Income Tax Severed Letters - 2025-07-16

Ruling

2024 Ruling 2024-1018811R3 F - RCA, Refundable Tax, Letter of credit

Unedited CRA Tags
207.5(2); 248(1)"retirement compensation arrangement"
Summary Under
Tax Topics - Income Tax Act - Section 207.5 - Subsection 207.5(2)
an RCA trust’s refundable Pt. XI.3 tax can be refunded through winding it up and replacing it by a new LC trust

Principales Questions: A trust governed by an RCA (the first RCA trust), which has been set up to finance benefits payable under a SERP, distributes all of its assets, so that it does not hold any assets at its year-end, although the SERP is not terminated. The following year, a new trust is constituted, with a view to secure the benefits payable under the SERP (the new RCA trust). The only asset of the new RCA trust will be a letter of credit. In such a scenario, can the first RCA trust make the subsection 207.5(2) election for the taxation year in which it disposes of all its assets?

Position Adoptée: Yes.

Raisons: The conditions of 207.5(2) are met.

Technical Interpretation - External

30 January 2025 External T.I. 2024-1036931E5 - Subsection 233.4(4) reporting requirement

Unedited CRA Tags
Section 233.4, subsections 95(1), 95(4) and 248(1) of the Income Tax Act.
Summary Under
Tax Topics - Income Tax Act - Section 233.4 - Subsection 233.4(2) - Paragraph 233.4(2)(a)
a non-resident corporation could be a foreign affiliate for s. 233.4 reporting purposes of only the lowest-tier corporation in a Canadian corporate group

Principal Issues: 1. Whether the reporting requirements in subsection 233.4(4) apply to (a) a Canadian resident corporation (“Canco”) that owns, directly and indirectly, 100% of 3 non-resident corporations and (b) several holding corporations and individuals, residents in Canada, that together, directly and indirectly own the shares of Canco. 2. If the holding corporations in 1(b) are subject to the reporting requirements in subsection 233.4(4), clarify the information that must be reported.

Position: 1(a) Yes, if Canco is not exempt from Part I tax. 1(b) No. 2. Not applicable.

Reasons: 1(a) and (b) Based on the facts provided and paragraph 233.4(2)(a), for the purpose of section 233.4, the 3 non-resident corporations can be foreign affiliates of only Canco and cannot be considered foreign affiliates of the holding corporations and individuals. 2. Not applicable since the 3 non-resident corporations cannot be considered foreign affiliates of the holding corporations and individuals for the purpose of section 233.4.

17 November 2022 External T.I. 2022-0930451E5 - Requirement to issue T4A slips

Unedited CRA Tags
153(1)(g);161(11);162(7);162(7.01);162(7.02);227.1;231.2 and 238 of the Act; 100-111;200(1);205(3) and 205.1(1) of the Regulations

Principal Issues: 1. Is there a requirement for a non-profit corporation to file T4A slips in respect of fees paid to individuals for services provided to the corporation?
2. Can the non-profit corporation be liable for any taxes, penalties or interest resulting from the failure to file the T4A slips?
3. Are the directors of a non-profit corporation liable, pursuant to section 227.1 of the Act, for the penalties resulting from the failure to file the T4A slips?
4. Can section 238 of the Act apply to the failure to file T4A slips?

Position: 1. Yes.
2. Yes, the corporation would be subject to penalties and interest.
3. No.
4. Yes, under certain conditions only.

Reasons: 1. Subsection 200(1) of the Income Tax Regulations requires that T4A slips be filed when fees are paid to individuals who provide services to a corporation and where the fees paid in respect of an individual are in excess of $500 in a calendar year.
2. The Income Tax Regulations do not require that tax be deducted or withheld in respect of a payment described in paragraph 153(1)(g) of the Act. Therefore, the failure to issue T4A slips would not result in the corporation being liable for taxes. However, the failure to issue T4A slips makes the corporation liable for penalties under subsections 162(7), (7.01) and (7.02) as well as interest on these penalties pursuant to subsection 161(11).
3. Subsection 227.1(1) of the Act only applies where an amount is required to be deducted, withheld or remitted by a corporation pursuant to section 153 of the Act, the directors of a non-profit organization could not be liable under section 227.1 of the Act.
4. Section 238 of the Act requires a conviction by a provincial court. In order for a taxpayer to be convicted of an offence, provincial courts take the position that the CRA needs to serve a notice of requirement pursuant to section 231.2 of the Act and that the taxpayer fails to comply to such a notice.

Technical Interpretation - Internal

4 October 2024 Internal T.I. 2024-1013191I7 - Validity of 94(3)(f) election

Unedited CRA Tags
94(3)(f), 150(1)
Summary Under
Tax Topics - Income Tax Act - Section 94 - Subsection 94(3) - Paragraph 94(3)(f)
information missing from a T3 return which is substantive to the return would cause a s. 94(3)(f) made with that return to be invalid
Summary Under
Tax Topics - Income Tax Act - Section 150 - Subsection 150(1) - Paragraph 150(1)(c)
failure to file an asset schedule to a T3 return likely would invalidate it where such schedule illuminated the resident and non-resident portion
Summary Under
Tax Topics - Statutory Interpretation - Interpretation Act - Section 32
whether missing information invalidated a return turned on whether the missing information was substantial to return

Principal Issues: 1. Whether the schedule of assets required to be filed by question 1 of the T3 Income Tax and Information Return (T3 Return) is substantive to the filing of the T3 Return such that the T3 Return would be considered invalid if the completed schedule was not filed.
2. Whether a paragraph 94(3)(f) election that is required to be filed with the T3 Return would be considered valid if that T3 Return was considered invalid.
3. Whether a paragraph 94(3)(f) election would be considered valid if it was filed with a T3 Return that was validly filed after a previously filed T3 Return for the same taxation year had been deemed invalidly filed.

Position: 1. It is a question of fact whether information is substantial to a return of income.
2. No.
3. Yes.

Reasons: 1. If the schedule of assets is considered substantive to the T3 Return of income of a deemed resident trust, a return of income that is missing that schedule, or information substantial to that schedule, could be considered invalidly filed, or not to have been filed at all.
2. If the paragraph 94(3)(f) election is filed with an invalidly filed return of income, it will not have met the requirement that it be filed with the return of income for the "first taxation year" in which the election could be made.
3. The subsequent return of income, being validly filed, would be the return of income for the "first taxation year" in which the election could be made.

31 March 2023 Internal T.I. 2021-0885541I7 - Interest on special election reports and penalties

Unedited CRA Tags
161, 162, 83(4),130.1(4.1), 131(1.3), 185(2), 15(2.13), 183.2(2), 189(8), 204.87, 207.4(2), 209(5),211.5(1), 220(3.1), (3.2), and (3.5), 15(2.13), 212.3(13)

Principal Issues: 1. Please clarify what is considered to be the “day of the election” in subsection 185(2)? When does interest actually become payable in situations where the amount is not paid in full prior to the notice of assessment date?
2. Whether subsection 185(2) applies with respect to the calculation of interest on all elections with tax applicable (for example, Part II.1, Part III, Part V, Part X.3, Part XII, Part XII.1, Part XII.3, Part XIII)?
3. Currently, a corporation is able to file multiple elections on the same day. Is there legislation stating that multiple SERs of certain types can be filed on the same day, for the same business number? For example, Form T2054, Election for a Capital Dividend Under Subsection 83(2), might be filed for 10 or more elections on the same day, for same or different amounts. Is there a requirement to file individual elections or are these able to be combined into one election?
4. When considering refunds of statute-barred payments and credits, subsection 164(1) refers to the “return of a taxpayer’s income for a taxation year that has been made within 3 years from the end of the year...” Many of the elections are not returns, therefore what rules apply to them with relation to statute-barred payments and credits? Will the SERs elections follow the rules of the RC and RZ accounts as they relate to statute-barred payments and credits?
5. Currently, a large corporation’s amount under appeal remains payable at 50% throughout the appeal process. Will the tax assessments or penalties for SERs filed by large corporations follow these same rules?

Position: 1. Depends on the facts of the situation.
2. No.
3. Depends on the facts of the situation.
4. Yes.
5. Yes.

Reasons: 1. The legislation supports the date being the earlier of two days: the day the dividend became payable (or paid for a mortgage investment corporation ) or the first day on which any part of the dividend was paid.
2. Subsection 185(2) is only referring to an assessment of Part III tax.
3. In our view, where the legislation states that an election must be made in prescribed form, the prescribed form must be filed for the election to be valid. In contrast, if there is no prescribed form and an election is simply required to be made in a prescribed manner, or in writing in the form of a letter, the legislation does not appear to preclude numerous elections being presented in one letter, provided that all the necessary requirements are met.
4. The Act allows modified versions of sections 152 and 164 to apply to an assessment and refund of an overpayment for any of the items reflected in the provided list. Collectively, absent any administrative policies that have been adopted by the CRA, these provisions should support when an overpayment may be assessed and refunded to a taxpayer.
5. Subsection 225.1(7) applies for every part under the Act.