Income Tax Severed Letters - 2024-05-15

Ruling

2020 Ruling 2020-0853221R3 - Split-up butterfly: investment company

Unedited CRA Tags
55(2), 55(3)(b), 55(3.1), 85(1)

Principal Issues: Will the exception to subsection 55(2), in paragraph 55(3)(b) apply to the proposed transactions?

Position: Yes.

Reasons: Conditions for application have been met and the "butterfly denial rules" in subsection 55(3.1) do not apply.

Technical Interpretation - External

21 February 2024 External T.I. 2022-0951441E5 - Replacement Property – Undivided Interest

Unedited CRA Tags
13(4), 13(4.1), 44(1), 44(5), 54 "capital property", 248(1) “Property"

Principal Issues: Where a taxpayer acquires an undivided interest in a particular property, whether the particular property can qualify as a "replacement property”, as defined by subsections 13(4.1) and 44(5) of the Act?

Position: Question of fact.

Reasons: Due to the broad definition of “property” in subsection 248(1) of the Act, the fact that a particular property consists of an undivided interest will not preclude it from meeting the definition of “replacement property” in subsections 13(4.1) and 44(5), provided the other conditions in the definitions are satisfied.

6 December 2023 External T.I. 2017-0735631E5 - Distribution of funds from an IRA and 401(k)

Unedited CRA Tags
56(1)(a); 56(12); 248(1) "foreign retirement arrangement" and "superannuation or pension benefit"; Regulation 6803; Article XVIII(1) of the Canada-U.S. Treaty
Summary Under
Tax Topics - Income Tax Act - Section 56 - Subsection 56(1) - Paragraph 56(1)(a) - Subparagraph 56(1)(a)(i)
double taxation avoided through s. 56(1)(a)(i)(C.1) where Canadian renounces his US citizenship and collapses his IRA/ potential Treaty exemption re his 401(k) plan
Summary Under
Tax Topics - Income Tax Act - Section 56 - Subsection 56(1) - Paragraph 56(1)(a) - Subparagraph 56(1)(a)(i) - Clause 56(1)(a)(i)(C.1)
taxability of IRA on Canadian resident’s individual’s expatriation from the US, but corresponding exclusion from income under s. 56(1)(a)(i)(C.1) when such amounts distributed
Summary Under
Tax Topics - Treaties - Income Tax Conventions - Article 18
a Canadian resident may access the Art. XVIII Treaty exemption re his 401(k) plan by renouncing his US citizenship then collapsing his plan

Principal Issues: Whether the distribution of funds from an IRA and 401(k) after expatriation from the U.S. is excluded from income in Canada?

Position: Yes.

Reasons: IRA is included in income upon expatriation pursuant to subsection 56(12); subsequent distribution relieved under clause 56(1)(a)(i)(C.1). The 401(k) is included in income only upon distribution but is tax-relieved under the Treaty.

Technical Interpretation - Internal

23 November 2023 Internal T.I. 2020-0850381I7 - Article V(4) of the Canada-U.S. Treaty

Unedited CRA Tags
Articles V(4) and V(9)(a) of the Canada-U.S. Treaty, Section 28 of the Interpretation Act, Subsections 3(1) and 35(1) of the Interpretation Act
Summary Under
Tax Topics - Treaties - Income Tax Conventions - Article 5
the 3-month threshold for a drilling rig to be a PE under the Canada-US Treaty is counted based on days of consecutive or non-consecutive use including standby time
Words and Phrases
month use standby charge

Principal Issues: 1) Whether the term "three months" contained in Article V(4) of the Canada-U.S. Treaty refers to a consecutive period. 2) Whether “three months” means three calendar months or days totaling an equivalent of three months. 3) Whether the word “use” contained in Article V(4) of the Canada-U.S. Treaty includes standby time and preparation time.

Position: 1) No, the three-month testing period is not required to be consecutive. 2) For the purposes of Article V(4) of the Canada-U.S. Treaty, the testing period of "three months" generally means the aggregation of the number of days in three months. 3) Preparation time is generally not counted towards the testing period while standby time is generally counted.

Reasons: 1) Based on a textual, contextual, and purposive approach to the statutory interpretation of Article V(4) of the Canada-U.S. Treaty. 2) The term “three months” in this context refers to the aggregate time measured by the number of months. 3) Based on the ordinary meaning of the word "use", practical considerations, and industry practice.