News of Note
We have translated 6 more CRA interpretations
Email this ContentWe have translated a further 6 CRA interpretations released in September and August of 2001. Their descriptors and links appear below.
These are additions to our set of 2,940 full-text translations of French-language Technical Interpretation and Roundtable items (plus some ruling letters) of the Income Tax Rulings Directorate, which covers all of the last 23 years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
It is proposed that Filo be jointly acquired by BHP for BHP cash, and by Lundin Mining for cash and shares
It is proposed that Filo, a TSX-listed CBCA corporation indirectly holding a large deposit in Argentina and Chile, will be acquired by a Canadian joint venture company (JVCo) to be held on a 50-50 basis indirectly by (TSX-listed) Lundin Mining and by a Canadian subsidiary (BHP) in the BHP Group (the parent’s primary listing is in Australia). Lundin Mining holds an adjacent property in Argentina (held indirectly by a Canadian subsidiary termed “Josemaria”).
A Contribution Agreement between Lundin Mining and BHP contemplates that Lundin Mining will contribute Josemaria to JVCo for its 50% interest and BHP will contribute US$690 million in cash for its 50% interest. Furthermore, however, they will jointly purchase all the Filo shares for consideration consisting of BHP and Lundin Mining cash of around $1.908 billion and $0.859 billion, respectively, and the issuance by Lundin Mining of around 92.1 million shares. The Filo shareholders can elect to receive cash or Lundin Mining shares, subject to proration to maintain the agreed mix. All the Filo shares (including the 5% stake already held by BHP and the 0.5% stake of Lundin Mining) will also be contributed to JVCo.
The plumbing to accomplish the final structure of JVCo holding all of Filo and Josemaria in general involves:
- BHP lending both the Filo acquisition cash and JV cash to Lundin Mining and receiving the "BHP notes";
- Lundin Mining then acquiring all the Filo shares (not already held by BHP and it) for the agreed cash and share consideration;
- Lundin Mining then contributing Filo (through intermediate Canadian holding companies) to JVCo in consideration for shares and the assumption of the BHP notes; and
- BHP converting the BHP notes into JVCo shares (as well as transferring its existing 5% interest in Filo to JVCo for JVCo shares);
so that, after the dust settles, JVCo is held on the agreed 50-50 basis.
Those Filo shareholders who elect to receive Lundin Mining shares are also required to receive a nominal amount of cash ($0.0001 per Filo share), so that they can only potentially receive rollover treatment if they qualify as taxable investors and request, within 60 days of the effective date of the CBCA plan of arrangement, that Lundin Mining jointly elect with them under s. 85.
Neal Armstrong. Summary of Circular of Filo Corporation under Mergers & Acquisitions – Mergers – Shares for Shares and Cash.
CRA rules on successive butterflies to effect the creation of a 2nd public corporation
CRA ruled on butterfly spin-off transactions to effect the split-up of DC2, a public corporation, into two publicly listed companies: DC2 and SpinCo. There were to be two successive butterflies since the subsidiaries to be transferred to SpinCo started off as subsidiaries of a wholly-owned subsidiary of DC2, namely, DC1. Accordingly, such subsidiaries were to be first dropped under s. 85(1) into a Newco subsidiary of DC1, then Newco was to be spun-off by DC1 to a newly-formed subsidiary of DC2 (SpinCo Sub) under a butterfly, and then DC2 was in turn to effect a butterfly spin-off pursuant to a plan of arrangement of SpinCo Sub to SpinCo (now held by the DC2 shareholders).
DC1 was a “specified wholly-owned corporation” so that, pursuant to s. 55(3.02), and like DC2, it was not subject to the types-of-properties strictures on its butterfly spin-off.
The ruling letter provides that the Arrangement Agreement was to state:
DC2 and SpinCo will:
a. covenant and agree with and in favour of each other that for a period of time after the Effective Date to be agreed upon, they will not (and they will ensure that their respective subsidiaries will not) take any action or enter into any transaction that could cause the transactions contemplated in the Plan of Arrangement or by the Arrangement Agreement to be taxed in a manner that is inconsistent with the rulings provided in this letter without obtaining another tax ruling or an opinion of a nationally recognized accounting firm or law firm that such action or transaction will not have such effect; and
b. agree to indemnify each other for losses suffered or incurred as a result of or in connection with a breach or non-compliance with the covenant described in item (a) above.
Neal Armstrong. Summary of 2024 Ruling 2023-0987001R3 under s. 55(3.02).
Nicosia - Tax Court finds that individuals’ brief occupancy of their newly-constructed home was sufficient to exempt its sale (no self-supply was assessed)
Two adult siblings, while living with their parents, used funds mostly provided by their parents to acquire and tear down an existing Toronto home, construct a new house and list it for sale immediately after the issuance of a certificate of occupancy, with the sale occurring half a year later.
Yuan J accepted the siblings’ testimony that they occupied the new house for a period of around a month prior to the issuance of the occupancy certificate. Regarding the exemption in ETA Sched. V, Part I, s. 2 (for a sale of a residential property by a non-builder), this finding helped to support that the property was acquired for personal use rather than in the course of a business or an adventure in the nature of trade. On the other hand, if the siblings were builders who resided at the new house prior to the sale and the s. 191(1) self-supply rule did not apply to them due to the s. 191(5) exemption for building for own use, the sale would be exempted pursuant to Sched. V, Part I, s. 3. If they were builders without the s. 191(5) exemption applying, then their occupation of the house as a residence prior to the start of the assessed reporting periods would attract GST/HST on a self-supply occurring at the time of such residential occupancy (which had not been assessed) - rather than at the time of the subsequent sale, which would be exempted under Sched. V, Part I, s. 4. Accordingly, given the occupancy finding, the sale was exempted under each alternative.
It thus was unnecessary to find whether the siblings were builders, and Yuan J noted uncertainty on this point given inter alia that around $1 million of the profit on the sale went to the siblings’ parents.
Neal Armstrong. Summary of Nicosia v. The King, 2024 TCC 112 under ETA Sched. V, Part I, s. 4.
CRA has officially published the June 2024 STEP Roundtable
CRA released today for publication its official written answers to the question posed to it at the 4 June 2024 STEP Roundtable. The table below lists and provides brief descriptions of the responses and links to the more detailed summaries that we prepared in June.
Income Tax Severed Letters 4 September 2024
This morning's release of 15 severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA rules that post-butterfly sales and redemptions of shares received on the butterfly were not part of the same series
CRA ruled on whether subsequent sale and redemption transactions involving shares that had been distributed on the third butterfly reorganization described in 2020-0848061R3 would cause the s. 55(3)(b) exception to cease to be available pursuant to s. 55(3.1).
In that butterfly reorganization, a pro rata portion of the shares of a corporation (Xco) was spun off by a corporation owned jointly by two unrelated family corporations (Dco and Eco) to the transferee corporation of Eco, so that, following appropriate amalgamations, the two families’ holding companies (Dco Amalco and Eco Amalco) now held “their” Xco shares directly. The balance of the Xco shares were held by the holding company for a third family (Aco Amalco, for the family of A) which had also participated indirectly (through a predecessor) in the butterfly reorganizations but not so as to affect its direct ownership throughout of Xco shares. Some Xco shares were also held by the holding company for a son of A, and by an unrelated third party.
Now, about a year later, Dco Amalco and Eco Amalco wanted to exit from their investment in Xco rather than committing the additional funds required to expand the Xco business. Accordingly, it was proposed that Aco Amalco would purchase the Xco shares of Eco Amalco (which would be problematic under s. 55(3.1)(c) if this occurred as part of the same series of transactions as the third butterfly) and that Xco would redeem the shares of Dco Amalco, including through the application of share subscription proceeds received from the holding company for the son of A (which would be problematic under s. 55(3.1)(d), as expanded by s. 55(3.2)(e), if part of the same series) – so that Xco would now mostly be owned by the two A-family companies.
In explaining its granting of the ruling, the CRA summary stated:
The taxpayers’ representations that the Proposed Transactions are not part of the same series of transactions as the Sequential Butterfly are reasonable and supported by the facts.
Neal Armstrong. Summary of 2023 Ruling 2022-0958601R3 under s. 55(3.1)(c).
CRA rules on sequential wind-ups of child, then grandchild, under s. 88(1) where the dissolutions were held in abeyance until resolution of tax litigation
After preliminary transactions, ParentCo and its historic subsidiary, SubCo were to be the only partners of a general partnership (Partnership C); and Partnership C, ParentCo and SubCo’s newly-incorporated subsidiary, NewCo2 were to be the only partners of a second general partnership (Partnership D).
Except as described below, SubCo was then to be wound-up into ParentCo (so that Partnership C would be dissolved by operation of law on a s. 98(5) rollover basis) and then, at least one week later, NewCo2 was to be wound-up into ParentCo (so that Partnership D also would be dissolved by operation of law on a s. 98(5) rollover basis). However, SubCo was currently in disputes (entailing litigation) with CRA regarding the results of multiple audits, and it was not expected that these disputes would be resolved prior to the implementation of the proposed transactions. Accordingly, the proposed steps contemplated that all the other steps for the winding-up of SubCo would occur on the same day, but the articles of dissolution for SubCo would not be filed until the tax litigation was settled – and similarly for the winding-up of NewCo2 which was to be commenced and largely implemented perhaps one week later.
CRA ruled that s. 88(1) would apply “on” the winding-up of SubCo, then of NewCo2, which it defined as all the steps from commencement of the winding-up to dissolution. Although not stated, presumably it was intended that the rollover provisions (e.g., the non-disposition rule in s. 88(1)(a.2) for a partnership interest) would apply from the outset in the taxation year that all these steps other than the dissolution occurred. CRA also provided somewhat apodictic rulings regarding the application of s. 98(5) to the windings-up of Partnerships C and D into ParentCo (i.e., it will apply if its conditions are met), including contemplating that there could be a bump of land, or shares of a public company.
One of the preliminary transactions on which CRA did not rule was the sale by Partnerships C and D of Canadian resource properties (CRP) to ParentCo for cash consideration so as to reduce the balances in their successor CCEE and CCOGPE, thereby minimizing the risk of s. 66.7(16) applying as a consequence of CRP transfers to ParentCo on their windings-up. (ParentCo expected to earn income from the CRP so transferred to it by Partnerships C and D at least equaling the amount of the successor CCDE and successor CCOGPE related to that CRP that might otherwise been stranded pursuant to s. 66.7(16) as a result of the partnerships’ dissolution.)
Neal Armstrong. Summaries of 2023 Ruling 2022-0941241R3 under s. 88(1), s. 66.7(16) and s. 98(5).
We have translated 6 more CRA interpretations
We have translated a further 6 CRA interpretations released in September of 2001. Their descriptors and links appear below.
These are additions to our set of 2,934 full-text translations of French-language Technical Interpretation and Roundtable items (plus some ruling letters) of the Income Tax Rulings Directorate, which covers all of the last 23 years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
| Bundle Date | Translated severed letter | Summaries under | Summary descriptor |
|---|---|---|---|
| 2001-09-14 | 20 September 2001 Internal T.I. 2001-0091517 F - CHOIX LORS DE DISPOSITION DE BIA | Income Tax Act - Section 40 - Subsection 40(1) - Paragraph 40(1)(a) - Subparagraph 40(1)(a)(iii) | deemed disposition of eligible capital property as capital property pursuant to s. 14(1.01) applies for all purposes including capital gains reserve |
| 6 September 2001 Internal T.I. 2001-0094327 F - DEMANDE DE CONTRIBUABLE | Income Tax Act - Section 111 - Subsection 111(8) - Non-Capital Loss | non-capital loss could be recomputed for a prior year which had not been assessed | |
| Income Tax Act - Section 152 - Subsection 152(4) | CCRA should not exercise its discretion to reassess a taxation year to allow the carryforward of a non-capital loss arising as a result of a favourable court decision | ||
| Income Tax Act - 101-110 - Section 110.1 - Subsection 110.1(1.1) | donation previously claimed in a prior year but no longer needed in that year could not be re-claimed in a subsequent year | ||
| Income Tax Act - Section 164 - Subsection 164(6.1) | s. 164(6.1) inapplicable to amendment to non-capital loss for a prior year consequent on a favourable court decision | ||
| Income Tax Act - Section 111 - Subsection 111(3) - Paragraph 111(3)(a) | s. 111(3)(a) precluded the application of a non-capital loss that had previously been claimed for a prior year even though there no longer was taxable income in that prior year | ||
| 21 June 2001 Internal T.I. 2001-0064177 F - FRAIS MEDICAUX-AMBULANCE AERIENNE | Income Tax Act - Section 118.2 - Subsection 118.2(2) - Paragraph 118.2(2)(f) | costs of air ambulance between hospitals qualified | |
| Income Tax Act - Section 118.2 - Subsection 118.2(2) - Paragraph 118.2(2)(a) | costs of medical personnel on air ambulance between hospitals qualified | ||
| 17 July 2001 Internal T.I. 2001-0075897 F - FRAIS MEDICAUX-EPILATION AU LASER | Income Tax Act - Section 118.2 - Subsection 118.2(2) - Paragraph 118.2(2)(a) | fees paid to health care professional for cosmetic care (e.g., laser hair removal) qualify | |
| 2 August 2001 Internal T.I. 2001-0076187 F - FRAIS MEDICAUX-IMPLANTS MAMMAIRES | Income Tax Regulations - Regulation 5700 - Section 5700 - Paragraph 5700(j) | breast implants do not generally qualify | |
| Income Tax Act - Section 118.2 - Subsection 118.2(2) - Paragraph 118.2(2)(a) | cost of breast implants (generally, not eligible) should be broken out from charges for the procedure (eligible) | ||
| 4 September 2001 Internal T.I. 2001-0090007 F - INDIENS-LIGNE DIRECTRICE NO 4 | Other Legislation/Constitution - Federal - Indian Act - Section 87 | whether an administrative centre was an Indian employer for purposes of Guideline 4 turned on whether it was actually run and administered on the reserve with mostly reserve clients |
CRA finds that the deposit of crypto into a pooling vehicle for receipt tokens, and a subsequent exchange of the receipt tokens for underlying tokens, are dispositions
A resident individual deposited two types of crypto-assets (the “Deposited Tokens”) into liquidity pools in a crypto pooling vehicle (the “Platform”), in exchange for “Receipt Tokens”, which evidenced such deposit and could themselves be transferred, or used to claim corresponding underlying deposited assets.
The individual subsequently redeemed the Receipt Tokens for crypto-assets of the same type as the Deposited Tokens, at a time that they had appreciated in value. In the meantime, the individual received a return from the Platform (the “Rewards”) in the form of “Nativetoken,” which also could be realized upon by exchanging them through decentralized exchanges for other crypto assets. The Rewards accrued to the individual daily based on his proportion of the “underlying” tokens staked in each of the two pools.
CRA found that:
- The individual’s deposit of the Deposited Tokens into a liquidity pool on the Platform and redemption of Receipt Tokens for crypto-assets of the same type as the Deposited Tokens were “dispositions” for capital gains purposes, if those tokens had been held on capital account;
- If the tokens instead were held in a business on income account, such exchanges would be barter exchanges described in IT-490, giving rise to income on each exchange; and
- The Rewards would be included in computing the taxpayer’s income under s. 9.
Neal Armstrong. Summaries of 20 March 2024 Internal T.I. 2023-0973071I7 under s. 248(1) – disposition and s. 9 – computation of profit.