Income Tax Severed Letters - 2022-05-04

Ruling

2020 Ruling 2019-0834741R3 F - Corporate reorganization

Unedited CRA Tags
51(1), 55(2), 86(2), 148(7), 186(2), 186(4), 245(2)

Principales Questions: See below.

Position Adoptée: Favourable rulings provided.

Raisons: See below.

Technical Interpretation - External

9 October 2020 External T.I. 2020-0847791E5 - CEWS 81(1)(a) and treaty exempt entities

Unedited CRA Tags
125.7(1), 81(1)(a), Article 8 of the OECD Model Tax Convention
Summary Under
Tax Topics - Income Tax Act - Section 125.7 - Subsection 125.7(1) - Eligible Entity - Paragraph (a)
a Treaty exemption for income does not preclude being an eligible entity for CEWS purposes

Principal Issues: Whether a non-resident airline company portions of whose income is not included in income under Part I by way of the operations of paragraph 81(1)(a) and a provision under a tax treaty can qualify as an “eligible entity” under subsection 125.7(1).

Position: Such a non-resident airline company can qualify as an “eligible entity”.

Reasons: Such a non-resident airline company is not a corporation that is exempt from tax under Part I as contemplated in paragraph (a) of the definition of “eligible entity” under subsection 125.7(1).

Technical Interpretation - Internal

29 October 2018 Internal T.I. 2018-0746351I7 - Retained earnings under IFRS

Unedited CRA Tags
18(4)
Summary Under
Tax Topics - Income Tax Act - Section 18 - Subsection 18(5) - Equity Amount - Paragraph (a)
a Canadian sub can voluntarily adopt IFRS to increase its retained earnings for thin cap purposes if its parent needs IFRS (in addition to, say, US GAAP) financials

Principal Issues: 1. Can a taxpayer use fair value accounting under IFRS for thin cap purposes, despite the comments in our document 2013-0512551I7? 2. Can a taxpayer use IFRS for thin cap, even if it is voluntary? 3. Can a taxpayer use IFRS for thin cap purposes, and U.S. GAAP for shareholder reporting purposes?

Position: 1. Yes. 2. Yes. 3. Possibly.

Reasons: 1. The subject of document 2013-0512551I7 was the partnership income of a corporate partner, not IFRS retained earnings based on fair value reporting. CRA's position is the same as expressed in ITTN 42. 2. IFRS is an acceptable accounting standard even where it is not mandatory. 3. Accounting methods used for financial statements should generally be consistent between income tax purposes and shareholder presentation. However, each case will have to be considered on its merits.