Income Tax Severed Letters - 2018-01-03


2016 Ruling 2016-0673141R3 - Loss consolidation involving interco loans

Unedited CRA Tags
245; 20(1)(c); 112

Principal Issues: Whether profitcos could deduct interest paid on a loan from a related lossco where the proceeds of such loans were used to acquire preferred shares.

Position: Yes.

Reasons: Conforms to our requirements for these types of loss consolidations.

Technical Interpretation - External

9 November 2017 External T.I. 2017-0704221E5 - Capital Dividend Account

Unedited CRA Tags
83(2.1), 83(2.2), 83(2.3), 83(2.4)
s. 83(2.1) does not apply to deny capital dividends sourced from life insurance proceeds

Principal Issues: In a particular acquisition of shares of a corporation from an estate, whether subsection 83(2.1) would apply to recharacterize the capital dividend as a taxable dividend.

Position: In the scenario submitted, subsection 83(2.1) would probably not apply. However, depending on the facts of a series of transactions, subsection 245(2) could apply.

Reasons: Technical application of provisions.

3 November 2017 External T.I. 2017-0729751E5 - WADA employees filing requirement

Unedited CRA Tags
s. 110(1)(f)(iv) and Reg 8900(2)(c)

Principal Issues: Filing requirements for WADA employees.

Position: See below.

Reasons: See below.

30 August 2017 External T.I. 2017-0718311E5 F - Capital dividend account

Unedited CRA Tags
83(2); 83(3); 89(1)
a late s. 83(3) election causes a retroactive increase to the CDA of the corporate recipient of the dividend
late capital dividend election retroactively affects CDA of dividend recipient

Principales Questions: Where a corporation makes a late filed election pursuant to subsection 83(3) with respect to a dividend payable and paid at a particular time, whether the dividend will be added to the capital dividend account of the corporate shareholder at the time the dividend was paid.

Position Adoptée: Yes.

Raisons: Subsection 83(3) deems the election to have been made at the time the dividend has become payable or on the first day on which any part of the dividend was paid, whichever is the earlier. Therefore, the conditions of subsection 83(2) would be met and the dividend received would not be included in computing the income of the corporate shareholder pursuant to subsection 83(2). In our view, the addition to the capital dividend account of the corporate shareholder for such a dividend would be done at the time of the receipt of the dividend.

14 August 2017 External T.I. 2017-0717801E5 - Employees of World Anti-Doping Agency

Unedited CRA Tags
s. 110(1)(f)(iv) and Reg 8900(2)(c)

Principal Issues: Whether employees of the World Anti-Doping agency are entitled to a tax deduction.

Position: Yes, if they meet the conditions set out in s. 110(1)(f)(iv).

Reasons: The World Anti-Doping Agency was added to Reg 8900(2) in 2003, effective for 2001 and subsequent years.

Technical Interpretation - Internal

29 May 2017 Internal T.I. 2017-0689161I7 - Paragraph 18(9.1)(a) - paying debt with new debt

Unedited CRA Tags
early cash redemption premium paid on one series of debt not respecting substitution by a new series with substantially different investors

Principal Issues: Where a taxpayer borrows money from an arm's length party to pay in full or satisfy completely a pre-existing debt owing to another arm's length party and also pays a prepayment penalty to the latter creditor, will the exclusion in 18(9.1)(a) of the Act apply?

Position: No.

Reasons: A prepayment penalty paid to former creditors may not reasonably be considered to have been paid to them in respect of the substitution of a debt obligation where new and different creditors are providing the substituted debt.