News of Note
CRA indicates that cash is property for 55(2.1)(b) purposes
Email this ContentS. 55(2.1)(b)(ii)(B) contemplates the application of s. 55(2) where one of the purposes of a dividend (otherwise than on a redemption) is to significantly increase the cost of the dividend recipient’s property. After noting that cash is property for s. 55 purposes and that cash received on a dividend can be used to purchase any other property or even additional shares of the dividend payor, with a resulting increase in the cost amount of the shares of the dividend payor, CRA concluded that cash thus is property for s. 55(2.1)(b)(ii)(B) purposes.
Neal Armstrong. Summary of 29 November 2016 CTF Annual Roundtable, Q.8 under s. 55(2.1)(b).
CRA indicates that BEPS 13 has no effect on the s. 247 documentation requirements
CRA indicated that BEPS Action Item 13 had been dealt with by the introduction of proposed s. 233.8 (respecting country-by-country reporting), which does not include a requirement to produce a Local File or a Master File and has no direct relation to s. 247 (including the contemporaneous documentation requirement in s. 247(4)). CRA stated that Action 13 thus has not altered its criteria regarding whether a taxpayer has made reasonable efforts to determine and use arm’s length transfer pricing.
Neal Armstrong. Summary of 29 November 2016 CTF Annual Roundtable, Q.9 under s. 247(4).
CRA announces that it will entertain submissions for LLPs and LLLPs to file as corps only on a going-forward basis
Where a Florida or Delaware LLP and LLLP is precluded from converting to a “true” partnership, CRA will entertain submissions to allow it to file as a corporation on a going-forward basis while leaving the previous years’ filings unchanged. CRA will review such submissions to see that there is no unwarranted benefit or undue tax advantage, including a review of the relevant tax attributes.
Neal Armstrong. Summary of 29 November 2016 CTF Annual Roundtable, Q.10 under s. 96.
Canada may announce to what extent it will adopt the MLI by the time of the next federal budget
Brian Ernewein noted that the OECD’s publication of the multilateral instrument last week is not the equivalent of an endorsement by any country to use it, absent Treaty-changes. He indicated that a decision by the Canadian government as to which items it will choose to adopt might be something that is reported on by the time of the next federal budget.
Neal Armstrong. Brian Ernewein on BEPS.
CRA rejects the analysis in Agnico-Eagle
CRA rejected the suggestion that Agnico-Eagle could support the realization of a capital loss under s. 39(2) where a U.S.-dollar denominated debenture is converted into shares, stating that a loss from appreciation in the shares of the issuer is not an FX loss described in s. 39(2) – and also indicated that if a similar case arose, it would consider that s. 143.3(3)(b) also denied a loss respecting the share appreciation.
Neal Armstrong. Summaries of 2016 CTF Annual Roundtable, Q.3 under s. 39(2) and s. 143.3(3)(b).
CRA announces a moratorium on providing interpretations on safe income allocation to discretionary dividend shares
CRA is troubled by the valuation difficulties attendant on discretionary dividend shares and their potential misuse for value shifting or income splitting, and has announced a moratorium on commenting on safe income allocation questions respecting such shares until it has studied the area further. This moratorium does not detract from the Rulings Directorate being “open for business” with respect to other s. 55 issues.
CRA was not receptive to a suggestion that safe income computations could be skipped in the simple case of a holdco/opco structure and no or limited differences in accounting versus taxable income.
Neal Armstrong. Summary of 2016 CTF Annual Roundtable, Q.2 under s. 55(2.1)(c).
CRA considers that making a s. 107(2) distribution to a corporate beneficiary held by a new trust is an abusive circumvention of the s. 104(4) 21-year rule
A discretionary resident trust that is approaching its 21st anniversary distributes property with an unrealized gain to a corporate beneficiary that is wholly owned by a newly-established discretionary trust.
When this transaction was presented to it in a ruling request, the GAAR Committee observed that the new trust technically would start afresh under the 21-year deemed realization rule, and considered that it inappropriately circumvented this rule, which works hand in hand with the s. 70 rule for deemed realizations on death, to prevent indefinite deferrals of capital gains. CRA further indicated that a distribution to a corporate beneficiary will generally be acceptable if the individual shareholders of that corporation are resident in Canada, and that, as for non-resident individual beneficiaries, it will look to see that there will be taxation within Canada in their lifetime.
Neal Armstrong. Summary of 2016 CTF Annual Roundtable, Q.1 under s. 104(5.8).
2016 CTF Roundtable Answers
Our summaries of the questions and answers at the 2016 CTF Conference CRA Roundtable are now posted. Only the first 10 questions were answered. The official answers (including to questions 11-15) may be published in several weeks.
Over the next few days, we will be releasing a number of News of Note posts to highlight points of interest.
Barejo – Federal Court of Appeal states that determining whether the notes in Barejo were debt for purposes of the ITA rather than s. 94.1 would be “an improper use of judicial resources”
The Federal Court of Appeal has dismissed the Barejo appeal – but on the grounds that the Rule 58 question posed to the Tax Court was whether the “notes” in question were debts for purposes of the Act rather than for purposes of s. 94.1 thereof. As it did “not appear as though the answer to the question asked will resolve anything in the context of the underlying appeal which turns on the meaning of the word ‘debt’ in section 94.1,” it followed in the view of Noël C.J. “that endeavouring to dispose [of] the appeals on the merits would serve no useful purpose and give rise to an improper use of judicial resources.”
Neal Armstrong. Summary of Barejo Holdings ULC v. The Queen, 2016 FCA 304 under s. 94.1(1).
Income Tax Severed Letters 30 November 2016
This morning's release of 32 severed letters from the Income Tax Rulings Directorate is now available for your viewing.