What you missed at STEP’s 2015 CRA roundtable

Graduated Rate Estates (GREs) were the key topic of discussion at this year’s STEP CRA roundtable. If you missed it, we’ve got you covered.

CRA representatives were on hand to answer tough questions about GREs, designations to include on an income trust, foreign entity classification, and charitable donations. Associate managing editor Suzanne Sharma live-tweeted their answers. Below is a summary of what happened.

To check out more tweets from STEP 2015, click here.

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Live tweets from Step’s 2015 CRA roundtable

Here at the ‪@STEPSociety 2015 CRA roundtable. We’ll be starting shortly, so stay tuned to learn about everything ‪#tax ‪@advisorca

First up: can a graduated rate estate tax obtain graduated tax rates for up to four taxation years? ‪@STEPSociety ‪@advisorca

As part of 2016 changes, rules that have applied to testamentary trusts will apply to graduated rates ‪@STEPSociety ‪@advisorca

If estate continues, it can have four taxation years ‪@STEPSociety ‪@advisorca

What is a graduated rate estate? The definition is added to subsection 248 (1). It’s not a testamentary trust ‪@advisorca ‪@STEPSociety

To really understand, government contemplates situations where a person has more than one estate. Para (e) of definition ‪@advisorca ‪@STEPSociety

Using multiple wills would create difficulties in determining graduated rate ‪@advisorca ‪@STEPSociety So, consider all aspects when estate planning due to graduated rates; CRA jokes it can’t say much more.

A word on preferred shares

It’s been stated that redeemable preferred shares need to be treated as debt ‪@advisorca ‪@STEPSociety But this could cause tax issues due to thin-capitalization rules under subsection 18(4).

CRA says if you’ve got a redeemable share that causes our long-standing position to be invalid, bring it to us ‪@advisorca ‪@STEPSociety

For Canadian resident shareholders of U.S. S corporations

And, what if you’re a Canadian resident shareholder of U.S. S corporation? Can CRA provide guidance on para 5 of article XXIX of Canada-U.S. Treaty? ‪@advisorca

In the absence of S corporation, shareholder cannot apply for tax relief, says CRA ‪@advisorca ‪@STEPSociety So, Canadians need to be aware of income if S corporation is computed under U.S. tax rules. And, CRA needs to see application of S corporation in advance.

Tips for trusts

104 (13.3) prohibits income, taxable capital gains in the income of a trust, where income is paid to beneficiary ‪@advisorca ‪@STEPSociety That is, unless the income of the trust year is nil.

Can a late designation be made via a loss carry back? ‪@advisorca ‪@STEPSociety Yes, says CRA, but approach the capital loss situation carefully.

Take a look at spousal, alter ego, joint partner trust at death. On death of spouse, capital gain would occur ‪@advisorca ‪@STEPSociety

New rule introduced, which deems year-end for trust at death. The gain deemed that of spouse ‪@advisorca

The rule shifts the burden to spouse, or estate of spouse who died. The challenge is if person remarried ‪@advisorca ‪@STEPSociety

If capital loss is deemed of spouse, then that seems to eliminate capital loss planning ‪@advisorca ‪@STEPSociety CRA says it will accept late loss, but depends on the situation.

Consider the Supreme Court ruling for 104(13.4)(b)(i); functions as if deceased was alive, so normal income inclusion would apply ‪@advisorca

If you create capital loss in trust and carry loss back, that eliminates the capital gain deemed by spouse. Therefore, there’s double taxation ‪@advisorca ‪@STEPSociety

Citing case of Sommerer, does CRA keep list of foreign entities that it considers to be foreign trusts? ‪@advisorca ‪@STEPSociety

CRA: It’s locked in a vault! If you’re trying to determine status for tax purposes, look to business law ‪@advisorca ‪@STEPSociety

There is only one non-qualifying country, where Canada doesn’t have tax treaty. That’s Liberia ‪@STEPSociety ‪@advisorca

Say you have interest in a trust as taxable Canadian property and the Canadian resident dies. Then, the estate can create two testamentary trusts; there will be one here and one elsewhere. Then, if principal resident sold, money goes into the trust. Is the capital interest in the second trust considered taxable Canadian property? @STEPSociety ‪@advisorca

In response, CRA says transfer of capital would meet (248). To determine if there’s interest, must look to taxable Canadian property. If distribution of cash occurs within 60 months, it would meet taxable Canadian property ‪@advisorca

Tax audits and net worth statements: CRA is asking for more information for shareholders of Canadian corporations ‪@advisorca ‪@STEPSociety