Income Tax Severed Letters - 2021-03-31

Technical Interpretation - External

14 January 2021 External T.I. 2021-0876441E5 - Safe income allocation on corporate reorganization

Unedited CRA Tags
55(2)

PRINCIPAL ISSUES: Formula to allocate safe income on corporate reorganization

POSITION: See document

REASONS: See document

4 December 2020 External T.I. 2020-0868601E5 - Pension buyback interest expense

Unedited CRA Tags
Paragraphs 20(1)(c), 18(11)(c), 8(1)(m) *

Principal Issues: 1. Whether paragraph 20(1)(c) applies to interest in respect of money borrowed from a lending institution used by an employee to make past service contributions to a registered pension plan (“RPP”). 2. Are past service contributions to an RPP that are paid in instalment payments (including interest) deductible?

Position: 1. No. 2. Yes.

Reasons: 1. There is no provision to allow for interest deductibility on such payments. Paragraph 18(11)(c) denies the deduction under paragraph 20(1)(c) where the funds are borrowed for the purposes of making a contribution to an RPP after November 12, 1981. 2. Commencing in 1989, if a past service contribution to an RPP is paid in instalments, the full amount of instalment payments (including interest) will be treated as pension contributions. Such contributions are deductible subject to the limitations in subsection 147.2(4).

Conference

7 October 2020 APFF Financial Strategies and Instruments Roundtable Q. 1, 2020-0852761C6 F - Taxable capital gain designation

Unedited CRA Tags
104(21), (21.2), (21.3), 108(1), 110.6(1), (2.1)

Principales Questions: Where a first trust makes a designation pursuant to subsection 104(21.2) with respect to an amount paid to a second trust, whether the second trust can make a designation pursuant to subsection 104(21.2) with respect to the same amount paid to its own beneficiaries to allow them to claim the capital gains deduction under subsection 110.6(2.1)?

Position Adoptée: Yes.

Raisons: To determine the "eligible taxable capital gains", as defined in subsection 108(1), of the second trust, it is necessary to take into account the effect of the designation under subsection 104(21.2) that the first trust has made in respect of its beneficiary, the second trust. The effect of paragraph 104(21.2)(b) is that, for the purposes of sections 3, 74.3 and 111 as they apply for the purposes of section 110.6, the beneficiary, the second trust, is deemed to have disposed of capital property that is qualified small business corporation shares, and have a taxable capital gain from such disposition equal to the amount determined by the formula set out in clause 104(21.2)(b)(ii)(B). Therefore, the second trust will be able to make a designation under subsection 104(21.2) in respect of its own beneficiaries as its "eligible taxable capital gains" include the amount designated by the first trust under subsection 104(21.2). This will allow the second trust’s beneficiaries, who are individuals other than trusts, to claim the capital gains deduction under subsection 110.6(2.1), provided all the other conditions are met. As a result of the above, the position set out in document 2016-0667361E5 no longer represents the position of the CRA.

7 October 2020 APFF Financial Strategies and Instruments Roundtable Q. 3, 2020-0848761C6 F - Réorganisations de sociétés étrangères avec dérivation admissibles

Unedited CRA Tags
86.1
Summary Under
Tax Topics - Income Tax Act - Section 86.1 - Subsection 86.1(2) - Paragraph 86.1(2)(f)
CRA is now disclosing the transaction date for eligible distributions
Summary Under
Tax Topics - Income Tax Act - Section 220 - Subsection 220(3.1)
CRA may consider the delays until its approval of a s. 86.1 spin-off re s. 220(3.5) penalties

Principales Questions: 1. On its website, the CRA provides a list of corporations that have given the CRA permission to publish the fact that their spin-off share distribution meets the conditions of section 86.1. On this webpage, could the CRA provide two columns with respect to this list; one indicating the date in which the transaction occurred and another indicating the date the CRA confirmed that the transaction meets the conditions of section 86.1? 2) As a general rule, will the CRA consider the delay in receiving the corporation's approval as an important factor in its decision to waive the penalty for a late-filed section 86.1 election, where the year of the approval (and the publication on CRA's website) is not the same as the year the transaction was completed?

Position Adoptée: 1. Yes. 2. Question of fact.

Raisons: 1. Effective for the 2020 and subsequent taxation years, the CRA website regarding the list of corporations that have given the CRA permission to publish the fact that their spin off share distribution meets the conditions of section 86.1 will have two columns; one indicating the date the transaction was completed (“date of transaction”) and a second column indicating the date the CRA confirmed that the transaction satisfies the conditions of section 86.1 (“date of approval”). The changes to the CRA’s website were made on July 7, 2020. 2. Where the year of the approval (and the publication on CRA's website) is not the same as the year the transaction was completed, the question of whether the CRA, as a general rule, will consider the delay in receiving the corporation's approval as an important factor in its decision to waive the penalty for a late-filed section 86.1 election is a case by case determination that will be made in light of all the facts and circumstances relating to a given situation.

7 October 2020 APFF Financial Strategies and Instruments Roundtable Q. 3, 2020-0851991C6 F - Shares Donation to a tax exempt entity & dividend

Unedited CRA Tags
129(1.2)
Summary Under
Tax Topics - Income Tax Act - Section 129 - Subsection 129(1.2)
on an excepted gift of 10% of the shares of a CCPC to a public foundation and the shares’ redemption, s. 129(1.2) could deny the CCPC’s dividend refund

Principales Questions: Whether a donation of shares of the capital stock of a private corporation to charities followed by their purchase or redemption by the company meets the purpose test referred to in subparagraph 129(1.2).

Position Adoptée: Question of fact

Raisons: According to the law and previous CRA positions.

7 October 2020 APFF Financial Strategies and Instruments Roundtable Q. 4, 2020-0851621C6 F - RRSP or RRIF on death – Joint election

Unedited CRA Tags
146(1), (8.1), 146.3(1) and (6.1)
Summary Under
Tax Topics - Income Tax Act - Section 146 - Subsection 146(8.1)
a specific bequest of a RRSP proceeds to a surviving spouse cannot be treated as a refund of premiums
Summary Under
Tax Topics - Income Tax Act - Section 146.3 - Subsection 146.3(6.1)
specific bequest of RRIF is treated as passing through the estate’s hands, so that a s. 146.3(6.1) election is necessary

Principales Questions: (1) Whether the joint election (Form T2019) is required in a situation where an unmatured RRSP is subject, under the terms of the will of the deceased annuitant, to a specific bequest in favour of the surviving spouse, and the RRSP proceeds are paid out directly by the issuer to the surviving spouse in accordance with the instructions of the estate executor? (2) If the answer to question (1) is yes or, alternatively, where the RRSP is part of the residue of the estate and the surviving spouse is entitled thereto, whether administrative relief is available such that Form T2019 is not required in a situation where the legal representative gives instructions to the RRSP issuer to pay the RRSP proceeds directly to the surviving spouse? (3) Whether the answers to questions 1 and 2 would be the same for a RRIF?

Position Adoptée: (1) Yes. (2) No. (3) Yes.

Raisons: (1) As an amount paid pursuant to a specific bequest of the RRSP in favour of the surviving spouse does not qualify as a "refund of premiums", the joint election under subsection 146(8.1) by the legal representative and the surviving spouse (Form 2019) is required in order for the payment out of the RRSP to be deemed received by the surviving spouse as a benefit that is a refund of premiums. (2) The administrative relief set out in the RC4177 and RC4178 Information sheets and in the T4079 Guide receives application only where all the conditions are met, which includes that a direct transfer has to be made from the deceased’s RRSP to the surviving spouse’s RRSP or RRIF, or to an issuer to buy an eligible annuity for the surviving spouse. No other administrative relief is applicable in respect of the situation described. (3) The rules applicable to the RRIF are similar to the RRSP rules.

7 October 2020 APFF Financial Strategies and Instruments Roundtable Q. 5, 2020-0851601C6 F - TFSA Exempt Contribution - Spousal Trust

Unedited CRA Tags
146.2(1), 207.01(1)(b), 248(8)(a)
Summary Under
Tax Topics - Income Tax Act - Section 207.01 - Subsection 207.01(1) - Exempt Contribution - Paragraph (b)
bequest of TFSA to spousal trust which, in turn, distributed the TFSA proceeds per the will to the surviving spouse would qualify as an indirect transfer as a consequence of death
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(8) - Paragraph 248(8)(a)
indirect transfer made in accordance with deceased’s will would be as a consequence of death

Principales Questions: An amount paid out of an arrangement that ceased to be a TFSA upon the death of its last holder to the deceased annuitant’s estates is transferred to a spousal trust created under the terms of the deceased holder’s will. Whether the same amount, then distributed by the trustee of the spousal trust to the deceased's surviving spouse, would qualify as a survivor payment for the purposes of the definition of "exempt contribution"?

Position Adoptée: Generally yes, provided that the distribution is in accordance with the terms of the deceased's will and it is made during the rollover period.

Raisons: When such an amount is distributed in accordance with the terms of the deceased annuitant's will, the CRA will generally consider that the amount is distributed as a consequence of the death of the deceased annuitant, consistent with paragraph 248(8)(a).

7 October 2020 APFF Financial Strategies and Instruments Roundtable Q. 6, 2020-0851631C6 F - Options d’achat d’actions - disposition au décès

Unedited CRA Tags
7(1)e); 110(1)d); 110(1)d.01)
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 110 - Subsection 110(1) - Paragraph 110(1)(d.01)
s. 110(1)(d.01) deduction is unavailable for a s. 7(1)(e) benefit
Summary Under
Tax Topics - Income Tax Act - Section 7 - Subsection 7(1) - Paragraph 7(1)(e)
s. 110(1)(d.01) gift deduction is unavailable against a s. 7(1)(e) stock option benefit

Principales Questions: La déduction prévue à l'alinéa 110(1)d.01) peut-elle s'appliquer à un avantage réputé reçu par un contribuable en vertu de l'alinéa 7(1)e)? Could the paragraph 110(1)(d.01) deduction apply to a benefit deemed to have been received under paragraph 7(1)(e)?

Position Adoptée: Non. No.

Raisons: L'alinéa 110(1)d.01) ne fait référence qu'à un avantage réputé reçu en vertu de l'alinéa 7(1)a). Paragraph 110(1)(d.01) only refers to a benefit deemed to have been received under paragraph 7(1)(a).

7 October 2020 APFF Financial Strategies and Instruments Roundtable Q. 7, 2020-0864341C6 F - SDA and Formula-Based Plans

Unedited CRA Tags
248(1) “salary deferral arrangement”

Principal Issues: Whether the CRA will continue to consider ruling requests on whether employee incentive plans with units the value of which are determined using a formula are SDAs?

Position: No, except for ATR-45 SAR plans and plans covered by one of the enumerated SDA exceptions.

Reasons: It is not possible to be reasonably certain, at the time of a ruling request, that a formula-based appreciation plan would never become a SDA at some point in the future due to changes in the relevant facts and circumstances specific to the employee, the employer or the business environment in which it operates.

7 October 2020 APFF Financial Strategies and Instruments Roundtable Q. 8, 2020-0851641C6 F - Availability of tax information

Summary Under
Tax Topics - Income Tax Act - Section 45 - Subsection 45(3)
record of prior CCA claims might possibly be included in the taxpayer’s Proof of Income going back to 1988, which is available on My Account for Individuals

Principales Questions: How can a taxpayer obtain tax information contained in tax returns for previous years?

Position Adoptée: The taxpayer could consult My Account for Individuals or call the CRA automated line or the CRA Individual Tax Enquiries line. Alternatively, a request could be made to the appropriate Tax Centre.

Raisons: CRA procedures and internal systems.