News of Note
CRA treats a partnership interest as a single property - but shareholdings are different!
Email this ContentCRA may view the interest of a taxpayer in a partnership as a single property. For example, the taxpayer may not accomplish anything by purporting to hold both preferred and participating partnership interests with supposedly separate adjusted cost bases. Consistently with this view, CRA considers that the s. 70(6.2) election, to deem a "property" of a deceased taxpayer passing to a spouse to be disposed of for its fair market value, cannot be made with respect to a portion of the taxpayer's partnership interest (including, presumably, units of a unitized partnership).
However, each share of a corporation is viewed as a separate property, so that the election can be made with respect to a portion of the deceased taxpayer's shareholdings (except in the unusual situation where he or she held only one share).
Neal Armstrong. Summary of 12 June 2012 STEP CRA Roundtable, Q. 9 2012-0442921C6 under s. 70(6.2).
American Hotel Income Properties REIT LP achieves flow-through treatment for U.S. properties
The American Hotel Income Properties REIT LP is a Canadian limited partnership which will hold a newly-acquired portfolio of U.S. hotel properties through a subsidiary U.S. private REIT. This is targeted to achieve flow-through treatment in both jurisdictions.
Neal Armstrong. Summary of American Hotel Income Properties REIT LP preliminary prospectus under Foreign Asset Income Funds and LPs.
A new trend – Alamos tax disclosure excludes CRICs
Alamos (which has only foreign mining properties) has structured its offer for Aurizon (which on an aggregate basis provides 50% share consideration (Alamos shares) and 50% cash consideration) so as to ensure that the s. 85.1 rollover is not available except for shareholders who receive only Alamos shares. The tax disclosure states that it does not apply to corporations resident in Canada who are non-resident controlled for purposes of the foreign affiliate dumping rules.
Neal Armstrong. Summary of Alamos Circular under Unsolicited Bids.
CRA accords a broad meaning to the concept in s. 84(2) of a distribution occurring "on" the reorganization or discontinuance of a "business"
S. 84(2) deems a Canadian-resident corporation to pay a dividend to the extent that a distribution made by it "on the winding-up, discontinuance or reorganization of its business" exceeds the related reduction, if any, in the paid-up capital of its shares. In response to a question directed at a "pipeline strategy" (see 2011 STEPs Roundtable, Q. 5 2011-0401861C6), CRA noted that "business" for this purpose includes earning property income from investments, and that the broad meaning of the word "on" could include, for example, the situation where sales proceeds of a business are distributed some time after the sale.
Neal Armstrong. Summary of 29 May 2012 CTF Prairie Tax Conference, Q. 14 2012-0445341C6 under s. 84(2).
CRA publishes comment on beneficial ownership for Treaty purposes
CRA has published its response at the 2012 IFA Conference respecting when a recipient of interest, royalties etc. is the beneficial owner of those amounts for Treaty purposes. It states that it "will generally accept that a payment will be for the recipient's use and enjoyment, and that the recipient assumes risk and control over the payment, if the recipient holds a sufficient degree of discretion with respect to the use or application of the payment." This is similar to an earlier statement (see 2009 IFA Roundtable, Q.1 (No. 2009-0321451C6)).
Neal Armstrong. Summary of 17 May 2012 IFA Round Table 2012-0444041C6 under Treaties - Art. 11.
CRA accepts that shares of mortgage corporations generally are not taxable Canadian property
CRA considers that the shares of a private corporation holding mostly undefaulted mortgages on Canadian properties do not derive their value more than 50% from the real estate, so that such shares are not taxable Canadian property.
Neal Armstrong. Summary of 13 September 2012 CICA Compliance Conference, 2012-0453021C6: under s. 248(1) - taxable Canadian property.
Income Tax Severed Letters 16 January 2013
This morning's release of 40 severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Newly-released information GST/HST reporting requirements for pension plan employers are not onerous
The Government's loss in the General Motors case caused it to enact s. 172.1, which requires employers to remit imputed GST or HST on their expenditures in administering employee pension plans. CRA has now released the required information reporting that the employer is required to provide to the pension plan (which is entitled generally to a rebate of 33% of the imputed tax).
Generally, it's not very onerous (and there doesn't appear to be a prescribed form). Typically, in addition to minor administrative particulars, the employer is only required to specify the aggregate federal and (if applicable) provincial imputed tax for the year - although there's a vague statement to the effect that where there were actual supplies to the pension fund, "the employer must provide sufficient information to enable the pension entity to claim an ITC... ."
Neal Armstrong. Summary of Notice No. 280 "Section 172.1 Information Requirements" January 2013 under ETA - s. 172.1(8).
CRA notes that a distributor/marketer separation may deprive them of access to the promotional allowance HST/GST rule
Where a registrant pays or credits an allowance to another registrant (e.g., a retailer) in order to promote sales by the retailer of its product, the allowance generally will be treated for HST/GST purposes equivalently to the payment of a tax-included rebate, that effectively reduces the net remittance obligations of the payor of the allowance and the input tax credits of the retailer.
CRA has indicated that a separation of roles between a distributor (who supplies the property being promoted) and a marketer (who makes the promotional agreements and payments) within a related group will prevent this rule from applying, as it requires that the registrant providing the promotional allowance also have sold the property being promoted. An agreement that the marketer provide the allowance as agent of the distributor would be necessary.
Scott Armstrong. Summary of 27 July 2012 Interpretation Case No. 126511 under ETA s. 232.1.
CRA agrees that an obligation to return excess remuneration does not give rise to imputed interest
An employee was obligated to repay excess remuneration previously received. (The payroll service had not been informed that the employee was on unpaid leave.) CRA indicated that this repayment obligation did not constitute a non-interest-bearing loan to the employee (so that there was no interest imputation under s. 80.4) notwithstanding that it was agreed that the repayment would occur gradually over an extended period of time.
Neal Armstrong. Summaries of 13 June 2012 Memorandum 2012-0448961I7 F under ss. 8(1)(n) and 80.4(1).