News of Note
CRA finds that the appointment of a replacement trustee qualifies as an acquisition of trust shares under s. 256(7)(a)(i)(A)
Email this ContentCRA has ruled that where the three unrelated individual trustees of a trust resign in succession with three corporations wholly-owned by them appointed as replacement trustee, there will be no acquisition of control of a corporation controlled by the trust (Opco). The narrow technical point appears to be that the concurrent resignations and appointments qualify as an "acquisition" of the shares of Opco by the new trustee corporations for purposes of s. 256(7)(a)(i)(A) - and that, if the resignations and appointments were not sequenced in this seriatim manner, it might be considered that control of Opco has been acquired by an unrelated group.
Neal Armstrong. Summary of 2011 Ruling 2010-0360921R3 under s. 256(7)(a).
CRA confirms that a non-Treaty company potentially can qualify for Treaty benefits “through” a U.S. partnership
CRA has published its position that a company which is resident in a non-Treaty country (e.g., the Caymans) nonetheless may qualify for the branch profits reduction under Art. X(6) of the Canada-U.S. Convention on its share of Canadian branch profits of a U.S. partnership that has elected to be a domestic corporation for Code purposes, if those profits qualify as connected to a substantial U.S. active business under Art. XXIX-A(6).
Neal Armstrong. Summary of 17 May 2012 IFA Round Table "Branch Tax Rate" 2012-0444151C6 under Treaties – Art. 10.
Petrominerales share dividend program avoids current taxation of participants
Petrominerales is adopting a share dividend program. Electing participants will receive their dividends through the issuance of further common shares at a 5% discount to the 5-day VWAP price, rather than in cash
Although economically similar to a DRIP, the amount of the dividend for Canadian tax purposes is equal to the nominal stated capital of the shares issued. Bonavista, CAE, Enerplus and Husky already have similar programs.
Neal Armstrong. Summary of Petrominerales Circular under Other - Share Dividend Program.
ACI Properties - Tax Court finds that a second taxpayer cannot be brought into tax dispute under s. 174 where the Minister had already made up her mind
In a situation where one taxpayer (AFT) claimed that it had paid a $1.95 million amount as a deductible management fee and the recipient (ACI) claimed that it was a capital receipt, CRA decided in favour of the management fee characterization and reassessed ACI accordingly (although it also obtained a waiver from AFT).
Bocock J found that the Minister was precluded from bringing an application approximately five years later under s. 174 for a determination in relation to both AFT and ACI as to the amount's characterization. A s. 174 application is required to be brought "in relative chronological proximity" to the Minister's determination that the matter is ambiguous - whereas here, she had made up her mind five years before the application was brought.
Neal Armstrong. Summary of ACI Properties v. The Queen, 2013 TCC 101 under s. 174.
Dundee spin-off transaction has indemnities for butterfly and prohibited investment risks
Dundee Corporation is spinning of a 50% shareholding in Dundee Realty Corporation to its shareholders, which will be held in a new public corporation to be known as DREAM Unlimited Corp. Although both Dundee and DREAM are controlled by Ned Goodman, the spin-off is required to comply with the butterfly rules. No ruling has been sought.
If butterfly treatment is not available because of a subsequent act of Dundee or DREAM, it will generally be required to indemnify the other party under the Arrangement Agreement.
Ned Goodman will be indemnified for the 50% prohibited investment tax respecting his RRIF if a Finance comfort letter is not implemented.
Neal Armstrong. Summary of Dundee Circular under Spin-offs - Butterfly Spin-Offs.
CRA publishes look-through/gross-asset approach to characterization of shares of companies holding Canadian real property
CRA has finally released its Round Table response at the 2011 CTF annual conference at which it confirmed that debts could no longer be allocated to specific properties for purposes of determining whether shares are deemed real property for Treaty purposes, and describing the proportionate recharacterization of a portion of shares of a subsidiary as being Canadian real property (based on its relative asset holdings) for purposes of the taxable Canadian property definition.
Neal Armstrong. Summaries of 28 November 2011 CTF Round Table, Q. 2, 2011-0425901C6 under Treaties - Art. 13 and ITA - s. 248(1) - taxable Canadian property.
CRA confirms acceptance of Singleton-style mechanical tracing approach
CRA has confirmed that the interest-tracing approach relied upon in Lipson would have "worked" but for the application of GAAR to the transactions on the basis that there was an abuse of the income attribution rules.
Neal Armstrong. Summary of 27 February 2013 T.I. 2013-0477601E5 under s. 20(1)(c).
Income Tax Severed Letters 24 April 2013
This morning's release of 39 letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA considers conference attendance fees to be for IPP rather than services supplies for HST purposes
CRA has indicated that where members of a national organization are charged separate fees for a conference to be held at a Canadian location, that fee will be characterized for purposes of the HST place-of-supply rules as being consideration for a supply of intangible personal property, so that the location of the conference will govern the place of supply.
If CRA had instead considered that the fee was for a service, a potential complication would have arisen: if the individual attended the conference, the place-of-personal-performance rule (in s. 17) might govern; whereas if the individual was to be a "no show" (which might not be known, if at all, until after the fee was charged), the recipient's business address rule (in s. 13(1)) might govern.
Neal Armstrong. Summaries of 17 January 2013 Ruling Case No. 130479 under New Harmonized Value-Added Tax System Regulations, ss. 6(1) and 8.
Public company debt for debt-and-equity exchange is structured to reduce s. 80 hit
CRA has ruled on the restructuring under a plan of arrangement of debt of a public company (Aco) in financial difficulty. In order that common shares issued to the debtholders will have a greater value (thereby reducing the s. 80 hit), those shares will be issued to them by a new corporation (New Aco) to which Aco, in turn, will issue notes and preferred shares. The existing equity of Aco will then be redeemed for further New Aco shares, so that New Aco will be the "top" group company.
The steps are sequenced so that capital losses arising on a change-of-control write-down (under s. 111(4)(d)) can be applied to absorb the forgiven amount arising to Aco – and there also is a debt tuck-under and winding up transaction similar to 2012 Ruling 2011-0426051R3 summarized below.
Neal Armstrong. Summary of 2012 Ruling 2012-0452821R3 under s. 80(1) – forgiven amount.