Income Tax Severed Letters - 2015-12-09

Technical Interpretation - External

26 October 2015 External T.I. 2015-0585751E5 - Indian Employment Income

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

Principal Issues: Whether employment income of Indian owner/manager is exempt from income tax?

Position: Question of fact.

Reasons: See below.

23 October 2015 External T.I. 2015-0614231E5 F - Frais de garde subventionnés

CRA Tags
63(1)
Summary Under
Tax Topics - Income Tax Act - Section 63 - Subsection 63(1)
additional Quebec child care contribution is deductible in the care year rather than the subsequent return-filing year (assuming timely payment to ARQ)

Principales Questions: 1) L’ARC peut-elle confirmer que la contribution additionnelle pour les services de garde subventionnés au Québec est déductible dans le calcul du revenu d’un particulier; 2) Si oui, l’ARC peut-elle préciser dans quelle année un particulier pourra déduire cette contribution additionnelle; 3) Quels documents un particulier devra-t-il fournir pour justifier la déduction demandée à l’égard de la contribution additionnelle dans sa déclaration de revenus? / 1) Can the CRA confirm that the Additional Subsidized Childcare Contribution in Quebec is deductible in computing an individual's income; 2) If yes, can the CRA confirm in which year an individual may deduct this additional contribution; 3) What documents should an individual provide to justify the deduction claimed with regard to the additional contribution on his/her income tax return?

Position Adoptée: 1) De façon générale, la contribution additionnelle pour les services de garde subventionnés au Québec constitue des frais engagés au cours d’une année d’imposition dans le but de faire assurer au Canada la garde de tout enfant aux fins de la définition de « frais de garde d’enfants » au paragraphe 63(3) L.I.R.; 2) La contribution additionnelle qui remplit toutes les conditions pour constituer des frais de garde d’enfants déductibles pourra être déduite en 2015 si les services de garde subventionnés ont été rendus au cours de l’année 2015 et ce, même si le calcul de cette contribution additionnelle s’effectue lorsque la personne remplit en 2016 sa déclaration de revenus du Québec pour l’année 2015. 3) L’ARC étudie présentement la question / 1) Generally, the Additional Subsidized Childcare Contribution in Quebec constitutes fees incurred in a taxation year for the purpose of providing in Canada child care services of any child for the purposes of the definition of "child care expense" in subsection 63(3) of the ITA; 2) The additional contribution which meets all the conditions for constituting a deductible “child care expenses” may be deducted in 2015 if the subsidized childcare services were rendered during 2015, even if the calculation of this additional contribution occurs when a person files his/her Quebec income tax return for the taxation year 2015. / 3) The CRA is currently studying the issue.

Raisons: 1) La loi; 2) La loi et position administrative sur le sens du mot « Payé » aux fins de l’article 63. / 1) The Law; 2) The Law and the CRA’s administrative position on the meaning of the word “Paid” for the purposes of section 63. (Voir F2015-059565)

Conference

9 October 2015 APFF Roundtable Q. 1, 2015-0595751C6 F - Deductibility of financing fees and 20(1)(e)(v)

CRA Tags
20(1)(e)
Summary Under
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(e)
discharge of a debt through its assumption or cash proceeds from sub transferee denies a s. 20(1)(e)(v) deduction

Principales Questions: Can the remaining balance of financing fees be written off in a taxation year where the borrowing to which they relate is extinguished, in four different scenarios?

Position Adoptée: Only in the first scenario.

Raisons: Scenarios two to four would all be part of a series of borrowings or other transactions and repayments.

9 October 2015 APFF Roundtable Q. 2, 2015-0595521C6 F - Meaning of "actively engaged"

Summary Under
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Split Income - Paragraph (c) - Subparagraph (c)(ii) - Clause (c)(ii)(D)
IT-349R3 and IT-268R4 potentially relevant to meaing of "actively engaged on a regular basis"

Principales Questions: (1) Whether CRA’s comments on the meaning of "actively engaged on a regular and continuous basis" expressed in the context of the business of farming (IT-349R3 and IT-268R4) may apply to interpret the meaning of "actively engaged on a regular basis" used in the definition of "split income" in subsection 120.4(1) of the Act. (2) Whether a real estate trust managed by an entity dealing at arm’s length with the specified individual is subject to the kiddie tax.

Position Adoptée: (1) General comments provided. (2) General comments provided.

Raisons: (1) Question of fact. (2) Question of fact.

9 October 2015 APFF Roundtable Q. 3, 2015-0595761C6 F - Application of ss. 18(3.1)

CRA Tags
18(3.1)
Summary Under
Tax Topics - Income Tax Act - Section 18 - Subsection 18(3.1) - Paragraph 18(3.1)(a)
no capitalization of repair/maintenance expenses incurred during renovation etc.

Principales Questions: When applying ss. 18(3.1), will the CRA follow the reasoning adopted in the Janota case?

Position Adoptée: General comments. It is primarily a question of fact whether certain expenses must be capitalized under ss. 18(3.1).

Raisons: Subsection 18(3.1) applies to costs attributable to the period of construction, renovation or alteration of a building that are otherwise deductible and that are related to such construction, renovation or alteration. It is primarily a question of fact as to whether certain costs are related to the construction, renovation or alteration of a building.

9 October 2015 APFF Roundtable Q. 4, 2015-0595541C6 F - Computation of taxable benefit

CRA Tags
15(1)
Summary Under
Tax Topics - Income Tax Act - Section 15 - Subsection 15(1)
determination of normal yield re shareholder-provided luxurious property

Principales Questions: 1. When computing the value of the benefit conferred to a shareholder by a corporation for the personal use of a property owned by the corporation, can the shareholder use the prescribed rate of interest provided for in subparagraph 4301(a)(i) of the Regulations as the normal rate of return?
2. If not, how is determined the normal rate of return?

Position Adoptée: 1. The prescribed rate provided for in subparagraph 4301(a)(i) of the Regulations does not necessarily represent the normal rate of return. Therefore, when it is not representative, it cannot be used.
2. The Act does not contain any provision with respect to the normal rate of return used to compute the value of a benefit under subsection 15(1). The CRA does not have any guidelines to determine what constitutes a normal rate of return. It depends on the fact.

Raisons: 1. Question of fact.
2. Question of fact.

9 October 2015 APFF Roundtable Q. 5, 2015-0595651C6 F - Frais de garde subventionnés

CRA Tags
63(1)

Principales Questions: 1) L’ARC peut-elle confirmer que la contribution additionnelle pour les services de garde subventionnés au Québec est déductible dans le calcul du revenu d’un particulier; 2) Si oui, l’ARC peut-elle préciser dans quelle année un particulier pourra déduire cette contribution additionnelle; 3) Quels documents un particulier devra-t-il fournir pour justifier la déduction demandée à l’égard de la contribution additionnelle dans sa déclaration de revenus? / 1) Can the CRA confirm that the Additional Subsidized Childcare Contribution in Quebec is deductible in computing an individual's income; 2) If yes, can the CRA confirm in which year an individual may deduct this additional contribution; 3) What documents should an individual provide to justify the deduction claimed with regard to the additional contribution on his/her income tax return?

Position Adoptée: L’ARC répondra à cette question après le Congrès annuel 2015 par le biais d’une d’interprétation technique. Voir F 2015-061423. / The CRA will issue a technical interpretation to respond to that question, subsequent to the 2015 Annual Conference of the Association de planification fiscale et financière. See F 2015-061423.

9 October 2015 APFF Roundtable Q. 6, 2015-0595551C6 F - Capital Dividend Account

CRA Tags
89(1), 88(1)(e.2), 245(2)
Summary Under
Tax Topics - Income Tax Act - Section 87 - Subsection 87(2) - Paragraph 87(2)(z.1)
amalgamation can cause a combined positive CDA balance to be zeroed
Summary Under
Tax Topics - Income Tax Act - Section 89 - Subsection 89(1) - Capital Dividend Account
capital loss does not eliminate positive CDA contribution of capital dividend received

Principales Questions: Impact of an amalgamation of corporations or the winding-up of a corporation on the calculation of the CDA.

Position Adoptée: See below.

Raisons: See below.

9 October 2015 APFF Roundtable Q. 7, 2015-0595561C6 F - Computation of adjusted cost base and section 84.1

CRA Tags
84.1(1)
Summary Under
Tax Topics - Income Tax Act - Section 84.1 - Subsection 84.1(2) - Paragraph 84.1(2)(a.1)
terminal-return capital gains exemption claimed on bequested shares grinds their ACB for s. 84.1 purposes to the family beneficiaries

Principales Questions: In a given scenario, whether subparagraph 84.1(2)(a.1)(ii) applies to reduce the adjusted cost base of shares for the purpose of section 84.1?

Position Adoptée: Yes.

9 October 2015 APFF Roundtable Q. 8, 2015-0595591C6 F - Dividend Refund and Part IV Tax Payable

CRA Tags
129(1), 129(3)
Summary Under
Tax Topics - Income Tax Act - Section 129 - Subsection 129(1)
unclaimed divided refunds do not generate s. 186(1)(b) tax to the dividend recipient

Principales Questions: Under CRA’s long-standing position, a corporation (the “Dividend Recipient”) that has received a dividend from a connected corporation (the “Dividend Payer”) would be subject to Part IV tax pursuant to paragraph 186(1)(b) of the Act even if the Dividend Payer (which has RDTOH at the end of a particular taxation year) has not received a dividend refund because its return was not filed within the three-year prescribed period. 1) Considering the Tax Court of Canada decision in Presidential MSH Corporation, whether the Dividend Recipient would be subject to Part IV tax even if the Dividend Payer has not received a dividend refund. 2) If the answer in 1) is yes, how the Dividend Recipient’s part IV tax liability would be determined for a subsequent taxation year if it receives another dividend from the Dividend Payer which entitles this corporation to receive a dividend refund equivalent to the dividend refund denied in the previous taxation year.

Position Adoptée: First, the CRA will comply with the recent Tax Court of Canada decisions with respect to the computation of a corporation’s RDTOH balance. However, the impact of the recent decisions in this particular context, as well as in the context of interpreting other provisions of the Act referring to the notion of “dividend refund” will be monitored by the CRA. In light of the recent Tax Court of Canada cases, the above-mentioned position will no longer be applied by the CRA and the Dividend Recipient’s Part IV tax entitlement with respect to a dividend received from a connected Dividend Payer will be determined according to the dividend refund received by the Dividend Payer.

Raisons: According to the jurisprudence.

9 October 2015 APFF Roundtable Q. 9, 2015-0595661C6 F - Question 9 - Table Ronde APFF 2015

CRA Tags
9(1), 12(1)(a), 20(1)(m)
Summary Under
Tax Topics - Income Tax Act - Section 9 - Timing
damages clause might represent a condition permitting deferral of income recognition
Summary Under
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(m)
s. 20(1)(m) reserve may be claimable for an amount included under s. 9 rather than 12(1)(a)

Principales Questions: 1. Est-ce qu'une société qui reçoit une somme par versement au cours des deux premières années suivant la signature d'une entente qui l'engage à respecter les conditions d'un « programme d'excellence » pendant 8 ans, peut inclure la somme dans son revenu au cours de cette période de 8 ans en vertu du paragraphe 9(1)? / Does a company that receives an amount by installment during the first two years following the signature of an agreement that commits it to respect the conditions of a “Program Of Excellence” for 8 years, may spread the income inclusion of the amount over the same eight-year period under paragraph 9(1) 2. Sinon, est-ce que la somme peut être incluse dans le revenu de la société en vertu de l'alinéa 12(1)a) et de ce fait, est-ce qu'une déduction en vertu de l'alinéa 20(1)m) pourrait lui être accordée? / Otherwise, may that sum be included in the company's income under paragraph 12(1)a) and accordingly, be entitled to claim a deduction under paragraph 20(1) m) if all conditions are met ?

Position Adoptée: 1 & 2. Question de fait/ Question of fact

Raisons: 1 & 2. Commentaires généraux. La somme peut être inclus dans le revenu de la société en vertu du paragraphe 9(1) ou de l'alinéa 12(1)a). / 1 & 2. General comments. The amount can be included in income pursuant to section 9 or paragraph 12(1)(a).

9 October 2015 APFF Roundtable Q. 10, 2015-0595671C6 F - Question 10 - Table Ronde APFF 2015

Summary Under
Tax Topics - General Concepts - Effective Date
price adjustment clause not required to reduce income for an excessive management fee
Summary Under
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Income-Producing Purpose
generally should be reimbursement for expenses incurred for affiliate

Principales Questions: 1. Quelle est la position de l'ARC à l'égard d'une société qui a reçu des honoraires de gestion d'une société qui lui est liée alors que la société qui lui est liée se voit refuser la déduction desdits honoraires suite à une vérification ? / What are CRA views in respect of a company which has received management fees from a related company when the related company is denied the deduction of such fees following an audit ?

Position Adoptée: 1. Si la société qui a reçu les honoraires de gestion rembourse l'équivalent du montant des honoraires que la société liée s'est vu refusé et que certaines conditions sont respectées, l'ARC accepte généralement de réduire le revenu de la société qui a reçu lesdits honoraires du montant qu'elle rembourse./ If the company which received the management fees reimbursed the equivalent of the amount of fees that the related company was disallowed and if certain conditions are met, CRA will generally accept to reduce the income of the company which received the fees by the amount repaid.

Raisons: Validation d'une position énoncée en réponse à la question no 39 du Canadian Tax Foundation Annual Conference/ Validation of a position enunciated in response of the question No. 39 at the Canadian Tax Foundation Annual Conference

9 October 2015 APFF Roundtable Q. 11, 2015-0595771C6 F - Deductibility of interest in a leveraged buyout

CRA Tags
20(1)(c)
Summary Under
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c)
CRA non-committal on interest deductibility where only the indirect use of borrowed funds is to acquire Target’s shares

Principales Questions: 1) Can a Target deduct interest paid on borrowed funds that it uses to make an interest-bearing loan to an Acquisitionco which uses the loan to acquire shares of Target? 2) Can Acquisitionco deduct interest on its borrowing from Target? 3) Can the merged company deduct interest on the borrowing originally made by Target?

Position Adoptée: No position taken on this hypothetical fact pattern, but the CRA would be prepared to consider such a question in the context of an advance ruling request.

Raisons: This is not a typical leveraged buyout structure, and it looks a lot like the structure used in the CRB Logging case.

9 October 2015 APFF Roundtable Q. 12, 2015-0595601C6 F - Proposed legislation - subsection 55(2)

CRA Tags
55(2)
Summary Under
Tax Topics - Income Tax Act - Section 55 - Subsection 55(2.1) - Paragraph 55(2.1)(b)
transaction targeted at reducing FMV of Opco shares for creditor-proofing was caught
Summary Under
Tax Topics - Income Tax Act - Section 55 - Subsection 55(2)
no relief under new rules where Part IV tax is refunded on payment of dividend to individual shareholder

Principal Issues: Analysis of some of the legislative changes to subsection 55(2) and the addition of subsection 55(2.1) in the context of three situations where the purpose of a dividend is to reduce the FMV of the shares of the capital stock of Opco, where the dividend is deductible under subsection 112(1) and where there is no Part IV tax (or where Part IV tax is reimbursed because of a dividend to an individual.

Position: In the three situations described, subsection 55(2) applies.

Reasons: Wording of the proposed legislation issued on July 31, 2015.

9 October 2015 APFF Roundtable Q. 13, 2015-0595781C6 F - Reimbursement of attributed income

CRA Tags
15(1), 51(2), 69(1), 74.1(1), 74.2, 74.4(2), 75(2), 85(1)(e.2)
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 103 - Subsection 103(1.1)
no secondary adjustments are required for the operation of most income attribution provisions
Summary Under
Tax Topics - Income Tax Act - Section 15 - Subsection 15(1)
no secondary adjustments are required for the operation of most income attribution provisions

Principales Questions: Does income that is attributed or allocated to another taxpayer, under certain specified provisions of the Act, need to be reimbursed to the taxpayer?

Position Adoptée: No.

Raisons: These provisions neither require such a reimbursement nor do they provide rules that specify the treatment of such a reimbursement.

9 October 2015 APFF Roundtable Q. 14, 2015-0595631C6 F - Indirect Monetization of CGD

CRA Tags
84.1, 245(2)
Summary Under
Tax Topics - Income Tax Act - Section 84.1 - Subsection 84.1(2) - Paragraph 84.1(2)(a.1)
individual cannot effectively use the ACB of shares previously stepped-up using the capital gains deduction to create a loss to offset a gain on the sale of common shares
Summary Under
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4)
Descarries not consistent with use of ACB on a previous capital gains crystallizatin to create a capital loss for use on a sale

Principales Questions: Whether we could rule that subsection 245(2) would not apply to a proposed series of transactions similar to file No. 2005-0134731R3.

Position Adoptée: We would recommend to the GAAR Committee to confirm the application of subsection 245(2) to a series of transactions similar to file No. 2005-0134731R3.

Raisons: The Tax Court of Canada held in Descarries v. The Queen, that such a series of transactions involves avoidance transactions which constitutes an abuse of subsection 84.1(1) as it allows the use of V-day value (and/or the capital gains exemption) to avoid the tax on the capital gain.

9 October 2015 APFF Roundtable Q. 15, 2015-0595641C6 F - Surplus Stripping and GAAR

CRA Tags
55(2), 55(5)(f), 245(2)
Summary Under
Tax Topics - Income Tax Act - Section 55 - Subsection 55(2)
GAAR did not apply where a taxpayer deliberately triggered the application of s. 55(2)
Summary Under
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4)
GAAR did not apply where a taxpayer deliberately triggered the application of s. 55(2)

Principales Questions: In a particular situation, Mr. A is one of the shareholders of OPCO. Approximately 25% of the fair market value of these shares is attributable to anything other than safe income on hand. Mr. A wishes to extract OPCO’s surpluses otherwise than as taxable dividends. The following series of transactions is undertaken: 1) Mr. A transfers shares of the capital stock of OPCO to a new corporation (“GESTION A”) in return for shares of the capital stock of GESTION A on a rollover basis pursuant to subsection 85(1); 2) OPCO redeems its shares held by GESTION A. Because the amount of the deemed dividend is higher than the safe income on hand attributable to the redeemed shares and due to the fact that GESTION A does not make the designation under paragraph 55(5)(f), the entire amount of the deemed dividend is recharacterized as proceeds of disposition. Consequently, the non-taxable portion of the capital gain is added to GESTION A’s CDA; and 3) GESTION A pays a capital dividend to Mr. A equal to its CDA balance. The overall result of this series of transactions is that the amount of tax payable by Mr. A, OPCO and GESTION A, with respect to OPCO’s surpluses distributed first to GESTION A then to Mr. A, is significantly less than the amount of tax payable if OPCO would distribute its surpluses to Mr. A as taxable dividends. Whether the CRA is of the opinion that GAAR would apply in this particular situation taking into consideration the recent Tax Court of Canada decisions with respect to surplus stripping cases?

Position Adoptée: A file with a similar series of transactions was recently referred to the GAAR Committee. The GAAR Committee recommended that GAAR not be applied in this particular file considering the current state of the case law. However, the CRA is concerned about this type of tax planning which defeats the integration principle. We have expressed our concerns to the Department of Finance.

Raisons: According to the jurisprudence.

9 October 2015 APFF Roundtable Q. 16, 2015-0595801C6 F - At-risk amount

CRA Tags
96(1.01), 96(2.1), 96(2.2)
Summary Under
Tax Topics - Income Tax Act - Section 96 - Subsection 96(2.2) - Paragraph 96(2.2)(a)
a part disposition of a partnership interest results in an anomalous pro rata reduction in the partner’s at-risk amount for the year of disposition
Summary Under
Tax Topics - Income Tax Act - Section 96 - Subsection 96(1.01)
life is tough in the big city

Principales Questions: Is there a provision in the Act that ensures that the at-risk amount of a taxpayer in respect of a partnership interest will not be immediately reduced at the time of a partial disposition of the interest?

Position Adoptée: No.

Raisons: Application of the Act.

9 October 2015 APFF Roundtable Q. 17, 2015-0595811C6 F - Application of 96(1.1)

CRA Tags
96(1), 96(1.1)
Summary Under
Tax Topics - Income Tax Act - Section 96 - Subsection 96(1.1)
income allocated under s. 96(1.1) can have specific sourcing, e.g., as dividend income

Principales Questions: Does subsection 96(1.1) apply in a situation where dividend income is allocated to a retired partner?

Position Adoptée: General comments provided.

Raisons: The determination of whether a person has ceased to be a partner is a question of fact and law that can only be resolved after a complete examination of all of the provisions of a particular document, letter or agreement.

9 October 2015 APFF Roundtable Q. 18, 2015-0595821C6 F - Ss. 96(1.01) and s. 103

CRA Tags
96(1.01)
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 103 - Subsection 103(1.1)
s. 103 can be applied to reallocate income to a deemed s. 96(1.01) partner

Principales Questions: Does section 103 apply in a situation where no income is allocated to a partner that disposes of their partnership interest before the partnership’s year end?

Position Adoptée: General comments provided.

Raisons: It is a question of fact whether the sharing of income between partners is reasonable.

9 October 2015 APFF Roundtable Q. 19, 2015-0595621C6 F - Cash pooling and subsection 15(2)

CRA Tags
15(2), 15(2.6)
Summary Under
Tax Topics - Income Tax Act - Section 15 - Subsection 15(2.6)
permitted use of FIFO to determine if debt repayments satisfy s. 15(2.6)

Principales Questions: (1) Whether subsection 15(2) applies when a Canadian corporation is owned an amount from a related foreign corporation who acts as a financing corporation for the corporate group. (2) If so, would CRA accept, in the context of a cash pooling arrangement, that a corporation uses a monthly average for its balance of amounts receivable/payable and apply the FIFO method for the purpose of subsections 15(2) and (2.6)?

Position Adoptée: (1) and (2) question of fact.

Raisons: (1) There is no administrative policy that would prevent the CRA from applying subsection 15(2) to a cash pooling arrangement. (2) In the context of a cash pooling arrangement, the CRA applies the same principles than with any other types of transactions that could be subject to subsection 15(2).

9 October 2015 APFF Roundtable Q. 20, 2015-0595681C6 F - Avantages imposables / dépenses d’entreprise

CRA Tags
6(1)(a), 18(1)(a), 67, 67.1(2)(f)
Summary Under
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a)
employer-provided parties, bike stands and internal recreation areas generally not taxable benefits

Principales Questions: 1) Certains avantages spécifiques sont-ils imposables en vertu de l’article 6? 2) L’employeur peut-il déduire les dépenses liées à ces avantages? / 1) Whether some specific benefits are considered taxable under section 6? 2) Can an employer deduct expenses related to these benefits?

Position Adoptée: 1) La réponse varie selon la nature spécifique de l’avantage; 2) Généralement oui, sous réserve des articles 67 et 67.1. / 1) The answer depends on the specific nature of the benefit; 2) Generally yes, subject to sections 67 and 67.1.

9 October 2015 APFF Roundtable Q. 21, 2015-0598291C6 F - Filing deadline for various forms

Summary Under
Tax Topics - Statutory Interpretation - Interpretation Act - Section 26
where a return filing deadline falls on a Saturday, the deadline for related forms also is extended to the Monday
Summary Under
Tax Topics - Income Tax Act - Section 85 - Subsection 85(1)
where a return filing deadline falls on a Saturday, the deadline for the T2057 also is extended to the Monday

Principales Questions: What is the deadline for filing various forms when the original filing due date falls on a holiday?

Position Adoptée: The filing deadline is deferred to the next business day.

Raisons: Application of the Interpretation Act

9 October 2015 APFF Roundtable Q. 22, 2015-0598301C6 F - Extension of time to file

Summary Under
Tax Topics - Income Tax Act - Section 165 - Subsection 165(1)
extension of individuals' return deadline also extends objection deadline

Principales Questions: What impact does an extension of time to file have on the deadline for serving a Notice of Objection?

Position Adoptée: The date in subparagraph 165(1)(a)(i) would be one year from the extended date.

Raisons: Application of the Act.

9 October 2015 APFF Roundtable Q. 23, 2015-0598311C6 F - Excessive eligible dividend designation

Summary Under
Tax Topics - Income Tax Act - Section 185.1 - Subsection 185.1(2)
filing of s. 185.1(2) election in (non-prescribed) manner

Principales Questions: (1) Since the prescribed manners applicable in order to file the election appear not to have been published, is it possible to know how a corporation should proceed to make an election under subsection 185.1 (2) ITA in order not to be subject to Part III.1 tax? (2) Can the corporation follow the prescribed manners applicable to a subsection 184(3) election?

Position Adoptée: (1) CRA Website (2) No

Raisons: See answer

9 October 2015 APFF Roundtable Q. 24, 2015-0598261C6 F - Calcul du revenu de placement total - annexe 7

Summary Under
Tax Topics - Income Tax Act - Section 129 - Subsection 129(4) - Aggregate Investment Income
allocation of investment counselling fees as between interest and dividends

Principales Questions: À l'aide d'un exemple, on nous demande comment remplir l'annexe 7?/Using an example, we are asked how to complete Schedule 7

Position Adoptée: Commentaires généraux/General comments.

9 October 2015 APFF Roundtable Q. 25, 2015-0598321C6 F - Omission of deducting a dividend under 112(1)

Summary Under
Tax Topics - Income Tax Act - Section 152 - Subsection 152(1)
IC 75-7R3 still applies to requests for refunds for errors made in already-filed returns

Principales Questions: Circumstances where an amended tax return will be accepted.

Position Adoptée: Reference to IC-75-7R3.

Raison: See below

9 October 2015 APFF Financial Strategies and Instruments Roundtable Q. 1, 2015-0588941C6 F - Critical illness insurance

CRA Tags
148, 39(1)(a)(iii), 85(1), 85(1.1)
Summary Under
Tax Topics - Income Tax Act - Section 39 - Subsection 39(1) - Paragraph 39(1)(a) - Subparagraph 39(1)(a)(iii)
critical illness policy transferred free of capital gains tax

Principales Questions: 1) Opco is the owner, the beneficiary and pays the premiums of a critical illness insurance policy on the health of its shareholder. What are the tax consequences to Opco on the transfer of that critical illness insurance policy to another corporation?
2) Whether the transfer of a critical illness insurance policy is eligible for a section 85

Position Adoptée: 1) Generally, the gain on the transfer of a critical illness insurance policy is not taxable and the loss is not deductible.
2) No

Raisons: 1) The gain is not a capital gain because of the exception in subparagraph 39(1)(a)(iii) and section 148 is not applicable to a policy that qualifies as a critical illness insurance policy under the private law and that does not qualify as life insurance.
2) A critical illness insurance policy is not an eligible property pursuant to subsection 85(1.1)

9 October 2015 APFF Financial Strategies and Instruments Roundtable Q. 2, 2015-0595841C6 F - Stock option, disposition, newly-acquired security

CRA Tags
47(1)
Summary Under
Tax Topics - Income Tax Act - Section 7 - Subsection 7(1.31)
shares acquired on option exercise must be disposed of in one transaction to avoid basis averaging

Principales Questions: Can subsection 7(1.31) apply to a donation and a transfer of shares when an employee exercises a stock option and afterwards transfers a portion of the shares acquired to a holding corporation and donates the other portion of the shares acquired.

Position Adoptée: No. Subsection 7(1.31) would only apply to the first event that takes place between the donation and the transfer.

Raisons: The condition in paragraph 7(1.31)(a) would not be met since there were two separate dispositions of identical securities

9 October 2015 APFF Financial Strategies and Instruments Roundtable Q. 3, 2015-0588951C6 F - Deductibility of interest – ss. 20.1(1)

CRA Tags
20(1)(c)(i)
Summary Under
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c)
no source disappearance where interest-free advance to sub is forgiven

Principales Questions: Is interest deductible by the sole shareholder of a company who uses borrowed money to fund an interest-free loan to the company, which loan is subsequently forgiven by the shareholder?

Position Adoptée: Generally, yes.

Raisons: The borrowed funds continue to be used for the purpose of earning income.

9 October 2015 APFF Financial Strategies and Instruments Roundtable Q. 4, 2015-0588971C6 F - T1135 and voluntary disclosure

CRA Tags
162(7), 220(3.1)
Summary Under
Tax Topics - Income Tax Act - Section 220 - Subsection 220(3.1)
currently no waiver of T1135 penalty before 10 years previously
Summary Under
Tax Topics - Income Tax Act - Section 162 - Subsection 162(7)
CRA is studying whether the $2,500 penalty for late T1135 filings applies automatically

Principales Questions: Under a voluntary disclosure, can the CRA waive penalties for T1135 forms that have not been filed for taxation years that end more than 10 years prior to the disclosure?

Position Adoptée: No.

Raisons: Ss. 220(3.1) does not allow the Minister to waive a late filing penalty under subsection 162(7) for taxation years that end more than 10 years before the voluntary disclosure.

9 October 2015 APFF Financial Strategies and Instruments Roundtable Q. 5, 2015-0588981C6 F - Foreign currency stock market transactions

CRA Tags
39(1), 40(1), 261(1)
Summary Under
Tax Topics - Income Tax Act - Section 261 - Subsection 261(2)
CRA considers that NYSE stock trades should be translated at the noon exchange rate on the settlement date

Principales Questions: What date must be used to convert proceeds received in a foreign currency from a stock market transaction that is on account of capital?

Position Adoptée: The settlement date.

Raisons: The date of settlement is the date the vendor is entitled to the proceeds.

9 October 2015 APFF Financial Strategies and Instruments Roundtable Q. 6, 2015-0595851C6 F - Income of a trust payable to a beneficiary

CRA Tags
104(6), 104(24)
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(24)
CRA will not accommodate a trust which merely distributes all it can

Principales Questions: For the purpose of paragraph 104(6)(b), would CRA accept that a trust allocates the amount of its income for tax purposes that exceeds its income for accounting purposes (which is attributable to non-deductible expenses under the Act) when, because of cash flow, only the income for accounting can be paid to the beneficiaries?

Position Adoptée: No.

Raisons: In a situation where a trust cannot pay out the difference between its income for tax purposes and its income for accounting purposes, this difference is not considered as an amount payable pursuant to subsection 104(24).

9 October 2015 APFF Financial Strategies and Instruments Roundtable Q. 7, 2015-0589001C6 F - Charities Registration Process

CRA Tags
248(1)
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Registered Charity
complete applications may speed application processing by four months

Principales Questions: Several questions regarding the registration process for a charitable organization or charitable foundation to obtain registered charity status and regarding the factors that affect the delays for obtaining such status.

Position Adoptée: General comments provided by the Charities Directorate.

Raisons: Charities Directorate's processes and service standards.

9 October 2015 APFF Financial Strategies and Instruments Roundtable Q. 8, 2015-0593091C6 F - Assumption of a debt by a beneficiary of a trust

CRA Tags
107(2), 108(1)
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 107 - Subsection 107(2)
CRA generally accepts that loss of a s. 107(2) rollover can be avoided, where a trust owes debt to a capital beneficiary, by refinancing the debt with a bank

Principales Questions: Does subsection 107(2) apply to the distribution of a rental property if the beneficiary assumed the loan secured by a mortgage on a rental property?

Position Adoptée: Question of fact. Likely yes if the initial loan and the assumption of debt by the beneficiary do not have an impact on the status of the personal trust. If the debt assumed by the beneficiary is an eligible offset pursuant to the definition of eligible offset of subsection 108(1), it reduces the proceeds of disposition of the capital interest of the beneficiary.

Raisons: Wording of the Act

9 October 2015 APFF Financial Strategies and Instruments Roundtable Q. 9, 2015-0596611C6 F - Transfer 70(6)

CRA Tags
70(6)
Summary Under
Tax Topics - Income Tax Act - Section 70 - Subsection 70(6)
non-application if replacement property distributed to spousal trust

Principales Questions: 1. In a situation where an individual dies and the executor disposes some of the assets of the estate in order to give either the proceeds or a substituted property to a spousal trust created by will, does subsection 70(6) apply?

Position Adoptée: No. The property transferred must be the same property that was deemed disposed by the deceased.

Raisons: Subsection 70(6) applies on a property-by-property basis and makes no reference to a substituted property.