Application of Paragraph 95(6)(b)
Questions
In an earlier draft of Income Tax Technical News No. 36 (the “ITTN”) that had limited distribution, the CRA identified certain situations as offensive from the paragraph 95(6)(b) perspective. Some of the situations in the draft were not addressed in the official release on July 27, 2007 (e.g. “double dips” where there has been a refinancing of the foreign Opco’s debt and the implementation of certain foreign holding companies).
- Can we assume by their omission that CRA has changed its view and concluded that they are not offensive?
- In addition, the earlier draft included a paragraph that specifically addressed “series of transactions” from a paragraph 95(6)(b) perspective. That paragraph did not make it into the final version. What are the implications?
Response
The draft release of the ITTN suggested that CRA would restrict the application of paragraph 95(6)(b) to those cases where the policy intent of one or more provisions of the Act is otherwise frustrated or circumvented. The CRA is now of the view paragraph 95(6)(b) has no such limitation and that the only consideration in the application of that provision is whether it can reasonably be considered that the principal purpose for the acquisition or disposition referred to is to permit a person to avoid, reduce or defer the payment of tax.
Facts were added to the examples in the official release to attempt to show that the CRA considers the paragraph 95(6)(b) analysis to be generally limited to quantifying the tax benefit and comparing it to the potential aggregate direct and indirect non-tax benefits. Some examples found in the draft version were eliminated because they were considered redundant while others were eliminated because it was considered unreasonable to try to assume facts around the example in order to make the paragraph 95(6)(b) analysis. The CRA would be pleased to consider the application of paragraph 95(6)(b) to proposed transactions that are dissimilar to those set out in the official release in the context of an advance ruling request.
In reference to the “series” issue, as indicated in the published version of the ITTN, CRA is of the view that the principal purpose of an acquisition or disposition is to be determined from all the facts and circumstances surrounding that transaction. We see nothing in the subsection that would restrict us from looking at any other transactions to determine the principal purpose of an acquisition or disposition where such acquisition or disposition is part of a series of transactions.