News of Note
CRA confirms that a deceased’s FHSA can be rolled into the surviving spouse’s FHSA, RRSP or RRIF even if the proceeds go first to the estate (albeit, subject to s. 153(1)(v)(i) withholding)
Email this ContentCRA confirmed that if amounts from a deceased holder's FHSA are deposited into the estate's account and then subsequently transferred by it directly to the surviving spouse's FHSA, RRSP or RRIF, s.146.6(15)(a) will deem that indirect transfer to be a direct tax-free transfer from the deceased’s FHSA to such spousal plan, to the extent that it is so designated jointly by the legal representative and the surviving spouse and the usual conditions in s. 146.4(7) otherwise relating to a direct transfer are satisfied.
However, CRA indicated that, if because of the withholding tax under s. 153(1)(v)(i) that would be imposed on the amount paid from the deceased’s FHSA to the estate, the estate did not have sufficient cash to pay the gross proceeds of that FHSA directly to the surviving spouse's FHSA, RRSP or RRIF, the tax free transfer amount would be required to be reduced accordingly.
If the proceeds from the deceased’s FHSA were distributed by the estate to the surviving spouse rather than directly to that individual’s FHSA, RRSP or RRIF, the surviving spouse would not be able to then make the tax-free transfer to such plan.
Neal Armstrong. Summary of 10 October 2024 APFF Financial Strategies & Instruments Roundtable, Q.7 under s.146.6(15)(a).
GST/HST Excise and Specialty Tax Severed Letters January/May 2024
CRA indicates that the marriage-breakdown FHSA transfer provision (s. 146.6(7)) does not override the requirement for the transferee (ex-)spouse to be a “qualifying individual”
In very general terms, ss. 146.6(7)(a)(ii) and (8) contemplate that a tax-free transfer of an individual's FHSA may be made to the FHSA, RRSP or RRIF of the “ex” in a settlement by judicial order or written agreement in relation to their relationship breakdown. CRA indicated that if, at the time the transfer is to be made, the transferee individual does not already hold a FHSA and is not a “qualifying individual” (e.g., was a recent home owner) so that such individual is not eligible to open up a FHSA, then the transfer cannot be made to a FHSA, and can only be transferred directly, within the specified limits, tax-free to that individual's RRSP or RRIF.
Neal Armstrong. Summary of 10 October 2024 APFF Financial Strategies & Instruments Roundtable, Q.6 under s. 146.6(7).
CRA rules that a French société civile de placement immobilier (SCPI) is a corporation
CRA ruled that a société civile de placement immobilier (“SCPI”) [real estate investment company] was a corporation for ITA purposes and a “company” for purposes of the Canadian application of the Convention with France. Although its members were styled as partners who could be liable for debts of the partnership up to the amount of their subscribed capital and its income was allocated to them for French income tax purposes, their interests were measured by shares, and under French law, an SCPI has legal personality, has the capacity to enter into contracts with third parties, has its own assets and is liable for the debts it may incur.
Neal Armstrong. Summary of 2022 Ruling 2022-0929431R3 F under s. 248(1) – corporation.
Income Tax Severed Letters 6 November 2024
This morning's release of two severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA indicates that, where necessary, a s. 70(2) return can be filed before the filing deadline with an estimated amount of the right or thing
A taxpayer died in October 2021 after reaching a pay equity settlement a few months earlier. The estate received the pay equity amount at the end of 2022 and a T4 for 2022 early the next year.
CRA indicated that the pay equity amount was a “right or thing” at the time of the taxpayer’s death. If (because the amount was not yet ascertained) a rights or things return was not filed on a timely basis (i.e., by the later of one year after the death and 90 days after the assessment of the terminal return), CRA considered that this right or thing was includible in the taxpayer’s terminal return to the extent that “the salary adjustment existed and was determinable at the time of death” – and that, if necessary to accomplish this inclusion, the T1 terminal return should be amended accordingly.
However, CRA stated:
Where it is not possible, for example because of administrative delays, to obtain from the employer the precise amount of the pay equity adjustment payment within the time required to make the election under subsection 70(2) and to file a Rights or Things Return, the CRA will generally accept the filing of such a declaration where the taxpayer declares an amount estimated on the basis of the best information available at the time the declaration is filed. Once the value of the rights or things referred to in subsection 70(2) has been determined with greater certainty, the representative must, if necessary, amend the return.
Neal Armstrong. Summary of 10 October 2024 APFF Financial Strategies & Instruments Roundtable, Q.5 under s. 70(2).
CRA indicates that a s. 45 change of use does not restart the 365-day period under the flipped property rules
CRA noted that a deemed disposition and reacquisition under the change-of-use rules in s. 45 apply only for purposes of the capital gains rules in subdivision c of Division B, and not for purposes of the flipped property rules in s. 12, so that the flipped property rules would not be engaged by virtue only of a housing unit having had such a change of use within 365 days of its sale.
Neal Armstrong. Summary of 10 October 2024 APFF Financial Strategies & Instruments Roundtable, Q.4 under s. 12(13).
CRA considers that the holding period for a housing unit under the flipped property rules commences when it becomes habitable
In general, the “flipped property” rules can apply to a Canadian housing unit that is owned by the taxpayer for a period of less than 365 consecutive days prior to its disposition. In the situation where an individual constructs a housing unit, CRA will not consider the 365-day period to start running until the housing unit becomes habitable.
Neal Armstrong. Summary of 10 October 2024 APFF Financial Strategies & Instruments Roundtable, Q.3 under s. 12(13).
CRA applies its four conditions for the use of an average exchange rate to the example of a stripped coupon
Regarding when an average exchange rate could be used In the case of foreign-currency denominated stripped coupon, for which interest is deemed to accrue pursuant to ss. 12(3), (4) and (9), CRA indicated that, given the steady and day-to-day accrual of the interest amounts to be translated, the first two of its four conditions for an average exchange rate would be satisfied, namely, that the foreign currency amounts “are relatively stable and evenly distributed” and “are sufficiently frequent and spread out” to avoid distortion. Regarding satisfaction of the third condition (“the relevant exchange rate does not fluctuate significantly over the period”), that would require an assessment of the impact of the exchange rate differences on the amount to be converted.
Regarding the fourth condition (“the average rate is the rate used by the taxpayer each time these conditions are met”), CRA noted that, in this context, this meant that the average rate should be used whenever the third condition was satisfied.
Neal Armstrong. Summary of 10 October 2024 APFF Financial Strategies & Instruments Roundtable, Q.2 under s. 261(2)(b).
We have translated 8 more CRA severed letters
We have translated a ruling and interpretation released by CRA last week and a further 6 CRA interpretations released in May of 2001. Their descriptors and links appear below.
These are additions to our set of 2,992 full-text translations of French-language Technical Interpretation and Roundtable items (plus some ruling letters) of the Income Tax Rulings Directorate, which covers all of the last 23 ½ years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
| Bundle Date | Translated severed letter | Summaries under | Summary descriptor |
|---|---|---|---|
| 2024-10-30 | 2023 Ruling 2023-0986521R3 F - 104(4) and Pipeline | Income Tax Act - Section 84 - Subsection 84(2) | pipeline transfer by inter vivos family trust of preferred shares (stepped-up under s. 104(4)(b)(ii)) to an existing family company for notes |
| Income Tax Act - 101-110 - Section 104 - Subsection 104(4) - Paragraph 104(4)(b) - Subparagraph 104(4)(b)(ii) | inter vivos chooses to realize gain on its preferred shares on its 21st anniversary, and transfer those shares for notes in a pipeline trnasaction | ||
| 29 May 2024 External T.I. 2019-0819561E5 F - Catégorie d’amortissement 53 de l’Annexe II du Règlement | Income Tax Regulations - Schedules - Schedule II - Class 53 | having equipment owned separately from the services business in which its product is used could permit it to qualify as Class 53 property | |
| Income Tax Regulations - Schedules - Schedule II - Class 29 | having equipment owned separately from the services business in which its product is used could permit the manufactured product to be “sold” to the services business | ||
| 2001-05-25 | 22 May 2001 External T.I. 2000-0021095 F - DEMUTULISATION NON-RESIDENT | Income Tax Act - Section 139.1 - Subsection 139.1(16) | non-resident interest person needs to make the election for s. 139.1(16) to apply – if so, per s. 139.1(16)(k), no Part XIII tax applicable to individual re the cash payment |
| Income Tax Act - Section 139.1 - Subsection 139.1(15) | potential application of Pt. XIII tax to premiums paid by non-resident corporation | ||
| 22 May 2001 External T.I. 2000-0047245 F - Divorce | Income Tax Act - Section 251 - Subsection 251(1) - Paragraph 251(1)(c) | reciprocal transactions completed after divorce would be non-arm’s length | |
| Income Tax Act - Section 84.1 - Subsection 84.1(1) | sale of ex-wife’s shares of Opco (acquired in marriage settlement) to new Holdco of her ex-husband for Holdco note would engage s. 84.1 if these were “reciprocal transactions” | ||
| 29 May 2001 External T.I. 2000-0055915 F - DEDUCTIBILITE DES COMMISSIONS - ASSURANCE | Income Tax Act - Section 18 - Subsection 18(9.02) | background to s. 18(9.02) | |
| 25 May 2001 External T.I. 2001-0067415 F - CONSOLIDATION DE PERTES | Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c) | related-person loss transfer transactions must be commercially reasonable to satisfy s. 20(1)(c) | |
| Income Tax Act - Section 111 - Subsection 111(1) - Paragraph 111(1)(a) | CCRA loss consolidation policy is available where Profitco’s income is FAPI/ requirements re transactions being commercially reasonable | ||
| 29 May 2001 External T.I. 2001-0075245 F - SOCIETE DE GESTION DE PENSION | Income Tax Act - Section 149 - Subsection 149(1) - Paragraph 149(1)(o.2) - Subparagraph 149(1)(o.2)(i) | s. 149(1)(o.2)(i) corporation can be incorporated for the administration of more than one RPP – but cannot be incorporated to provide management services to other RPPs | |
| Statutory Interpretation - Interpretation Act - Subsection 33(2) | reference to administration of one pension plan included two or more | ||
| 23 May 2001 External T.I. 2001-0077855 F - PLACEMENT ADMISSIBLE REER | Income Tax Regulations - Regulation 4900 - Subsection 4900(8) | did not extend to services rendered in connection with the company’s incorporation |