News of Note
CRA considers that a QET can contemplate the distribution of the trust funds to the company in order to establish a replacement trust
Email this ContentThe definition of a "qualifying environmental trust" includes a requirement that it "is maintained for the sole purpose of funding the reclamation of a qualifying site." CRA has provided a technical interpretation, on the model trust drafted by the National Energy Board for pipeline companies, indicating that it is acceptable to have a clause providing that towards the end of any applicable perpetuities period, the trust fund shall be distributed to the pipeline company, which has covenanted to use the fund to establish a replacement reclamation trust.
Neal Armstrong. Summary of 22 August 2014 T.I. 2014-0521951E5 under s. 211.6(1) - qualifying environmental trust.
CRA considers that the HST/GST customs release rule can apply only where the related sales agreement was entered into after importation
On its face, ETA s. 144 deems any supply of goods which otherwise would be deemed to be made in Canada by a registrant (including a registered non-resident) on the basis of the legal delivery occurring in Canada, to instead to be made outside Canada if the goods have been imported and their legal delivery (e.g., DDU or DAP destination) occurs before customs release. However, CRA considers that this rule does not apply where an agreement for the supply of the goods was entered into before the goods are imported - so that s. 144 has only a narrow field of application.
Neal Armstrong. Summary of CBAO National Commodity Tax, Customs and Trade Section – 2014 GST/HST Questions for Revenue Canada, Q. 33 under ETA, s. 144.
Brokerage statements often are inadequate for T1135-preparation purposes
Those preparing T1135 forms are finding
that the availability and quality of this information will vary greatly from one dealer to another, as well as between types of accounts. For example, very little (if any) information appears to have been provided for taxpayers using many of the popular discount brokerage accounts. Even where there is information available, you may have to double-check to ensure that the properties have been properly classified.
Neal Armstrong. Summary of Maureen Vance, "T1135 – The Saga Continues," Tax Topics, Wolters Kluwer, Number 2248, April 9, 2015, p. 1 under s. 233.3(3).
CRA finds that a taxpayer cannot request a notice of determination of loss until after audit
Contrary to an interpretation favoured by the Department of Finance, CRA considers that a notice of determination of loss cannot be made by the Minister in response to a request made by the taxpayer at the time of originally filing its return, so that such determination can only be made after the Minister has adjusted the amount of the reported loss on audit.
Neal Armstrong. Summary of 18 November 2014 TEI Roundtable, Q. E.1, 2014-0550351C6 under s. 152(1.1).
CRA narrowly construes the s. 95(3)(b) safe harbour for “services performed in connection with the… sale of goods”
In s. 95(3)(b) there is a safe harbour - from the general rule in s. 95(2)(b)(i) that income of a foreign affiliate from providing services to its Canadian parent (which are deductible in computing the parent’s Canadian business income) is foreign accrual property – for "services performed in connection with the purchase or sale of goods." CRA’s position is "that only services directly related to such sales so qualify," so that services of a foreign affiliate in testing prototypes (manufactured by its Canadian parent) of goods that would subsequently be manufactured and sold by the parent, were found not to qualify.
Neal Armstrong. Summaries of 13 January 2015 Memo 2013-0497361I7 F under s. 95(3)(b) and s. 95(3)(d).
CRA implies that a U.S. LLC with a normally drafted LLC Agreement does not have PUC
CRA considers that "to the extent [the applicable State corporate] laws and constating documents do not provide for stated capital akin to that which is provided for under Canadian domestic corporate law but, rather, provide for an attribute that is akin to a partner's capital account, [a] US LLC would not…have stated capital" – and therefore would have no paid-up capital for s. 90(3) purposes. Given that the various State LLC statutory provisions do not provide for distributable corporate capital (and, conversely, in Canada, stated capital generally is provided for in the governing statute rather than in the articles), the reference here to the effect of the LLC’s "constating documents" (i.e., LLC Agreement) is helpful and may be consistent with an LLC with a properly drafted LLC Agreement having PUC.
Neal Armstrong. Summary of 20 March 2015 T.I. 2014-0535971E5 under s. 90(3).
CRA apparently considers that there is no deduction for repaid employment benefits
CRA considers that only reimbursements of remuneration described in s. 8(1)(n) (such as repayments of income received during a leave when the individual did not return to employment) are deductible, so that if an employee is required in a subsequent year to repay employment benefits received, the employee apparently does not receive a deduction for the repayment.
Neal Armstrong. Summary of 16 March 2015 T.I. 2014-0524371E5 F under s. 8(1)(n).
Income Tax Severed Letters 15 April 2015
This morning's release of 20 severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA considers a share subscription by FA Canadian parent as an “investment” by a “Canadian investor” for purposes of the s. 115.2 safe harbour
Where a foreign subsidiary (Forco) of a widely-held Canadian corporation (Canco) receives a treasury share subscription from Canco, this will taint the s. 115.2 safe harbour respecting management services provided by an affiliated Canadian investment manager. CRA notes that this scenario is equivalent to Canco’s investment needs being serviced offshore "through" Forco, contrary to the policy of s. 115.2(2)(b)(i)(B).
Neal Armstrong. Summary of 18 November 2014 TEI Roundtable, Q. E.6 under s. 115.2(2)(b)(i)(B).
CRA confirms that s. 39(3) generally applies only to anonymous bond or debenture repurchases
Where a public corporation repurchases its bonds at a premium "in the open market, in the manner in which any such obligation would normally be purchased in the open market by any member of the public," s. 39(3) generally deems the premium to be a capital loss rather than potentially giving interest treatment to the corporation and the vendors under s. 18(9.1).
CRA has confirmed where the transaction is such that the corporation and the vendor know each other’s identities, the quoted words are not satisfied – so that s. 39(3) generally would not apply to a tender offer or the exercise of a call right.
Neal Armstrong. Summary of 2014 TEI Roundtable, Q. E.3 under s. 39(3).