News of Note
We have translated 6 more CRA Interpretations
Email this ContentWe have published a further 6 translations of CRA interpretations released in December and November, 2009. Their descriptors and links appear below.
These are additions to our set of 1,308 full-text translations of French-language Roundtable items and Technical Interpretations of the Income Tax Rulings Directorate, which covers all of the last 11 years of releases of Interpretations by the Directorate. These translations are subject to the usual (3 working weeks per month) paywall. You are currently in the “open” week for November.
CRA affirms that a s. 86 reorg normally requires the filing of articles of amendment
CRA affirmed its longstanding position that in order for there to be a reorganization of capital as required under s. 86(1), there should normally be an amendment to the corporation’s articles.
Neal Armstrong. Summary of 27 October 2020 CTF Roundtable, Q.14 under s. 86(1).
CRA extends the COVID $500 safe harbor re employer reimbursement of home office computers to other home office items
In 2020-0845431C6, CRA stated that, in the COVID-19 context, it is willing to treat the reimbursement of not exceeding $500 for the purchase of personal computer equipment that is mainly for the benefit of the employer as not being taxable.
CRA has now indicated that, although there are no current plans to increase the $500 threshold, it will be extended to office furniture or other home office items and will not be limited to computers.
Neal Armstrong. Summary of 27 October 2020 CTF Roundtable, Q.13 under s. 6(1)(a).
CRA will assess the COVID impact on APAs on a case-by-case basis
What is the COVID-19 impact on: previously negotiated advance pricing arrangements (“APAs”); mutual agreement procedures (“MAPs”) that are currently being negotiated; and benchmarking analyses that are used to establish transfer pricing policies and prepare transfer pricing compliance documentation?
After noting that advance pricing arrangements (“APAs”) are generally undertaken on the base assumption that the future will be a reflection of the past, CRA indicated that although COVID-19 changes in business conditions might pose a challenge, CRA does not consider that there is any need for a formal general policy, and those circumstances will merely inform the APAs on a case-by-case basis. Regarding APAs that are currently being negotiated, there might be a need to use some limits or critical assumptions to point to a certain return within the range.
As for MAPs currently being negotiated, CRA does not expect an impact as long as those MAPs deal with pre-pandemic years.
Transfer-pricing benchmarking studies will continue to be based on the information gathered by CRA.
Neal Armstrong. Summary of 27 October 2020 CTF Roundtable, Q.12 under s. 247(2).
CRA confirms that a 1% prescribed-rate loan can effectively replace a 2% loan if the latter loan is repaid with sales proceeds
An individual, who used a loan ("Loan 1") bearing interest at the prescribed rate (2%) to purchase securities for $100,000, now wishes to refinance the loan at 1%. Accordingly, half the securities (which have doubled in value) are sold for $100,000, which is used to repay Loan 1, and $100,000 is borrowed at the new prescribed rate of 1% ("Loan 2") to purchase new investments.
CRA confirmed that the attribution rules in ss. 74.1 and 74.2 will cease to apply after the repayment of Loan 1, and that the s. 74.5(2) exception from the attribution rules could apply to Loan 2 if the usual conditions were met.
S. 74.1(3) - which CRA described as ensuring that the attribution rules continue to apply where a new loan is used, e.g., to repay an existing loan that was used to acquire property - would not “technically” apply, because the proceeds from Loan 2 were not used to repay Loan 1.
Neal Armstrong. Summary of 27 October 2020 CTF Roundtable, Q.11 under s. 74.1(3).
CRA confirms that a refreeze does not reduce the quantum of any imputed interest under s. 74.4(2)
CRA confirmed that where an individual exchanges preferred shares received in the course of a previous estate freeze for newly-issued preferred shares with a redemption amount equal to the current (lower) equity value of the underlying corporation:
- If s. 74.4(2) applied to the original estate freeze (e.g., the distribution restriction in s. 74.4(4) was not complied with), the preferred shares received on the refreeze will be excluded consideration that do not reduce the “outstanding amount” (as determined under s. 74.4(3)) on which the deemed interest benefit is computed under s. 74.4(2).
- If the refrozen preferred shares are redeemed for cash consideration, that consideration will reduce the outstanding amount, but only to the extent of the fair market value of those shares. However, the corporate attribution rules would cease to apply, for example, when the children were no longer minors.
Neal Armstrong. Summary of 27 October 2020 CTF Roundtable, Q.10 under s. 74.4(3). See also Demner and McIsaac.
GST/HST Severed Letters August 2020
This morning's release of five severed letters from the Excise and GST/HST Rulings Directorate (identified by them as their August 2020 release) is now available for your viewing.
CRA indicates that a UK LLP is a corporation in light [inter alia?] of its separate legal personality
Under the UK’s Limited Liability Partnerships Act 2000, a limited liability partnership (“UK LLP”) is treated in the UK as a separate legal entity, but the profits of its business are taxed as if the business were carried on by partners in partnership, rather than by a body corporate
CRA orally indicated that it would consider the UK LLP to be a corporation under its two-step approach, in light of the LLP’s separate legal personality.
There presumably is more to the CRA’s position than this – otherwise it would contradict its position that an ordinary Delaware LP (as contrasted to an LLP or LLLP) is a partnership for ITA purposes notwithstanding that such “a limited partnership is a separate legal entity:” 14 August 2008 External T.I. 2004-0104691E5. Also note that Scottish partnerships have been found to be partnerships under a two-step approach despite their separate legal personality (see Anson, [2013] EWCA Civ 63, at para. 64, rev'd on other grounds).
Neal Armstrong. Summary of 27 October 2020 CTF Roundtable, Q.9 under s. 248(1) – corporation.
CRA generally accepts that formula-based appreciation plans are not SDAs where the formula closely tracks the FMV of the employer’s shares over the plan’s duration
CRA reiterated its statements in 2020-0850281I7 that it will no longer consider any ruling requests to whether a formula-based appreciation plan is a salary deferral arrangement, unless the plan is one described in ATR-45 (re share appreciation rights plans), or the request is about whether one of the exceptions, listed in the SDA definition, applies - but went on to note that it accepts that many formula-based appreciation plans are not SDAs where the underlying formula closely approximates the FMV of the relevant shares of the corporate employer over the duration of the plan.
Neal Armstrong. Summary of 27 October 2020 CTF Roundtable, Q.8 under s. 248(1) – SDA.
CRA intimates that use by the children of the cottage held in an alter ego or joint spousal trust is not permitted
The general CRA position is that where, pursuant to the terms of the trust indenture or will, a trust owns personal-use property (e.g., a cottage) for the benefit or personal use of a beneficiary, no taxable benefit will be assessed to that beneficiary for the rent-free use of such property.
When asked whether this position also applies to a trust that is an alter ego trust or a joint spousal trust or a common-law partner trust, CRA noted that in order to meet the conditions of s. 73(1.01)(c), the alter ego trust must be a trust under which no person except the settlor may receive or otherwise obtain the use of any of the income or capital of the trust before the settlor’s death – and similarly, for a joint spousal trust or a common-law spousal trust.
CRA’s anemic language may suggest that this is not a point it will pursue with gusto.
Neal Armstrong. Summary of 27 October 2020 CTF Roundtable, Q.7 under s. 73(1.01)(c) and s. 105(1).