Income Tax Severed Letters - 2018-04-11

Principales Questions: Whether the failure to file a T4A for professional services rendered to a corporation would lead to the application of penalties?

Position Adoptée: Yes.

Raisons: The administrative relief provided since 2010 is an interim measure related to a change on the T4A of the box where these amounts should be indicated and not one relieving from the obligation of payers from filing T4A slips for services rendered. The fact that an invoice with a valid tax number is issued does not relieve the payer from the obligation to file a T4A.

Principal Issues: Subsection 88(2) applies in the course of a winding-up of a Canadian corporation (to which subsection 88(1) does not apply) when, at a particular time in the course of the winding-up, all or substantially all of the property of the corporation is distributed to its shareholders. Where the corporation is, by virtue of subsection 84(2), deemed to have paid at the particular time the winding-up dividend, paragraph 88(2)(b) provides, inter alia, that for the purposes of an election pursuant to subsection 83(2), the portion of the winding-up dividend that does not exceed the corporation’s CDA balance immediately before the particular time is deemed to be a separate dividend. An election under subsection 83(2) must be filed in prescribed form by the earlier of the day on which the dividend becomes payable and the first day on which any part of the dividend is paid. In a particular situation, all the assets of the corporation ("Holdco") being wound-up would consist of portfolio investments (or any other asset the fair market value of which fluctuates over time). As such, it would be impossible to file form T2054 on time as the fair market value of Holdco's property distributed to its shareholders as well as Holdco's CDC balance, could not be established before the time limit referred to in subsection 83(2). Whether there would be any relief in this situation. If not, is there any administrative procedure available?

Position: Where, in a context similar to the above and the winding-up dividend is in excess of the CDA, the balance of the CDA as assessed by the CRA differs from the amount computed by the corporation at the time of the election under subsection 83(2) in respect of the separate dividend, the CRA will adjust the amount of the separate dividend and Form T2054 to reflect the balance assessed. To facilitate the CRA’s processing under these circumstances, the directors of the corporation should draft their resolutions with such wording as to clearly indicate that the deemed separate capital dividend for which Form T2054 is filed corresponds to a portion of the winding-up dividend to which subsection 88(2) applies.

Reasons: The Law and CRA’s administrative practice.

Principal Issues: Can services which do not meet the 183 days test in any twelve month period be deemed to be provided through a permanent establishment (PE) if the enterprise had a services PE for the same project in the past?

Position: Generally, no.

Reasons: Based on the wording of Art. V(9)b) of the Canada-U.S. Tax Treaty, only the services that are provided during any twelve month period, in which the 183 days test is met, should be deemed to be provided through a permanent establishment.

Principales Questions: Is there a reporting obligation with respect to amounts paid or credited by a person resident in Canada to a non-resident person, if the amount is not subject to withholding under Part XIII ITA?

Position Adoptée: Yes.

Raisons: The reporting requirement under 202(1) ITR is independent from the withholding requirement under Part XIII or XIII.2 ITA. Where a resident of Canada pays or credits, or is so deemed, to a non-resident person on account or in lieu of payment of, or in satisfaction of, any amount described in 202(1) ITR, there is a requirement to file an information return (i.e. NR4) even though the amount paid was not subject to withholding under Part XIII or XIII.2 ITA.

Principal Issues: 1. If a corporation had an excessive capital dividend and made an election to treat the excess as a taxable dividend to the shareholders, when will the taxable dividend be considered to have been received where the capital dividend is still unpaid?
2. Is there a prescription with respect to a capital dividend?
3. If there is an excessive capital dividend but Part III tax cannot be reassessed because it is prescribed, will 184(3) apply?

Position: 1. The shareholders will be considered to have received the taxable dividend at the time the original dividend became payable. Therefore, if the dividend was payable at the time of the excess, the shareholder would be taxed at that time even though they had not received the dividend payment at that time.
2. There is no statute-barred period with respect to the capital dividend account. With respect to the capital dividend election and Part III, subsection 185(1) provides that the Minister shall, with all due dispatch, examine each election made by a corporation in accordance with subsection 83(2), assess the tax, if any, payable under Part III in respect of the election and send a notice of assessment to the corporation. According to subsection 185(3), subsection 152(4) is applicable to Part III with such modifications as the circumstances require. Therefore, if there is no misrepresentation attributable to neglect, carelessness or wilful default or any fraud and if there is no waiver filed with the Minister, the Minister could not reassess Part III after the normal reassessment period. This normal reassessment period would be determined considering the date of the Part III original assessment with respect to this election.
3. No.

Reasons: 1. Wording of the Act.
2. Wording of the Act.
3. A corporation may elect to treat excess as separate dividend pursuant to subsection 184(3) only if it is required to pay a tax under Part III in respect of the excess.

Principales Questions: Est-ce que l’ARC peut confirmer que les dépenses pour assister à un congrès dans le but de gagner du revenu d’entreprise ne sont pas assujetties à la limite des deux congrès? / Can the CRA confirm that expenses for attending a convention for the purpose of earning business income are not subject to the limits of two conventions?

Position Adoptée: Lorsqu’un contribuable a notamment engagé ou effectué des dépenses relatives à un congrès en vue de tirer un revenu de l’entreprise et que ces dépenses ne sont pas des dépenses en capital, ces dépenses pourraient être déductibles dans le calcul de son revenu d’entreprise sans égard au paragraphe 20(10). / Among other things, where a taxpayer has made or incurred convention expenses for the purpose of gaining or producing income from the business and such expenses are not capital outlays, such expenditures may be deductible in computing his or her income without reference to subsection 20(10).

Raisons: Le libellé de la Loi / The wording of the Act.

Principales Questions: Implications of a transfer of property from a discretionary trust to a Canadian corporation wholly owned by a new discretionary trust.

Position Adoptée: CRA will typically apply GAAR in this situation.

Raisons: The transactions described circumvent the application of subsection 104(5.8), paragraph 104(4)(b) and the Act as a whole.

Principales Questions:
À l’aide d’un exemple, on demande principalement à l’ARC:
1) est-ce que la terre ainsi que la résidence sont un seul bien aux fins de la déduction pour gains en capital agricole à l’article 110.6 lorsqu’elles sont situés sur le même lot?
2) si oui, est-ce que ce bien est considéré utilisé principalement dans le cadre de l’exploitation d’une entreprise agricole?

Using an example, CRA is mainly asked:
1) Are the land and the dwelling a single property for the purposes of the capital gains exemption for qualified farm property under section 110.6 when located on the same lot?
2) if yes, is this property considered to be used principally in the course of carrying on a farming business?

Position Adoptée:
1) L’ARC est d’avis qu’un immeuble visé à l’alinéa a) de l’expression « bien agricole ou de pêche admissible » au paragraphe 110.6(1) ou les « biens » visés à la définition de l’expression « société de personnes dont une participation est une participation dans une société de personnes agricole ou de pêche familiale » au paragraphe 110.6(1) comprend le bâtiment et le terrain où est situé le bâtiment et qu’ils sont un seul et même bien.
2) L’ARC est d’avis que le critère du bien utilisé « principalement » dans le cadre de l’exploitation d’une entreprise agricole est respecté si plus de 50 % du bien est effectivement utilisé pour cette exploitation.

(1) The CRA is of the opinion that an immovable referred to in paragraph (a) of the expression "qualified farm or fishing property" in subsection 110.6 (1) or "property" in the definition of "interest in a family farm or fishing partnership" in subsection 110.6 (1) includes the building and land on which the building is situated and that they are one and the same property.
2) The CRA is of the view that the test of an asset being used “principally” in the business of farming is met where more than 50% of the asset’s use is in the business of farming.

Raisons:
1) Positions antérieures.
2) Libellé de la Loi.

Principales Questions: Update on the CRA's Dedicated Telephone Service ("DTS") for income tax service providers.

Position Adoptée: The DTS was introduced in July 2017 in order to assist people in the business of preparing income tax returns by providing access to experienced CRA staff who can help with more complex technical issues. Under the DTS pilot project, registration is open to small accounting practitioners in Ontario, Quebec, New-Brunswick and Manitoba. Registrations will continue to be accepted under the pilot project on a first-come, first-served basis until 3,000 participants are registered.

Raisons: Introduction of the DTS will provide those in the business of preparing income tax returns greater access to experienced CRA staff and CRA information to the benefit of the many clients they serve.

Principales Questions: Where the annuitant of an unmatured RRSP dies without having withdrawn over-contributions he made to the RRSP in the preceding year, whether the deceased annuitant's legal representative may claim a subsection 146(8.2) deduction against the amount included in the deceased annuitant's income pursuant to subsections 146(8) and (8.8)?

Position Adoptée: Generally, yes, provided that all the other conditions are satisfied.

Raisons: Although subsection 146(8.2) requires, inter alia, that the annuitant receives a payment from an RRSP, the CRA generally accepts that an amount deemed received as a benefit out of or under an RRSP pursuant to subsection 146(8.8) be considered as a payment received from an RRSP for the purposes of subsection 146(8.2).

Principales Questions: 1) Does subsection 146.3(14) permit a tax free transfer from an individual's RRIF to his/her spouse’s RRSP or RRIF, from whom the individual was separated but not divorced, in settlement of rights arising out of their marriage, where the individual dies before the transfer is made?
2) In such a situation, could the deceased annuitant's legal representative and the spouse jointly elect that the amounts paid out of the RRIF to the legal representative qualified as a "designated benefit"?
3) If so, could the rollover treatment apply to the designated benefit?

Position Adoptée: 1) No. 2) Yes. 3) Possibly, up to the eligible amount, if the spouse contributes an equal amount to an RRSP, a RRIF, a PRPP or to acquire a qualifying annuity of which she would be the annuitant.

Raisons: 1) Subsection 146.3(14) does not apply after the death of the transferor annuitant.
2) Had the amounts being paid directly out of the RRIF to the spouse, and had the RRIF been an unmatured RRSP, the amounts would have been a refund of premiums because they would have been paid as a consequence of the death of the annuitant, considering paragraph 248(23.1)(a). It follows that the amounts would meet subparagraph (a)(i) of the definition of "designated benefit" in subsection 146.3(1).
3) Wording of subsections 146.3(6), (6.1), (6.11), (6.2) and paragraph 60(l).

Principales Questions: 1- Est-ce qu’une somme d’argent en monnaie étrangère inscrite dans le compte d’un particulier auprès d’une institution financière est une immobilisation au sens de la définition prévue à l’article 54 et est-elle assujettie, en l’absence du paragraphe 39(1.1), au paragraphe 39(1)? /Is an amount of money in a foreign currency registered in an individual’s account of a financial institution a capital property as defined in section 54 and subject to subsection 39(1) in the absence of subsection 39(1.1)? 2- Si oui, est-ce que les paragraphes 70(5), 70(6) et 73(1) pourraient s'appliquer, le cas échéant? /If so, would subsections 70(5), 70(6) and 73(1) apply ?

Position Adoptée: 1-Le paragraphe 39(1.1) ne s'appliquerait pas puisque le particulier ne détiendrait pas un bien qui est une monnaie étrangère mais plutôt une créance. Une créance peut, selon les faits, constituer ou non une immobilisation. S’il est établi que la créance est une immobilisation, tout gain ou perte attribuable à la fluctuation de la valeur de la monnaie serait visé au paragraphe 39(1) lors de sa disposition ou de sa disposition réputée./ Subsection 39(1.1) would not apply because the individual would not hold a property that is a foreign currency; he would rather hold a debt. A debt may, depending on the facts, constitute or not a capital property. If it is determined that the debt is a capital property, any gain or loss attributable to fluctuation in the value of the currency would be subject to subsection 39(1) at the time of its disposition or deemed disposition 2- Si la créance est une immobilisation, les paragraphes 70(5), 70(6) et 73(1) L.I.R. pourraient s’appliquer lorsque toutes les conditions énumérées à ces paragraphes sont satisfaites./ If the debt is a capital property, subsections 70(5), 70(6) and 73(1) could apply where all the conditions listed in those subsections are met.

Raisons: 1- Selon le libellé de la Loi et la jurisprudence./ According to the wording of the Act and the jurisprudence. 2- Libellé de la Loi./ Wording of the Act.

Principal Issues: 1. Application of loss denial rules to a foreign exchange loss realized on the payment of a loan owing to an affiliated person.
2. Application of loss denial rules to a foreign exchange loss realized on the payment of a loan owing to an affiliated person where that loan is replaced by another loan from the affiliated person with different terms and conditions.

Position: 1. Subparagraph 40(2)(g)(i) and paragraphs 40(3.3) and (3.4) do not apply.
2. Subparagraph 40(2)(g)(i) and paragraphs 40(3.3) and (3.4) do not apply.

Reasons: 1. Previous position. Loss arises by virtue of the payment of the loan since the loss does not arise from the disposition of a particular property by the debtor that is, or is identical to, property acquired by the creditor. The loan is a liability of the debtor and, as such is not property of the debtor. Consequently, the repayment of the loan does not, in itself, result in a disposition of property by the debtor. In addition, although subsection 39(2) deems the loss realized on the payment of the loan to be a capital loss from the disposition of a currency of a country other than Canada, this provision does not deem the creditor to acquire the foreign currency deemed to be disposed under this provision.
2. In such a situation, a debtor would receive foreign cash by way of a new loan owed to the same affiliated person. The question is whether such foreign cash would be identical property to the cash the debtor is deemed to have disposed of pursuant to subsection 39(2). For the purposes of subparagraph 40(2)(g)(i) and paragraphs 40(3.3) and (3.4) when determining whether the debtor has acquired an identical property when the new foreign cash is received by virtue of the new loan, we have taken the position that such foreign cash would not be an identical property in similar circumstances where a taxpayer has sustained a loss under subsection 39(2).