News of Note
CRA will not impose penalties for failure to issue T4As to non-commissioned independent contractors
Email this ContentThe CRA policy appears to be that services fees (in excess of $500) paid to an independent contractor are required to be reported on a T4A - but no penalty will be assessed for failure to do so (where the fees are not commissions) until CRA has completed its review of this area.
Neal Armstrong. Summaries of 30 October 2012 Ontario CTF Round Table, Q. 10, 2012-0462961C6 under s. 153(1)(g) and s. 248(1) - office. Extract of RC4157 under s. 153(1)(g).
Is TFSA income eligible for Treaty benefits?
Art. XVIII, para. 7 of the Canada-U.S. Treaty indicates that a qualifying U.S. beneficiary of a Canadian exempt trust may elect to defer U.S. taxation on the trust income until distributed, if the trust was "operated exclusively to provide pension...benefits." Notwithstanding the "conservative" position of the big four accounting firms to the contrary, Nightingale and Turchen argue that a TFSA qualifies for this treatment. ("'Exclusively' is a bit of a loose term.")
Neal Armstrong. Summary of Kevyn Nightingale and David Turchen, "The US Tax Implications of a Tax-Free Savings Account", CCH Tax Topics, No. 2146, April 25, 2013, p.1 under Treaties - Art. 18.
Merger of GFO Connor, Clark fund into AUI fund gives unitholders choice of capital loss or rollover treatment
An unsuccessful Connor, Clark listed mutual fund trust (GFO) is being merged into another more successful Connor, Clark fund (AUI) under the s. 132.2 merger rules. GFO unitholders who want to realize a capital loss can redeem their units in advance.
The introduction of s. 132.2 followed IFIC lobbying to accommodate this style of portfolio mutual fund merger, although the s. 132.2 rule which emerged also accommodated income fund mergers. In a conversation of over a decade ago with the legislative drafter, he indicated that the rule was intended as a quick and dirty fix to provide a rollover and nothing much more, rather than providing a detailed merger code such as for a s. 87 amalgamation or 88(1) winding-up.
However, this type of "classic" portfolio fund merger tends to result in fewer anomalies than in a REIT or other income fund merger.
Neal Armstrong. Summary of Connor, Clark & Lunn Financial Opportunities Fund Circular under Mergers & Acquisitions – S. 132.2 Mergers – Portfolio Mutual Fund Mergers.
CRA finds that the appointment of a replacement trustee qualifies as an acquisition of trust shares under s. 256(7)(a)(i)(A)
CRA has ruled that where the three unrelated individual trustees of a trust resign in succession with three corporations wholly-owned by them appointed as replacement trustee, there will be no acquisition of control of a corporation controlled by the trust (Opco). The narrow technical point appears to be that the concurrent resignations and appointments qualify as an "acquisition" of the shares of Opco by the new trustee corporations for purposes of s. 256(7)(a)(i)(A) - and that, if the resignations and appointments were not sequenced in this seriatim manner, it might be considered that control of Opco has been acquired by an unrelated group.
Neal Armstrong. Summary of 2011 Ruling 2010-0360921R3 under s. 256(7)(a).
CRA confirms that a non-Treaty company potentially can qualify for Treaty benefits “through” a U.S. partnership
CRA has published its position that a company which is resident in a non-Treaty country (e.g., the Caymans) nonetheless may qualify for the branch profits reduction under Art. X(6) of the Canada-U.S. Convention on its share of Canadian branch profits of a U.S. partnership that has elected to be a domestic corporation for Code purposes, if those profits qualify as connected to a substantial U.S. active business under Art. XXIX-A(6).
Neal Armstrong. Summary of 17 May 2012 IFA Round Table "Branch Tax Rate" 2012-0444151C6 under Treaties – Art. 10.
Petrominerales share dividend program avoids current taxation of participants
Petrominerales is adopting a share dividend program. Electing participants will receive their dividends through the issuance of further common shares at a 5% discount to the 5-day VWAP price, rather than in cash
Although economically similar to a DRIP, the amount of the dividend for Canadian tax purposes is equal to the nominal stated capital of the shares issued. Bonavista, CAE, Enerplus and Husky already have similar programs.
Neal Armstrong. Summary of Petrominerales Circular under Other - Share Dividend Program.
ACI Properties - Tax Court finds that a second taxpayer cannot be brought into tax dispute under s. 174 where the Minister had already made up her mind
In a situation where one taxpayer (AFT) claimed that it had paid a $1.95 million amount as a deductible management fee and the recipient (ACI) claimed that it was a capital receipt, CRA decided in favour of the management fee characterization and reassessed ACI accordingly (although it also obtained a waiver from AFT).
Bocock J found that the Minister was precluded from bringing an application approximately five years later under s. 174 for a determination in relation to both AFT and ACI as to the amount's characterization. A s. 174 application is required to be brought "in relative chronological proximity" to the Minister's determination that the matter is ambiguous - whereas here, she had made up her mind five years before the application was brought.
Neal Armstrong. Summary of ACI Properties v. The Queen, 2013 TCC 101 under s. 174.
Dundee spin-off transaction has indemnities for butterfly and prohibited investment risks
Dundee Corporation is spinning of a 50% shareholding in Dundee Realty Corporation to its shareholders, which will be held in a new public corporation to be known as DREAM Unlimited Corp. Although both Dundee and DREAM are controlled by Ned Goodman, the spin-off is required to comply with the butterfly rules. No ruling has been sought.
If butterfly treatment is not available because of a subsequent act of Dundee or DREAM, it will generally be required to indemnify the other party under the Arrangement Agreement.
Ned Goodman will be indemnified for the 50% prohibited investment tax respecting his RRIF if a Finance comfort letter is not implemented.
Neal Armstrong. Summary of Dundee Circular under Spin-offs - Butterfly Spin-Offs.
CRA publishes look-through/gross-asset approach to characterization of shares of companies holding Canadian real property
CRA has finally released its Round Table response at the 2011 CTF annual conference at which it confirmed that debts could no longer be allocated to specific properties for purposes of determining whether shares are deemed real property for Treaty purposes, and describing the proportionate recharacterization of a portion of shares of a subsidiary as being Canadian real property (based on its relative asset holdings) for purposes of the taxable Canadian property definition.
Neal Armstrong. Summaries of 28 November 2011 CTF Round Table, Q. 2, 2011-0425901C6 under Treaties - Art. 13 and ITA - s. 248(1) - taxable Canadian property.
CRA confirms acceptance of Singleton-style mechanical tracing approach
CRA has confirmed that the interest-tracing approach relied upon in Lipson would have "worked" but for the application of GAAR to the transactions on the basis that there was an abuse of the income attribution rules.
Neal Armstrong. Summary of 27 February 2013 T.I. 2013-0477601E5 under s. 20(1)(c).