Income Tax Severed Letters - 2018-10-31

Technical Interpretation - External

11 October 2018 External T.I. 2018-0771831E5 - Part IV Circular Calculation on cross redemption

Unedited CRA Tags
186(1), 129, 84
Summary Under
Tax Topics - Income Tax Act - Section 186 - Subsection 186(1) - Paragraph 186(1)(b)
requirement for a circular calculation of Pt IV tax and RDTOH

Principal Issues: The calculation of the Part IV tax exigible when there is a cross-redemption of shares can become circular. Does CRA have an administrative position to ease the application of Part IV tax? Can the balance of RDTOH be estimated in such circumstances?

Position: No.

Reasons: Provisions in sections 186 and 129 are clear and should be applied even if they give rise to a circular calculation. Position confirmed in Les Entreprises Michèle l'Heureux Inc. v. HMQ,94 DTC 1689.

28 September 2018 External T.I. 2016-0673831E5 - Motor vehicle allowances

Unedited CRA Tags
ITA: 6(1)(b), 6(1)(b)(v), (vi), (vii.1), (x), and (xi)

Principal Issues: The tax consequences of an employer-provided motor vehicle allowance.

Position: Question of fact.

Reasons: See response.

1 August 2018 External T.I. 2018-0768241E5 - CCA for Equipment Used to Produce Biofuels

Unedited CRA Tags
Classes 43.1, 43.2, 53, subsections 1104(9) and 1104(13) of the Regulations

Principal Issues: Will equipment used to produce biofuels and chemicals from municipal solid waste qualify for an inclusion in Class 43.2 or Class 53?

Position: Depending on the particular circumstances, it may qualify for an inclusion in Class 53.

Reasons: Text of the Regulations.

27 March 2018 External T.I. 2017-0715561E5 - Withholding tax on royalties for streamed content

Unedited CRA Tags
212(5) and Article 12(3)(a) of the Canada-U.K. Income Tax Convention
Summary Under
Tax Topics - Income Tax Act - Section 212 - Subsection 212(5)
NR fee for streamed films and TV shows taxable under s. 212(5) only re Canadian use or reproduction
Summary Under
Tax Topics - Statutory Interpretation - Interpretation Act - Section 35 - Subsection 35(1) - Broadcasting
Interpretation Act definition of broadcasting not applicable to Treaty interpretation of those words
Words and Phrases
broadcasting radiocommunication
Summary Under
Tax Topics - Treaties - Income Tax Conventions - Article 12
television and broadcasting included digital streaming
Words and Phrases
television

Principal Issues: Does Canadian withholding tax apply on royalty payments by a Canadian company to a U.K. content provider for motion picture films and TV shows that are streamed to Canadian and foreign subscribers?

Position: Pursuant to subsection 212(5), Canadian withholding tax applies but only to the extent that the payment relates to the use or reproduction of the films or TV shows in Canada. The payment is not exempt under the Canada-U.K. Income Tax Convention but the rate of withholding tax can be reduced from 25% to 10%.

Reasons: Wording of subsection 212(5) and Article 12(3)(a) of the Canada-U.K. Income Tax Convention and ordinary meaning of the words “television” and “broadcasting”.

Technical Interpretation - Internal

13 July 2018 Internal T.I. 2017-0713301I7 - Assumption of accrued interest

Unedited CRA Tags
212(1)(b)
Summary Under
Tax Topics - Income Tax Act - Section 212 - Subsection 212(1) - Paragraph 212(1)(b)
the covenant of the assuming debtor to pay accrued interest on a debt assumption was a payment in kind subject to Part XIII tax
Words and Phrases
novation
Summary Under
Tax Topics - Income Tax Act - Section 212 - Subsection 212(13.1) - Paragraph 212(13.1)(a)
withholding when debt of Canadian partnership assumed by sub

Principal Issues: Whether Part XIII withholding tax under paragraph 212(1)(b) arises when a debt obligation and accrued interest that are owing by a Canadian partnership to a foreign affiliate of one of its Canadian partners is assumed by another foreign affiliate.

Position: Yes, where the assumption of the debt obligation and accrued interest liability constitutes a novation.

Reasons: Based on the facts reviewed, in this particular instance the novation of the debt and accrued interest results in a payment or credit of the accrued interest for purposes of paragraph 212(1)(b).