Income Tax Severed Letters - 2018-02-21


2017 Ruling 2016-0670971R3 - Repayments of upstream loans and series test

Unedited CRA Tags
90(6), 90(8)(a), 90(9)(a)(i)(D)(I), 90(14), 15(2), 15(2.11) and 15(2.6).
subsequent intercorporate loans and discharges were not part of “series of loans or other transactions and repayments”
loan repayment not part of a prohibited series
automatic loan renewals did not entail the making of new loans

Principal Issues: Application of paragraph 90(8)(a) and subsection 90(14) to repayments of upstream loans in a certain fact pattern.

Position: The repayments would qualify under either 90(8)(a) or 90(14), as the case may be.

Reasons: The repayments are not part of a series of loans or other transactions and repayments.

Technical Interpretation - External

7 February 2018 External T.I. 2017-0706401E5 - Specified corporate income, streaming of expenses

Unedited CRA Tags

Principal Issues: Whether streaming expenses can be used to circumvent the SCI rules.

Position: Likely not.

Reasons: See below.

31 January 2018 External T.I. 2016-0676431E5 - foreign tax credit on employees profit sharing

Unedited CRA Tags
144(8.1); 126(1); 126(7); 20(11); 20(12); 6(1)(d)
$200 basket for NBIT for which country-by-country reporting is not required includes flow-through EPSP taxes
no s. 20(11) deduction for foreign taxes respecting EPSP income allocated to beneficiary
no s. 20(12) deduction to EPSP beneficiary

Principal Issues: 1. Are foreign taxes allocated from an employees profit sharing plan to an individual on a T4PS limited to 15% for foreign tax credit purposes? 2. If yes, is the excess foreign tax deductible from income by the individual?

Position: 1. Effectively, yes; 2. No.

Reasons: 1. Operation of the law due to the language “(except such portion of that tax as was deductible under subsection 20(11) of the Act in computing its income for the year)” in 144(8.1)(b) of the Act. 2. No provision of the Act deems any portion (or all) of the foreign NBIT paid by the EPSP and allocated to an employee beneficiary to have been paid by the employee for the purposes of subsection 20(11) or 20(12) of the Act.

30 January 2018 External T.I. 2017-0717401E5 - Fishing Licences

Unedited CRA Tags
73(3), 73(3.1), 73(4), (4.1), 110.6(1), 110.6(1.3), 70(9), 70(9.01), 70(9.2), 70(9.21), 70(9.8), 70(10)

Principal Issues: Can fishing licences be considered as QFFP as defined in subsection 110.6(1)? Can they be eligible for the “on death” and inter vivos rollovers in sections 70 and 73, respectively?

Position: General comments provided but yes provided required conditions are met.

Reasons: Question of fact.

29 January 2018 External T.I. 2017-0682301E5 - Deemed Distribution and Withdrawal from IRA

Unedited CRA Tags
56(1)(a)(i)(C.1), 56(12), 110(1)(f)(i), 126(1), 126(7)
the deemed U.S. income inclusion from an IRA on renouncing U.S. citizenship or relinquishing a green card also is recognized for ITA purposes
deemed Code taxability of IRA on renouncing U.S. citizenship generally would generate an FTC to deemed Cdn-resident recipient
deemed ITA inclusion on deemed distribution from IRA on renouncing U.S. citizenship or relinquishing green card

Principal Issues: 1. Whether a taxpayer, who takes up Canadian residency and subsequently relinquishes his/her green card, is required to report on his/her Canadian tax return an amount deemed distributed to the taxpayer from an IRA account pursuant to the U.S. expatriation rules, and if yes, whether he/she is entitled to claim a foreign tax credit in respect of the U.S. tax paid on the deemed distribution. 2. Whether the taxpayer is required to report on his/her Canadian tax return an amount subsequently withdrawn from his/her IRA account after relinquishing the green card, and if yes, whether the taxpayer is entitled to a deduction in respect of that amount under subparagraph 110(1)(f)(i) of the Act.

Position: 1. The amount deemed distributed from the IRA account would be included in computing the income of the taxpayer under clause 56(1)(a)(i)(C.1). The U.S. tax paid on that amount would factor into the computation of a foreign tax credit under subsection 126(1), assuming all the conditions in that subsection were satisfied. 2. Assuming the amount subsequently withdrawn from the IRA account did not exceed the amount of the previous deemed distribution, the withdrawn amount would not be included in computing the taxpayer’s income in Canada under clause 56(1)(a)(i)(C.1)

Reasons: 1. Pursuant to subsection 56(12), the deemed distribution from the IRA account under the U.S. expatriation rules would be deemed received by the taxpayer as a payment out of the IRA for the purpose of paragraph 56(1)(a). The U.S. tax paid on the deemed distribution would qualify as “non-business-income tax” within the meaning of subsection 126(7). 2. Clause 56(1)(a)(i)(C.1) does not apply to an amount to the extent the amount would not be subject to income taxation in the U.S. if the taxpayer were resident in the U.S.

15 January 2018 External T.I. 2017-0722961E5 - Winding-up of a partnership

Unedited CRA Tags
85(2); 85(3); 98(5)
amalgamation of a former partner with a former partnership subsidiary within 3 months of the partnership wind-up ousts s. 98(5)

Principal Issues: After the transfer of the business assets of a partnership in favour of a new corporation using the rules provided for in subsection 85(2), whether subsection 98(5) could apply with respect to those business assets in a situation where a former member of the partnership amalgamates with the new corporation within three months of the winding-up of the partnership.

Position: Subsection 98(5) would not apply with respect to the business assets that were transferred to the new corporation pursuant to subsection 85(2).

Reasons: The corporate entity formed as a result of the amalgamation would not be a member of the partnership immediately before the partnership has ceased to exist.