Income Tax Severed Letters - 2024-09-25

Ruling

2022 Ruling 2022-0941201R3 - Loss consolidation arrangement

Unedited CRA Tags
15(1), 20(1)(c), 20(3), 55(2), 56(2), 69(1)(b), 80, 112(1), (2.1), (2.2), (2.3) and (2.4), 245(2), 246(1)

Principal Issues: Whether Lossco can apply existing non-capital losses against interest income received on loans made to Profitcos under a loss consolidation arrangement and whether the Profitcos can deduct the interest payments.

Position: Yes.

Reasons: The proposed transactions conform to our requirements for these types of loss consolidation rulings on the basis that the entities involved are related and affiliated and the proposed transactions would be legally effective and commercially plausible.

2022 Ruling 2022-0955251R3 - Loss Consolidation Arrangement

Principal Issues: Whether change of share terms impacts rulings provided.

Position: No - rulings confirmed.

Technical Interpretation - External

27 June 2024 External T.I. 2024-1009501E5 - MHRTC - PRE and Change in Use

Unedited CRA Tags
40(2)(b), 45(1), 45(2), 45(3), 54 - definition of principal residence, 118.3(1), 122.92

Principal Issues: 1. Whether a partial change in use and deemed disposition pursuant to paragraph 45(1)(c) of the Act is considered to have occurred when a taxpayer undertakes a qualifying renovation to their eligible dwelling to create a secondary unit in accordance with the requirements of the MHRTC.
2. Whether a taxpayer’s secondary unit forms part of their principal residence for purposes of claiming the principal residence exemption pursuant to paragraph 40(2)(b) of the Act on a future disposition of their property. That is, whether the secondary unit (for instance, a basement suite or laneway home) and the primary residence are considered one housing unit of the taxpayer.

Position: Question of fact.

Reasons: 1. Whether a partial change in use and deemed disposition of a taxpayer’s property occurs (pursuant to paragraph 45(1)(c) of the Act) where a taxpayer makes a qualifying renovation to their eligible dwelling (which establishes a secondary unit) according to the requirements of the MHRTC, is question of fact and can only be made on a case-by-case basis, having regard to all the facts and circumstances of the particular taxpayer’s situation. However, since the MHRTC legislation in section 122.92 of the Act, does not impose any requirement on the taxpayer to use the secondary unit for rental or income earning purposes, and the use of the secondary unit is as a dwelling for a taxpayer’s family (that is, a qualifying individual or their qualifying relation), it is possible that in some circumstances the partial change in use rules in paragraph 45(1)(c) will not apply.
2. A taxpayer that constructs a secondary unit that is a self-contained housing unit according to the requirements of the MHRTC would generally be considered to have two separate housing units. Nonetheless, where a taxpayer uses the secondary unit for personal purposes rather than as a rental (that is, as a rental property that is a source of income for the taxpayer), and they are able to demonstrate that the two housing units are sufficiently integrated and are being used together and are functioning as one, then it may be possible to conclude that the entire property is one housing unit and as such, may be eligible for the PRE.

18 June 2024 External T.I. 2024-1013721E5 - Designation of an ERI

Unedited CRA Tags
Subsection 97(27) of the TA; subsections 38(7), (10), (11), (12), (13), (15) of the TA Regulations.

Principal Issues: Request for approved status as an “eligible research institute” under clause (c) of that definition in subsection 97(27) of the Taxation Act, 2007, S.O. 2007, c. 11, Sched. A.

Position: The corporation appears to meet the conditions required to be an ERI under subsection 97(27) of the TA as of April 10, 2024.

Reasons: The conditions listed in paragraph 2 of subsection 38(7) of Regulation 37/09 of the TA appear to be satisfied.

Technical Interpretation - Internal

4 May 2024 Internal T.I. 2023-0996351I7 - Disability tax credit - managing finances

Unedited CRA Tags
118.4(1)(b) and 118.4(1)(c.1)

Principal Issues: Whether an incapacity in decision-making specific to “managing finances” of a person under the care of a Public Guardian and Trustee, would be considered the same as a marked restriction in the mental functions necessary for everyday life, as defined in paragraphs 118.4(1)(b) and (c.1).

Position: Not necessarily. An individual’s inability/incapacity to make appropriate decisions and judgements in an isolated aspect of daily life, is not generally a determining factor, by itself, on whether the individual would be eligible for the DTC under the category of mental functions necessary for everyday life.

Reasons: An individual’s abilities and inabilities in the area of mental functions necessary for everyday life are generally considered as a whole, to determine whether overall, the individual is incapable of functioning independently and with reasonable competence in everyday life, as contemplated by the Legislator.