Income Tax Severed Letters - 2017-12-20


2015 Ruling 2015-0589471R3 - Earnout

Unedited CRA Tags
12(1)(g), 55(1), 55(2), 55(3)(a)(i), 248(10)
5-year earnings based earnout for sale of Holdco common shares by Opco to key employee
Words and Phrases
safe income determination time for a subsequent contemplated dividend was immediately before that dividend
s. 85(1) rollover available on dirty s. 85 exchange
utilization of safe income as earned through a contemplated succession of dividends of all the annual earnings
transactions for using s. 7 rules on sale of non-treasury shares

Principal Issues: (1) Does the employee deal at arm's length with the vendor? (2) Does the administrative treatment in respect of earnout proceeds, described in IT-426R, apply in respect of the sale of shares by the vendor corporation to the key employee? (3) Are dividends subject to subsection 55(2)?

Position: (1) Yes, in these circumstances. (2) Yes, in these circumstances. (3) Yes, to some of the dividends.

Reasons: (1) Based on the law as applied to these facts. (2) The facts satisfy the criteria set out in paragraph 2 of IT-426R. (3) Certain dividends will be considered to reduce a capital gain and the reduction will not be attributable to safe income.

Technical Interpretation - External

11 October 2017 External T.I. 2016-0660421E5 - Foreign tax credit – former resident

Unedited CRA Tags
126(2.21), 152(4)(b) and (c), 152(4.01), 152(6)(f.1)
waivers generally cannot be used to extend the 6-year period for claiming a FTC under s. 126(2.21)
waiver cannot be used to extend period in which foreign tax must be triggered

Principal Issues: Does subparagraph 152(4)(a)(ii) of the Act allow a taxpayer to file a waiver for an emigration year for the purpose of keeping the taxation year open indefinitely to allow the taxpayer to claim a foreign tax credit under subsection 126(2.21) beyond the statutory limits imposed under paragraph 152(4)(b)?

Position: Any decision to reassess a taxpayer’s return where a waiver is filed is discretionary and dependent on the facts and circumstances of the particular taxpayer. In the situation described herein, a waiver request filed by a taxpayer to keep the emigration year open may be considered appropriate to allow a reassessment beyond the statutory reassessment period referred to in paragraph 152(4)(b) where the circumstances to support this foreign tax credit (e.g., disposition and/or foreign taxes paid) are present within this period.

Reasons: The reassessment of a return of income for the emigration year to claim a foreign tax credit under subsection 126(2.21) is restricted to the statutory period referred to in paragraph 152(4)(b). The waiver referred to in subparagraph 152(4)(a)(ii) and paragraph 152(4)(c) of the Act is not intended to keep a taxation year open indefinitely in order to claim this foreign tax credit.


14 September 2017 Roundtable, 2017-0703871C6 - CPA Alberta 2017 Q9: PHSP for owner-managers

a self-insured health care spending account (“HCSA”) for a sole employee-shareholder likely will not qualify as a private health services plan

Principal Issues: Does a plan qualify as a private health services plan when it is provided by an employer with a sole employee-shareholder?

Position: Question of fact but likely no.

Reasons: Plan may not be in the nature of insurance.

14 September 2017 Roundtable, 2017-0703881C6 - CPA Alberta 2017 Q17: Electric Vehicle Taxable Benefits

benefit from employer-provided charging station
operating expense benefit from vehicle charging station reduced by employee's related personal electricity bill
requirements for employee deduction of electricity costs for home vehicle charging station

Principal Issues: Various questions concerning employment benefits which may arise in connection with an employer-provided electric vehicle.

Position: See responses.

Reasons: See responses.

14 September 2017 Roundtable, 2017-0703901C6 - CPA Alberta 2017 Q11: Shareholder loans

Unedited CRA Tags
15(2.16)(c)(ii); 18(5)"specified right"
not a specified right where security for repayment of shareholder loan on default
excluded provision of corporate security to secure repayment of a shareholder loan

Principal Issues: Whether a "specified right" exists for the purposes of subparagraph 15(2.16)(c)(ii) where the security may only be used for repayment of the debt.

Position: No

Reasons: Contextual application of the definition "specified right" in subsection 18(5), as supported by the Department of Finance explanatory notes.

14 September 2017 Roundtable, 2017-0703921C6 - 2017 CPA Alberta Q25: Estates – Income Paid or Payable

Unedited CRA Tags
104(13), 104(24), 104(6)
IT-286R2 policy on executor’s year extends to a stub executor’s year
income of fixed-interest trust is not per se payable

Principal Issues: 1. Is a beneficiary considered to have income earned in the estate payable to him or her by virtue of their residual entitlement to the estate? 2. Would CRA's previously outlined position on the executor’s year be impacted if a portion of the executor’s year were to fall outside of the first fiscal year of the estate?

Position: 1. It depends. 2. Yes.

Reasons: 1. Question of fact and law dependent on the terms of the will and applicable laws impacting administration of the estate. 2. Question of fact and law.