Income Tax Severed Letters - 2023-01-18

Technical Interpretation - External

10 November 2022 External T.I. 2022-0932331E5 - First-Time Home Buyer Incentive Tax Implications

Unedited CRA Tags
3, 12(1)(x), 53(1), 53(2)(k), 54, 40(2)(b), definition of "government assistance" in 127(9)
reimbursements received under the first-time home buyer incentive program were not income

Principal Issues: What are the income tax implications in respect of a reimbursement of an Incentive under the First-Time Home Buyer Incentive program in two situations. Specifically, CMHC is asking: 1. For reimbursements related to an Incentive repayment in respect of the sale of a property, will the reimbursement be treated as an adjustment to the proceeds of disposition (“POD”) of the property? 2. What would be the income tax consequences for reimbursements related to an Incentive repayment for refinancing or other reasons (unrelated to the sale of a property)?

Position: 1. No, the reimbursement does not adjust the POD previously received by the homebuyer in a prior year in respect of the sale of the property. The reimbursement received by the homebuyer will not be taxable under the Income Tax Act (the "Act"). 2. The reimbursement received by the homebuyer will not be taxable under the Act.

Reasons: In both scenarios, the Reimbursement is not a source of income under the Act. It will therefore not be included in the homebuyer's income and is not taxable under the Act.


7 October 2022 APFF Roundtable Q. 1, 2022-0942081C6 F - Safe Income

Unedited CRA Tags
55(2), 55(2.1)(c)
contingent liabilities that reduce shares’ FMV should also reduce safe income on hand

Principales Questions: Whether contingent liabilities and accounting reserves need to be taken into account in determining safe income on hand.

Position Adoptée: Yes.

Raisons: Previous positions.

7 October 2022 APFF Roundtable Q. 2, 2022-0942091C6 F - Taxable preferred shares and shareholders’ agreement

Unedited CRA Tags
248(1), definitions of “taxable preferred share” and “short term preferred share
whether a right to a top-up in the event of an IPO is inconsistent with receiving FMV proceeds

Principal Issues: Whether a share of the capital stock of a corporation would qualify as a taxable preferred share in the hypothetical scenarios described?

Reasons: Depends on the particular facts and circumstances.

7 October 2022 APFF Roundtable Q. 3, 2022-0942121C6 F - THRP- PRTA – Versement de dividendes imposables

Unedited CRA Tags
125.7(2), 125.7(2.01), 125.7(14.1)
parent could pay a dividend in, say, Period 27, without adverse CEWS impact on Canadian sub
there is no adverse CEWS impact of a non-resident parent paying dividends to individuals

Principales Questions: Quelles sont les périodes d’admissibilité touchées par le versement de dividendes imposables par une entité admissible qui est une société cotée en bourse ou une filiale de celle-ci à un particulier qui est détenteur d’actions ordinaires de son capital-actions? / What are the qualifying periods affected by the payment of taxable dividends by a qualifying entity that is a publicly trade company or a subsidiary of such company?

Position Adoptée: Dans l’exemple soumis, la filiale canadienne n’aura droit à aucun montant de PRTA pour la vingt-septième période d’admissibilité en vertu du paragraphe 125.7(2.01) si elle a versé des dividendes imposables au cours de cette période d’admissibilité à des particuliers qui sont détenteurs d’actions ordinaires de son capital-actions. Tout montant de dividendes imposables versés au cours de la vingt-quatrième période d’admissibilité et de toute période d’admissibilité ultérieure par la filiale canadienne à des particuliers qui sont détenteurs d’actions ordinaires de son capital-actions est de plus visé par le paragraphe b) de l’élément A du paragraphe 125.7(14.1). / In the given example, the Canadian subsidiary will not be entitled to any THRP amount for the twenty-seventh qualifying period under subsection 125.7(2.01) if it paid taxable dividends in that qualifying period to individuals who are holders of common shares of its capital stock. Any amount of taxable dividends paid in the twenty-fourth qualifying period and any subsequent qualifying period by the Canadian subsidiary to individuals who are holders of common shares of its capital stock is furthermore subject to paragraph (b) of the element A in subsection 125.7(14.1).

Raisons: Conformément aux dispositions de la Loi et positions antérieures / In accordance with the provisions of the Act and previous positions.

7 October 2022 APFF Roundtable Q. 4, 2022-0942131C6 F

Unedited CRA Tags
1101(5b.1) RIR
CRA is willing to adapt a prescribed requirement, that an election be made by letter attached to the return, to internet filings

Principales Questions: Est-ce que le fait de classer dans une catégorie 1a) ou 1b) distincte un bâtiment non résidentiel admissible est suffisant pour que le contribuable soit considéré comme ayant fait le choix qui est prévu au paragraphe 1101(5b.1) RIR.?
Is the fact of classifying a qualifying non-residential building in a separate class 1(a) or 1(b) sufficient for the taxpayer to be considered to have made the election provided for in subsection 1101(5b.1) ITR.?

Position Adoptée: Non/No.

Raisons: Étant donné l’exigence législative au paragraphe 1101(5b.1) RIR., le fait de classer dans une catégorie distincte un bâtiment non résidentiel admissible dans l’annexe appropriée de sa déclaration de revenu n’est pas suffisant en soit pour permettre à un contribuable de se prévaloir du choix prévu au paragraphe 1101(5b.1) RIR. Le contribuable doit donc faire parvenir au centre fiscal qui le dessert, une lettre jointe à sa déclaration de revenu dans laquelle il indique son choix à l’égard de chaque bâtiment non résidentiel admissible pour l’année d’imposition dans laquelle le bâtiment faisant l’objet du choix est acquis.
Given this legislative requirement under paragraph 1101(5b.1) ITR, categorizing a qualifying non-residential building separately on the appropriate schedule of its tax return is not sufficient on its own to allow a taxpayer to avail itself of the election provided for in paragraph 1101(5b.1) ITR. The taxpayer must therefore send to the tax center that serves him, a letter attached to his income tax return in which he indicates that he makes an election with respect to each eligible non-residential building for the year of taxation in which the building subject to the election is acquired.

7 October 2022 APFF Roundtable Q. 5, 2022-0947611C6 F - Limited Partnership and Loans

Unedited CRA Tags
40(3.1), 53(2)c)(v)
loans made only to avoid s. 40(3.1) gains due to income gains not being added to ACB until next year, may be acceptable
guarded acceptance of distributions of LP profits as loans, followed by set-off against draws in January

Principales Questions: What are the CRA’s current views on situations where loans are received by a limited partner from a limited partnership that have a purpose of avoiding a gain that could be realized under subsection 40(3.1) of the Income Tax Act?

Position Adoptée: See below.

Raisons: See below.

7 October 2022 APFF Roundtable Q. 6, 2022-0942141C6 F - Rollover under 70(6) and gifts to charities

Unedited CRA Tags

Principales Questions: Whether the rollover provided in subsection 70(6) is available if the terms of the will that creates a testamentary trust for the benefit of the deceased taxpayer’s spouse or common-law partner allow the trustee of the testamentary trust to make donations in favor of charities before the death of the taxpayer's spouse or common-law partner?

Position Adoptée: No, the trust will generally not qualify for a rollover under subsection 70(6).

Raisons: As a result of the possibility for the trustee to make donations to charities out of the trust’s capital or income, persons other than the taxpayer's spouse or common-law partner may obtain the use of the trust income or capital before the death of the taxpayer's spouse or common-law partner.

7 October 2022 APFF Roundtable Q. 7, 2022-0942731C6 F - Permanent establishment and teleworking

Unedited CRA Tags
153(1) of the Act and 100(4), 102(1), 400(2) of the Regulations
employer is required to be carrying on business through an employee’s cottage to be considered to have a PE there under Reg. 400(2)(b)
Reg. 400(2)(b) PE is not necessarily an employer establishment to which the employee reports to work
having an employee, with general authority to contract, telework from his cottage in another province does not necessarily create an employer PE there

Principal Issues: In the situation where an employee, resident in Quebec, reports for work at the establishment of his employer in Quebec two days per week and works remotely from his vacation home in Ontario three days per week: 1) Would the employer be deemed to have a permanent establishment in Ontario, namely at the location of the employee’s vacation home? 2) In the affirmative, would the employee be considered to report for work at an establishment of his employer in Ontario for withholding purposes? 3) Did the CRA's position evolve on similar situations, in the context where remote working arrangements are becoming predominant?

Position: 1) Question of facts.
2) No.
3) General comments provided.

Reasons: 1) The fact that an employee has the authority to contract for his employer from a home office should not on its own create a permanent establishment in a given province. In other words, for the deeming provision in paragraph 400(2)(b) of the Regulations to apply, the employee is required to have the general authority to contract for his employer and the employer must also carry on business in that province through that employee established therein.
2) The definition of "permanent establishment" and the deeming provisions in subsection 400(2) of the Regulations are only relevant to Part IV of the Regulations.
3) The CRA is actively continuing its work on the matter.

7 October 2022 APFF Roundtable Q. 8, 2022-0942151C6 F - Surplus stripping

Unedited CRA Tags
40(1)(a)(iii); 40(2)(a)(ii); 84.1(1), 84.1(2)(a.1)(i) and (ii); 245(2) and (4); 256(5.1) and (5.11)
incorporating a sub through which a share sale will occur so as to avoid s. 84.1 is not per se GAARable
permissible use of sale through subsidiary to avoid s. 84.1

Principales Questions: (1) Whether the GAAR would apply to a series of transactions (“Series”) pursuant to which an individual (“Brother”) would transfer his shares in a Canadian-controlled private corporation (“Opco”) to a newly incorporated corporation (“Brother Holdco”) on rollover basis prior to Brother Holdco’s disposition of the Opco shares at their FMV (“Sale”) to a corporation newly incorporated by his sister (“Sister Holdco”) for a cash consideration of $200,000 and the balance of the sale price payable within a period of four years after the date of the Sale? (2) Whether a provision can be claimed by Brother Holdco under subparagraph 40(1)(a)(iii) (“Provision”) as a result of the terms of the Sale?

Position Adoptée: (1) Unlikely; (2) Unable to answer.

Raisons: (1) See below (2) See below.

7 October 2022 APFF Roundtable Q. 9, 2022-0942281C6 F - Section 80 - proposals under BIA

Unedited CRA Tags
Section 80 ITA; sections 62, 66 and 121 Bankruptcy and Insolvency Ac
forgiveness under a Bankruptcy proposal occurred when it was court-approved
Words and Phrases
s. 80(13) tax liability does not arise until the forgiveness

Principal Issues: (1) Whether an obligation is settled upon approval of a proposal or upon full payment under the proposal. (2) Whether income tax payable in relation to an amount to be included in a taxpayer's income resulting from the application of subsection 80(13) ITA is a provable claim covered by the proposal.

Position: (1) The obligation is settled at the time the proposal is approved; (2) Income tax liability in relation to a forgiven amount is included in income by virtue of subsection 80(13) is not a provable claim covered by a BIA proposal.

Reasons: The law.

7 October 2022 APFF Roundtable Q. 10, 2022-0942161C6 F - Règles particulières sur les changements d’usage

Unedited CRA Tags
45(1), 45(2)
no change in the regular use under s. 45(1)(c) where a property regularly alternates between personal and rental use
where s. 45(2) election is made on change to rental use, no change of use when the property changes back to actual personal use

Principales Questions: Diverses questions sur l’application de l’article 45 dans une situation où un chalet est habité par le propriétaire six mois par année alors qu’il est loué à des tiers l’autre six mois. / Various questions regarding the application of section 45 in a situation where a cottage is inhabited by the owner for six months of the year while it is rented to others for the other six months.

Position Adoptée: Aucune. Commentaires généraux sur l’application possible des alinéas 45(1)b) et c). / None. General comments on the possible application of paragraphs 45(1)(b) and (c).

Raisons: L’application de l’article 45 à une situation donnée ne peut être déterminée qu’après un examen de tous les faits et circonstances pertinents. / Whether section 45 applies to a given situation can only be determined after a review of all the relevant facts and circumstances.

7 October 2022 APFF Roundtable Q. 11, 2022-0942751C6 F - Changement de fin d'exercice et opposition

Unedited CRA Tags
152, 165, 171, 249 et 249.1 L.I.R.
a corporation cannot change its year end by objecting to the 1st year’s initial assessment
CRA will not vacate an assessment that was not invalid or unfounded

Principales Questions: Whether the minister may, by virtue of subsection 165(3), vacate an assessment for the sole purpose of allowing, in accordance with the position described in question 2 of CRA document 2020-0874951I7, a change to the time when the first fiscal period of a taxpayer ends.

Position Adoptée: No.

Raisons: For the purposes of subsection 165(3), an assessment can only be vacated following the submission of additional information or conclusive arguments, which CRA did not have when the assessment was made, and which can demonstrate that the assessment is either not valid, namely an assessment that is not made in compliance with the procedural provisions of the Act, or incorrect, namely an assessment in which the amount of tax assessed is not based on the applicable provisions of the Act, correctly interpreted and applied to the relevant facts.

7 October 2022 APFF Roundtable Q. 12, 2022-0950691C6 F - Revenu de location - DPE

Unedited CRA Tags
125(7); 129(4);
rental income from the smaller portion of a building not used in manufacturing could be assimilated to active business income
building treated as a single property for purposes of principal use test

Principales Questions: In a given situation, whether rental income from the rental of a portion of a property is (1) from a specified investment business, (2) aggregate investment income, and (3) income of the corporation for the year from an active business.

Position Adoptée: No position taken, general comments provided.

Raisons: Question of fact.

7 October 2022 APFF Roundtable Q. 13, 2022-0942181C6 F - Transfer of an RRSP at death

Unedited CRA Tags
73(1), 146(1), 146(8.1), 248(23.1).
s. 248(23.1)(a) does not deem the amount paid to be received as beneficiary of the estate as per s. 146(8.1)
an amount paid by an estate of the deceased’s RRSP to satisfy the claim of his separated surviving spouse did not qualify as a refund of premiums

Principales Questions: (1) Whether subsection 73(1) can apply to the transfer of RRSP proceeds by the estate of the deceased annuitant to the surviving spouse? (2) Whether subsection 146(8.1) can apply to such a transfer where the surviving spouse is not a beneficiary of the estate?

Position Adoptée: (1) No. (2) No.

Raisons: (1) Subsection 73(1) only applies where the transferor is an individual other than a trust. (2) Subsection 146(8.1) requires the spouse to be a beneficiary under the deceased’s estate.

7 October 2022 APFF Roundtable Q. 14, 2022-0942191C6 F - Safe-income determination time

Unedited CRA Tags
55(1), 55(2), 55(2.1)(c)
incorporation of Buyco may trigger safe-income determination time
no need for CRA flexibility regarding safe income issues arising from early formation of a Buyco
safe income arising on a sale and after the safe-income determination time could be used for subsequent dividends not paid as part of the same series

Principales Questions: Whether the "safe-income determination time" will be triggered for the selling company by the inception of a new corporation by the buyer to buy the assets of the selling company.

Position Adoptée: Question of fact.

7 October 2022 APFF Roundtable Q. 15, 2022-0942241C6 F - Safe income inclusion of dividend tax refund

Unedited CRA Tags
55(2), 55(2.1)(c)
taxes reduce safe income attributable to realized taxable capital gain net of the refundable tax generated from dividend

Principales Questions: Whether in the fact situation described in the question, the CRA’s position in document 9429465 would apply.

Position Adoptée: In these circumstances, it can be argued that the value of the RTDOH is reflected in the value of the shares and therefore that it does contribute to the gain on the shares.

Raisons: See below.