Income Tax Severed Letters - 2018-11-21


2018 Ruling 2017-0731971R3 - Reorganization and distribution on PUC reduction

Unedited CRA Tags
84(2), 84(4.1), 53(2), 40(3)
s. 84(2) ruling for a resource property spin-off by a public resource company

Principal Issues: Does subsection 84(2) apply to a distribution that occurs with a concurrent reduction in a corporation's stated capital?

Position: Yes.

Reasons: Distribution occurs on a reorganization of the business. Consistent with other rulings given.

Technical Interpretation - External

10 September 2018 External T.I. 2018-0772501E5 - Internal spin-off

Unedited CRA Tags
55(2), 55(3)(a)(iii)(B), 55(3)(a)(iv)(B)
s. 55(3)(a)(iii)(B) exclusion applied to lower tier internal spin-off transaction accompanied by an upper-tier sale by an arm’s length shareholder with a direct and indirect 16% shareholding
a lower tier internal spin-off transaction accompanied by an upper-tier sale by a minority shareholder was subject to s. 55(2)

Principal Issues: Whether subsection 55(2) applies to the share redemptions noted in a series of transactions on the basis that clauses 55(3)(a)(iii)(B) and/or 55(3)(a)(iv)(B) apply.

Position: Yes – based on assumed facts.

Reasons: Meets technical requirements. Assuming that the disposition of the shares of Holdco A and Holdco B by Holdco C occurs as part of the same series as the share redemptions, clauses 55(3)(a)(iii)(B) and 55(3)(a)(iv)(B) will technically apply to the deemed dividends. Deemed dividends subject to subsection 84(3), requires the results test to be applied.

Technical Interpretation - Internal

15 August 2018 Internal T.I. 2018-0748441I7 - Subsection 162(7.01) penalty calculation

Unedited CRA Tags
penalty for late-filing information slips references when the last slip was filed

Principal Issues: Whether subsection 162(7.01) applies cumulatively such that the total penalty is calculated based on the cumulative number of information slips that were not filed when required by the Income Tax Act, and the cumulative number of days during which the failure continues.

Position: Yes.

Reasons: Subsection 162(7.01) of the Act imposes a graduated penalty where information returns are filed late. Each information slip is a prescribed information return and is required to be filed according to the Act. The graduated penalty is based on the total number of information slips that were filed late, regardless of whether they were filed at different dates. The calculation is then made based on the number of days during which the failure continues, i.e., the number of days after the filing due date until all the required information slips of the same type are filed.

15 August 2018 Internal T.I. 2018-0749931I7 - Subsections 87(1), (1.1) and (4)

Unedited CRA Tags
Subsections 87(1), (1.1) and (4)
outside basis is not lost on a horizontal short-form amalgamation

Principal Issues: Whether the position described in paragraph 1.74 of the Income Tax Folio S4-F7-C1, Amalgamations of Canadian Corporations (that a shareholder's aggregate ACB of its shares of a predecessor corporation, that are cancelled for no consideration on a horizontal short-form amalgamation, will be added to the cost of the shares of the amalgamated corporation, that are deemed to have been received by the shareholder on the amalgamation pursuant to subsection 87(4)) (the “Folio Position”) is technically correct?

Position: The Folio Position is based on a technical interpretation (document #F9830205, dated May 18, 1999) and is technically correct.

Reasons: The Folio Position is consistent with the tax policy underlying subsections 87(1.1) and (4).

25 June 2018 Internal T.I. 2017-0737151I7 - 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)
the wind-up of a CFA into three shareholders is a merger to form three corporations
reference to merger to form one corporation included three

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 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).