Income Tax Severed Letters - 2019-09-25

Principal Issues: Can an individual meet regular, continuous and substantial basis test if they work less than the 20 hour per week minimum bright line test in 120(4)(1.1)?

Position: Yes (facts permitting).

Reasons: Individual is actively engaged in the activities of Opco's business based on the facts and circumstances and work performed.

Principal Issues: Application of Paragraph 120.4(1.1)(c) where the “excluded amount” to be relied on is the one for “excluded shares”.

Position: Paragraph 120.4(1.1)(c) may apply in appropriate circumstances.

Reasons: Wording of the provision.

Principal Issues: Question 7 of the 2019 Step Conference. 1. Does the CRA agree with the case of Roco Gagliese Productions Inc. v. The Queen 2018 TCC 136 where it was held that the royalty income was income from services because the person who derived the income was earning the income in the normal course of his business? and 2. If so, how does the decision apply to a mortgage lending business that earns interest income on a business of renting real estate?

Position: 1. We agree with the TCC decision. 2. If the principal purpose of a corporation's business is to derive income from property and none of the other exceptions apply then the income will be considered to be income from a specified investment business.

Reasons: Our previous position.

Principal Issues: 1. Can the Estate designate itself as a GRE when filing its first tax return under Part I of the Act? 2. Generally, what information would the Minister consider to be “acceptable” information, in lieu of the deceased being assigned a SIN, for purposes of paragraph (c) of the GRE definition in subsection 248(1) of the Act?

Position: 1. Likely yes. 2. Individual tax number or a temporary tax number.

Reasons: See below.

Principal Issues: Can an estate be a qualified disability trust (QDT) indefinitely?

Position: Question of law; however, likely not.

Reasons: In the scenario provided the Will directs the executor to pay the residue of the estate to the beneficiary.

Principal Issues: Does paragraph (c) of the "split income" definition in subsection 120.4(1) apply in regard to income allocated pursuant to a preferred beneficiary election?

Position: No. But subparagraph (a)(i) of the "split income" definition must be considered if there is a 104(19) designation.

Reasons: See below.

Principal Issues: Does CRA examine an employer's payroll remittance or GST/HST accounts after a CPP/EI Ruling is completed?

Position: General comments.

Reasons: A referral to examine the other accounts is sent in specific situations and solely to ensure compliance from the employer.

Principal Issues: Can the CRA provide recent statistical data with respect to data that it is required to collect and transmit to the US IRS pursuant to part XVIII of the Act and the Inter-Governmental Agreement between the US and Canada ("IGA")?

Position: As of April 1, 2019, the CRA has sent over 700,000 records to the IRS under the IGA for the 2017 tax year. Apart from standard automated notifications to identify file and record level errors, no further information has been requested by the US in respect to this data.