News of Note
CRA will not accommodate a trust which merely distributes all it can
Where a trust distributes all of its share of the accounting profits of a partnership but its share of the taxable income of the partnership is higher, it will be subject to trust-level taxation on the excess.
Neal Armstrong. Summary and translation of 2015-0595851C6 F under 9 October 2015 APFF Financial Strategies and Instruments Roundtable, Q. 6.
CRA generally accepts that loss of a s. 107(2) rollover can be avoided, where a trust owes debt to a capital beneficiary, by refinancing the debt with a bank
CRA considers (e.g., 2013-0488061E5) that the s. 107(2) rollover does not apply to the property of a personal trust which is distributed to a capital beneficiary to pay a debt owing to the beneficiary. In order to avoid this result in the case of a real property subject to a mortgage owing to the capital beneficiary, the trust can pay off the mortgage with a fresh mortgage financing from a bank, and then distribute the encumbered property to the beneficiary.
Neal Armstrong. Summary and translation of 2015-0593091C6 F under 9 October 2015 APFF Financial Strategies and Instruments Roundtable Q. 8.
The surplus recasting rule in Reg. 5907(2.02) can extend to non-rollover reorganizations
Reg. 5907(2.02) recasts exempt earnings a taxable earnings if they were generated in an avoidance transaction disposition to a non-arm’s length person or partnership. although the main target may have been be intercompany excluded-property transfers, the rule might also encompass a dividend in kind paid by an FA, a non-QLAD (qualifying liquidation and dissolution) liquidation; an FA-to-FA liquidation or merger that is not structured as a rollover - and it also might apply to an asset-packaging rule described in Reg. 5907(2.01) in circumstances where surplus maximization was a strong motivator. Moreover, Finance's technical notes suggest the dubious proposition that it could apply to exempt earnings generated from a deemed disposition of active business assets under the fresh start rules.
Neal Armstrong. Summary of Paul Barnicke, Melanie Huynh, "Exempt Earnings Anti-Avoidance," Canadian Tax Highlights, (Canadian Tax Foundation), Vol. 23, No. 12, December 2015, p. 5 under Reg. 5907(2.02).
CRA considers that NYSE stock trades should be translated at the noon exchange rate on the settlement date
As CRA considers that shares sold on a stock exchange are disposed of on the settlement rather than trade date, it considers that the U.S. dollar proceeds received on a sale on a U.S. exchange should be translated into Canadian dollars using the noon exchange rate for the settlement date.
Neal Armstrong. Summary and translation of 2015-0588981C6 under 9 October 2015 APFF Financial Strategies and Instruments Roundtable Q. 5.
CRA is studying whether the $2,500 penalty for late T1135 filings applies automatically
Where there has been a voluntary disclosure for failure of the taxpayer to file T1135s for the past, say, 15 years, the current practice of CRA is to assess the $2,500 per-year penalty for the first five years as being before the 10-year period for which CRA is permitted to waive penalties or interest under s. 220(3.1). However, the proposition that “the late-filing penalty of $2,500 under subsection 162(7) applies automatically… is currently under study.”
Neal Armstrong Summary and translation of 2015-0588971C6 F under 9 October 2015 APFF Financial Strategies and Instruments Roundtable Q. 4, 2015-0588971C6 F.
