FW: TheKey Canadian Entity T2s

Jessica Woolley, CPA
KPMG LLP
403 476 3742

From: Woolley, Jessica A
Sent: Tuesday, June 27, 2023 8:45 PM
To: geraldine.nath@thekey.com; brian.fialko@thekey.com; steven.kearley@thekey.com; Timothy Thomas <tt@thekey.com>
Cc: Towns Lewis, Ashley <atowns@kpmg.ca>; Rubinstein, Brian <brubinstein@kpmg.ca>
Subject: TheKey Canadian Entity T2s

Hi everyone,

Please see attached for the various TheKey entity T2 tax returns. I have also attached a document called Documents to Sign for each entity. Once you have reviewed the returns and are comfortable with the information presented, please sign the documents within each of these files. Once we receive them back, we will submit the returns for efiling. If it's at all possible to get signatures back by Thursday that would be great, as there is often a long line of returns waiting to be filed on the deadline which I would like to keep us out of.

Please note that the tax payable figures outlined within the returns may be smaller than indicated, given that we don't have a full understanding of the instalments made in the year.

And once again, it was a pleasure working with you and we really appreciate all your efforts trying to get info in the midst of learning curves, new systems, and not being able to access all of the data required.  We look forward to assisting you in the future in addressing risks and opportunities as you build out the Canadian business and begin to put strategy around data, the treasury function, etc.

As requested, and for your files, here is a summary of some of the key areas for which we couldn't quite get perfect information on. As we have discussed, if you are able to get any additional information that suggests what we have filed is incorrect, we are happy to revisit these and file amendments in the summer.


  *   It looks like push-down accounting has been used to account for acquisitions, whereby HCA is buying the shares of the subsidiaries, and then the cost of those shares is being pushed down to the individual assets held by the subsidiaries with a corresponding offset credit to 'interco due to'. As such, it is our understanding that the intangible asset additions in the two Arya entities are not true additions for Canadian tax purposes, and so we have not presented them on Sch 8. Going forward, and now that you have Canada on the group's ERP we recommend implementing a mechanism (such as master data tags) in order to more easily distinguish true additions from accounting adjustments (e.g., purchase method/push down accounting).  As we understand that all other additions are true additions, we have included them in Sch 8.
  *   It appears that the trial balances used to prepare the prior year tax returns did not encompass all FS audit adjustments. As such, the balances within the 2021 returns appear to be incorrect in some cases.  As directed, the returns have used 'plugs' to retained earnings so that current year financial results balance.  It is our understanding that these adjustments are what is causing our retained earnings outages for the most part.  With this, it is unclear whether income, distributions, or other amounts are unreported in the current or prior tax years.   To that end, we recommend exploring these differences and completing 'rolls' of balance sheet accounts (such as PP&E) to identify any amendments required to returns.
  *   No salary allocations/management fees have been recorded between HCA and the Canadian subsidiaries. These should be considered going forward in order to appropriately allocate some costs to the taxable subsidiaries, thereby reducing their respective tax bills.
  *   We have completed the T106 in HCA based on the information that you provided. Based on our conversations with you, it is our understanding that there are no intercompany balances within the Canadian subsidiaries with the US entities, but that significant time would be required to get 100% validity of this. As such, no T106 has been prepared for any of the subsidiaries. If it is later determined that a T106 was in fact required in any of these entities, it will be filed late and penalties may be levied. As mentioned, under Canadian tax rules there are typically multiple risks and opportunities that arise from cross-border debt balances.  On that basis, we recommend that intercompany accounts be reconciled and that theKey consider treasury policies that incorporate tax rules to ensure that no adverse tax implications arise and that all related reporting obligations can be properly identified.

Again, we'd be happy to work with you on the above as well as any of the other items discussed today (transfer pricing, assisting with structuring short or long term financing for the Canadian group, etc.).

Let me know if you have any questions on the returns!

Thanks,

Jessica Woolley, CPA (she/her)

Manager, Canadian Corporate Tax

KPMG LLP

Suite 3100 205 - 5 Avenue SW
Calgary, Alberta T2P 4B9
T 403 476 3742
F 403 691 8008
jwoolley@kpmg.ca<mailto:jwoolley@kpmg.ca>




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