Income Tax Severed Letters - 2024-08-06

Ruling

2021 Ruling 2021-0898221R3 - Loss consolidation arrangement

Unedited CRA Tags
20(1)(c), 15(1), 111, 56(2), 69(1), 69(4), 80, 112(1), 112(2.1), 112(2.2), 112(2.3), 112(2.4), Part IV.1, Part VI.1, 245(2), 246(1), 251(5)(b)), 251(2), 252(2)(c) and 256(7)(a)(i)(B).

Principal Issues: Whether a loss consolidation arrangement involving a loan to buy preferred shares for the purposes of earning income would meet the CRA's requirement for acceptable loss consolidation transactions.

Position: Yes.

Reasons: Consistent with previous rulings.

Ministerial Correspondence

23 January 2024 Ministerial Correspondence 2023-0999421M4 - Bill C-3 - exemption from tax under the Indian Act

Unedited CRA Tags
81(1)(a)

Principal Issues: How many years can you request a refund of taxes after becoming registered under the Indian Act as a result of Bill C-3.

Position: Individuals who are registered under Bill C-3, can claim the exemption starting on January 31, 2011.

Reasons: That is the date an individual became entitled to be registered under the Indian Act.

Technical Interpretation - Internal

6 February 2024 Internal T.I. 2022-0936261I7 - Application of the Canada-US treaty to expats

Unedited CRA Tags
Article IV Canada-US Treaty, 126(1), 250(4) and (5), 212, 7874 IRC
Summary Under
Tax Topics - Treaties - Income Tax Conventions - Article 4
application of Canada-US treaty to a Canadian corporation that is a deemed U.S. resident under the anti-inversion rules
Summary Under
Tax Topics - Income Tax Act - Section 250 - Subsection 250(5)
withholding tax rules applicable to a Canadian corporation that is a deemed U.S. resident under IRC §7874(b) and not non-resident per s. 250(5)

Principal Issues:
1. What are the Part XIII withholding obligations on dividend payments made by a corporation incorporated under the laws of Canada that is subject to the so-called “anti-inversion rules” set forth in §7874(b) of the U.S. Internal Revenue Code (Inverted Payer Corporation) to:
a. a corporation resident of the US that is entitled to treaty benefits under the Canada-US Income Tax Convention (Treaty);
b. another Inverted Payer Corporation (incorporated in Canada);
c. a Canadian resident taxpayer;
d. a resident of a country other than Canada or the US (without regard to any applicable treaty provisions).
2. Where US withholding tax is also imposed on that dividend paid by the Inverted Payer Corporation and the recipient is a taxpayer resident in Canada, will the recipient be entitled to claim a foreign tax credit in respect of the US withholding tax?

Position:
1. a. The Inverted Payer Corporation is responsible to remit the Part XIII tax on Payments made to non-resident persons since it is a resident of Canada under Canadian domestic law and the Treaty.
b. No Part XIII tax will apply on the Payments made by the Inverted Payer Corporation to another Inverted Payer Corporation that is resident in Canada under Canadian domestic law.
c. Part XIII tax will not apply to the Payment made by the Inverted Payer Corporation to a Canadian resident taxpayer.
d. Part XIII tax at 25%, which may be reduced by a tax treaty between Canada and the country of residence of the recipient of the Payment, should apply to the Payment made by the Inverted Payer Corporation to a non-resident person.
2. The dividend paid by an Inverted Payor Corporation to a Canadian resident will be not be income from a foreign country. Consequently, unless the Canadian resident recipient of the dividend has other US source income, no foreign tax credit for the US withholding tax on that dividend income will be available under subsection 126(1).

Reasons: Article IV of the Canada-US Treaty and application of the Canadian domestic laws to dual resident companies.