News of Note
Income Tax Severed Letters 30 December 2013
Email this ContentThis morning's release of 10 letters from the Income Tax Rulings Directorate is now available for your viewing.
Wednesday releases will resume next week.
NPO members can receive a taxable “shareholder” benefit
Responding to a spirited submission to the contrary, CRA maintained its position "that members of a non-profit corporation without share capital will be considered shareholders thereof for purposes of subsection 15(1)… notwithstanding that they are not entitled to receive dividends."
Neal Armstrong. Summary of 7 November 2013 T.I. 2013-0473771E5 under s. 15(1).
The post-March 2010 narrowing of “taxable Canadian property” may scupper the s. 128.1(8) carry-back election
When an emigrating individual has elected under s. 220(4.5) to defer the payment of the tax resulting from the deemed disposition under s. 128.1(4)(b) of taxable Canadian property for its fair market value, he generally can elect under s. 128.1(8) to reduce the exit tax if he subsequently sells the property for proceeds lower than the deemed s. 128.1(4)(b) proceeds.
However, there’s a catch. If, at the time of the subsequent sale, the property has ceased to be "taxable Canadian property" (as a result of the narrowing of this concept in the March 2010 budget), the s. 128.1(8) carry-back election will not be available.
Neal Armstrong. Summary of 24 October 2013 T.I. 2013-0486321E5 under s. 128.1(8).
On a spin-off through a dividend-in-kind, Spinco will take responsibility for Parent’s Part XIII remittance obligation
A Canadian public company with non-capital losses (Pubco) will be spinning off a Newco (holding non-strategic assets) to its shareholders. To avoid a shareholders' meeting, this will be accomplished through a dividend-in-kind.
In order to eliminate the Part XIII remittance obligation of Pubco, it "will cause Newco" to repurchase the requisite portion of the shares distributed by Pubco to non-resident shareholders, with the repurchase proceeds then appropriated by Newco for remittance to the Receiver General. This is magical as neither s. 215(6) nor a plan of arrangement would give Newco the authority to expropriate the non-residents' shares or the proceeds thereof. (Although Newco is relieving Pubco’s Part XIII obligation, there likely is no shareholder benefit as in theory Part XIII tax is an obligation of the non-resident dividend recipients rather than the payer – although no ruling was requested on this point.)
It gets odder. In the preliminary transactions to pre-package Newco for distribution, Pubco will subscribe nominal cash for common shares of Newco, and then drop down the non-strategic assets for interest-bearing notes and for Newco preferred shares whose redemption amount is nominal but would increase on any application of a price adjustment clause. The amount of the taxable dividend to the shareholders is minimized by only the Newco common shares being distributed. Thus, a new enterprise (Newco) could face massive dilution of its common shareholders on application of a price adjustment clause.
Neal Armstrong. Summaries of 2013 Ruling 2013-0488291R3 under s. 52(2) and General Concepts - Effective Date.
CRA rules on Canco/US Pubco RSU recharge agreement
An indirect Canadian subsidiary (Canco) of a US public company (Parent) is proposing to start reimbursing Parent for the value of shares issued by Parent to Canco employees when RSUs issued to them vest. Such reimbursements would not give rise to a taxable benefit for the reimbursements of RSUs awarded after the effective date of the new "recharge agreement." However, in the case of RSUs which had not yet vested by such effective date, CRA would only rule that there was no benefit respecting reimbursements for increases in the value of such RSUs after the effective date.
This is similar to some earlier interpretations (e.g., 990259 and 2000-003491), and contrasts with some more recent interpretations (2009-0321721I7 and 2010-0356401E5) respecting reimbursement by the subsidiary for the Black-Scholes value of options at the time of grant.
Neal Armstrong. Summary of 2012 Ruling 2010-0391281R3 under s. 15(1).
The Canadian competent authority may accommodate a downward MAP adjustment with sufficient cooperation of the foreign authority
CRA has published the circumstances in which the Mutual Agreement Procedure can be used to deal with a requested Canadian downward transfer pricing adjustment to response to a proposed upward adjustment in the foreign jurisdiction that is acceptable there:
- the foreign competent authority provides its detailed analysis and agrees to negotiate the case; and
- the request is made within the Treaty time limits and is not contrary to the policy of the Canadian competent authority.
If these requirements are not satisfied, the Canadian taxpayer can always try to fit within TPM-03.
Neal Armstrong. Summary of 20 December 2013 Update - Competent Authority Services Division under s. 247(10).
CRA permits the consolidation of group reclamation trusts
The definition in s. 211.6(1) of a "qualifying environmental trust" refers to a trust that is maintained solely for the purpose of funding the reclamation of "a" qualifying site. CRA has previously ruled (2012-0463471R3) respecting the settlement of a single new reclamation trust with respect to multiple mining sites of a Canadian public mining corporation.
Going one step further, CRA has now ruled respecting four affiliated mining companies who will dissolve their four existing reclamation trusts and replace them by a single reclamation trust for the previously-covered sites.
Neal Armstrong. Summary of 2013 Ruling 2012-0463871R3 under s. 211.6(1) - qualifying environmental trust.
LP shares are attributed to its GP for s. 256(7)(a) purposes
CRA considers that the general partner of a limited partnership controls the voting rights of shares held by the LP, subject to there being something weird in the limited partnership agreement (92 CPTJ-Q.14, 5-7883 and 2011-0428701E5). It follows that where such a limited partnership acquires majority control of a corporation, s. 256(7)(a)(i)(B) will deem there to have not been an acquisition of control if the general partner was already related to that corporation.
Neal Armstrong. Summary of 12 December 2013 T.I. 2013-0484031E5 under s. 256(7)(a).
Income Tax Severed Letters 23 December 2013
This morning's release of 10 severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Next week's release will also be on Monday (30 December 2013). Wednesday releases will resume on 8 January 2013.
The 60-month exemption from Canadian exit tax is narrow
Where a UK resident with a share ISA (the UK equivalent of a TFSA) immigrates to Canada (becoming a temporary Canadian resident) and then emigrates less than 60 months later, the shares in his ISA will be exempted from Canadian exit tax if they were held at the time of his previous immigration, but not generally if they were subsequently acquired.
Neal Armstrong. Summaries of 5 December 2013 T.I. 2013-0485661E5 under 128.1(1) and 128.1(4).