Income Tax Severed Letters - 2000-02-18

Principal Issues: Referral of the taxpayer's enquiry to the International Taxation Services Office for their action.

Position: N/A

Reasons: N/A

Principal Issues: referred writer to new legislation which addresses his concerns

Position:

Reasons:

Principal Issues: Taxability and deductibility of Workers' Compensation Board benefits

Position: Exception to the general rule. While workers' compensation benefits are included in individual's income, they are deductible in computing taxable income.

Reasons: Workers' compensation benefits are deductible in the computation of taxable income because they are designed to replace a portion of after-tax earnings. Benefit levels have been set on the assumption that they would not be taxable. In this context, taxing these benefits could create a hardship for those receiving them.

Principal Issues:
1. Whether Pco can avail itself of the bump under paragraph 88(1)(d) in respect of certain farm land previously owned by Vco?

2. Whether our response would differ if Pco does not deal at arm's length with Vco?

3, Whether the transactions would be subject to GAAR?

Position:
1. Provided that the farm land represents capital property to Vco at the time that Pco acquires control of Vco, Pco should be able to designate a bump.

2. Under 88(1)(d.2) Pco is deemed to have acquired control of Vco at the time that Vendor acquired control of Vco. Consequently, the amount of the bump will be limited.

The farm land will not be ineligible property under 88(1)(c)(vi) since no person, other than a specified person, will acquire the farm land or any substituted property.

3. Provided general disclaimer.

Reasons:
1. Interpretation of the law
2. Interpretation of the law
3. Cannot comment on GAAR in general situation

Principal Issues: (1) Mr. A is an employee and the sole shareholder of Opco, an Ontario corporation. Mr. A owns his own home and incurs mortgage interest expenses, property taxes, insurance as well as maintenance costs (e.g., electricity, heat). A relevant portion of the maintenance costs are deductible by virtue of subparagraph 8(1)(i)(iii) of the Income Tax Act (the "Act"). However, as an alternative, Mr. A may be reimbursed by Opco in respect of the maintenance costs as well as the mortgage interest expenses, property taxes, and insurance. Does the reimbursement of mortgage interest expenses, property taxes, and insurance give rise to a taxable benefit under paragraph 6(1)(a) of the Act? (2) A second concern is that if Opco reimburses Mr. A in respect of capital outlays (costs incurred by Mr. A to build an office in his basement), would this reimbursement give rise to a taxable benefit under paragraph 6(1)(a) of the Act or subsection 15(1) of the Act?

Position: 1. A taxable benefit would arise. It is a question of fact whether the benefit would arise under subsection 15(1) of the Act or paragraph 6(1)(a) of the Act. Generally, paragraph 6(1)(a) of the Act would be applicable if the portion of the reimbursement in respect of the amount of the benefit where the benefits are not of an exceptional nature and if the sum of the benefits and the employee's salary do not constitute an unreasonable payment for his or her services. 2. General comments were provided

Reasons: 1. This is a reimbursement of non-deductible expenses. The position is also considered to be consistent with paragraph 23 of IT-470R which indicates that a reimbursement in respect of tools gives rise to a taxable benefit. 2. The determination of this issue in an actual situation can only be determined on a case-by-case basis.

Principales Questions:
1. Les dépenses encourues pour un ordinateur, des logiciels, une imprimante et un photocopieur sont-elles déductibles dans le calcul du revenu de bien?
2. Les frais d'abonnement à des revues et des journaux spécialisés, sont-ils déductibles dans le calcul du revenu de bien?
3. Les frais de fonctionnement d'une voiture sont-ils déductibles dans le calcul du revenu de bien?

Position Adoptée:
1. Non.
2. Non.
3. Non.

Principal Issues: Whether certain amounts received as a royalty or as proceeds of disposition yield access to "successored" resource expenditures.

Position: Potentially, however, appropriate treatment depends upon the circumstances.

Reasons: Must be determined from the application of the provisions of the Act to the facts and circumstances of a particular situation.

Principal Issues: Are former spouses dealing with each at arm's length for the purpose of section 84.1 where a share purchase agreement has been entered into as part of the divorce settlement before the divorce is final.

Position: Question of fact - must also consider the application of subsection 84.1(2.01).

Reasons: See above.

Principal Issues: Where no class of shares have full voting rights under all circumstances will the corporation (along with non arm's length persons) that has legal control of the payer corporation be connected for the purpose of paragraph 186(4) of the Act?

Position: No.

Reasons: The wording of subsection 186(2) requires consideration of shares with full voting rights under all circumstances only.

Principal Issues: Transfer of shares of a single purpose corporation.

Position: Transfer to surviving spouse (Cdn. resident) as a consequence of the shareholder's death is generally acceptable as long as 7 conditions continue to be met but inter vivos transfers are not permitted.

Reasons: Administrative practice only - will not be expanded to cover situations that it was not intended to cover.

Principal Issues: Whether a class of shares will be considered as having full voting rights under all circumstances where the ability to elect members to the board of directors is split between two classes of shares.

Position: No.

Reasons: The circumstance, in this case being the ability to participate fully in the election of the board of directors is being limited.

Principal Issues: Educational assistance payments- Are their any restrictions on 1) what type of expense may be covered by EAPs, or
2) the amount that can be paid?

Position: 1) Since the RESP was entered into in 1988, with no contributions made after February 1990 and the plan has not been modified since that date, the only restriction is that the amount be an "EAP" as previously defined in Act and subject to the condition in paragraph 146.1(2)(g).
2) No limit on dollar amount in Act.

Reasons: 1) The circumstances under which EAPs can be paid are governed by 146.1(2)(g) and the plan terms which must comply with the definition of EAP in the Act. New conditions in 146.1(2)(g.1) are not applicable. CCRA has not developed any guidelines concerning the expenses that may be covered by EAPs.
2) Amount restricted under subsection 146.1(2)(g.1) but, again, only for plans entered into after 1998.

Principal Issues: Taxability of remuneration earned by Can employee in U.S.

Position: If employee's presence less than 183 days and not borne by U.S. employer or U.S. permanent establishment, not taxable in the U.S. From facts given both these conditions are met.

Reasons: Law - paragraph 2(b) of Article XV of Canada-U.S. Convention

Principal Issues: The taxability of shares received as dividends in kind

Position: The fair market value of the shares is treated as dividend income

Reasons: The shares distributed represent property distributed by the corporation to its shareholders on a pro-rata basis.

Principal Issues: Whether shares of private Canadian corporation are qualified investments for RRSP

Position: Question of fact

Reasons: Discussion of portions of 4900(6), (12) and (13) requirements which may or may not be relevant to particular investment.

Principal Issues: Conditions for distribution of accumulated income payments from an RESP

Position: Cannot confirm the situation in the letter.

Reasons: We are not given enough facts and it is a factual determination whether 146.1(2)(d.1)(i) to (vi) are satisfied in a particular situation.

Principal Issues: We have been asked on how a federation of teachers should proceed so that teachers will be able to claim deductions in respect of the cost of personal computers. We have indicated that since an amendment to the income Tax Act is required, a submission should be made to the Department of Finance.

Position: See Principal issues.

Reasons: See principal issues.

Principal Issues: Whether subsection 55(2) will apply to a series of transactions?

Position: Yes.

Reasons: The purpose test appears to be met. Further, the exemption in paragraph 55(3)(a) is not met.

Principal Issues: Whether the additional facts affect our previous opinion given in file #991269

Position: No, provided that the only activities, if any, of the corporations which have a presence in Canada conducted in Canada are administrative housekeeping activities of the trustee corporation.

Reasons: As stated above.

Principal Issues: Whether the resource allowance is available to a taxpayer who uses 3 underground gas storage reservoirs and produces natural gas from one reservoir.

Position: Yes. However, deductible Crown charges, if any, would reduce resource profits if they are ancillary to or in support of resource activities.

Reasons: Regulation 1204 and 1210

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 5-992478

J. Desparois, M.Fisc.

À l'attention de XXXXXXXXXX

Le 8 décembre 1999

Mesdames, Messieurs,

Objet: Définition d'« associé déterminé »

Principal Issues: Can the additional CCA provided for under Regulation 1100(1)(zg) or (zh) be claimed in a year other than the year the relevant property is acquired?

Position: No.

Reasons: The draft Regulations are clear.

Principal Issues:
A trust and a corporation formed a partnership. Can the beneficiaries of the trust be considered to be members of the partnership (carrying on the business of the partnership), and if they are members, would they be considered to be related to the partnership for the purposes of subparagraph 110.6(14)(d) of the Act.

Position:
The beneficiaries of a trust would not be considered as members of the partnership where the trust owns an interest in the partnership. Hence, subparagraph 110.6(14)(d) would not apply to deem the partnership to be related to such beneficiaries.

Reasons:
The Canada Customs and Revenue Agency has not accepted, as a general proposition, that the beneficiary of a trust is the beneficial owner of the trust property.

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.

992377
XXXXXXXXXX Peter Lee
(613) 957-8977
Attention: XXXXXXXXXX

October 14, 1999

Dear Sirs:

Re: Special Warrants for Flow-Through Shares and Bonus Shares

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.

992284
XXXXXXXXXX Peter Lee
(613) 957-8977
Attention: XXXXXXXXXX

October 6, 1999

Dear Sirs:

Re: Issuance of Flow-Through Shares to Employees