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23 April 2009 External T.I. 2008-0301241E5 F- Fiducie d'invest. à participation unitaire-75(2)-- summary under Subparagraph 53(2)(h)(i.1) Summary Under Tax Topics- Income Tax Act- Section 53- Subsection 53(2)- Paragraph 53(2)(h)- Subparagraph 53(2)(h)(i.1) CRA could extend IT-369R, para. 10 to avoid ACB reductions to unit trust units where s. 75(2) applies Units of a unit trust (“UT”) that does not qualify as a mutual fund trust (“MFT”) are issued for FMV monetary consideration to arm’s length subscribing unitholders, with the proceeds invested in real estate. ... In the event that subsection 75(2) were to apply in respect of monetary consideration received by the UT in consideration for the issuance of units to a taxpayer, the technical application of subparagraph 53(2)(h)(i.1) would involve the deduction of an amount against the ACB of the taxpayer's capital interest equal to the income designated under subsection 75(2) for a particular year that is otherwise payable to the taxpayer under the trust indenture. ...

CRA responded: [P]aragraph 148(7)(a) would apply to deem the proceeds of the disposition to Opco to equal $50,000 (the greatest of CSV ($500), consideration (nil) and ACB ($50,000)), resulting in a policy gain of nil. ... In cases where the FMV of the interest in the life insurance policy is greater than the ACB of that interest, subsection 148(7) provides for a transfer of the interest on a rollover basis (assuming that the consideration given for that interest and the CSV are equal to or less than the ACB). ... We have brought this situation to the attention of the Department of Finance for their consideration. ...

After noting that clause (iii)(B) of Paragraph N stipulates that “the disposing corporation receives no consideration for the share [of the issuing corporation] other than property that was, immediately before the merger, owned by the issuing corporation and that, on the merger, becomes property of the new corporation,” CRA stated: In our view, while Paragraph N would apply to the cancellation of the shares of FA3 held by FA2, because FA2 would receive no consideration for the shares of FA3, Paragraph N would not apply to the cancellation of the shares of FA2. ... In these circumstances, it is our view that the property of FA3 would be received by FA1 as consideration for the shares of FA2. ...

Could it look through Partnership A to take into consideration Partnership B’s properties when calculating its investment allowance u;nder s. 219(1)(l) (the “Allowance”)? CRA responded: Having given consideration to the purpose of the Branch Tax and noting that a non-resident corporation that is a member of a top-tier partnership would be subject to Branch Tax in respect of its share of taxable income earned through a lower-tier partnership, in our view, it is reasonable to consider that the corporation will also be considered to be a member of a lower-tier partnership for the purpose of subsection 808(4) of the Regulations. ... In the scenario you presented, the non-resident corporate partner may, when calculating its Allowance … “look through” Partnership A to take into consideration Partnership B’s properties. ...

18 December 2003 Internal T.I. 2003-0044007 F- OPTION D'ACHAT D'ACTIONS RACHETEES-- summary under Subparagraph 40(2)(g)(ii) Summary Under Tax Topics- Income Tax Act- Section 40- Subsection 40(2)- Paragraph 40(2)(g)- Subparagraph 40(2)(g)(ii) unpaid and defaulted balance of stock option surrender consideration was not property used in a property or business source The taxpayer surrendered his stock options to his arm’s-length employer for consideration that was payable partly up front and partly in instalments that were conditional on the employee’s continued employment for a specified period (a condition which he satisfied) and came due in years subsequent to that of the surrender. In finding that the taxpayer’s loss on the unpaid instalments could not be recognized as a capital loss, the Directorate stated: Although an election under section 50 could be made because it can be shown that the debt is uncollectible at the end of the particular year, the loss on such a debt is deemed to be nil pursuant to subparagraph 40(2)(g)(ii) unless the taxpayer acquired the debt for the purpose of gaining or producing income from a business or property, or as consideration for the disposition of capital property to a person with whom the taxpayer was dealing at arm's length. ...

CRA responded: “[R]evenue” under normal accounting practices generally requires the satisfaction of certain performance obligations, such as the sale of goods or the performance of services that would typically result in a corresponding inflow of cash, accounts receivables or other consideration. … [U]nder normal accounting practices, “percentage of completion” is a method that reports revenue of a service contract over a period of time (i.e., performance obligations under the contract have been satisfied on an ongoing basis by the entity). Moreover, the services performed under the contract by an entity typically give rise to an inflow of cash, receivables or other consideration over the term of the service contract. ... CRA responded: [T]he mark-to-market valuation adjustment to the carrying value of the investment does not give rise to an “inflow of cash, receivables or other consideration”. ...

Upon its renewal, the policy is transferred to the employee for no consideration under s. 148(7), whereupon the employee starts paying the annual premiums. Given that the key employee has been including the annual premium amount in income as a s. 6(1)(a) benefit, does a further benefit arise on the transfer of the policy to the key employee for no consideration? After noting that in 2019-0799051C6 it addressed a similar situation regarding a permanent policy, CRA stated: In circumstances in which the person to which the interest in the policy was transferred to is an individual who is an employee or shareholder of the corporation which effected the transfer, either of subsections 6(1) or 15(1) of the Act may apply to include in the income of the individual the amount by which the fair market value of the policy exceeds any actual consideration paid by the individual for the policy. ...

Proposed transactions Trust will transfer its Aco shares on a s. 85(1) rollover basis to Newco (newly-incorporated by it) in consideration for non-voting redeemable retractable Class B shares of Newco. Similarly, the estate of Mother will transfer its Aco shares on a s. 85(1) rollover basis to Newco in consideration for non-voting redeemable retractable Class C shares of Newco. For both of the above transfers, s. 84.1(1) will reduce the PUC of those Newco shares which were issued in consideration for Class B shares of Aco by the amount by the excess of the increase in their PUC over the ACB of such transferred shares computed pursuant to s. 84.1(2)(a.1)(ii). ...

In the year immediately preceding that sale on January 1 of all the shares of Aco, Aco paid a dividend in kind of the policy to Trust X, so that the policy was deemed to be disposed of for the greatest of its ACB, CSV and the (nil) consideration received, or $150. ... CRA considers that where a trust transfers the policy to its beneficiary, the beneficiary is regarded as giving consideration for the transfer that is all or any part of the beneficiary's income or capital interest, as applicable. Here, it would be reasonable to consider that such consideration had an FMV of $250. ...

.: 1) Foreign Services transfers the DC preferred shares directly to TC as consideration for the shares of Foreign Spinco issued in step 3; 2) TC issues common shares to Foreign Spinco as consideration for those DC shares; and 3) As consideration for the TC shares, Foreign Spinco issues shares to Foreign Services. ...