Income Tax Severed Letters - 1998-08-21

Principal Issues: effectively shifting deductions from partnership level to partners level

Position: 103(1) may apply, but question of fact

Reasons: streaming of deductions (or partnership computations) could reduce/postpone tax of member

Principal Issues: principal residence exemption and capital gains exemption

Position: must recalculate gain if principal residence exemption is claimed on property that was the subject of 110.6(19) capital gains exemption

Reasons: B in "D" of formula in 40(2)(b)- comma after “designated” therefore “in a return of income for the taxation year that includes Februsry 22, 1994” and “for a preceding taxation year modify the word “designated”; the words “return of income” do not appear in the legislation after the word “or”, and they cannot be read;

Principal Issues: Whether the Department allows the “carve-out” of that portion of a capital gain attributable to the non-payment of dividends in the case where a rollover under subsection 85(1) of the Act is undertaken to crystallize a capital gains deduction.

Position: The Department has not established any guidelines re: 110.6(8) of the Act.

Reasons: It is a question of fact whether a “significant part of a capital gain is attributable to the fact that dividends were not paid on a share.”

Principal Issues:
Comparative analysis of the taxation of the various means available for retirement savings.

Position:
Provided a general outline of the taxation of retirement savings arrangements

Reasons:
Non specific answers were requested.

Principal Issues:
Comparative analysis of the taxation of the various means available for retirement savings.

Position:
Provided a general outline of the taxation of retirement savings arrangements

Reasons:
Non specific answers were requested.

Principal Issues: interpretation of "or" at the end of subparagraph (d)(v) in the definition of CEDOE in Reg 1206 -does the formula require a determination of the least amount related and unrelated costs of connected persons or the least amount of related costs of connected persons ?

Position: read "or" in exclusive sense, so only one of (iv),(v) or (vi) will apply to a particular expense

Reasons: principles of statutory interpretation, otherwise interpretation of the provision would be absurd

Principal Issues: Could the deferral period under 6801 be less than a year?

Position: Yes

Reasons: Where less than 2 years we would have to look at the plan and why the period is so short. It may be to convert part-time employment to full-time for pension purposes.

Principal Issues:
1) Whether the entire value (fmv) of a building that is used principally in an active business would be included for purposes of the section 110.6 test (substantially all of the assets are used in an active business).

2) Factors in determining whether asset is used primarily for active business.

Position:
1) Asset by asset test with entire value being attributed to an asset used in an active business if it meets the used principally in an active business test.

2) It is a question of fact.

Reasons:
1) The test is on an asset by asset basis. Either an asset is used principally for business or it is not.

Principal Issues:
What are the consequences to an RRSP that holds shares of a CCPC that becomes a foreign controlled private corporation?

Position:
1. The shares may become non-qualified as investments.
2. The Part XI excess foreign property tax may apply but this will generally not occur for a two year period.

Reasons:
1. The shares of such a corporation may cease to be qualified investments or may continue to be qualified investments depending on whether they originally qualified under subsection 4900(6) or subsection 4900(12) of the Regulations.

Principales Questions: Est-ce que le montant additionnel en vertu de la disposition 60j.1)(ii)(B) est remis en question rétroactivement à cause du rachat d'année de service une fois à la retraite?

Position Adoptée: Le Ministère est d'avis que le rachat d'années de service antérieures à 1989 devrait normalement être effectué avant la retraite.

Principal Issues:
Would years of teaching service with a foreign employer be included in the number of years of eligible service for purposes of a 60(j.1) transfer?

Position:
Only if the foreign employer qualifies as a person related to the current employer.

Reasons:
Under 60(j.1), years of service with an employer and a person related to the employer are considered in computing the transfer limits.

Principal Issues:
For the purposes of paragraph 60(j.1) of the Act, does subparagraph 60(j.1)(v) include as a "related employer" any previous employer of an employee that contributed to the same multi-employer pension as the current employer?

Position:
Yes.

Reasons:
Service with a prior employer is recognized in determining the retiree's pension benefits payable, in part, as a consequence of service with the current employer.

Principal Issues: Where an RCA has been funded through life insurance policy:
1. Can a former employee assign the RCA trust to the bank as collateral to take advantage of the tax treatment of a loan?
2. What are tax consequences of an RCA holding life insurance?

Position:
1. Possibly; but payments from RCA are taxable to the former employee
2. It depends upon the life insurance contract purchased.

Reasons: Wording of the Act
1. Paragraph 56(1)(x).
2. General information only, insufficient detail provided.

Principales Questions:
Assujettissement de swaps à 212(1)(b) suite à un paiement de réduction de risque

Position Adoptée: Pas opinion

Principales Questions:

Un contribuable a transféré à sa conjointe une partie de sa participation dans une société de personnes et, par la suite, la société de personnes a disposé d’un contingent de poulets sur lequel elle a réalisé un revenu important. Est-ce que la part du revenu provenant de cette disposition appartenant à la conjointe du contribuable sera attribuée au contribuable en vertu du paragraphe 74.1(1) de la Loi?

Position Adoptée:

Principales Questions:

Quel est le traitement fiscal relativement à un dépôt confisqué qui avait été versé dans le cadre d'une entente d'achat d'actifs?

Position Adoptée:

Principales Questions:
Quelles villes seraient considérées comme faisant partie de la "région métropolitaine" de la ville de Québec aux fins de l'application du sous-alinéa 6(1)b)(vii) de la Loi?

Position Adoptée:
Les villes faisant partie de la Communauté urbaine de Québec et certaines municipalités situées sur la rive sud de Québec, sur la Côte de Beaupré et à l'Île d'Orléans.

Principales Questions:
Quelles villes seraient considérées comme faisant partie de la "région métropolitaine" de la ville de Québec aux fins de l'application du sous-alinéa 6(1)b)(vii) de la Loi?

Position Adoptée:
Les villes faisant partie de la Communauté urbaine de Québec et certaines municipalités situées sur la rive sud de Québec, sur la Côte de Beaupré et à l'Île d'Orléans.

Principal Issues: Whether $XXXXXXXXXX received as part of a settlement for mental stress, aggravated and punitive damages would be taxable? The settlement relating to the dismissal of an employee is as follows:

a) $XXXXXXXXXX - 6 month's notice (salary + commission).

b) $XXXXXXXXXX - mental distress, aggravated and punitive damages.

c) $XXXXXXXXXX - pre-judgement interest.

d) $XXXXXXXXXX - special damages for mortgage rate differential.

e) $XXXXXXXXXX - job search expenses/re-training costs.

f) legal fees totalling $XXXXXXXXXX .

Position:
1. Damages for mental stress relating to the loss of the office of employment, itself, fall within the definition of "retiring allowance" and are taxable as such.

2. To the extent that damages which are awarded by a human rights tribunal, or are a settlement in lieu thereof, do not relate to the loss of employment but relate solely to damages arising from human rights violation, such damages are not required to be included in income. In such a case, a reasonable amount of the settlement in respect of the resulting general damages related to the pain and suffering would be considered non-taxable, equivalent to an amount that a human rights tribunal would be predisposed to award in that regard if it had the opportunity to consider all of the circumstances of the case.

3. Damages that can actually be attributed to aggravated and punitive damages relating to malicious actions, intentional infliction of mental suffering, defamation, injury to reputation, by a former employer, as distinct from damages described in (1), would not be taxable.

Reasons: It is a question of fact as to the amount, if any, of the $XXXXXXXXXX in question that would be attributed to each of (1), (2) or (3) above.

Principales Questions:
Une dépense engagée pour acquérir du mobilier d’hébergement adapté pour les personnes handicapées et utilisé dans une entreprise hôtelière pour meubler certaines chambres d’hôtel et adapter les salles de bains, sera-t-elle de nature courante ou de nature capitale? Si la dépense est capitalisable, dans quelle catégorie de l’Annexe II doit-elle être classée?

Position Adoptée:
1) Mobilier: Capitalisable à la catégorie 8 de l’Annexe II du Règlement de l’impôt sur le revenu.
2) Modification à une salle de bain - dépense déductible

Principal Issues: Is vacation pay or banked sick leave considered a bonus for purposes of the Act?

Position: No.

Reasons: They are forms of employment income separate and distinct from a bonus.

Principales Questions:
Le Marchand possède des actions du Groupe qui lui, constitue un groupement d’achats et de marketing pour ses actionnaires corporatifs. Les actions du Groupe, sont-elles, pour le Marchand, des actifs utilisés principalement dans une entreprise exploitée activement et ce, même si la détention de ces actions n’est pas un prérequis pour faire affaires avec le Groupe?

Position Adoptée:
Il s’agit d’une question de fait.

Principal Issues: Is vacation pay or banked sick leave considered a bonus for purposes of the Act?

Position: No.

Reasons: They are forms of employment income separate and distinct from a bonus.

Principal Issues:
Can Canadian resident taxpayers make tax assisted contributions to a UK school?

Position:
Not in general

Reasons:
Tax assisted contributions can only be made to registered organizations and other specifically identified organizations.

Principales Questions:

Est-ce que les frais légaux engagés par un associé d’une société de personnes pour entreprendre des procédures à l’encontre de ses deux associés sont déductibles en vertu de l’alinéa 18(1)a) de la Loi ou est-ce qu’une partie de ces dépenses doit être appliquée en réduction du gain en capital réalisé lors de la vente des actifs de la société de personnes en raison de la mésentente entre les associés?

Position Adoptée:

Principal Issues: Is the position expressed in IT-315 (interest deductibility subsequent to amalgamation) OK if shares were purchased from a related party?

Position: Yes

Reasons: OK as long as loan is genuine and shares acquired to earn income from business or property.

Principal Issues: What is the cost amount for the foreign property rules?

Position: acb

Reasons: The Act is clear

Principal Issues: Would vacation pay and retroactive sick leave constitute a bonus for purposes of 100(3.2) of the Regulations?

Position: No

Reasons: Each term is specific and constitutes wages and salary

Principal Issues: Is a "fee" which is calculated by reference to notional interest considered to be subject to withholding under paragraph 212(1)(b)(vii)?

Position: No

Reasons: Not considered to be "interest" or "in lieu" thereof as there is no borrowing by the payor.

Principal Issues:

Principal Issues:
How to report interest income the payment of which is subject to a contingency. What about when a T-5 has been issued for the full amount of the interest ?

Position:
Not receivable until the contingency has been satisfied. May be able to claim a bad debt reserve in respect of amounts included in income.

Reasons:
Reading of the legislation