Income Tax Severed Letters - 2024-02-07

Conference

2 November 2023 APFF Roundtable Q. 1, 2023-0975421C6 F - Paragraph 25 of IT-293R (Archived)

Unedited CRA Tags
9, 80
Summary Under
Tax Topics - Income Tax Act - Section 9 - Forgiveness of Debt
reversal of CRA position that forgiveness of an old trade debt generally will be on capital account

Principal Issues: Whether the position in the last sentence of paragraph 25 of IT-293R (Archived) is still valid and remains unchanged.

Position: No (for debts settled or extinguished on or after November 2, 2023).

Reasons: (1) The nature of a debtor's trade debt or gain from the forgiveness of a trade debt does not change automatically solely because of the passage of time of a taxation year or several taxation years. Also, the time at which a trade debt is settled or extinguished, does not (in and by itself) convert the nature of a transaction of forgiveness of trade debt from current account to capital account; (2) the legislator's intent is that gains on the settlement or extinguishment of trade debts that are on account of income must be included in the computation of the taxpayers' profit or loss of a business or property pursuant to section 9 ITA; (3) more accurate picture of the taxpayer's profit (as required by the analytical framework set out in the SCC decision Canderel Limited); (4) there is no rule of law in the Canadian case law that would provide that the nature of a debtor's trade debt or gain from the forgiveness of a trade debt changes automatically solely because of the passage of time of a taxation year or several taxation years; (5) the decision of the House of Lords in the case British Mexican has been distinguished in certain subsequent Canadian cases, including Alco Dispensing Canada Ltd., Enjay Chemical Co. Limited and Oxford Motors Limited.

2 November 2023 APFF Roundtable Q. 2, 2023-0982751C6 - Meaning of purpose tests in paragraph 55(2.1)

Unedited CRA Tags
55(2) and (2.1)
Summary Under
Tax Topics - Income Tax Act - Section 55 - Subsection 55(2.1) - Paragraph 55(2.1)(b)
the payment of a pre-closing dividend of significant excluded assets by the target to its parent likely would engage s. 55(2) where no safe income

Principal Issues: Whether a dividend-in-kind (“Dividend”) paid and received by a wholly-owned subsidiary (“Subsidiary”) to its parent corporation (“Parent”) in contemplation of Parent's disposition of all the shares that it holds in the capital stock of Subsidiary (“Sale”) to an arm's length purchaser (“Purchaser”) may be subject to subsection 55(2) because it satisfies one of the purpose tests found in paragraph 55(2.1)(b) (“Purposes Tests”)?

Position: Yes.

2 November 2023 APFF Roundtable Q. 3, 2023-0984441C6 F - Qualified small business corporation share - meaning of "all or substantially all" and "asset"

Unedited CRA Tags
110.6(1)"qualified small business corporation share"
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 110.6 - Subsection 110.6(1) - Qualified Small Business Corporation Share - Paragraph (d)
a momentary right to discharge a dividend payable constitutes a non-active business asset for QSBCS purposes/ no rigid equating of "substantially all" with 90%
Words and Phrases
asset substantially all

Principales Questions: a) In a given situation, is the asset test met where the corporation holds, for a brief moment, an amount of excess cash? b) Does a dividend payable by the assumption of a debt is considered an asset for the purpose of the asset test?

Position Adoptée: a) Question of facts. b) Yes

Raisons: a) It is the CRA long standing position that the expression “all or substantially all” generally means 90% or more. However, a threshold under 90% may be viewed as meeting the requirement of “all or substantially all”, depending on the facts and circumstances of each case. However, the asset tests provided under the definition of “qualified small business corporation share” in subparagraph 110.6(1) must be met at all time. b) Since the debt of the corporation is extinguished by the dividend payable by the assumption of such debt, the right to such dividend is considered an asset for the purpose of the definition of “qualified small business share”

2 November 2023 APFF Roundtable Q. 4, 2023-0982781C6 F - Section 51 Share Exchange

Unedited CRA Tags
51
Summary Under
Tax Topics - Income Tax Act - Section 51 - Subsection 51(1)
s. 51(1) is inapplicable to an exchange for identical shares

Principal Issues: Whether section 51 of the Act would apply to the “exchange” of common shares of the capital stock of a corporation for preferred shares and common shares of the capital stock of the same corporation as described in the technical interpretation 2004--0092561E5.

Position: No.

Reasons: Wording of the Act and prior CRA’s position.

2 November 2023 APFF Roundtable Q. 5, 2023-0982821C6 F - Notion d’ « entreprise principale » aux fins du paragraphe 1100(12) R.I.R.

Summary Under
Tax Topics - Income Tax Regulations - Regulation 1100 - Subsection 1100(12)
criteria in IT-206R for distinguishing separate businesses, and in IT-371 for distinguishing a principal business, are applicable under Reg. 1100(12)

Principales Questions: Dans une situation donnée, est-ce que l’ARC considère que l’entreprise principale d’une société est le crédit-bail, la location, l’aménagement, la vente, ou tout combinaison de ces activités de biens immeubles dont elle est propriétaire aux fins du paragraphe 1100(12) R.I.R. ? / In a given situation, does CRA consider that the principal business of a corporation is leasing, rental, development, sale or any combination of these activities of immovable property which it owned within the meaning of subsection 1100(12) I.T.R.?

Position Adoptée: Aucune. Commentaires généraux fournis. / None. General comments provided.

Raisons: Il s’agit d’une question de fait. La position de longue date de l’ARC à ce sujet est indiquée dans le Bulletin d’interprétation IT-371. / It is a question of facts. CRA's longstanding position is provided in IT-371.

2 November 2023 APFF Roundtable Q. 6, 2023-0982831C6 - Paragraph 12(1)(x)

Unedited CRA Tags
12(1)(x)
Summary Under
Tax Topics - Income Tax Act - Section 127 - Subsection 127(9) - Government Assistance
CAE followed

Principal Issues: Position of the CRA following the Federal Court of Appeal decision in CAE Inc. c. Canada, 2022 CAF 178.

Position: General comments provided.

Reasons: Question of facts.

2 November 2023 APFF Roundtable Q. 7, 2022-0942171C6 F - Indemnité payée pour libérer temporairement un logement locatif

Unedited CRA Tags
18(1)a), b), c) et h), 20(1)a), 20(1)z) et z.1), 18(3.1) et (3.3), 20(29) ainsi que 67 LIR
Summary Under
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Expenditure v. Expense - Improvements v. Repairs or Running Expense
compensating a tenant for temporary displacement from a rental property being improved and repaired by the landlord may be a current deduction

Principales Questions: 1. Est-ce que l’indemnité payée par le propriétaire d’un logement à un locataire afin de libérer le logement pour la durée de travaux de rénovation est déductible en totalité dans l’année où celle-ci est payée, sans égard à la nature des travaux réalisés ? 2. Si le propriétaire du logement, plutôt que de payer une indemnité au locataire, payait directement à des tiers les frais associés à la relocalisation temporaire du locataire, la réponse serait-elle la même? / 1. Is the compensation paid by the owner of a dwelling to a tenant in order to vacate the dwelling for the duration of the renovation deductible in full in the year in which it is paid, regardless of the nature of the work carried out? 2. If the owner of the dwelling, rather than paying compensation to the tenant, pays directly to third parties the costs associated with the temporary relocation of the tenant, would the answer be the same?

Position Adoptée: 1.2. Question de faits / Question of fact.

Raisons: 1.2.Dans les deux cas, il faut déterminer si l’indemnité versée au locataire par le locateur ou les paiements faits à des tiers sont des dépenses en capital ou, à contrario, des dépenses courantes. La L.I.R. ne définit aucune de ces deux expressions. Toutefois, certains critères provenant de la jurisprudence nous permettent de les distinguer l’un de l’autre. Ils sont par ailleurs énumérés aux numéros 1.4 à 1.12 du Folio de l’impôt sur le revenu S3-F4-C1. Ceci dit, aucun critère n’est déterminant à lui seul. Ces critères doivent être considérés les uns par rapport aux autres, et non pas comme des critères distincts. / In both cases, it is necessary to determine whether the compensation paid to the tenant by the landlord or the payments made to third parties are capital expenditures or current expenditures. The ITA does not define either of these two expressions. However, certain criteria (jurisprudence) are used to make such a determination. They are listed in numbers 1.4 to 1.12 of Income Tax Folio S3-F4-C1. However, no criterion is decisive on its own. These criteria must be considered in relation to each other, and not as separate criteria.

2 November 2023 APFF Roundtable Q. 8, 2023-0982881C6 - Revision of Capital Cost Allowance Claims

Summary Under
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(a) - Revising Claims
CRA will continue on a discretionary basis to accept revisions to prior years’ CCA claims for nil-income years
Summary Under
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Undepreciated Capital Cost - E
CRA will exercise its discretion in IC84-1 having regard to avoiding inappropriate tax results

Principal Issues: (1) Would the CRA accept a request from the taxpayer to permit a revision of CCA claimed since 2003 so that the taxpayer can reduce its loss in different years in favour of an increased undepreciated capital cost, assuming that despite the CCA claims, all years since 2003 still result in non-capital loss? Would CRA’s position be different where the non-capital loss carry forwards in respect of certain years are expired ? (2) Would the CRA accept a request from a taxpayer seeking to increase the amount of CCA claimed since 2010 to increase the non-capital loss available for carry forward in 2023?

Position: No position taken, general comments provided.

Reasons: Depends on the specific facts of each case.

2 November 2023 APFF Roundtable Q. 9, 2023-0982911C6 - APFF - Congrès 2023 - Table ronde sur la fiscalité

Unedited CRA Tags
3, 9, 18(1)a), 20(1)p)(ii), 44(2), 50(1), 54, 248(1) de la Loi de l'impôt sur le revenu;
Summary Under
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Loss v. Loss - Damages
bitcoin loss from fraud might be capital loss, and timing of a loss could be governed by s. 44(2)
Summary Under
Tax Topics - Income Tax Act - Section 54 - Proceeds of Disposition - Paragraph (b)
damages for loss of bitcoin from fraud would be compensation for property unlawfully taken
Summary Under
Tax Topics - Income Tax Act - Section 54 - Personal-Use Property
bitcoin to be used for online purchases is not personal-use property

Principales Questions: What is the tax treatment of a loss suffered by a taxpayer who loses access to their Bitcoin when the centralized exchange platform is victim of a fraud and when could such loss be claimed?/ Quel serait le traitement fiscal de la perte subi par un contribuable qui perd l’accès à son Bitcoin lorsque la plateforme d’échange centralisée est victime d’une fraude et à quel moment cette perte pourrait être réclamée?

Position Adoptée: The tax treatment of a loss and the moment that the loss could be claimed will depend on the facts of each situation and on the terms and conditions between the centralized exchange platform and the taxpayer.

2 November 2023 APFF Roundtable Q. 10, 2023-0993641C6 - APFF - Congrès 2023 Q.10 disposition de cryptomonnaie

Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Disposition
there likely was a disposition of bitcoin on its transfer to a bitcoin platform
Summary Under
Tax Topics - General Concepts - Ownership
bitcoin platform likely acquired ownership of bitcoin deposited with it

Principale Question: Quel est le traitement fiscal d’un transfert de cryptomonnaies.

Position Adoptée : Question de fait. Probablement une disposition selon 248(1) de la Loi.
RÉFÉRENCE À LA LOI: 248(1) de Loi de l’Impôt sur le Revenu.

2 November 2023 APFF Roundtable Q. 11, 2023-0983621C6 F - Paragraph 12(1)(x) and Non-Refundable Tax Credit

Unedited CRA Tags
12(1)(x); 53(2)(k) ITA; Title III.6 Taxation Act (Québec)
Summary Under
Tax Topics - Income Tax Act - Section 53 - Subsection 53(2) - Paragraph 53(2)(k)
Quebec synergy tax credit is received on the due date for the related return, or when a carryforward or carryback request is made for it

Principal Issues: When is the Crédit d’impôt favorisant la synergie entre les entreprises québécoises taken into account for the purposes of the ITA.

Position: Where all the conditions for its receipt are met, at the time the tax credit is applied against tax payable.

Reasons: The law and previous positions.

2 November 2023 APFF Roundtable Q. 12, 2023-0982931C6 F - APFF - Congrès 2023 - Table ronde sur la fiscalité

Summary Under
Tax Topics - General Concepts - Evidence
documentation of a loss from the collapse of a crypto exchange

Principales Questions: Si l’ARC peut donner des lignes directrices à suivre dans le cas où d’une façon hors de contrôle du contribuable et en un cours laps de temps il est difficile, ou voir, impossible d’obtenir la documentation nécessaire pour réclamer la perte de cryptomonnaie découlant d’une affaire de caractère commercial?

Raisons: Certains documents supplémentaires.

2 November 2023 APFF Roundtable Q. 13, 2023-0982941C6 F - APFF - Congrès 2023 - Table ronde sur la fiscalité

Unedited CRA Tags
Paragraphe 152(8) de la Loi de l'impôt sur le revenu et article 69.3 et 69.4 de la Loi sur la Faillite et l'Insolvabilité
Summary Under
Tax Topics - Other Legislation/Constitution - Federal - Bankruptcy and Insolvency Act - Section 69 - Subsection 69(4)
where a contested notice of assessment is subject to a stay, it generally must apply to the bankruptcy court for lifting the stay
Summary Under
Tax Topics - Income Tax Act - Section 152 - Subsection 152(8)
stay of proceedings under the BIA is a procedural limitation that does not affect an assessment’s validity

Principales Questions: Émission d'une cotisation suite à une faillite 1.À la suite de la décision Girard, les autorités fiscales considèrent-elles devoir, dans tous les cas, s’adresser au tribunal, conformément à l’article 69.4 LFI, pour émettre un avis de cotisation à la suite d’une faillite ou du dépôt d’une proposition? 2.Les autorités fiscales sont-elles d’avis que des avis de cotisation émis malgré la suspension des procédures de recouvrement prévue à l’article 69.3 LFI (sans avoir obtenu l’autorisation prévue à l’article 69.4 LFI) sont légalement valides?

Position Adoptée: 1. Non 2. Oui

Raisons: Voir analyse.

2 November 2023 APFF Roundtable Q. 14, 2023-0982951C6 F - Article 56.4 L.I.R. - Clauses restrictives

Unedited CRA Tags
56.4
Summary Under
Tax Topics - Income Tax Act - Section 56.4 - Subsection 56.4(7) - Paragraph 56.4(7)(g)
CRA will entertain applications for late s. 56.4(7)(g) (letter) elections

Principales Questions: 1) When will the prescribed form for the election provided in section 56.4 be available?
2) What will happen to taxpayers who, in their contractual agreement, made the election of subsection 56.4(7) without sending the letter to the CRA ?

Position Adoptée: None.

Raisons: General informations provided.

2 November 2023 APFF Roundtable Q. 15, 2023-0982901C6 - Impact of the Collins Family Trust decision

Unedited CRA Tags
220(1)
Summary Under
Tax Topics - Income Tax Act - Section 152 - Subsection 152(1)
CRA lacks discretion to not apply the provisions of the ITA as judicially interpreted

Principal Issues: 1) Is the CRA of the view that, absent provisions explicitly giving a discretionary power, it has no discretion in the application of the Act?
2) According to the CRA, what is the value of technical interpretations and advance tax rulings in this context?

Position: 1) When the CRA issues an assessment to a taxpayer, it must do so in accordance with the facts and the law. The CRA is bound to apply Parliament’s direction in the Act, as interpreted by a court of law, unless and until that interpretation is judged to be incorrect by a higher court.
2) The CRA provides interpretations to internal and external stakeholders. A technical interpretation is a written statement that provides the CRA’s interpretation of specific provisions of Canadian income tax law at the time it is issued. An advance tax ruling is a written statement confirming the interpretation of the CRA on the application of specific provisions of Canadian income tax law at the time it is issued. Subject to any qualification, caveats, disclaimers or comments stated in a Ruling, a Ruling is regarded as binding upon the CRA with respect to the recipient taxpayer and the described transactions.

Reasons: Canada (Attorney General) v. Collins Family Trust, 2022 SCC 26.