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15 May 2019 IFA Roundtable Q. 2, 2019-0798751C6- Shared workspaces and PE-- summary under Article 5 Summary Under Tax Topics- Treaties- Income Tax Conventions- Article 5 a Canadian shared-work space can readily constitute a PE In the following examples, will a U.S. resident carrying on business in Canada, be considered to be a permanent establishment (“PE”) in Canada, assuming Arts. ... The consultant is likely considered to have a PE in Canada. Example 2 The fact that another entity owns the shared workspace is not important to the PE analysis – it is enough that the shared workspace is at the non-resident’s disposal. ...

CRA responded: Subsection 125(5.2) … applies where the corporations are related to each other, one corporation (directly or indirectly) transfers assets to the other corporation and one of the reasons for the transfer can reasonably be considered to be to reduce the amount of the adjusted aggregate investment income of the associated group for the purposes of the passive income reduction rule in paragraph 125(5.1)(b). ... However, if it may reasonably be considered that one of the reasons that the payment of dividends was made was to reduce the adjusted aggregate investment income as determined in paragraph E of paragraph (5.1)(b) in respect of Opco, or of any corporation with which Opco is associated, then in our view the anti-avoidance rule in subsection 125(5.2) could apply. ...

11 October 2019 APFF Financial Strategies and Instruments Roundtable Q. 9, 2019-0813281C6 F- Pension splitting- RRIF deemed benefit-- summary under Subparagraph (a)(iii) Summary Under Tax Topics- Income Tax Act- Section 118- Subsection 118(7)- Pension Income- Paragraph (a)- Subparagraph (a)(iii) deemed payment on death of last RRIF annuitant is not pension income Is a “payment received” from a RRIF considered to be a “payment out of or under” a RRIF for purposes of the definition of “pension income” in s. 118(7). ... CRA responded: For an amount to be considered as “a payment out of or under a registered retirement income fund” for the purposes of subparagraph (a)(iii) of the definition of "pension income" in subsection 118(7), the amount must be paid in satisfaction of an obligation between the issuer and the annuitant of a RRIF. ...

CRA considered that on this basis “a disposition of an interest in a related segregated fund trust will generally result in capital gains treatment” so that “the interest may be considered a capital property, and accordingly, an eligible property under paragraph 85(1.1)(a) of the Act for purposes of subsection 85(1).” ...

CRA found that “[s]ince neither spouse works more than 4 hours in any business carried on by any of the particular corporations they own, the requirements of the bright line test in paragraph 120.4(1.1)(a) would not be met and, as such, it remains a question of fact as to whether either spouse would otherwise be considered to be actively engaged on a regular, continuous and substantial basis in the activities of each such business on the basis of the limited number of hours worked.” However, CRA went on to indicate that “useful” guidance was to be garnered from 2019-0799901C6, which indicated: [A] husband and wife could both be considered to be actively engaged in the activities of a particular business carried on by their corporation on a regular, continuous and substantial basis for a particular year where the particular business did not require any other workers and only required them to spend on average 5 hours each per week in that business. ...

CRA responded: In general terms, the determination of whether an obligation has been disposed of for Canadian income tax purposes depends on whether these events are considered to result in the discharge of the obligation and the substitution of a new obligation under the law governing the former obligation …. ... Where foreign law governs an obligation … the legal effect of these events on such an obligation under the relevant foreign law must be considered in order to determine if the obligation has been disposed of …. ...

After noting that its longstanding position had been that “a corporation can consolidate safe income of other corporations in which it has significant influence,” CRA reaffirmed that, in addition: One can consolidate safe income of a corporation over which there is no significant influence if it can be clearly demonstrated that the safe income of such corporation contributes to the gain on the shares, bearing in mind that, in the case of portfolio investments in public corporations, what would be considered to contribute to the value of the shares held by the shareholder is not the income of the public corporations but rather the trading value of its shares on the stock exchange. CRA went on to state: The above discussion would also apply to consolidation of income from foreign corporations that are not foreign affiliates of the shareholder, as confirmed in Lamont. … [T]he negative safe income of corporations would reduce the safe income of a holding corporation only to the extent that it can be considered to result in a reduction of the value of the shares of the holding corporation, for example, either because of a guarantee made by the holding corporation, or because of an actual payment for the losses by the holding corporation [citing Brelco]. ...

17 May 2022 IFA Roundtable Q. 10, 2022-0926331C6- Corporate Residence Approach-- summary under Subsection 2(1) Summary Under Tax Topics- Income Tax Act- Section 2- Subsection 2(1) board meeting situs not determinative of CMC Regarding a query as to whether CRA will continue to have “too much focus on the location of board meetings” in determining corporate residency, CRA noted that De Beers indicated that a corporation’s central management and control “must … be determined after a scrutiny of the whole ‘course of business and trading’ of the corporation,” and then stated: Usually, central management and control is considered to abide where the members of the board of directors meet to make important and strategic decisions regarding the affairs of the corporation, unless central management of control is actually exercised elsewhere. ... The courts have repeatedly considered evidence beyond the location of board meetings in order to look at the whole “course of business and trading” of a corporation. ...

CRA considered there to be a rebuttable presumption that all of the trustees constitute a group that controls the corporation- so that there would be an acquisition of control, for example, if the trust deed required trustee decisions to be made by a majority of the three trustees, and one of their number was replaced by an unrelated trustee. However, CRA considered that where the replacement trustee is a related person, s. 256(7)(a)(i)(A) may apply to deem there to be no acquisition of control. ...

15 June 2022 STEP Roundtable Q. 8, 2022-0928251C6- TOSI and multiple businesses-- summary under Excluded Business Summary Under Tax Topics- Income Tax Act- Section 120.4- Subsection 120.4(1)- Excluded Business individual’s contributions to a business are considered substantial if they are integral to its success A husband and wife owning a number of corporations, each of which has its own business and full-time staff, work on a full-time basis for the various companies (whose shares are not excluded shares), but do not work for any particular company at least 20 hours a week. ... After confirming that neither spouse would thus satisfy the 20-hour test in s. 120.4(1.1)(a), CRA turned to the “excluded business” safe harbor (before going on to make general comments on the reasonable return exclusion), and stated that: the application of this test in a particular year will depend on the circumstances, including the nature of the individual’s involvement in the business (e.g. the work and energy that the individual devotes to the business) and the nature of the business itself; the greater the involvement in the management or current activity of the business, the more likely it is that the individual will be considered to participate in the business on a regular, continuous and substantial basis; and the more an individual’s contributions are integral to the success of the business, the more substantial they would be. ...