2014-0550441C6 Q.9 95(6)(b) Post Lehigh

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: How does FCA decision in Lehigh Cement affect CRA's interpretation of 95(6)(b)?

Position: CRA accepts that 95(6)(b) is generally targeted at transactions intended to manipulate the status of a non-resident corporation for the purposes of subdivision i, Division B of Part I of the Act.

Reasons: See below.

Author: Laurikainen, Olli

Section: 95(5)(b)

2014 CTF Conference – CRA Roundtable
Q.9 - 95(6)(b) Post Lehigh

How will the Federal Court of Appeal decision in Lehigh Cement affect the CRA’s interpretation of paragraph 95(6)(b)?

CRA Response

The CRA accepts the decision in the Lehigh Cement case that paragraph 95(6)(b) is generally targeted at acquisitions and dispositions of shares in non-resident corporations that are carried out for the principal purpose of manipulating status of the non-resident corporation for the purposes of subdivision i of Division B of Part I of the Act with a view to avoiding, reducing or deferring Canadian tax.  However, the CRA believes paragraph 95(6)(b) could still apply in other contexts such as, for example, in a case involving the manipulation of a taxpayer’s participating percentage in a controlled foreign affiliate.

Going forward, the CRA’s 95(6)(b) Committee intends to review cases and assess whether they include a share investment or divestment in a foreign affiliate that could be considered to have been for the principal purpose of manipulating share ownership in the affiliate in order to secure a tax benefit, such as for example, a subsection 113(1) deduction for a stream of dividends.  This may be the case where it could be considered that the share ownership in the foreign affiliate is transitory on the basis that it is reasonable to conclude that a subsequent disposition was contemplated at the outset.

After March 28, 2012, tax planning of the kind in the Lehigh Cement case is generally subject to the foreign affiliate dumping rule in section 212.3.  However, we observe that the Technical Notes accompanying the introduction of that provision indicate that the government believes that existing anti-avoidance rules in the Act, including the general anti-avoidance rule in section 245, would apply to certain past cases of this nature.  Consideration will be given by the CRA to whether any pre-section 212.3 cases involving foreign affiliate dumping could be challenged under existing anti-avoidance rules, including section 245. 

 

Olli Laurikainen
2014-055044

All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without the prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5.

© Her Majesty the Queen in Right of Canada, 2015

Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.

© Sa Majesté la Reine du Chef du Canada, 2015


Monthly Tax Update

For additional commentary on Technical Interpretations, court cases, government releases, and conference materials in a single practical document specifically geared toward owner-managed businesses, see Video Tax News Monthly Tax Update newsletter.

This effective summary and flagging tool is the most efficient way to ensure that you, your firm, and clients are fully supported and armed for whatever challenges are thrown your way.

Packages start at $399/year.

Learn More