Income Tax Severed Letters - 2016-01-20

Ruling

2015 Ruling 2015-0569891R3 - Ss. 164(6) carry-back and post-mortem pipeline

CRA Tags
164(6), 84(2), 84.1, 245(2), 212(1)(c), 116
Summary Under
Tax Topics - Income Tax Act - Section 84 - Subsection 84(2)
proceeds of share redemption (generating s. 164(6) carryback) allocated to U.S. beneficiary before pipeline for Cdn beneficiaries
Summary Under
Tax Topics - Income Tax Act - Section 164 - Subsection 164(6)
redemption of Canco shares bequeathed to U.S. resident (coupled with s. 164(6) carryback) before pipeline strip of Canco

Principal Issues: Subsection 164(6) and post-mortem pipeline planning. Whether estate can elect under subsection 164(6) where there is a non-resident beneficiary.

Position: See below

Reasons: See below

2015 Ruling 2015-0598641R3 F - Supplemental - Butterfly Transaction

CRA Tags
55(3)(b), 55(3.1)(c)

Principales Questions: Whether proposed dispositions of assets by a transferee corporation will give rise to paragraph 55(3.1)(c) to prevent the application of paragraph 55(3)(b) exemption to such transferee?

Position Adoptée: No.

Raisons: See below.

Technical Interpretation - External

11 December 2015 External T.I. 2015-0601561E5 F - Attribution Rules

CRA Tags
74.4(2)
Summary Under
Tax Topics - Income Tax Act - Section 74.4 - Subsection 74.4(2)
annual dividends by an SBC to a non-SBC are not an indirect transfer of property to the non-SBC by the individual who formed the SBC

Principales Questions: Will subsection 74.4(2) apply to both scenarios presented?

Position Adoptée: No in the first scenario. May technically apply in the second scenario depending on the facts and circumstances.

Raisons: See below.

8 December 2015 External T.I. 2015-0613401E5 F - Attribution Rules

CRA Tags
74.4(2)
Summary Under
Tax Topics - Income Tax Act - Section 74.4 - Subsection 74.4(2)
“technically” s. 74.4(2) may be avoided through a stock dividend

Principales Questions: Will subsection 74.4(2) apply in the scenarios described?

Position Adoptée: No in the first scenario. Probably in the second scenario. No in the third scenario but no comments on subsection 245(2).

Raisons: See below.

8 December 2015 External T.I. 2015-0616321E5 F - CEE - Severance pay

CRA Tags
66.1(6)
Summary Under
Tax Topics - Income Tax Act - Section 66.1 - Subsection 66.1(6) - Canadian exploration expense - Paragraph (a)
severance payment not includible in CEE
Summary Under
Tax Topics - Income Tax Regulations - Regulation 1206 - Subsection 1206(1) - Canadian exploration and development overhead expense
exclusion of severance payment

Principales Questions: 1. Whether a severance payment to an employee who performed services on exploration projects would be part of the Canadian exploration expenses of a taxpayer. 2. Whether a severance payment to an employee who performed services on exploration projects would be part of the Canadian exploration and development overhead expenses of a taxpayer.

Position Adoptée: 1. No. 2. No.

Raisons: 1. Severance payment is an expense made at the cessation of employment and does not represent consideration for services provided. A connection cannot be made between the expenditure and the exploration and development work performed. 2. Severance payment is not a Canadian exploration expense or a Canadian development expense and therefore, the conditions of the definition of Canadian exploration and development overhead expense are not met.

3 December 2015 External T.I. 2015-0593941E5 F - Allocation of the safe income on hand

Summary Under
Tax Topics - Income Tax Act - Section 55 - Subsection 55(2.1) - Paragraph 55(2.1)(c)
flexible allocation of SIOH where discretionary common shares
Summary Under
Tax Topics - General Concepts - Fair Market Value - Shares
FMV of discretionary share increased at moment of dividend declaration to exclusion of other discretionary shares
Summary Under
Tax Topics - Income Tax Act - Section 55 - Subsection 55(2.1) - Paragraph 55(2.1)(b)
quaere whether 8% reduction is significant

Principales Questions: 1. In a situation where there are more than one class of shares that are voting, that participate equally in the distribution of the corporation's property upon dissolution and that are entitled to discretionary dividends, would paragraph 55(2.1)(c) apply when a dividend is paid on only one class of shares?
2. In a situation where there is a class of preferred shares that are non-voting, non-participating and that are entitled to discretionary dividends, and there is a class of common shares which are voting and participating, would paragraph 55(2.1)(c) apply when a discretionary dividend is paid on the preferred shares? Would such a dividend reduce the safe income on hand attributable to the common shares?

Position Adoptée: 1. In applying paragraph 55(2.1)(c) in such a case, a taxpayer should compare all the safe income on hand of the corporation before the payment of the dividend with the capital gain that could be realized on a disposition of the shares on which the dividend would be paid at fair market value at the time that is immediately before the payment of the dividend, taking into account that such shares would be entitled to the dividend that will be paid and declared. Depending on the facts that are particular to a situation, it could be reasonable to consider that the safe income on hand of the corporation contributes to the hypothetical capital gain on the shares.
2. It depends on the valuation of the preferred shares. For example, if the adjusted cost base is equal to the fair market value of the preferred shares immediately before the payment of the dividend, there would be no safe income on hand that can be reasonably considered to contribute to the hypothetical capital gain with respect to the preferred shares. In such a case, the question would be whether the purpose tests of proposed subsection 55(2.1) are met. If one of the purpose test is met and if the other conditions required for the application of subsection 55(2) are met, such provision will apply with respect to the dividend and the safe income on hand of the corporation would not be reduced. If subsection 55(2) does not apply, the dividend on the preferred shares would reduce the safe income on hand of the corporation.

Raisons: 1. Wording of the proposed legislation.
2. Wording of the proposed legislation. Questions of fact and valuation.

6 October 2015 External T.I. 2015-0598631E5 - Clergy Residence Deduction

CRA Tags
8(1)(c)

Principal Issues: Whether a school chaplain employed by a Catholic school board is eligible to claim the clergy residence deduction?

Position: See response.

Reasons: See response.

29 September 2015 External T.I. 2015-0601891E5 - Indian Employment Income

CRA Tags
81(1)(a)

Principal Issues: Is the employment income exempt from income tax?

Position: No

Reasons: None of the Guidelines apply to exempt the income.

8 June 2015 External T.I. 2014-0529851E5 F - Frais payés à une maison de santé ou de repos

CRA Tags
118.2(2)
Summary Under
Tax Topics - Income Tax Act - Section 118.2 - Subsection 118.2(2) - Paragraph 118.2(2)(e)
no 2nd credit under s. 118.3 re accommodation expenses in nursing home
Summary Under
Tax Topics - Income Tax Act - Section 118.2 - Subsection 118.2(2) - Paragraph 118.2(2)(d)
floor of retirement residence servicing those with advanced Alzheimer’s can qualify as “nursing home”
Words and Phrases
nursing home
Summary Under
Tax Topics - Income Tax Act - Section 118.2 - Subsection 118.2(1)
expenses can be claimed based on 12-month period ending in year

Principales Questions: Questions diverses concernant le crédit d'impôt pour frais médicaux. / Several questions regarding the medical expense tax credit.

Position Adoptée: Voir document. / See document.

Raisons: Voir document. / See document.

Technical Interpretation - Internal

5 October 2015 Internal T.I. 2014-0522241I7, rev'd supra - T1135: Mineral rights situated outside of Canada

CRA Tags
233.3(1), 248(1) "cost amount"
Summary Under
Tax Topics - Income Tax Act - Section 233.3 - Subsection 233.3(1) - Specified Foreign Property
foreign mineral right is tangible property
Words and Phrases
tangible property
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Cost Amount
nil cost amount for foreign resource property

Principal Issues: Whether mineral rights situated outside of Canada held by a taxpayer is considered “real property” for T1135 purposes.

Position: Yes, provided the property is not held exclusively in the course of carrying on an active business.

Reasons: Mineral rights of a reporting entity situated outside of Canada are considered tangible property that is specified foreign property for purposes of section 233.3 of the Act.

1 October 2015 Internal T.I. 2015-0585371I7 - Corporate Minimum Tax Eligible Losses

CRA Tags
Ontario Taxation Act 57(1)

Principal Issues: Whether the adjusted net loss reported for a taxation year is included in the computation of a corporation's eligible loss for a subsequent taxation year.

Position: No

Reasons: Pursuant to the Taxation Act, 2007 an error has been made in the computation of the adjusted net loss.

26 March 2015 Internal T.I. 2013-0503031I7 F - Existence d’une source de revenu

CRA Tags
9(1), 18(1)(a), 18(1)(h), 18(12), 67
Summary Under
Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit
individual’s sideline activity not a business so that revenues exempt
Summary Under
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Income-Producing Purpose
criteria for determining whether a home is a principal place of business

Principales Questions: 1) Est-ce que les activités du contribuable représentent une source de revenu? / Do the activities accomplished by the taxpayer qualify as a source of income?
2) S’il y a exploitation d’une entreprise, est-ce que les dépenses admissibles et déductibles doivent être limitées aux revenus générés par les activités? / If it is a business, are the admissible and deductible expenses limited to the business income?
3) S’il y a exploitation d’une entreprise, est-ce que toutes les dépenses de véhicule sont déductibles? / If the activity is considered a business, can we deduct the full amount of car expenses?
4) Est-ce que les frais de déplacement peuvent être considérés comme étant personnels? / Are the travel expenses considered personal expenses ?
5) S’il est établi qu’il s’agit plutôt d’un passe-temps: / If the activity qualify as a hobby: a) comment doit-on procéder pour les T4A produits par les payeurs?/ how should we proceed with the T4 slips issued by the payer? b) Comment doit-on aviser le contribuable pour la production de ses déclarations de revenus futures?/ How should we inform the tax payer regarding the filing of his future income tax returns? c) Comment traiter les déclarations de revenus présentement sous vérification? / How should we modify the income tax returns selected for the audit?

Position Adoptée: 1) Non, les activités du contribuable représentent plutôt l'exercice d'un passe-temps. / No, based on the given facts and the jurisprudence, we consider the activities to be a hobby.
2) Puisqu’il n’y a pas d’entreprise ni de source de revenu, les dépenses engagées ne sont pas déductibles dans le calcul du revenu de l’entreprise. / Since there is no business or any source of income, the expenses that are incured are not deductible.
3) et 4) Commentaires généraux fournis. / General comments provided.
5) a) Aucune modification à faire/ no changes to be done. b) Il s’agit d’une question de fait basée sur les informations dont nous disposons actuellement. Si les faits changent dans le futur, la conclusion pourrait changer. / Question of fact based on the information we have actually. If there is any change in the future, the conclusion could be different. c) Il n’y a pas de modification à apporter aux déclarations de revenus sous vérification. / There is no change to be made to the income tax returns selected for the audit.

Raisons: 1) Question de fait / Question of fact. 2) 18(1)a), 18(1)h), 67 LIR. 3) et 4) 18(1)h), Bulletin d’interprétation IT-521R / Interpretation Bulletin IT-521R