News of Note
CRA specifies how to file a s. 185.1(2) election in (non-prescribed) manner
Email this ContentNo Regulation has been promulgated specifying the "prescribed manner" for electing under s. 185.1(2) to convert an excessive capital dividend into a taxable dividend. CRA indicates that you should follow the directions on its website.
Summary of Q. 23 of 9 October 2015 APFF Roundtable under 2015 APFF Conference.
CRA recognizes that its extension of an individual return filing deadline also extends the one-year Notice of Objection deadline
Where, as an administrative matter, CRA extends the deadline for filing a return (as happened for the 2014 year in the case of individuals), CRA considers that there is a corresponding extension in the one year deadline for individuals to file a notice of objection for that year. Thus, individuals have a general right to file Notices of Objection for their 2014 year up until at least May 5, 2016.
Summary of Q. 22 of 9 October 2015 APFF Roundtable under 2015 APFF Conference.
CRA accepts that where a return filing deadline falls on a Saturday, the deadline for related forms also is extended to the Monday
CRA considers that Saturdays are "public holidays" as defined in the Interpretation Act. Among other things, this means that if the return filing deadline of the taxpayer falls on a Saturday (e.g., Saturday, April 30, 2016), the filing deadline for related forms to be filed by that deadline (e.g., Forms T2057, T1134 and T5013) will be extended to the following Monday.
Summary of Q. 21 of 9 October 2015 APFF Roundtable under 2015 APFF Conference.
CRA confirms that employer-provided parties generally do not give rise to a taxable benefit
It is "the CRA’s position is that when an employer offers free-of-charge, to all employees, a party or other social event, there is no taxable benefit if the cost per party or other social event does not exceed $100 per person." CRA has confirmed that this position extends to "a ‘5 to 7’ [a Quebec term presumably referring to some sort of after-work event with free drinks] or a team lunch of a social nature."
"When the usage of a bike stand area [on the employer’s facilities] by an employee is difficult to quantify and measure, the CRA is of the view that a benefit is not required to be included in computing the income of the employee who uses the bike parking stand." Furthermore, "the furnishing of internal recreational facilities of the employer offered to all the employees does not give rise to a taxable benefit to them."
Summary of Q. 20 of 9 October 2015 APFF Roundtable under 2015 APFF Conference.
CRA reaffirms using FIFO to determine if debt repayments satisfy s. 15(2.6)
CRA has indicated that it does not have the discretion to not apply s. 15(2), where the applicable statutory exceptions are not available, to amounts that become owing to Canco by a non-resident affiliated Finco in connection with a cash pooling or other centralized cash management arrangement for a multinational group. However, CRA states that
in the context of subsections 15(2) and (2.6), unless the facts indicate otherwise, the CRA generally accepts that repayments are applied to loans or indebtedness utilizing the method "first in first out"
i.e., unless the debtor otherwise specifically applies the repayment, it is applied to the oldest debt first.
Neal Armstrong. Q. 19 of 9 October 2015 APFF Roundtable under 2015 APFF Conference.
CRA notes that income allocated under s. 96(1.1) can have specific sourcing, e.g., as dividend income
CRA declined to comment specifically on a scenario in which a Canadian professional partnership, which holds a 70% interest in a corporation carrying on a business ("Opco"), agrees with a retiring partner under s. 96(1.1) that he will preserve a right to a share of the dividends that may eventually be paid by Opco to the partnership. However, CRA noted that "the presumptions in subsection 96(1), in particular, those respecting the nature of items of income, should apply respecting the part of the income shared by each partner of the partnership, including the departing partner."
CRA also noted that the departing partner generally could claim a capital loss if the only amounts he would thereafter receive from the partnership would be a share of Opco dividends determined in accordance with the s. 96(1.1) agreement, if he happened to have a positive adjusted cost base for his partnership interest after taking into account all his partnership distributions.
Neal Armstrong. Q. 17 of 9 October 2015 APFF Roundtable under 2015 APFF Conference.
CRA does not require a price adjustment clause to reduce income for an excessive management fee
When CRA disallows part of the deduction by a corporation of the management fee charged to it by another (presumably affiliated) corporation ("Managementco"), it generally will accept a downward adjustment to the revenues of Managementco if Managementco reimburses the other corporation for the denied amount, Managementco’s relevant taxation year is not statute-barred and it sends a written request to CRA in which it "demonstrate that it has reimbursed, or committed to reimburse, a sum equivalent to that whose deductibility was denied." However, CRA will not do this "if there is abuse or a deliberate overstatement of the fees."
Neal Armstrong. Q. 10 of 9 October 2015 APFF Roundtable under 2015 APFF Conference.
CRA is non-committal on interest deductibility where only the indirect use of borrowed funds is to acquire Target’s shares
When asked about interest deductibility where, in the context of a leveraged buy-out, the Bank lends to Target under a secured loan bearing interest at 5%, Target lends the same sum to Acquireco at 5.5% interest, and Acquireco uses the same sum to purchase all of the shares of Target, CRA stated:
The submitted situation is not a typical leveraged buy-out structure. It instead more resembles… C.R.B. Logging… . We are not currently disposed to take a position respecting such a hypothetical scenario, but would be prepared to consider this question in the context of an advance ruling request.
Neal Armstrong. Q. 11 of 9 October 2015 APFF Roundtable under 2015 APFF Conference.
CRA confirms that a part disposition of a partnership interest results in an anomalous pro rata reduction in the partner’s at-risk amount for the year of disposition
If a taxpayer disposes of all of its limited partnership interest partway through the partnership year but is allocated a partnership loss for that year, its full partnership ACB before the disposition can be taken into account (by virtue of s. 96(1.01)) in computing its at-risk amount at the end of that year, so that it would typically be able to deduct that loss against its other sources of income.
In contrast, if it instead disposes of most but not all of its partnership interest, there will be an immediate pro rata reduction in the ACB of its partnership interest, so that its at-risk amount at the end of the partnership year, and the deductible amount of the loss, will be correspondingly reduced. CRA notes that "no legislative provision alters this result."
Neal Armstrong. Q. 16 of 9 October 2015 APFF Roundtable under 2015 APFF Conference.
Income Tax Severed Letters 28 October 2015
This morning's release of eight severed letters from the Income Tax Rulings Directorate is now available for your viewing.