Income Tax Severed Letters - 2017-05-24

Technical Interpretation - External

2 May 2017 External T.I. 2016-0663781E5 F - Meaning of retained earnings/calculation of capital

Unedited CRA Tags
181(3)(b)(i), 181.2(3)(a)
Summary Under
Tax Topics - Income Tax Act - Section 181 - Subsection 181(3) - Paragraph 181(3)(b) - Subparagraph 181(3)(b)(i)
GAAP meant ASPE if ASPE followed by the corporation
Summary Under
Tax Topics - Income Tax Act - Section 181.2 - Subsection 181.2(3) - Paragraph 181.2(3)(a)
appraisal increment in acordance with ASPE increased a corporation’s retained earnings

Principales Questions: 1. Whether the term "retained earnings" in paragraph 181.2(3)(a) refers to the definition of retained earnings in Section 3251 of CPA Canada Handbook - Accounting (Part II Accounting Standards for Private Enterprises (ASPE))?
2. Whether the adjustments to retained earnings resulting from the fair value adjustments in accordance with Section 1500 of CPA Canada Handbook - Accounting (Part II ASPE) should be considered in computing the taxpayer's capital pursuant to subsection 181.2(3)?

Position Adoptée: 1. The accounting meaning of retained earnings under ASPE should be used for the purpose of paragraph 181.2(3)(a) for a taxpayer that follows the ASPE.
2. Yes, provided that the accounting treatment of the adjustments are in accordance with ASPE.

Raisons: 1. Subparagraph 181(3)(b)(i) refers to the amount reflected on the balance sheet that is prepared in accordance with GAAP. ASPE is part of GAAP in Canada. Where a term in Part I.3 (such as retained earnings) derives its meaning from accounting principles, the accounting meaning has to be used. 2. Paragraph 181.2(3)(a) specifically mentions retained earnings to be added in computing capital.

20 April 2017 External T.I. 2016-0672501E5 F - Usufruct and Use of capital of a trust by a spouse

Unedited CRA Tags
70(6)(b)(ii)
Summary Under
Tax Topics - Income Tax Act - Section 70 - Subsection 70(6) - Paragraph 70(6)(b) - Subparagraph 70(6)(b)(ii)
right of the bare owner of property, subject to a usufruct in favour of a surviving spouse, to dispose of his bare ownership does not preclude a spousal trust
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(3) - Paragraph 248(3)(a)
deemed spousal trust created through will

Principales Questions: Can a trust meet the condition of subparagraph 70(6)(b)(ii) in a situation where the will of a deceased individual creates an usufruct (deemed trust) for the life of his/her spouse, and the terms of the will does not prohibit the bare owner to sell his right in the trust property?

Position Adoptée: Question of fact and law. Provided that the terms of the will otherwise satisfy the conditions of subsection 70(6), the fact that the bare owner may dispose his/her right should not in and by itself taint the deemed trust.

Raisons: The fact that the bare owner can alienate his right as bare owner should generally not be considered to result in someone other than the spouse of the deceased individual to use the trust property before the death of the spouse.

20 April 2017 External T.I. 2016-0679721E5 - The small business deduction

Unedited CRA Tags
125(3.2); 125(3.1); 125(1)(a); 125(7) “specified corporate income”
Summary Under
Tax Topics - Income Tax Act - Section 125 - Subsection 125(7) - Specified Corporate Income
sales of product to private corporation in which brother or father of the vendor shareholder has a controlling interest
Summary Under
Tax Topics - Income Tax Act - Section 125 - Subsection 125(1) - Paragraph 125(1)(a) - Subparagraph 125(1)(a)(i) - Clause 125(1)(a)(i)(B)
illustration where sales to related corporation

Principal Issues: Whether the receipt of specified corporate income limits the small business deduction available to a corporation.

Position: Yes.

Reasons: See below.

19 April 2017 External T.I. 2016-0625841E5 F - Gift of equitable interest in a trust

Unedited CRA Tags
118.1(4.1)(a), 118.1(5)(a), 118.1(5.1)(b), 118.1(1)(c) total des dons de bienfaisance
Summary Under
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(5.1)
s. 118.1(5.1) does not apply where a GRE donates a capital interest in a charitable residual trust created by will
Summary Under
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(1) - Total Charitable Gifts - Paragraph (c) - Subparagraph (c)(ii) - Clause (c)(ii)(B)
(c)(ii)(A) rather than (c)(ii)(B) applies where a GRE charitably donates a capital interest in a charitable residual trust created by will

Principales Questions: Whether paragraph 118.1(5.1)(b) is applicable in a situation where a deceased individual's will establishes a testamentary trust and the equitable interest in the trust is gifted to a qualified donee?

Position Adoptée: No.

Raisons: The subject of the gift is the equitable interest in the testamentary trust and has not been acquired by the estate on and as consequence of the death of the deceased taxpayer.

24 March 2017 External T.I. 2016-0669271E5 - support amount

Unedited CRA Tags
56.1(4), 60(b), 56(1)(b)

Principal Issues: Does a lump-sum amount paid for retroactive spousal support in respect of periods prior to the date of a written agreement qualify for a deduction under paragraph 60(b) of the Income Tax Act (the "Act")?

Position: No.

Reasons: A lump-sum payment for retroactive spousal support is not for amounts that were payable on a periodic basis that were due after the date of a written agreement that had fallen into arrears. Therefore the amount paid does not meet the definition of a support amount in subsection 56.1(4) of the Act.

Technical Interpretation - Internal

13 February 2017 Internal T.I. 2015-0587691I7 - Classification of a Delaware LLLP

Unedited CRA Tags
248(1)"corporation"
Summary Under
Tax Topics - Income Tax Act - Section 96
Delaware LLLP that was wound up before 2016 treated as partnership for capital loss purposes
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Corporation
de facto listing of relevant corporate-like attributes of LLLP

Principal Issues: Whether a particular LLLP governed by the laws of Delaware would be considered to be a corporation or a partnership for the purposes of the Act?

Position: Corporation.

Reasons: The provisions of the foreign legislation and other relevant documents in respect of the Delaware LLLP support the conclusion that this entity should be considered to be a corporation for the purposes of the Act. However, based on administrative concessions under development, consideration should be given to maintaining the partnership treatment of the entity for the relevant taxation years, as per the filings made by the taxpayers.