Income Tax Severed Letters - 1999-01-08

Principal Issues:

Tax reporting of a disposition of an interest in a life insurance policy on the death of the policyholder.

Position:

Provided general comments on T5 reporting and the rollover treatment provided in subsection 148(8.2) where the policy is transferred to the policyholder’s spouse as a consequence of death.

Reasons:

Principal Issues: Deductibility of contributions to a foreign pension plan by a Canadian resident

Position: Not deductible for Canadian income tax purposes.

Reasons: Nothing in the Act to allow the deduction and (in this case) the Canada-U.K. Treaty provides no relief.

Principal Issues: Whether a share of a corporation is a qualified investment by virtue of Regulation 4900(12)?

Position: We do not know. General information provided.

Reasons: Question of fact.

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.

XXXXXXXXXX 		983369

December 24, 1998

Dear XXXXXXXXXX:

We are writing in response to your letter received on December 23, 1998 concerning the tax consequences to Canadian shareholders as a result of the 1998 spin-off or distribution by XXXXXXXXXX of its subsidiary XXXXXXXXXX.

Principal Issues: treatment of bulk sample revenue

Position: reduces CCEE

Reasons: 66(12.1)

Principal Issues: Whether farm land could be considered as non-farm use if more than 50% of its fair market value is derived from mineral rights or oil surface rights/leases.

Position: Yes.

Reasons: The definition of "share of the capital stock of a family farm corporation" in subsection 70(10) of the Act only includes "property that has been used ... principally in the course of carrying on the business of farming in Canada".

Principal Issues:

How will Roth IRAs be treated for tax purposes in Canada?

Position:

Questions and Answers provided.

Reasons:

Principal Issues: Whether the cost of a license for an executive suite at a sports facility is deductible for tax purposes in 4 different scenarios: (i) The licensee entertains clients at all events (i.e., concerts, hockey games, etc.) available at the sports facility. (ii) The licensee entertains clients at only 3/4 of the events available at the sports facility. The remainder of the events are attended by the employees of the specific organization for reward and recognition purposes. (iii) The licensee obtains the use of an executive suite at the sports facility for the sole benefit of their employees for reward and recognition purposes. (iv) The licensee entertains clients only 3/4 of the time at the executive suite. The remainder of the time, the executive suite is used as a meeting room (or additional office space) for business purposes.

Position: In general terms, a license for a limited period qualifies as a class 14 asset and hence its cost should be apportioned over the life of the license. Further, such cost is restricted to 50% of the CCA otherwise determined by virtue of 67.1(1). An exception occurs, however, where the executive suite is used to entertain employees such that the employees are in receipt of a taxable benefit. In this case the 50% restriction does not apply owing to the exception in subsection 67.1(2). As regards the use of an executive suite as a meeting room, we are of the view that not much of the cost of the executive suite can be attributed to such a use.

Reasons: A license is included in the definition of “class 14.” The cost of a private box at a sports facility is considered entertainment.

Principal Issues: Are royalty or royalty-like revenues received by a Canadian resident taxable ?

Position: YES,

Reasons: A Canadian resident pays income tax on his world-wide income

Principal Issues: Various questions related to the completion of Form T2202A, Tuition and Education Amounts Certificate.

Position: See questions and answers in our response.

Reasons: See Rulings file # 971711, 951676, 930195, 961018, 910602

Principal Issues:

1. Whether a “commencement day” as defined in subsection 56.1(4) of the Act would be triggered in respect of a new court order or a variation of a pre-May 1997 court order that introduces a provision stipulating when child support amounts payable are to cease in respect of the children of the marriage.

2. If the payer makes payments once a year directly to the children for their university tuition, would this amount be considered child support and would the payments be taxable and deductible?

Position:

1. Question of fact that depends on the wording of the new court order or variation of the pre-May 1997 court order but likely that a commencement day would be triggered.

2. No, payments made pursuant to a court order that are made directly to the taxpayer’s children for their university education would not meet the definition of “support amount” as defined in subsection 56.1(4) of the Act. It is also unlikely that subsection 60.1(1) of the Act would apply as the children, once they reach the age of majority, would not be considered to be in the custody of their mother and accordingly, one could not argue that the payments made directly to the payer’s adult children are for the benefit of their mother.

Reasons:

Principal Issues:

1. Whether a “commencement day” as defined in subsection 56.1(4) of the Act would be triggered in respect of a new court order or a variation of a pre-May 1997 court order that introduces a provision stipulating when child support amounts payable are to cease in respect of the children of the marriage.

2. If the payer makes payments once a year directly to the children for their university tuition, would this amount be considered child support and would the payments be taxable and deductible?

Position:

1. Question of fact that depends on the wording of the new court order or variation of the pre-May 1997 court order but likely that a commencement day would be triggered.

2. No, payments made pursuant to a court order that are made directly to the taxpayer’s children for their university education would not meet the definition of “support amount” as defined in subsection 56.1(4) of the Act. It is also unlikely that subsection 60.1(1) of the Act would apply as the children, once they reach the age of majority, would not be considered to be in the custody of their mother and accordingly, one could not argue that the payments made directly to the payer’s adult children are for the benefit of their mother.

Reasons:

Principales Questions:
Peut-on considérer un revenu de location comme revenu d'entreprise exploitée activement pour les fins de 110.6? (Le paragraphe 129(6) répute un revenu d'entreprise exploitée activement pour les fins de l'article 125)

Position Adoptée:
Non. Le paragraphe 129(6) de la Loi a une portée bien définie et ne s'applique pas à l'article 110.6 de la Loi. Cependant, la définition de «action admissible de petite entreprise» au paragraphe 110.6(1) de la Loi pourrait s'appliquer si l'actif loué est utilisé dans une entreprise qu'une société liée exploite activement.

Principales Questions:

1. Une créance, entre deux personnes qui ne transigeaient pas à distance, radiée au cours de l'année peut-elle faire l'objet d'une perte au titre d'un placement d'entreprise?
2. Les règles des pertes apparentes s'appliquent-elles dans une situation de radiation de créance?

Position Adoptée:

Position Adoptée:

Principal Issues: Where FAPI arises as a result of a disposition by a foreign affiliate but foreign tax in respect of that disposition is deferred a result of a roll-over under foreign law, may foreign tax arising as a result of a gain on the disposition of the consideration received by the foreign affiliate on the original transaction qualify as foreign accrual tax?

Position: Question of fact - the foreign tax may qualify.

Reasons: The definition of foreign accrual tax is very broad but it would be necessary to review the details of an actual case in order to make a definitive determination.

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.

XXXXXXXXXX 							982464

Attention: XXXXXXXXXX

December 15, 1998

Dear Sirs:

Principal Issues: How reinsurance is treated in terms of federal income tax in Canada for resident and non-resident insurers.

Position: General description of taxation of insurers under the Income Tax Act.

Reasons: The Act does not distinguish between insurers and reinsurers.

Principal Issues:

Principal Issues: Are fees paid to therapist who are members of the Ontario Association for Marriage and Family Therapy, members of the American Association of Marriage and Family Therapy, members of Canadian Association of Psychoanalytic Child Therapist, and members of the Canadian Association for Child and Play Therapy qualify as medical expenses ?

Position: Yes, since they are members of an association governing their particular profession, work in recognized clinics, hospitals and provide a treatment at the request of or in association with a medical practitioner.

Reasons: Review of documentation - prior position dealing with social workers

Principal Issues:

Whether 87(2.11) applies to 2 hypothetical situations.

Position:

It applies in Situation 1 but only to reduce the taxable income of ACo
It does not apply in Situation 2

Reasons:

Principal Issues:

The interaction of subsections 87(2)(e.1), 88(1)(e.2) and 40(3.1) where a subsidiary which holds a partnership interest which is an excluded interest is wound-up into its parent.

Position:

The winding-up should not result in the application of 40(3.1).

Reasons:

Principal Issues: First year business may study their curriculum by enrolling in theXXXXXXXXXX rather than using traditional methods. A student who is enrolled in theXXXXXXXXXX will be provided with a laptop computer that must be returned at the end of the academic year. In connection with computer, the student must pay a technology fee of $XXXXXXXXXX each semester. Does the technology fee qualify for the tuition tax credit?

Position: Yes

Reasons: The position is consistent with the Department’s position in paragraph 26(I) of IT 516R2.

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.

XXXXXXXXXX 	982483
		Tim Kuss
Attention:  XXXXXXXXXX 

October 28, 1998

Dear Sirs:

Re: XXXXXXXXXX (the "Estate")

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.

XXXXXXXXXX 980372
B. Kerr
Attention: XXXXXXXXXX

October 7, 1998

Dear Sirs:

Re: Replacement Property Rules

This is in response to your letter of January 19, 1998, concerning the application of the replacement property rules.

Principales Questions: l'existence du patrimoine distinct prévue par le Code civil du Québec affecte-t-il l'application des dispositions prévues a 96(1)f) et 112(1)

Position Adoptée: non

Principal Issues:

Income tax reporting when payments are made to the qualifying person out of an EFA

Position:

T5 slips may be required to be issued pursuant to paragraph 201(1)(b) of the Regulations.
No T5 slips when a CCT is involved.

Reasons: