Income Tax Severed Letters - 2022-03-02

Technical Interpretation - External

6 January 2022 External T.I. 2020-0871281E5 - Radon test & mitigation

Unedited CRA Tags
ITA: Section 118.3 and 118.4; Subsection 8, 8(10), (13), 12(a), 18(2), 118.2(2); 248(1); Paragraphs 8(1)(f) and (i), 18(1)(h); 18(12)(a); 118.2(2)(a); 118.2(2)(m); 118.2(2)(t); 118.2(2)(o); 118.2(2)(1.2) or (1.21); ITA Regulation 5700.

Principal Issues: Whether the amounts paid for radon testing and a radon mitigation treatment system, including installation, are deductible under the Income Tax Act as either work-space-in-the-home expenses or as eligible medical expenses for the purposes of the medical expense tax credit.

Position: See response.

Reasons: See response.

Conference

25 November 2021 CTF Roundtable Q. 1, 2021-0911841C6 - Indemnities and subsection 87(4)

Unedited CRA Tags
87(4), 87(9), 84(3)
Summary Under
Tax Topics - Income Tax Act - Section 87 - Subsection 87(4)
payment of damages, for breach of reps, by the parent following a triangular amalgamation would not preclude satisfaction of s. 87(4)
Summary Under
Tax Topics - Income Tax Act - Section 87 - Subsection 87(1)
damages paid for breach of rep following an amalgamation did not breach s. 87(1)(a)
Summary Under
Tax Topics - Income Tax Act - Section 84 - Subsection 84(3)
when escrowed shares are cancelled as compensation for breach of representations of the shareholders, the payment for s. 84(3) purpose is those shares’ FMV

Principal Issues: Whether indemnities provided for representations, warranties and potential liabilities may be viewed as part of the proceeds of disposition of the shares.

Position: It's a question of fact and law. Where the representations and warranties are bona fide representations and warranties that are usually encountered in M&A transactions, the payment of indemnities to settle such representations and warranties is normally made quite some time after the transaction itself and would normally not be considered to form part of the proceeds of disposition of the property that is the subject of the M&A transaction. As such, and depending on specific facts and circumstances, such payment would normally not be viewed as proceeds of disposition of shares of a predecessor corporation in the context of a triangular amalgamation to which subsection 87(9) applies.

Reasons: see document.

25 November 2021 CTF Roundtable Q. 2, 2021-0911831C6

Unedited CRA Tags
2(2), 8(1), 15(2), 20(1), 20(1)(j), 20(1)(ww), 80.1(4)(c), 91(5), 93(3)(a), 110(1), 110.1(1), 110.2(2), 110.6(2), (2.1), and (2.2), 111(1), 112(1), (2.2), (2.3), and (2.4), 113(1), 120.4(1), (2), and (3), 138(6)
Summary Under
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(j)
where a s. 15(2) inclusion that was offset under s. 20(1)(ww) because it was subject to TOSI, there nonetheless can be a s. 20(1)(j) deduction when the loan is repaid
Summary Under
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(ww)
s.20(1)(ww) deduction regarding s.15(2) inclusion subject to TOSI does not preclude subsequent s.20(1)(j) deduction

Principal Issues: Does claiming the paragraph 20(1)(ww) deduction preclude a taxpayer from subsequently claiming the paragraph 20(1)(j) deduction when the loan is repaid?

Position: No. Paragraph 20(1)(ww) provides a deduction in computing income, whereas the bracketed phrase contained in paragraph 20(1)(j) only applies to deductions in computing taxable income.

Reasons: Based on the provisions of the Act, jurisprudence and CRA publications.

25 November 2021 CTF Roundtable Q. 3, 2021-0912101C6 - 86.1 exchange of shares

Unedited CRA Tags
86.1
Summary Under
Tax Topics - Income Tax Act - Section 86.1 - Subsection 86.1(2)
s. 86.1 treatment is not available where a spin-off is structured as a share exchange transaction

Principal Issues: Will 86.1 apply to an exchange of share transaction?

Position: No.

25 November 2021 CTF Roundtable Q. 4, 2021-0912111C6 - Liable To Tax & Territorial Taxation

Unedited CRA Tags
Article IV of a Tax Treaty.
Summary Under
Tax Topics - Treaties - Income Tax Conventions - Article 4
a Singapore corporation was a resident there for Treaty purposes – even though it was subject to tax on a territorial basis - provided its CMC was there

Principal Issues: Whether a non-resident corporation can be considered to be resident of a foreign jurisdiction (e.g. Singapore) with which Canada has a Tax Treaty, where that jurisdiction has a territorial system of taxation?

Position: Yes, the decision must be made on a case by case basis.

26 November 2021 CTF Roundtable Q. 5, 2021-0911821C6 - Corporate Attribution

Unedited CRA Tags
74.4(2), 74.4(4), 74.5
Summary Under
Tax Topics - Income Tax Act - Section 74.4 - Subsection 74.4(4) - Paragraph 74.4(4)(a)
s. 74.4(4)(a) exception does not apply where the indirect transfer is to a subsidiary of the trust-owned corporation
Summary Under
Tax Topics - Income Tax Act - Section 74.4 - Subsection 74.4(2) - Paragraph 74.4(2)(a)
minor beneficiaries of a discretionary trust were specified shareholders of a subsidiary of a corporation held by the trust
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Specified Shareholder - Paragraph (e)
beneficiaries of a discretionary trust were specified shareholders of a grandchild trust subsidiary

Principal Issues: In the scenario described whereby an individual indirectly transfers property to a corporation through a trust and a holding corporation, does corporate attribution apply?

Position: Inconclusive, but likely yes.

Reasons: A complete review of the facts and circumstances, including the trust documents, is required; however, the conditions for the application of subsection 74.4(2) seem likely to have been met, based on the limited facts provided. Subsection 74.4(4) does not apply.

25 November 2021 CTF Roundtable Q. 6, 2021-0912011C6 - Application of section 143.4

Unedited CRA Tags
143.4
Summary Under
Tax Topics - Income Tax Act - Section 143.4 - Subsection 143.4(1) - Right to reduce
CRA will entertain ruling requests to consider when a “right to reduce” arises under a Plan of Arrangement

Principal Issues: When does the “right to reduce” arise for purposes of section 143.4 of the Act when interest is forgiven under a plan of arrangement from proceedings under the Companies’ Creditors Arrangement Act?

Position: See comments.

Reasons: This is a question of mixed fact and law that depends on the circumstances of each case.

25 November 2021 CTF Roundtable Q. 7, 2021-0911871C6 - Sub-funds and TrackRules Sub 95(8) (12)

Unedited CRA Tags
95 (8),(10), (11)
Summary Under
Tax Topics - Income Tax Act - Section 95 - Subsection 95(11)
one notional corporation for each sub-fund of an umbrella corporation

Position: See response.

25 November 2021 CTF Roundtable Q. 8, 2021-0911881C6 - ss 15(2) and FA rules

Unedited CRA Tags
15(2), 15(2.1), 15(2.2), 93.1(4), 95(2)(a)(ii)(D)
Summary Under
Tax Topics - Income Tax Act - Section 15 - Subsection 15(2.1)
there is no exclusion in s. 15(2.1) from the application of s. 15(2) to a loan from an FA to a partnership of FAs

Principal Issues: Whether subsection 15(2) applies to a loan between a FA of a CanParent and a partnership, where all the members of the partnership are FAs of the CanParent.

Position: This question was sent to the Department of Finance for their consideration.

Reasons: It involves a policy concern.

25 November 2021 CTF Roundtable Q. 9, 2021-0911851C6 - Work-Space-In-The-Home Expenses

Unedited CRA Tags
8(1)(i)(iii), 8(2), 8(10), 8(13), 67
Summary Under
Tax Topics - Income Tax Act - Section 8 - Subsection 8(13)
an employer does not certify on Form 2200 that employees’ home offices are the principal place of performing their duties

Principal Issues: Whether an employer is required to determine if an employee principally performs their duties away from the office of the employer?

Position: See response.

Reasons: See response.

25 November 2021 CTF Roundtable Q. 10, 2021-0911861C6 - Regulation 100(4)(a) and Payroll Deductions

Unedited CRA Tags
153(1) of the Act, 100(4)(a) and 102(1) of the Regulations
Summary Under
Tax Topics - Income Tax Regulations - Regulation 100 - Subsection 100(4) - Paragraph 100(4)(a)
commencing to work remotely shifted the source deduction rates to those of the province of the payroll department

Principal Issues: Where an employee is no longer required to report to an establishment of the employer, will the CRA consider a change to its position with respect to the determination of the province of employment?

Position: No.

Reasons: From the moment it is clear that an employee will no longer be required to report for work at the establishment of his employer, he will be deemed to report for work at the employer’s establishment from which the remuneration is paid, as per paragraph 100(4)(a) of the Regulations.

25 November 2021 CTF Roundtable Q. 11, 2021-0911941C6 - 261(21), Loan to FA and Excluded Property

Unedited CRA Tags
Subsections 260(6.1), (20) and (21).
Summary Under
Tax Topics - Income Tax Act - Section 261 - Subsection 261(20) - Paragraph 261(20)(b)
s. 261(1) did not deny a loss that was deemed to be from excluded property rather than on FAPI account

Principal Issues: Whether subsection 261(21) applies to deny a foreign exchange loss realized by a Canadian-resident corporation (“Parent”) on the settlement of a loan (“Parent-FA Loan”) to a foreign affiliate (“FA”) of a related Canadian-resident corporation, where any gain of FA that would be derived from the settlement of the loan would be deemed to be a gain from the disposition of an excluded property of FA.

Position: No.

Reasons: Since any gain of FA that would be derived from the settlement of the Parent-FA Loan would be deemed to be a gain from the disposition of an excluded property and FA does not have, in the scenario provided, any Canadian tax results, and therefore has no tax reporting currency during the accrual period, Parent and FA are not considered to have different tax reporting currencies for the purposes of paragraph 261(20)(b). As such, the conditions for the application of subsection 261(21) are not satisfied.

25 November 2021 CTF Roundtable Q. 12, 2021-0912081C6 - ITR Remissions and Fees

Summary Under
Tax Topics - General Concepts - Audit, Filing and Assessment Procedure
overview of CRA rulings fees and fee remissions

Principal Issues: (1) How will the Income Tax Rulings Directorate determine remissions for rulings and pre-ruling consultations? (2) Will the fees for Rulings and Pre-rulings Consultations remain the same?

Position: (1) Remissions will apply to rulings and pre-ruling consultations received by the Directorate after April 1, 2021. Information on how to calculate remissions is described in Appendix H of IC 70-6R11 Advance Income Tax Rulings and Technical Interpretations. (2) Beginning April 1, 2022, the fee for Rulings and a Pre-rulings Consultations will be $221.24 for each hour or part of an hour worked on a file to be increased to $281.22 per hour or part of an hour effective April 1, 2023. Such fees will be increased each year in accordance with the Consumer Price Index.

25 November 2021 CTF Roundtable Q. 13, 2021-0912071C6 - ITRD Internal Evaluation process

Summary Under
Tax Topics - General Concepts - Audit, Filing and Assessment Procedure
review to reduce rulings and TI turnaround times

Principal Issues: Can the CRA provide some information about the results of the ITRD internal evaluation process?

Position: General information provided.

Reasons: See below.

3 November 2021 CTF Roundtable Q. 14, 2021-0911951C6 - Failure to properly file a T1135

Summary Under
Tax Topics - Income Tax Act - Section 233.3 - Subsection 233.3(1) - Specified Foreign Property - Paragraph (k)
CRA will entertain penalty and interest waiver where taxpayer was misled by Form as to the narrowness of FA exclusion
Summary Under
Tax Topics - Income Tax Act - Section 95 - Subsection 95(1) - Foreign Affiliate
s. 95(1) FA definition is broader than under s. 233.4

Principal Issues: Where a taxpayer has failed to file a T1135 or has failed to include an amount on the T1135 because the taxpayer relied on the wording of the T1135 (which does not reflect the more narrow exclusion for foreign affiliates) will the CRA pursue the taxpayer for penalties in respect of the failure?

Position: At this time, the CRA is in the process of consulting internal stakeholders to evaluate and potentially develop a position on this issue, while giving consideration to the impacts on other foreign reporting forms.

25 November 2021 CTF Roundtable Q. 15, 2021-0911921C6 - Curr Use & 95(2)(a)(ii)(B) & (D)

Unedited CRA Tags
Clauses 95(2)(a)(ii)(B) and (D), paragraph 20(1)(c), subsection 5907(1) of the Income Tax Regulations
Summary Under
Tax Topics - Income Tax Act - Section 95 - Subsection 95(2) - Paragraph 95(2)(a) - Subparagraph 95(2)(a)(ii) - Clause 95(2)(a)(ii)(B)
application of current use test under s. 20(1)(c)
Summary Under
Tax Topics - Income Tax Act - Section 95 - Subsection 95(2) - Paragraph 95(2)(a) - Subparagraph 95(2)(a)(ii) - Clause 95(2)(a)(ii)(D) - Subclause 95(2)(a)(ii)(D)(I)
acquisition of shares that were not excluded property qualified under current use test
Summary Under
Tax Topics - Income Tax Act - Section 95 - Subsection 95(2) - Paragraph 95(2)(a) - Subparagraph 95(2)(a)(ii) - Clause 95(2)(a)(ii)(D) - Subclause 95(2)(a)(ii)(D)(III)
in light of the current-use test, borrowed money used to acquire shares that were not excluded property could satisfy s. 95(2)(a)(ii)(D)

Principal Issues: How the current use approach would apply in analyzing clauses 95(2)(a)(ii)(B) and (D) to two specific examples.

Position: When the principles of paragraph 20(1)(c) are relevant in determining whether an amount paid or payable is deductible in computing earnings from an active business for purposes of clause 95(2)(a)(ii)(B), or in determining the use and purpose of borrowed money for purposes of clause 95(2)(a)(ii)(D), the current use approach can be relevant.

Reasons: See below.

25 November 2021 CTF Roundtable Q. 16, 2021-0911911C6 - Convertible Debentures

Unedited CRA Tags
212(1)(b), 212(3) definition "participating debt interest", 214(7)
Summary Under
Tax Topics - Income Tax Act - Section 212 - Subsection 212(3) - Participating debt interest
following Agnico-Eagle, CRA is reviewing whether the conversion of conventional convertible debentures gives rise to s. 214(7) interest

Principal Issues: Whether the CRA could provide any further guidance regarding the application of Part XIII tax in the context of convertible debentures?

Position: No, other than positions stated in previous rulings letters and document 2013-0509061C6.

Reasons: CRA general position stated in CRA document 2013-0509061C6 (Q.9 CRA Round Table at 2013 CTF Conference). The CRA has to review its position (i.e. no excess) concerning the application of subsection 214(7).