News of Note
CRA has officially published the June 2024 STEP Roundtable
Email this ContentCRA 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.
Income Tax Severed Letters 28 August 2024
This morning's release of six severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Gorgis – Tax Court of Canada finds that the new housing rebate was available for an individual who split his time between 3 locations
The appellant (Gorgis) acquired a new house in Caledon East, Ontario in January 2019 at about the same time he was establishing a Toronto body shop (“Green Apple”), stayed there two to four nights a week and stayed most of the balance of the nights in a bed at Green Apple, or on a couch or a brother’s bed at his siblings’ house in Toronto. He did not move in a lot of belongings – but he did not have a lot. In August 2020, he leased out the balance of the house to tenants, but continued to live in the basement thereafter.
Cook J found that this use pattern was sufficient for Gorgis to have satisfied the new housing rebate requirement in s. 254(2)(g)(i), which relevantly required Gorgis to have been the first occupant of the house “as a place of residence.”
Cook J also found that there was sufficient corroboration of Gorgis’ testimony that his intention was to acquire the house as his “primary place of residence,” as required by s. 254(2)(b). Gorgis was entitled to the new housing rebate.
Neal Armstrong. Summary of Gorgis v. The King, 2024 TCC 109 under s. 254(2)(g)(i).
CRA rules on a triangular loss consolidation involving circling a daylight loan 4 times, a non-recourse interest-bearing note and a 1 b.p. spread for the preferred dividends
CRA ruled on a triangular loss-shifting transaction between Lossco and its subsidiary, Profitco, under which Lossco used a daylight loan to make an interest-bearing loan (pursuant to the “IB Note”) to Profitco, who subscribed for preferred shares of its sister, “Numberco,” who made a non-interest-bearing loan to Lossco. There was to be one daylight loan whose proceeds would be circled four times as described above, before it was repaid. The Numberco preferred shares were to bear a cumulative dividend at a rate 1 b.p. above the rate of simple interest on the IB Note. Recourse under the IB Note was to be limited to the Numberco preferred shares.
These transactions would be unwound on a cashless basis, and Numberco would then be wound-up into Lossco.
Neal Armstrong. Summary of 2023 Ruling 2023-0973911R3 under s. 111(1)(a).
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 2,928 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 22 ¾ years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).