Income Tax Severed Letters - 2017-08-09


2016 Ruling 2015-0617351R3 - payments under a German profit transfer agrmt “PTA"

Unedited CRA Tags
90(2); 53(1)(c)
double PTA transferring profits from German grandchild to German parent CFA
survivor merger of two German CFAs

Principal Issues: 1. Are upstream payments under a PTA in the given fact pattern deemed to be dividends under subsection 90(2) and would they be treated accordingly for surplus computation purposes? 2. Are downstream payments under a PTA in the given fact pattern considered capital contributions for purposes of paragraph 53(1)(c) and would they be treated accordingly for purposes of computing “earnings” or “loss” of the relevant foreign affiliate?

Position: 1.Yes.2.Yes.

Reasons: Legislation

2013 Ruling 2012-0459781R3 - Cross border butterfly

Unedited CRA Tags
55(3)(b); 55(3.1); 55(3.2); 85(1)(e)(i)
cross-border butterfly reversing previous amalgamation and using 4-party exchange
PUC grind where shares issued in 4-party exchange

Principal Issues: Whether transaction meets legislative and administrative requirements.

Position: Transaction meets requirements.

Reasons: Consistent with law and administrative positions.

Ministerial Correspondence

12 July 2017 Ministerial Correspondence 2017-0691771M4 - Deductibility of foreign online advertising

Unedited CRA Tags
19; 19.01 & 19.1

Principal Issues: Is foreign online advertising deductible?

Position: Generally, foreign online advertising is deductible.

Technical Interpretation - External

12 May 2017 External T.I. 2017-0683511E5 F - Purpose tests of a dividend or repurchase of share

Unedited CRA Tags
55(2.1); 55(3)(a); 245(2)
redeeming common shares otherwise than out of safe income may be GAARable
using s. 55(3)(a) to distribute cash otherwise than from safe income likely abusive
use of s. 55(3)(a) redemption exception to circumvent safe income limitation could be offensive

Principales Questions: 1. A cash dividend would be paid to Holdco. Holdco would use the cash to purchase a building. Holdco would lease the building to Opco. What is the purpose of the dividend?
2. If Opco repurchases 99.99% of the shares of the capital stock of Opco held by Holdco instead of paying a dividend, would paragraph 55(3)(a) apply with respect to the deemed dividend considering that the cash paid to Holdco in consideration of the repurchase is not supported by safe income and considering that the ACB of the shares repurchased is nominal?

Position Adoptée: 1. General comments.
2. We would have to analyze the potential application of subsection 245(2). This could be an abusive situation considering the purpose of subsections 55(2), 55(3) and 112(1). The CRA could find abusive a situation where cash is distributed to Holdco in consideration for the repurchase or redemption of shares of the capital stock of Opco (even if the cash was owned by Opco at the beginning of the series) if the cash does not come from income taxed in Opco.

Raisons: 1. Question of fact.
2. The offensive situations when a redemption or repurchase of shares is implemented are not limited to those mentioned in Question 11 of the 2015 CTF CRA Round Table. Another example would be where the repurchase and redemption of shares of the capital stock of a corporation is paid with assets owned by the dividend payer at the beginning of the series that includes the redemption and these assets do not come from a source of income that was taxed or that would be taxed as a result of the distribution as consideration for the shares redeemed or repurchased.

5 May 2017 External T.I. 2016-0668351E5 - Travel Accident Insurance Plans

Unedited CRA Tags
6(1)(a); 6(1)(a)(i); 6(1)(e.1); 6(1)(f)

Principal Issues: Whether a benefit in respect of employer-paid premiums for a particular component of an insurance plan that provides lump-sum payments is included in an employee’s income?

Position: Question of fact.

Reasons: See response.