Income Tax Severed Letters - 2015-04-22

Principal Issues: Whether the Canada-Hong Kong Tax Agreement is both "an agreement with another country" and "an agreement with the government of another country" for the purposes of the Income Tax Act?

Position: Yes.

Reasons: Pursuant to the "Basic Law" of the Hong Kong Special Administrative Region ("HKSAR") of the People's Republic of China, authority to conclude and implement agreements with foreign states and regions and relevant international organizations in appropriate fields is delegated to the HKSAR. When read in context, the phrases "an agreement with a country" and "an agreement with the government of another country" can, for the purposes of the Act, be interpreted in a manner so as to conclude that the condition that the Canada-Hong Kong Tax Agreement be an agreement with, or with the government of, another country is satisfied.

Principales Questions: (1) Whether the factors and comments provided in paragraph 11 of the Interpretation Bulletin IT-479R may be considered to determine if gains or losses triggered on the disposition of securities by a mutual fund trust ("MFT") are on income account or on capital account. (2) What is the impact of the election made by a MFT under subsection 39(4) regarding the nature of the MFT's income attributed to its beneficiaries? (3) Whether the requirements provided in subparagraph 132(6)(b)(i) are met if the only undertaking of a MFT is day trading. (4) Whether the CRA intends to apply the decision Nancy McNeil v. The Queen when a MFT makes an election under subsection 39(4).

Position Adoptée: (1) Yes. (2) Subsection 104(21) may apply. (3) Generally yes, but it is a question of fact to determine whether the only undertaking of a MFT is the investing of funds in property. (4) The decision may be considered.

Raisons: Based on our interpretation of subsections 39(4) and (5) and the definition of "mutual fund trust" in subsection 132(6) and consistent with previous technical interpretations.

Principal Issues: In an RSU plan where the restricted stock units provide an employee with the right to acquire a share of the employee's employer, the employer would like to pay cash dividend equivalents on the RSUs held by employees. Would the addition of cash dividend equivalents cause problems for purposes of the SDA rules?

Position: The payment of cash dividend equivalents on RSUs held by employees would not be excluded by virtue of paragraphs (a) to (l) of the SDA definition in subsection 248(1) of the Act. It would be a question of fact whether one of the main purposes of adding the cash dividend equivalents to the plan was to postpone the payment of tax.

Reasons: SDA definition in 248(1).

Principal Issues: Whether new property for used cogeneration equipment fuelled by wood waste to generate electricity for the manufacturing process qualifies for inclusion in Class 43.1 or Class 43.2 of Schedule II to the Income Tax Regulations?

Position: Possible

Reasons: Law

Principales Questions: Dans quelle catégorie une borne de recharge doit-elle être incluse? In which class a charging station must be included?

Position Adoptée: Catégorie 8. Class 8.

Raisons: Les bornes de recharge ne sont pas visées par une catégorie d'amortissement spécifique. There is no specific class which deals with charging stations.

Principales Questions: 1 - L'activité consistant à appliquer un alliage de divers métaux à l'aide de machinerie spécialisée sur des tiges d'acier afin de les rendre plus résistantes se qualifie-t-elle de "fabrication et transformation" au sens du paragraphe 125.1(3)? / Does applying an alloy of various metals with specialized machinery on steel rods to solidify them qualify as "manufacturing or processing" as that expression is defined at subsection 125.1(3)?
2 - Si oui, est-ce que les biens utilisés dans le procédé font partie de la catégorie 29? / If yes, should the property used in the process be included in class 29?
3 - Dans le cas où les tiges ne seraient pas la propriété de la société qui fait le placage, les réponses seraient-elles les mêmes? / If the rods did not belong to the company doing the plating, would the answers to the previous questions be the same?

Position Adoptée: 1 - Question de faits / Question of facts; 2 - Question de faits / Question of facts; 3 - Question de faits / Question of facts

Raisons: 1 - Définition de "fabrication et transformation" au paragraphe 125.1(3) / Definition of "manufacturing or processing" in subsection 125.1(3); 2 – Annexe II du RIR, catégorie 29 / Schedule II of ITR, class 29; 3 - Définition de "fabrication et transformation" au paragraphe 125.1(3) / Definition of "manufacturing or processing" in subsection 125.1(3)