Income Tax Severed Letters - 2022-01-12

Ruling

2019 Ruling 2018-0787361R3 - Loss consolidation arrangement

Unedited CRA Tags
20(1)(c); 112(1); 88(1); 245(1)

Principal Issues: Whether a loss consolidation arrangement involving a loan to buy preferred shares for the purposes of earning income would meet the CRA's requirement for acceptable loss consolidation transactions. As a result of the loan, interest income would be earned by the lossco (“Lossco”) and the profitco (“Opco”) would access losses incurred by a corporation formed specifically to acquire the preferred shares (“Aco”). At the end of XXXXXXXXXX, ACo would be wound up into Opco, thus permitting Opco to claim Aco's non-capital losses.

Position: Yes.

Reasons: Consistent with previous rulings.

Technical Interpretation - External

14 June 2021 External T.I. 2021-0896151E5 - Deferred Salary Leave Plan - Retiring After Leave

Unedited CRA Tags
Regulation 6801(a)
Summary Under
Tax Topics - Income Tax Regulations - Regulation 6801 - Paragraph 6801(a) - Subparagraph 6801(a)(v)
immediate recognition of employment income if the employee intended from the outset to retire immediately after leave period
Summary Under
Tax Topics - Income Tax Act - Section 6 - Subsection 6(11)
CRA generally will not backdate loss of DSLP status if the employer terminates and cashes out the arrangement within 60 days of it ceasing to comply

Principal Issues: What are the tax consequences if an employee retires after a period of leave under a DSLP?

Position: The arrangement would cease to be a DSLP at the time the conditions in paragraph 6801(a) are not met, with the result that any unpaid deferred salary would be included in the employee’s income at that time.

Reasons: Subparagraph 6801(a)(v) requires that the arrangement provides for the employee to return to regular employment after the DSLP leave of absence for a period of not less than the period of the DSLP leave of absence.