Income Tax Severed Letters - 2021-04-28

Ruling

2021 Ruling 2020-0858741R3 - Post-Mortem Pipeline

Unedited CRA Tags
84(2), 84.1, 245(2), 110.6(19), 83(1)

PRINCIPAL ISSUES: 1. Does paragraph 84.1(1)(b) deem a dividend in the Proposed Transactions? 2. Does subsection 84(2) apply to the Proposed Transactions? 3. Does the GAAR apply to the Proposed Transactions?

POSITION: 1. No. 2. No. 3. No

REASONS: The Proposed Transactions are in accordance with the Act, relevant jurisprudence and are consistent with our previous positions.

2020 Ruling 2020-0852281R3 - 55(3)(a) Reorganization

Unedited CRA Tags
55(2), 55(3)(a), 55(4), 186, 251(1) and 251(2)

Principal Issues: Did the reorganization meet the requirements of paragraph 55(3)(a)?

Position: Yes

Reasons: Meets legislative requirements. Consistent with prior rulings involving similar issues.

Technical Interpretation - External

10 December 2020 External T.I. 2020-0866561E5 - METC –A

Unedited CRA Tags
ITA: Subsection 118.2(2).

Principal Issues: Whether the amounts paid to lease a condominium to protect a family member’s health due to the extenuating circumstance of the Covid-19 pandemic qualify as eligible medical expenses for the purposes of the medical expense tax credit.

Position: No, see response.

Reasons: See response.

Technical Interpretation - Internal

28 January 2021 Internal T.I. 2019-0817641I7 - Acquisition of rights to pension surplus

Unedited CRA Tags
14(5), 20(1)(b),13(34), 13(35), 13(36), 20(1)(a), 20(1)(b), 248(25), 20(1)(q), 147.2(1), 18(1)(e), 13(34), 13(35), 13(36), 18(1), 108(1), 78(4), “property” definition in subsection 248(1), Class 14.1
Summary Under
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Expenditure v. Expense - Actuarial Surplus
CRA finds that the purchase price of a business allocated to the actuarial surplus for a defined benefit plan was a non-deductible capital expenditure
Words and Phrases
goodwill reserve
Summary Under
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(e)
purchased actuarial surplus was a reserve
Summary Under
Tax Topics - Income Tax Act - Section 78 - Subsection 78(4)
s. 78(4) exclusion would apply to the purchase of actuarial surplus
Summary Under
Tax Topics - Income Tax Act - Section 13 - Subsection 13(35)
purchased actuarial surplus was not deemed goodwill under s. 13(35)

Principal Issues: Is an amount paid by the purchaser of a business in respect of actuarial surplus in the seller's RPP an eligible capital expenditure?

Position: No, it is a non-deductible capital amount.

Reasons: Consistency with past positions. The amount is excluded under paragraph (a) of the ECE definition in subsection 14(5) as an outlay in respect of which an amount would not be deductible by virtue of one or more provisions of the Act (such as paragraph 18(1)(e) or subsection 78(4)), or because it represents part of the cost of an equitable interest in a trust for purposes of the exclusion in paragraph (f).

16 October 2020 Internal T.I. 2019-0823641I7 - Regulation 105 - requirement to withhold

Unedited CRA Tags
153(1)(g), Regulation 105
Summary Under
Tax Topics - Income Tax Regulations - Regulation 105 - Subsection 105(1)
no expansion of an exception from withholding for reimbursing expenses of non-resident subcontractors

Principal Issues: Whether the withholding requirements under section 105 of the Income Tax Regulations (the “Regulations”) in respect of payments described in paragraph 153(1)(g) of the Income Tax Act (the “Act”) apply to a particular situation.

Position: Yes.

Reasons: The advanced payments made by Canco under the terms of the Payment Agreements are payments to NR for the services performed in Canada under the Initial Contract. As such, the recipient of the payments is NR in payment for such services and the payments are income in NR’s hands. If NR subcontracts its obligations under the Initial Contract rather than performing them directly and the amounts are ultimately paid by NR to subcontractors, that does not alter the fact that Canco is required to pay NR for services in Canada under the terms of the contracts and the Payment Agreements.