Income Tax Severed Letters - 2018-06-13

Ruling

2017 Ruling 2016-0646891R3 - Pipeline and subsequent Split-up butterfly

Unedited CRA Tags
55(2), 55(3)(b) and 55(3.1)
Summary Under
Tax Topics - Income Tax Act - Section 84 - Subsection 84(2)
pipeline coupled with split up butterfly in favour of TCs for grandchild residuary trusts
Summary Under
Tax Topics - Income Tax Act - Section 55 - Subsection 55(1) - Distribution
combined pipeline and split-up butterfly
Summary Under
Tax Topics - Income Tax Act - Section 186 - Subsection 186(1) - Paragraph 186(1)(b)
circularity avoided through 2nd dividend arising on winding-up of DC

Principal Issues: Whether the proposed pipeline and split-up butterfly transactions described in the ruling meet legislative and administrative requirements.

Position: Yes.

Reasons: Consistent with law and administrative requirements and corresponds with previous positions.

Conference

16 May 2018 IFA Roundtable Q. 1, 2018-0748181C6 - New U.S. GILTI Tax

Summary Under
Tax Topics - Treaties - Income Tax Conventions - Article 29
Treaty does not fetter the right of the US to impose GILTI tax with reference to Canadian subs’ income
Summary Under
Tax Topics - Treaties - Income Tax Conventions - Article 26
Cdn competent authority will not recognize claims that GILTI tax is contrary to Art. VII

Principal Issues: Will the CRA agree to accept requests for competent authority relief under Article XXVI of the Canada-U.S. Tax Convention on the basis that the taxes imposed under the GILTI rules may be in violation of Article VII of the Convention?

Position: The Convention does not provide a mechanism for the Canadian Competent Authority to resolve potential double tax situations with the U.S. involving the GILTI rules.

16 May 2018 IFA Roundtable Q. 2, 2018-0749181C6 - Principal Purpose Test in MLI

Summary Under
Tax Topics - Treaties - Multilateral Instrument - Article 7 - Article 7(1)
CRA will not provide quick and crisp PPT guidance

Principal Issues: Request for guidance on the application of the Principal Purpose Test under the MLI.

Position: Comments provided.

16 May 2018 IFA Roundtable Q. 3, 2018-0749171C6 - Interaction s.91(5) s.93.1(2)(d)(i)

Unedited CRA Tags
96(1)(f); 4(1)(a); 93.1(2)(d)(i); 91(5); R. 5900(3)
Summary Under
Tax Topics - Income Tax Act - Section 93.1 - Subsection 93.1(2) - Paragraph 93.1(2)(d) - Subparagraph 93.1(2)(d)(i)
s. 93.1(2)(d)(i) limit does not reflect acquisition-debt interest deduction of LP
Summary Under
Tax Topics - Income Tax Regulations - Regulation 5900 - Subsection 5900(3)
corporate-owned LP treated transparently to avoid a surplus anomaly re s. 91(5) dividend
Summary Under
Tax Topics - Income Tax Act - Section 91 - Subsection 91(5)
appplication of s. 91(5) to LP shareholder of FA

Principal Issues: Whether a subsection 91(5) deduction allowed to a partnership is taken into account in determining the amount referred to in subparagraph 93.1(2)(d)(i)?

Position: Yes.

Reasons: Interpretation of 96(1)(f).

16 May 2018 IFA Roundtable Q. 4, 2018-0748171C6 - Penalties for Non-Residents

Summary Under
Tax Topics - Income Tax Act - Section 220 - Subsection 220(3)
a non-resident who incorrectly claimed a no-PE Treaty exemption can apply for penalty relief
Summary Under
Tax Topics - Income Tax Act - Section 247 - New - Subsection 247(4)
potential extension/waiver where incorrect (no PE) claim for Treaty relief

Principal Issues: If, after filing a treaty-based exemption, it is determined by the CRA that the non-resident was unable to claim treaty protection (e.g., on the basis that it did have a permanent establishment in Canada), would the CRA seek to impose late-filing penalties, such as for not timely filing T106 forms, and/or penalties for failing to complete contemporaneous documentation under section 247 of the Act?

Position: The CRA will consider, on a case-by-case basis, requests for relief under subsections 220(3) and (3.1) in the form of extensions and waivers of penalties as outlined in Information Circular IC07-1R1, Taxpayer Relief Provisions.

16 May 2018 IFA Roundtable Q. 5, 2018-0745501C6 - Meaning of “merged or combined” in 40(3.5)(c)(i)

Unedited CRA Tags
40(3.3), 40(3.4), 40(3.5), 87(1), 87(8.1), 87(8.2), 88(3), 89(1) and 128.2(3)
Summary Under
Tax Topics - Income Tax Act - Section 40 - Subsection 40(3.5) - Paragraph 40(3.5)(c) - Subparagraph 40(3.5)(c)(i)
suspended loss on the sale of CFA to Subco was not de-suspended on s. 88(3) wind-up of CFA
Words and Phrases
merged or combined formed
Summary Under
Tax Topics - Income Tax Act - Section 88 - Subsection 88(3)
s. 88(3) wind-up of CFA formed a new corporation

Principal Issues: Whether the deemed continuity rules in subparagraph 40(3.5)(c)(i) of the Act apply on the wind-up of FA under the hypothetical fact scenario.

Position: Yes.

Reasons: Interpretation of the words "merged or combined" in subparagraph 40(3.5)(c)(i).

16 May 2018 IFA Roundtable Q. 6AB, 2018-0748191C6 - MAP Program, APAs

Principal Issues: Updates requested.

Position: See CRA Response.

16 May 2018 IFA Roundtable Q. 7, 2018-0750261C6

Unedited CRA Tags
39(2)
Summary Under
Tax Topics - Income Tax Act - Section 39 - Subsection 39(2)
“sustaining” a s. 39(2) loss on a USD obligation requires more than locking-in the equivalent Canadian-dollar amount
Words and Phrases
sustained

Principal Issues: Whether a debtor has “sustained a loss” for the purposes of subsection 39(2) upon the undertaking by a related corporation.

Position: No.

Reasons: A foreign exchange gain or loss might be made or sustained by a debtor for purposes of subsection 39(2) where the assumption of its debt by the related corporation results in the discharge, rescission or extinguishment of all or any part of the debt, resulting in a corresponding foreign exchange gain or loss being realized or incurred by the creditor.

16 May 2018 IFA Roundtable Q. 8, 2018-0749481C6 - Update on Entity Classification

Unedited CRA Tags
150, 152(4)(a), 248(1) "corporation"
Summary Under
Tax Topics - Income Tax Act - Section 96
French limited partnership viewed as corp/grandfathering relief re LLPs/LLLPs
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Corporation
French société en commandite simple (SECS) a corp

Principal Issues: (1) Update on the administrative relief regarding certain Delaware and Florida LLPs/LLLPs announced at the IFA 2017; (2) update on the CRA Delaware & Florida LLPs/LLLPs Working Group deliberations; and (3) update on new entities or arrangements that were considered by the CRA?

Position: (1) & (2) General comments; as a result of the compliance study of the CRA Delaware & Florida LLPs/LLLPs Working Group, the grandfathering administrative practice was introduced to address the main concerns brought to the attention of the CRA. As such, it is anticipated that the working group will conclude its compliance study in the near future. (3) We recently reached the conclusion that a specific French “Société de Libre Partenariat” would not be considered to be a partnership for Canadian income tax purposes.

Reasons: (1) & (2) This approach facilitates compliance and administration; (3) application of the “two-step” approach for entity classification.

16 May 2018 IFA Roundtable Q. 9, 2018-0748151C6 - T1134s & Country by Country Reporting

Summary Under
Tax Topics - Income Tax Act - Section 233.4 - Subsection 233.4(4)
comparison of T1134 and CbC reporting

Principal Issues: Has the CRA surveyed its large file case managers to enquire whether or not T1134s are, in fact, used as a risk assessing tool in the context of companies of a size that are subject to CbC reporting? Does the CRA have any plan to assess, on an ongoing basis, whether both forms of reporting are required in order for it to efficiently perform its audit function?

Position: At this time, the T1134 information return is used in risk assessment, and the CRA is of the view that the information requirements in the return are relevant to the reporting of income from Canadian controlled and non-controlled foreign affiliates. Going forward, as CRA gains experience with increased electronic data sources and filing requirements, consideration could be given to conducting a review to reduce or eliminate overlap and duplication where possible.

16 May 2018 IFA Roundtable Q. 10, 2018-0748161C6 - Proposed New Filing Deadline T1134

Summary Under
Tax Topics - Income Tax Act - Section 233.4 - Subsection 233.4(4)
CRA may provide filing extensions when the T1134 filing deadline has been accelerated

Principal Issues: Will the CRA confirm that it will provide relief under subsections 220(3) and (3.1) of the Act in the form of extensions and waivers of penalties for all situations in which taxpayers are unable to timely file their T1134 forms, including situations where there is a lack of sufficient financial information available within the newly restricted time period that will be required to complete and file the forms?

Position: No, the CRA will consider, on a case-by-case basis, requests for relief under subsections 220(3) and (3.1) in the form of extensions and waivers of penalties as outlined in Information Circular IC07-1R1, Taxpayer Relief Provisions.