TEI liaison meeting with Canada Revenue Agency on income tax questions: December 4, 2012.

On December 4, 2012, Tax Executives Institute held its annual liaison meeting with Canada Revenue Agency on income tax questions. The agenda for the meeting, which is reprinted below, was developed by the Institute's Canadian Income Tax Committee, whose chair is Bonnie Dawe of Finning International, Inc. TEI Senior Tax Counsel Jeffery P. Rasmussen, who serves as liaison to the committee, coordinated the preparation of the agenda.

Tax Executives Institute welcomes the opportunity to present the following comments and questions on income tax issues, which will be discussed with representatives of the Canada Revenue Agency (hereinafter "CRA" or "the Agency") during the December 4, 2012, liaison meeting. If you have any questions about the agenda in advance of the meeting, please do not hesitate to call Kim N. Berjian, TEI's Vice President for Canadian Affairs, at 403.614.8572 or, Bonnie Dawe, Chair of the Institute's Canadian Income Tax Committee, at 604.331.4864.

1. Follow-up Questions and Carryover Items from Prior Years

   1. Partnership Returns and My Business Account

      In response to question 1(c) of the December 2011 liaison meeting agenda with TEI, CRA said that it was working toward an online solution that would permit taxpayers to track the filing status of partnership information returns, perhaps as part of the My Business Account web portal. CRA's goal was to have the system in place for 2012 fiscal periods. Can CRA provide an update on the status of the online notification process? We also invite a discussion whether other partnership return details will be available online. Finally, are enhancements to the My Business Account web portal or other online resources contemplated, including the capability of e-filing Form T5013 (Statement of Partnership Income)?

   2. Foreign Reporting Forms

      In response to question l(a) during the December 2011 liaison meeting agenda with TEI, CRA said that revisions to Forms 1134A (Information Return Relating to Foreign Affiliates That Are Not Controlled Foreign Affiliates) and 1134B (Information Return Relating to Controlled Foreign Affiliates) were nearly complete and revised forms would be released soon. Also, in response to question 2 of the same meeting agenda, CRA said that the International Tax Data Working Group was exploring e-filing for foreign reporting forms, including Form T106 (Information Return of Non-Arm's Length Transactions with Non-Residents), T1134A, and T1134B. We invite CRA to provide an update on these initiatives.

   3. Replacement of Income Tax Technical Publications with Income Tax Folios

      CRA recently announced the launch of Income Tax Folio publications (hereinafter "Folios") to update and supersede information currently found in the Income Tax Interpretation Bulletins and to improve web functionality. At the same time, CRA announced that "all of the archived Income Tax Interpretation Bulletins, nine of the current Income Tax Interpretation Bulletins and all archived ITTNs were cancelled, effective September 30, 2012." Finally, to expedite the development and publication of the Folios, the Income Tax Rulings Directorate has undertaken an External Contributor Framework with external organizations.

      We invite a discussion of the effect of the initiative and its timeline to completion based on the following questions:

      (i) Will CRA be able to add resources or devote additional resources from other sources in order to ensure that taxpayers have access to income tax technical publications and that the Folios remain current? How is CRA prioritizing the development and issuance of the Folios? Will topics identified through the External Contributor Framework (i.e., by way of a submitted Topic Selection Form) receive priority consideration for updates?

      (ii) The webpage summarizing the Folio project states that the updates will require several years to complete. Can CRA provide a timeline for completion as well as interim milestone dates (e.g., which Folio subjects it anticipates completing by particular dates)?

      (iii) Can CRA provide additional explanation about the process, including why nine current ITs were cancelled before they were replaced by a Folio? Will the cancelled ITs subsequently be incorporated in a Folio? Can taxpayers rely on the positions included in the cancelled ITs until a Folio is issued with revised or restated guidance?

      (iv) Can CRA clarify what an "archived" Advance Income Tax Ruling is and what (or how) taxpayers may be affected by their cancellation? The Folio announcement does not refer to the "archived Advance Income Tax Rulings," but all were cancelled effective September 30, 2012, along with "all archived Income Tax Bulletins," nine current Interpretation Bulletins, "all archived Income Tax Technical News," and "all archived

      Income Tax Directives."

2. Vision 2020

   During TEI's May 2012 Annual Canadian Tax Conference, Assistant Commissioner for Legislative Policy and Regulatory Affairs Brian McCauley and Assistant Commissioner for Strategy and Integration Catherine Bennett outlined CRA's Vision 2020 Strategic Plan. Can CRA provide an update on its initiative?

3. Scientific Research & Experimental Development (SR&ED) Under subsection 127(9), a "contract payment" for research and development will qualify as an eligible expenditure for investment tax credit (ITC) where the payment is made to a "taxable supplier." It is not always possible, however, for a Canadian taxpayer to determine whether a non-resident is a taxable supplier. We invite CRA's views on how a Canadian taxpayer can determine the "taxable supplier" status of a non-resident. For example, if a Canadian taxpayer obtains an affirmative representation of taxable supplier status from non-residents, will that be sufficient documentation?

4. Prepaid Rent

   For a property lessor, the interaction of subparagraph 12(1)(a)(i) and paragraph 20(1)(m) of the Income Tax Act, Canada generally results in amortization of prepaid rents over the term of a lease agreement. In technical interpretations 9924585 (November 15, 1999) and 9909965 (September 7, 1999), CRA was asked to comment on the treatment of the prepaid rent received prior to a sale of the underlying property subject to the lease. CRA's view was that when prepaid rents covering a period of 20 years are received by a taxpayer, the prepaid rents may be considered proceeds of disposition of a property rather than prepayment of rent. We invite CRA to confirm the views expressed in these two technical interpretations and whether prepaid rent covering a 20-year period received prior to an actual sale of the property may be considered proceeds of disposition of a property by the seller.

5. Settlement Date

   In recently cancelled IT-133 Stock Exchange Transactions Date of Disposition of Shares (November 30, 1973), CRA said that the sale of shares for tax purposes occurs on the "settlement date" as determined by the rules of a stock exchange where the trade takes place. Typically, the "settlement date" on a disposition of shares is two to three days subsequent to the trade date. We invite CRA to confirm...