Income Tax Severed Letters - 2017-06-07


2015 Ruling 2014-0546131R3 F - SAR-type Plan

Unedited CRA Tags
phantom stock plan for a Canadian wholly-owned subsidiary of a non-resident company

Principales Questions: Whether two particular stock appreciation rights plans based on EBITDA are SDAs?

Position Adoptée: No.

Raisons: The plans respect our prior positions regarding SARs as it is reasonable to conclude that the rights are granted in respect of future services and none of the main purposes for the creation or existence of the rights is to postpone tax.

Technical Interpretation - External

15 May 2017 External T.I. 2015-0580461E5 F - Life insurance policy held in an RCA trust

Unedited CRA Tags
205.7(2); 207.5(3)
s. 207.7(2) refund might be generated where an RCA trust distributes a life insurance policy to its employee beneficiary
holding of life insurance policy could entail RCA strip

Principales Questions: 1) Whether a custodian of a Retirement Compensation Arrangement ("RCA") trust can make the subsection 207.5(2) election after distributing the life insurance policy to its beneficiary and there is no property held by the RCA trust at the end of the year? 2) Whether the custodian of an RCA trust is required to withhold tax on the transfer of a life insurance policy to the RCA beneficiary?

Position Adoptée: 1) Question of fact but maybe. 2) Yes.

Raisons: 1) Subject to subsection 207.5(3), the subsection 207.5(2) election would be available in the situation where the only property held by the trust consists of its right to claim a refund under subsection 164(1) or 207.7(1). If any part of a decline in value of the property of the RCA is reasonably attributable to a prohibited investment or to an advantage, subsection 207.5(3) could apply unless the Minister is satisfied that it is just and equitable to allow the subsection 207.5(2) election to be made. In the case of an RCA wind-up, the Minister may accept the election and adjust the amount deemed by subsection 207.5(2) to be the refundable tax to take into account all or part of the decline in value of the subject property.
2) Paragraph 153(1)(q) indicates that every person paying an amount as a distribution out of or under and RCA shall deduct or withhold from the payment an amount in accordance with prescribed rules. Pursuant to paragraph (b.1) of the definition of “remuneration” in subsection 100(1) of the Regulations, an amount of a distribution out or under an RCA is remuneration. A distribution out or under an RCA includes the transfer of a property to the beneficiary of an RCA trust.

22 February 2017 External T.I. 2015-0609071E5 - Mortgage incentive

Unedited CRA Tags
3(a), 9(1), 12(1)(c), 12(1)(x)

Principal Issues: Where a credit union offers a savings account with a mortgage incentive, is the incentive applied by the credit union towards a down payment on the mortgage taxable to the member?

Position: Question of fact. General comments provided.

Reasons: If the incentive does not constitute interest, it might nevertheless be taxable under subsection 9(1) or paragraph 12(1)(x) if the member receives it in the course of earning income from a business or property.


13 February 2017 Roundtable, 2017-0684491C6 - CPA-BC & CRA Roundtable 2017

Principal Issues: Whether the CRA will re-introduce a dedicated phone line for tax professionals.

Position: The CRA’s Income Tax Rulings Directorate will introduce a new dedicated telephone service (DTS) for income tax service providers in July of 2017. The DTS will give service providers access to experienced CRA staff who can help with more complex issues than those typically dealt with by staff under the general enquiries service.

Reasons: Introduction of the DTS is in response to action plan commitments following Red Tape Reduction consultations.

Technical Interpretation - Internal

13 February 2017 Internal T.I. 2015-0568011I7 - Classification of Florida LLLP

Unedited CRA Tags
Florida real estate LLLPs were corporations (subject to transitional relief)
Florida LLLPs found to be corporations

Principal Issues: Whether two particular LLLPs governed by the laws of Florida would be considered to be corporations or partnerships for the purposes of the Act?

Position: Corporations.

Reasons: The provisions of the foreign legislation and other relevant documents in respect of the Florida LLLPs support the conclusion that these entities should be considered to be corporations for the purposes of the Act. However, based on administrative concessions under development, consideration should be given to maintaining the partnership treatment of the entities for the relevant taxation years, as per the filings made by the taxpayers.

21 November 2016 Internal T.I. 2016-0641961I7 F - DSU Plan

potential change-of-control redemption trigger (and Code s. 409A triggers) were offside
recognition in income of full value of deferred units issued under offside plan

Principales Questions: (1) Would a DSU plan providing for the redemption of units in the event of the termination of the plan upon a change in control of the employer or the termination of the plan upon a change in control consistent with the provisions of section 409A of the Internal Revenue Code comply with the requirements of paragraph 6801(d) of the Income Tax Regulations? (2) If not, to which taxation years will the salary deferral arrangement rules apply? (3) Would the grandfather rule provided in 2015-0610801C6 apply to the current situation?

Position Adoptée: (1) No. (2) All amounts deferred in accordance with the plan, including dividend equivalents and all other additional amounts that accrued to, or for the benefit of the participants, will be included in the computation of income of the participants in the earliest non-statute-barred taxation year following the year in which the income should have been included based on subsection 6(11). (3) No.

Raisons: (1) The timing of payments further to the termination of the plan upon a change in control of the employer can be earlier than the time of the participant’s death, retirement or factual loss of office or employment required under paragraph 6801(d) of the Income Tax Regulations. (2) The Plan never qualified under paragraph 6801(d) of the Income Tax regulations. (3) The DSU plan does not respect the provisions of paragraph 6801(d) as it provides for the redemption of units in the event of the termination of the plan upon a change in control of the employer. Since this distribution event allows us to conclude that the Plan does not meet the requirements of paragraph 6801(d), it is our view that the grandfather rule established in document 2015-0610801C6 does not find application.