Income Tax Severed Letters - 2024-08-28

Ruling

2024 Ruling 2023-0987001R3 - Public Spin-Off Butterfly

Unedited CRA Tags
55(3)(b), 55(3.1).
Summary Under
Tax Topics - Income Tax Act - Section 55 - Subsection 55(3.02)
successive butterflies to effect the creation of a 2nd public corporation/ lower-tier butterfly by a “specified wholly-owned corporation”
Summary Under
Tax Topics - Income Tax Act - Section 55 - Subsection 55(1) - Distribution
successive butterflies by wholly-owned sub of Pubco and by Pubco in reliance on s. 55(3.02)

Principal Issues: Whether the proposed transactions meet the requirements of paragraph 55(3)(b).

Position: Yes.

Reasons: In accordance with law and previous positions.

2023 Ruling 2022-0958601R3 - Post Butterfly Transactions

Unedited CRA Tags
55(3.1)
Summary Under
Tax Topics - Income Tax Act - Section 55 - Subsection 55(3.1) - Paragraph 55(3.1)(c)
post-butterfly sales of distributed shares by TC (or redemption in hands of DC of retained shares) were independent of the butterfly and did not engage s. 55(3.1)(c) (or (d))
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(10)
post-butterfly sales and redemptions of shares received on the butterfly were not part of the same series

Principal Issues: Whether certain proposed post-butterfly transactions will trigger the butterfly denial rules in subsection 55(3.1).

Position: No.

Reasons: The taxpayers’ representations that the Proposed Transactions are not part of the same series of transactions as the Sequential Butterfly are reasonable and supported by the facts.

2023 Ruling 2022-0941241R3 - Internal reorganization: subs and partnerships

Unedited CRA Tags
88(1), 98(5), 245
Summary Under
Tax Topics - Income Tax Act - Section 88 - Subsection 88(1)
sequential wind-ups of child, then grandchild, respected notwithstanding that their dissolutions held in abeyance until resolution of litigation with CRA
Summary Under
Tax Topics - Income Tax Act - Section 66.7 - Subsection 66.7(16)
transfer of CRP, to the parent, out of partnerships to be wound up into the parent, to reduce risk of application of s. 66.7(16)
Summary Under
Tax Topics - Income Tax Act - Section 98 - Subsection 98(5)
application of s. 98(5) on two successive windings-up of partnerships into parent because of the s. 88(1) wind-up of partner into parent

Principal Issues: The principal issue in this ruling is CRA's interpretation of the term "wound-up" in the context of meeting the statutory conditions of subsection 88(1). The other issue is whether the conditions of subsection 98(5) have been met.

Position: The conditions of subsections 88(1) and 98(5) have been met.

Reasons: Our positions are consistent with the tax legislation and the tax policy underlying these provisions.

Technical Interpretation - External

24 July 2024 External T.I. 2023-0998901E5 - Indian Act Employment Guidelines - modern treaties

Unedited CRA Tags
81(1)(a); s87 Indian Act

Principal Issues: Do the Indian Act Exemption for Employment Income Guidelines apply to modern treaty governments with former reserve land?

Position: 1. Guidelines 1, 2, and 3 will apply. 2. Guideline 4 will not apply because the modern treaty government is neither a band as defined under the Indian Act nor a tribal council. Furthermore, it is not likely that the modern treaty government's activities are carried on exclusively for the benefit of First Nations individuals who for the most part (i.e., a majority) live on former reserve land.

Reasons: 1. Under modern treaties, former reserve lands are to be treated as reserves for purposes of the section 87 tax exemption. 2 Current Guideline 4 does not apply as a modern treaty government is not a band as defined under the Indian Act. Furthermore, it is unlikely that the modern treaty government’s non-commercial activities would be carried on exclusively for the benefit of First Nation individuals who for the most part live on a reserve.

24 June 2024 External T.I. 2023-1000861E5 - Clean technology property and phase out of AIIP

Unedited CRA Tags
Section 127.45, CCA regime incl 20(1)(a), Class 43.1, Class 43.2, Reg. 1104(4), Reg. 1100(2)

Principal Issues: A multi-year example to illustrate the phase-out period for an accelerated investment incentive property that also qualifies for the clean technology investment tax credit.

Technical Interpretation - Internal

20 March 2024 Internal T.I. 2023-0973071I7 - DeFi deposit and rewards

Unedited CRA Tags
3; 9; 248(1) “disposition”.
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Disposition
deposit of crypto into a pooling vehicle for receipt tokens, and a subsequent exchange of the receipt tokens for underlying tokens, are dispositions
Summary Under
Tax Topics - Income Tax Act - Section 9 - Computation of Profit
deposit of crypto into a pooling vehicle for receipt tokens, and a subsequent exchange of the receipt tokens for underlying tokens, are barter exchanges under IT-490

Principal Issues: 1) Assuming the Deposited Tokens and Receipt Tokens are held by the taxpayer on account of capital, do either of the following transactions result in a disposition for the taxpayer as defined in subsection 248(1) of the Act?
a) When the taxpayer deposits the Deposited Tokens into a liquidity pool on the XXXXXXXXXX platform; and
b) When the Receipt Tokens are sold or redeemed for the Deposited Tokens.
2) Assuming the Deposited Tokens and Receipt Tokens are held by the taxpayer on account of income in a business and have increased in value since their respective acquisitions by the taxpayer, should the taxpayer recognize income in the year relating to the following transactions?
a) When the taxpayer deposits the Deposited Tokens into a liquidity pool on the XXXXXXXXXX platform; and
b) When the Receipt Tokens are sold or redeemed for the Deposited Tokens.
3) Are the crypto-asset rewards received as consideration for depositing the Deposited Tokens on the XXXXXXXXXX platform included in the taxpayer’s income under sections 3 and 9 of the Act?

Position: 1) Question of fact: a) yes; b) yes.
2) a) Yes; b) yes.
3) Question of fact: yes.

Reasons: 1) Common law meaning of disposition, and none of the exclusions in the definition of “disposition” in subsection 248(1) apply.
2) General principles, and as stated in interpretation bulletin IT-490, a barter transaction results in income or expense.
3) Consistent with jurisprudence.