Report of Proceedings SIXTY-THIRD TAX CONFERENCE …

Report of Proceedings

of the

SIXTY-THIRD

TAX CONFERENCE

convened by the

CANADIAN TAX FOUNDATION

at Palais des Congrès, Montreal

November 27-29, 2011

JM •£. rTC CANADIAN WW W • • TAX FOUNDATION -4H IK Cf C FONDATION CANADIENNE

• Wr DE FISCALITÉ Leading tax thought Maitre à penser en fiscalité

Contents

Opening Address 1:1 Jack M. Mintz, "Taxation: When Policy and Politics Clash"

Recent Developments 2:1 Pierre Barsalou, Pierre Cossette, Cliff Rand, and Gerard Tompkins,

"Current Cases" 3:1 Ron Mar, Richard Montroy, Brian Mustard, Fred O'Riordan, and Jennifer Rhee,

"Hot Audit Issues"

Legislative and Administrative Developments 4:1 François Bordeleau, Pierre Bourgeois, Jim Gauvreau, Claude Jodoin, and

Bernard Nolan, "Canada Revenue Agency and Revenu Quebec Round Table" 5:1 François Bordeleau, Pierre Bourgeois, Jim Gauvreau, Claude Jodoin et Bernard

Nolan, "Table Ronde de l'Agence du revenu du Canada et de Revenu Quebec"

Corporate Taxation 6:1 Michel Lefebvre, "Refundable Tax Credit for the Development of E-Business

(CDAE)" 7:1 Michel Lefebvre, "Le credit pour le développement des affaires électroniques

(CDAE)" 8:1 Denis Lacroix, "Converting to International Financial Reporting Standards: Tax

Implications" 9:1 Manon Thivierge, "Restrictive Covenants and Section 56.4: Traps for the Wary" 10:1 Carrie Smit, "Recent Transactions of Interest, 2011: Part 1" 11:1 Brian Pyra, "Recent Transactions of Interest, 2011: Part 2" 12:1 Mark Brender, "Subsection 55(2): Then and Now" 13:1 Jeremy Forgie, Elizabeth Boyd, Sean Maxwell, and David Kahen, "Structuring

Stock Options in Light of the 2010 Budget and Other Current Issues in Executive Compensation"

14:1 Daniel Lang and Charles Taylor, "Tax Issues in Purchase and Sale Agreements" 15:1 Chris Ireland, Shelagh Rinald, Glenn Stephens, and Ian Worland, "Disarming

the Succession Time Bomb: The Role of Trusts, Insurance, and Shareholders' Agreements in the Transition of Family Businesses"

16:1 Liam M. Fitzgerald and René Albert, "Mining Update" 17:1 Jack Bernstein, "Valuation and Related Tax Issues, Part 1" 18:1 Richard M. Wise, "Valuation and Related Tax Issues, Part 2"

International Taxation 19:1 Dave Beaulne, Marc Desrosiers, and Robert Raizenne, "Foreign Affiliates:

The August 19, 2011 Proposals" 20:1 Brian Bloom and François Vincent, "Canada's (Two) Transfer-Pricing Rules:

A Tax Policy and Legal Analysis" 21:1 Sébastien Rheault, "Recharacterization of Transactions in Transfer-Pricing

Audits and Appeals: Recourse and Strategies"

xiii

xiv CONTENTS

22:1 François Chagnon and Geneviève Provost, "Cross-Border Canadian Real Estate Investment Trusts"

23:1 Jim Yager, "Managing the Risks of Business Travellers" 24:1 [Reserved for Clark Chandler, Michelle Levac, Robert O'Connor, and Line

Racette] 25:1 Andrew P. Solomon and Denis Rousseau, "Recent US Tax Developments

Affecting Canadian Enterprises" 26:1 Michael N. Kandev and Matthew Peters, "Treaty Interpretation: The Concept of

"Beneficial Owner" in Canadian Tax Treaty Theory and Practice" 27:1 Didier Frechette and Ryan Rabinovitch, "Recent Issues Relating to Interest

Deductibility and Non-Traditional Forms of Indebtedness" 28:1 [Reserved for Louise Higginbottom] 29:1 [Reserved for Jeff T. Hongo] 30:1 Richard Hay, Walid Hejazi, and Pascal Saint-Amans, "International Financial

Centres: Pirates or Paragons?"

Other Areas 31:1 Yves St-Cyr and Bruce Goudy, "HST Place-of-Supply Rules" 32:1 Nathalie Goyette, Yanick Houle, and Larry Jacobson, "What To Do When an

Audit Goes Wrong" 33:1 Nathalie Goyette, Yanick Houle et Larry Jacobson, "Que faire lorsqu'une

verification tourne au cauchemar" 34:1 Guy A. Gagnon, Chia-yi Chua, Jeffrey T. Love, and Lindsay Hollinger,

"Rectification and Judicial Correction: Practical Issues" 35:1 Dominic C. Belley, "Professional Negligence: Issues Affecting the Tax Adviser" 36:1 Jean-Pierre Vidal and Nicole Prieur, "Criteria for Moral Judgment in Taxation" 37:1 Marc D armo and Olivier Fournier, "Recent Developments Regarding the

Application of Subsection 245(4)" 38:1 Shane M. Brown and Brandon D. Wiener, "A Practical Look at the Attribution

Rules: Tips and Traps" 39:1 Laura White, "Recent Income Tax Developments Relevant to the Mutual Fund

Industry" 40:1 Alycia Calvert and Beau Young, "New Anti-Deferral Rules for Partnership

Income" 41:1 Thomas W. Copeland, "Use of Partnerships for Investment Purposes: Pushing

the Limits of What Constitutes a Partnership" 42:1 Stephen J. Fyfe, "The Taxation of Renewable Energy Investments in Canada"

Detailed Contents

OPENING ADDRESS Taxation: When Policy and Politics Clash, Jack M. Mintz 1:1 Notes 1:8

RECENT DEVELOPMENTS Current Cases, Pierre Barsalou, Pierre Cossette, Cliff Rand, and Gerard Tompkins 2:1 Abstract 2:1 Overview of Court Statistics 2:1 Substantive and Procedural Issues 2:3

GAAR 2:3 Transfer Pricing 2:7 Trusts 2:9 Reorganizations 2:12 Fairness 2:15 Disclosure 2:17 Daishowa 2:17

Future Trends 2:18 Notes 2:19

Hot Audit Issues, Ron Mar, Richard Montroy, Brian Mustard, Fred O'Riordan, and Jennifer Rhee 3:1 Abstract 3:1 The CRA-Taxpayer Relationship 3:2 Settlement Impediments 3:5 Transfer Pricing 3:10 Business Restructuring 3:11 Compliance Costs 3:14 Questions from the Floor 3:19 Notes 3:19

LEGISLATIVE AND ADMINISTRATIVE DEVELOPMENTS Canada Revenue Agency and Revenu Quebec Round Table, François Bordeleau, Pierre Bourgeois, Jim Gauvreau, Claude Jodoin, and Bernard Nolan 4:1 Canada-US Tax Convention: Permanent Establishment 4:1 Status of CCPC: Options Held by Non-Residents 4:5 Joint Ventures: Elimination of Fiscal Period 4:5 Rectification 4:7 Change in Position: Employee Bonus Allocated to Health-Care Spending

Account 4:7 Taxable Benefit: Bring Your Own Device 4:8

XV

xvi DETAILED CONTENTS

Permanent Establishment in a Province Through an Agent: Public Warehouses 4:9

Aggressive Tax Planning 4:10 Status of Interpretation Bulletin Updates 4:12 Convertible Debentures 4:13 Partnerships and Section 22 4:15 Election Under Section 22 Concerning Assigned Debts 4:15 Post Mortem Estate Planning: Pipeline Transactions 4:16 Determination of Whether Shares Derive Their Value Principally from

Real Property 4:17 The 25 Percent and 50 Percent Test Used in the TCP Definition 4:19 SR & ED: IC 86-4R3 and Project Eligibility Criteria 4:20 Mineral Resource Qualified Corporation 4:21 Exploration Expenses Incurred in Quebec 4:22 Notes 4:23

Table Ronde de l'Agence du revenu du Canada et de Revenu Quebec, François Bordeleau, Pierre Bourgeois, Jim Gauvreau, Claude Jodoin et Bernard Nolan 5:1 Convention fiscale Canada-Etats-Unis : Etablissement stable 5:1 Le Statut d'une SPCC : Les options détenues par les non-résidents 5:5 Coentreprises : Élimination de l'exercice 5:5 Rectification 5:7 Changement de position : Boni de 1'employé alloué à son compte de

dépenses en soins de santé 5:8 A vantage imposable : Apporter votre appareil 5:9 Établissement stable dans une province par 1'intermédiaire d'un mandataire :

Entrepots publics 5:10 Planification fiscale agressive 5:11 État de la revision des bulletins d'interpretation 5:13 Debentures convertibles 5:15 Les sociétés de personnes et rarticle 22 5:17 Choix vise à 1'article 22 concernant le créances cédées 5:17 Planification post-mortem : Les operations dites « pipeline » 5:18 La determination à savoir si la valeur des actions provient principalement

de biens immeubles 5:19 Les tests de 25 pour cent et 50 pour cent utilises dans la definition de BCI .... 5:22 RS&DE : IC 86-4R3 et critères d'admissibilité des projets 5:22 Société admissible ressource minérale 5:24 Dépense d'exploration engagée au Québec 5:24 Notes 5:25

CORPORATE TAXATION Refundable Tax Credit for the Development of E-Business (CDAE), Michel Lefebvre 6:1 Abstract 6:1 Introduction 6:1 The Framework of the CDAE 6:2

DETAILED CONTENTS xvii

Eligible Corporations 6:2 Proportion of Activities in the IT Sector 6:3

The 75 Percent Criterion 6:3 The 50 Percent Criterion 6:4 Personnel Supply Activities 6:4

The "Services Provided" Criterion 6:5 Retention of Six Eligible Jobs 6:6

Eligible Employees 6:6 Duration of Employment 6:6 Time Spent on Eligible Activities 6:7

Eligible Activities 6:7 Excluded Activities 6:9 Definition of E-Business 6:10 Eligible Salaries 6:11 Procedural Considerations 6:11 Quebec Bill 54 6:13 Conclusion 6:14 Appendix: CDAE Government Document References 6:14 Notes 6:14

Le credit pour le développement des affaires électroniques (CDAE), Michel Lefebvre 7:1 Abstract 7:1 Introduction 7:1 Structure du CDAE 7:2 Société admissible 7:2

Proportion des activités dans le secteur des TI 7:3 Critère du 75 pour cent 7:3 Critère du 50 pour cent 7:4 Location de personnel 7:5

Critère relatif aux « services fournis » 7:5 Maintien de six emplois admissibles 7:6

Employe admissible 7:7 Durée de l'emploi 7:7 Temps consacré aux activités admissibles 7:7

Activités admissibles 7:8 Activités exclues 7:10 Definition de l'expression « affaires électroniques » 7:12 Salaires admissibles 7:13 Aspects procéduraux 7:13 Québec projet de loi n° 54 7:15 Conclusion 7:15 Annexe : Références aux documents du gouvernement relatifs au CDAE 7:16 Notes 7:16

Converting to International Financial Reporting Standards: Tax Implications, Denis Lacroix 8:1 Abstract 8:1 Changing Accounting Principles in a Changing World 8:1

xviii DETAILED CONTENTS

Changes Affecting the Balance Sheet and Calculations Under Specific Provisions of the Act 8:2

Differences Covered by Specific Provisions of the Act 8:4 Business Combinations 8:4 Property, Plant, and Equipment 8:5 Intangible Assets and Goodwill 8:6

Differences Not Covered by Specific Provisions of the Act 8:6 The Computation of Income 8:6 The CRA's Administrative Position 8:11 Options Available to the Taxpayer 8:13

Adopting 1FRS 8:13 Retaining Old GAAP 8:13 Other Ways To Determine Profit Under the Act 8:13

Specific Changes in Accounting Policy 8:14 Inventory Computation 8:14 Revenue Recognition 8:15 Foreign Exchange Gains or Losses 8:16

Conclusion 8:17 Notes 8:17

Restrictive Covenants and Section 56.4: Traps for the Wary, Marion Thivierge 9:1 Abstract 9:1 Introduction 9:1 General Rule 9:2

Income Inclusion 9:2 Timing of the Income Inclusion 9:3 What Is a Restrictive Covenant? 9:4 Precedence of Proposed Section 56.4 9:5 What About the Payer? 9:5

Exceptions 9:5 Employment Income 9:6 Sale of Assets 9:7 Sale of Shares or Partnership Interests 9:9

Reallocation of the Proceeds of Disposition 9:11 Overview 9:11 Undertaking of an Employee 9:12 Sale of Goodwill 9:13 Disposition of Property 9:15 Sale of Certain Shares 9:18 Payment Received by a Non-Arm's-Length Individual 9:25 Anti-Avoidance Rule 9:27

Payments to Non-Residents 9:28 Conclusion 9:29 Notes 9:30

DETAILED CONTENTS xix

Recent Transactions of Interest, 2011: Part 1, Carrie Sm.it 10:1 Abstract 10:1 RioCan Preferred Unit Issuance 10:1

Qualification Plan 10:2 Preferred Unit Issuance 10:2 Advance Income Tax Ruling 10:3

Western Coal Corp. Share Reorganization and Acquisition 10:5 Circular Share Reorganization 10:5 Plan of Arrangement 10:7

Share Reorganization 10:7 Advance Income Tax Ruling 10:8 Acquisition of Western by Walter 10:9

Acquisition of TimberWest Forest Corp 10:10 Amendment of Subordinated Notes and Participating Debt Interest 10:11 Acquisition Transaction 10:12

Canadian-Resident Holders of Stapled Units 10:12 Non-Resident Holders of Stapled Units 10:13 Non-Resident Holders of Convertible Debentures 10:14 Consequences to TimberWest 10:15

Notes 10:15

Recent Transactions of Interest, 2011: Part 2, Brian Pyra 11:1 Abstract 11:1 Acquisition of UNX Energy Corp 11:1

The Acquisition Transaction 11:1 Background of HRT 11:2 HRT Global Depositary Shares 11:3 Canadian-Resident Holders of UNX shares 11:3 Non-Resident Holders of UNX Shares 11:4 Additional Comments 11:5

Dundee International REIT: Initial Public Offering 11:5 Background of Underlying REIT Investment Properties 11:6 Canadian Tax Characterization of the REIT 11:6 Legal Structure Underneath the REIT 11:8 Certain Canadian Tax Implications of the REIT and the Legal Structure

Underneath the REIT 11:9 Certain Luxembourg Tax Implications of the Legal Structure Underneath

the REIT 11:10 Additional Comments 11:10

Notes 11:11

Subsection 55(2): Then and Now, Mark Brender 12:1 Abstract 12:1 Introduction 12:2

We Understand "Safe Income" and "Safe Income on Hand"—or Do We? ... 12:2 Calculating Safe Income and Safe Income on Hand: Administrative

Practices That Hardened into Rules 12:2 Rethinking the Subsection 55(2) Lore: Testing the Practice with the Law ... 12:5 How Did We Get Here? 12:5

XX DETAILED CONTENTS

The Evolution of the CRA's Subsection 55(2) Practice 12:6 The Perceived Abuse: Pre-Subsection 55(2) 12:6 The Legislative Response: Subsection 55(2) 12:7 The CRA's Post-Subsection 55(2) Interpretation 12:7 The Distinction Between Safe Income and Safe Income on Hand 12:8

The Case Law: Challenging Administrative Practice 12:10 The Brelco Case 12:11 The Kruco Case 12:13 The CRA's Post-Kruco Position 12:17

Disconnect Between Administrative Practice and the Case Law and Legislation 12:18

Borrowing Expenses 12:19 Contingent Liabilities 12:20 Capital Losses 12:21

Non-Capital Losses 12:21 Is Safe Income a Consolidation or Aggregation of Annual Positive

and Negative Amounts? 12:23 Example 1 12:23

Is the Period for the Safe Income Calculation Not What We Thought It Was? 12:25

Example 2 12:25 Accounting Reserves 12:26 Realization of Pre-Acquisition Gains 12:27 Other Items Affecting Safe Income 12:28


Structuring Stock Options in Light of the 2010 Budget and Other Current Issues in Executive Compensation, Jeremy Forgie, Elizabeth Boyd, Sean Maxwell, and David Kahen 13:1 Abstract 13:1 Introduction 13:2 Changes to Stock Compensation Tax Rules Enacted in 2010 13:2

Repeal of the Deferral Election and New Withholding Requirements 13:3 Cashout Rights 13:6

Cross-Border Tax Issues Relating to Deferred Compensation Plans 13:9 Operation of the SDA Provisions of the Act 13:9

A Right To Receive an Amount 13:10 In Respect of Services Rendered in the Year or a Previous Year 13:11 One of the Main Purposes 13:11

Operation of Section 409A of the Code 13:12 Application of the SDA Rules and Section 409A of the Code to RSUs

and PS Us 13:15 Compliance of DSU Plans with Regulation 6801(d) and Section 409A .... 13:17

Participation Elections 13:18 Elected Settlement Dates 13:19 Payment Triggers 13:19 Stock Options and Section 409A 13:21

DETAILED CONTENTS xxi

CRA Interpretations and Rulings :.. 13:22 Conversion from One Type of Incentive Plan to Another 13:22 Payment of Executive Compensation and Directors' Remuneration

in the Form of DSUs orRSLfs 13:24 Application of the Three-Year Bonus Deferral Exception 13:26 Operation of Regulation 6801 (d) 13:28


Tax Issues in Purchase and Sale Agreements, Daniel Lang and Charles Taylor 14:1 Abstract 14:1 Introduction 14:1 Overall Structure of the Transaction 14:2 Determination of Consideration 14:3

Purchase Price Adjustment Clauses 14:5 Purchase Price Adjustment Clauses in Non-Arm's-Length Transactions ... 14:5

Contingent Liabilities and Contingent Consideration 14:6 Tax Treatment of Contingent Liabilities 14:6 Recommendation for Legislative Amendments 14:8 Contingent Consideration—Earnoul Provisions 14:10 Accounting Treatment of Contingent Liabilities/Consideration 14:11

Purchase Price Allocation on an Asset Purchase 14:12 Accounting Considerations in Respect of the Purchase Price Allocation . . . 14:14

Beyond the Boilerplate—Drafting Tax Provisions of a PSA 14:14 Definitions and Interpretations 14:15

Definition of Taxes 14:15 Definition of Tax Returns and Related Filing Requirements 14:15 Financial Statements and Working Capital Calculation 14:16

Drafting Tax Representations 14:16 Tax Attributes of Target Company 14:17 Residence of the Vendor 14: ] 7 Other Representation Clauses 14:17

Covenants 14:18 Signing Date, Closing Date, and Effective Date of the Transaction 14:19

Signing Date 14:19 Closing Date 14:20 Effective Date 14:21

Accounting Implications 14:21 Management of Risk 14:22

Escrow Arrangements 14:22 Limitation Period 14:23 Tax Indemnification Clause 14:23 Late-Filed Section 85 Elections 14:24 Rectification Orders 14:25

Financial Statements and Tax Filings 14:28 Financial Statement Matters 14:28

Working Capital Adjustments 14:28

xxii DETAILED CONTENTS

Push-Down Accounting 14:28 Goodwill 14:29

Income Tax Elections—Share and Asset Transactions 14:30 Section 85—Transfer to a Taxable Canadian Corporation 14:30 Subsection 97(2)—Transfer to a Partnership 14:30 Private Company Election 14:30

Income Tax Elections Specifically Applicable to an Asset Purchase 14:31 Section 22—Accounts Receivable 14:31 Subsection 20(24)—Undertaking Future Obligations 14:31 Section 167 of the Excise Tax Act—GST Relief 14:32

Appendix 1 Sample Price Adjustment Clause 14:32 Appendix 2 Sample Purchase Price Allocation Clause 14:33 Appendix 3 Sample Provisions of a Share Purchase Agreement 14:34 Appendix 4 Asset Purchase Agreement—Typical Tax Representations 14:42 Appendix 5 Typical Tax Election Covenants 14:43 Notes 14:44

Disarming the Succession Time Bomb: The Role of Trusts, Insurance, and Shareholders' Agreements in the Transition of Family Businesses, Chris Ireland, Shelagh Rinald, Glenn Stephens, and lan Worland 15:1 Abstract 15:1 Introduction 15:2 Description of a Traditional Estate Freeze 15:3

Succession-Planning Objectives 15:3 Providing Retirement Funding on a Secure and Tax-Efficient Basis .... 15:4 Maximizing Tax Efficiency 15:5 Ease of Estate Administration and Providing for Liquidity

Requirements 15:6 Example of an Estate Freeze Transaction 15:6

Facts, Assumptions, and Succession Objectives 15:7 The Estate Freeze Transaction 15:8 Estate Freeze Benefits: 10 Years Later 15:13 The Succession Time Bomb 15:14

Uses of Trusts To Address Matters Contributing to Succession Failure 15:20 Introduction 15:20 Tax Issues Related to Trusts 15:20

Attribution Rules 15:20 Issues Relating to Control 15:22 Capital Gains Exemptions 15:25 Investment Holding Companies 15:26 The 21-Year Deemed Disposition 15:27 US Beneficiaries 15:28

Non-Tax Issues Related to Trusts 15:29 Beneficiaries 15:29 Distributions and Transfers 15:30 Other Powers 15:32 Family Relations Issues 15:33

DETAILED CONTENTS xxiii

Uses of Life Insurance To Mitigate Succession Challenges 15:34 Liquidity Needs 15:34

Capital Gains Tax 15:34 Estate Equalization 15:35

Corporate-Owned Life Insurance 15:36 Post Mortem Planning Opportunities 15:38

Branch A Grandfathering 15:39 Branch B Grandfathering 15:39 QSBC Shares: The Capital Gains Exemption 15:41

Dealing with the Wasting Freeze 15:41 Shareholders' Agreements: Considerations in Mitigating Succession

Challenges 15:42 The Need for a Family Shareholders' Agreement 15:42 Issues To Be Addressed in Family Shareholders' Agreements 15:43

Governance and Management 15:43 Rules Regarding the Transfer of Shares 15:47 Valuation 15:49 Non-Competition, Non-Solicitation, and Confidentiality 15:51 Dispute Resolution 15:51

Timing Considerations 15:52 Notes 15:53

Mining Update, Liam M. Fitzgerald and René Albert 16:1 Abstract 16:1 Construction of Depreciable Property in Remote Areas 16:2

Introduction 16:2 Capital Cost Allowance 16:2

The Concept of "Acquired" 16:2 A Leasehold Interest 16:4 Fixture or Chattel 16:5 Building or Structure 16:6 Depreciable Property on Crown Land 16:7 Similar Surface Construction 16:8

Conclusion 16:10 The Quebec Mining Duty Regime 16:10

Introduction 16:10 Tax Rate 16:11 Rules Relating to the Computation of Annual Profit 16:11

Calculation of the Annual Earnings of an Operator 16:11 Calculation of the Annual Profit 16:13 Calculation of the Annual Profit of an Eligible Operator 16:13

Determination of the Gross Value of the Annual Output 16:14 Specific Deductions and Allowances 16:14

Expenses Incurred by the Operator in Respect of the Mine 16:15 Depreciation Allowance 16:15 Exploration, Pre-Production Development, and Post-Production

Development Allowance in Respect of Expenses Incurred After March 30, 2010 16:16

xxiv DETAILED CONTENTS

Processing Allowance 16:19 Additional Allowance for a Mine Situated in Northern Quebec 16:20 Credit on Duties Refundable for Losses 16:20

Administration 16:21 Returns 16:21 Assessments and Objections 16:21 Payment of Duties 16:22 Interests and Penalties 16:22


Valuation and Related Tax Issues, Part 1, Jack Bernstein 17:1 Abstract 17:1 Introduction 17:1 Intangibles 17:1

Goodwill 17:2 Patent Act 17:2 Copyright Act 17:2 Trademarks 17:3 Knowhow 17:3 Class 14 17:4 Class 44 17:5 Eligible Capital Expenditures 17:5 Payments Based on Production or Use 17:6 Services 17:7 Sale of a Patent 17:7

Non-Competition Payments 17:8 Asset Sale: Price Allocation 17:12 Acquisition of Control 17:14

Deemed Year-End 17:16 Corporate Partnerships 17:17 Net Capital Loss Carryforwards 17:17 Non-Capital Loss Carryforwards 17:17 Accrued Capital Losses 17:17 Election for Deemed Disposition of Capital Property 17:18 Accrued Terminal Losses 17:18 Accrued Losses with Respect to Cumulative Eligible Capital 17:18 Reserve for Doubtful Debts 17:18 Accrued Inventory Loss 17:19 Resource Expenses 17:19 Scientific Research and Experimental Development (SR & ED) 17:19 Investment Tax Credit 17:19 Capital Dividend Account 17:19 Unused Surtax Credit 17:20 Foreign Surplus Accounts and Adjusted Cost Base 17:20 Amalgamation 17:20 Windup 17:20 Losses on Certain Transfers 17:20 Anti-Avoidance Rules 17:21

DETAILED CONTENTS XXV

Price Adjustment Clauses 17:21 Guilder News Co. (1963) Ltd. et al. v. MNR 17:23 Interpretation Bulletin IT-169 17:25

Appendix: Example of Price Adjustment Provisions in Articles of Incorporation 17:27

Redemption 17:27 Price Adjustment 17:28

Notes 17:28

Valuation and Related Tax Issues, Part 2, Richard M. Wise 18:1 Abstract 18:1 Introduction 18:1 Intangibles 18:1

Elements of Intellectual Property Valuation 18:4 Valuation Methodologies 18:5

Cost Approach 18:5 Market Approach 18:8 Income Approach 18:8 Methods Under the Income Approach 18:10

Newly Developed Intellectual Property 18:15 Non-Competition Agreements 18:16 Fractional Interests in Real Property 18:18

Valuation of Fractional Interests 18:19 Lack-of-Control Discount 18:21 Marketability 18:22 Direct Sales of Fractional Interests 18:22 Partition-Time and Partition-Cost Data 18:23 Factors Considered in Calculating the Discount 18:25

Goodwill of a Professional Practice: General Considerations 18:26 Types of Goodwill 18:27

Personal Goodwill 18:28 Practice Goodwill 18:28 Individual Goodwill 18:29


INTERNATIONAL TAXATION Foreign Affiliates: The August 19,2011 Proposals, Dave Beaulne, Marc Desrosiers, and Robert Raizenne 19:1 Abstract 19:1 Introduction 19:1 Overview 19:2

Hybrid Surplus 19:2 Upstream Loans 19:2 Foreign Affiliate Reorganizations 19:2 Surplus Reclassification Rule (Regulation 5907(2.02)) 19:3 Foreign Affiliate Distributions 19:3 Stop-Loss Rules 19:3 FAPI Capital Losses 19:4

xxvi DETAILED CONTENTS

Safe Income 19:4 Surplus Entitlement Percentage 19:4 Absorptive Mergers (Subsection 95(4.2)) 19:4 Immigration, Insurance Business, and Fresh-Start Rules 19:5 Accrued Gains and Losses on Debt Obligations 19:5 Foreign Exchange Gains and Losses (Subsection 39(2)) 19:5 Packaging Rule (Regulation 5907(2.01)) 19:5 UK Advance Corporation Tax (Regulation 5907(7.1)) and

Forced Deductions (Regulation 5907(2.03)) 19:5 FAT Reinstatement (Regulations 5907(1.5) and (1.6)) 19:6 Interaction Between the August 19, 2011 and the December 18, 2009

Foreign Affiliate Packages 19:6 Abandoned Measures 19:6

Hybrid Surplus 19:7 Arm's Length Versus Non-Arm's-Length 19:9 Disproportionate Underlying Tax Election 19:9 Non-Taxable Portion and Capital Dividend Account 19:9 Accelerating Application to Arm's-Length Dispositions 19:10

Upstream Loans 19:10 Additional Transitional Relief 19:14 ACB and Previously Taxed FAPI 19:14 Downstream Surplus 19:15 Dividend Prohibition 19:16 SEP in Lender Versus SEP in Borrower and CCFA Exception 19:17

Foreign Affiliate Distributions 19:18 Extension of Pre-Acquisition Surplus Election to Partnerships 19:19 Reinstatement of Paid-Up Capital for Non-Corporate Shareholders 19:19 October 31 Proposals Regarding Subsection 15(1) 19:19

Surplus Recharacterization 19:19 Notes 19:20

Canada's (Two) Transfer-Pricing Rules: A Tax Policy and Legal Analysis, Brian Bloom and François Vincent 20:1 Abstract 20:1 Introduction 20:2 Tax Policy Analysis 20:2

General Tax Policy Considerations 20:2 The Scheme of Part XVI. 1 20:3 "In the Circumstances" 20:5 In Which Circumstances? 20:5 A Commercial Context 20:8 A Transactional Focus 20:9 "Series of Transactions" 20:9 Transfer-Pricing Methods 20:10

Paragraphs 247(2)(a) and (c): General Comments 20:11 Package Deals 20:13 Quantum and Nature 20:13

Paragraphs 247(2)(b) and (d) 20:16 Recharacterization in General 20:16

DETAILED CONTENTS xxvii

The "Authority" To Recharacterize Transactions 20:17 The First Circumstance 20:17 The Second Circumstance 20:19 Summary 20:21 When Does the CRA Recharacterize a Transaction? 20:21 Summary 20:23 An Exceptional Rule 20:24

Legal Analysis 20:25 Facts and Assumptions 20:25 The CRA's Position 20:26 The Issues 20:26 Legal Framework 20:27

Rights and Obligations of the Parties 20:27 The Applicable Law 20:27 What Is Recharacterization? 20:29 The CRA's Approach Renders Recourse to Paragraphs 247(2)(b)

and (d) Superfluous 20:32 Summary 20:33


Recharacterization of Transactions in Transfer-Pricing Audits and Appeals: Recourse and Strategies, Sébastien Rheault 21:1 Abstract 21:1 Introduction 21:1 A Tension Between OECD Guidelines and Domestic Law? 21:2

Evolving OECD Guidelines 21:3 Canadian Jurisprudence and Legislation 21:4 The CRA's Administrative Policies and Practices 21:5

Recourse Relating to Recharacterization 21:5 Audits 21:5 The Appeals Branch and the Competent Authority 21:9 The Tax Court of Canada 21:11


Cross-Border Canadian Real Estate Investment Trusts, François Chagnon and Geneviève Provost 22:1 Abstract 22:1 Introduction 22:1 General Comments on the Nature of REITs 22:2 The Current Rules 22:3

Asset Tests 22:3 Asset Test 1 22:3 Non-Portfolio Property 22:3 Qualified REIT Property 22:5 Asset Test 2 22:7

Revenue Tests 22:8 Revenue Test 1 22:8

xxviii DETAILED CONTENTS

Revenue Test 2 22:9 Summary of the Revenue Tests 22:10

Cross-Border REIT s 22:10 The Current Rules for Cross-Border Investments 22:10

Settlement, Extinguishment, and Novation of Debt 22:12 Conversion of Currencies for Distributions and Currency Swaps 22:12 Disposition of Real or Immovable Property 22:12

Investments by a REIT in Canadian and Foreign Properties 22:13 Example 1: Cross-Border Properties Held Through a Canadian

Corporation Making a Functional Currency Election 22:13 Example 2: Cross-Border Properties Held Through a Canadian

Partnership 22:14 Example 3: Cross-Border Properties Held Through a Foreign

Corporation 22:15 Example 4: Canadian-US Partnership REIT Structure 22:16

The December 2010 Proposals 22:17 Amendments to Revenue Test 1 22:17 Gross REIT Revenue 22:17 The Proposed Lookthrough Rule 22:18 Gains on Currency Fluctuations 22:19 Foreign Subsidiaries 22:20 Proposed Structures for Cross-Border Investments After the

December 2010 Proposals 22:20 Example 1: Cross-Border Properties Held Through a Canadian

Corporation Making a Functional Currency Election 22:20 Example 2: Cross-Border Properties Held Through a Canadian

Partnership 22:21 Example 3: Cross-Border Properties Held Through a Foreign

Corporation 22:22 Example 4: Canadian-US Partnership REIT Structure 22:22


Managing the Risks of Business Travellers, Jim Yager 23:1 Abstract 23:1 Introduction 23:1 Corporate Tax Implications 23:2

Permanent Establishment Issues Under a Treaty 23:2 State Corporate Tax Issues 23:5

Nexus for Income Tax Purposes 23:5 Nexus for State Taxes Other Than Income Taxes 23:7

Transfer-Pricing Issues 23:7 Methods for Determining Arm's-Length Charges for Services 23:7 The Business Arrangement 23:8 Shareholder and Stewardship Costs 23:9 Stock Options 23:9

Employee Income Tax 23:9 Canadian Domestic Law 23:9 US Domestic Law 23:10

DETAILED CONTENTS xxix

Other Countries 23:10 Trailing Income 23:10 Tax Treaties: Income from Employment 23:11 Canadian Overseas Employment Tax Credit 23:15 Foreign Tax Credits 23:16

Payroll Withholding Taxes and Reporting 23:16 The Shadow Payroll Solution 23:17 Obligation of an Employer To Withhold Income Taxes 23:18

Obligation of an Employer To Withhold US Income Taxes 23:18 Obligation of an Employer To Withhold State Income Taxes 23:19 Obligation of an Employer To Withhold Canadian Income Taxes 23:19

Secondment Arrangements 23:21 Taxation of the Seconded Employee 23:22 The CRA's Position on Secondments 23:22

Social Security Tax 23:23 Employee Tax Compliance 23:24 Employee Tax Reimbursement 23:25 Immigration Issues 23:26

The Stealth Employee 23:27 Unrecorded Liabilities and Good Corporate Governance 23:27 Conclusion 23:28 Notes 23:28

[Reserved for Clark Chandler, Michelle Levac, Robert O'Connor, and Line Racette] 24:1

Recent US Tax Developments Affecting Canadian Enterprises, Andrew P. Solomon and Denis Rousseau 25:1 Introduction 25:1 Foreign Financial Institutions and FATCA 25:1

Introduction 25:1 Withholdable Payments and Withholding Agents: The Offer That You

Cannot Afford To Refuse 25:3 The Regulatory Posture 25:6 Foreign Financial Institutions: Misnomer No. 1 25:6

The Definition: In General 25:6 Insurance Companies 25:7 Exempt Entities and Exemption Authority 25:7 Section 1471(f) 25:8 Deemed-Compliant FFIs 25:8 Section 1471(b) Exemptions 25:9

"Financial Account": Misnomer No. 2 25:9 "United States Account": Misnomer No. 3 25:9

Exceptions 25:11 Waivers, Passthru Payments, and Recalcitrant Account Holders:

Enforcement and Conflict of Laws 25:12 Proposed Definitions of Financial Account, US Account, Specified

US Person, Foreign Financial Institution, and Related Concepts 25:13 Financial Account 25:13

XXX DETAILED CONTENTS

US Account 25:14 Specified US Person 25:14 US-Owned Foreign Entity 25:15 Foreign Financial Institutions 25:15

Affiliated Groups 25:15 Rules for Qualified Intermediaries, Foreign Withholding Partnerships,

and Foreign Withholding Trusts 25:16 Deemed Compliance 25:16

Registered Deemed-Compliant FFIs 25:16 Certified Deemed-Compliant FFIs 25:18

Participating FFIs and the Requirements of the FFI Agreement 25:19 Due Diligence and Account Holder Identification 25:19 FATCA Reporting 25:20 Officer Certification 25:20

Withholdable Payments 25:21 Phase-In 25:21 Passthru Payments 25:21 Payments Beneficially Owned by Exempt Beneficial Owners 25:22

The Partner Joint Statements and Agreements in Principle 25:24 The First Joint Statement 25:24 The Japanese and Swiss Joint Statements 25:24

Regulatory Developments Affecting Cross-Border Tax Reporting and Withholding 25:27

Developments Affecting Financial Products 25:27 Notice 2010-46 25:27 General Background 25:27 Proposed Post-2011 Rules for Avoiding Overwithholding 25:28 Guidance for Payments of Substitute Dividends Prior to

September 14, 2010 25:30 Temporary and Proposed Regulations Respecting Dividend

Equivalent Payments Under Section 871 (m) 25:31 Audit-Related Developments 25:32

Revival of Debt-Equity Challenges 25:32 Impacts on Taxpayers 25:36 Schedule UTP 25:36 Foreign Bank Account Reporting 25:39

Notes 25:41

Treaty Interpretation: The Concept of "Beneficial Owner" in Canadian Tax Treaty Theory and Practice, Michael N. Kandev and Matthew Peters 26:1 Abstract 26:1 Introduction 26; 2 Background 26:2

Principles of Treaty Interpretation 26:2 Interpreting the Term "Beneficial Owner" in Canada's Tax Treaties 26:3

Domestic Case Law 26:3 Theory 26:3

DETAILED CONTENTS xxxi

Practice 26:4 Prévost Car 26:4 Velcro 26:15

Conclusion 26:20 OECD Materials 26:23

Theory 26:23 Practice 26:28

The Introduction of "Beneficial Owner" in the OECD Model 26:28 The Changing Meaning of "Beneficial Owner" 26:29 Proposed Changes to the Commentary Regarding

"Beneficial Owner" 26:30 Conclusion 26:32

Foreign Case Law 26:33 Theory 26:33 Practice 26:35

The Netherlands 26:35 The United Kingdom 26:36 Spain 26:38 France 26:38 Switzerland 26:39 Denmark 26:40 Italy 26:44

Conclusion 26:45 Expert Opinion 26:46

Theory 26:46 Practice 26:46


Recent Issues Relating to Interest Deductibility and Non-Traditional Forms of Indebtedness, Didier Frechette and Ryan Rabinovitch 27:1 Abstract 27:1 Introduction 27:1 Convertible Debentures and Withholding Tax 27:1

Background 27:1 Convertible Debt and Withholding Tax 27:3

Is There an Excess? 27:3 Is the Excess "Participating Debt Interest"? 27:5 Is the Debt an "Excluded Obligation"? 27:8

Discounts, Foreign-Currency Debt, and Subsection 261(2) 27:11 Paragraph 20( 1 )(f) and Imperial Oil 27:11 Impact of Subsection 261(2) on Imperial Oil 27:13

Contingent Liabilities—Collins and Proposed Section 143.4 27:14 Collins 27:14 Proposed Section 143.4 27:16

Proposed Subsections 143.4(1) and (2)—Expenditures Reduced by Contingent Amounts 27:16

Proposed Subsection 143.4(3)—Deduction of Contingent Amounts .... 27:17

xxxii DETAILED CONTENTS

Proposed Subsections 143.4(4) and (5)—Right To Reduce an Amount Already Deducted 27:18

Proposed Subsections 143.4(6) and (7)—Anti-Avoidance and Assessment Provisions 27:19

Coupon-Strip Transactions 27:20 Lehigh Cement 27:20 Proposed Subparagraph 212(1 )(b)(i) 27:22 Coupon Stripping After Proposed Subparagraph 212(l)(b)(i) 27:22

Stapled Securities 27:23 Reasonableness of Interest Rate—Equity Monetization Transactions 27:25 Interest Payable with Promissory Notes 27:29

"Payment" of Interest with a Promissory Note 27:29 Deductibility of Interest on PIK Notes 27:30

Subparagraph 20(1 )(c)(i)—Interest on Borrowed Money 27:31 Subparagraph 20(1 )(c)(ii)—Interest on Amount Payable for Property . . 27:31

Withholding Tax and Section 78 27:32 Interest Payable in Shares—Impact of Proposed Section 143.3 27:32 Conclusion 27:35 Notes 27:36

[Reserved for Louise Higginbottom] 28:1

[Reserved for Jeff T. Hongo] 29:1

International Financial Centres: Pirates or Paragons? Richard Hay, Walid He jazi, and Pascal Saint-Amans 30:1 Abstract 30:1 Notes 30:16

OTHER AREAS HST Place-of-Supply Rules, Yves St-Cyr and Bruce Goudy 31:1 Abstract 31:1 Introduction 31:1 Legislation and Administrative References 31:2 Tangible Personal Property 31:3

TPP by Way of Sale 31:3 TPP by Way of Lease, Licence, or Similar Arrangement 31:6 Real Property 31:7

Services 31:7 The General Rules 31:8

One Address in Canada 31:8 Multiple Addresses in Canada 31:9 No Address in Canada 31:10

Services in Relation to Real Property 31:11 Services in Relation to TPP 31:12

Services in Relation to TPP Remaining in the Same Province While Services Are Performed 31:13

DETAILED CONTENTS xxxiii

Services in Relation to TPP Not Remaining in the Same Province While Services Are Performed 31:14

Personal Services 31:16 Services Rendered in Connection with Litigation 31:16 Services That Relate to a Location-Specific Event 31:17 Services of Repairing, Maintaining, Cleaning, or Adjusting TPP 31:18 Services of Trustees 31:19

Intangible Personal Property 31:19 General Rules 31:19

IPP Used Primarily in Non-Participating Provinces 31:19 1PP Used Primarily in Participating Provinces 31:20 No Primary Location of Use 31:20

IPP That Relates to Real Property 31:21 IPP That Relates to TPP 31:21 Passenger Transportation Passes 31:22


What To Do When an Audit Goes Wrong, Nathalie Goyette, Yanick Houle, and Lariy Jacobson 32:1 Abstract 32:1 Administrative Recourse 32:1

The Auditor's Supervisor 32:2 Referral for a Technical Opinion 32:2 The CRA Service Complaints Program 32:6 The Taxpayers' Ombudsman 32:7 Taxpayer Relief Provisions 32:8 Informal Requests for Information 32:8 Preventing Audit Problems 32:9 Summary 32:11

Legal Recourse 32:12 The Canadian Tax System and the Role of the Minister of

National Revenue 32:12 Judicial Review by the Federal Court 32:12

Context 32:12 Distinguishing Between Judicial Review and Appeal 32:14 Clean Hands 32:15 Judicial Review When There is a Failure To Act Within Legal Limits ... 32:15 Judicial Review When There Is a Failure To Respect a Public

Duty To Act 32:16 Judicial Review When a Legitimate Expectation Is Not Fulfilled 32:17 Judicial Review of an Unreasonable Use of Discretion 32:17 Judicial Review in Order To Prevent the Issuance of a Reassessment ... 32:18

Appeal to the Tax Court 32:19 Other (Judicial and Non-Judicial) Recourse 32:20

Remission Order 32:20 Action in Tort Law 32:21

Notes 32:22

xxxiv DETAILED CONTENTS

Que faire lorsqu'une verification tourne au cauchemar, Nathalie Goyette,Yanick Houle et Larry Jacobson 33:1 Precis 33:1 Les solutions administratives 33:1

Le superviseur du vérificateur 33:2 Le renvoi pour obtenir une opinion technique 33:2 Le programme de Plaintes liées au service de l'ARC 33:7 L'Ombudsman des contribuables 33:8 Les dispositions d'allègement pour les contribuables 33:10 Les demandes informelles d'accès à reformation 33:10 La prevention des problèmes en verification 33:11 Resume 33:13

Recours légaux 33:14 Le regime fiscal canadien et le rôle du ministre du Revenu national 33:14 Le controle judiciaire de la Cour federate du Canada 33:14

Contexte 33:14 Distinction entre le contrôle judiciaire et Tappet 33:16 Doctrine des « mains propres » 33:18 Contrôle judiciaire en cas de défaut d'agir à 1'intérieur des

limites legales 33:18 Contrôle judiciaire en cas de manquement à un devoir d'agir 33:19 Contrôle judiciaire en cas de non-respect des expectatives

legitimes du contribuable 33:20 Contrôle judiciaire en cas d'utilisation abusive d'un pouvoir

discrétionnaire 33:20 Contrôle judiciaire afin d'empecher 1'émission d'une cotisation 33:22

Lappel à la Cour canadienne de 1'impôt 33:23 Les autres recours (judiciaires et extrajudiciaires) possibles 33:24

Décret de remise 33:24 Action en responsabilité délictuelle 33:25

Notes 33:26

Rectification and Judicial Correction: Practical Issues, Guy A. Gagnon, Chia-yi Chua, Jeffrey T. Love, and Lindsay Hollinger 34:1 Abstract 34:1 Introduction 34:2

Origins of Rectification: Common Law 34:2 Origins of Judicial Correction: Civil Law 34:3

Annulment and Nullification 34:4 Judicial Correction 34:8

Why Seek Rectification or Judicial Correction? 34:14 Why Can't Parties Help Themselves? 34:14 Is Rectification or Judicial Correction the Appropriate Remedy? 34:18

Candidates for Rectification or Judicial Correction 34:20 Common-Law Provinces 34:20

When Has Rectification Been Granted? 34:20 When Was Rectification Not Granted? 34:23

DETAILED CONTENTS xxxv

Quebec: Judicial Correction 34:26 When Has Judicial Correction Been Granted? 34:26 When Has Judicial Correction Not Been Granted? 34:31

Jurisdiction 34:32 Jurisdiction of the Tax Court of Canada 34:32 Jurisdiction of Provincial Superior Courts 34:33

Role of the CRA 34:35 Must a Taxpayer Notify the CRA? 34:35

Provincial Rules of Civil Procedure 34:35 Case Law on Notice 34:35 The CRA's Administrative Position 34:36 Rectification Committee 34:36 Procedure for Applying to the Rectification Committee 34:37

Does the Crown Have Standing? 34:38 Notice and Standing: A Practical Approach 34:41

Timing 34:42 Pre-Assessment Issues 34:42 Post-Assessment Issues 34:43 Notice of Appeal Filed 34:43

Procedural Matters 34:43 How Is Rectification or Judicial Correction Sought? 34:43

Ontario 34:43 Quebec 34:44

What Evidence Is Available? 34:44 Affidavits 34:45 Cross-Examination on Affidavits 34:45

Standard of Proof 34:45 Rectification 34:45 Judicial Correction 34:46

Other Remedies 34:46 Statutory Remedies 34:46 Other Court Remedies in Common-Law Provinces 34:47

Void ab Initio 34:47 Equitable Rescission 34:48 Declaratory Relief 34:48

Remission Orders 34:49 Notes 34:50

Professional Negligence: Issues Affecting the Tax Adviser, Dominic C. Belley 35:1 Abstract 35:1 Introduction 35:1 The "Good" Tax Adviser 35:2

The Good Tax Adviser Is Competent 35:2 The Good Tax Adviser Offers the Best of Himself or Herself 35:3

Professional Negligence: Duties, Damages, and Privilege 35:4 Nature and Scope of the Tax Adviser's Obligations 35:4

XXXVI DETAILED CONTENTS

Mitigation of Damages 35:4 Privilege and Professional Secrecy 35:6

Statutory Control of the Tax Practice 35:8 Tax Planning 35:8 Tax Compliance 35:8 Tax Shelters 35:9 Aggressive Tax Planning 35:9 The Way Forward 35:9


Criteria for Moral Judgment in Taxation, Jean-Pierre Vidal and Nicole Prieur 36:1 Abstract 36:1 Introduction 36:1 Literature 36:2

Definition and Relevance of Morality 36:2 Is It Right To Escape Taxes? 36:3 Impact of Morality on Behaviours 36:5

Ends 36:5 The Moral Problem 36:6 A Political Solution 36:8

Politicians Can Determine Social Expectations 36:9 Politicians as Arbitrators 36:9 Weaknesses of the Political Solution 36:10 Strengths of the Political Solution 36:10

Straight Does Not Mean Meek 36:11 Method 36:12

Tax Principles 36:12 Basic Axioms 36:13 Fundamental Characteristics of Tax Behaviours 36:13 Categories of Tax Behaviours 36:13

Taxpayers' Behaviours 36:13 Fraudulent Behaviour 36:13 Expected and Unexpected Behaviours 36:14 Falsely Expected and Trojan Horse Behaviours 36:15

Falsely Expected Behaviour 36:15 Trojan Horse Behaviour 36:16

Falsely Unexpected and Impostor Behaviours 36:16 Falsely Unexpected Behaviour 36:17 Impostor Behaviour 36:17

Tax Officials' Behaviours 36:18 Criteria for Moral Judgment 36:18 Consistency Between Legality and Morality 36:20 Conclusion 36:23 Notes 36:24

DETAILED CONTENTS XXX vii

Recent Developments Regarding the Application of Subsection 245(4), Marc Darmo and Olivier Fournier 37:1 Abstract 37:1 Introduction 37:2 Context and Purpose in the Application of the Single Unified TCP Approach ... 37:4

The Supreme Court Decision in Copthorne 37:4 The Varying Roles of Context and Purpose 37:11

Artificiality and Lack of Substance 37:16 Former Anti-Avoidance Rules 37:22 Conclusions and General Observations 37:24 Notes 37:26

A Practical Look at the Attribution Rules: Tips and Traps, Shane M. Brown and Brandon D. Wiener 38:1 Abstract 38:1 Introduction 38:1 General Policy on Income Splitting 38:2 The Need for a Comprehensive Approach 38:3

Paying a Salary 38:3 Payment Must Be Properly Made 38:3 Deductions Must Be Reasonable 38:4

Transferring a Business or Property to a Corporation or Trust 38:4 Property Must Be Properly Transferred 38:4 Dividends Must Be Properly Paid 38:5 Kiddie Tax Must Be Avoided 38:6 Trusts Must Be Properly Established 38:7

Preliminary Distinction: Income from Property Versus Income from a Business 38:7

Attribution Rules 38:9 Subsection 56(2): Indirect Payments 38:9

Basics 38:9 Planning Tips 38:11 Planning Traps 38:13

Subsection 56(4): Transfer of Rights to Income 38:13 Basics 38:13 Planning Tips 38:14 Planning Traps 38:15

Subsection 56(4.1): Interest-Free or Low-Interest Loans 38:15 Basics 38:15 Planning Tips 38:16 Planning Traps 38:17

Subsections 74.1(1) and (2): Income Attribution 38:18 Basics 38:18 Planning Tips 38:18 Planning Traps 38:22

Section 74.2: Capital Gains Attribution 38:25 Basics 38:25 Planning Tips 38:26 Planning Traps 38:28

xxxviii DETAILED CONTENTS

Section 74.3: Attribution Through a Trust 38:30 Basics 38:30 Planning Tips 38:30 Planning Traps 38:31

Section 74.4: Corporate Attribution Rule 38:32 Basics 38:32 Planning Tips 38:34 Planning Traps 38:38

Subsection 75(2): Revocable Trusts 38:39 Basics 38:39 Planning Tips 38:40 Planning Traps 38:43

GAAR and Attribution 38:45 Notes 38:49

Recent Income Tax Developments Relevant to the Mutual Fund Industry, Laura White 39:1 Abstract 39:1 Canadian Taxation of Mutual Funds' Foreign Currency Hedging Strategy .... 39:2

Introduction 39:2 A Description of the Strategy 39:2 The CRA's Technical Interpretations on Derivative-Based Balance Sheet

Hedging 39:3 Guidelines for Characterizing Hedging Gains and Losses 39:5 Relevant Jurisprudence 39:6

Shell Canada 39:6 Cases on Gains Related to Trade or Business 39:8 Ethicon Sutures: Primary and Secondary Intention 39:10 Salada Foods: Adventure in the Nature of Trade 39:11 Saskferco: Two Commercially Independent Transactions 39:13 Echo Bay Mines and Placer Dome: The Character of a Hedge 39:14

A Concluding Comment 39:17 Anti-Avoidance Taxes on Investments Made in RRSPs, RRIFs, and TFSAs .... 39:17

RRSPs, RRIFs, and TFSAs That Invest in Mutual Funds 39:18 A History of the Investment Restrictions Imposed by the Act 39:18

RRSPs 39:18 NQI Regime 39:18 RRIFs 39:19 Prohibition Against Advantages 39:19 TFSAs and the New PI Regime 39:20 Extending the PI Regime to RRSPs and RRIFs 39:20 Modifying the NQI and Advantage Regimes 39:21

The New Regime Under Part XI.01 39:21 Section 207.04: A 50 Percent Tax 39:22 Section 207.05: A 100 Percent Tax 39:22

Identifying a Mutual Fund as a PI 39:24 The Definition of "Prohibited Investment" in Subsection 207.01(1) .... 39:25 "Prescribed Excluded Property": NI 81-102 Mutual Funds 39:26

DETAILED CONTENTS xxxix

The Definition of "Significant Interest" in Subsection 207.01(4) 39:27 The Meaning of Arm's Length and Related 39:30


New Anti-Deferral Rules for Partnership Income, Alycia Calvert and Beau Young 40:1 Abstract 40:1 Introduction 40:1 Background and Objectives 40:1 Overview of the Rules and Application 40:3 Income Inclusion 40:6

Adjusted Stub Period Accrual 40:6 General Formula for ASPA 40:6 Share of Partnership Income and Losses 40:7 Proration Factor 40:8 Qualified Resource Expenses 40:8 Designation To Reduce ASPA 40:9 Multi-Tier Partnerships 40:10

Deduction for Previously Included ASPA 40:12 New Partner Designation 40:12 Characterization Provisions 40:13 Aligning the Fiscal Period of a Partnership 40:15

Fiscal Period of Tiered Corporate Partnership Structure 40:16 Single-Tier Fiscal-Period Alignment 40:16 Multi-Tier Fiscal-Period Alignment 40:17 Conditions for Aligning a Partnership Fiscal Period 40:18

Transitional Relief 40:19 Qualifying Transitional Income 40:19 Eligible Alignment Income 40:20 True-Up of QTI 40:21 Mechanics of the Transitional Reserve 40:22 Conditions To Qualify for Transitional Reserve 40:23 Maintaining and Maximizing Transitional Relief 40:25

Joint Ventures 40:26 Conclusion 40:27 Notes 40:27

Use of Partnerships for Investment Purposes: Pushing the Limits of What Constitutes a Partnership, Thomas W. Copeland 41:1 Introduction 41:1 What Is the Essence of a Partnership? 41:1 Recent Examples of Partnership Use in a Finance Context 41:2

Example 1: Partnership Undertakes Nominal Activity 41:2 Example 2: Matrix 201 l-II National and Quebec Resource

Flow Through LP 41:6 Example 3: SMC 2011-1 Charity Flow-Through Limited Partnership 41:10 Summary 41:11

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Sale of Units Rather Than the Underlying Property: Walton Big Lake Development LP 41:11

Use of Luxembourg Treaty Provisions 41:12 Use of a Partnership To Recover Unrecoverable Goods and Services Tax 41:14 Notes 41:15

The Taxation of Renewable Energy Investments in Canada, Stephen J. Fyfe 42:1 Abstract 42:1 Introduction 42:1 Project Financing and Non-Tax Incentives 42:2

Project Financing 42:2 Non-Tax Incentives for Renewable Energy (Federal and Ontario) 42:3

Tax Attributes of Clean Energy Projects 42:5 Classification as Class 43.1 or 43.2 Property? 42:5

Overview of Renewable Energy Systems 42:6 Used Property and Other Limitations 42:10 Reclassification 42:11

Canadian Renewable and Conservation Expense 42:11 Qualifying Expenses 42:12 Non-Qualifying Expenses 42:13 Test Wind Turbines 42:14 Role of Natural Resources Canada 42:15

Limitations on the Use of Tax Benefits 42:16 Specified Energy Property Rules 42:16

The Principal-Business Exclusion 42:17 Negative ACB Rules 42:18

The CRA's Administrative Position 42:20 Tax Shelter Rules 42:23 Limited-Recourse Loans 42:25

Project Entity Structure 42:27 Project Limited Partnership Structure 42:27 Transfer of Development Projects 42:28 Tiered Partnerships 42:34

How Do the SEP Rules Apply to a Tiered Partnership? 42:35 Allocations of Tax Attributes 42:38


Report of Proceedings SIXTY-THIRD TAX CONFERENCE …

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