Income Tax Severed Letters - 2015-12-16

Technical Interpretation - External

16 November 2015 External T.I. 2015-0595041E5 - Mutual Fund Trusts & 108(2)(a)(i)

CRA Tags
108(2)(a), 132(6)
MFT that is redeemable on demand for securities' (and s. 108(2)(a)) purposes with 2 redemption windows annually

Principal Issues: Does CRA still consider a redemption schedule more than once annually satisfying 108(2)(a)(i)?

Position: yes

Reasons: Position unchanged from 1991 CTF Roundtable

16 September 2015 External T.I. 2015-0601661E5 - PEI and Federal ITC - farming and processing equipment

CRA Tags
127(5), 127(9), 127(11), ITR 1104(9)

Principal Issues: Whether certain equipment used to detect foreign metal objects in potatoes will qualify for the federal ITC and the corresponding provincial ITC in subsection 39(1) of the PEI Corporate Tax Act.

Position: Possibly.

Reasons: The law and facts.

28 August 2015 External T.I. 2013-0514261E5 - Using the Assets of a TFSA as Security for a Loan

assets of TFSA trust may not be used as security

Principal Issues: Whether subsection 146.2(4) permits a TFSA holder to use the underlying assets of a trust governed by a TFSA as security for a loan or other indebtedness.

Position: No.

Reasons: See below.

18 August 2015 External T.I. 2015-0564351E5 - Transfer of RRSP for payment of child support

CRA Tags
146(16)(b)

Principal Issues: Can an annuitant transfer an amount from their RRSP to their former spouse’s RRSP on a tax-deferred basis under paragraph 146(16)(b) of the Income Tax Act where the amount transferred is pursuant to a decree, order or judgment of a competent tribunal or under a written separation agreement to settle a child support claim?

Position: No. In order for paragraph 146(16)(b) to apply, the transfer of an amount from the annuitant’s RRSP must relate to a division of property in settlement of rights arising out of, or on the breakdown of, their marriage or common-law partnership.

Reasons: Payments related to child support and spousal support are separate and distinct from payments related to division of property.

Technical Interpretation - Internal

22 October 2015 Internal T.I. 2013-0486491I7 - Overdrafts in a TFSA

administrative accommodation of short term inadvertent overdrafts but not of cashless warrant exercise
deemed proceeds under s. 146.2(8) are not a distribution
accommodation only of temporary technical breach of borrowing prohibition for registered plans

Principal Issues: 1(a) Would an unintended short-term overdraft in a TFSA trust constitute “borrowing money or other property” in contravention of the prohibition in paragraph 146.2(2)(f)? 1(b) What about a temporary advance of funds to a TFSA trust as part of a cashless exercise of warrants? 2. Whether we support the CRA adopting an administrative position to provide relief in certain circumstances? 3. In the event a borrowing is found to have occurred, would the resulting de-registration of the TFSA cause a permanent loss of TFSA savings room, or would it be considered a distribution and therefore added back to next year’s TFSA contribution room?

Position: 1(a) and (b). Question of fact, but in most cases, yes. 2. Yes. 3. The de-registration of the TFSA would cause a permanent loss of TFSA savings room.

Reasons: 1(a) and (b). Where it can be established that there is a lender/borrower relationship, the TFSA trust would be considered to have “borrowed money”. 2. It is reasonable to ignore these temporary technical overdrafts. 3. The deemed disposition resulting from the TFSA de-registration is not considered a distribution under the TFSA.

October 22, 2015

1 September 2015 Internal T.I. 2015-0605491I7 - In-kind transfer of property from an RRSP to an IPP

CRA Tags
207.01, 207.05

Principal Issues: Whether the in-kind transfer of property from an individual's RRSP to an individual pension plan, pursuant to paragraph 146(16)(a) of the Income Tax Act, can be considered a swap transaction or RRSP strip, and thus give rise to Part XI.01 advantage tax.

Position: No

Reasons: The exceptions in paragraph (a) of the swap transaction definition and paragraph (c) of the RRSP strip definition will apply to such a transfer, with the result that the transfer is neither a swap transaction, nor an RRSP strip.

1 September 2015 Internal T.I. 2013-0507381I7 - Transfer pricing adjustments and gross revenue

[s. 247(2) increases to gross revenues]
s. 247(2) increases to proceeds (but not downward adjustments to purchase prices) increase gross revenue for provincial allocation purposes
sales (but not purchases) transfer pricing adjustments to gross revenue

Principal Issues: (1) How, if at all, is gross revenue to be adjusted when there is a transfer pricing adjustment when a Canadian resident purchases goods or services from a non-resident at an amount in excess of what would have been agreed to between persons dealing at arm's length?
(2) How, if at all, is gross revenue to be adjusted when there is a transfer pricing adjustment when a Canadian resident sells a good or provides a service to a non-resident at an amount less than what would have been agreed to between persons dealing at arm's length?
(3) In both scenarios, if gross revenue is to be adjusted, which permanent establishment would include it in its gross revenue?

Position: (1) A transfer pricing adjustment relating to an expenditure is not included in gross revenue; (2) A transfer pricing adjustment relating to revenue transactions is included in gross revenue; (3) Such an adjustment would be attributable to the whichever permanent establishment was reasonably attributed the gross revenue from the transaction that was subject to the transfer pricing adjustment.

Reasons: (1) Since the adjustment changes the amount considered to be paid for an expenditure, there is no effect on gross revenue; (2) Adjustments relating to sales revenue are included as they represent an amount that would have otherwise been received, which is captured by the definition of gross revenue under subsection 248(1); (3) The adjusted amount should be attributed to the original permanent establishment that was attributed the gross revenue for that taxation year.

14 August 2015 Internal T.I. 2013-0504471I7 - RDSPs and bankruptcy

Principal Issues: 1. Do the registration conditions in paragraphs 146.4(4)(a) and (i) prevent a bankruptcy trustee from collapsing a bankrupt’s RDSP and receiving the proceeds? 2. Are there any other restrictions that may limit a bankruptcy trustee’s ability to realize RDSP funds?

Position: 1. No 2. Yes

Reasons: 1. Because of the agency relationship deemed to exist by paragraph 128(2)(a), there would be no assignment or surrender of the beneficiary’s rights under the RDSP and any payments made from the plan to the trustee in bankruptcy would be considered to have been made to the beneficiary. 2. Under the BIA and related jurisprudence, a trustee in bankruptcy generally has no greater rights than the bankrupt and can only deal with property available to the bankrupt. To the extent that the beneficiary is restricted in making withdrawals from the RDSP, the bankruptcy trustee would also be restricted. In addition, RDSPs are exempt in certain circumstances.

10 August 2015 Internal T.I. 2014-0527981I7 - Application of 146.1(2.21) to deceased beneficiary

CRA Tags
146.1(1)
6 month extension under s. 146.1(2.21), for making EAPs, not available following beneficiary’s death

Principal Issues: Whether the six-month extension for making EAPs provided under subsections 146.1(2.21) and (2.22) applies once the beneficiary is deceased.

Position: No.

Reasons: Scheme and purpose of section 146.1