Income Tax Severed Letters - 2021-05-05

Ruling

2020 Ruling 2020-0843991R3 - Single Wing Split-Up Farm Butterfly

Unedited CRA Tags
55(3)(b), 55(3.1)

PRINCIPAL ISSUES: Whether the proposed single-wing split-up butterfly reorganization meets the requirements of paragraph 55(3)(b)

POSITION: Yes

REASONS: See discussion of issues herein

2020 Ruling 2019-0834901R3 - Loss Utilization - Depreciable Property

Unedited CRA Tags
13(7)(a) and (e), 55(2), 85(1)(e.2), 112(2.1), 245
Summary Under
Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Machinery and Equipment
depreciable property retained its character in superficial gain transaction
Summary Under
Tax Topics - Income Tax Act - Section 55 - Subsection 55(3) - Paragraph 55(3)(a)
s. 55(3)(a) application to deemed dividend arising on superficial gain transaction to utilize losses of Lossco
Summary Under
Tax Topics - Income Tax Act - Section 111 - Subsection 111(1) - Paragraph 111(1)(a)
superficial gain transaction to transfer losses to a Profitco that is related through a non-resident parent

Principal Issues: Whether the transfer of depreciable property from a Profitco to a Lossco at cost and the subsequent transfer back of the depreciable property to the Profitco at fair market value conforms with the Canada Revenue Agency’s administrative policies for loss consolidation transactions and whether the depreciable property transferred to Lossco will retain its character throughout the Subject Transactions.

Position: Yes

Reasons: The proposed subject transaction conforms with the CRA's policy to not apply subsection 55(2) of the Act to internal reorganizations within a related group for loss consolidation purposes and recognizing that property retains its character on a rollover transaction between related parties is consistent with the CRA’s position in CRA View 2014-0553731I7 that depreciable property should retain its character on wind-up.

Technical Interpretation - External

1 February 2021 External T.I. 2020-0848921E5 - Settlement of severance by share issuance

Unedited CRA Tags
7, 56(1)(a)(ii), 248(1) definition of "retiring allowance"

Principal Issues: What is the amount of the income inclusion for severance paid to former employees where the payment is made by the employer issuing shares?

Position: The fair market value of the shares at the time of receipt is included in income as either a retiring allowance or a section 7 benefit.

Reasons: The income inclusion under both paragraph 7(1)(a) and subparagraph 56(1)(a)(ii) is based on the amount received.

14 December 2020 External T.I. 2020-0855571E5 - ERDTOH and NERDTOH Transition Rules

Unedited CRA Tags
129(4), 129(5), 186

Principal Issues: How to apply the definitions of eligible refundable tax on hand (“ERDTOH”) and non-eligible refundable tax on hand (“NERDTOH”) in subsection 129(4) to a dividend received from a connected corporation that has not transitioned to the ERDTOH and NERDTOH regime.

Position: Part IV tax payable on dividends received from a connected corporation that has not transitioned to the ERDTOH and NERDTOH regime by a recipient corporation that has transitioned to the ERDTOH and NERDTOH regime should be included in the recipient corporation’s NERDTOH account.

Reasons: Pursuant to subparagraph (a)(ii) of the definition ERDTOH and paragraph (b) of the definition of NERDTOH in subsection 129(4).

Technical Interpretation - Internal

9 December 2020 Internal T.I. 2020-0856521I7 - ERDTOH and NERDTOH Transition Rules

Unedited CRA Tags
129(4), 129(5), 186
Summary Under
Tax Topics - Income Tax Act - Section 129 - Subsection 129(4) - Eligible Refundable Dividend Tax on Hand - Paragraph (a) - Subparagraph (a)(ii)
since (a)(ii) requires a dividend refund out of the connected payor’s ERDTOH, a dividend if such payor had not yet transitioned to the new regime goes into recipient’s NERDTOH
Summary Under
Tax Topics - Income Tax Act - Section 129 - Subsection 129(4) - Non-Eligible Refundable Dividend Tax on Hand - Paragraph (b)
on the transition to the ERDTOH/NERDTOH regime there can be an anomalous addition of Part IV tax on a connected corporation dividend to the recipient’s NERDTOH

Principal Issues: How to apply the definitions of eligible refundable tax on hand (“ERDTOH”) and non-eligible refundable tax on hand (“NERDTOH”) in subsection 129(4) to a dividend received from a connected corporation that has not transitioned to the ERDTOH and NERDTOH regime.

Position: Part IV tax payable on dividends received from a connected corporation that has not transitioned to the ERDTOH and NERDTOH regime by a recipient corporation that has transitioned to the ERDTOH and NERDTOH regime should be included in the recipient corporation’s NERDTOH account.

Reasons: Pursuant to subparagraph (a)(ii) of the definition ERDTOH and paragraph (b) of the definition of NERDTOH in subsection 129(4)