Income Tax Severed Letters - 2017-04-19

Ruling

2016 Ruling 2015-0602831R3 F - Post-Mortem Planning

Unedited CRA Tags
84.1(1), 84(2), 245(2)

Principales Questions: Post-mortem pipeline planning.

Position Adoptée: Favourable rulings provided.

Raisons: Meets the requirements of the law.

Technical Interpretation - External

14 March 2017 External T.I. 2016-0627311E5 F - Deduction of contribution to an IPP or RCA

Unedited CRA Tags
18(1)(a), 18(1)(o.2) 20(1)(r), 20(1)(q), 67, 147.2(1), 147.2(2), 248(1) retirement compensation arrangement, salary deferral arrangement. 8300(1), 8504(1), Reg.
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Salary Deferral Arrangement
a mooted RCA providing supplementary pension benefits must be similar to the IPP which it supplements
Summary Under
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(q)
non-deductibility if supplementary benefits do not merely proportionately top-up IPP benefits

Principales Questions: 1) Does the fact that the actuary of a retirement compensation arrangement (RCA) uses the same years of service of an employee to calculate the employer's contribution as the actuary of an Individual Pension Plan (IPP), make the employer's contribution to the IPP and the RCA unreasonable and not deductible from the income of the employer?
2) Would the answer to question 1) be the same if the employee is also a shareholder of the employer or a person who does not deal at arm's length with the shareholder?

Position Adoptée: 1) The use of the same years of service of an employee for the calculation of the contribution to an RCA does not, in and of itself, make the employer's contribution to the IPP unreasonable. As for the RCA, the first question would be whether the plan is a valid RCA rather than a salary deferral arrangement. General comments provided. 2) Yes.

Raisons: 1) Application of the definition and various dispositions regarding IPP and RCA as well as previous positions. 2) Same reasons as in reasons 1.

13 March 2017 External T.I. 2016-0626641E5 F - Election - Subsection 1101(5b.1) Reg.

Unedited CRA Tags
1100(1)a.1), 1100(1)a.2), 1101(5b.1), 1102(23)
Summary Under
Tax Topics - Income Tax Regulations - Regulation 1101 - Subsection 1101(5b.1)
only one Reg. 1101(5b.1) election is required where work on an addition to a non-residential building extends over more than one year
Summary Under
Tax Topics - Income Tax Regulations - Regulation 1102 - Subsection 1102(23)
further work on an addition does not fall into a separate class

Principales Questions: 1) Scenario 1: In a situation where two separate additions are made in two consecutive taxation years to a building included in class 1 that is not an eligible non-residential building, as defined in subsection 1104(2), would the capital cost of the two additions be included in one separate class pursuant to subsection 1101(5b.1)?
2) Scenario 2: In a situation where one addition is made over the course of two consecutive taxation years, would our position be different? 3) Whether a letter for the election pursuant to subsection 1101(5b.1) should be attached to the return of income of the taxpayer for each taxation year? 4) Whether the answers to the preceding questions would be the same if paragraph 1100(1)(a.2) applies instead of paragraph 1100(1)(a.1)?

Position Adoptée: 1) No if the second addition is an addition to the building. 2) Yes, the capital cost of the addition would be included in one separate class. 3) In Scenario 1, a letter for the election under subsection 1101(5b.1) would need to be provided for each taxation year. However in Scenario 2, a letter for the election under subsection 1101(5b.1) is only needed for the first taxation year. 4) Yes.

Raisons: 1) The second addition would be deemed to be a separate building under subsection 1102(23) since the second addition is made to a building that is not included in a separate class under subsection 1101(5b.1). 2) The capital cost of the addition to the building at the end of the first taxation year would be deemed to be a separate building under subsection 1102(23) since the addition is made to a building that is not included in a separate class under subsection 1101(5b.1). The capital cost incurred in the second year would not be deemed to be a separate building under subsection 1102(23) since it is part of the same addition which is included in a separate class under subsection 1101(5b.1). 3) Wording of subsections 1102(23) and 1101(5b.1). 4) Wording of paragraphs 1100(1)(a.1) and 1100(1)(a.2). The provision of subsection 1101(5b.1) apply to both paragraphs 1101(1)(a.1) and 1101(1)(a.2).

17 February 2017 External T.I. 2015-0602781E5 - Disposition of farm property by a non-resident

Unedited CRA Tags
73(4); 73(4.1); 115; 116
Summary Under
Tax Topics - Income Tax Act - Section 116 - Subsection 116(4)
CRA may accept a T2062 showing deemed s. 73(4.1) rollover proceeds
Summary Under
Tax Topics - Treaties - Income Tax Conventions - Article 13
shares of Cdn farm are excluded from immovable property under Canada-Germany Treaty
Summary Under
Tax Topics - Income Tax Act - Section 116 - Subsection 116(6.1)
failure to file notice within 30 days

Principal Issues: Non-resident’s obligations under section 116 in respect of disposition of shares of family farm corporation to which subsection 73(4.1) applies.

Position: Subsection 116(5.1) applies for purposes of notifying CRA of the disposition and subsection 73(4.1) applies for purposes of calculating the taxable income earned in Canada. Administrative relief may be given, on a case-by-case basis. In the scenario presented, if the purchaser provides notification under subsection 116(5.02), the non-resident vendor has no obligation under subsection 116(3) because the shares would be excluded property.

Reasons: Application of law, and Canada-Germany treaty.

Technical Interpretation - Internal

23 November 2016 Internal T.I. 2015-0618511I7 - Thin Capitalization - Retained Earnings

Unedited CRA Tags
18(4), 18(5), 248(24)
Summary Under
Tax Topics - Income Tax Act - Section 18 - Subsection 18(5) - Equity Amount - Paragraph (a) - Subparagraph (a)(i)
unconsolidated balance sheet must reflect the same accounting standards applied in the consolidated financials
Summary Under
Tax Topics - General Concepts - Accounting Principles
consistency between unconsoidated and consolidated financials

Principal Issues: 1. Whether a taxpayer can adopt accounting standards in the unconsolidated financial statements prepared for the purpose of filing the taxpayer’s tax returns that are different from the consolidated financial statements prepared by the taxpayer for the financial reporting purposes. 2. Whether partnership income reported by the taxpayer under subsection 96(1) of the Act can be added to the accounting retained earnings when determining the “equity amount” for thin capitalization purposes.

Position: 1. No. 2. No.

Reasons: 1. The accounting standards must be applied consistently between the consolidated and unconsolidated financial statements. 2. The Act does not permit a taxpayer to add the amount included in a taxpayer's income under subsection 96(1) to the retained earnings for thin capitalization purposes.