Income Tax Severed Letters - 2000-11-24

Principal Issues:
1.Are "risk mitigation" payments pursuant to a swap agreement subject to Part XIII withholding tax because they have an interest component?

2.If they were found to contain an interest element, would they be considered to be obligations "similar" to bonds, debentures, mortgages or notes of a government of a province as per 212(1)(b)(ii)(C)(II)?

Position:
1.Generally, no.

2.Yes

Reasons:
1.A risk mitigation payment is not dissimilar to the circumstances in which the counterparties enter into a second separate swap agreement.

Principal Issues:
Whether payment to a resident of Canada on account of interest on an amount received and held as a rental deposit by a partnership must be reported on a form T5 information slip.

Principal Issues: The income tax consequences if the employer charged the employee for the personal use by him or her of the company vehicle.

Position: If an employee reimburses the employer an amount for the standby charge, the standby charge otherwise calculated is reduced by the amount of this reimbursement. Similarly, if an employee reimburses the employer for the operating costs of the company vehicle in respect of the personal use of this vehicle by the employee, the operating cost benefit otherwise calculated is reduced by the amount of the reimbursement provided it is made in the year or within 45 days after the end of the year.

Reasons: Subparagraph 6(1)(e)(ii) of the Act and the definition of Amount B in paragraph 6(1)(k) of the Act respectively.

Principal Issues:
The income tax consequences of reregistering title to property (principal residence) to include an (adult) child's name with joint tenancy.

Position TAKEN:
Question of fact. In adding another name to the property, there may or may not be a disposition, depending on whether or not there is a change in beneficial ownership. However, in a true joint tenancy arrangement, there has been a disposition of a 50% interest in the property to the recipient at fair market value.

Reasons:
Question of fact. In creating a true joint tenancy arrangement, the title to the property vests immediately to the recipient resulting in a partial disposition.

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.

PRICNCIPAL ISSUES

Principal Issues:
Is there any capital gains relief (deferral) for a disposition of shares from one spouse to the other?

Principal Issues: 1. Can we describe, further to our comments in our file 2000-003069, other factors which we would consider relevant in determining whether a cash payout on the termination of a particular securities option plan that includes an employer right to issue shares or cash would result in the application of section 7 or section 5 (or 6)?
2. When does the "agreement to sell or issue shares" arise where a stock option plan provides that the employer can elect to pay an option-holder cash instead of selling or issuing shares? 3. How do we reconcile our position on the deductibility of the cash payment where the employer chooses to pay cash rather than sell or issue shares given the judgment in the Kaiser case?

Position: 1. No. 2. The agreement arises at the time that the employer decides to issue shares or cash. 3. Our position is not inconsistent with Kaiser.

Reasons: 1. The relevance of any factor may vary depending upon all the facts of a particular situation. 2. Until the employer decides that it will sell or issue shares to an option-holder, there is only the possibility, not the certainty, that shares will in fact ever be sold or issued. 3. The result in Kaiser follows from the facts in that particular case and is not inconsistent with our position that the exercise of a cashout option in a stock option plan results in a deductible expense to the employer.

Principal Issues: Is there any attribution of income and or capital gains when an "in-trust" account is established by a grandparent for a minor grandchild?

Position: If it can be proven that the grandchild is the beneficial owner of the property, the income will be attributed to the grandparents and the capital gains will be in the hands of the minor grandchild.

Reasons: Established Agency position IT-510. 9717475;9721325; 9830997

Principal Issues: An employee dies and the Board of Directors decides to pay an amount in recognition of the employee's long service to the corporation after his or her death. 1) Will the amount paid qualify as a retiring allowance for purposes of the Act? Can the amount be transferred to the deceased employee's RRSP?

Position: 1) No. 2) No.

Reasons: 1) The retiring allowance definition specifically excludes an amount received as a consequence of an employee's death. 2) Subsequent to an annuitant's death, the annuitant or his or her estate is not eligible to make contributions to the RRSP.

Principales Questions:

Le IT-426 permet la méthode de recouvrement de fonds dans le cas de vente d'actions dans le cadre d'un contrat comportant une clause relative à la capacité de gain à la condition de respecter certaines conditions dont celle qui stipule que la durée du contrat ne doit pas excéder cinq ans.

I. À partir de quel moment débute cette période de cinq ans?
II. Pour que cette condition soit respectée, quel(s) événement(s) ne doit(vent) pas survenir après la durée de la période de 5 ans ?
III. Ce bulletin stipule que lorsqu'un montant versé en règlement du prix de vente excède le prix de base rajusté des actions, l'excédent est considéré comme un gain en capital réalisé au moment où ce montant est devenu calculable. Ce bulletin mentionne (par. 5) qu'un montant devient calculable lorsqu'il est possible de le « calculer avec précision ». À quel moment, un montant devient-il «calculable avec précision » ?

Position Adoptée:

Principal Issues: 1. Will a deduction for the cash paid to an employee who elects to receive cash instead of shares under a section 7 stock option plan be denied to an employer by 7(3)? 2. Will a deduction for the cost of the acquisition of the shares of a U.S. parent by a Canadian subsidiary for sales to its employees under a stock option plan be denied by 7(3)?

Position: 1. No. 2. Yes.

Reasons: 1. No shares are sold or issued under the stock option plan where the employee elects to take cash instead of shares. 2. The words of 7(3) are clearly applicable.

Principal Issues: Where shares of a U.S. company held by an RRSP are exchanged for shares of a Canadian company, can the Part XI taxes relating to the U.S. shares be refunded for the 15 months preceding the exchange?

Position: No.

Reasons: Part XI is computed based on the foreign property held at the end of each month. There is no provision exempting foreign property from being foreign property for a 15 month period.

Principal Issues:
A taxpayer has failed to report a 1994 capital gain

Principal Issues: Can a non-resident use the provision of paragraph 60(l) of the Act to rollover a refund of premiums without withholding tax?

Position: Yes, if the requirements of paragraph 60(l) and 212(1)(l) of the Act are met.

Reasons: Our position on rollovers for non-residents is outlined in paragraphs 28 - 31 of IT-500R RRSPs - Death of an Annuitant.

Principales Questions:
1. Dans le cadre d'une disposition d'actions d'entreprise à un tiers, le vendeur octroie des options à l'acquéreur qui lui permettront d'acquérir les actions dans deux ans pour une somme minimale. Est-ce que l'octroie d'options peut constituer une disposition d'actions ?

2. Si cette transaction est considérée comme une disposition d'options, est-ce que les vendeurs peuvent utiliser la méthode de recouvrement de fonds qui s'applique habituellement aux ventes d'actions ?

Position Adoptée:
1. La question de savoir ce que vise un contrat ne peut être résolue que sur la base des rapports juridiques créés par les termes de l'entente.

2. Non.

Principal Issues:
Whether examination fees, administration fees and registration fees with respect to a professional association qualify as tuition tax credits.

Principales Questions: Un contribuable détient un immeuble dans lequel il y a quatre logements. S'il y a un changement d'usage d'un logement, est-ce qu'on doit considérer les quatre appartements comme quatre biens distincts pour l'application des règles de changement d'usage aux alinéas 13(7)a), b) et 45(1)a) de la Loi ou si on doit considérer que l'immeuble est un seul bien et que ce sont plutôt les règles de changement d'usage aux alinéas 13(7)d) et 45(1)c) de la Loi qui s'appliquent.

Position Adoptée: On doit considérer les quatre appartements comme quatre biens distincts pour l'application des règles de changement d'usage aux alinéas 13(7)a), b) et 45(1)a) de la Loi

Principal Issues: Whether a foreign affiliate (FAB) was a member of the group for the purposes of subclause 95(2)(a)(ii)(D)(V) as of result of its income being included in the income of another affiliate (FAA) under Subpart F of the U.S. Internal Revenue Code (the "Code") which are similar to Canada's FAPI rules.

Position: No

Reasons: Subclause 95(2)(a)(ii)(D)(V) refers to "computing the liability for income taxes of the members of the group". Notwithstanding that Subpart F of the Code requires the inclusion of the income of FAB in the income of FAA, the computation nevertheless involves the computation of the income tax liability of only FAA. The income tax liability of the FAB is unaffected by the application of Subpart F of the Code.

Principales Questions: Où en est l'Agence dans sa révision du bulletin d'interprétation IT-233R? / How is the CCRA's review doing on Interpretation Bulletin IT-233R?

Position Adoptée: L'Agence se propose d'annuler ce bulletin, mais avant de le faire, aimerait obtenir les commentaires des fiscalistes avant le 1er janvier 2001. / CCRA is planning to withdraw that bulletin, but before doing so, would like to get tax practitioners' comments before January 1, 2001.

Principales Questions: Questions discutées à la table ronde de l'APFF, le 6 octobre 2000, par le ministère des Finances.

Position Adoptée: Voir les réponses du ministère des Finances.

Principal Issues: Voir ci-dessous

Position: Voir ci-dessous

Reasons: Voir ci-dessous

Principales Questions: Quelle est la nature du revenu étranger accumulé, tiré de bien, aux fins de la définition «revenu de placement total» prévue au paragraphe 129(4) dans la situation donnée?

Position Adoptée: Il s'agit probablement d'un revenu tiré d'une source qui est un bien.

Principal Issues: Voir ci-dessous

Position:

Reasons:

Principal Issues: Whether ss 15(1), 56(2) or 246(1) could apply in a situation where the child of the sole shareholder of HOLDCO (Mr. X) uses at no cost the condominium owned by HOLDCO's wholly-owned subsidiary OPCO?

Position: Ss 246(1) could apply.

Reasons: HOLDCO confers a benefit indirectly on Mr. X which would be included in Mr. X's income pursuant to ss 15(1) if the amount of the benefit were a payment made directly by HOLDCO to Mr. X.

Principales Questions:
Est-ce qu'une société en nom collectif formée dans l'État du Delaware et assujettie au DRUPA sera considérée comme une société de personnes aux fins de la Loi de l'impôt sur le revenu ?

Position Adoptée:
Le statut d'une société en nom collectif assujettie au DRUPA est présentement sous étude.