Income Tax Severed Letters - 1998-02-06

Position:

Principal Issues:

Whether years of service with a previous employer who was previously related to the current employer can be counted for purposes of determining the eligible amount of a retiring allowance under 60(j.1).

Position:

Provided our position that the points of time to determine related status is time at which retiring allowance is paid by the employer or time at which employee leaves previous employer to work for current employer.

Reasons:

Principal Issues:

Will any undue taxation arise on the application of section 7 in certain specific situations where options are exchanged.

Position:

Where one option is exchanged for a new option, 7(1)(b) may apply to assess a benefit. Furthermore, the cost of the new option will be equal to the value of the option given up. Accordingly, the cost of the new option will reduce the income inclusion on its exercise or disposition. However, if the values of the two options are not equal at the time of the exchange, this series of transactions may result in the inclusion of benefits that exceeds the value ultimately received. Neither 52(1) nor 53(1)(j) apply and it is not clear that the provisions of 248(28) of the Act will apply to this result. Therefore we have referred the problem to the Department of Finance for their future consideration.

Reasons:

Principal Issues:

Tax treatment of certain distributions made by a U.S. corporation to a Canadian shareholder.

Position:

Depends on the nature of the distribution.

Reasons:

Principal Issues:

1. Should an advance income tax ruling be issued in respect of a completed transaction? A review of the life insurance policy submitted indicates that XXXXXXXXXX entered into a life insurance contract (policy number XXXXXXXXXX) with XXXXXXXXXX. The owner of the policy is XXXXXXXXXX. The coverage was for $XXXXXXXXXX and the annual premium is $XXXXXXXXXX. The effective date of the policy was XXXXXXXXXX.

2. Whether a life insurance policy assigned to two registered charities constitutes a charitable donation.

Position:

1. No. In accordance with paragraph 7 of Information Circular 70-6R3, we are unable to provide an advance income tax ruling since it is in respect of a completed transaction. I telephoned XXXXXXXXXX, on December 19, 1997, and confirmed that the insurance policy had already been purchased by XXXXXXXXXX and assigned to XXXXXXXXXX had a copy of IC70-6R3 and agreed that since the transaction referred to in his letter had already been partially completed, no advance tax ruling could be issued. I indicated that his cheque would be returned to him and we would provide him with general comments; however, these comments would not be binding on the Department. XXXXXXXXXX agreed with this course of action.

2. Factual determination. Generally the answer would be yes as long as the insurance company is advised of the assignment, and the policy is assigned absolutely.

Reasons:

Principal Issues:

Lump-sum payment to settle future child support payments after T1157 election is filed.

Position:

Not deductible or taxable.

Reasons:

Principal Issues:

Whether the shares in a cooperative housing organization can qualify as a principal residence?

Position:

Section 54 of the Act defines "principal residence" of a taxpayer for a taxation year, to include a property that is "... a share of the capital stock of a cooperative housing corporation acquired for the purpose of acquiring the right to inhabit a housing unit owned by the corporation and that is owned, whether jointly with another person or otherwise, in the year by the taxpayer, ..."

Reasons:

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

J. Gibbons
XXXXXXXXXX 5-972501

December 18, 1997

Dear XXXXXXXXXX:

Principal Issues:

What are the tax consequences to a Canadian shareholder as a result of a U.S. "spin-off" where stock of a subsidiary is distributed to shareholders.

Position:

Dividend to the Canadian shareholder, equal to the fair market value of the distributed shares at the time they are received.

Reasons:

Principal Issues:

Application of 88(3) and 95(2)(e) to a particular
scenario where a foreign affiliate is liquidated.

Position:

Both provisions apply.

Reasons:

Principal Issues:

Whether farmland that replaces other farmland and crown grazing leases would qualify as replacement property.

Position:

Question of fact but farmland may be considered as replacement for other farmland and crown grazing leases.

Reasons:

Principal Issues:

Application of subsection 122.3(1.1) in various factual situations

Position:

While intent is to prevent self employed individuals from incorporating in order to claim credit, it is a question of fact in any given case whether or not 122.3(1.1) would apply to deny the credit.

Reasons:

Principal Issues:

Enduring Power of Attorney and deemed ownership of shares under 251(5)(b)(i) and 256(1.4)(a)

Position:

Attorney will be deemed to own the shares even if he has the obligation to protect the donor's interest.

Reasons: