Income Tax Severed Letters - 2000-04-14

Principal Issues: Will shares of a corporation that do not trade on a prescribed stock exchange be a qualified investment for an RRSP?

Position: Question of fact.

Reasons: Shares will only qualify if the corporation is a public corporation or if the shares qualify under 4900(6) or (12) of the Regulations.

Principal Issues: Can an individual with RRSP contribution room who becomes a non-resident contribute to his or her RRSP or to a spousal RRSP after becoming a non-resident?

Position: Yes.

Reasons: There is nothing in the Act to prevent a non-resident from contributing to his or her RRSP.

Principal Issues:
(1) Farm land is held by two brothers as tenants in common. The land is to be split so that one brother will own half the land outright while the other brother will own the other half outright. Can this be done without attracting any capital gains?
(2) Instead of owning the property outright, can putting each respective brother's spouse as joint tenant of the land be deemed to have happened some twenty years ago at the commencement of the farming business?

Position:
(1) Yes or at least a portion of the potential capital gain.
(2) No.

Reasons:
(1) Partition of property pursuant to subsections 248(20) and (21).
(2) There is no provision that would permit such a retroactive effect.

Principales Questions:
Est-il possible de rencontrer le critère énoncé à la division 39(1)c)(iv)(A) de la Loi dans divers scénarios pour qu'un particulier soit en mesure de réclamer une PTPE.

Position Adoptée:
Oui pour les scénarios #1,2 et 3
Aucune réponse pour les scénarios #4 et 5

Principal Issues: requested confirmation that Q32(b) reply at 1992 Round Table would apply. Determined that only general comments should be provided since the letter referred to a treaty exemption so our position may not be intended to apply in cross-border situations.

Position:

Reasons:

Principal Issues: 1. Employee, deduction of clothing, travel expenses
2. Self-employed, deduction of clothing, travel expenses

Position: 1. Employee cannot claim travel expenses from home to office nor clothing expenses.
2. Self-employed cannot claim travel expenses if home not base of business operations; cannot claim regular clothing expenses but can claim cca in respect of uniform (Class 12) and clothing and costumes (Class 8) of Schedule II of IT Regulations.

Reasons: 1. Considered personal and living expenses.
2. Considered personal and living expenses except for clothing that come under Class 12 and Class 8 of the IT Regulations.

Principal Issues: Is the "adjusted cost basis" of a life insurance policy reduced by the amount of the premiums payable which may be deducted pursuant to paragraph 20(1)(e.2)?

Position: Not per se but...

Reasons: The "adjusted cost basis" is reduced by the net cost of pure insurance.

Principal Issues: Whether we can rule on whether a band owned corporation is exempt from tax.

Position: No.

Reasons: Insufficient documentation provided to determine if the band meets the criteria to be considered a municipality as set out in Otineka. No proposed transactions were given on which we could rule.

Principal Issues: Whether the exemption in subsection 15(2.3), which provides, inter alia, that subsection 15(2) does not apply to a "loan made in the ordinary course of the lender's ordinary business of lending money," will apply in a situation in which a company ceases or reduces its active business, and, as a result, it will have money to invest. It is considering lending money to an individual who does not deal at arm's length with it.

Position: This question requires a factual determination, but the likely answer is no.

Reasons: Based on jurisprudence and our position in IT442R.

Principal Issues: Are investment certificates issued by an incorporated charitable organization qualified investments for an RRSP?

Position: No.

Reasons: A debt of the corporation does not satisfy any of the investments described in the definition if "qualified investment" in subsection 146(1) of the Act or section 4900 of the Regulations.

Principal Issues: Whether Covenant provided to municipality in exchange for right to subdivide is a gift.

Position: Provide details by way of ruling request. Concern raised.

Reasons: Proposed transaction. Meaning of gift.

Principal Issues: Whether replacing a long-term lease for land (with a provincial government) for land for the purposes of gaining or producing income from farming qualifies for the replacement property rules in section 44.

Position: Question of fact. However, it is our general view that the replacement property rules in section 44 may apply when land is acquired to replace a leasehold interest in land for the purpose of carrying out the same or similar business.

Reasons: This is based on our understanding that a leasehold interest in land is an "interest ... in real property" pursuant to the definition of "former business property" in subsection 248(1) of the Act.

Principal Issues:
1.Has the 1999 adverse decision by the FCTD in the Shilling case resulted in any change to the Indian Act Exemption for Employment Income Guidelines?
2.If affairs are arranged to reflect the situation in Shilling, what happens if employers do not withhold tax and the employees do not follow the Guidelines?

Position:
1. No changes to the Guidelines.
2. Interest charges and penalties may be assessed.

Reasons:
1.Since the judgement in Shilling has been appealed by CCRA, no changes will be made to the Guidelines until the issues are resolved by the courts.
2.Interest charges and penalties may be applicable if the obligations are not respected. Employees who fail to file, file late or fail to include all income taxable may be assessed or reassessed and may be liable to interest and penalties. Employees that file in accordance with the Guidelines, may file objections to protect themselves if the outcome of the appeal of the Shilling case is favourable to them.

Principales Questions:

1. Est-ce que les intérêts d'obligations ou d'hypothèques et les dividendes d'actions de capital social sont inclus dans le calcul des recettes brutes en vertu du paragraphe 402(5) du Règlement s'ils sont des biens utilisés relativement à la principale activité commerciale de la société ?

2. Est-ce que la société exerce une seule activité ?

Position Adoptée:

Principal Issues: Whether an "Ultramatic Bed" is a hospital bed for the purposes of paragraph 118.2(2)(m) of the Income Tax Act (the "Act") and Regulation 5700 (h)

Position: No

Reasons: A hospital bed is considered to refer to the type of bed normally found in and used by patients in a hospital.

Principal Issues: Is the assignment by a graphic designer to a charitable organization of certain rights to a logo a gift?

Position: This is a question of fact.

Reasons: For example, it may be a contract for services

Principal Issues: Whether awards are income from employment under 5(1) or as research grants under 56(1)(o).

Position: The awards are income from employment.

Reasons: In our previous opinion regarding these awards given in our letter of December 20, 1999 we said the awards were employment income. Since then, the Centre changed the wording of the award agreements but the changes do not substantively alter the nature of the employer/employee relationship between the Centre and the awardees. Our comments in our previous letter still apply. International section will reply regarding the taxation of non-resident recipients.

Principal Issues:

Principal Issues: Whether a travelling allowance based on an estimate of the average cost of room and board, to be paid by a company to an employed truck driver in respect of trips to Arizona and California, would be non-taxable.

Position: Whether an allowance is reasonable is a question of fact. However, it is likely non taxable.

Reasons: An allowance under subparagraph 6(1)(b)(vii) of the Act may generally be considered reasonable if it is based on an estimate of the average expense or travel cost that the employees will incur on an ongoing basis.

Principal Issues: Whether the shares of a particular corporation are shares in a small business corporation.

Position: It is a question of fact but in this case it is likely that the shares do not qualify.

Reasons: Each asset of a corporation must be looked at separately in determining that "all or substantially all of the fair market value of the assets...is attributable to assets that are used principally in an active business carried on primarily in Canada..." Land and each building or structure on the land are separate assets.

Principal Issues: The taxpayer is a XXXXXXXXXX licenced in the province of British Columbia and has a professional corporation Dr. A. Inc. He is the sole shareholder of XXXXXXXXXX which owns and operates a farming business. XXXXXXXXXX

Will the shares of XXXXXXXXXX qualify as qualified small business corporation shares and will the taxpayer be eligible to claim the $500,000 capital gains exemption on the capital gains realized on the disposition of the shares? Can the taxpayer claim all of the capital gains exemption resulting from the shares of XXXXXXXXXX for the XXXXXXXXXX taxation year even though he will be receiving payments for the sale of the shares over XXXXXXXXXX years. If after the sale of shares of XXXXXXXXXX , the loans to XXXXXXXXXX are declared to be defunct by the investor, can the taxpayer and Dr. A Inc. claim allowable business investment losses?

Position: Question of fact. General comments given.

Reasons: See 9805845, 9521185, 9613885, 9513305, 9510015, 9225255, 9004363, 9819816, 9502255, 9522580, 9809947, 9640437, 9802347, 9529667, 9726496, 9317905,