Income Tax Severed Letters - 2013-12-11

Ruling

2012 Ruling 2011-0431051R3 - Charity's interest in a taxable corporation

CRA Tags
55(2), 149.1(1), 245(2), 84(3)
Summary Under
Tax Topics - Income Tax Act - Section 149.1 - Subsection 149.1(2) - Paragraph 149.1(2)(a)
provision of investment oversight and paid services to JV corp

Principal Issues: Request for confirmation that the Charity's ownership of a XXXXXXXXXX% interest in the common shares in the corporation and its representation on the Board of Directors of the corporation, in and of themselves, would not be considered activities that would constitute the carrying on of a business that is not a related business of the Charity for the purposes of paragraph 149.1(2)(a).

Position: Ruling given subject to numerous caveats and comments. Notwithstanding the ruling provided, the described activities appear to extend beyond the mere ownership of shares in the corporation which suggest that the Charity will be carrying on a business that is not a related business as defined in subsection 149.1(1). The matter has been referred to the Charities Directorate for their consideration.

Reasons: See below.

Technical Interpretation - External

26 November 2013 External T.I. 2013-0508931E5 - Form T1134

CRA Tags
233.3, 94(3), 233.4
Summary Under
Tax Topics - Income Tax Act - Section 94 - Subsection 94(3) - Paragraph 94(3)(a)
T1134 and T1135 and coming-into-force "CIF" provision

Principal Issues: 1. Whether the return referred to in subsections 233.3(3) and 233.4(4) of the Act is a "return of income" for the purposes of the coming into force provisions for subsection 94(3) of the Act; and
2. Assuming a Trust's Taxation Year ends on December 31, 2012, on or before the later of what date must Form T1134 be filed with the MNR by a 94(3) Trust in order for it to be considered to have been filed on a timely basis for the purposes of section 233.4 of the Act and determining the amount of any late filing penalty payable in respect of that year?

Position: 1.No. Forms T1134 and T1135 are information returns and not returns of income for the purposes of the coming into force provisions for subsection 94(3) of the Act. 2. Form T1134 must be filed with the MNR on or before March 31, 2014.

Reasons: See the Explanatory Notes to section 94 of the Act, which discuss the coming into force provisions.

22 November 2013 External T.I. 2013-0510711E5 - Is growing marijuana farming?

CRA Tags
125.1(3) "manufacturing or processing", 9(1), Regulation 1104(9) "manufacturing or processing", 248(1) - "farming", ITR Schedule II - Class 29
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Farming

Principal Issues: Is growing marijuana that will be sold to a lab (to be made into medicinal marijuana) a farming or a manufacturing or processing activity?

Position: Question of fact, but likely farming.

Reasons: The combined activities of growing, harvesting, and drying marijuana appear to be "farming".

22 November 2013 External T.I. 2013-0511771E5 - Beneficial Ownership - Disposition

CRA Tags
248(1)
Summary Under
Tax Topics - General Concepts - Ownership
mother as nominee for daughter's house
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(1)
mother as nominee for daughter's house

Principal Issues: Whether a change in legal title will result in a disposition?

Position: Question of fact.

Reasons: Where there is no change in beneficial ownership there is generally no disposition under the Act.

1 November 2013 External T.I. 2013-0501131E5 - Micro-FIT Rental Income

CRA Tags
ITR 1100, section 9
Summary Under
Tax Topics - Income Tax Act - Section 9 - Computation of Profit

Principal Issues: 1. How is the amount received by a homeowner for the use of the roof of his principal residence by a company reported? 2. Must the homeowner and his or her spouse each report half of the amount received on their T1 if they co-own the principal residence? 3. How does CCA work in this situation?

Position: 1. Appears to be rental income. 2. Each co-owner of the property is to report their share of the amount. 3. Cannot claim CCA now as does not own the solar equipment. When ownership of the equipment is transferred to the homeowners they may be able to claim CCA if the property is acquired for the purpose of earning income and the property has value.

Reasons: 1. & 2. Provisions of the Act. 3. Income Tax Regulations section 1100.

Conference

11 October 2013 APFF Roundtable Q. 18, 2013-0495851C6 F - Safe income adjustments

CRA Tags
55(5), 12(2.2), 42, 12(1)(x), 55(2)
Summary Under
Tax Topics - Income Tax Act - Section 54 - Adjusted Cost Base
downward adjustment under price adjustment clause reduces shares' ACB
Summary Under
Tax Topics - Income Tax Act - Section 55 - Subsection 55(2.1) - Paragraph 55(2.1)(c)
CRA post-closing reassessment of Target's pre-closing income changes its SIOH

Principales Questions: Under 3 different scenarios, what is the impact on the safe income computation of Opco additional income tax paid by Opco for taxation years prior to the date of acquisition of its shares? 1- Nothing is provided under the share purchase agreement with respect to the additional income tax paid by Opco? 2- Price adjustment clause provided under the share purchase agreement. 3- Vendor is responsible for the payment of any additional income tax payable by Opco under the share purchase agreement.

Position Adoptée: 1- Additional income tax paid would reduce safe income on hand of Opco. 2- Same as in first scenario for Opco and reduction of the cost of shares of Opco for Purchaserco 3- Same as in first scenario but impact of paragraph 12(1)(x) and subsection 12(2.2) must be taken into consideration.

Raisons: 1- Additional income tax paid would reduce safe income on hand that can reasonably be considered as contributing to the gain inherent in the Opco's shares. 2- Same as scenario 1. 3- Same as scenario 1 depending on the situation and the application of paragraph 12(1)(x) or subsection 12(2.2).

Technical Interpretation - Internal

19 November 2013 Internal T.I. 2013-0499021I7 - Distribution of property by a trust

CRA Tags
107(4.1), 107(2)
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 107 - Subsection 107(2)
transfer to settle debt

Principal Issues: Can a transfer of a property from a personal trust to a beneficiary constitute both a settlement of a debt owing to the beneficiary and a distribution that meets the requirements for a rollover under subsection 107(2)?

Position: No.

Reasons: It cannot simultaneously be both.

18 November 2013 Internal T.I. 2011-0399581I7 F - Application of section 212(1)(d) ITA

CRA Tags
212(1)(d)(viii), 212(1)(d)(i), 212(1)(d), Treaties Article XII
Summary Under
Tax Topics - Income Tax Act - Section 212 - Subsection 212(1) - Paragraph 212(1)(d) - Subparagraph 212(1)(d)(i)
seriatim benchmark lump sums, although not royalties, came within s. 212(1)(d)
Summary Under
Tax Topics - Income Tax Act - Section 212 - Subsection 212(1) - Paragraph 212(1)(d) - Subparagraph 212(1)(d)(viii)
cost-sharing agreement with catch-up payment provisions qualified
Summary Under
Tax Topics - Treaties - Income Tax Conventions - Article 12
contingent payments came within broad Treaty definition of royalty

Principales Questions: 1) Whether 212(1)(d) applies with respect to a series of milestone payments made with respect to a patent; 2) whether 212(1)(d) applies with respect to a cost sharing agreement.

Position Adoptée: 1) No; 2) No

Raisons: 1) Section 212(1)(d) should apply to these payments, but they should be exempt from tax under Article XII of the Canada-Ireland Treaty; 2) Exception to 212(1)(d) of 212(1)(d)(viii) should apply.

10 July 2013 Internal T.I. 2013-0475501I7 F - Amounts returned to trustee/beneficiary

CRA Tags
105(1), 104(13), 56(4), 104(6)b)
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(13)
family trust income distributed to children but repaid as reimbursement to father for family expenses was income to him, not them
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(24)
distributions to children immediately paid to father
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(6)
distributions to children immediately paid to father were deductible even though received by children as his agents
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 105 - Subsection 105(1)
payment of income distributions by children to father not a benefit under the trust
Summary Under
Tax Topics - Income Tax Act - Section 56 - Subsection 56(4)
payment of distributed family trust income by children to father did not engage s. 56(4) as it was only potential income to him

Principales Questions:
1a) If a principal-agent relationship prevailed between Father and Children, should the income payable by Trust to the Children be included in Father's income by virtue of subsection 104(13)? 1b) As an alternative, should subsection 105(1) apply to Father on the amounts returned to him?
2) Whether the deduction claimed by the Trust under subsection 104(6) should be disallowed on the basis that the amounts of dividends so designated to the beneficiaries were not in fact payable to them as contemplated under subsection 104(24)?
3) Whether subsection 56(4) applies to attribute to Father the dividend income received by the Children?

Position Adoptée:
1a) Yes. 1b) No. 2) No. 3) No.

Raisons:
1a) Interpretation of the Act, 1b) The amounts paid by the Children to Father are not "from or under a trust".
2) The amounts were payable to Children as agent of their Father.
3) Trust is discretionary trust. The rights of the beneficiaries to receive any income arise when the trustees exercise their election in their favour.