Income Tax Severed Letters - 2018-03-14


2017 Ruling 2016-0625301R3 - Merger of two related segregated fund trusts

Unedited CRA Tags
107.4(1); 107.4(2); 107.4(3) and 138.1(1)
merger of two segregated funds held by the same insurer would occur on a s. 107.4 rollover basis
reallocation by insurer of securities held for one segregated fund to being held for the second segregated fund effected their transfer to the second fund viewed as a deemed trust

Principal Issues: Will the transfer of properties of one related segregated fund trust of the taxpayer to another related segregated fund trust of the taxpayer be a "qualifying disposition" pursuant to subsection 107.4(1)?

Position: In this case it will be.

Reasons: The underlying properties of the two funds are such that, in this case, the requirements to have the application rule in subsection 107.4(2) apply will be met, for the purpose of meeting the requirement in paragraph 107.4(1)(a).

2017 Ruling 2016-0675861R3 F - Post-mortem planning - Pipeline

Unedited CRA Tags
84.1, 84(2), 245(2)

Principales Questions: Post-mortem planning.

Position Adoptée: Favourable rulings provided.

Raisons: Previous positions.

Technical Interpretation - External

21 February 2018 External T.I. 2017-0702061E5 - RCA contributions and taxable inc earned in Canada

Unedited CRA Tags
2(3), 3, 4(1)(b), 6(1)(a)(ii), 8(1)(m.2), 115(1)(a)(i), 248(1)
s. 6(1)(a)(ii) exclusion for employer RCA contributions was effectively allocated between Cdn and US employment income of an athlete
no deduction permitted where plan provided only for a lump sum payment or where it was excluded from SDA treatment by para. (j) (re athletes)
s. 6(1)(a)(i) exclusion applied first before s. 4 allocation of income between Canada and U.S.

Principal Issues: 1. Whether employer RCA contributions can be deducted from a non-resident’s employment income allocated to Canada in determining their taxable income earned in Canada under subsection 115(1). 2. Whether employee RCA contributions are deductible under 8(1)(m.2) where the only payment provided for under the terms of the plan is a single lump sum or where the plan is an athlete’s salary deferral plan.

Position: 1. No. 2. No.

Reasons: 1. Employer RCA contributions are excluded from the calculation of employment income by virtue of subparagraph 6(1)(a)(ii) and therefore never enter into the calculation of taxable income earned in Canada. 2. The condition that the RCA be a pension plan is not met in either case.

18 December 2017 External T.I. 2017-0714971E5 F - Application of subsection 55(2)

Unedited CRA Tags
55(2); 129; 161(1); Part IV tax
relationship between Part IV tax and s. 55(2) and related amended return filings
s. 55(2) application does not reduce s. 186(1)(b) initially reported Pt IV tax

Principal Issues: 1. What would be the tax results from the application of subsection 55(2) in the examples provided considering the filing of an original return and of an amended return?
2. According to our position, an original return should be sent that includes the Part IV tax payable and the dividend refund to be received. After that filing, an amended return should be filed to compute taxes considering the application of subsection 55(2). The question is whether the amended return should be sent before or after the issuance of the original assessment.
3. Considering the fact that a corporation has to file an original return and an amended return reflecting the consequences of the application of subsection 55(2), is it possible to avoid interest on the higher amount of tax computed in the amended return?

Position: 1. Considering the assumptions given, the dividend refund and Part I and Part IV taxes, see the different results in the letter.
2. The important thing when filing the original return is that it shows that Part IV tax will be paid and the dividend refund will be received with respect to the dividend paid in the same series. However, there is no provision in the Act indicating when an amended return should be filed. Filing the amended return after the filing of the first assessment may be preferable administratively to avoid confusion.
3. Yes.

Reasons: 1. The results would be based on the fact that the portion of the dividend subject to tax under Part IV that is not refunded as a consequence of the payment of a dividend by a corporation in the same series is equal to the amount of Part IV tax computed less the dividend refund, which amount is divided by 0.383333.
2. No legislative provision and administrative process.
3. The corporation could pay the higher amount of tax computed in the amended return at the balance-due date to be applied in the particular taxation year as an advance deposit prepaying the reassessment.

Technical Interpretation - Internal

24 October 2017 Internal T.I. 2017-0719531I7 - Section 22 election and carrying on a business

Unedited CRA Tags
22, 87
s. 22 election was available to an Amalco despite its receivables not being deemed to have been includible in its income
failure of s. 87()2)(g) to deem continuity for s. 22 purposes not fatal

Principal Issues: Where a predecessor corporation uses assets in a business that it carries on and the assets are sold shortly after by an entity resulting from a corporate amalgamation, will the seller and purchaser benefit from the application of section 22 where an election was filed?

Position: Although some conditions of application of section 22 are not technically met, we recommend accepting the election that was filed by the seller and purchaser.

Reasons: The facts (particularly the fact that there was no disruption or change in the business) and the context and purpose of section 22 when read in conjunction with section 87 support extending the benefit of section 22 to the seller and purchasers.