Income Tax Severed Letters - 2018-11-07


2018 Ruling 2017-0733011R3 - Split-up Butterfly

Unedited CRA Tags
55(3)(b), 55(2), 40(3.3), 40(3.4)
gross FMV basis split-up butterfly finishing with an estate freeze

Principales Questions: Standard butterfly.

Position Adoptée: Favourable rulings given.

Raisons: Meets requirements of the law.

Technical Interpretation - External

18 October 2018 External T.I. 2016-0681131E5 - Other educational institution

Unedited CRA Tags
118.5(1); 149(1)(l)

Principal Issues: 1. Whether Organization is an "other educational institution". 2. Whether the Organization is exempt under paragraph 149(1)(l).

Position: 1. Question of fact, but likely not. 2. Cannot confirm.

Reasons: 1. Organization is not empowered by any federal or provincial statute to regulate certification or professional status. 2. Determination can generally only be done after considering all the activities of the taxpayer during a year.

26 September 2018 External T.I. 2018-0770911E5 - Revised income sprinkling rules

Unedited CRA Tags
120.4(1) and (1.1)
parental leave need not detract from satisfying the regular, “continuous” and substantial TOSI test
parental leave did not detract from satisfying activity level test

Principal Issues: If a specified person is only able to work for part of the year due to a maternity leave, would dividends paid on the shares held by such person an "excluded amount" under the definition in subsection 120.4(1) on the basis that the "excluded business" exception would apply?

Position: Question of fact but if that person meets the average of 20 hours per week for the portion of the year they actually worked then it is possible for the excluded business exception to apply.

Reasons: Guidance from the explanatory notes issued by Finance Canada.

Technical Interpretation - Internal

26 January 2018 Internal T.I. 2017-0735771I7 - Application of paragraph 40(3.5)(c)

Unedited CRA Tags
40(3.3), 40(3.4), 40(3.5), 95(2)(e), 87(1), 87(8.1), 87(8.2), 89(1) and 128.2(3)
a suspended loss on the sale of CFA1 to CFA2 was not de-suspended on s. 95(2)(e) wind-up of CFA1 into CFA2
Words and Phrases
merger formed
scope of s. 40(3.5)(b) extends to mergers and constructive formation of new entities
S. 95(2)(e) wind-up constructively resulted in formation of new corporation

Principal Issues: Whether the term “merger” as used in subparagraph 40(3.5)(c)(i) may include a winding-up.

Position: Yes.

Reasons: Based on the various Canadian legal definitions of the term “merger”, such term may be broadly interpreted so as to include a winding-up. Furthermore, had Parliament intended to exclude a winding-up from the reference to “merger” in subparagraph 40(3.5)(c)(i) it would have specifically done so by incorporating exclusionary wording to that effect, as was done in subsections 87(1), 87(8.1), 87(8.2) and 128.2(3). Furthermore, based on the text, context and purpose of paragraph 40(3.5)(c) the tax deferred liquidation of CCo should not result in the suspended loss becoming available, as such liquidation should fall within the ambit of “merger” in subparagraph 40(3.5)(c)(i).