Income Tax Severed Letters - 2018-04-11

Conference

6 October 2017 APFF Roundtable Q. 1, 2017-0708971C6 F - Inactive Corporations & subs. 162(7) ITA

Unedited CRA Tags
150(1)(a)(i)(A), 162(1), 162(7)
no penalty imposed where failure to file a nil T2 return
requirement for Canco to file nil T2 returns, but no penalty

Principales Questions: a) Whether inactive corporations resident in Canada have an obligation to file an income tax return? b) Whether CRA applies the 162(7) ITA penalty if such a corporation fails to file its income tax return?

Position Adoptée: a) yes; b) generally no.

Raisons: a) Wording of the Act; b) Administrative policy.

6 October 2017 APFF Roundtable Q. 2, 2017-0709001C6 F - T4A filing obligation

Unedited CRA Tags
153(1)(g), 162(7); Regulation 200(1)
"temporary" policy for not applying penalties for failure to issue T4As to independent contractors
penalty applicable but not necessarily applied for failure to complete fee box

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.

6 October 2017 APFF Roundtable Q. 3, 2017-0709011C6 F - Désignation d’un bien comme résidence principale

an individual accessing the “+1” rule on a principal residence disposition need not complete Form 2091
no loss of bonus year if standard designation
no loss of bonus year if standard designation

Principales Questions: Diverses préoccupations résultant du changement administratif quant à l’exigence en matière de déclaration de la vente d’un bien qu’un individu désigne comme résidence principale. / Various concerns related to the administrative change to the CRA’s reporting requirement for the sale of a property designated as a principal residence.

Position Adoptée: a) Lorsqu’un particulier vend l’unique résidence principale qu’il détient (maison A) et qu’il acquiert une nouvelle résidence principale au cours de la même année (maison B), l’ARC est d’avis qu’il pourrait cocher la case 1 pour désigner la maison A comme étant sa résidence principale pour toutes les années (ou pour toutes les années moins un an). Dans cette situation, l’ARC n’exigera pas qu’il remplisse le formulaire T2091 avec sa déclaration de revenus pour l’année. Dans les autres situations, l’ARC est d’avis que le particulier devrait cocher la case 2 ou la case 3 selon ce qui s’applique à sa situation. Le particulier devrait également produire le formulaire T2091 avec sa déclaration de revenus. b) Le particulier devrait conserver une copie écrite de sa décision pour consultation future, surtout pour quand il vendra la maison B ou un autre bien qui qualifiera comme sa résidence principale, selon le cas. / a) When an individual sells his only principal residence (property A) and acquires a new principal residence in the same year (property B), the CRA is of the view that he could tick box 1 at line 179 on page 2 of Schedule 3 to designate property A as his principal residence for all years (or for all years except one year). In such a case, the CRA will not require Form T2091 to be completed with his or her income tax return. In other situations, the CRA is of the view that the individual should tick box 2 or box 3 according to his situation. The individual must also file Form T2091 with his or her income tax return. b) The individual should keep his decision in writing for future reference, especially when he or she sells property B or other property that qualifies as a principal residence, depending on the case.

Raisons: Cette position est mentionnée sur la page Web du Gouvernement du Canada intitulée « Vente de votre résidence principale ». / This position is listed on the Government of Canada Web page titled "Sale of your principal residence".

6 October 2017 APFF Roundtable Q. 4, 2017-0709021C6 F - CDA and Winding-up of a corporation

Unedited CRA Tags
83(2), 84(2), 88(2)
CRA will accommodate a s. 88(2)(b)(i) capital dividend election based on an estimated CDA balance

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.

6 October 2017 APFF Roundtable Q. 5, 2017-0709031C6 F - T2054 - Short Cut Method

Unedited CRA Tags
184(2), 183(3), 83(2)
the “short-cut method” for short-circuiting a Pt III assessment is “generally" available

Principal Issues: Whether the CRA generally accepts the "Short Cut Method" as described in document 2011-0412071C6.

Position: The Short Cut Method is an administrative practice and is currently accepted by the CRA as an alternative to the legislatively sanctioned 184(3) election provided for in the Income Tax Act. However, the CRA determines whether the circumstances of a specific case warrants the usage of the Short Cut Method and it is up to the discretion of the officer processing the excessive election to decide if the Short Cut Method is appropriate in a situation.

Reasons: Method described in Complex SERS Manual of the T2 Processing and Assessing Programs Section, Business Returns Directorate, Assessment, Benefit and Service Branch. Method to the benefit of both the CRA and the taxpayer.

6 October 2017 APFF Roundtable Q. 6, 2017-0709041C6 F - Services PE

Unedited CRA Tags
Art. V(9)b) of the Canada-U.S. Tax Treaty
there can be a services PE in Canada during the tail end of a project which ends in the first few months of a calendar year

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.

6 October 2017 APFF Roundtable Q. 7, 2017-0709051C6 F - Dédommagement-annulation d'une offre d'achat

Unedited CRA Tags
248(1) "bien" et "disposition"
damages for breach of a purchaser's covenant were proceeds of a capital property
if damages relate to a particular asset of a business that was not disposed of, they will reduce the asset’s cost

Principales Questions: Est-ce que l’ARC accepterait de considérer l’application de la position énoncée au paragraphe 9 du bulletin d’interprétation IT-365R2 dans la situation soumise dans l’interprétation technique 2016-0652851C6?/ Would the CRA be willing to consider the application of the position in paragraph 9 of Interpretation Bulletin IT-365R2 in the situation described in technical interpretation 2016-0652851C6?

Position Adoptée: Non./ No.

Raisons: La position énoncée au paragraphe 9 du bulletin d’interprétation IT-365R2 devrait s'appliquer dans les circonstances limitées pour lesquelles elle a été envisagée./ The position set out in paragraph 9 of Interpretation Bulletin IT-365R2 should be applied in the limited circumstances in which it was contemplated.

6 October 2017 APFF Roundtable Q. 8, 2017-0719491C6 F - Production of NR4 forms

Unedited CRA Tags
212 & 220(2.1) ITA; 202 ITR
CRA requires NR4 reporting of withholding-exempt amounts

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.

6 October 2017 APFF Roundtable Q. 9, 2017-0709071C6 F - Corporate Attribution Rules

Unedited CRA Tags
74.4(2), 74.5(5)
a second freeze transaction by a family trust could be viewed as an indirect transfer by the original freezor
unborn children and spouse not designated persons re freezer trust

Principal Issues: Opco is a CCPC, a TCC but is not a SBC. Mr. A holds all of the issued and outstanding preferred shares and voting shares of the capital stock of Opco, all of which were issued many years ago as part of an estate freeze in favour of Initial Trust. Initial Trust holds all of the issued and outstanding common non-voting shares of the capital-stock of Opco. Initial Trust is a personal trust. The trustees of Initial Trust are M. A, Mr. B and Mr. C. Mr. B is the brother of Mr. A. Mr. C is dealing at arm’s length with both Mr. A and Mr. B. The beneficiaries of Initial Trust are Mr. A, Mr. A’s adult children and Mr. A’s spouse. As part of the implementation of a new estate freeze, Initial Trust exchanges its common non-voting shares of the capital stock of Opco for preferred shares of the capital-stock of Opco. New Trust subscribes for new common non-voting shares of the capital stock of Opco. The trustees of New Trust are Mr. A, Mr. B and Mr. D. Mr. D is dealing at arm’s length with both Mr. A and Mr. B. The beneficiaries of New Trust are, Mr. A, Mr. A’s adult children, Mr. A’s unborn grandchildren, Mr. A’s spouse and any corporation controlled by any of those beneficiaries other than a corporation in which New Trust has a direct or indirect interest. New Trust is a personal trust. The conditions set out in subsection 74.4(4) are not met in the particular situation. Whether Mr. A’s spouse is a designated person in respect of Initial Trust pursuant to subsection 74.5(5).

Position: No. However, Mr. A’s spouse is a designated person in respect of Mr. A. As such, subsection 74.4(2) could apply to the transfer of property on the freeze or Mr. A’s interest in Opco if one of the main purposes of the transfer may reasonably be considered to be to reduce the income of M. A, and to benefit his spouse (the “Main Purpose Test”). Subsection 74.4(2) could also apply to the transfer of property on the freeze of Initial Trust’s interest in Opco if it is established the transfer was indirectly done by Mr. A by means of Initial Trust and if the Main Purpose Test is met. Subsection 74.4(2) could also potentially apply with respect to Initial Trust’s freeze as a Mr. A’s minor grandchild could be a designated person in respect of Initial Trust.

Reasons: According to the law and previous positions.

6 October 2017 APFF Roundtable Q. 10, 2017-0709081C6 F - Election to treat excess as separate dividend

Unedited CRA Tags
83(2); 184(3); 185(1); 185(3)
elected-upon amount is retroactively deemed as income even if it is still unpaid
normal reassessment period starts running from date of Pt III assessment

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.

6 October 2017 APFF Roundtable Q. 11, 2017-0709091C6 F - Transitional rules - Class 14.1

Unedited CRA Tags
13(38); 96(1)
s. 13(38)(d)(iii) transitional election is irrelevant to ECP dispositions by a calendar-year partnership

Principal Issues: In a situation where a partnership disposed of eligible capital property in its taxation year ending on December 31, 2016, would the corporate partners, which have a taxation year ending in March 2017, have to elect pursuant to subparagraph 13(38)(d)(iii) to have that subparagraph apply with respect to the disposition of the eligible capital property by the partnership.

Position: No.

Reasons: With respect to the income of the partnership, its income is computed as if the partnership were a separate person resident in Canada pursuant to paragraph 96(1)(a). The tax consequences of the disposition of eligible capital property is part of the computation of income which will be done at the partnership level. Such income will then be allocated to the partners to the extent of their share pursuant to paragraph 96(1)(f).

6 October 2017 APFF Roundtable Q. 12, 2017-0709111C6 F - Dépenses relatives à un congrès

Unedited CRA Tags
20(10); 18(1)b)
non-capital convention expenses incurred as business expense may be deducted without refererence to s. 20(10) - but “historically” convention expenses viewed as capital expenditures

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.

6 October 2017 APFF Roundtable Q. 13, 2017-0709061C6 F - Calcul des frais pour droit d'usage

Unedited CRA Tags
6(2), 6(1)e), 248(28)
s. 6(2) standby charge based on leasing cost to the employer rather than the automobile’s cost to an affiliated purchaser

Principales Questions: 1-L’ARC peut-elle préciser si, aux fins du paragraphe 6(2), Opco doit utiliser le coût de location qu’elle paie à Gesco aux fins du calcul du droit d’usage pour l’automobile ou bien si elle doit utiliser le coût de l’automobile pour Gesco?/Can the CRA specify whether, for the purposes of the standby charge calculation in subsection 6(2), Opco should use the leasing cost amount paid to Gesco for an automobile or the cost of the automobile paid by Gesco?

Position Adoptée: 1- Dans une situation où une location et un achat sont en cause, selon le libellé du paragraphe 6(2), le coût de l'automobile et le coût de location de l'automobile doivent à la fois être utilisés pour calculer les frais raisonnables pour droit d'usage. Dans certaines circonstances, la formule énoncée au paragraphe 6(2) peut donner un résultat inattendu. Le ministre des Finances a été informé de cette situation. Dans des situations spécifiques, l’ARC a conclu que les frais raisonnables pour droit d’usage devaient être calculés en fonction du coût de l'automobile ou des frais de location de la personne qui a mis l’automobile à la disposition de l’employé. Dans l'exemple soumis, l'ARC pourrait considérer uniquement le coût de location pour Opco aux fins de la formule au paragraphe 6(2)./ According to the wording of subsection 6(2), the cost and the leasing cost amount of the automobile must both be used to calculate a reasonable standby charge in a situation involving the lease and the purchase of an automobile. In some circumstances, the formula in subsection 6(2) could provide an unexpected result. The Minister of Finance has been informed of this issue. In specific situations, the CRA has concluded that the reasonable standby charge should be calculated on the basis of the cost of the automobile or the leasing cost amount of the person who made an automobile available to the employee. In the example submitted, the CRA could consider only the leasing cost amount of the automobile for Opco for the purposes of the formula in subsection 6(2).

Raisons: 1- Libellé de la Loi /Wording of the Act.

6 October 2017 APFF Roundtable Q. 14, 2017-0720321C6 F - GAAR & 21-year rule planning

Unedited CRA Tags
104(4), 104(5.8), 107(2), 245
Act does not contemplate any deferral beyond 21 years while property is directly in a discretionary trust or through a Canco

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.

6 October 2017 APFF Roundtable Q. 15, 2017-0709141C6 F - Designation pursuant to paragraph 111(4)(e)

Unedited CRA Tags
111(4); 251.2(2); Class 14.1
appreciated goodwill is now eligible for the s. 111(4)(e) step-up

Principal Issues: Since January 1, 2017, whether a corporation may, pursuant to paragraph 111(4)(e), designate goodwill that was a property of the taxpayer immediately before the corporation is subject to a loss restriction event.

Position: Yes.

Reasons: Since January 1, 2017, goodwill is a depreciable property of class 14.1 and therefore, it is a capital property. In the situation described, no amount would, but for paragraph 111(4)(e) be required by paragraph 111(4)(c) to be deducted in computing its adjusted cost base to the taxpayer and the goodwill is not, in the present situation, a depreciable property of a prescribed class to which, but for paragraph 111(4)(e), subsection 111(5.1) would apply. Therefore, in the present situation, the conditions to designate an amount with respect to the goodwill are met.

6 October 2017 APFF Roundtable Q. 16, 2017-0709161C6 F - Résidence principale sur une terre agricole

Unedited CRA Tags
110.6
a legally non-severable farm that is used both in farming and as a residence is one property for purposes of the s. 110.6 principal-use tests
non-severable farm is a single indivisible property

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.

6 October 2017 APFF Roundtable Q. 17, 2017-0709171C6 F - Arm's length determination

Unedited CRA Tags
84.1, 251(5)(b), 251(2)
"holder-by-holder" method applied to treat contingent s. 251(5)(b) rights as being exercised re all the other shareholders

Principal Issues: Whether in both situations the application of paragraph 251(5)(b) would result in Mr. X being considered not dealing at arm's length with Acquéreurco for purposes of section 84.1.

Position: Yes.

Reasons: First situation - application of paragraph 251(5)(b). Second situation - application of paragraph 251(5)(b) on a "holder by holder method" basis. General comments on arm's length determination where a person is only involved in the transaction as an accommodating party for the benefit of another person (see paragraph 1.41 of Folio S1-F5-C1).

6 October 2017 APFF Roundtable Q. 18, 2017-0721691C6 F - APFF 2017 - Question 18

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.

6 October 2017 APFF Financial Strategies and Financial Instruments Roundtable Q. 1, 2017-0705221C6 F - Property transfers - common law partners in Québec

Unedited CRA Tags
73(1), 73(1.01)b), 146(16), 146.3(14)
a common-law partners’ separation agreement can engage s. 146(16)(b) or 146.3(14) rollover even if technically they have no legal rights to settle
rollover under common-law partners' separation agreement irrespective of whether technically they have separation rights to settle
rollover pursuant to common-law partners' settlement agreement

Principales Questions: Can subsections 73(1), 146(16) or 146.3(14) apply to transfers of property within the parameters of these provisions under a written separation agreement between common law-partners or former common law-partners considering that common-law partners do not have support or property rights under the Civil Code of Québec?

Position Adoptée: Yes, these provisions can apply provided all the conditions are met.

Raisons: Rights arising out of a common-law partnership may exist outside of the codified provincial statutes - for instances as a result of a written separation agreement.

6 October 2017 APFF Financial Strategies and Financial Instruments Roundtable Q. 2, 2017-0710681C6 F - Withdrawal of RRSP over-contributions after death

Unedited CRA Tags
146(8.2), (8), (8.8), 56(1)h)
income inclusion under s. 146(8.8) on death irrespective whether premiums exceeded deductible amount
deemed s. 146(8.8) benefit on death treated as RRSP withdrawal, and executor should not use Form T746

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).

6 October 2017 APFF Financial Strategies and Financial Instruments Roundtable Q. 4, 2017-0707781C6 F - Withdrawal of undeducted RRSP contributions

Unedited CRA Tags
146(5), (8.2), 204.2(1.1)
s. 146(8.2) deduction for withdrawing excess contributions can be available even where Pt X.1 tax is not applicable

Principales Questions: Whether a taxpayer is entitled to a deduction under subsection 146(8.2) upon withdrawing undeducted RRSP contributions in a situation where:
1) the amount withdrawn exceeds the taxpayer's cumulative excess amount for Part X.1 tax purposes at the time of the withdrawal?
2) the taxpayer has no cumulative excess amount for Part X.1 tax purposes at the time of the withdrawal?

Position Adoptée: Yes, provided all the conditions of subsection 146(8.2) are satisfied.

Raisons: Although subsection 146(8.2) was enacted as a relieving provision for taxpayers who inadvertently contribute more than they are entitled to contribute to their RRSPs, its application is not dependent on the taxpayer being subject to Part X.1 at the time of the withdrawal.

6 October 2017 APFF Financial Strategies and Financial Instruments Roundtable Q. 5, 2017-0707801C6 F - RRIF transfers – partition of family patrimony

Unedited CRA Tags
146.3(1), 146.3(6), (6.2), 146.3(14), 248(23.1)
amount paid to surviving spouse's RRIF did not qualify under s. 146.3(14)
payment from a deceased’s RRIF to the RRIF of the surviving spouse who was excluded under the will qualified as designated benefit
transfer from deceased's RRIF to RRIF of surviving spouse in settlement of claim

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).

6 October 2017 APFF Financial Strategies and Financial Instruments Roundtable Q. 6, 2017-0707791C6 F - RRIF - Successive Deaths

Unedited CRA Tags
146.3(1), 146.3(5), (6), (6.1), (6.2)
death of the surviving spouse before she received payment of the testator’s legacy of his RRIF precluded access to the designated benefit rules
s. 146.3(6.1) did not apply as the executor did not receive the RRIF legacy

Principales Questions: 1) Whether an amount can qualify as a "designated benefit" under paragraph (a) of the definition in subsection 146.3(1) where the surviving spouse dies before the amount is paid out of or under the RRIF to the deceased last annuitant's legal representative?
2) Whether an amount can qualify as a "designated benefit" under paragraph (b) of the definition in subsection 146.3(1) where the surviving spouse dies before the amount is paid out of or under the RRIF to him/her?
3) Where the surviving spouse of the RRIF's last annuitant is entitled under the last annuitant's will to receive amounts held under the RRIF, but dies before any amounts are paid out of or under the RRIF, is it possible that such amounts be included in the income of the spouse's estate instead of in the income of the last annuitant?

Position Adoptée: 1), 2) and 3) No.

Raisons: 1) and 2) Wording of the definition of "designated benefit" in subsection 146.3(1). 3) The spouse's estate cannot receive or be deemed to have received a designated benefit. Because no amount qualifies as a "designated benefit", the full FMV of the RRIF's property is to be included in the last annuitant's income pursuant to subsections 146.3(5) and (6), without any possible reduction under subsection 146.3(6.2).

6 October 2017 APFF Financial Strategies and Financial Instruments Roundtable Q. 8, 2017-0712621C6 F - Dépôt en monnaie étrangère-Immobilisation

Unedited CRA Tags
39(1), 39(1.1), 54 "immobilisation", 70(5), 70(6), 73(1)
non-application to FX deposits
FX deposit treated as debt rather than s. 39(1.1) currency

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.

6 October 2017 APFF Financial Strategies and Financial Instruments Roundtable Q. 9, 2017-0705231C6 F - Gift of a Life Insurance Policy and Subrogated Own

Unedited CRA Tags
148(7), 148(1), 118.1(1), 118(4.1), 118.1(5), 118.1(5.1) and 118.1(5.2)
gain by estate on gift of policy based on cash surrender value
claim in terminal return for charitable gift made by estate under individual’s will
no guidance on whether designating a charity as a contingent policyholder generates a charitable credit

Principales Questions: 1.Whether subsection 148(7) applies where a policyholder's interest in a life insurance policy on the life of a child is transferred to a private foundation on the death of the policyholder either by virtue of his will or by virtue of a designation as subrogated owner /successor owner?
2. In either situation, whether a charitable gift of the interest in the life insurance policy is included in the "total charitable gifts" of the deceased individual for the year of death?

Position Adoptée: 1. Subsection 148(7) is applicable.
2. Depends on whether the transfer is valid and a gift under the applicable private law. Assuming it is a valid transfer and a gift, where the gift is made in the will, the eligible amount of the gift could possibly be included in the total charitable gifts for the year of death pursuant to clause (c)(i)(C) of the definition of "total charitable gifts" in subsection 118.1(1). However, where the private foundation is designated as a subrogated owner/successor owner, subsection 118.1(5) would not apply and the eligible amount of the gift cannot be included pursuant to clause (c)(i)(C) of the definition of "total charitable gifts" in subsection 118.1(1) in the year of death.

Raisons: 1. In both situations, there is a disposition on death by the deceased of an interest in the life insurance policy by way of gift, by operation of law or in any manner to a person with whom the policyholder does not deal at arm's length.
2. Question of law whether such a transaction is possible and whether there is a gift. In a gift by will, subsection 118.1(5) applies and subsection 118.1(5.1) could apply. In the case a subrogated owner/successor owner, subsection 118.1(5) cannot apply since the interest in the policy does not pass through the estate.

6 October 2017 APFF Financial Strategies and Financial Instruments Roundtable Q. 10, 2017-0705201C6 F - Capital loss - repayment of loan

Unedited CRA Tags
39(2); 40(2)(g); 40(3.3); 40(3.4); 54
the foreign currency deemed to be disposed of under s. 39(2) by an FX borrower on repaying a USD loan is not identical property to the USDs received by it under a replacement loan
foreign currency is not property for purposes of the suspended-loss rules

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).

6 October 2017 APFF Financial Strategies and Financial Instruments Roundtable Q. 14, 2017-0708511C6 F - T1135 and 162(7) penalty

Unedited CRA Tags
152(4); 162(7); 220(3.1)
penalty for late-filing of a T1135 will be imposed automatically
failure to file a T1135 treated as a misrepresentation – but neglect etc. ground to be determined

Principales Questions: What is the status of the review mentioned by CRA in the 2015 APFF round table with respect to the automatic application of the subsection 162(7) penalty for years that can’t be subject to the Minister's discretion pursuant to subsection 220(3.1)?

Position Adoptée: The conclusion remains that the penalty is to be applied automatically if all of the conditions are met and that the Minister may not waive the penalty for taxation years that end more than 10 years before the voluntary disclosure is made. However, the assessment of a subsection 162(7) penalty is subject to the normal reassessment period, unless paragraph 152(4)(a) applies.

Raisons: A penalty under subsection 162(7) is assessed under Part I and is subject to the same limitations as any other assessment under that Part. Whether a penalty under subsection 162(7) may be assessed pursuant to paragraph 152(4)(a) is a question of fact that must be determined on a case-by case basis. Subsection 220(3.1) does not allow the Minister to waive a late filing penalty under subsection 162(7) for taxation years that end more than 10 years before the voluntary disclosure is made.

6 October 2017 APFF Financial Strategies and Instruments Roundtable Q. 16, 2017-0705181C6 F - Hedging & George Weston Limited

Unedited CRA Tags
9, 40(1)

Principal Issues: Whether the CRA intend to change its administrative position on hedging following the T.C.C. decision George Weston Limited?

Position: No specific comments on question. CRA already stated that it accepted the decision George Weston Limited (Q.1 at 2015 IFA Conference CRA Round Table). However, reference to recent T.C.C. decision James S.A. MacDonald, 2017 CCI 157.

Reasons: Case law.