Income Tax Severed Letters - 2024-03-13

Technical Interpretation - External

21 December 2023 External T.I. 2019-0822121E5 F - Transfer of life insurance policy from a trust to its corporate beneficiary

Unedited CRA Tags
106(3), 148(1) and (7).

Principales Questions: (1) Whether subsection 106(3) takes precedence over subsection 148(7) where a discretionary trust transfers an interest in a life insurance policy to its corporate beneficiary as payment of a dividend in kind received by the trust? (2) Whether a corporate beneficiary receiving an interest in a life insurance policy from a trust as payment of a dividend in kind received by the trust should be considered as having given a consideration for the interest in the life insurance policy?

Position Adoptée: (1) None. General comments provided. (2) Yes.

Raisons: (1) and (2) There will be a disposition of all or part of the beneficiary’s income interest in favor of the trust when the trust distributes the life insurance policy to its beneficiary in satisfaction of all or part of the beneficiary’s income interest. Determining the FMV of an income interest in a trust at any given time is a question of fact. To the extent that it is determined that at the time of disposition of the life insurance policy, the beneficiary’s income interest under the trust would include the right to enforce payment of an amount by the trust equal to the FMV of the life insurance policy, it could be argued that the consideration given by the beneficiary to the trust for the interest is equal to the FMV of that life insurance policy. In this context, the tax consequences that would arise from the disposition of the policy would be the same whether subsection 106(3) or 148(7) applies. Since it is not clear that such a result is consistent with tax policy, we will bring this issue to the attention of the Department of Finance.

30 November 2023 External T.I. 2021-0917401E5 - Section 87 exemption and pension income

Unedited CRA Tags
Indian Act s.87; 81(1)(a)

Principal Issues: Does the minimum threshold for proration apply to employment income or pension income?

Position: The minimum threshold for proration applies to employment income.

Reasons: It is the CRA’s long-standing position that in determining the amount of pension benefits that is exempt from income tax under section 87 of the Indian Act, it is reasonable to consider the tax treatment of the employment income received during the period in which pension contributions were made or pension benefits accrued (pensionable years of service). Based on this position, if the employment income is exempt from income tax at a certain percentage, then the pension income will also be exempt from tax at that percentage.

17 November 2023 External T.I. 2023-0965891E5 - Section 115.2

Unedited CRA Tags
115.2
Summary Under
Tax Topics - Income Tax Act - Section 115.2 - Subsection 115.2(1) - Designated investment service - Paragraph (b)
lending qualifies as a designated investment service
Summary Under
Tax Topics - Income Tax Act - Section 115.2 - Subsection 115.2(1) - Designated investment service - Paragraph (a)
ancillary admin services outside the scope of designated investment services or of GP do not cause limited partners to carry on business in Canada
Summary Under
Tax Topics - Income Tax Act - Section 2 - Subsection 2(3) - Paragraph 2(3)(b)
performance of admin services in Canada for non-resident limited partners would not be itself cause them to carry on business in Canada

Principal Issues: (i) Whether non-resident members of a limited partnership will be carrying on business in Canada by reason of a Canadian service provider making loans on behalf of the partnership. (ii) Where subsection 115.2(2) applies to the investment activities of the partnership, whether the non-resident partners may nevertheless be considered to be carrying on business in Canada for purposes of the Act either because of the Canadian service provider providing administrative services to the partnership that are outside of the scope of section 115.2 or because of GP, a corporation resident in Canada, performing administrative functions in Canada.

Position: (i) No. (ii) No.

Reasons: (i) Subsection 115.2(2) can apply in the context where the partnership invests in debt, generally acquired on original issue, provided all of the other requirements of subsection 115.2(2) are satisfied. If subsection 115.2(2) applies, the non-resident limited partners will not be considered to be carrying on business in Canada for purposes of subsections 115(1) and 150(1), Part XIV of the Act and section 805 of the Regulations as a result of those loan origination activities. (ii) Where non-resident partners are not otherwise considered to be carrying on business in Canada, they would not be considered to be carrying on business in Canada solely by reason of the Canadian service provider or GP performing administrative functions in Canada.

Technical Interpretation - Internal

20 June 2023 Internal T.I. 2021-0904981I7 - Application of ss.227(6) to treaty benefits

Unedited CRA Tags
227(6), 212(1), Canada-Italy Treaty Art. 18 para. 2
Summary Under
Tax Topics - Income Tax Act - Section 227 - Subsection 227(6)
the two-year s. 227(6) time limit for requesting a Part XIII tax refund applies to a request based on a Treaty “as if resident” clause that is silent on the timing point
Summary Under
Tax Topics - Treaties - Income Tax Conventions - Article 18
ITA s. 227(6) time limitation applied where “as if resident” clause is silent on the timing of refund claim

Principal Issues: If a tax treaty has an As-If-Resident (“AIR”) rule (such as Article 18, paragraph 2 of the Canada-Italy Income Tax Convention), can a taxpayer request an assessment of tax under this treaty provision indefinitely, or will subsection 227(6) limit the timeframe the taxpayer has to request such an assessment to no later than two years after the end of the calendar year in which the amount was paid?

Position: Generally, subsection 227(6) will limit the timeframe a taxpayer has to request an assessment under the "as if resident" rule, but the specific provisions of a given treaty may have an impact.

Reasons: Procedural rules, such as 227(6), are generally not affected by treaties unless there is a specific provision in the treaty addressing it.