News of Note
CRA rules on a disclaimer resulting in a rollout of estate assets under an intestacy
Email this ContentAn estate (that was a testamentary trust) holding appreciated assets has five grandchildren who would receive as residuary beneficiaries under the estate following the death of “Ms. A and Mr. B” (presumably siblings or siblings in law, and parents of the grandchildren). CRA ruled that a disclaimer by the grandchildren - resulting in a distribution of the residue of the estate assets to Ms. A and Mr. B on an intestacy – would not result in any of the grandchildren receiving proceeds of disposition, and that such distribution would occur under s. 107(2).
Neal Armstrong. Summary of 2016 Ruling 2015-0606771R3 under s. 107(2).
CRA confirms that Daniels did not extend the Indian Act exemption to Métis and non-status Indians
Daniels (2016 SCC 12) found that non-status Indians and Métis are "Indians" for the purposes of s. 91(24) of the Constitution Act, 1867. CRA has confirmed that this has not expanded the tax exemption in s. 87 of the Indian Act, which “only applies to an individual who is an Indian as defined in the Indian Act.”
Neal Armstrong. Summary of 30 August 2016 External T.I. 2016-0656851E5 under Indian Act, s. 87.
CRA confirms that the application of s. 75(2) to only one property in a trust can taint all the other trust property under s. 107(4.1)
CRA confirmed that a personal trust was tainted under s. 107(4.1) when it was settled with a gold coin by one of the capital beneficiaries – so that until the settlor died, none of the other property in the trust could be rolled out under s. 107(2) to the other capital beneficiaries even though such property had been acquired in an arm’s length purchase from an arm’s length vendor. Whether the vendor of such property was still in existence or not was irrelevant.
Neal Armstrong. Summary of 12 May 2016 External T.I. 2014-0552341E5 under s. 107(4.1).
CRA indicates that a capital loss can be recognized on duplex land that is used personally less than 50%
At civil (and common) law, land and building are a single property (although this rule is overridden for CCA/recapture purposes). Consequently, if a duplex property is used more than 50% for rental use, so that it is not personal-use property, a capital loss realized on a sale of the property and relating to all of the non-depreciable component can be recognized (subject to s. 13(21.1)) as a capital loss notwithstanding its partial personal use.
Neal Armstrong. Summaries of 7 October 2016 APFF Financial Strategies and Instruments Roundtable, carryforward of 2013 APFF Roundtable, Q.2 under s. 54 – personal-us property and Reg. 1102(2).
Sanivac – Cour du Québec finds that trucks used both for transporting and decanting dirty oil were M&P equipment
A company used somewhat modified trucks to collect dirty oils from customers. On the trucks’ return to the company premises, they would sit there for 12 hours in order to permit the oils to settle out in their holding tanks – before the now, somewhat separated, oils were pumped out for further processing at the company’s premises with a view to their sale.
Guimond JCQ found that, as this settling-out process (without oenophilic pretention, described in French as “décantation”) was part and parcel of the process for purifying the oils and was more significant than the use of the trucks in transporting the oil, the trucks qualified as processing equipment under the Quebec equivalent of ITA s. 127(9) – qualified property – (c)(i). The same concepts also are relevant for distinguishing CCA classes referencing manufacturing and processing – and, in fact, Guimond JCQ quoted the Démolition A.M. case extensively.
Neal Armstrong. Summary of Environnement Sanivac Inc. v. ARQ, 2016 QCCQ 9461 under s. 127(9) – qualified property – (c)(i).
CRA is applying its policy on the invalidity of s. 45(3) elections on duplex units only prospectively for changes of use after February 21, 2012
In a Technical Interpretation dated February 21, 2012, CRA indicated that, since a duplex (unless it has been partitioned) is a single property, the change in use of one of the units is not eligible for a s. 45(3) election. When queried about this, CRA stated:
The CRA therefore no longer accepts an election under subsection 45(3) for a change of use referred to in the position taken on February 21, 2012 where this change occurred after that date.
However, the CRA continues to accept an election made under subsection 45(3) after February 21, 2012 for a change of use referred to in the position taken February 21, 2012 where this change of use has been made on or before February 21, 2012 and where it also qualified for this election prior to this position being taken.
Neal Armstrong. Summary of 7 October 2016 APFF Financial Strategies and Instruments Roundtable, Q.4 under s. 45(3).
CRA confirms that s. 148(7)(a) trumps s. 69(1)(b) and 52(2), but not s. 69(5)
CRA considers that proposed s. 148(7)(a) will prevail over s. 69(1)(b). Accordingly, where an individual makes a non-arm’s length transfer of a insurance policy for nil proceeds, the proceeds of disposition generally will be the greater of the cash surrender value and the adjusted cost basis of the policy, and the fair market value proceeds will not be deemed to be received under s. 69(1)(b).
CRA also confirmed two earlier positions that s. 69(5) (respecting a s. 88(2) wind-up) prevailed over s. 148(7), but that s. 148(7) prevailed over the more general rule in s. 52(2) (respecting dividends in kind).
Neal Armstrong. Summary of 7 October 2016 APFF Financial Strategies and Instruments Roundtable, Q.3 under s. 148(7)(a).
CRA states that it will not expand relief from the broad T4A reporting requirements
ITA s. 153(1)(g) and Reg. 200(2) purportedly require the issuance of T4As for most services received. At an earlier juncture, CRA was studying its T4A practices. It has now confirmed that there will be no change, although it will maintain its exception for:
i) where the payment made is less than $500, to the extent that no tax is withheld in respect of the amount, and
ii) where personal services are rendered to an individual by a professional or anyone else practising a trade, or if the services are rendered for the repair or maintenance of the principal residence of an individual.
CRA did not discuss the still-extant statement in RC4157 that:
The CRA is not assessing penalties for failures relating to the completion of box 048 [labelled “Fees for services”].
Neal Armstrong. Summary of 7 October 2016 APFF Roundtable, Q.1B under Reg. 200(2).
CRA confirms that an acquisition of control generally will not generate additional T106 filings
Where there is an acquisition of control of a corporation with a calendar year end, thereby resulting in two taxation years ending in that year, CRA will permit the filing of a single T106 to cover both taxation years. The same applies for a non-calendar taxation year provided that the two stub periods add up to 12 months. The form can be filed up to the regular filing-due date (i.e., June 30 where calendar years were used).
Neal Armstrong. Summary of 7 October 2016 APFF Roundtable, Q.1C under s. 233.1(2).
CRA reconciles its differing treatment of duplexes and triplexes for change-of-use and principal residence purposes
CRA effectively considers a duplex or triplex to be a single property for purposes of the s. 45 change-of-use rules and as comprising two or three housing units for principal residence exemption purposes – and also considers rental to family members at below-market rents as personal use for s. 45 purposes.
An individual owner of the whole triplex used Unit 1 (representing 50% of the area) for direct personal use and rented out the other two units – then some years later (at the beginning of “Year 11”), started renting out Unit 1, moved into Unit 2 for direct personal use and provided Unit 3 to family members at a low rent.
CRA considered that because, after this change, the use of the single property (the triplex) was still 50% personal and 50% 3rd-party rental, the change of use rules did not apply. However, on a subsequent sale of the triplex, the individual would be required to make separate designations for each unit for which he was claiming the principal residence exemption. This has the effect of entitling the individual to claim the principal residence exemption only for years in which particular units were used personally or by qualifying family members.
Neal Armstrong. Summaries of 7 October 2016 APFF Roundtable, Q. 2 under s. 45(1)(c) and s. 40(2)(b).