Income Tax Severed Letters - 2025-05-14

Ruling

2024 Ruling 2023-0970691R3 F - Part VI.1 of the Income Tax Act

Unedited CRA Tags
Subsection 69(1); subsection 84(3); subsection 112(1); section 121; paragraph 191.1(1); section 245; definitions “taxable preferred shares” and “short-term preferred shares” in subsection 248(1) of the Income Tax Act.
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Short-Term Preferred Share - Paragraph (a) - Subparagraph (a)(i)
Part VI.1 tax could apply to an agreement to repurchase common shares for their current FMV, if their FMV declines by the closing time
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Taxable Preferred Share - Paragraph (f)
TPS definition did not apply to common share repurchase agreement where repurchase price in fact did not exceed FMV at closing time

Principal Issues: (1) Whether a taxable Canadian corporation has to pay Part VI.1 tax on taxable dividends to be paid on shares of its capital-stock (2) Whether subsection 245(2) applies.

Position: (1) No. (2) No.

Reasons: (1)Law and facts, the shares are neither “taxable preferred shares”, nor “short-term preferred shares” within the meaning assigned in subsection 248(1); (2) Law and facts.

2023 Ruling 2022-0924311R3 - Multi-wing split up butterfly

Unedited CRA Tags
55(2), 55(3)(b), 55(3.1), 84(1), 84(2), 55(5)(e), 55(3.2)

Principal Issues: Whether the butterfly dividend is exempt from 55(2) as a result of qualifying under 55(3)(b)?

Position: Yes.

Reasons: Proposed transactions meet the requirements of paragraph 55(3)(b).

Ministerial Correspondence

25 February 2025 Ministerial Correspondence 2025-1050141M4 - First Nations organization & its employees

Unedited CRA Tags
2(1), 81(1)(a) and 149(1) of the Income Tax Act and 2(1) and 87(1)(b) of the Indian Act.

Principal Issues: 1) How does CRA determine the tax status of First Nations service organizations operating off-reserve. 2) Whether the income of employees of the First Nations organization operating off-reserve is exempt from tax under section 87 of the Indian Act? 3) Does CRA review to determine how many employees are working off-reserve in First Nations organizations? How does CRA determine the tax status of the these employees?

Position: 1) General comments provided. 2) question of fact 3) General comments provided.

Reasons: 1)&3) Based on our self-assessment income tax system, the onus is on taxpayers to accurately determine the proper reporting of their income tax situation or tax status. CRA may conduct an audit to maintain the integrity of the tax system.
2) The application of the section 87 exemption depends on whether the income in question is situated on a reserve.

Technical Interpretation - External

4 March 2025 External T.I. 2025-1053731E5 - DOF Explanatory Notes on Subsections 87(8.4) & (8.5) – Inconsistent Statement

Unedited CRA Tags
87(4), 87(8), 87(8.4), 87(8.5).
Summary Under
Tax Topics - Income Tax Act - Section 87 - Subsection 87(8.4)
the Explanatory Notes on s. 87(8.4) partially conflated it with s. 87(8)

Principal Issues: Whether the Department of Finance (DOF) explanatory notes on subsections 87(8.4) and 87(8.5) contains an inconsistent statement?

Position: Yes, the particular statement should refer to subsections 87(4) and 87(8) rather than to subsections 87(8.4) and 87(8.5) in order to be technically accurate.