF.

19 January 2015 External T.I. 2015-0564641E5 - Spousal and Business Partners

Principal Issues: 1. General information requested about personal and business partnerships.

Position: 1. No position taken. General information provided.

Reasons: 1.It is a question of fact whether individuals are spouses, common-law partners or business partners.

19 January 2015 External T.I. 2013-0511381E5 F - Disposition subject to warranty

CRA Tags
loss not claimable by estate

Principales Questions: An expense under a warranty, in respect of a capital property sold by a person, is paid by the estate of the person. Is the expense deemed to be a capital loss of the estate by virtue of paragraph 42(1)b)?

Position Adoptée: No

Raisons: Interpretation of the Act.

23 December 2014 External T.I. 2014-0551841E5 - Subsections 44(1) and 69(11) of the Act

CRA Tags
69(11), 44(1)
implied receipt of deemed s. 69(11) proceeds

Principal Issues: Whether deemed proceeds of disposition for purposes of subsection 69(11) would be considered to be an amount that has become receivable by a taxpayer as proceeds of disposition for purposes of the replacement property rules in subsection 44(1) of the Act?

Position: Yes.

Reasons: We will accept that the taxpayer is considered to have received those proceeds at that time for purposes of subsection 44(1).

8 December 2014 External T.I. 2014-0543891E5 F - Régime privé d'assurance-maladie

CRA Tags
5(1), 248(1), 118.2(2), 6(1)(a)(i)
CRA willing to treat a flex plan as being bifurcated into a PHSP and non-PHSP if medical expense portion is recorded separately

Principales Questions: Est-ce que l'admissibilité d'un CDGS au titre de RPAM peut être compromise du seul fait que les employés peuvent affecter les crédits qui leur sont alloués dans le cadre d'un programme à la carte entre plusieurs options tels qu'une allocation de crédits à son CDGS, un paiement en espèce, une cotisation à un régime de pension agréé ou une cotisation à un régime d'épargne-retraite?
Whether a HCSA may lose its status of PHSP only because the employees may allocate their credits received under a flex program to various options as amount allocated to a HCSA, a payment in cash, a contribution to a registered pension plan or a premium to a registered Retirement Savings Plan?

Position Adoptée: Aucune. None.

Raisons: Commentaires généraux fournis. General comments.

26 November 2014 External T.I. 2014-0551641E5 F - Winding-up and subsection 42(1)

CRA Tags
42(1), 88(2)
corporation permitted to claim litigation loss following effective time of winding-up
effective time of winding-up not delayed by potential litigation liability
corporation permitted to claim a s. 42(1)(b) loss after (per IT-126R2) it has been wound up

Principales Questions: (1) Whether the CRA's administrative position described in paragraph 5 of the IT-126R2 is still valid. (2) Whether subsection 42(1) would apply to a corporation that was wound-up under subsection 88(2) but not yet dissolved.

Position Adoptée: (1) Yes. (2) Yes.

Raisons: (1) If all the conditions are met, the position applies and is still valid. (2) A corporation that is not dissolved still legally exists and has to file a tax return.

26 November 2014 External T.I. 2014-0545041E5 - Registered plans - Excluded property

CRA Tags
207.01(1) "excluded property"

Principal Issues: The application of subparagraph (c)(iii) of the definition "excluded property" in subsection 207.01(1) in circumstances where the investment entity is a corporation.

Position: It is a question of fact as to whether the test in subparagraph (c)(iii) of the definition "excluded property" is satisfied in any given circumstance. The phrase "the governance of the investment entity", which is used in that subparagraph, should, in our view, be given a wide meaning in the context of that subparagraph.

Reasons: The legislation

24 November 2014 External T.I. 2014-0547641E5 - Liability to pay tax

CRA Tags
162(8), 162(2), 244(16), 162(7.2), 162(1), 162(6), 162(7), 162(7.01), 162(7.02), 162(5), 2, 248(1), 227(11), 153(1)

Principal Issues: 1. What section of the Income Tax Act (the "Act") imposes a liability or obligation on a private individual working in the private sector to pay tax, who is not the holder of a public office or employment? 2. What section of the Act requires a private employer to withhold taxes at source from the wages of a private individual? 3. For the purposes of the Act, are the T1, T2 and T3 prescribed forms? 4. Does each of the T1, T2 or T3 have the force and effect of law?

Position: 1. Section 2; 2. subsection 153(1); 3. Yes; 4. Yes.

Reasons: 1. Section 2; 2. subsection 153(1); 3. The Act and case law sets out what "prescribed" means; 4. Section 150 requires taxpayers to file a return of income in the prescribed form. In order to comply with this requirement, the taxpayer must use the prescribed form.

21 November 2014 External T.I. 2014-0535361E5 - Debt forgiveness rules

CRA Tags
61.3(1), 80(1) "commercial obligation", Bankruptcy and Insolvency Act 2, 248(1) "bankrupt", 80(13), 80(2)(a)"commercial debt obligaton", 40(2)(g)(ii), 80(2)(a)

Principal Issues: Whether the debt forgiveness rules apply to a particular debt?

Position: Perhaps.

Reasons: Depends on the facts.

18 November 2014 External T.I. 2014-0545181E5 - ACB of shares held in RRSP

Principal Issues: Request on whether the ACB was correctly calculated.

Position: General comments provided.

Reasons: Question of fact.


22 May 2014 Ponoka Liason Meeting Roundtable, 2014-0528451C6 - Cost of Making Voluntary Disclosure

CRA Tags
60(o), 8(1)(f), 18(1)(a), 9, 20(1)(cc)
costs of voluntary disclosure incurred by business
costs of voluntary disclosure incurred by business

Principal Issues: Will the CRA reconsider its position on the deductibility of costs incurred to respond to queries from the CRA, prepare tax returns or make a voluntary disclosure?

Position: No change in position except that some costs may be deductible under paragraph 20(1)(cc)

Reasons: Where a taxpayer earns income from a business, the cost of making a voluntary disclosure relating to that business may be deductible as a cost of representation pursuant to paragraph 20(1)(cc).

Technical Interpretation - Internal

17 October 2014 Internal T.I. 2014-0546091I7 F - Indemnités lors d'une négociation de gré à gré

CRA Tags
54, 248(1), 40(2)
indemnity payment received re principal residence could be exempted under s. 40(2)(b)

Principales Questions: 1) Quel est le traitement fiscal de l'indemnité reçue par le particulier dans le cadre d'une négociation de gré à gré impliquant la vente d'une propriété à XXXXXXXXXX?
2) Est-ce que ce traitement est différent si au lieu d'être payée dans le cadre d'une négociation de gré à gré, l'indemnité est payée dans le cadre d'une expropriation?
3) Est-ce que le particulier a un avantage fiscal de vendre sa propriété en 2015 au lieu de 2014?
/ 1) What is the tax treatment of settlements payments paid to an individual under a negotiated over-the-counter contract involving the sale of a property to XXXXXXXXXX? 2) Is the tax treatment different if instead of being paid as part of an over-the-counter contract, the settlement is paid as part of an expropriation? 3) Does the individual have a tax advantage to sell his/her property in 2015 instead of 2014?

Position Adoptée: 1) Question de faits / Question of facts 2) Question de faits / Question of facts 3) Nous ne pouvons répondre à cette question / We cannot answer this question.

Raisons: 1) Pour déterminer le traitement fiscal de l'indemnité, L'ARC appliquerait le principe de la substitution. / In order to determine the tax treatment of the settlement, the CRA would apply the surrogatum principle. 2) Si la propriété est une résidence principale, le traitement fiscal est probablement le même / If the property is a principal residence, the tax treatment is likely the same 3) L'ARC n'offre pas de service de planification fiscale / The CRA does not offer tax planning services.