News of Note
In limited circumstances it may make sense for a CCPC target to make an s. 89(11) election
In the situation where, for example, a non-resident enters into an agreement to acquire a Canadian-controlled private corporation on September 1 and the agreement closes on December 1, it might be desirable for the target to make an election under s. 89(11) to be considered to not be a CCPC from the commencement of that year. This will have the advantage that it will not have a deemed year end on August 31 of that year (i.e., at the time immediately before that at which it otherwise would have ceased to be a CCPC), so that it will only have one deemed year end (immediately before the acquisition of control on December 1) rather than two.
Although making this election will also apply for small business deduction and LRIP/GRIP purposes, it will not affect the target's ability to claim the enhanced ITC for SR&ED, nor the ability of its shareholders to claim an allowable business investment loss or the capital gains deduction for qualified small business corporation shares.
Neal Armstrong. Summary of Manon Thivierge, “Income Tax Due-Diligence Considerations in Mergers and Acquisitions,” 2015 Conference Report (Canadian Tax Foundation), 18:1-29 under s. 89(11).
CRA finds that a notice of determination of partnership income or loss need not be sent to each partner
S. 152(1.5) provides that a determination of income or loss (or other items) for a partnership shall be sent to each partnership member. CRA applied s. 244(20) and Menzies to find that this requirement is deemed to be satisfied by sending the notice to the latest known partnership address.
Neal Armstrong. Summary of 18 October 2016 Internal T.I. 2016-0640321I7 under s. 244(20).
Income Tax Severed Letters 15 February 2017
This morning's release of five severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA takes an expansive view of what constitutes regular places of employment so as to render reimbursements for related travel as taxable benefits
CRA considers that if an individual has multiple regular places of employment (RPE) and travels between them during the day, the trip from the individual’s home to the first RPE and the trip home from the last RPE is personal, whereas travel between RPEs is considered employment-related – so that reimbursement of or allowances respecting the former but not the latter would give rise to employment benefits. In this context, CRA stated that “travel between an employee’s home and their employer’s business location is personal, even when the employee has a home office that is a regular place of employment” (cf. Cork), and that “a location may not be a RPE for an individual if, for example, the individual works at that particular location only once during the year or perhaps for only a few days in the year.”
Neal Armstrong. Summary of May 2016 Alberta CPA Roundtable, Q.3 under s. 6(1)(b).
Further full-text translations of severed letters (including on “spousal sharing”) are now available
Full-text translations of the French technical interpretation released last week and of seven technical interpretations released between December 2, 2015 and September 30, 2015 are now available - and are listed and briefly described in the table below.
These (and the other translations covering the last 16 months of CRA releases) are subject to the usual (3 working weeks per month) paywall.
CRA indicates that s. 163(1) penalties for 2014 and prior will not be reduced to reflect the more favourable post-2014 penalty calculation
The amended version of s. 163(1) imposes penalties for the 2015 and subsequent taxation years in accordance with a more favourable formula than previously. CRA will not exercise its discretion under s. 220(3.1) to reduce penalties assessed for the 2014 and prior taxation years to this more favourable basis, and instead will only apply its usual (somewhat onerous) criteria for penalty relief.
Neal Armstrong. Summary of May 2016 Alberta CPA Roundtable, Q.4 under s. 220(3.1).
CRA states that it will accommodate failures to make a GRE designation in the first estate return
To be a graduated rate estate, the estate, amongst more substantive requirements, must designate itself as a GRE in its first T3 return. CRA stated:
If the designation for the trust to be a GRE is omitted in error, an adjustment request containing the elements required for the designation and the rationale for the omission from the original filing may be submitted to the CRA.
No time limitation was stated.
Neal Armstrong. Summary of May 2016 Alberta CPA Roundtable, Q.18 under s. 248(1) - graduated rate estate – para. (d).
CRA acknowledges the onus on it to justify assessing T1135 penalties outside the normal statute-barring periods
Notwithstanding that CRA acknowledges that assessing a s. 162(7) penalty for failure to file T1135s for periods before the normal reassessment period (as potentially extended by three years under s. 152(4)(b.2)) would require CRA to demonstrate that such failure “was an error that a prudent and conscientious person would not have made” (which often would be difficult for CRA to do where there were few records or memories), CRA nonetheless states that in order for failure to file T1135s to be exonerated under the voluntary disclosure program, “the taxpayer would have to complete the T1135 for all years for which such filing was required.”
This was position was formulated even before the more recent trend towards providing less encouragement to taxpayers to make voluntary disclosures.
Neal Armstrong. Summaries of May 2016 Alberta CPA Roundtable, Q.17 under s. 152(4)(a)(i) and s. 220(3.1).
CRA has an internal list of facilities which, on previous review, have been considered to be nursing homes
CRA acknowledged that it has a list of facilities that have already been reviewed to determine whether they qualify as nursing homes. It will not publish this list, which is for internal use only. However, CRA auditors have been instructed not to disallow medical expense claims merely because an institution does not appear on the list.
Neal Armstrong. Summaries of May 2016 Alberta CPA Roundtable, Q.16 under s. 118.2(2)(d) and Reg. 5700(n).
It may be imprudent to distribute amounts from an FA as a single dividend
The Reg. 59071(2)(b) election to have a dividend come out of pre-acquisition surplus (i.e., as an ACB reduction), rather than out of other surplus, can only be made on a “whole” dividend. Accordingly, given uncertainties as to surplus balances, foreign affiliate distributions often prudently should be paid out as multiple dividends, so that there can be later flexibility as to which dividends, if any, will be elected upon.
Neal Armstrong. Summary of Clara Pham, “Paying FA Dividends When Surplus Balances are Unclear,” Canadian Tax Focus, Vol. 7, No. 1, February 2017, p. 2 under Reg. 5901(2)(b).