Income Tax Severed Letters - 2017-01-25

Technical Interpretation - External

22 December 2016 External T.I. 2015-0608201E5 F - Capital distribution from trust & NR4

Unedited CRA Tags
212(1)(c) & 212(11) ITA, 202(1) ITR
Summary Under
Tax Topics - Income Tax Regulations - Regulation 202 - Regulation 202(1) - Regulation 202(1)(c)
all capital distributions made by Canadian-resident trusts to a non-resident beneficiaries must be reported on NR4s
Summary Under
Tax Topics - Income Tax Act - Section 212 - Subsection 212(11)
capital distributions other than of capital dividends not subject to Part XIII tax

Principal Issues: Is there any obligation for a trust resident in Canada to file forms NR4 and NR4SUM with respect to a distribution of capital to a non-resident capital beneficiary?

Position: Yes.

Reasons: Subsection 212(11) of the Act deems all such distributions to be income. Therefore subsection 202(1) of the Regulations requires such amounts to be reported, regardless of whether the amounts are taxable under Part XIII. In addition, the Minister has not waived this requirement.

19 December 2016 External T.I. 2016-0643191E5 F - Deferred Salary Leave Plan (DSLP)

Unedited CRA Tags
6801(a) of the Income Tax Regulations
Summary Under
Tax Topics - Income Tax Act - Section 5 - Subsection 5(1)
salary advance arrangement results in recognition when advances made rather than when earned
Summary Under
Tax Topics - Income Tax Act - Section 8 - Subsection 8(1) - Paragraph 8(1)(n)
deduction where “repayment” of advances made during employee leave
Summary Under
Tax Topics - Income Tax Regulations - Regulation 6801 - Paragraph 6801(a)
comprehensive discussion, including: seasonal workers cannot participate; and DSLP can be married with a salary advance arrangement

Principales Questions: 1. Does a specific Deferred Salary Leave Plan comply with paragraph 6801(a) of the Regulations?
2. Whether an employee that becomes temporarily out of work during the summer period can participate in a paragraph 6801(a) Plan?

Position Adoptée: 1. General comments and information.
2. Questions of fact. However, the fact that the employee becomes temporarily out of work during the summer period, should not, in and by itself, prohibit an employee to participate in a DSLP if at the time the arrangement is established it is clear based on the facts of the situation that the conditions of paragraph 6801(a) will be met.

Raisons: 1. Paragraph 6801(a) of the Regulations and previous positions. 2. Paragraph 6801(a) of the Regulations and previous positions.

6 December 2016 External T.I. 2015-0605971E5 - Paragraph 110(1)(d.01) deduction

Unedited CRA Tags
ITA 7(1), 7(1.31), 110(1)(d.01), 110(2.1)
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 110 - Subsection 110(2.1)
broker must immediately pay sales proceeds of the stock option shares directly to the charity
Summary Under
Tax Topics - Income Tax Act - Section 7 - Subsection 7(1.31)
s. 7(1.31) election also effective where a broker sale under s. 110(2.1)

Principal Issues: 1) Would a taxpayer be entitled to the deduction under paragraph 110(1)(d.01) by virtue of subsection 110(2.1) if he directed the approved broker or dealer to dispose of his shares which were acquired under an employee stock option agreement and donated the proceeds personally instead of directing the broker or dealer to do so?
2) Does the word “immediately” in the phrase “immediately dispose of” in the context of subsection 110(2.1) refer to both the disposition of the securities and the donation of the proceeds?
3) If the taxpayer is entitled to a deduction under paragraph 110(1)(d.01) by virtue of subsection 110(2.1), is the taxpayer required to file an election under subsection 7(1.31)?

Position: 1) No.
2) Yes, the word “immediately” in that phrase refers to both the disposition of the securities and the donation of the proceeds.
3) Depends on the circumstances.

Reasons: The wording of subsections 110(2.1) and 7(1.31).

Technical Interpretation - Internal

8 December 2016 Internal T.I. 2016-0634231I7 - Pension received from the European Union

Unedited CRA Tags
56(1)(a), 110(1)(f), 126(1), 126(3)
Summary Under
Tax Topics - Income Tax Act - Section 126 - Subsection 126(1)
EU withholding is ineligible for foreign tax credits
Words and Phrases
government

Principal Issues: Is the tax withheld on a pension amount received from the European Union eligible for the foreign tax deduction?

Position: No

Reasons: The European Union is not a government of a country and the pension amount is not employment income from the European Union; therefore, the amounts withheld on the pension amounts are not eligible for a foreign tax deduction under either subsection 126(1) or subsection 126(3) of the Income Tax Act.

25 October 2016 Internal T.I. 2016-0658241I7 - Application of 95(2)(a.1) to a capital gain

Unedited CRA Tags
95(2)(a.1), 39(1)(a), 54(1) "capital property", 95(2)(f), 95(1) "excluded property" and 95(1) "foreign accrual property income"
Summary Under
Tax Topics - Income Tax Act - Section 95 - Subsection 95(2) - Paragraph 95(2)(a.1) - Subparagraph 95(2)(a.1)(iv)
capital gains cannot constitute s. 95(2)(a.1)(iv) income

Principal Issues: Can paragraph 95(2)(a.1) apply to the disposition of an intangible which generates a capital gain?

Position: No.

Reasons: Variable B of FAPI is more specific, thus a capital gain cannot be income from a business other than an active business, which feeds into variable A of FAPI.

14 September 2016 Internal T.I. 2016-0631631I7 - Transfer pricing capital adjustment

Unedited CRA Tags
152(4); 247
Summary Under
Tax Topics - Income Tax Act - Section 247 - New - Subsection 247(2)
s. 247(2) ACB adjustment can be made in statute-barred year
Summary Under
Tax Topics - Income Tax Act - Section 247 - New - Subsection 247(3)
no statute-barring applies to initial assessments of transfer-pricing penalties
Summary Under
Tax Topics - Income Tax Act - Section 247 - New - Subsection 247(11)
s. 152(4) limits apply to additional s. 247(3) assessments

Principal Issues: 1. Whether the Minister can modify the adjusted cost base of a capital property under subsection 247(2) even if, for the acquisition year, a Part I assessment is statute-barred? 2. Whether the Minister can reassess a taxpayer so as to increase a capital gain to take into account the aforesaid adjustment for a taxation year that is not statute-barred? 3. Whether a penalty under subsection 247(3) applies for the year of disposition or for the year of acquisition? 4. Whether there is a time limit restricting the Minister’s ability to initially assess a penalty under subsection 247(3) for a particular taxation year?

Position: 1. Yes. 2. Yes. 3. The acquisition year. 4. No.

Reasons: 1. A modification to the adjusted cost base of a capital property does not necessarily lead to an assessment under Part I for the year of acquisition. 2. Subsection 247(2) contemplates an adjustment to any amount for any taxation year of the taxpayer and not just the year in which the transaction arises. 3. Textual, contextual and purposive application of the law. 4. An assessment under Part XVI.1 with respect to a penalty under subsection 247(3) is separate and distinct from an assessment under Part I.

10 August 2016 Internal T.I. 2016-0643671I7 - Deductibility of Support Amounts

Unedited CRA Tags
56.1(4), 60(b), 56(1)(b)

Principal Issues: Are certain lump-sum retroactive support amounts that are paid pursuant to a court order for a specified period prior to the date of the court order considered support amounts?

Position: Question of fact and depends if the lump-sum amount is paid pursuant to a court order that establishes a clear obligation to pay retroactive periodic maintenance.

Reasons: Paragraph 3.44 of the Folio and jurisprudence.