Income Tax Severed Letters - 2015-05-20

Technical Interpretation - External

4 May 2015 External T.I. 2013-0502761E5 F - Stock Options and Earnout

CRA Tags
110(1)(d), 7(1)(a), (1.1)
FMV of shares at time of stock option exercise determined by valuing earn-out clause in subsequent sales agreement
FMV of shares at time of stock option exercise determined by valuing earn-out clause in subsequent sales agreement

Principales Questions:
1) In a situation where employees acquire shares under a stock options agreement immediately prior to selling the shares pursuant to an agreement whereby the proceed of disposition is partly determined pursuant to an earnout clause, does subsection 7(1) and paragraph 110(1)(d) apply to amounts received under the earnout clause?
2) Whether the gain or loss on the sale of shares acquired under a stock options agreement is of a capital nature?

Position Adoptée: 1) No. 2) Maybe

Raisons: 1) The earnout clause is attributable to the sale of the shares and not to the exercise or disposition of the stock options. However, in the particular situation, the value of the earnout right will affect the fair market value of the shares acquired for the purpose of determining the benefit deemed to have been received under paragraph 7(1)(a).
2) Question of facts

29 April 2015 External T.I. 2015-0565181E5 - Amendment to DSU plan

CRA Tags
6(11), 248(1) "salary deferral arrangement", ITR 6801(d), 248(1) "deferred amount"
termination of Plan contrary to DSU rules triggered retroactive application of SDA rules
termination of Plan contrary to DSU rules triggered retroactive application of SDA rules

Principal Issues: Whether an amendment to a deferred share unit plan giving participants the option to be paid the value of their awards in instalments over a maximum six years after retirement or termination of employment would cause the plan to cease to qualify for the exclusion under ITR 6801(d) from the salary deferral arrangement rules.

Position: Yes.

Reasons: ITR 6801(d)(i) requires the plan to provide for payments no earlier than the employee's retirement, termination of employment or death and no later than the end of the first calendar year commencing after that time.

28 April 2015 External T.I. 2015-0566011E5 - Whether s. 16.1 applies to a transport truck

CRA Tags
ITR 1100(1.13)(a), 16.1
identification of lease based on legal substance/no election for transport truck
deferred deduction of initial lease "down payment"

Principal Issues: Whether section 16.1 applies to a transport truck that is leased.

Position: No.

Reasons: An election under section 16.1 cannot be made in respect of prescribed property, the definition of which includes "exempt property." Exempt property includes a truck or tractor that is designed for hauling freight on highways.

14 April 2015 External T.I. 2015-0570021E5 F - Présomption de gain en capital

CRA Tags
55(3)(a), 55(3.01)(g), 55(2)
application of safe harbour where holdco interposed before spin-off transaction
application of safe harbour where holdco interposed before spin-off transaction

Principales Questions: Selon les étapes proposées de la réorganisation, est-ce que l'alinéa 55(3.01)g) s'appliquera pour exclure des événements décrits aux sous-alinéa 55(3)a)(ii)? Based on the proposed steps of the reorganization, will paragraph 55(3.01)(g) apply to exclude events described in subparagraph 55(3)(a)(ii)?

Position Adoptée: Oui, mais en considérant les hypothèses identifiées. Yes, subject to some comments.

Raisons: Voir ci-dessous. See below.

30 January 2015 External T.I. 2014-0521751E5 - overseas employment tax credit

CRA Tags
122.3(1.01), 122.3(2), 122.3(1)
"extension" of contract one day after it expired could result in a new contract
"extension" of contract one day after it expired could result in a new contract

Principal Issues: The overseas employment tax credit is in the process of being phased out. During the phase-out period (2013-2015) the amount of qualifying foreign income that can qualify for the credit will be decreased every year and finally the credit will no longer exist for the 2016 and subsequent taxation years. During the phase-out period, an individual's income described in paragraph 122.3(1)(d) for a taxation year "that is earned in connection with a contract that was committed to in writing before March 29, 2012, by a specified employer of the individual" will not be subject to the decreasing amounts (although the credit will still disappear in 2016). Will a contract entered into before March 29, 2012 but extended after that date be considered to have been entered into prior to March 29, 2012 in respect of the extended period?

Position: Depends on the facts; where extension has occurred after initial contract has expired the extended contract could be considered to be a new contract.

Reasons: Previous Rulings position

14 January 2015 External T.I. 2014-0559731E5 - 85(3) rollover

CRA Tags
85(2), 85(3), 85(1), 98(1), CBCA 2(1) - "affairs"
legal title retained beyond 60 days

Principal Issues: One of the requirements of paragraph 85(3)(b) is that the affairs of a partnership have to be been wound up within 60 days after the disposition of the partnership property. If beneficial ownership of partnership property is transferred within 60-day period but legal title to partnership property is transferred after the end of the 60-day period, is the 60-day requirement met?

Position: If beneficial ownership is transferred within the 60-day period but legal title is not transferred until after the 60-day period is over because a valuation of land is required, we would consider that generally, this would not mean that the 60-day requirement in paragraph 85(3)(b) is not met as long as the legal transfer is completed as soon as is practical after the valuation of property is completed.

Reasons: Consistent with paragraph 7 of IT-378R

21 November 2014 External T.I. 2014-0536771E5 F - Supplément pour frais médicaux – Revenu modifié

CRA Tags
70(1), 122.51, 118.2, 122.6
surviving spouse is not living separate and apart from deceased spouse at year end

Principales Questions: 1. Lorsqu'un « époux ou conjoint de fait visé » décède dans une année d'imposition, doit-on considérer le revenu du conjoint décédé dans le calcul du SRFM lors de la déclaration de revenus du conjoint survivant? When a "cohabiting spouse or common-law partner" dies in a taxation year, should we consider the income of the deceased spouse/partner in the calculation of the refundable medical expense supplement when filing the surviving spouse/partner tax return?
2. Dans le même contexte, doit-on considérer le revenu du conjoint survivant dans le calcul du SRFM lors de la déclaration finale du conjoint décédé? In the same context, should we consider the income of the surviving spouse in the calculation of the refundable medical expense supplement when filing the deceased spouse final return?

Position Adoptée: 1. Oui. Yes. 2. Oui. Yes.

Raisons: 1. XXXXXXXXXX. 2. Le Guide T4011 indique que pour calculer le SRFM, il faut utiliser le revenu net de la déclaration finale du défunt et le revenu net de l'époux ou conjoint de fait pour toute l'année. The T4011 Guide indicates that for the calculation of the refundable medical expense supplement, we must use the deceased's net income from the final return and the spouse's or common-law partner's net income for the entire year.