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.

Bundle Date Translated severed letter Summaries under Summary descriptor
2017-02-08 19 January 2017 External T.I. 2015-0576751E5 F - Trust, Disposition of depreciable property, Assumption Income Tax Act - Section 248 - Subsection 248(1) - Personal Trust non-commital as to whether assumption of debt could constitute tainting consideration
Income Tax Act - 101-110 - Section 107 - Subsection 107(2.1) s. 13(7)(e) applicable to depreciable property distribution
Income Tax Act - Section 251 - Subsection 251(1) - Paragraph 251(1)(c) trust cannot have a NAL relationship with itself
Income Tax Act - Section 13 - Subsection 13(7) - Paragraph 13(7)(e) s. 13(7)(e) applicable to s. 107(2.1) distribution but not s. 104(5) deemed disposition
Income Tax Act - 101-110 - Section 107 - Subsection 107(2) s. 107(2) generally available where beneficiary assumes trust debt
2015-12-02 18 February 2015 External T.I. 2012-0471731E5 F - Déductibilité du droit d’usage pour automobile Income Tax Act - Section 8 - Subsection 8(1) - Paragraph 8(1)(f) reduced auto enjoyment not an expenditure
Income Tax Act - Section 6 - Subsection 6(2) no reduction in benefit amount for benefits provided by employee to employer
2 November 2015 External T.I. 2014-0558991E5 F - Loan from an Amateur Athlete Trust Income Tax Act - Section 143.1 - Subsection 143.1(1.2) - Paragraph 143.1(1.2)(d) genuine loan to athlete with adequate prospect of repayment not a transfer of property
18 February 2015 External T.I. 2012-0466691E5 F - Revenu d’un Indien hors réserve Other Legislation - Federal - Indian Act - Section 87 fact that work performed by non-reserve Indian was for benefit of reserve Indians was insufficient connecting factor
15 December 2014 Internal T.I. 2014-0547191I7 F - Chantier particulier
15 December 2014 Internal T.I. 2012-0445361I7 F - Remboursement de frais de déménagement Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) reimbursement of moving expenses not a taxable benefit if such moving expenses otherwise deductible under s. 62 which, in the case of multiple moves, can turn on whether there is ordinary residence at each location
Income Tax Act - Section 2 - Subsection 2(1) criteria for determining “ordinarily resides” under s. 62 (coterminous with “ordinarily resident” under s. 250(3))
Income Tax Act - Section 248 - Subsection 248(1) - Eligible Relocation expenses re selling a Canadian home after a 2nd relocation abroad are non-deductible if no ordinary residence at 1st location abroad
15 December 2014 Internal T.I. 2014-0544121I7 F - Chantier particulier Income Tax Act - Section 6 - Subsection 6(6) work engagement ceased to be temporary based on a change in circumstances
4 March 2015 Internal T.I. 2014-0527751I7 F - Soutien de revenu accordé aux individus Income Tax Act - Section 56 - Subsection 56(1) - Paragraph 56(1)(r) includes amounts received under the active employment measures of Emploi-Québec
2015-11-25 3 November 2015 External T.I. 2015-0584261E5 F - Blood relationship - step brother Income Tax Act - Section 252 - Subsection 252(1) - Paragraph 252(1)(c) step brothers are related
2015-11-11 2 October 2015 External T.I. 2015-0595111E5 F - Amount paid pursuant to 104(24) Income Tax Act - 101-110 - Section 104 - Subsection 104(24) amount payable can include a payment in kind if authorized by trust deed
30 September 2015 External T.I. 2015-0590501E5 F - Spousal sharing Income Tax Act - Section 118.1 - Subsection 118.1(1) - Total Charitable Gifts gift allocation between spouses still permitted after 2015
15 September 2015 External T.I. 2015-0583221E5 F - Redemption by a cooperative of its own shares Income Tax Act - Section 40 - Subsection 40(1) - Paragraph 40(1)(a) - Subparagraph 40(1)(a)(i) no gain to cooperative corporation from redemption of its own preferred shares
2015-10-07 20 August 2015 External T.I. 2015-0581681E5 F - Non-resident trust rules Income Tax Act - Section 248 - Subsection 248(1) - Corporation Liechtenstein Foundation a trust
Income Tax Act - Section 94 - new - Connected Contributor Liechtenstein Foundation with Canadian-resident beneficiary not subject to s. 94(3)
2015-09-30 9 September 2015 External T.I. 2014-0563611E5 F - Call Centre - Location of the services performed Income Tax Regulations - Regulation 105 - Subsection 105(1) non-resident call centre not rendering services in Canada

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).

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