Income Tax Severed Letters - 2019-07-31

Ruling

2019 Ruling 2019-0793281R3 F - Post-mortem Hybrid Pipeline

Unedited CRA Tags
84(2), 84.1, 245(2)
Summary Under
Tax Topics - Income Tax Act - Section 84 - Subsection 84(2)
pipeline transaction that includes partial use of s. 164(6) and of the s. 88(1)(d) bump

Principales Questions: 1) Whether section 84.1 will apply to deem the Estate to have received a dividend upon the disposition of shares to the new company. 2) Whether subsection 84.1 will apply to reduce the PUC on the shares of the new company received as consideration for the disposition of the shares. 3) Whether subsection 84(2) applies to the proposed transactions. 4) Whether subsection 245(2) applies to the proposed transactions.

Position Adoptée: 1) No. Favorable ruling given. 2) No. Favorable ruling given. 3) No. Favorable ruling given. 4) No. Favorable ruling given.

Raisons: In accordance with the provisions of the Act and our previous positions.

Ministerial Correspondence

7 June 2019 Ministerial Correspondence 2019-0809221M4 - NPO - Fundraising

Unedited CRA Tags
149(1)(l)

Principal Issues: Is a non-profit organization allowed to run charitable fundraising events under paragraph 149(1)(l) of the Act?

Position: It depends on the scope of the fundraising activities of the NPO. If the scope is limited, the NPO is allowed to run fundraising events under 149(1)(l) of the Act. However, if the scope of the fundraising activities is significant, fundraising can be considered a purpose of the organization, in which case the organization may not qualify as a paragraph 149(1)(l) entity.

Reasons: Limited fundraising activities involving games of chance, including lotteries or draws, or sales of donated or inexpensive goods, including bake sales, plant sales, or chocolate bar sales, generally do not indicate that the organization as a whole is operating for a profit purpose.

Technical Interpretation - External

12 June 2019 External T.I. 2019-0792011E5 F - TOSI definition excluded shares

Unedited CRA Tags
120.4
Summary Under
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Shares - Paragraph (c)
two years were required to pass before proceeds from the sale of a related business could generate excluded share income for TOSI purposes
Summary Under
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1.1) - Paragraph 120.4(1.1)(d)
income derived from related business included income from reinvesting sales proceeds from sale thereof in preceding year

Principal Issues: Whether CRA can provide comments on when CRA will consider that funds received from an operating corporation and held by a holding corporation will not be considered to be derived, directly or indirectly, from one or more other related business in respect of a specified individual for the definition of excluded shares.

Position: General comments provided.

Reasons: Question of fact and application of the Act.

Technical Interpretation - Internal

17 July 2019 Internal T.I. 2017-0718021I7 - Deregistration of TFSA

Unedited CRA Tags
75(2), 146.2(2), 146.2(5), 146.2(8), 149(1)(u.2)
Summary Under
Tax Topics - Income Tax Act - Section 75 - Subsection 75(2)
s. 75(2) applied to 1st generation but not 2nd generation income of a non-qualified purported TFSA trust
Summary Under
Tax Topics - Income Tax Act - Section 146.2 - Subsection 146.2(5) - Paragraph 146.2(5)(c)
s. 75(2) applied to TFSA when it ceased to qualify

Principal Issues: How is a trust and its beneficiary treated for income tax purposes after the trust ceases to be a TFSA because it borrowed money?

Position: Taxed according to the general rules applicable to inter vivos trusts and subsection 75(2).

Reasons: The trust loses its tax-exempt status under paragraph 149(1)(u.2).

28 May 2019 Internal T.I. 2018-0772971I7 - Interaction between sections 94, 17, 247

Unedited CRA Tags
94, 247, 17
Summary Under
Tax Topics - Income Tax Act - Section 94 - Subsection 94(2) - Paragraph 94(2)(f)
failure to charge for services rendered by a Canco to a NR sub of a NR trust tainted the NR trust under s. 94(2)
Summary Under
Tax Topics - Income Tax Act - Section 94 - Subsection 94(2) - Paragraph 94(2)(a)
NIB loan by a Canco to a NR sub of a NR trust tainted the NR trust under s. 94(2)
Summary Under
Tax Topics - Income Tax Act - Section 17 - Subsection 17(1)
triggering of s. 94(2)(a) by interest-free loan to the sub of a non-resident trust was independent of the application of s. 17 to the loan
Summary Under
Tax Topics - Income Tax Act - Section 247 - New - Subsection 247(2)
any subsequent adjustment under s. 247(2) would not affect the application of s. 94(2)(a) to an NIB loan by Canco to a NR Trust sub

Principal Issues: 1. Whether paragraph 94(2)(a) applies to the facts provided. 2. Whether the application of section 17 will change the application of section 94. 3. Whether the application of section 247 will change the application of section 94. 4. Would our views change if instead of a non-interest bearing loan services were provided for less than fair market value consideration.

Position: 1. Yes. 2. No. 3. No. 4. No.

Reasons: See analysis below.

13 August 2018 Internal T.I. 2018-0763611I7 F - Subpar 152(4)(b)(iii) and FAPI

Unedited CRA Tags
152(4)(b)(iii); 152(4.01)(b)(iii)
Summary Under
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4.01) - Paragraph 152(4.01)(b) - Subaragraph 152(4.01)(b)(iii)
reassessment of FAPI from marketable securities related to their previous contribution by the taxpayer
Summary Under
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) - Paragraph 152(4)(b) - Subparagraph 152(4)(b)(iii)
the extended reassessment period can apply to FAPI earned even before the 2018 Budget

Principales Questions: Whether an assessment in respect of foreign accrual property income (FAPI) can be considered, pursuant to subparagraph 152(4)(b)(iii), to be made as a consequence of a transaction involving the taxpayer and a non-resident person with whom the taxpayer was not dealing at arm's length whereby the taxpayer transferred its marketable securities to the said non-resident person in exchange for the issuance of shares and a loan.

Position Adoptée: Yes.

Raisons: In such a case, the capital invested by the taxpayer (marketable securities) was used by the foreign affiliate to earn FAPI such that there is a direct causal connection between the transaction of investing in the foreign affiliate and the FAPI income of the foreign affiliate pursuant to subparagraphs 152(4)(b)(iii) and 152(4.01)(b)(iii).