Income Tax Severed Letters - 2024-01-31

Ruling

2023 Ruling 2022-0955451R3 F - Post mortem pipeline

Unedited CRA Tags
84(2), 84.1, 112(3.2), 112(7), 164(6), 245(2), 248(1) - Graduated rate estate
Summary Under
Tax Topics - Income Tax Act - Section 84 - Subsection 84(2)
conventional post-mortem pipeline transaction

Principal Issues: (1) Whether section 84.1 applies to deem the estate to have received a dividend on the disposition of shares in a corporation to the new corporation or to reduce the PUC of the shares of the new corporation received as a consideration for the disposition of shares in the corporation; (2) Whether subsection 84(2) applies to the proposed transactions; (3) Whether subsection 245(2) applies to the proposed transactions.

Position: (1) No; (2) No; (3) No.

Reasons: The proposed transactions comply with the applicable provisions of the Act, and CRA's administrative positions pertaining to post mortem hybrid pipelines.

2022 Ruling 2020-0859851R3 - Foreign accrual tax and underlying foreign tax

Unedited CRA Tags
91(1), (4) and (5), 93.1(1), (1.1), (2) and (3), 95(1) “foreign accrual tax”, 113(1)(b), Regulations 5900(1)(d), 5900(3), 5907(1) “underlying foreign tax”
Summary Under
Tax Topics - Income Tax Act - Section 95 - Subsection 95(1) - Foreign Accrual Tax
application of the FAT and underlying foreign tax rules to the investment of a CFA in a US private REIT (holding LLC rental properties) through tiered US partnerships
Summary Under
Tax Topics - Income Tax Regulations - Regulation 5907 - Subsection 5907(1.03)
application of the underlying foreign tax rules to the investment of a CFA in a US private REIT through tiered US partnerships based on equity percentage in that REIT

Principal Issues: Whether the income tax paid to Country 1 by FA1 on its share of dividends paid by FA2 to USLP2 that is allocated to FA1 for the purposes of Country 1 Tax Law meets the definitions of “foreign accrual tax” and “underlying foreign tax” in the Act and the Regulations respectively.

Position: Subject to a possible maximum limitation and subject to the application of the foreign tax credit generator rules, Country 1 income tax paid by FA1 on the FA1’s share of the distributions paid by FA2 and consent dividends declared by FA2 will be “foreign accrual tax” and “underlying foreign tax” (as defined in the Act and the Regulations)

Reasons: Textual, contextual and purposive interpretation of the relevant provisions of the Act and the Regulations.

Technical Interpretation - External

22 June 2023 External T.I. 2018-0746741E5 F - Eligible dividend allocation

Unedited CRA Tags
104(19)
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(19)
eligible and non-eligible dividend can be wholly designated to two respective beneficiaries
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(13)
a discretionary trust can wholly allocate each of an eligible and a non-eligible dividend to each of two recipient beneficiaries

Principales Questions: Can a trust allocate an eligible dividend under 104(19) to a beneficiary and another taxable dividend (non-eligible) to another beneficiary?

Position Adoptée: Question of fact.

Raisons: Subject to the trustees power in the trust indenture, a trustee may allocate two dividends to two distinct beneficiaries, one dividend being eligible and the other not being eligible, under 104(19) of the ITA.

Technical Interpretation - Internal

16 June 2020 Internal T.I. 2019-0792651I7 - 10(8) of the Canada-UK Tax Treaty

Unedited CRA Tags
Articles 10(2) and 10(8)) of the Canada –UK Tax Treaty
Summary Under
Tax Topics - Treaties - Income Tax Conventions - Article 10
engaging the “one of the main purposes” test in Art. 10(8) of the Canada-UK Treaty for accessing reduced withholding resulted in a 25% withholding rate

Principal Issues: 1) Does 10(8) only apply in circumstances of “treaty shopping” and 2) if not, does it apply to deny all the benefits of Article 10?

Reasons: Wording of the provision.