Income Tax Severed Letters - 2024-06-05

Ruling

2023 Ruling 2023-0969111R3 - Multi-wing split-up butterfly

Unedited CRA Tags
55(2), 55(3)(b)

Principal Issues: Whether the exception to the application of subsection 55(2) provided in paragraph 55(3)(b) will 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

28 May 2024 External T.I. 2022-0943242E5 - Regulation 105

Unedited CRA Tags
153(1)(g) and Regulation 105

Principal Issues: When CanCustomer pays USCo for the amounts invoiced by the latter, what amounts are subject to the withholding authorized by paragraph 153(1)(g) of the Income Tax Act (Act) and specified in section 105 of the Regulations (Regulation 105)? In particular, is the portion of the invoice that represents the fee that USCo has been charged by another Canadian resident, CanSub, for services the latter rendered in Canada to CanCustomer, subject to the withholding authorized by paragraph 153(1)(g) of the Act and Regulation 105?

Position: The fees paid by CanCustomer to USCo, to the extent such fees are in respect of services performed in Canada, are subject to withholding pursuant to paragraph 153(1)(g) of the Act and Regulation 105. Reimbursement by CanCustomer to USCo of travel costs and meals in respect of services performed in Canada would not be subject to withholding under paragraph 153(1)(g) and Regulation 105 provided CanCustomer agreed to reimburse the travel and meal costs.

Reasons: Weyerhaeuser Company Limited v The Queen 2007 TCC 65.

29 April 2024 External T.I. 2022-0943241E5 - Regulation 105

Unedited CRA Tags
153(1)(g) and Regulation 105

Principal Issues: When CanCustomer pays USCo for the amounts invoiced by the latter, what amounts are subject to the withholding authorized by paragraph 153(1)(g) of the Income Tax Act (Act) and specified in section 105 of the Regulations (Regulation 105)? In particular, is the portion of the invoice that represents the fee that USCo has been charged by another Canadian resident, CanSub, for services the latter rendered in Canada to CanCustomer, subject to the withholding authorized by paragraph 153(1)(g) of the Act and Regulation 105?

Position: The fees paid by CanCustomer to USCo, to the extent such fees are in respect of services performed in Canada, are subject to withholding pursuant to paragraph 153(1)(g) of the Act and Regulation 105. Reimbursement by CanCustomer to USCo of travel costs and meals in respect of services performed in Canada would not be subject to withholding under paragraph 153(1)(g) and Regulation 105 provided CanCustomer agreed to reimburse the travel and meal costs.

Reasons: Weyerhaeuser Company Limited v The Queen 2007 TCC 65.

4 April 2024 External T.I. 2023-0996201E5 - Employment income to sole shareholder

Unedited CRA Tags
67 and 81(1) Income Tax Act and 87 Indian Act
the salary of a status Indian from his corporation may be exempted based on the relative sourcing of its income on and off reserve

Principal Issues: Whether a salary paid by a corporation held by a sole shareholder and sole director with a head office situated on a reserve is tax exempt.

Position: Question of facts.

Reasons: In Bell v. the Queen (2018 FCA 91), the court commented that where an employee is receiving income from a company that the employee controls, it would be relevant to examine the business that the company is carrying on, to determine if the income received is situated on a reserve. In the case provided, determining whether the income received by the sole shareholder-employee is property situated on a reserve, requires a review of the relevant connecting factors applied at the corporation level to determine whether that income is situated on- or off-reserve.

4 April 2024 External T.I. 2023-0959911E5 - Indian Act tax exemption and Employment Income

Unedited CRA Tags
81(1)(a); 153(1); 227(8); 227(8.3), 87(1)(b) of the Indian Act

Principal Issues: 1. Do Guidelines 1, 2 or 3 of the Indian Act Exemption for Employment Income apply to the employment income of the Society’s employees?
2. Does Guideline 4 of the Indian Act Exemption for Employment Income Guidelines apply to the employment income of the Society’s employees?
3. Does the fact that the employer provides services that benefits First Nations individuals sufficient to situate the employment income on a reserve for the purposes of section 87 of the Indian Act and paragraph 81(1)(a) of the Income Tax Act?

Position: 1. Depends on the individual circumstances of each employee.
2. No.
3. Not likely.

Reasons: 1. Guidelines 1, 2, or 3 may apply to the employee’s income depending on factors such as residency of the individual employee or the amount of time that the employee is required to perform their duties of employment on a reserve.
2. Guideline 4 would not apply as the employer is not an organization that is directly controlled by one or more First Nations bands with reserves or a tribal council representing such bands. In addition, the services provided do not appear to be dedicated exclusively to First Nations individuals who for the most part live on reserves.
3. A connecting factors test would need to be applied separately to each employee who works off-reserve. However, consistent with jurisprudence, the fact that the Society is providing XXXXXXXXXX to First Nations individuals and that the employment duties of the employees may benefit First Nations individuals is not a factor that is given significant weight in a connecting factors test.

8 March 2024 External T.I. 2022-0953541E5 - Tax treatment of court awarded costs

Unedited CRA Tags
9(1), 18(1)(a), 12(1)(x)

Principal Issues: 1. What is the tax treatment of court awarded costs received by a taxpayer in a year subsequent to deducting legal fees in computing business income?
2. In what taxation year would the court awarded costs be included in income?

Position: 1. The tax treatment of court awarded costs received in a taxation year would depend on what the amount received was intended to replace. Where court awarded costs are to replace legal fees previously deducted in computing business income, the amount received will be included in income pursuant to subsection 9(1) of the Act.
2. The amount would be included in income in the year the amount is received or realized.

Reasons: 1. Based on the surrogatum principle, the tax treatment of an amount received depends on what the amount is intended to replace.
2. Generally, amounts have to be included in income under subsection 9(1) if such amounts have the quality of income. Generally, an amount has the quality of income if the recipient's right to such an amount is absolute and under no restriction, contractual or otherwise, as to its disposition, use or enjoyment.