News of Note
Calloway is eliminating its 2-tier trust structure in order to convert for accounting reasons to a closed-end fund
Email this ContentCalloway REIT currently is an open-end mutual fund trust holding rental limited partnerships through a subsidiary trust ("Holdings Trust"). In connection with ensuring that exchangeable LP units held in the subsidiary LPs will not be treated as debt for accounting purposes, it will convert to a closed-end fund pursuant to a ruling it obtained on August 13, 2013. However, to so qualify, Calloway must get rid of Holdings Trust (see ss. 108(2)(b)(iii) and (iv), and perhaps (v)), which it intends to do in 2014. (Eliminating Holdings Trust also presumably would increase the rental gross REIT revenues which are allocated to Calloway.)
Accordingly, Holdings Trust will transfer its assets under s. 107.4 to a newly-formed subsidiary unit trust ("MFT") of Calloway, with 3% of MFT's units then being distributed to the Calloway unitholders in order to qualify MFT as a mutual fund trust. MFT then will be merged into Calloway under s. 132.2.
Neal Armstrong. Summary of Calloway REIT AIF for its 2013 year under Other – Subsidiary S. 132.2 Mergers – Subtrust Elimination.
CRA permits an eligible dividend to be allocated solely to the safe income portion of a larger dividend
A Canadian-controlled private corporation (Opco) with an ample general rate income pool is deemed to pay a significant deemed dividend to a CCPC shareholder (Holdco) when it redeems preferred shares. All but $75,000 of that deemed dividend in turn is deemed to be proceeds of disposition by s. 55(2) because that is the safe income on hand attributable to the redeemed shares. Opco designates only $75,000 of the deemed dividend as an eligible dividend, as that is the maximum possible addition to Holdco’s GRIP.
CRA considers that the full $75,000 is an addition to Holdco’s GRIP, i.e., it will not prorate the eligible dividend between the portion of the deemed dividend that is converted into proceeds of disposition in Holdco’s hands (and therefore is not eligible for a GRIP addition) and the safe income portion of the dividend (which is so eligible).
Neal Armstrong. Summary of 20 February 2014 T.I. 2013-0480051E5 F under s. 89(1) - General Rate Income Pool.
CRA really uses all that T1134/T1135 foreign reporting fodder
Whether CRA will apply the s. 162(5) penalty or the more significant 162(7) penalty when foreign reporting forms (e.g., T1134, T1135 or T1142) are incomplete depends on whether the form is merely "missing information which does not affect the substance of the form" or it instead "is substantially incomplete." Why the fuss?
[T]he required information provided by the forms is entered into the Foreign Reporting Requirements Management System (FRRMS) by the [Ottawa Technology Centre]. The… information from the FRRMS provides the main risk assessment tool for Aggressive Tax Planning and international auditors.
Neal Armstrong. Summary of 6 December 2013 Memo 2012-0458401I7 under s. 162(7).
Dubois - Tax Court of Canada finds that if it’s over 100, it’s “antique”
Reg. 1102(1)(e)(iv) applied to deny CCA claims for 18th and 19th century violins, on the basis that each violin, although not "antique furniture," was "any other antique object, produced more than 100 years before [acquisition]." Jorré J found that "antique" does not suggest any "limitation other than objects that are more than 100 years old." Accordingly, "antique" was redundant.
This reminds me of office items of a former partner which were very old, or mature for their years.
Neal Armstrong. Summary of Robert Dubois Inc. v. The Queen, 2013 TCC 409 under Reg. 1102(1)(e)(iv), and Statutory Interpretation – Noscitur a sociis and Interpretation Provisions.
An employer-paid medical exam is a taxable benefit unless negative exam results will negatively affect employment status
CRA considers that employer-paid medical examinations give rise to a taxable benefit unless they are required as a condition of employment. It will infer that there is no such requirement if "the employee can exercise discretion as to whether to take an annual examination by the employer's physician," or (even more astonishingly) "unless a medical exam with negative results impacts employment status in some manner."
Neal Armstrong. Summary of 19 February 2014 T.I. 2013-0508501E5 under s. 6(1)(a).
CRA may not impose a penalty for late-filing a s. 116 application if the property was not sold at a gain
After finding that a child of a diplomat was not exempt from the s. 162(7) penalty for late-filing a s. 116 application, CRA stated that "you may wish to consider exercising discretion in assessing the penalty given that ... there was a loss on the property."
Neal Armstrong. Summary of 17 February 2014 Memo 2013-0498121I7 under s. 162(7).
Guindon - SCC grants leave to appeal professionals' penalty decision
The Supreme Court has given leave to appeal the Federal Court of Appeal's decision in Guindon (discussed in a previous post), which reopens the question of whether large administrative penalties have a criminal aspect.
Scott Armstrong. See current summaries of Guindon v. The Queen, 2013 FCA 153, under ss. 163.2(5), 220(3.1) and Charter ss. 11 and 12.
CRA treats a partner-to-partnership loan as a debt owing to the partner by each other member
The s. 96 rule that a partnership is a separate person for income-computation purposes does not apply in determining whether a debt owing to a Canadian resident by a foreign partnership is "indebtedness owing by a non-resident person" for purposes of the requirement in s. 233.1 to report such indebtedness and other "specified foreign property." However, if the obligations of the partners for partnership debt are joint and several, each non-resident partner is considered to owe the full amount of the debt to the Canadian resident, so that the debt will be specified foreign property on that basis.
This conclusion is not affected if the Canadian resident also is a partner, so that in that respect the loan is owed by it to itself.
Neal Armstrong. Summary of 24 February 2014 Memo 2013-0484461I7 under s. 233.3(1) – specified foreign property.
CRA (sort of) reverses an interpretation indicating that s. 110.5 income adjustments potentially may be made for statute-barred years
In 2013-0481151I7, CRA indicated that, by analogy with the CCA revision policy in IC 84-1, an adjustment under s. 110.5 (to effectively convert what otherwise would be a wasted (for FTC purposes) foreign tax amount into a non-capital loss) may be made even beyond the six-year s. 152(4)(b)(iv) reassessment period "where there is no change in the tax payable for the year." However,"tax" included provincial taxes, so that a requested adjustment under s. 110.5 for a statute-barred year would not be permitted if it increased provincial taxes payable - and 2010-0379801I7 suggested that this usually (or always?) would be a problem.
CRA (without explanation) has now "clarified" that "a permissive amount in the context of IC84-1 would not…include the income inclusion provided in section 110.5."
Summary of 7 February 2014 Memo 2013-0512601I7 under s. 152(4).
CRA finds that a late-filed s. 216 nil return does not eliminate interest on the retroactively eliminated Part XIII withholding
Where a Canadian agent of a non-resident owner is assessed for failing to withhold and remit Part XIII tax on rental collections paid to the non-resident, a s. 216(4) undertaking is filed within six months of the applicable year end and a s. 216 return (showing nil tax payable) is filed on a timely basis, CRA considers, following Pechet, that the obligation to withhold and remit is not extinguished retroactively, so that the interest on the unpaid remittance obligation which accrued up to filing the return is not eliminated.
Neal Armstrong. Summary of 7 February 2014 Memo 2013-0506151I7 under s. 227(8.3).