Income Tax Severed Letters - 1999-12-24

Principal Issues: Whether a particular plan of paying employees their medical expenses can qualify as a private health services plan (PHSP).

POSITION: General comments on self-administered PHSPs

Reasons: The taxpayer has submitted an actual plan which can only be dealt with as an advance income tax ruling.

Principal Issues: Application of the attribution rules - subsection 74.4(2).

Position: Unable to provide much in the way of meaningful comment.

Reasons: Question of fact.

Principales Questions : Un immeuble amortissable au sujet duquel un choix a été exercé au 22 février 1994 et qui a par la suite été transféré au conjoint en vertu du paragraphe 73(1) ; quel est le coût en capital pour le conjoint?

Position Adoptée : Montant selon 73(1)f)

Principales Questions : Précisions quant à l'inclusion ou la non-inclusion dans le revenu de prestations reçues sous le programme ALLOCATION-LOGEMENT du gouvernement du Québec.

Position Adoptée : les prestations sont à inclure dans le revenu en vertu de l'alinéa 56(1)(u) et sont déductibles en vertu de l'alinéa 110(1)(f).

Principal Issues: In light of the recent Tax Court of Canada decisions, does the XXXXXXXXXX qualify for the 8(1)(c) deduction? XXXXXXXXXX

Principal Issues: Treatment of reimbursement of moving expenses.

Position:. Likely not a taxable benefit, question of fact.

Reasons: The employee was transferred from one establishment of the employer to another and commenced work at the new work location, as a result the reimbursement of expenses incurred in moving the employee's family should not be considered as conferring a taxable benefit..

Principal Issues: Income tax treatment of property donated to Her Majesty in right of Canada or a province or an agent of the Crown that is NOT certified by the Canadian Cultural Property Export Review Board.

Position Adoptée:
Le boni reste à l'abri de l'impôt et n'affecte pas le maximum déductible au titre des REER.

Principales Questions:

Est-ce que le revenu d'emploi d'un Indien qui est au service du ministère des Affaires indiennes et du Nord à XXXXXXXXXX est exonéré d'impôt ?

Position Adoptée:

Principal Issues: In the year of death, on what return do you claim the amount included in the prior year's income pursuant to paragraph 28(1)(b) of the Act (i.e., the optional inventory adjustment), the final return or the rights and things return?

POSITION: The final return.

Reasons: A taxpayer is required to report his farming business income for the taxation year of death in his final return. Paragraph 28(1)(f) of the Act requires the deduction of the optional inventory adjustment that was added to the taxpayer's farming business income for the immediately preceding taxation year in arriving at the taxpayer's deemed farming business income for a taxation year.

Principal Issues: Whether an arrangement between an employer and an administrator under which the former pays the latter an administrative fee to review employees' claims and reimburse them will qualify as a private health services plan, even though it does not involve a trusteed plan or insurance company.

Position: Question of fact.

Reasons: i) It must be a plan of insurance;
ii) it must reimburse only eligible expenses;
iii) benefits must be received by an employee-shareholder qua employee.

Principal Issues: Does the fact that dividends are paid only on the first class of special shares affect the calculation of a 74.4(2) benefit in respect of the second class of special shares?

Position: no effect on benefit calculation re: the second class

Reasons: 74.4(2)(f) specifically refers to taxable dividends paid on the shares that were issued as consideration for the transferred property so dividends paid on other shares would not be included in the calculation of a benefit in respect of the shares issued as consideration

Principal Issues: Whether 95(2)(e.1) applies to a liquidation of a foreign affiliate (the "disposing affiliate") resident in one country (the "First Country") into second foreign affiliate resident in another country in circumstances where a gain or loss is recognized for tax purposes in the First Country by the disposing affiliate in respect of capital property distributed by it in the course of the dissolution.

Position: Yes it does.

Reasons: The exception only applies where a gain or loss was recognized by the disposing affiliate under the tax law of its country of residence in respect of capital property distributed by it in the course of the liquidation to another foreign affiliate of the taxpayer resident in that same country.

Principal Issues: Whether the addition to an existing manufacturing plant can qualify as a replacement property for a disposed manufacturing plant.

POSITION: Generally, it can qualify.

Reasons: We have previously stated that the cost of an addition to a building can qualify as a replacement property.

Principales Questions:

Pourquoi un technicien automobile ne peut-il pas déduire les coûts d'achat d'outils et de location et de nettoyage des habits exigés par l'employeur ?

Position Adoptée:

Principal Issues: Meaning of "exempt trust" and whether a trust resident in Guernsey that is not subject to tax in that country because it doesn't have any income sourced in Guernsey nor does it have any beneficiaries resident in Guernsey is exempt from tax.

Position: Trust is not an exempt trust within the meaning of subsection 233.2(1).

Reasons: The requirement in (b)(ii) of the definition of exempt trust requires the trust to be exempt from taxation for all income taxed under the laws of the country of which it is resident. While the trust may not have income sourced in Guernsey, it is not exempt from income tax on such income if it had any and thus does not meet the requirement in (b)(ii) of that definition.

Principal Issues:

Principales Questions:

Est-ce qu'une société issue d'une fusion sera considérée comme exploitant la même entreprise que celle qui était exploitée par une des sociétés remplacées pour les fins de l'application du paragraphe 111(5) de la Loi même si la propriété de l'entreprise a changé ?

Position Adoptée:

Principal Issues: Whether subsection 17(14) applies to certain restructuring which will occur before the coming into force of subsections 17(2) and 17(3).

Position: In the situation described in the letter, provided that the restructuring occurs before the coming into force of subsection 17(2) and 17(3), subsection 17(14) will not be applied.

Reasons: Based on the intention of the Department of Finance to allow reorganizations before the coming into force of subsections 17(2) and 17(3) as noted in the Revised Explanatory Notes of March, 1999

Principal Issues:

Principales Questions : Un compte de frais médicaux (« CFM ») est reconnu comme un « régime privé d'assurance-maladie » (RPAM), expression qui est définie au paragraphe 248(1) de la Loi. On nous a demandé si le fait qu'un régime permette que certains employés reportent prospectivement des crédits et d'autres, des frais modifieraient le caractère d'un RPAM. On nous a également demandé s'il est acceptable qu'un employé reporte prospectivement des frais sur une année et des crédits, sur l'année suivante.

Position Adoptée : Le régime ne serait probablement plus reconnu comme un RPAM.

Principal Issues: Will a portion of an annuity or RRIF that relates to non-deductible contributions to an RPP, in respect of services performed in the U.S. while a resident of the U.S., be considered a non-taxable return of such non-deductible contributions?

Position: No.

Reasons: There is no provision in the Act or Regulations that provide for such treatment.

Principal Issues: Our comments have been requested in respect of individuals who will participate in the Government of Canada's Youth Employment Strategy Program (the individuals will receive work experience in a foreign country). It is noted that payments under this program are not taxable under paragraph 56(1)(r) of the Act. Pursuant to a discussion with Jane McIsaac (953-7392) of HRDC, the funds for this program (as approved by Treasury Board) are received from the Consolidated Revenue Fund and does not involve the Employment Insurance Act. (The funds are not provided under Part II of the Employment Insurance Act or by virtue of an agreement because of section 63 of the Employment Insurance Act.)

Position: General comments were provided. We have indicated that, generally, an intern would be considered to be an employee (the documentation and that the fact that amounts paid to an intern are considered to be an estimate of the personal expenses would not alter the nature of the payments.

Reasons: See position

Principal Issues: Whether various circumstances are acceptable events of default.

Position: Maybe, depends on all relevant facts.

Reasons: It is not possible to provide a definitive answer given the limited information provided in the request.

Principales Questions:
Sens de l'expression "adoption de fait" pour les fins des alinéas 251(6)c) et 146.1(2)(j).

Position Adoptée:
Question de fait. Certains facteurs déterminés par la jurisprudence sont considérés.

Principales Questions: Des sociétés détenues par d'autres sociétés qui sont exemptées de l'impôt de la Partie I de la Loi en vertu de l'alinéa 149(1)d) sont-elles exonérées en vertu de l'alinéa 149(1)d.3) de la Loi ?

Position Adoptée: Oui

Principal Issues: Whether a lump-sum amount in settlement of an ex-employee's long-term disability benefits is taxable.

Position: Yes.

Reasons: It seems clear that, while the taxpayer's settlement for LTDP benefits under her policy includes a reference to claims for future medical costs, travel, legal costs, and therapy, there is no reason to assume that the insurer would settle for anything other than its obligations under the LTDP policy. Thus, since it is an employer-paid plan, the amount is taxable under paragraph 6(1)(f).

Principales Questions: Un tuteur peut-il être le souscripteur d'un REÉÉ?

Position Adoptée: Oui car un tuteur n'est pas un fiduciaire.

Principal Issues: An association provides ambulance services to rural areas, towns, villages, and municipalities. These entities appoint members to the board of the association which is responsible for the overall operation of the association.
One of the individuals, who was hired to provide ambulance services as an ambulance technician, also carries out administrative services as the co-ordinator of the ambulance services (an administrative position). The individual receives $XXXXXXXXXX for his duties as the co-ordinator.
1. With respect to the co-ordinator, paragraph 8(1)(a) of the Act sets out an exclusion where the taxpayer is employed in the year by the employer "in connection with the performance of any of the duties referred in subparagraph (ii) or similar duties" (subparagraph (ii) refers to an ambulance technician, or a firefighter, or a person who assists in the search or rescue of individuals or in other emergency situations"). Is this exclusion applicable to the co-ordinator?
2. Are the individuals, who are considered to be volunteers and are hired by an association to provide ambulance services, eligible for the deduction under paragraph 8(1)(a) of the Income Tax Act?

Position: 1. No 2. Yes

Reasons: 1. As the duties of the co-ordinator are administrative, the exclusion is not considered to be applicable. The position is also consistent with technical comments made by the Department of Finance which state that "the deduction will not, however, be available to a volunteer who is also employed by the same government, municipality or public authority to perform, otherwise than as a volunteer, the same or similar duties."
2. The information provided to us indicates that all the necessary requirements have been satisfied. A summary of their circumstances is that the individuals receive $XXXXXXXXXX for the first hour of an emergency call and $XXXXXXXXXX to $XXXXXXXXXX for each additional hour. However, in the case of "on call" time they are only paid at the rate of $XXXXXXXXXX per hour and amounts they are paid for "on call" time accounts for XXXXXXXXXX % to XXXXXXXXXX % of the remuneration they receive for being emergency medical personnel.

Principal Issues: Whether special damages for out-of pocket expenses (not legal fees) such as the cost of having a resumé typed, in a wrongful dismissal suit would be taxable and subject to withholding tax.