Income Tax Severed Letters - 2017-04-05

Ruling

2016 Ruling 2015-0624611R3 - Capital Dividend Account

Unedited CRA Tags
89(1), 83(2), 83(2.1)
Summary Under
Tax Topics - Income Tax Act - Section 89 - Subsection 89(1) - Capital Dividend Account - Paragraph (d)
proceeds of predecessor’s policy added to Amalco’s CDA when received
Summary Under
Tax Topics - Income Tax Act - Section 83 - Subsection 83(2.1)
transactions to rectify an overlooked life insurance policy of an amalgamated target

Principal Issues: (1) Whether the CDA balance of Amalco will include proceed from an insurance policy payable to a predecessor corporation? At the time of the disposition of the shares of the predecessor corporation the vendor believed that such policy had been cancelled. (2) Whether the purpose test found in subsection 83(2.1) is met?

Position: (1) Yes. (2) No.

Reasons: Wording of the Act.

Technical Interpretation - External

20 March 2017 External T.I. 2014-0545591E5 - Upstream Loan and Debt Forgiveness Rules

Unedited CRA Tags
78(1), 80(1), 90(6), 90(9), 90(12), 90(14)
Summary Under
Tax Topics - Income Tax Act - Section 90 - Subsection 90(9)
potential indefinite application of surplus where upstream loan forgiven after FA sale
Summary Under
Tax Topics - Income Tax Act - Section 80 - Subsection 80(1) - Excluded Obligation - Paragraph (a)
s. 80 non-application where s. 90(6) applies to forgiven loan even if offsetting surplus deduction
Summary Under
Tax Topics - Income Tax Act - Section 90 - Subsection 90(14)
debt forgiveness not a repayment
Words and Phrases
repayment

Principal Issues: (1) Whether the upstream loan from a foreign affiliate to its Canadian parent company can be considered to have been repaid in the described situation. (2) Whether both the upstream loan rules and the debt forgiveness rules apply in the described situation to result in tax consequences to the Canadian company.

Position: (1) No. (2) No.

Reasons: (1) Our interpretation of “repayment” in subsection 90(14). (2) The application of the upstream loan rules will depend on the relevant tax attributes. The debt forgiveness rules will not apply if the loan is considered an “excluded obligation”.

3 March 2017 External T.I. 2016-0651661E5 - Payments to Syrian refugees by a church

Unedited CRA Tags
56(1)(u), 110(1)(f)

Principal Issues: What is the income tax treatment of payments made by a church to a Syrian refugee family?

Position: Depends on whether the payment is social assistance and is made on the basis of a means, needs or income test and whether any of the reporting requirement exceptions in regulation 233(2) are met.

Reasons: 56(1)(u) and Regulations 233(1) and 233(2).

1 March 2017 External T.I. 2016-0658431E5 - Article XIII of Canada-U.S. Convention

Unedited CRA Tags
248(1); Paragraph 3 of Article XIII of the Canada-U.S. Tax Convention
Summary Under
Tax Topics - Treaties - Income Tax Conventions - Article 13
test of a real property security under the Canada-U.S. Treaty is a point-in-time test
Words and Phrases
derived
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Taxable Canadian Property - Paragraph (d)
derived principally test done on look-through basis

Principal Issues: Whether shares in a corporation or an interest in a trust are considered to derive their value principally from real property situated in Canada for purposes of Article XIII(3)(b) of the Canada - United States Tax Convention, where at the time of the disposition of the shares or the interest, respectively, the corporation or the trust only hold cash proceeds from the disposition of real property previously held by the corporation or the trust.

Position: No.

Reasons: The shares or the interest would not be considered to derive their value principally from real property for purposes of the Treaty if no real property is held by the corporation or the trust at the time of the disposition.

4 January 2017 External T.I. 2016-0640281E5 - UK pension transfer to XXXXXXXXXX PPS

Unedited CRA Tags
56(1)(a), 60(j)(i)

Principal Issues: 1. What are the tax consequences where a Canadian resident taxpayer transfers property from a UK pension to a personal pension scheme (PPS) in XXXXXXXXXX? 2. How will payments from a XXXXXXXXXX PPS to a Canadian resident be taxed?

Position: 1. No provision in ITA permitting a tax deferred transfer from a UK pension to a XXXXXXXXXX PPS. 2. Question of fact, which will depend on whether the XXXXXXXXXX PPS is structured as a trust, insured or deposit type arrangement.

Reasons: Provided general information as we do not have the documentation required to determine what type of arrangement the XXXXXXXXXX PPS is.

Technical Interpretation - Internal

11 September 2015 Internal T.I. 2015-0586301I7 - Premiums received on re-opening of debt

Unedited CRA Tags
20(1)(c), 14(5)
Summary Under
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c)
denied interest expense where a premium was received on extending notes’ maturity
Summary Under
Tax Topics - Income Tax Act - Section 14 - Subsection 14(5) - Cumulative Eligible Capital - Variable E
premium received on note re-opening subject to eligible capital amount treatment if not otherwise taxable

Principal Issues: 1. Will the premium received on the re-opening of debt affect the interest deduction for the purposes of paragraph 20(1)(c)? 2. Can such premiums constitute eligible capital amounts?

Position: 1. In these circumstances, yes. The stipulated interest rate on the debt was in excess of a reasonable amount. The interest deduction should be reduced over the life of the debt with reference to the amount of the premium. 2. Yes, subject to the exclusions provided for in variable E, (a)(i)-(iii) and (b).

Reasons: 1. The premium was paid in exchange for a higher rate of interest, which served to adjust the overall yield to reflect the market yield offered on similar instruments. 2. The 2006 amendments to variable E in the definition of CEC removed the requirements for a disposition and mirror image test.