Income Tax Severed Letters - 2024-06-19

Conference

7 May 2024 CALU Roundtable Q. 2, 2024-1005791C6 - Taxation of FHSAs on Death

Unedited CRA Tags
146(1) - "beneficiary", 146.6(16), 146.6(14), 146.6(17)
Summary Under
Tax Topics - Income Tax Act - Section 146.6 - Subsection 146.6(17) - Paragraph 146.6917)(c)
CRA finds that the FMV of an FHSA which is not distributed by the second year of the last holder’s death is, absent designations of beneficiaries, included in the estate’s income

Principal Issues: After the death of an FHSA holder, who is subject to an income inclusion under subsection 146.6(14) at the end of the exempt period in the situations presented.

Position: Situation 1 - The deemed distribution under proposed paragraph 146.6(17(c) will result in an income inclusion of $10,000 to each sibling under subsection 146.6(14) in Year 2. Situation2 - The deemed distribution under proposed paragraph 146.6(17(c) will result in an income inclusion of $30,000 to the estate under subsection 146.6(14) in Year 2. Situation 3 - The deemed distribution under proposed paragraph 146.6(17(c) will result in an income inclusion of $30,000 to the estate under subsection 146.6(14) in Year 2. In all of the above situations, there will be no income inclusion to the deceased holder at the end of the exempt period.

Reasons: Wording of the legislation in subsection 146.6(14) and proposed paragraph 146.6(17(c).

7 May 2024 CALU Roundtable Q. 3, 2024-1007101C6 - Transfer of policy to child

Unedited CRA Tags
148(8)
Summary Under
Tax Topics - Income Tax Act - Section 148 - Subsection 148(8)
the position, that there can be only one child life insured under a policy at the time of a mooted s. 148(8) rollover transfer, is applied only at the transfer time

Principal Issues: Whether subsection 148(8) applies to the transfer of a joint-last-to-die policy by a parent to the surviving spouse of a deceased child. In the scenarios described, the child and spouse were the measuring lives under the joint-last-to-die policy.

Position: In each described scenario, subsection 148(8) applies to the transfer of the policy from the parent to the child.

Reasons: At the time of the transfer, the child is the only life insured under the policy.

7 May 2024 CALU Roundtable Q. 4, 2024-1007061C6 - Shared Ownership & Charitable Gift

Unedited CRA Tags
118.1, 148, 248
Summary Under
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(1) - Total Charitable Gifts
CRA confirms its policy in IT-244R3 regarding gifts of a life insurance policy to a charity, but does not articulate any extension of this policy to split dollar arrangements

Principal Issues: Can the CRA provide an update on its views with respect to shared-ownership arrangements in the context of charitable giving?

Position: Our position remains unchanged.

Reasons: The determination is a mixed question of fact and law.

7 May 2024 CALU Roundtable Q. 5, 2024-1007081C6 - Gift of life insurance policy

Unedited CRA Tags
74.1(1), 98(5), 148(7), 148(8), 148(8.1), 248(35), 248(36)
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(35)
illustrations of the application of ss. 248(35) and (36) to gifts of life insurance policies

Principal Issues: Determination of the policy gain under subsection 148(1) on the transfer of a life insurance policy and application of subsections 248(35) and (36) in the determination of the eligible amount of a subsequent charitable gift in the four scenarios provided.

Position: General comments provided.

Reasons: See response.

7 May 2024 CALU Roundtable Q. 6, 2024-1007091C6 - Shareholder benefits

Unedited CRA Tags
15(1), 246(1)
Summary Under
Tax Topics - Income Tax Act - Section 15 - Subsection 15(1)
application of s. 15(1) or 246(1) to a life insurance policy co-owned by a corporation and its shareholder will only be determined on a case-by-case basis

Principal Issues: The question described three scenarios involving a shared ownership arrangement and premium payments in respect of a life insurance policy. The question is whether a taxable benefit has been conferred under each described scenario.

Position: General comments provided.

Reasons: Whether a taxable benefit has been conferred is a question of fact that can only be ascertained on a case-by-case basis on the particular facts and circumstances of each shared ownership arrangement. A review of a particular arrangement would normally be undertaken only in the course of a compliance review or advance ruling request.

7 May 2024 CALU Roundtable Q. 7, 2024-1005821C6 - PACs and Trusts

Unedited CRA Tags
56(1)(d), 60(a), 148, Regulation 304
Summary Under
Tax Topics - Income Tax Regulations - Regulation 304 - Subsection 304(1) - Paragraph 304(1)(c) - Subparagraph 304(1)(c)(iii) - Clause 304(1)(c)(iii)(A)
a PAC cannot be held by a trust not listed in Reg. 304(1)(c)(iii)(A)
Summary Under
Tax Topics - Income Tax Regulations - Regulation 304 - Subsection 304(3) - Paragraph 304(3)(a)
Reg. 304(3)(a) does not permit a non-listed trust to hold a PAC

Principal Issues: If an inter vivos trust, other than a trust described in subclauses 304(1)(c)(iii)(A)(II) through (IV) of the Regulations purchases an annuity contract on the life of an individual beneficiary and under the contract the annuitant/trust beneficiary is appointed to be the payee, will that annuity contract qualify as a prescribed annuity contract pursuant to the interaction of paragraph 304(3)(a) and section 304 of the Regulations?

Position: The annuity contract would not qualify as a prescribed annuity contract.

Reasons: Only trusts described in clause 304(1)(c)(iii)(A) of the Regulations are a qualified holder of an annuity contract.

7 May 2024 CALU Roundtable Q. 8, 2024-1007121C6 - IPPs & Past Service Contributions

Unedited CRA Tags
ITR 8303(6)
Summary Under
Tax Topics - Income Tax Regulations - Regulation 8303 - Subsection 8303(6)
a RRIF may not make a Reg. 8303(6) qualifying transfer to a RPP in connection with a past service event

Principal Issues: Whether a transfer of property from a RRIF to an IPP is a qualifying transfer for purposes of subsection 8303(6) of the Regulations?

Position: No.

Reasons: The definition of a qualifying transfer in subsection 8303(6) of the Regulations lists the various acceptable transfers. A transfer from a RRIF is not included and as such is not a qualifying transfer.

7 May 2024 CALU Roundtable Q. 10, 2024-1005811C6 - TOSI and Marriage

Unedited CRA Tags
120.4(1) “excluded amount”, 160(4), 248(5)
Summary Under
Tax Topics - Income Tax Act - Section 120.4 - Subsection 120.4(1) - Excluded Amount - Paragraph (b)
a conversion of shares received on marriage breakdown causes the TOSI exclusion for such shares to cease applying

Principal Issues: Whether the exemption from “tax on split income” (“TOSI”) in paragraph (b) of the definition of “excluded amount” is still applicable to an amount derived from “substituted property” within the meaning of subsection 248(5), for property acquired in a transfer described in paragraph 160(4).

Position: An amount derived from a property acquired under the circumstances described in subsection 160(4) is an “excluded amount” under paragraph (b) of the definition of “excluded amount” in subsection 120.4(1). Such definition of “excluded amount” in paragraph (b) does not specifically provide that an amount derived from a property substituted to the said property acquired under those circumstances described in the preamble of subsection 160(4) is an “excluded amount”.

Reasons: Wording of the Act and previous CRA’s positions.

7 May 2024 CALU Roundtable Q. 11, 2024-1005801C6 - TOSI and AMT credit

Unedited CRA Tags
120.2(1), 120.2(3), 127.5, 127,51, 120.4(2) 120.4(3)
Summary Under
Tax Topics - Income Tax Act - Section 120.2 - Subsection 120.2(1)
AMT carryforward amounts cannot be utilized to reduce TOSI tax

Principal Issues: The CRA was asked to confirm the interaction of the AMT and TOSI rules, particularly with respect to the deduction of AMT of prior years' allowed under subsection 120.2(1).

Position: The provided example yields the correct result.

Reasons: The AMT deduction under section 120.2 cannot reduce Part I tax payable for the year below the minimum amount allowed under subsection 120.4(3).

7 May 2024 CALU Roundtable Q. 12, 2024-1005851C6 - Trust reporting - bare trusts

Unedited CRA Tags
150, 249(1), Reg 204.2.
Summary Under
Tax Topics - Income Tax Act - Section 249 - Subsection 249(1) - Paragraph 249(1)(c)
a bare trust has a calendar taxation year end, even if terminated before year end

Principal Issues: Various questions on trust reporting regarding a bare trust.

Position: General comments.

Reasons: See below.