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17 May 2022 IFA Roundtable Q. 14, 2022-0926441C6- Partnership and Subsection 90(3)Election-- summary under Subsection 90(4) Summary Under Tax Topics- Income Tax Act- Section 90- Subsection 90(4) proposition applied (regarding a s. 90(3) PUC distribution election) that a partnership cannot be a related person A limited partnership (LP)- whose 90% general partner is FA1 (held by Canco1) and whose 10% limited partner is FA2 (held by Canco2, which is related to Canco1) – receives a paid-up capital distribution (the “Distribution”) from its wholly-owned subsidiary (FA3). ... CRA responded: [A] subsection 90(3) election in respect of the Distribution will be valid if made only by FA1 in its capacity of the general partner on behalf of LP because there is no “connected person or partnership” in respect of LP within the meaning of subsection 90(4). … The election has to be made by FA1 by notifying the Minister in writing on or before the filing-due date of FA2 for its taxation year ended on December 31, 2021. After discussing the manner of making the election (by letter with various relevant particulars), CRA noted: If a joint election is made by LP, Canco1 and Canco2, CRA would accept it as valid and would accept the required election made by FA1 on behalf of LP, Canco1 and Canco2 provided such election letter includes all the required information as outlined [above]. … If an election is made jointly by Canco1, Canco2 and LP in respect of the Distribution, it is required to be made on or before the earliest of the filing-due dates of Canco1, Canco2, FA1 and FA2 for their respective taxation years that include December 31, 2021, in accordance with [Reg.] 5911(6)(b) …. ...

., section 18 and 67 …), the reimbursement of the accounting fees paid by Advisor A to Client B would generally be deductible under subsection 9(1) … in computing Advisor A’s income from business for the year in which the amount is incurred. Client B would include the reimbursement in income pursuant to paragraph 12(1)(x) …[, a] treatment [which] would also apply if Client B did not acquire the life insurance policy. ...

. … Subsection 146.3(6.1) [as well as para. (a) of “designated benefit”] has no application in this case since the legal representative receives nothing under the RRIF of the deceased last annuitant. … [S]ince Mrs. B died before amounts were paid under the RRIF to the legal representative of the deceased last annuitant … the conditions of paragraph (a) cannot be met. ... (b) of the “designated benefit” definition: Where … an amount from the RRIF of the deceased last annuitant is paid to the estate of the deceased and an Eligible Recipient is a beneficiary of the estate (as legatee or heir), the amount is not paid to the Eligible Recipient "out of or under the fund" and this situation does not comply with paragraph (b)…. ...

. … The CRA is [now] of the view that pursuant to subsection 40(3.61): the subsection 164(6) election applies first, and the capital loss available for the election is determined without reference to subsection 40(3.4) or 40(3.6), and the stop loss rules in subsections 40(3.4) or 40(3.6) apply to any capital loss of the estate that is not the subject of the subsection 164(6) election. … Paragraph 164(6)(a) limits the amount of the election to the net amount of the estate’s capital losses and capital gains, or $970,000. ... A similar result would occur where the estate makes the subsection 164(6) election for an amount that is less than the result of the paragraph 164(6)(a) calculation (for example, if the estate elected for less than $970,000). … [T]he relief provided by subsection 40(3.61) is only in respect of a disposition of a share …. ...

. … In fact, the transfer or distribution of property by the trustee of the trust to the settlor did not occur immediately prior to the death of the settlor-beneficiary. ... Furthermore … Nussey rejected the effect on the CRA of a contractual presumption that would recognize a redemption of shares by a corporation taking effect prior to their disposition on death of a shareholder …. ...

Indeed … Opco is not connected with Realtyco within the meaning of subsection 186(4). Consequently, Realtyco would not be a SBC within the meaning of subsection 248(1), since only about 44% ($100,000 out of $225,000) of the fair market value of its assets would be attributable to items falling within that definition of SBC. … [A] prior reorganization of Realtyco could not resolve these difficulties because of the "more than 50%" test for the fair market value of the asset during the 24-month holding period in paragraph (c) of the definition of QSBCS …. ...

Element C in the s. 6(2) formula appears to contemplate that the cost of the automobile to a person (Holdco) related to the employer is to be taken into account – but 2014-0529991E5 appears to indicate that the leasing cost to Opco should instead be used. ... CRA responded: In a situation where a lease and purchase are involved, the wording of the formula in subsection 6(2) requires that the cost of the automobile be added to C and that the leasing cost be added to E to calculate the reasonable standby charge for an automobile made available to an employee. … This situation has been brought to the attention of the Department of Finance. ... In the example submitted … the CRA could consider only the leasing cost that Opco pays to Holdco for the purposes of the formula set out in subsection 6(2). ...

CRA stated: Subsection 148(8) … provides that, if an interest of a policyholder in a life insurance policy (other than an annuity contract) is transferred to the policyholder’s child for no consideration and a child of the policyholder or a child of the transferee is the person whose life is insured under the policy, the interest is deemed to have been disposed of by the policyholder for proceeds of the disposition equal to the adjusted cost basis of the interest immediately before the transfer, and to have been acquired … at a cost equal to those proceeds. ... We are not certain that the results described above are consistent with the intended policy of subsection 148(8), and it is therefore our intention to bring the matter to the attention of the Department of Finance …. ...

. … [A]ny amounts that the trust pays or makes payable to beneficiaries must be authorized or permitted by the trust instrument and the applicable law … [and] we have assumed that the amounts that are paid or payable to the beneficiary, and designated under subsection 104(21), are for the beneficiary’s own account and benefit …. ...

CRA responded: (a) … In a context similar to that described in the statement of this question, the CRA generally accepts that shareholders may give their concurrence in advance, through undertakings under the various sale agreements, to the making of [the] election …. ... However, if an excessive capital dividend is identified in the year it is paid or payable, the corporation will have to file additional T5 slips by the last day of February of the following year …. ...