Income Tax Severed Letters - 2017-11-01

Ruling

2016 Ruling 2015-0569561R3 - Split-up butterfly

Unedited CRA Tags
55(2), 55(3.1)

Principal Issues: Whether the proposed split-up butterfly transactions described in the Ruling meet legislative and administrative requirements.

Position: Transactions meet requirements.

Reasons: Consistent with law and administrative requirements.

Technical Interpretation - External

14 September 2017 External T.I. 2017-0685121E5 F - Associated corporations

Unedited CRA Tags
256(2), 125, 125(5.1)
Summary Under
Tax Topics - Income Tax Act - Section 256 - Subsection 256(1.2) - Paragraph 256(1.2)(f) - Subparagraph 256(1.2)(f)(ii)
Childco associated with Parent-controlled corp whose non-voting equity is held by family trust
Summary Under
Tax Topics - Income Tax Act - Section 256 - Subsection 256(2) - Paragraph 256(2)(b) - Subparagraph 256(2)(b)(ii)
election under s. 256(2)(b)(ii) busts s. 256(2)(a) transitivity but not association with 3rd corporation
Summary Under
Tax Topics - Income Tax Act - Section 125 - Subsection 125(5.1)
making s. 256(2)(b)(ii) election, by eliminating s. 256(2)(a) transitivity, reduces the reduction for taxable capital employed in Canada

Principales Questions: Whether in a factual situation the four corporations would be associated with each other.

Position Adoptée: Yes. However, some corporations may be disassociated for the purposes of the Act if an election is made under subparagraph 256(2)(b)(ii) by the "third corporation".

Raisons: See below.

18 August 2017 External T.I. 2016-0672931E5 - Election

Unedited CRA Tags
7(3)(b), 110(1)(d), 110(1.1)
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 110 - Subsection 110(1.1)
s. 110(1.1) election is available even if, absent the election, no employer deduction would be claimable

Principal Issues: Whether the mechanism in subsection 110(1.1) is available in a situation where paragraph 7(3)(b) already applies to deny the employer a deduction for the stock option expense, and thus there is no deduction for the employer to “give up” as contemplated by subsection 110(1.1)?

Position: Yes

Reasons: There is nothing in subsection 110(1.1) that restricts its application to situations in which the employer is otherwise entitled to a deduction.

12 May 2016 External T.I. 2016-0641771E5 - Income Tax Refund

Unedited CRA Tags
164(1), 164(1.5) and 164(7)

Principal Issues: Treatment of an income tax refund.

Position: Not a source of income.

Reasons: The law.

21 April 2016 External T.I. 2015-0607451E5 F - Use of capital of a trust by a spouse

Unedited CRA Tags
73(1.01)c)(ii)
Summary Under
Tax Topics - Income Tax Act - Section 73 - Subsection 73(1.01) - Paragraph 73(1.01)(c) - Subparagraph 73(1.01)(c)(ii)
occupation of trust property (a residence) by individual’s spouse does not breach the capital-use requirement "under" the trust

Principal Issues: Does the fact that the spouse of the settlor/beneficiary of a trust inhabit the principal residence of the trust taint the trust for the purpose of subparagraph 73(1.01)(c)(ii)?

Position: Question of law and fact. However, if the terms of the trust satisfies the conditions of subparagraph 73(1.01)(c)(ii), the fact that the settlor/beneficiary of the trust permits his/her spouse after the transfer to continue to inhabit the principal residence with him or her will not in and by itself taint the trust.

Reasons: The use of the principal residence of a trust by the spouse of the settlor is granted by the settlor/beneficiary not under the trust.

Technical Interpretation - Internal

9 May 2016 Internal T.I. 2016-0638461I7 - Vehicle provided to subcontractor

Unedited CRA Tags
6(1); 9(1); 15(1); 56(2); 246(1)
Summary Under
Tax Topics - Income Tax Act - Section 9 - Computation of Profit
the value of a free automobile to be included in s. 9 income should reflect what the recipient would normally charge for its services

Principal Issues: In a situation where a corporation provides the use of an automobile to an incorporated consultant who is a PSB, how is the benefit reported to the PSB?

Position: Question of fact, likely section 9.

Reasons: See below.