Income Tax Severed Letters - 2000-11-10

Principal Issues: Can amounts held in a foreign pension arrangement be rolled into an RRSP after the member emigrates to Canada?

Position: Question of fact.

Reasons: We do not have sufficient information to determine whether the amount held in this U.K. arrangement is a pension, annuity or something else for purposes of the Act.

Principal Issues: Whether a wage loss replacement plan is an employee-pay-all plan where the employer's benefits policy is to pay 50% of the total group insurance plan (consisting of a medical, dental, accidental death and dismemberment, life and long-term disability plans) for their employees. The employer arbitrarily allocates the reported payments among the plans so that the employees' portion of long-term disability plan premiums is shown at 100% while the employees' portion of premiums to the other plans is reported at less than 50%. When viewed from the perspective of total premiums paid, the 50-50 split between employer and employee contributions is maintained.

Position: Not an employee-pay-all plan.

Reasons: The existence of an employee-pay all plan is not determined by looking at the manner in which payments are made or reported, but rather it is determined by ascertaining who is contractually obligated to pay the premiums. If the legal obligation for paying the disability plan premiums is split 50-50 between the employer and the employee, an employee would be subject tax on any benefits received under the plan pursuant to paragraph 6(1)(f) to the extent that they exceed the deduction under subparagraph 6(1)(f)(v) in respect of employee contributions..

Principal Issues:
Whether a mutual fund trust will be subject to interest charges in the situation where a loss carry-back reduces its capital gains refund.

Position: Yes.

Reasons: Subsections 160.1(1) and 132(2.2) of the Act.

Principal Issues: We are asked to comment on two issues. First, whether the organization may issue donation receipts. Second, whether the organization is exempt from tax.

Position:. The organization may not issue donation receipts. It appears unlikely that the organization is tax exempt, as currently constituted.

Reasons: We are advised by charities that the organization is not registered; therefore, it may not issue donation receipts. The articles of the organization do not seem to prevent the members of the organization from personally benefiting from its income. Therefore, it is unlikely that the organization currently constitutes and NPO. However, this determination can only be made by the TSO, having regard to all the facts.

Principal Issues:
Can an amount be transferred out of a RRIF on a tax-deferred basis to an adult child of the annuitant of the RRIF on the death of the annuitant?

Position:
The amount may be transferred on a tax-deferred basis to an RRSP, a RRIF or an annuity under which the child is the annuitant, if the amount is a "refund of premiums" as that term is defined in the Act.

Reasons:
The Act provides for tax-deferred transfers of amounts between registered plans for the benefit of dependent children in certain circumstances.

Principal Issues: Is the reimbursement of an employee's medical health plan premiums by the employer a taxable benefit?

Position: Yes. It could be non-taxable if the payment is made directly by the employer to a private health services plan.

Reasons: One of the exceptions to taxable benefits in subparagraph 6(1)(a)(i) is "any benefit derived from contributions of the taxpayer's employer to or under a...private health services plan." In this case the contribution is being made by the employee and is reimbursed by the employer.

Principal Issues:
1. Will clause 1106(1)(a)(ii)(A) of the draft Regulations, at the definition of excluded production, apply to deny a Canadian producer's film tax credit, as a result of particular foreign distributors' participation in the production? This will involve distribution agreements with a potential term of 95 years.
2. Will subsection 125.4(4) of the Act apply to deny a Canadian producer's film tax credit, as a result of the same foreign distributors' participation in the production?

Position:
1. & 2. No, based on the facts as presented.

Reasons:
1. Since the film is a treaty co-production, clause 1106(1)(a)(ii)(A) of the draft Regulations, at the definition of excluded production, does not apply to the film.

2. Since the foreign distributors are not subject to tax in Canada, neither of the distributors would be an investor that may deduct an amount in respect of the film in computing its income, as is contemplated in order for subsection125.4(4) of the Act to apply.

Principal Issues: Interaction between subsection 70(6) of the Income Tax Act and paragraph 5 of Article XXIX B of the Canada-United States Income Tax Convention

Position: See our comments in the letter

Reasons: Interpretation of the law

Principal Issues: A special German foundation was formed by German legislation recently and the German government funded the foundation. The purpose of the foundation was to make financial compensation available to holocaust survivors. The main issue is whether such financial compensation received by a Canadian taxpayer is exempt from tax in Canada.

Position: Yes such compensation is exempt from tax in Canada

Reasons: Such compensation payments fall under paragraph 81(1)(g) of the Act and are thus exempt from income tax in Canada. Also, no income tax is payable to the Federal Republic of Germany on such compensation payments made to or on behalf of holocaust survivors.

2000-005149
XXXXXXXXXX G. Middleton
(613) 957-2122
Attention: XXXXXXXXXX

Principal Issues: Mortgage interest deductibility when a mortgage on a principal residence was taken out to purchase another residence.

Position: The direct use of the borrowed funds is the test that predominates in determining the deductibility of the interest.

Reasons: The Queen v. Bronfman Trust (87 DTC 5059)

Principales Questions: Une fiducie doit-elle payer un impôt de la partie XI.3 de la Loi lorsqu'elle effectue des retraits d'une police d'assurance-vie qui a servi à provisionner une convention de retraite et que les dispositions du paragraphe 207.6(2) de la Loi s'appliquent.

Position Adoptée: Non

Principal Issues: Whether concrete ready-mixers are "exempt property" and therefore, a "prescribed property" for purposes of section 16.1.

Position: No

Reasons: Similar to court decision

Principal Issues:
1. To which taxation years will the new position regarding identical shares acquired on a stock option exercise (as described in Technical News #19) be applicable?
2. What is the scope of the new position?

Position:
1. The new position is effective the date that Technical News #19 was published.
2. Cannot provide specific comments.

Reasons:
1. The new position will apply to taxation years that were open as of the date that Technical News #19 and are open at the time the new position is utilized.
2. Any variations from the general guidelines provided in Technical News #19 will be considered in the context of an advance income tax ruling.

Principal Issues:
1. Can a portion of a retiring allowance be used by the employer to purchase increased pension benefits under its defined benefit pension plan in respect of the departing employee?
2. 2. If so, would this be considered to be an employer contribution and therefore not be taxable to the employee?

Position:
1. Insufficient information to offer an opinion.
2. 2. All of the retiring allowance will be included in the employee's income pursuant to paragraph 56(1)(a)(ii).

Reasons:
1. Requires a review of the terms of the pension plan and the relevant pension legislation (pension benefits standards act) governing the RPP.
2. 2. Character of the amount contributed to the RPP, if such a contribution is possible, would not change from that of a retiring allowance.

Principal Issues:
1. Whether a part of the gross revenue and salaries and wages of the partnership would be included in the gross revenue and salaries and wages of the partner for the purposes of subsection 402(3) of the Regulations.

2. Whether interest and dividend income would be included in the gross revenue for the purposes of subsection 402(3) of the Regulations.

3. Whether the taxable capital gain would be included in the gross revenue for the purposes of subsection 402(3) of the Regulations.

Position:
1. The corporation includes in its gross revenue and salaries and wages for the purposes of subsection 402(3) of the Regulations, a portion of the gross revenue and salaries and wages of the partnership based on its interest in the income/loss of the partnership.

2. The interest on bonds, debentures or mortgages and the dividend on shares of capital stock would be excluded.

3. The taxable capital gain would be excluded.

Reasons:
1. Subsection 402(6) of the Regulations.

2. Subsection 402(5) of the Regulations. The reference in subsection 402(5) of the Regulations to "that is not used in connection with the principal business operations of the corporation" refers only to "rentals or royalties from property" and not to the other items enumerated therein.

3. The definition of "gross revenue" in subsection 248(1) of the Income Tax Act specifically excludes amounts as or on account of capital.

Principal Issues:
The calculation of the amount of a retiring allowance that may be transferred to an RRSP when employees have had various employers over a number of years?

Position:
We provided basic comments on the calculation of an example transfer that covered a number of situations.

Reasons:
A determination can only be made on the basis of the facts present in a given situation.

Principal Issues:

Principales Questions: Quels sont les progrès réalisés par l'Agence dans l'établissement de lignes directrices quant à l'application de la pénalité pour les professionnels?

Position Adoptée:

Principales Questions: Doit-on considérer les activités d'une filiale et les activités d'une société de personnes dont une société est membre pour déterminer si les activités de la société consistent principalement à exploiter une entreprise de production cinématographique ou magnétoscopique canadienne?

Position Adoptée: 1- Il ne faut pas tenir compte des activités d'une filiale. 2- Une société pourra tenir compte des activités d'une société de personnes dont elle est membre si en vertu du droit civil ou du droit commun les activités de la société de personnes sont exercées par la société qui en est membre.

Principales Questions: Comment doit-on traiter des dommages-intérêts à l'égard d'un REÉR ?

Position Adoptée: Ce n'est pas une prestation si le montant est versé directement au REÉR. Si les sommes sont versées au rentier, il s'agit d'une prestation imposable.

Principales Questions: Où en est l'étude de l'Agence quant à sa position administrative à l'égard de l'application de l'alinéa 85(1)b)? / How is CCRA's study doing on its administrative position regarding the application of paragraph 85(1)(b)?

Position Adoptée: L'Agence a complété l'étude de cette question et a décidé d'abandonner la position administrative antérieure à l'effet qu'une dette pouvait être créée pour éviter l'application de l'alinéa 85(1)b), pour toute disposition de biens effectuée à compter du 1er janvier 2001. / CCRA has completed its study of this question and has decided to abandon its previous administrative position allowing the creation of a debt to avoid the application of paragraph 85(1)(b), with respect to all dispositions of property after December 31, 2000.

Principales Questions: Les conditions énoncées au paragraphe 4900(12) doivent-elles être satisfaites à l'égard de nouvelles actions obtenues dans le cadre d'une réorganisation visée par les paragraphes 51(1) ou 86(1) de la Loi ?

Position Adoptée: Oui. Les conditions énoncées au paragraphe 4900(12) doivent être satisfaites au moment où une fiducie régie par un REÉR acquiert les nouvelles actions.