News of Note
CRA confirms that the s. 40(3.6) stop-loss rules should not apply to a CFA winding-up
Email this ContentIn 2014-0538591I7, CRA indicated that s. 40(3.6) did not apply to deny a loss realized on the winding-up of a controlled foreign affiliate because (1) s. 69(5)(d) specifically ousts the application of s. 40(3.6) respecting property (the CFA’s shares) disposed of on a winding-up, and (2) it is unlikely that under the foreign corporate law the CFA would be considered to still exist immediately after that disposition.
CRA now recognizes that the first point was wrong, as s. 88(3) by its terms "operates notwithstanding subsection 69(5)," but stands by the second point, stating "we would expect that, under the foreign corporate law, the CFA would cease to exist and its shares would simultaneously be cancelled when the CFA was wound-up."
Neal Armstrong. Summary of 12 January 2015 Memo 2014-0560421I7 under s. 40(3.6).
CRA considers that the RSU exclusion does not apply where the participant will be able to cash out additional RSU units based on dividend equivalents
The definition of a salary deferral arrangement exclude "a plan or arrangement under which a taxpayer has a right to receive a bonus or similar payment in respect of services rendered by the taxpayer in a taxation year to be paid within 3 years following the end of the year." CRA considers that this exclusion does not apply to a dividend equivalency feature of a restricted stock units plan under which the employee is credited with additional RSU units based on the amount of dividends paid on the underlying shares, with those units to be cashed out at the same time that the related primary RSUs are exercised to acquire shares.
Neal Armstrong. Summary of 29 March 2015 T.I 2014-0526941E5 under s. 248(1) – salary deferral arrangement - para. (k).
CRA recognizes that the s. 7 rules apply to agreements to sell shares for no cash consideration
CRA recognizes (e.g., in IT-113R4, para. 7) that the s. 7 rules can apply where an employer issues its shares to an employee for no monetary consideration. After up to three years of deliberation, CRA has concluded that the s. 7 rules can also apply to an employee incentive arrangement under which an employer purchases shares of a non-arm's length corporation (e.g., an open-market purchase of its non-resident parent’s shares) and grants those shares to the employees for no monetary consideration.
Neal Armstrong. Summary of 24 March 2015 T.I. 2012-0432951E5 F under s. 7(1)(a).
The Hong Kong treaty qualifies as an agreement with the government of another country
Various ITA provisions reference the concept of an agreement with, or with the government of, another country. CRA considers that the Agreement with Hong Kong so qualifies.
Neal Armstrong. Summary of 25 March 2015 T.I. 2014-0560351E5 under s. 248(1) – tax treaty.
Income Tax Severed Letters 22 April 2015
This morning's release of 20 severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA sets out conditions for paying a refund, previously owing to a dissolved sub, to the parent
CRA’s starting point is to consider that when a sub has been wound up into its parent and dissolved, its right to receive a refund of an overpayment also ceases. However, if "all returns have been filed up to the date of dissolution, the articles of dissolution indicate that the corporation will distribute its assets to the shareholder…after satisfying its creditors [the articles of dissolution will not state this but presumably a general conveyance will do the trick],… the shareholder is the rightful owner of the funds and the sole shareholder completes and returns a signed ‘Release and Indemnification' form to the CRA," then CRA "may" issue the refund to the parent.
Neal Armstrong. Summary of 18 November 2014 TEI Roundtable, Q. E.4 under s. 164(1).
NorthWest International Healthcare REIT is being merged under s. 132.2 into NorthWest Healthcare REIT
NorthWest International Healthcare REIT, which holds its international portfolio through a subsidiary Ontario LP with an exchangeable unit structure is being merged under s. 132.2 into NorthWest Healthcare REIT. Although there principally are Ontario entities involved, Alberta is an easier jurisdiction for obtaining a non-corporate plan of arrangement than perhaps Ontario. In order to qualify as an Alberta plan of arrangement, some minor transactions involving an Alberta asset manager were inserted.
Newer-style exchangeable units are to be created: an affiliated group holding a 65% economic interest in NWI will exchange (under s. 97(2)) their exchangeable units in the subsidiary LP of NWI for units of that LP which are redeemable for NWH units.
NWI and NWH are seeking CRA approval to change the fiscal year ends of various subsidiaries so that their income earned up to the effective date will be allocated to the respective NWI and NWH unitholders.
Neal Armstrong. Summary of NorthWest International Healthcare and NorthWest Healthcare REIT Circular under Mergers & Acquisitions – REIT/Income Fund/LP Acquisitions – Section 132.2 Mergers – REIT Mergers.
Slate U.S. Opportunity (No. 3) Realty Trust will be merged into Slate Retail REIT
It is proposed that Slate U.S. Opportunity (No. 3) Realty Trust ("SUSO 3") be merged into Slate Retail REIT using the standard s. 132.2 merger mechanics. They have the same manager and focus on the same type of US real estate.
Somewhat unusually, the number of Slate REIT units to be received by SUSO 3 unitholders will be subject to a working capital adjustment to be determined immediately before the merger. The merger is not occurring pursuant to a plan of arrangement (which in most other merger contexts is required in order to avoid the need to file a US registration statement) – perhaps because the units of SUSO 3 are unlisted.
Neal Armstrong. Summary of Slate U.S. Opportunity (No. 3) Realty Trust under Mergers & Acquisitions – REIT/Income Fund/LP Acquisitions – Section 132.2 Mergers – REIT Mergers.
CRA considers that a QET can contemplate the distribution of the trust funds to the company in order to establish a replacement trust
The 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.