Income Tax Severed Letters - 2017-05-03

Ministerial Correspondence

6 March 2017 Ministerial Correspondence 2017-0683491M4 - Advance rulings (income Tax and GST/HST)

Principal Issues: Information on advance rulings

Position: General information provided

Technical Interpretation - External

31 March 2017 External T.I. 2014-0555081E5 - Offshore Investment Fund Property

Unedited CRA Tags
94.1, 128.1, Reg. 6900

Principal Issues: Whether a portfolio of foreign mutual funds inherited by a non-resident person would become subject to an income inclusion under subsection 94.1(1) after the non-resident immigrates to Canada?

Position: No.

Reasons: Deemed reacquisition of the funds upon the immigration of the non-resident person pursuant to subsection 128.1(1) of the Act will not preclude the funds from continuing to qualify as prescribed offshore investment fund property.

2 March 2017 External T.I. 2016-0633981E5 - Retained Earnings and Functional Currency Election

Unedited CRA Tags
Subsections 261(1), 261(5), 261(7), section 9(1), paragraph 18(1)(a)
Summary Under
Tax Topics - Income Tax Act - Section 261 - Subsection 261(7) - Paragraph 261(7)(h)
no gain or loss recognized on election/retained earnings not converted

Principal Issues: (1) Should the retained earnings balance of the taxpayer’s last Canadian currency year be translated to the taxpayer’s functional currency in the taxpayer’s first functional currency year? (2) Is there a loss or gain on the translation of any of the taxpayer's amounts on a functional currency election?

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

Reasons: (1) Subsection 261(7) does not apply to Canco’s retained earnings balance because it is not relevant in computing the taxpayer’s income. (2) There is no loss or gain on the conversion because the conversion is made using the relevant spot rate on the day of the conversion.

16 January 2017 External T.I. 2016-0655701E5 - Article 5(3) - Demolition

Unedited CRA Tags
Article 5(3) of the OECD Model Treaty
Summary Under
Tax Topics - Treaties - Income Tax Conventions - Article 5
decommissioning work is of the type covered by the construction PE Article/aggregation of subcontracts to exceed 12 months

Principal Issues: 1. Whether a “building site or construction or installation project” exists at a location where a structure is being dismantled or decommissioned, rather than being built, constructed or installed? 2. Whether the twelve month test in Article 5(3) of the Model Treaty applies to the fact pattern presented?

Position: 1. Yes. 2. Depends on the facts.

Reasons: 1. Due to the nature of the activities and other relevant factors, a “building site or construction or installation project” can include a site where a structure is being demolished rather than being created. 2. Two contracts may be considered a single unit if they form a coherent whole commercially and geographically but this can only be determined on a case by case basis after reviewing all relevant information.

11 October 2016 External T.I. 2016-0653451E5 - Subsection 55(2) and Part IV tax

Unedited CRA Tags
55(2), 129(1), 129(3), 186

Principal Issues: 1. Does the Part IV tax exception to 55(2) apply when the Part IV tax is refunded as a consequence of a payment of a dividend to an individual? 2. If subsection 55(2) applies because the Part IV tax is refunded, could an election be made on a portion of the taxable dividend that generated the refund of Part IV tax to be a capital dividend, giving retroactive effect to the application of subsection 55(2)?

Position: 1. No. Subsection 55(2) applies when the Part IV tax is refunded as a consequence of payment of dividend by the corporation. It does not matter who receives the dividend paid by the corporation. 2. No. For subsection 55(2) to apply, Part IV tax has to be actually paid on the dividend received and a dividend refund has to be actually obtained. Subsection 55(2) requires, instead of negating, the prior application of sections 186 and 129. A payment of capital dividend and consequently a reduction of taxable dividend paid by the recipient corporation would not trigger a full refund of Part IV tax, resulting in a circular calculation. Full effect has to be given to the application of Part IV tax and the refund of such Part IV tax before the application of subsection 55(2). No capital dividend can therefore be paid before all taxable dividends are paid to generate a full refund of the Part IV tax paid for subsection 55(2) to be fully applicable to the dividend received.

Reasons: See above. This position is also supported by Ottawa Air Cargo Centre Ltd v. The Queen (2007 D.T.C. 661).

Technical Interpretation - Internal

27 April 2017 Internal T.I. 2017-0684831I7 - Changes to relevant spot rate

Unedited CRA Tags
261(1) "relevant spot rate", 261(2)(b), 261(5)(c)
Summary Under
Tax Topics - Income Tax Act - Section 261 - Subsection 261(1) - Relevant Spot Rate
consistent use of Bloomberg, Thomson Reuters or OANDA FX spot rates generally is acceptable
Summary Under
Tax Topics - Income Tax Act - Section 261 - Subsection 261(7)
must use Bank of Canada rate on conversion

Principal Issues: International and Large Business and Investigations Branch guidelines on the circumstances in which an exchange rate other than the Bank of Canada daily rate will be accepted by the Minister as the “relevant spot rate”.

Position: See document.

Reasons: This document is intended to publicize the administrative position of the CRA in this regard.

21 December 2016 Internal T.I. 2013-0508321I7 - Pension Corporations - 149(1)(o.2)(iii)

Unedited CRA Tags
149(1)(o.2)
Summary Under
Tax Topics - Income Tax Act - Section 149 - Subsection 149(1) - Paragraph 149(1)(o.2) - Subparagraph 149(1)(o.2)(iii)
not generally precluded by the permitted investment rule from putting more than 10% of its assets in a single investment
Summary Under
Tax Topics - Income Tax Act - Section 149 - Subsection 149(1) - Paragraph 149(1)(o.2) - Subparagraph 149(1)(o.2)(ii) - Clause 149(1)(o.2)(ii)(B)
10% PBSA limitation applied only at pension fund level

Principal Issues: Does the 10% quantitative limit applicable for the PBSA and provincial pension benefits legislation apply at the level of a pension plan or pension corporation for purposes of the preamble in 149(1)(o.2)(iii)?

Position: The 10% quantitative limit is to be applied in a manner that is consistent with the PBSA and provincial pension benefits legislation.

Reasons: We have confirmed the intent and purpose of the preamble to 149(1)(o.2)(iii) with the Department of Finance.

5 December 2016 Internal T.I. 2016-0641721I7 - Subparagraph 152(4)(b)(iv) reassessment

Unedited CRA Tags
110.5; 126(1); 126(2); 152(4)(b)(iv), 111(8)

Principal Issues: Whether subparagraph 152(4)(b)(iv) of the Income Tax Act (the “Act”) permits an assessment or reassessment of a corporate taxpayer for a taxation year to be made within the three-year period after the normal reassessment period in the context of the addition to taxable income under section 110.5 of the Act and a foreign tax credit available under subsection 126(1) or (2) of the Act.

Position: An assessment or reassessment may be considered within the three-year period after the normal reassessment period in certain circumstances.

Reasons: An assessment or reassessment to claim a foreign tax credit for a taxation year would be considered one made as a consequence of a payment (or reimbursement) of foreign taxes within the three-year period after the normal reassessment period under subparagraph 152(4)(b)(iv) of the Act. Where the corporate taxpayer was unable to utilize any foreign tax credit for the taxation year, an addition to taxable income for the taxation year under section 110.5, if applicable, may also be considered as a consequence to the payment (or reimbursement) of foreign taxes.