Income Tax Severed Letters - 2015-06-24

Technical Interpretation - External

19 June 2015 External T.I. 2015-0587351E5 - 2015 Federal Budget - RRIF Measures

CRA Tags
60.022, 146.3(1.3), 60(l)

Principal Issues: Several questions, many of which are administrative in nature, have been posed to the CRA concerning the 2015 Federal Budget Measures reducing the RRIF minimum amount for the 2015 and subsequent tax years

Position: See responses provided in body of letter.

Reasons: See below.

12 June 2015 External T.I. 2015-0583821E5 - 212.3(7)(d) - Prescribed information

CRA Tags
227(6.2), 212.3(7)(d)

Principal Issues: The prescribed manner of the form containing prescribed information required in subparagraph 212.3(7)(d)(i).

Position: The filing requirements of subparagraph 212.3(7)(d)(i) would be met if a letter containing the relevant information is attached to the T2 filed by the taxpayer on or before the relevant filing-due date. Alternatively, if the taxpayer has filed their T2 electronically, the letter may be mailed on its own to the taxpayer's Tax Centre on or before the relevant filing-due date.

Reasons: In the absence of specific guidance or procedures, a letter containing the relevant information would be a reasonable and fair manner of requiring prescribed information to be filed in the circumstances and this format has been acceptable in other similar circumstances.

5 June 2015 External T.I. 2014-0555581E5 - Life insurance proceeds assigned as collateral

CRA Tags
89(1) "capital dividend account"

Principal Issues: Can a private corporation include in its CDA the proceeds received under a life insurance policy that was assigned to a financial institution as collateral for a loan. In the situation described, the corporation was both the policyholder and the beneficiary under the policy and the proceeds were received as a consequence of the death of the life insured.

Position: Yes, to the extent that the conditions in the CDA definition are met.

Reasons: The CDA definition requires that the amount of the life insurance proceeds be received by the corporation in consequence of the death of any person. The increase to the CDA is the amount which the life insurance proceeds exceed the adjusted cost basis of the policy immediately before the death.

28 April 2015 External T.I. 2014-0560131E5 - Subsection 249(3) - fiscal period exceeds 365 days

CRA Tags
application to subsequent floating year less than 365 days

Principal Issues: Whether subsection 249(3) applies to a subsequent fiscal period, where the previous fiscal period exceeds 365 days and subsection 249(3) applied deeming that taxation year to end on the last day of the calendar year.

Position: Yes.

Reasons: Subsection 249(3) applies to deem the subsequent year to commence on the first day of the immediately following calendar year. If a corporation's taxation year is deemed to end on the last day of a particular calendar year under paragraph 249(3)(a), the corporation's next taxation year is deemed to commence on the first day of the immediately following calendar year.

27 February 2015 External T.I. 2014-0544241E5 - Employment Income - Employer's move to off-reserve

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

Principal Issues: Will Indian employees be exempt from tax under the Indian Act Exemption for Employment Income Guidelines (the "Guidelines") or other connecting factors?

Position: Whether employment income is taxable or exempt is a question of fact. Only general comments provided.

Reasons: Guideline 3 may apply if the Indian employees worked on a reserve for the employer for most of the year and the Indian employees continued to reside on a reserve while the employer moved off a reserve. If not, Guideline 1 may apply to prorate the income.


28 May 2015 IFA Roundtable Q. 1, 2015-0577691C6 - IFA 2015, Q.1: George Weston decision

GWL required sufficient linkage to underlying capital assets

Principal Issues: Whether the CRA accepts the decision in the G. Weston decision.

Position: Yes.

Reasons: The decision reflected the taxpayer's intent as supported by surrounding evidence.

28 May 2015 IFA Roundtable Q. 2, 2015-0581551C6 - IFA 2015 Q.2: GAAR and treaty shopping

Principal Issues: Can the CRA confirm its stand on the possible application of the GAAR to treaty shopping arrangements?

Position: Yes, the CRA confirms it continues to contemplate the application of the GAAR to treaty shopping arrangements.

Reasons: The GAAR applies to deny tax benefits arising under tax treaties with the same force as tax benefits arising under the Act.

28 May 2015 IFA Roundtable Q. 3, 2015-0581511C6 - IFA 2015 Q.3: Entity Classification

CRA Tags
248(1) "corporation"
Florida LLLPs potentially corporations
status of LLLPs as partnerships or corporations

Principal Issues: Whether the CRA still follows a "two-step" approach for entity classification, and are there any new entities or arrangements being considered?

Position: General comments, no position taken; Florida LLLPs and LLPs are presently being considered and interested parties are invited to provide comments.

28 May 2015 IFA Roundtable Q. 4, 2015-0581501C6 - Upstream loans: ss. 90(9) deduction

CRA Tags
90(9), ITR 5901(2)(b)

Principal Issues: Whether a claim is available under ss. 90(9) in three different scenarios.

Position: Yes, in all three scenarios.

Reasons: Based on a textual, contextual and purposive analysis.

28 May 2015 IFA Roundtable Q. 5, 2015-0581531C6 - IFA 2015 Q.5: "Causality test" in 18(6) & 212(3.1)

CRA Tags
18(6), 212(3.1), 17(2)

Principal Issues: What is the requisite degree of linkage, between a debt owing by the taxpayer to a creditor and a secondary obligation existing between that creditor (or someone not dealing at arm's length with that creditor) and certain non-residents, sufficient to potentially engage subsection 18(6.1) and 212(3.2), respectively?

Position: It is a question of fact, which can only be determined after a review of all of the facts and circumstances applicable to the particular situation. However, the "Clause B causality test" in subsections 18(6) and 212(3.1) should, in our view, be interpreted broadly enough to fulfill the policy intent of the new back-to-back loan rules as described in the 2014 Budget Plan.

Reasons: A textual, contextual and purposive approach should be used to determine the meaning of words in the Income Tax Act. Furthermore, there is similarity between the language in subsections 17(2), 18(6) and 212(3.1)

28 May 2015 IFA Roundtable Q. 6, 2015-0581601C6 - IFA 2015 Q.6: Reversal of position on 95(2)(a)(ii)(D)

CRA Tags
note acquired for contribution to a foreign subsidiary (thereby enhancing the dividend-earning potential of its shares) was acquired for the purpose of earning income from shares

Principal Issues: Reasoning behind the CRA's reversal of position with respect to the application of clause 95(2)(a)(ii)(D) to a particular fact situation.

Position: Clause 95(2)(a)(ii)(D) applies to the particular facts.

Reasons: Based on a textual, contextual and purposive analysis of the Act.

28 May 2015 IFA Roundtable Q. 7, 2015-0581611C6 - IFA 2015 Q7: Foreign affiliates-surplus adjustments

CRA Tags
ITR 5905(3), ITR 5905(7.2)
where FA2 with ED and holding FA3 with ES is merged into FA1 with ES, ED of FA3 will not be counted twice

Principal Issues: Whether a deficit in a foreign affiliate that ceases to exist in an absorptive merger reduces both the surplus accounts of the merged affiliate and a subsidiary affiliate.

Position: Deficit counted only once.

Reasons: Purpose.

28 May 2015 IFA Roundtable Q. 8, 2015-0581561C6 - IFA 2015 Q.8: 39(2.1) and FCTR

CRA Tags
261(6.1), 39(2.1), 39(2), 261(10), 95(2)(g.04)
gains under s. 39(2) include s. 261(10) gains

Principal Issues: Whether ss. 39(2.1) can apply on the repayment of a pre-transition debt owing by a taxpayer to a foreign affiliate that is deemed, under ss. 261(10), to result in a gain or loss of the taxpayer in the year of repayment.

Position: Yes, provided that the foreign affiliate and the taxpayer have the same year end.

Reasons: A deemed gain or loss on capital account under ss. 261(10) is considered to be a capital gain or loss for the purposes of ss. 39(2) and such gain or loss is eligible for ss. 39(2.1) relief where its other conditions are met.

28 May 2015 IFA Roundtable Q. 9, 2015-0581581C6 - IFA 2015 Q.9: 95(2)(i): "proceeds"

CRA Tags
excluded property also treated as acquired with "proceeds" of assumed debt or purchase note

Principal Issues: Whether paragraph 95(2)(i) applies to an amount payable incurred for property acquired?

Position: Yes, to the extent all or substantially all of the amount payable was incurred to acquire excluded property.

Reasons: When read in context, the phrase "a debt of the debtor all or substantially all of the proceeds from which…were used to acquire property…" in paragraph 95(2)(i) can be interpreted in a manner so as to include an amount payable for property acquired to the extent that all or substantially all of the amount payable was incurred to acquire excluded property.

28 May 2015 IFA Roundtable Q. 10, 2015-0581641C6 - IFA 2015 Q.10: 111(4)(e) election and 212.3

CRA Tags
212.3(10), 111(4)(e), 212.3(2), 212.3(1), 212.3(18)
no transfer of property on deemed s. 111(4)(e) acquisition

Principal Issues: Whether a designation made pursuant to paragraph 111(4)(e) results in the application of section 212.3?

Position: A designation made by a CRIC in respect of shares of a foreign affiliate pursuant to paragraph 111(4)(e) would result in an investment as described in paragraph 212.3(10)(a). However, subsection 212.3(2) would apply in such a manner that the dividend deemed to be paid by the CRIC to its non-resident parent would be equal to nil.

Reasons: When read contextually and purposively, paragraph 212.3(2)(a) would be interpreted in such a manner so as to conclude that a paragraph 111(4)(e) deemed disposition and reacquisition of the FA shares would not constitute a transfer of any property by the foreign controlled CRIC for purposes of paragraph 212.3(2)(a).

28 May 2015 IFA Roundtable Q. 11, 2015-0581571C6 - IFA 2015 Q11: Application of clause 95(2)(a)(ii)(B)

CRA Tags
ITR 5907(1), 95(2)(a)(ii)(B), 18(1)(b), ITR 5907(2)(j), 18(1)(a), 95(2)(f)-(f.11), 20(1)(c)

Principal Issues: Is interest on an inter-affiliate borrowing used by the borrower affiliate to pay a dividend, not exceeding the borrower affiliate's accumulated earnings, deductible by the borrower affiliate in computing its earnings or loss from an active business?

Position: Yes.

Reasons: If not deductible under foreign law, then deductible under Reg. 5907(2)(j).

28 May 2015 IFA Roundtable Q. 12, 2015-0581521C6 - IFA 2015 Q.12: Canada-Switzerland Treaty

CRA Tags
Treaties Article X(2)(a)
resolution of conflicting French and English Treaty versions of Swiss Treaty in taxpayer's favour
resolution of conflicting French and English Treaty versions of Swiss Treaty in taxpayer's favour

Principal Issues: Whether the French or English version of Article 10(2)(a) of the Canada - Switzerland Tax Convention applies?

Position: The version that provides the most favourable result for taxpayers

Reasons: Consultations with Swiss and Canadian Competent Authorities and Finance Canada.

Technical Interpretation - Internal

31 March 2015 Internal T.I. 2014-0555921I7 - Early Childhood Worker Grant Program

CRA Tags
5(1), 56(1)(n), 6(1)(a), 56(1)(r)(i)

Principal Issues: What are the income tax consequences to an individual receiving an amount under the Early Childhood Worker Grant Program?

Position: See response.

Reasons: See response.

12 March 2015 Internal T.I. 2014-0554111I7 - Rental payments made by a band for its members

CRA Tags
81(1)(a), Indian Act 87(1)(b), 56(1)(u)

Principal Issues: Whether rental payments made by a band for its members would be considered a social assistance payment as described in paragraph 56(1)(u) of the Income Tax Act or a property situated on a reserve and thus exempt from tax under paragraph 87(1)(b) of the Indian Act.

Position: It depends on the facts.

Reasons: Please see the response.

12 February 2015 Internal T.I. 2014-0547291I7 - 149(1)(c) - Chief's Council

CRA Tags

Principal Issues: Whether the chief's council would be considered a public body performing a function of government for the purpose of paragraph 149(1)(c) and therefore able to issue donation receipts as a qualified donee.

Position: Yes.

Reasons: The Council is made up of all elected chiefs of member bands; performs many services that bands do not provide for their members, and is very much involved in treaty negotiations.

February 12, 2015