Income Tax Severed Letters - 2018-02-14


2017 Ruling 2017-0733441R3 - Amendment of trust terms

Unedited CRA Tags
248(1) definition of disposition

Principal Issues: Will proposed amendment to the trust indenture be so significant so as to cause a resettlement of the trust, or a disposition of a beneficiary's interest in the trust?

Position: No resettlement or disposition of beneficiary's interest.

Reasons: Minor variation - removing age restriction cap for those who can act as trustees of the trust.

Technical Interpretation - External

29 January 2018 External T.I. 2017-0713051E5 - Business limit assignment

Unedited CRA Tags
CRA generally will accept amended assignments where the limit was initially indeterminate due to different year ends

Principal Issues: In a situation where two CCPC's have different tax year ends, would the CRA accept an amended assignment under subsection 125(3.2) in order to correct the amount of the BL assignment when it is known?

Position: Likely yes.

Reasons: See below.

5 January 2018 External T.I. 2017-0697811E5 - Paragraph 212(1)(d)(vi)

Unedited CRA Tags
212(1)(d)(i) and (vi)
distributor is not required to produce goods in respect of which it pays a copyright royalty

Principal Issues: For the purposes of subparagraph 212(1)(d)(vi), does “a royalty or similar payment on or in respect of a copyright in respect of the production or reproduction of any literary, dramatic, musical or artistic work” include a payment for the right to use a copyrighted artistic work in connection with the manufacture, sale and distribution of products in Canada where the taxpayer ultimately only sells and distributes in Canada products that use that copyrighted work?

Position: Question of fact.

Reasons: Where a payor has entered into a legal agreement by which it has been granted the right to manufacture, sell and distribute products using the copyrighted property of the third party, a payment, to the extent it is a royalty or similar payment, made by the payor to the third party would be considered to be “on or in respect of a copyright in respect of the production or reproduction of any...artistic work” in subparagraph 212(1)(d)(vi) even if the payor does not manufacture any products using the copyrighted property itself.

Technical Interpretation - Internal

22 January 2018 Internal T.I. 2017-0727421I7 - Whether a TFSA account may be subject to setoff

Unedited CRA Tags
a set-off right of an issuer of a TFSA violated the exclusive holder benefit rule
most express rights of set-off put the TFSA offside

Principal Issues: Whether certain rights for an issuer as part of an arrangement can qualify under the conditions in subsection 146.2(2) such that the arrangement can be a TFSA.

Position: No.

Reasons: The rights in the particular arrangement cause the account to be maintained other than for the "exclusive benefit" of the holder and provide rights as to amount and timing of distributions to someone other than the issuer or the holder.

16 August 2017 Internal T.I. 2015-0622751I7 - Part XIII Tax on Benefit to Non-resident

Unedited CRA Tags
15(1), 15(9), 80.4(2), 214(3)(a), 212(2), 215(1), 160(1), 160(2), 227.1(1), 227(10.1)
s. 15(9) applies to interest-free loan between two foreign affiliates
use of s. 160 to collect s. 15(9) liability of indirect FA on dividends paid to Canco
CFA liable for failure to "withhold" and remit Pt XIII tax on interest-free benefit on loan to NR sister of its Cdn grandparent
s. 227.1 liability can extend to NR directors of a CFA
benefit from interest free loan by CFA to Canco sister deemed to be a dividend subject to Pt XIII tax
extra-territorial application of s. 80.4(2)

Principal Issues: (1) Where subsection 80.4(2) applies to a non-resident person receiving a non-interest bearing loan from another non-resident person, whether the non-resident debtor is liable to tax under subsection 212(2) and whether the non-resident creditor has the obligation under subsection 215(1) to withhold and remit the tax. (2) If the non-resident creditor fails to withhold and remit the tax under subsection 215(1), whether there is a provision under the Act that would allow the Minister to assess one of the corporations resident in Canada for such tax.

Position: (1) The non-resident debtor is liable to tax under subsection 212(2) and the non-resident creditor is obligated under subsection 215(1) to withhold and remit the tax. (2) If certain conditions are satisfied, the Minister may be able to assess Canco under subsection 160(2) in respect of an amount payable by Canco under subsection 160(1).

Reasons: (1) The scheme of the Act and the application of all relevant provisions based on a textual, contextual, and purposive approach of statutory interpretation. (2) Subsection 160(1) can apply to cascading transfers of property.