News of Note
We have translated 8 more CRA severed letters
Email this ContentWe have translated a CRA ruling released at the end of November and an interpretation released last week along with a further 6 CRA interpretations released during June of 2002. Their descriptors and links appear below.
These are additions to our set of 2,676 full-text translations of French-language Technical Interpretation and Roundtable items (plus some ruling letters) of the Income Tax Rulings Directorate, which covers all of the last 21 ½ years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
| Bundle Date | Translated severed letter | Summaries under | Summary descriptor |
|---|---|---|---|
| 2023-12-20 | 6 November 2019 Internal T.I. 2019-0798021I7 F - Assessment under 159(3) | Income Tax Act - Section 159 - Subsection 159(3) | trustees were liable under s. 159(3) notwithstanding having obtained a post-distribution s. 159(2) certificate |
| 2023-11-29 | 2023 Ruling 2022-0923451R3 F - 55(3)(a) internal reorganization | Income Tax Act - Section 55 - Subsection 55(3) - Paragraph 55(3)(a) | indirect spin-off of subsidiary groups to 2 transferee corporations held by holding companies for 2 brothers while such transferee corporations are controlled by father with special voting shares |
| Income Tax Act - Section 55 - Subsection 55(2.1) - Paragraph 55(2.1)(c) | proration of DSI on s. 55(3)(a) spin-offs based on the net cost amount of the property spun off | ||
| 2002-06-21 | 9 July 2002 External T.I. 2002-0147985 F - ACTIONS PRIVILEGIEES CONVERTIBLES | Income Tax Act - Section 7 - Subsection 7(1.5) | no disposition for purposes of s. 7(1.5) when employee’s preferred shares converted to common shares |
| Income Tax Act - Section 7 - Subsection 7(1) - Paragraph 7(1)(a) | s. 7(1)(a) benefit when employee’s convertible preferred shares converted to common shares | ||
| 5 July 2002 External T.I. 2002-0121115 F - CREDIT-BAIL | Income Tax Act - Section 13 - Subsection 13(21) - Depreciable Property | lessor rather than lessee under a financing lease was entitled to CCA | |
| 11 July 2002 External T.I. 2002-0126795 F - RESSOURCES INTERMEDIAIRES REVENU EX | Income Tax Act - Section 81 - Subsection 81(1) - Paragraph 81(1)(h) | contributions paid to a Quebec intermediate resource have been treated as means-based assistance | |
| 11 July 2002 External T.I. 2002-0131085 F - ASSURANCE INVALIDITE | Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(f) | employer can pay an employee additional remuneration equal to the premiums payable by the employee under employee-pay-all plan | |
| 8 July 2002 External T.I. 2002-0131835 F - Investissements détenus à l'étranger | Treaties - Income Tax Conventions - Article 22 | Canada could tax income and gains of a Canadian resident from a French life insurance policy | |
| 8 July 2002 External T.I. 2002-0136615 F - Par. 250(5) - Déclaration de revenus | Income Tax Act - Section 250 - Subsection 250(5) | individual deemed to be non-resident by s. 250(5) is not required to report world income |
CRA ruling provides for the proration of DSI on s. 55(3)(a) spin-offs based on the net cost amount of the property spun off
A ruling letter contemplates the division of the assets of a family group of corporations among the respective holding companies for the four children of Mr. X, most notably, the holding company (HoldcoF) for Mr. A, who manages a group of companies beneath Dco, and the holding company (HoldcoB) for Mr. B, who manages a group of companies which, as a preliminary matter, are transferred on a rollover basis into a new subsidiary company (PBco1).
Transactions are implemented in reliance on s. 55(3)(a) (and on the absence of the application of s. 55(4) having regard to the control by Mr. X of the spun-off companies and of the transferee corporations whose equity ended up being mostly held by HoldcoB or HoldcoF) to effectively spin-off PBco1 to HoldcoB and Dco to HoldcoF (along with further transactions for the benefit of the holding companies of the other two children).
In a post-ruling comment, CRA indicated that, here, the application of the formula in 2020-0861031C6 for the allocation of direct safe income (DSI) would lead to a disadvantageous result for the taxpayers involved since it would result in an undue loss of ACB/DSI, e.g., the ACB of the distributed property to the two Holdcos would be nominal.
To avoid this result:
A. The DSI of the transferor corporation (“Transferor”) that has accrued on the shares of its capital stock held by shareholders other than the transferee corporation (“Transferee”), determined immediately after the reorganization, would be calculated in accordance with the following formula:
DSI on shares of capital stock of Transferor held by all shareholders immediately after the reorganization = DSI immediately before the reorganization X total net cost amount of property retained by Transferor / total net cost amount of all property of Transferor immediately before the reorganization.
B. The DSI of the shares of capital stock of Transferee held by shareholders immediately prior to the reorganization will be increased in accordance with the following formula:
DSI of the shares of the capital stock of Transferor held by all of its shareholders immediately prior to the Reorganization - DSI of the shares of the capital stock of Transferor held by the remaining shareholders immediately after the Reorganization as calculated under item A above.
Neal Armstrong. Summaries of 2023 Ruling 2022-0923451R3 F under s. 55(3)(a) and s. 55(2.1)(c).
CRA finds that trustees were liable under s. 159(3) notwithstanding having obtained a post-distribution s. 159(2) certificate
An Ontario inter vivos trust distributed all its assets to its beneficiaries in 2013, and the trustees then applied for and received a s. 159 clearance certificate well after the distribution times. However, as a result of a subsequent ARQ audit, CRA then discovered that the trust had failed to report capital gains realized in 2010 and 2011.
The Rulings Directorate emphasized that these capital gains had not been disclosed on applying for the clearance certificate, and concluded that “it is reasonable to consider that … the issuance of the clearance certificate by the CRA does not relieve the Legal Representatives of their personal liability pursuant to subsection 159(3).” In other words, the trustees were personally liable under s. 159(3) as a result of distributing before getting the certificate, and the subsequent receipt of the certificate did not amount to a waiver of CRA’s right to so assess.
Neal Armstrong. Summary of 6 November 2019 Internal T.I. 2019-0798021I7 F under s. 159(3).
Income Tax Severed Letters 26 December 2023
This afternoon's release of three severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA indicates that the onus is on it to determine the “reasonable and realistic” allocation of an outbound royalty between the exempt and taxable portions
Royalties were payable by Canco to a non-resident for the right to use copyright and trademarks in connection with the design, manufacturing and sale of products in countries in a particular region.
The Directorate indicated that since the royalties paid were royalties under general principles, they were subject to withholding under s. 212(1)(d) unless exempted under s. 212(1)(d)(vi) or (x).
Regarding what portion of each royalty payment should be treated as exempted under s. 212(1)(d)(vi), CRA cited inter alia Farmparts for the proposition that the onus would on it to determine the portion of the royalty payments that were exempted from Part XIII tax. However (similarly to 2022-0926461C6), it would not be bound by the allocation between (exempt) copyright royalty and (taxable) trademark royalty specified in the licence agreement if that allocation was not “reasonable and realistic” having regard inter alia to the commercial realities of the situation.
Regarding what portion of each royalty payment should be treated as exempted under s. 212(1)(d)(x) as an amount deductible in computing the income of Canco from a business carried on in the foreign country, CRA noted that “[o]rdinarily, such an allocation can be made on the basis of the factual relationship between the deductible royalty payment and the gross income arising from each of the parts of the business that is carried on in a particular country.”
Neal Armstrong. Summaries of 18 February 2022 Internal T.I. 2020-0836351I7 under s. 212(1)(d), s. 212(1)(d)(vi), s. 212(1)(d)(x) and s. 4(1)(b).
CRA applies Gerbro in interpreting s. 94.1
After referring to earlier positions and Gerbro as to the meaning of "portfolio investment" in s. 91.1(1)(b), CRA stated:
[T]he term “portfolio investment” must be given a broad meaning and is not limited to passive investments. In paragraph 94.1(1)(b), the word “portfolio” modifies the word “investment” to specify that the investment in particular assets by the investor is one in which the investor does not have an active role in the management of the item invested in.
CRA also noted that tax attributes to the taxpayer, such as interest deductions, foreign tax credits, or a loss pool, would not necessarily preclude the application of s. 94.1(1) based the “one of the main reasons” test.
Neal Armstrong. Summary of 24 August 2023 Internal T.I. 2019-0810391I7 under s. 94.1(1).
Income Tax Severed Letters 20 December 2023
This morning's release of three severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA provides relief from imputed interest on small short-term loans made to employees
CRA has modified its webpage on Loans and Employee Debt to indicate that employees generally will not be required to recognize a taxable benefit from an interest-free (or low-interest) loan received from their employer where:
- the total amount of all loans received is $10,000 or less per calendar year;
- the term of the loan(s) is 60 days or less; and
- the loan is not received by virtue of shareholdings of the employee or others with a specified connection.
Neal Armstrong. Summary of CRA Webpage, “Loans and Employee Debt” 14 November 2023 under s. 80.4(1).
Federal Court of Appeal finds that a Federal Court proceeding should not have been completely closed to the public
Stratas JA found no reversible error in the Federal Court’s dismissal of the appellant’s application for judicial review of the Minister’s refusal to remit tax under the Financial Administration Act. Before so concluding, he observed that the Federal Court had closed its whole hearing to the public because the parties intended to make submissions about an earlier remission case including disclosure of confidential tax information. Stratas JA stated:
The default is that court proceedings are open. Any secrecy must be necessary, justified and minimized … .
… In the Federal Court, the submissions containing confidential information were only a small part of the hearing. At most, it should have closed only a small part of its hearing.
Neal Armstrong. Summaries of Ontario Addiction Treatment Centres v. Canada (Attorney General), 2023 FCA 236 under Federal Court Rule 151(2) and Financial Administration Act s. 23(2).
CRA finds that a rescission fee paid to the vendor of a B.C. residential property generally is not subject to GST
S. 42(1) of the Property Law Act (B.C.) provides that a purchaser of residential real property generally may rescind the contract of purchase and sale for the property by serving written notice of rescission on the seller within three days after the date that the acceptance of the offer was signed. S. 6 requires the rescinding purchaser to promptly pay to the seller an amount equal to 0.25% of the purchase price.
CRA indicated that the fee would not be subject to GST under ETA s. 182 except where the sale had been for a taxable supply of real property by a registrant (e.g., a sale by a builder). It also reiterated its position that generally damages payments not within s. 182 are not consideration for taxable supplies.
Neal Armstrong. Summary of 18 April 2023 GST/HST Interpretation 245056 under ETA s. 182(1).