News of Note
CRA permits the consolidation of group reclamation trusts
Email this ContentThe definition in s. 211.6(1) of a "qualifying environmental trust" refers to a trust that is maintained solely for the purpose of funding the reclamation of "a" qualifying site. CRA has previously ruled (2012-0463471R3) respecting the settlement of a single new reclamation trust with respect to multiple mining sites of a Canadian public mining corporation.
Going one step further, CRA has now ruled respecting four affiliated mining companies who will dissolve their four existing reclamation trusts and replace them by a single reclamation trust for the previously-covered sites.
Neal Armstrong. Summary of 2013 Ruling 2012-0463871R3 under s. 211.6(1) - qualifying environmental trust.
LP shares are attributed to its GP for s. 256(7)(a) purposes
CRA considers that the general partner of a limited partnership controls the voting rights of shares held by the LP, subject to there being something weird in the limited partnership agreement (92 CPTJ-Q.14, 5-7883 and 2011-0428701E5). It follows that where such a limited partnership acquires majority control of a corporation, s. 256(7)(a)(i)(B) will deem there to have not been an acquisition of control if the general partner was already related to that corporation.
Neal Armstrong. Summary of 12 December 2013 T.I. 2013-0484031E5 under s. 256(7)(a).
Income Tax Severed Letters 23 December 2013
This morning's release of 10 severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Next week's release will also be on Monday (30 December 2013). Wednesday releases will resume on 8 January 2013.
The 60-month exemption from Canadian exit tax is narrow
Where a UK resident with a share ISA (the UK equivalent of a TFSA) immigrates to Canada (becoming a temporary Canadian resident) and then emigrates less than 60 months later, the shares in his ISA will be exempted from Canadian exit tax if they were held at the time of his previous immigration, but not generally if they were subsequently acquired.
Neal Armstrong. Summaries of 5 December 2013 T.I. 2013-0485661E5 under 128.1(1) and 128.1(4).
CRA would apply the transfer pricing rule to an arm’s length group sale
A U.S. public company (Publico) and various subsidiaries, including a great-grandchild Canadian subsidiary (Canco) sold a business to an arm’s length non-resident purchaser (Acquireco1). At closing, Canco transferred its assets of the business to an Acquireco1 subsidiary for their book value, which did not reflect significant value for intangible assets.
Head Office was inclined to apply s. 247(2) to Canco (presumably to impute higher proceeds for the intangibles) without any explanation of the basis for applying this rule to an arm’s length sale. Publico received from Acquireco1 any excess of the consolidated sale price over the portions thereof paid to its subsidiaries, so that in that broad respect the value of the Canadian intangibles was paid to it. After asserting that concurrence under s. 56(2) can be "passive or implicit," Head Office found that the payment of a dividend to the immediate non-resident parent of Canco (Parent) should be imputed under ss. 56(2) and 214(3)(a), on the basis that Parent had concurred in the conferral of a benefit on Publico.
The rule in s. 247(12) (deeming secondary adjustment amounts to be dividends) did not apply as its effective date was subsequent to the transactions.
Neal Armstrong. Summaries of 15 November 2013 Memo 2013-0478621I7 F under s. 247(2), s. 56(2) and s. 69(4).
CRA accepts that an off-shore campus of a Canadian university qualifies as a business for source deduction purposes
Reg. 104(2) provides that no source deductions are required for non-resident employees who do not perform any services in Canada except for remuneration described in s. 115(2)(e)(i) paid to former Canadian residents. S. 115(2)(e)(i) references remuneration paid by a resident to a non-resident who is exempt from non-Canadian income tax unless inter alia it is paid "in connection with ... the rendering of services for the non-resident person’s employer ... in the ordinary course of a business carried on by the employer."
The Directorate accepted that remuneration paid to former Canadian residents by a campus of a Canadian university located in a sunny clime (where there was no local income tax) qualified for the "business" services exemption quoted above, so that no source deductions were required (although T4s were required to be issued).
Neal Armstrong. Summary of 17 June 2008 Memo 2008-0276721I7 under Reg. 104(2).
Income Tax Severed Letters 18 December 2013; Holiday Schedule
This morning's release of five severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Releases for the next two weeks will fall on Monday (23 December and 30 December). Wednesday releases will resume on 8 January 2014.
Cogesco Sevices – a penalty imposed under an ambiguous provision was successfully challenged in the Federal Court
A non-resident corporation was assessed penalties under s. 162(2.1) for its failure to file returns (although it had no substantive liability due to losses). Its request for relief under s. 220(3.1) for the pre-2010 penalties was premised on the law being in a "state of flux" until the Federal Court of Appeal decision in Exida.com (which found in that year that a penalty instead was exigible under another section).
CRA denied the request on the basis that this decision had settled the matter. The Federal Court granted the non-resident corporation’s application for judicial relief on the basis that this did not at all address the taxpayer’s requested basis for relief.
Neal Armstrong Summary of Cogesco Sevices Ltd. v. Attorney General of Canada, 2013 CF 1238, under s. 220(3.1).
The option exchange on the Mitel acquisition of Aastra will reflect the worst of the exchange ratio and the s. 7(1.4) rule
Mitel is proposing to acquire Aastra under a CBCA plan of arrangement, with U.S.$6.52 of cash and 3.6 Mitel common shares being paid for each Aastra share. Mitel will sign and return completed s. 85 election forms that are provided to it within 90 days of the effective date, but is not offering any website assistance in this regard. The disclosure is non-committal as to whether Aastra will be amalgamated post-arrangement.
Each Aastra employee stock options will be exchanged for an option on that number of Mitel common shares equal to the "Exchange Ratio." The Exchange Ratio is equal to 3.6, plus $6.52 divided by the 5-day VWAP of Mitel shares immediately preceding the Arrangement (i.e., the cash consideration is converted into an equivalent Mitel share, so that the Exchange Ratio is increased to around 4.3).
The plan of arrangement states that the exercise price under the replacement option will equal the greater of: the old exercise price divided by the Exchange Ratio; and "such minimum amount that meets the requirements of paragraph 7(1.4)(c)," i.e., the exercise price that results in the in-the-money value of the replacement option (based on the Mitel share value immediately after the option exchange) not exceeding the in-the-money value of the old options (based on the Aastra share value immediately before the exchange). This does not appear to be a raw deal for the option holders as such value of the Aastra shares would reflect the cash consideration, given that shareholder approval would have been achieved.
Neal Armstrong. Summary of Circular of Aastra Technologies under Mergers & Acquisitions – Mergers – Shares for Shares and Cash.
CRA finds that the use of a family trust to pay family expenses did not work
Father, who was the beneficiary of a Quebec family trust along with his children, distributed qua trustee the trust income to bank accounts for the children, with those amounts immediately being paid "back" to him to reimburse him for specific and "general" expenses which he had made for their supposed benefit.
Although these arrangements were less sloppy than in Degrace and Langer, CRA nonetheless found that the distributions were not income of the children as these amounts were not at their disposal, and were received by them as mandataries for him. However, the same mandatary characterization established that the trust was entitled to a s. 104(6) deduction for the income which effectively had been distributed to him.
Neal Armstrong. Summaries of 10 July 2013 Memo 2013-0475501I7 F under s. 104(13), s. 104(6) and s. 105(1).