Income Tax Severed Letters - 2018-05-09


2017 Ruling 2016-0643931R3 - PUC reinstatement on emigration

Unedited CRA Tags
219.1; 212.3; 87(11); 88(1)
bump of non-resident subsidiaries reduced by applicable surplus balances
post-acquisition sandwich structure exited through using the s. 88(1)(d) bump in combination with a continuance outside Canada
bottom corporation in a vertical amalgamation was specified to be the survivor in order to avoid a disposition under the local tax laws re its subsidiary

Principal Issues: 1. Whether the PUC that has been reduced as a result of the foreign affiliate dumping rules can be reinstated immediately prior to emigration; 2. Whether administrative position to not require calculation of tax-free surplus balance applies; 3. Whether 88(1)(d) applies.

Position: 1. PUC reinstatement applies upon emigration; 2. Administrative position does not apply; 3. Paragraph 88(1)(d) applies.

Reasons: 1. In compliance with law; 2. Tax-free surplus balance already computed by taxpayer; 3. Application of subsections 87(11) and 88(1).

2017 Ruling 2016-0655071R3 - Supplemental employee retirement plan

Unedited CRA Tags
Definition of RCA in subsection 248(1); subsection 207.6(1)
the distribution to a non-resident parent of assets of a subsidiary that had SERP obligations and the assumption of such obligations did not create an RCA
no subject property created when sub with SERP obligations is wound-up

Principal Issues: Whether a corporate reorganization involving the transfer of a SERP creates an RCA.

Position: No.

Reasons: The existing arrangement is an unfunded SERP of Opco that is not an RCA and none of the proposed transactions involving the transfer of the SERP liability to Parentco would create an RCA.

Technical Interpretation - External

12 April 2018 External T.I. 2017-0720721E5 - Transfer of an amount from Jersey SIPP to an RRSP

Unedited CRA Tags

Principal Issues: Whether a Jersey retirement plan satisfies the pension plan condition in subparagraph 60(j)(i) of the Act.

Position: No.

Reasons: No employer contributions were made to the plan, and therefore it does not have the characteristics of a pension plan under the Act.

26 March 2018 External T.I. 2017-0734381E5 F - Election paragraph 34(a)

Unedited CRA Tags
10(14.1); 34; 96(1); 96(3); 98(6); 102(1); 248(1) Reg. 229
a subsequently admitted partner benefits from a s. 34 WIP election made for a professional partnership’s 2017 year
transitional rule applies to assignee partner

Principal Issues: 1) Whether the election under paragraph 34(a) applies to a corporation that becomes a member of the partnership the last day of the taxation year that begins before March 22, 2017, if the partnership so elects under paragraph 34(a) to exclude work in progress from the calculation of its income for that taxation year. 2) Whether the answer would be the same if the corporation becomes a member of the partnership the first day of the subsequent taxation year.

Position: 1) Yes, application of the Act. 2) Yes, based on paragraph 34(b).

Reasons: 1) It is proposed to repeal section 34, effective January 1st 2020. For the taxation year that includes March 22, 2017, a taxpayer may elect to not include the work in progress in its income for that year. For the application of section 34, a partnership is considered to be a taxpayer. Subsection 96(3) provides the conditions for an election to be valid for all the members of a partnership. If all the conditions are met, each member of the partnership shall be deemed to have made the election. 2) Under paragraph 34(b), an election is valid for all subsequent taxation years unless the taxpayer, with the concurrence of the Minister, revokes the election.

7 February 2018 External T.I. 2016-0673331E5 - Stock Options - CCPCs

Unedited CRA Tags
5(1), 6(1)(a), 7(1)(a)
stock options received by independent contractor valued at more than their intrinsic value
FMV of a stock option is higher than its in-the-money value

Principal Issues: Whether the provisions of section 7 will apply to the hypothetical situation provided?

Position: No. The FMV of the stock options will be included in the employee’s income under subsection 5(1) and paragraph 6(1)(a) when the options are transferred to the employee.

Reasons: The requirements of subsection 7(1) have not been met.

7 February 2017 External T.I. 2017-0728851E5 - Deferred Salary Early Retirement Plan

Unedited CRA Tags
“salary deferral arrangement” definition in 248(1); 6801(a) of the Regulations

Principal Issues: Whether a proposed deferred salary leave plan will satisfy the conditions to qualify as a "prescribed plan or arrangement" in paragraph 6801(a) of the Regulations in order to be exempted from the "salary deferral arrangement" rules.

Position: No.

Reasons: The condition that the employee return to work after the leave of absence for a period that is not less than the period of the leave of absence is not satisfied.

Technical Interpretation - Internal

19 January 2018 Internal T.I. 2017-0721641I7 - Thin Cap.-Retained Earnings-Other Income (Loss)

Unedited CRA Tags
OCI generally excluded from retained earnings computation where balance sheet prepared under US GAAP or IFRS

Principal Issues: Whether the balance of accumulated other comprehensive income (loss) should be included in retained earnings for thin capitalization purposes under subsection 18(4)?

Position: No.

Reasons: In the financial statements of the taxpayer prepared under US GAAP, the balance of accumulated other comprehensive income (loss) is not included in retained earnings but rather is presented as a separate component of equity.