Income Tax Severed Letters - 2016-07-06

Technical Interpretation - External

20 June 2016 External T.I. 2016-0648481E5 F - Small business deduction and GRIP

CRA Tags
89(1), 125(1)
Summary Under
Tax Topics - Income Tax Act - Section 89 - Subsection 89(1) - Adjusted Taxable Income
CCPCs can choose to forego the small business deduction so as to maximize their GRIP
Summary Under
Tax Topics - Income Tax Act - Section 125 - Subsection 125(1)
SBD discretionary

Principal Issues: Whether a corporation has the obligation to deduct an amount under paragraph 125(1).

Position: The wording used in paragraph 125(1) is "may be deducted". Therefore a corporation has no obligation to deduct an amount under paragraph 125(1).

Reasons: Wording of the Act.

20 June 2016 External T.I. 2016-0651951E5 F - Amalgamation - non-capital loss of new corporation

CRA Tags
87(2)
Summary Under
Tax Topics - Income Tax Act - Section 87 - Subsection 87(2.1)
no carryback of losses of new corporation formed by amalgamation of 2 sisters

Principal Issues: Whether the non-capital loss of a corporate entity formed as a result of the amalgamation of two sister corporations can reduce the taxable income of a predecessor corporation.

Position: No.

Reasons: Wording of subsections 87(2) and 87(2.1) (especially paragraph 87(2.1)(e)).

20 June 2016 External T.I. 2014-0559961E5 F - Subsection 39(4) - securities owned by partnership

CRA Tags
39(4), 39(5), 96(3), 96(1)(c)
Summary Under
Tax Topics - Income Tax Act - Section 39 - Subsection 39(4.1)
limited partners carry on the trading business of their LP for purposes of the election

Principal Issues: Whether, in conformity with subsections 39(4.1) and 39(5), a limited partner in a limited partnership investing in highly speculative investments can elect under subsection 39(4) in order to obtain a capital gain treatment on the income allocated to the limited partner and resulting from the disposition of Canadian securities owned by the limited partnership.

Position: Question of facts. The limited partner will be considered to carry on the business of the limited partnership for the purpose of subsections 39(4) and 39(5). It is a question of fact whether the limited partner is a taxpayer described in subsection 39(5).

Reasons: Subsection 39(4.1) overrides the presumption under subsection 96(1)(c) that the limited partnership is a separate person resident in Canada. Under subsection 39(4.1), the limited partners are deemed to own and dispose of the Canadian securities owned by the limited partnership for the purpose of applying subsections 39(4) and 39(5).

14 June 2016 External T.I. 2016-0647461E5 - Beneficial Ownership

CRA Tags
40(1), 54, 69(1), 248(1)

Principal Issues: Whether a change in legal title of the property will trigger a disposition resulting in a capital gain to the taxpayer under the Income Tax Act (“the Act”)?

Position: Question of fact.

Reasons: See below.

7 June 2016 External T.I. 2016-0641851E5 - ECP Rules NAL Disposition

CRA Tags
13(7)(e), 14(1), 14(5), ITR Schedule II
Summary Under
Tax Topics - Income Tax Act - Section 13 - Subsection 13(38) - Paragraph 13(38)(a)
no recognition of pre-2017 gain of non-arm’s length transferor

Principal Issues: In a situation where a taxpayer acquired goodwill from a NAL prior to January 1, 2017 and disposes of the goodwill after January 1, 2017 to an AL person, will the grind (originally recognized under variable A.1 in the definition of CEC in subsection 14(5) of the Act) be restored for purposes of calculating the capital gain?

Position: Under the current version of the proposed rules no.

Reasons: See analysis.

26 April 2016 External T.I. 2015-0623221E5 - Taxability of employer-provided tuition assistance

CRA Tags
6(1)(a), 6(1)(a)(vi)

Principal Issues: Whether the value of tuition assistance benefits provided to the family member of an employee under a collective agreement is taxable to the employee?

Position: Question of fact.

Reasons: See response.

Technical Interpretation - Internal

13 April 2016 Internal T.I. 2016-0632711I7 - ON Tax and Brazilian Tax Sparing

CRA Tags
Ontario Taxation Act 1(8), 34, 126(7), Treaties Article XXIV

Principal Issues: 1. Are Ontario taxpayers entitled to a provincial foreign tax credit in respect of spared taxes under Article 22 of the Canada-Brazil treaty?
2. In addition to the reasons given in 2014-0525961I7, can the FTC be denied on the basis that Regulation 183 of ON Revised regulations denies the credit because the treaty is not one of the listed treaties?

Position: 1. No.
2. No.

Reasons: 1. As stated in 2014-0525961I7, Ontario is not a party to the treaty and has not incorporated the treaty into the provincial foreign tax credit system.
2. Section 802 of Regulation 183 is not applicable to section 34 of the ON TA. Further, section 802 is not a restrictive provision, but expands what is included in tax paid. Therefore, the absence of the treaty from section 802 does not deny the amounts; it only fails to make them eligible.

21 March 2016 Internal T.I. 2015-0624271I7 - Part-Time Student Scholarship Exemption

CRA Tags
56(1)(n), 56(3), 118.6(1), 118.6(2)

Principal Issues: In determining the scholarship exemption per subsection 56(3) as it relates to a part-time student, are the scholarship, fellowship, or bursary amounts that are received limited to the fees paid to a designated educational institution and related program material costs for the current year or can the award amounts be reduced by the total fees paid to the institution and total program-related material costs?

Position: As per paragraph 56(3.1)(b), these costs can include the total fees paid to a designated educational institution for the program plus the total program related material costs provided that these costs have not been claimed in any other year.

Reasons: 56(3.1)(b), the DOF explanatory notes and XXXXXXXXXX.