Income Tax Severed Letters - 2025-09-17

Ruling

2025 Ruling 2025-1052291R3 F - Post-mortem Hybrid Pipeline

Summary Under
Tax Topics - Income Tax Act - Section 84 - Subsection 84(2)
post-mortem pipeline entailing issuance of 8 quarterly notes by Newco 12 months after its acquisition of the stepped-up shares
Summary Under
Tax Topics - Income Tax Act - Section 89 - Subsection 89(1) - Paid-Up Capital
transactions contemplated the distribution of all the PUC of common shares

Principal Issues: 1) Whether section 84.1 applies to reduce the PUC of the shares of the capital stock of the purchaser corporation received as consideration for the disposition of the shares. 2) Whether subsection 84(2) applies to the proposed transactions. 3) Whether subsection 245(2) applies to the proposed transactions.

Position: 1) No. Favourable ruling given. 2) No. Favourable ruling given. 3) No. Favourable ruling given.

Reasons: In accordance with the provisions of the Act and our previous positions.

Technical Interpretation - External

19 June 2025 External T.I. 2024-1045841E5 F - Application of subsection 152(4.2) of the Act at death

Summary Under
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4.2)
the heir of a deceased employee who became entitled to a tax-free pay adjustment should count the s. 152(4.2) 10-year claim period from the year of payment
Summary Under
Tax Topics - Income Tax Act - Section 5 - Subsection 5(1)
retroactive pay adjustment that was agreed to after the employee’s death was non-taxable
Summary Under
Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a)
retroactive pay adjustment that arose after death was tax-free

Principal Issues: Where the estate of a deceased taxpayer receives a retroactive salary adjustment pursuant to a pay equity agreement signed after the death of the taxpayer and where the employer has erroneously withheld tax on the salary adjustment, whether the 10 calendar year delay in subsection 152(4.2) of the Act starts after the end of (i) the taxation year in which the death occurred or (ii) the taxation year in which the payment was received ?

Position: The 10-calendar year delay starts after the end of the taxation year in which the payment occurred.

Reasons: Wording of the act, the better view is to allow subsection 152(4.2) to apply consistently.

12 June 2025 External T.I. 2025-1051441E5 - Deductibility of BC Home Flipping Tax

Unedited CRA Tags
12(12), 18(1)(a), 40(1)(a)
Summary Under
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Income-Producing Purpose
BC Home Flipping Tax did not qualify under s. 18(1)(a)
Summary Under
Tax Topics - Income Tax Act - Section 40 - Subsection 40(1) - Paragraph 40(1)(a) - Subparagraph 40(1)(a)(i)
BC Home Flipping Tax did not qualify as a disposition expense

Principal Issues: Where a taxpayer disposed of residential property situated in BC and owned it for less than two years, whether the amount of taxes assessed under the Residential Property (Short-Term Holding) Profit Tax Act may be, if on account of income, deducted under subsection 9(1) and not denied by paragraph 18(1)(a), or, if on account of capital, as an outlay in respect to the disposition of the property.

Position: In the case where the disposition of residential property is on account of income, it is our view that the BC Home Flipping Tax assessed under the RPPTA is not deductible pursuant to paragraph 18(1)(a). Where the disposition of residential property is on account of capital, it is our view that the BC Home Flipping Tax cannot be deducted when computing a taxpayer’s capital gain from the disposition of residential property by virtue of not satisfying the purpose test of subparagraph 40(1)(a)(i).

Reasons: See below.