News of Note
Lanesborough REIT is issuing units in satisfaction of a dry income distribution
Email this ContentLanesborough REIT used all of the net cash proceeds from the sale of a property to pay down debt. Although it has some operating losses, it nonetheless needs to make a special distribution in order to distribute its resulting taxable income. It will do this by making a special distribution to its unitholders on December 31, payable in treasury units, with the number of outstanding units then immediately consolidated to the same number as before. It appears to be contemplated that a s. 104(21) designation will be made in order to flow out capital gains treatment to the unitholders, so that the special distribution will be twice the taxable income to be distributed.
Neal Armstrong. Summary of Lanesborough REIT Press Release under Spin-Offs & Distributions – Taxable dividends-in-kind – MFT dry income distributions.
Income Tax Severed Letters 4 November 2015
This morning's release of nine severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA confirms that an amalgamation can cause a combined positive CDA balance to be zeroed
If Holdco (a CCPC) has realized $1M in allowable capital losses on its public company portfolio, its subsidiary (Opco) has realized a $1M taxable capital gain from the sale of its operating business, and Opco then pays a capital dividend of $1M to Holdco, Holdco will have a resulting positive capital dividend account balance of $1M, as para. (a) of the CDA definition (respecting the non-taxable portion or non-deductible portion of capital gains or losses) will not reduce the positive CDA balance arising under para. (b) of the CDA definition from the receipt of the dividend – so that Holdco can then pay a capital dividend of $1M to its individual shareholder. However, if this dividend is not paid, the ability to do so will disappear if Holdco then amalgamates with Opco, as this will cause the CDA balance to go down to nil.
Summary of Q. 6 of 9 October 2015 APFF Roundtable under 2015 APFF Conference.
CRA confirms IC 75-7R3 re requests for refunds for errors made in already-filed returns
In response to the specific example of a corporation which discovered that it had failed to claim the intercorporate dividend deduction in a return for which the 90-day objection period has expired, CRA noted that it still stands by IC 75-7R3, dated July 9, 1984, respecting the circumstances in which it will make a reassessment for a reduction in tax payable – so that such an adjustment would be available provided that the normal reassessment period does not expire without the giving of a waiver.
Summary of Q. 25 of 9 October 2015 APFF Roundtable under 2015 APFF Conference.
CRA requires the allocation of investment counselling fees as between interest and dividends in computing aggregate investment income of a CCPC
Dividends which are deductible in the computation of taxable income are expressly excluded from "aggregate investment income," as defined in s. 129(4). Accordingly, where a Canadian-controlled private corporation incurs investment counselling fees for a portfolio which generates both dividends from Canadian corporations and interest income, it will be necessary to determine the portion of those fees which relate to the earning of the interest income as contrasted to the dividend income. Only the interest-related portion of the fees will reduce the CCPC’s aggregate investment income.
Summary of Q. 24 of 9 October 2015 APFF Roundtable under 2015 APFF Conference.
CRA specifies how to file a s. 185.1(2) election in (non-prescribed) manner
No Regulation has been promulgated specifying the "prescribed manner" for electing under s. 185.1(2) to convert an excessive capital dividend into a taxable dividend. CRA indicates that you should follow the directions on its website.
Summary of Q. 23 of 9 October 2015 APFF Roundtable under 2015 APFF Conference.
CRA recognizes that its extension of an individual return filing deadline also extends the one-year Notice of Objection deadline
Where, as an administrative matter, CRA extends the deadline for filing a return (as happened for the 2014 year in the case of individuals), CRA considers that there is a corresponding extension in the one year deadline for individuals to file a notice of objection for that year. Thus, individuals have a general right to file Notices of Objection for their 2014 year up until at least May 5, 2016.
Summary of Q. 22 of 9 October 2015 APFF Roundtable under 2015 APFF Conference.
CRA accepts that where a return filing deadline falls on a Saturday, the deadline for related forms also is extended to the Monday
CRA considers that Saturdays are "public holidays" as defined in the Interpretation Act. Among other things, this means that if the return filing deadline of the taxpayer falls on a Saturday (e.g., Saturday, April 30, 2016), the filing deadline for related forms to be filed by that deadline (e.g., Forms T2057, T1134 and T5013) will be extended to the following Monday.
Summary of Q. 21 of 9 October 2015 APFF Roundtable under 2015 APFF Conference.
CRA confirms that employer-provided parties generally do not give rise to a taxable benefit
It is "the CRA’s position is that when an employer offers free-of-charge, to all employees, a party or other social event, there is no taxable benefit if the cost per party or other social event does not exceed $100 per person." CRA has confirmed that this position extends to "a ‘5 to 7’ [a Quebec term presumably referring to some sort of after-work event with free drinks] or a team lunch of a social nature."
"When the usage of a bike stand area [on the employer’s facilities] by an employee is difficult to quantify and measure, the CRA is of the view that a benefit is not required to be included in computing the income of the employee who uses the bike parking stand." Furthermore, "the furnishing of internal recreational facilities of the employer offered to all the employees does not give rise to a taxable benefit to them."
Summary of Q. 20 of 9 October 2015 APFF Roundtable under 2015 APFF Conference.
CRA reaffirms using FIFO to determine if debt repayments satisfy s. 15(2.6)
CRA has indicated that it does not have the discretion to not apply s. 15(2), where the applicable statutory exceptions are not available, to amounts that become owing to Canco by a non-resident affiliated Finco in connection with a cash pooling or other centralized cash management arrangement for a multinational group. However, CRA states that
in the context of subsections 15(2) and (2.6), unless the facts indicate otherwise, the CRA generally accepts that repayments are applied to loans or indebtedness utilizing the method "first in first out"
i.e., unless the debtor otherwise specifically applies the repayment, it is applied to the oldest debt first.
Neal Armstrong. Q. 19 of 9 October 2015 APFF Roundtable under 2015 APFF Conference.