Income Tax Severed Letters - 2017-01-11


2016 Ruling 2014-0552321R3 F - Trust to trust Transfer

Unedited CRA Tags
248(1) "disposition" (f), 248(25.1), 104(5.8), 104(4), 108(1) "trust" (g), 74.4(4)b)
para. (f) exception applied on transfer from old discretionary inter vivos family trust to new trust with terms considered to be substantively the same
having a trust interest vest indefeasibly in a minor is consistent with the minor not receiving or having any use of the trust capital
trust holding property on its 21st anniversary for minors was not subject to s. 104(4) as their shares would have been deemed under the Trust Deed to be irrevocably determined by then
104(5.8) applied to transfer to new trust with the same beneficiaries and essentially the same terms

Principales Questions: Following a declaratory judgment providing the correct interpretation of a particular trust (the transferor trust) indenture:
1) Whether the transfer of the transferor trust’s property to a new trust (the transferee trust) will result in a disposition of property by the transferor trust. 2) Whether subsection 104(4) would apply to the transferee trust in a situation where all interests in the transferee trust would have vested indefeasibly prior to the day on which subsection 104(4) would have applied otherwise and provided the conditions of paragraph (g) of the definition of “trust” in subsection 108(1) would be met? 3) Whether the vesting of the designated persons' interest in the transferee trust would prevent the application of paragraph 74.4(b)?

Position Adoptée: 1), 2) and 3) No.

Raisons: 1) Paragraph (f) of the definition of "disposition" in subsection 248(1) of the Act. 2) By virtue of paragraph (g) of the definition of "trust" in subsection 108(1), the transferee trust would not be a "trust" for the purposes of subsection 104(4) on the date it would otherwise apply. 3) The indefeasible vesting of designated persons' interests in the transferee trust does not result, in itself, in designated persons being in a position to receive or otherwise obtain the use of any of the income or capital while being designated persons.

2016 Ruling 2016-0627341R3 - Rollover of RRIF proceeds after death

Unedited CRA Tags
56(1)(d.2), 60(l), 60.011(2)(b), 60.011(3), 75.2, 146.3(5), "designated benefit" in 146.3(1), 146.3(6) to (6.2)

Principal Issues: Whether RRIF proceeds paid after the death of the annuitant to a testamentary trust and used to purchase an eligible annuity for the benefit of the deceased’s grandson qualify for a tax deferred rollover.

Position: Yes

Reasons: The transactions satisfy the conditions for the rollover, notably the grandson was financially dependent on the deceased RRIF annuitant at time of death and the trust provides that the grandson is the sole person beneficially interested in the annuity.

2016 Ruling 2016-0634371R3 F - Post-mortem planning - Pipeline

Unedited CRA Tags
84(2), 84.1, 245(2)

Principales Questions: Pipeline structure

Position Adoptée: Favourable rulings provided.

Raisons: In accordance with the Act and our published positions.

Technical Interpretation - External

6 December 2016 External T.I. 2014-0542551E5 - Taxable Canadian Property

Unedited CRA Tags
104(1); 108(1); 248(1)
the derivation of estate property from Cdn real property of the deceased does not cause the interests in the estate to be taxable Cdn property

Principal Issues: Whether an interest in an estate would be considered taxable Canadian property in the situation described.

Position: No.

Reasons: The estate itself never held, directly or indirectly, any real property or other property described in the definition of taxable Canadian property.

24 August 2016 External T.I. 2015-0592921E5 - Computation of Earnings of a Foreign Affiliate

Unedited CRA Tags
Definition of "earnings" in Regulation 5907(1), 5906(1)(a)
a Singapore company recognizing earnings from a foreign branch only on a remittance basis could not measure its “earnings” under Singapore rules
branch earnings in non-designated country not computed under Singapore tax law until repatriated were computed under ITA rules

Principal Issues: For the purposes of determining "exempt earnings", how should the earnings from an active business of a branch of a foreign affiliate be computed for a taxation year for purposes of subsection 5907(1) of the Regulations in circumstances where the income tax law of the country in which the foreign affiliate is resident does not require that income or profit to be computed until such time as the income or profit are remitted to the foreign affiliate’s country of residence.

Position: The methodology to compute "earnings" will depend on the facts. However, the “net earnings” derived by a foreign affiliate for the year from the “earnings” from its active business carried on through a branch in a country that is not a "designated treaty country" will not be included in its “exempt earnings” for the taxation year.

Reasons: To the extent that the country of residence of a foreign affiliate does not require the income or profit from the active business of a branch of that foreign affiliate carried on in another country for a taxation year to be computed in accordance with its income tax law, the earnings from the active business of the branch of the foreign affiliate for that taxation year are to be computed under either subparagraph (a)(ii) or (iii) of the definition of earnings in the Regulations, as the case may be. Moreover, in order for the “net earnings” derived by a foreign affiliate from the “earnings” from its active business carried on through a branch to be included in its “exempt earnings” for the taxation year, the foreign affiliate must be resident in a “designated treaty country” and the active business must be carried on by it in a “designated treaty country" as outlined in subparagraph (d)(i) of the definition of "exempt earnings" in subsection 5907(1).

Technical Interpretation - Internal

27 October 2016 Internal T.I. 2015-0574851I7 - Settlement Payments Determinable After Death

Unedited CRA Tags
70(1); 70(2); 6(1)(f); 6(1)(a)

Principal Issues: 1) Where a taxpayer dies prior to obtaining a determinable right to certain settlement payments, are the amounts taxable in the hands of the deceased taxpayer? 2) On what date did the taxpayer obtain a determinable right? 3) Where settlement payments relating to amounts that would have otherwise been taxable under paragraphs 6(1)(a) or 6(1)(f) if received by the deceased taxpayer while alive are made to an estate, surviving spouse or dependents of the deceased taxpayer, are the amounts taxable in the hands of these recipients? 4) Where pre- and post-judgement interest is paid to the estate, surviving spouse or dependents of the deceased taxpayer, are the amounts taxable in the hands of these recipients?

Position: 1) No; 2) In this case, the date that the court order was issued outlining the terms of the settlement; 3) No; 4) Yes

Reasons: 1) Neither subsection 70(1) nor 70(2) apply to the deceased taxpayer. 2) This is the date upon which the court order outlining the financial implications of the settlement was approved. 3) These amounts are not a source of income to the estate, surviving spouse or dependents. 4) Interest is subject to tax by virtue of paragraph 12(1)(c).

14 March 2016 Internal T.I. 2015-0609671I7 - Earnout, Amalgamation, Cost of Shares and ECE

Unedited CRA Tags
14(5) and 87
post-amalgamation earnout payment could be applied to increase an s. 88(1)(d) bump of capital property (but not ECP) of the amalgamated target
payments made by Amalco in satisfaction of earnout obligation for acquisition of one precedessor by the other were not ECE
earnout payments an addition to cost of shares which had since disappeared
Words and Phrases
attribution of predecessor's intention to Amalco
position on interest deductibility following target amalgamation is based on policy and ITA scheme rather than technical

Principal Issues: The income tax treatment to an amalgamated corporation of earnout payments made pursuant to a share purchase agreement entered into by a predecessor corporation.

Position: The earnout payments made by the amalgamated corporation form part of the cost of the shares acquired pursuant to the share purchase agreement and as such are not eligible capital expenditure. In addition, the earnout payments are not eligible capital expenditure to the amalgamated corporation because the conditions in the preamble of subsection 14(5) are not met since such outlays were not incurred by the amalgamated corporation in respect of a business and were not incurred for the purpose of earning income from the business.

Reasons: See below.