Income Tax Severed Letters - 2016-02-17

Technical Interpretation - External

22 January 2016 External T.I. 2015-0617601E5 F - Pipeline followed by butterfly

CRA Tags
55(3)(b), 55(3.1), 84(2)
pipeline transaction can be coupled with a butterfly split-up
where pipeline transaction followed by split-up butterfly, the opco also is a distributing corporation

Principales Questions: Whether a butterfly transaction can be undertaken by Newco in the second year following the implementation of a post-mortem pipeline with respect to the shares of the capital stock of Opco, without triggering the application of subsection 84(2).

Position Adoptée: In some situations, this will be possible depending on the facts and the circumstances.

Raisons: Even if a butterfly transaction is undertaken by Newco in the second year following the implementation of the pipeline, there are situations where we will consider that funds or property of Opco will not be distributed to or appropriated in any manner whatever by the estate or its beneficiaries as a result of the butterfly or after such butterfly. However, for the paragraph 55(3)(b) exception to apply with respect to the dividends received in the course of the butterfly reorganization, all the conditions provided for in that paragraph and in subsection 55(3.1) will have to be met. Our Directorate will give comfort on that issue only in the context of a ruling request.

4 January 2016 External T.I. 2015-0605581E5 - Treatment of insurance proceeds and recapture

CRA Tags
12(1)(f), 13(1), 13(4), 13(21), 54, 44(1), 44(2), 125(7), 248(1)

Principal Issues: What is the treatment of insurance proceeds for capital equipment, business interruption and potential CCA recapture?

Position: Treatment of proceeds for equipment depends on whether equipment was lost/destroyed or damaged; proceeds for business interruption are treated in same manner as business revenues; recapture is treated in same manner as revenues generated by the property in respect of which the CCA deductions were made.

Reasons: See below.

21 December 2015 External T.I. 2015-0617731E5 F - 55(2) and creditor proofing

Opco dividend to Holdco whose sole purpose is creditor-proofing is subject to s. 55(2)

Principales Questions: Whether one of the purpose tests provided for in subparagraph 55(2.1)(b)(ii) of the Legislative Proposals relating to the Income Tax Act and Regulations of July 31, 2015 would apply in a situation of creditor proofing by way of the payment of a dividend equal to the value of the operating corporation and the lending of the amount of the dividend to the operating corporation.

Position Adoptée: Yes. It appears that one of the purposes of the payment of the dividend would be to effect a significant reduction in the fair market value of the shares of the capital stock of the operating corporation.

Raisons: Wording of the Legislative Proposals relating to the Income Tax Act and Regulations of July 31, 2015.

8 December 2015 External T.I. 2015-0608781E5 F - Associated corporations - discretionary trust

beneficiary includes beneficially entitled/combined application of 256(1.2)(f)(ii) and 256(1.3), but shares attributed only once]
no double-counting of shares in applying s. 256(1.3) to shares deemed to be owned by minor trust beneficiaries

Principal Issues: 1.Whether an individual is a beneficiary of a discretionary trust after having signed documents to surrender its rights as a beneficiary.
2. Whether the deeming provision in subsection 256(1.3) can apply when the deeming rule in subparagraph 256(1.2)(f)(ii) has applied.
3. When there is more than one child under 18 years of age that are beneficiaries of a discretionary trust, whether the parent is deemed to own the aggregate number of the shares deemed to be owned by every child.

Position: 1. None.
2. Yes.
3. No. If subparagraph 256(1.2)(f)(ii) applied to deem children under 18 years of age to own shares of the capital stock of a corporation held by a discretionary trust, the parent would be deemed to own the number of shares held by the discretionary trust.

Reasons: 1. Whether or not an individual is a beneficiary of a discretionary trust (taking into account subsection 248(25) after having signed some documents to surrender his rights is a legal question. In the context of a technical interpretation, we do not provide any legal opinion.
2. Subsection 256(1.3) applies with respect to shares deemed to be owned pursuant to paragraph 256(1.2)(f).
3. Our position is that the application of the provisions of subparagraph 256(1.2)(f)(ii) and subsection 256(1.3) would be considered from the point of view of each of the beneficiaries, on a person by person basis, with the result that the shares of the corporation would not be "double-counted" in any particular situation.

31 August 2015 External T.I. 2015-0565601E5 - Acceptable uses of accumulated surplus by an NPO

CRA Tags

Principal Issues: Will a benefit to members result from the use of an accumulated surplus under various scenarios.

Position: Possible benefit to members may result.

Reasons: Previous interpretations

8 July 2015 External T.I. 2014-0550641E5 - Absorptive merger-exchange of shares

CRA Tags
87(4), 87(8), 87(8.1), 87(8.2)
s. 87(8.2)(f) relief for absorptive mergers (where no shares are issued) also indirectly extends to operation of s. 87(4)
s. 87(8.2)(f) relief for absorptive mergers (where no shares are issued) also indirectly extends to operation of s. 87(4)

Principal Issues: Whether exchange rule in paragraph 87(8.2)(f) applies for purposes of subsections 87(4) and 87(8)

Position: Yes

Reasons: Textual, contextual and purposive reading of subsection 87(8.2)

Technical Interpretation - Internal

24 December 2015 Internal T.I. 2014-0560831I7 - International shipping

CRA Tags
commercial management is still sufficient/charterparties are “leases”
Words and Phrases

Principal Issues: (1) Whether the activities of a non-resident qualify as the "operation of a ship in international traffic" under former paragraph 81(1)(c). (2) Whether those same activities qualify as "international shipping" under new paragraph 81(1)(c).

Position: (1) Yes, provided those activities constitute the "commercial management" of the ship. (2) The new legislation does not change our position.

Reasons: (1) Consistent with previous positions. (2) The term "leased" used in the definition "international shipping" in subsection 248(1) includes certain ship chartering arrangements.