Income Tax Severed Letters - 2015-06-30


2015 Ruling 2015-0570291R3 - Foreign tax credit on income from a trust

CRA Tags
108(5), 56(1)(a)(i)(C.1), 104(13), Canada-U.S. Treaty, 12(1)(m), 126(1)
distribution of IRA proceeds by U.S.-resident trust is income under s. 104(13)(a)

Principal Issues: A Canadian individual is a residual beneficiary of a U.S. inter-vivos personal trust settled by a U.S. individual. The U.S. individual died in 2014, owning a U.S. IRA. The proceeds of the IRA will be paid to the U.S. individual's estate in 2015. The estate will pay the proceeds of the IRA to the trust in 2015. The trust will pay a portion of the proceeds of the IRA to the Canadian individual in 2015, and will withhold 15% in respect of U.S. tax payable by the Canadian individual. Will the amount paid to the Canadian individual be included in his income in 2015 for Canadian tax purposes, and will the 15% withholding be considered "non-business income tax"?

Position: Yes

Reasons: Clause 56(1)(a)(i)(C.1), paragraph 12(1)(m), subsections 104(13) and 108(5), and the definition of "non-business income tax" in subsection 126(7).

2015 Ruling 2014-0561001R3 - Functional currency election

CRA Tags
S. 261(2) not applicable to FX hedging with NR affiliates who are not subject to Canadian tax

Principal Issues: Whether a corporation resident in Canada can elect pursuant to 261(3) to use US currency as its functional currency for Canadian tax reporting purposes, and whether the anti-avoidance provisions in 261(20) and (21) would apply to proposed currency hedging transactions entered into between the electing corporation and other related, non-resident corporations.

Position: Based on the facts presented, the corporation can elect to use US currency as its functional currency for Canadian tax reporting purposes, and for the purposes of determining the electing corporation's income, gain or loss in respect of its proposed currency hedging transactions with related, non-resident corporations, subsection 261(21) will not apply.

Reasons: Provided that the US currency remains the primary currency in which the electing corporation maintains its records and books of account for financial reporting purposes throughout the taxation year in which a timely election is filed, based on the facts presented the requirements of subsection 261(3) are otherwise satisfied. Also, 261(21) will not apply for the purpose of determining the electing corporation's income, gain or loss in respect of its proposed currency hedging transactions with related, non-resident corporations to the extent that the other related, non-resident corporations are not subject to tax under the Act on any amount included in their respective Canadian tax results.

Technical Interpretation - External

2 June 2015 External T.I. 2015-0570071E5 F - Attribution Rules Trust

CRA Tags
251(1)(b), 74.5(5), 248(25), 74.4(2)
application of s. 74.4(2) to family trust with minor beneficiaries after s. 51(1) freeze in favour of second family trust with same minor beneficiaries

Principales Questions: Whether subsection 74.4(2) can apply to a trust.

Position Adoptée: Yes.

Raisons: See below.

26 May 2015 External T.I. 2015-0565961E5 - Reasonable Motor Vehicle Allowances

CRA Tags
8(1)(h.1), 6(1)(b)(x), 6(1)(b)(vii.1)

Principal Issues: Whether a per-kilometre allowance that exceeds the amounts prescribed by Regulation is considered reasonable? Whether a minimum daily motor vehicle allowance is deemed not to be reasonable?

Position: See response.

Reasons: See response.

26 May 2015 External T.I. 2015-0567071E5 - RRIF Conversion to Life Annuity

CRA Tags

Principal Issues: Explain the rules surrounding RRIF conversion to life annuity.

Position: Wording of the Act.

Reasons: See below.

21 May 2015 External T.I. 2015-0566911E5 - Swiss Pension

CRA Tags
56(1)(a), 60(j)

Principal Issues: Whether a Canadian resident would be entitled to claim a deduction under subparagraph 60(j)(i) of the Act for a lump-sum transfer from a Swiss Pillar 2 vested benefit account to an RRSP.

Position: Yes, provided that the conditions in subparagraph 60(j)(i) are met.

Reasons: Subparagraph 60(j)(i) of the Act provides for a deduction where a lump sum amount is received from a superannuation or pension plan and a contribution is made to the recipient's RRSP within the period specified in the legislation.

20 May 2015 External T.I. 2014-0539151E5 - 146(16)(b) RRSP Transfers

CRA Tags
74.1, 160(1), 146(16), 56(2)

Principal Issues: Will paragraph 146(16)(b) apply to transfers after the transferor has died?

Position: No.

Reasons: 146(16) only contemplates transfers while the annuitant (transferor) is still alive.

13 May 2015 External T.I. 2013-0483471E5 - Paragraph 7(1)(e)-subsection 110(1.1) Election

CRA Tags
110(1)(d), 110(1.1), 7(1)(e)

Principal Issues: Whether an election under subsection 110(1.1) may be made by an employer in circumstances where paragraph 7(1)(e) applies after March 4, 2010?

Position: Yes.

Reasons: The CRA will accept such elections on an administrative basis.

13 May 2015 External T.I. 2014-0563801E5 - Transportation allowance - remote work location

CRA Tags
6(17), 6(18), 6(6), 6(6)(b), 248(1), 6(6)(b)(ii)

Principal Issues: Whether a transportation allowance is excluded from an employee's employment income under the Act.

Position: It is a question of fact, most likely yes.

Reasons: See response.

22 April 2015 External T.I. 2015-0564671E5 - Damages payment from an insurer

CRA Tags

Principal Issues: Whether an amount received from an insurer as damages is taxable?

Position: In this particular situation, likely not.

Reasons: Jurisprudence.

Technical Interpretation - Internal

16 March 2015 Internal T.I. 2014-0560651I7 - Net Income of Ontario Corporate Minimum Tax (CMT)

CRA Tags
Ontario Taxation Act 57(1), 54(2)

Principal Issues: Whether a corporation's gain on the disposition of an interest in its subsidiary must be included in determining adjusted net income for CMT purposes.

Position: Only to the extent that it is recorded in net income of the fiscal period coinciding with the corporation's tax year computed in accordance with generally accepted accounting principles.

Reasons: The Taxation Act (2007) clearly requires that net income for CMT purposes follow generally accepted accounting principles.

16 February 2015 Internal T.I. 2014-0563131I7 - Dependency and Indemnity Compensation

CRA Tags

Principal Issues: Whether payments of Dependency and Indemnity Compensation received by a Canadian resident taxpayer from the United States Department of Veterans Affairs are taxable under the Act.

Position: Yes. The amounts are annuity payments and are included in income under paragraph 56(1)(d).

Reasons: Consistent with classification of similar payments received by spouses of employees of defence contractors killed in a war zone (see document 2006-0217681E5).