Words and Phrases - "required to be included"
Allan Lanthier, "FAPI or Taxable Surplus Dividend", Canadian Tax Highlights, Vol. 23, No. 2, February 2015, p. 4.
Dispute as to whether FA earns ABI or FAPI (p. 4)
Assume that Canco owns CFA and that the relevant years are all before 2012. In year 1, CFA earns income of $1,000; there is no foreign tax. CFA pays a dividend of $1,000 to Canco, either in the year in which the income is earned (after the first 90 days) or at any time in any subsequent year. Canco is of the view that CFA's earnings are income from an active business and exempt surplus, and the CRA, is of the view that the earnings are FAPI and taxable surplus….
Deletion of "required to be" from s. 92(1)(a) (pp. 4-5)
[T}he wording in respect of the ACB addition mandated by paragraph 92(l)(a) was amended from "any amount required to be included ... by reason of subsection 91(1) … in computing the taxpayer's income" to "any amount included … under subsection 91(1) ... in computing the taxpayer's income."…
Distinction between "required to be included" and (factually) "included" (p. 5)
The Act distinguishes between amounts "required to "be included" and amounts "included" in a number of provisions. In Quigley (96 DTC 1057 (TCC), cited in Skinner, 2009 TCC 269), the TCC referred to a similar amendment in the domestic shareholder loan and repayment provisions: "The reason for the amendment is obvious as it was arguable that a deduction would result from repayment even if there were no prior inclusion."…
Effect: statute-barring does not start running until FAPI is distributed (p.5)
[U]nder the amended legislation, if year 1 is still open to assessment, the CRA can reassess and include FAPI in Canco's income under subsection 91(1) as the Act requires. Alternatively, the CRA can ignore the mandatory FAPI inclusion and simply not assess a FAPI inclusion. The CRA can instead assess the year or years in which CFA pays dividends, and indirectly tax the FAPI by denying the section 113 deduction and assessing the dividend as having been paid out of taxable surplus with no offsetting relief under subsection 91(5): FAPI was not "included" in Canco's income (according to Skinner, as determined by the CRA's final assessment for the year), and thus there was no ACB addition under amended paragraph 92(l)(a). The dividend from CFA to Canco is a transaction that gives rise to the additional, three-year reassessment period, and so the CRA can now circumvent the normal reassessment period for the assessmentof FAPI by taxing it as part of a taxable surplus dividend….