Income Tax Severed Letters - 2001-04-27

Miscellaneous

2001 2001-0067501 - Change of facts, reorganization

Unedited CRA Tags
55(3)(b)

Principal Issues: none

Position:

Reasons:

2001 2001-0073521 - Retiring Allowance

Unedited CRA Tags
248(1)

Principal Issues:
Can we extend the time in which the retiring allowance must be paid?

Position:
Yes.

Reasons:
Routine. A retiring allowance can be paid in instalments.

2001 2001-0067941 - Utilization of losses

Unedited CRA Tags
111

Principal Issues: Change of Facts - Following the ruling, a decision was arrived at by the shareholders of ACO, whereby the shareholders themselves, through a newly incorporated holding company would acquire the shares of BCO.

Position: N/A

Reasons: N/A

Ruling

2001 Ruling 2000-0059963 - Disclaimer of Capital Interest

Unedited CRA Tags
248(9)

Principal Issues: 1. Tax consequences of partial disclaimer of discretionary capital interest

Position: 1. Disclaiming beneficiary will not be considered to have received any proceeds of disposition for purposes of section 106 & 107; disclaimed interest will be considered to have been received "as a consequence of death for the purpose of 248(8); donation will qualify under 118.1; GAAR is not applicable.

Reasons: 1.disclaimer will be executed before acceptance of any part of interest being disclaimed; donation resulting from disclaimer within required time frame for purposes of recognition of donation on deceased's return.

2001 Ruling 2000-0045333 - Reclassification of units of a MFT

Unedited CRA Tags
132(6) 104(7.1)

Principal Issues: The addition of a redesignation feature to the existing units of a group of mutual fund trusts and the creation of new mutual fund trusts with multiple Classes of Units for different investor segments. The purpose of the multiple class structure is to allow the mutual fund trust's fee structure to be tailored to accommodate investore of dealer sponsored fee-based programs.
Rulings requested are: 1) whether the proposed transactions result in a disposition of units; 2) will subsections 104(7.1) and 245(2) apply to the proposed transactions.

Position: 1) Unitholders are not considered to have disposed of their units because of the redesignation of the units from one class to another class. Also, the addition of a redesignation feature to the existing units will not result in a disposition of those units. 2) Subsections 104(7.1) and 245(2) will not apply to the proposed transactions.

Reasons: 1) Similar positions taken in 9820753, 9726113 and 9525413.
2) Similar positions taken in 9820753 and 9603753

2001 Ruling 2000-0060623 - Amendments to Notes - Disposition?

Unedited CRA Tags
212(1)(b)(vii) 54

Position:
Amendments to the terms of the Notes do not result in a Disposition.

2001 Ruling 2000-0061463 - SECOND MORTGAGE QUALIFIED INVESTMENT

Unedited CRA Tags
REG 4900(4)

Principal Issues: Will a second mortgage in the form of a Mortgage Investment Certificate be a qualified investment under subsection 4900(4) of the Regulations?

Position: Yes.

Reasons: The investment would be considered an interest in a mortgage for purposes of subsection 4900(4) of the Regulations.

2001 Ruling 2000-0036553 - Family Farm Corporation Mineral Rights

Unedited CRA Tags
70(10)

Principal Issues: Does certain land owned by the corporation constitute more than one property for purposes of the definition of the phrase "share of the capital stock of a family farm corporation" in subsection 70(10) of the Act?

Position: No.

Reasons: Based upon the facts of the situation. The land has been used by the corporation principally in, and derives its fair market value principally from, the business of farming. In particular, the land does not constitute, and has never constituted, real property the principal value of which depends upon its mineral resource content or its XXXXXXXXXX content. In addition, the land in question is a contiguous block of land contained on one legal title and in respect of which there has never been a reservation of mineral rights by the taxpayer.

XXXXXXXXXX 2000-003655

2001 Ruling 2001-0064383 - GIFT SUBJECT TO CONDITIONS

Unedited CRA Tags
110.1(1)(a) 15(1)

Principal Issues:
1) Whether a donation constitutes a gift for income tax purposes when the donation is subject to various conditions.
2) Where a corporation, one of its shareholders and a charity enter into a deed of gift, will subsection 15(1) apply to include the amount of the donation made by the corporation in the shareholder's income?

Position:
1) Factual determination. In this case, the donation constitutes a gift.
2) No. In this case, the terms of the deed provide that the corporation may make the gift.

Reasons:
1) In previous files, we concluded that the fact that there are conditions attached to a gift, does not, in itself, negate the gift. The donor in this case is freely parting with the funds or property, receives no benefit, other than recognition, in return and the funds or property can never revert to the donor or any related person.
2) The deed provides that the corporation and the shareholder will make a total gift of $XXXXXXXXXX . The deed states that the intent is for the corporation to donate $XXXXXXXXXX and the balance of the total gift will be a bequest by the individual to the charity.

2001 Ruling 2001-0068763 - Series of losses and repayments

Unedited CRA Tags
15(2) 214(3)(a)

Principal Issues:
Whether the loans from Cansub to U.S. Parent constitute a series of loans and repayments subject to the application of subsection 15(2) and paragraph 214(3)(a).

Position: No.

Reasons:
See issue sheet #9717641, dated November 10, 1997 and the two court cases (Joel Attis v. MNR, 92 DTC 1128(TCC) and Nigel T. Hill v. MNR, 93 DTC 148(TCC)) mentioned in the issue sheet.

2001 Ruling 2001-0070523 - REAL ESTATE DEVELOPMENT ACTIVE BUSINESS

Unedited CRA Tags
REG 4900(12)(a)

Principal Issues: Will the shares of a corporation that is in the process of developing a parcel of land into a retirement community be qualified investments for an RRSP, RRIF or RESP under 4900(12)(a) of the Regulations?

Position: Yes.

Reasons: The shares satisfy 4900(12) because the business operations have commenced.

XXXXXXXXXX 2001-007052

XXXXXXXXXX , 2001

2001 Ruling 2000-0059623 - Binding agreement to issue stock options

Unedited CRA Tags
7(1)

Principal Issues: Will we accept that an agreement to sell shares of a corporation at a certain price subject to certain vesting requirements that will, immediately thereafter, be further evidenced by a written stock option agreement when the corporation is legally entitled to provide the stock option agreement constitute one agreement to issue shares?

Position: Yes.

Reasons: The binding agreement includes the issuance of the stock option agreement which will only confirm the terms of the binding agreement already in place so we would consider them to be the same agreement for purposes of section 7.

2001 Ruling 2001-0071583 - Deferred Stock Unit Plan - fees accrued

Unedited CRA Tags
6801(d)

Principal Issues:
1. Is the Plan a prescribed plan or arrangement as set out in paragraph 6801(d) of the Regulations?
2. Can we rule where directors' fees have accrued prior to the date of the ruling?

Position:
1. Yes.
2. Yes.

Reasons:
1. All of the requirements of the paragraph have been met.
2. The Plan and election to participate are subject to receipt of a positive ruling (a condition precedent), and are therefore not in effect until after the date of the ruling. Directors' fees that have accrued prior to the date of the ruling are not payable until after the date of the ruling. The amounts have not been "deferred" as of the date of the ruling, and would not otherwise be a salary deferral arrangement on that date.

2000 Ruling 2000-0041363 - Allocation of Gains to Redeeming Unitholders

Unedited CRA Tags
104(6) 104(13) 104(21) 104(7.1)
amendment to allocate capital gains to redeemed unitholders

Principal Issues:
This ruling request involves proposed transactions that will be undertaken by a group of mutual funds. Under the proposals, the trust agreements governing the Funds will be amended to introduce a new method of allocating capital gains which will provide unitholders with a more equitable allocation of capital gains. That is capital gains will first be allocated to unitholders who redeemed units during the year, and then allocated pro-rata among unitholders of record at the end of the year.

2000 Ruling 2000-0055693 - reorganization

Unedited CRA Tags
55(3)(b)

Principal Issues: standard split up butterfly - no new issues

Position:

Reasons:

Ministerial Correspondence

20 April 2001 Ministerial Correspondence 2001-0076134 - MOTOR VEHICLE ALLOWANCE

Unedited CRA Tags
6(1)(b)(x)

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.

April 20, 2001

XXXXXXXXXX

Dear XXXXXXXXXX:

6 April 2001 Ministerial Correspondence 2001-0075324 - MOVING EXPENSES

Unedited CRA Tags
62(3)

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.

April 6, 2001

XXXXXXXXXX

Dear XXXXXXXXXX:

3 April 2001 Ministerial Correspondence 2001-0071044 - ALTA. HEALTH CARE PREMIUMS

Unedited CRA Tags
6(1)(a)

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.

April 3, 2001

XXXXXXXXXX

Dear XXXXXXXXXX:

Thank you for your letter of January 31, 200 1, on behalf of your constituent, XXXXXXXXXX, regarding the income tax treatment of Alberta health care premiums paid by her and reimbursed to her by the Public Service Alliance of Canada.

Technical Interpretation - External

26 April 2001 External T.I. 2001-0071985 - RPP AND MASTER TRUSTS FOREIGN CONTENT

Unedited CRA Tags
259 206(2) 206(2.1) REG 5000(1.2)

Principal Issues: 1. Can an election be made under section 259 of the Act by a master trust that does not satisfy the requirements of subsection 5000(1.2) of the Regulations?
2. Must a new section 259 election be filed every time that the number of units of a master trust held by a taxpayer changes? 3. Must information described in 259(4)(a) be provided after a section 259 election has been filed every time a new taxpayer acquires units of a master trust?

Position: 1. Yes. 2. No. 3. No.

Reasons: 1. The application of section 259 is not dependent on the applicability or non-applicability of regulation 5000(1.2). 2. The election is for a period of time and all units acquired, held and disposed of during that period are covered by the election. 3. Because the information must be made available not more than 30 days after the election is filed, it can only apply to persons who held units in the trust during the period retro-actively covered by the election up to the date the information is provided.

26 April 2001 External T.I. 2001-0080195 - OVERSEAS ALLOW. TO SELF-EMP. INDIVIDUAL

Unedited CRA Tags
9 6(1)(b)(iii)

Principal Issues: Is there an Income Tax Act (the Act) provision that would exclude an "overseas allowance" paid by the Canadian International Development Agency (CIDA) to a self-employed individual as part of a contract for the performance of services by the individual.

Position: No

Reasons: An "overseas allowance" paid to a person described in 250(1)(b), (c), (d) or (d.1) of the Act is normally considered a "representation or other special allowance". However, such an allowance could only be excluded from income if the recipient is an employee. Such an allowance received by a self-employed individual would be part of the individual's gross business income from which profits of the business would be determined.

26 April 2001 External T.I. 2000-0012335 - STRUCTURED SETTLEMENT-COMMUTATION

Unedited CRA Tags
56(1)(d)

Principal Issues:
Would it not only be acceptable to provide for commutation in a structured settlement where the plaintiff dies and the beneficiary is the casualty insurer and the reversion goes to the owner (the owner of the annuity is the assignee) ?

26 April 2001 External T.I. 2001-0076845 - Income Within the Meaning of 108(3)

Unedited CRA Tags
108(3)

Principal Issues: Issues relating to the definition of "income" under subsection 108(3) of the Income Tax Act.

Position: General comments regarding the definition of "income" under subsection 108(3) of the Income Tax Act and under sections 909 and 910 of the Civil Code of Quebec.

Reasons: Subsection 108(3) of the Income Tax Act and sections 908 to 910 of the Civil Code of Quebec.

26 April 2001 External T.I. 2001-0066975 - EAP RESP REFUND OF PAYMENTS

Unedited CRA Tags
146.1(1)

Principal Issues: Can amounts that constitute subscriber contributions into an RESP be paid out as educational assistance payments to the beneficiary under the RESP?

Position: No.

Reasons: Subscriber contributions can only be paid out as a refund of payments under an RESP and a refund of payments is specifically excluded from an educational assistance payment under its definition.

25 April 2001 External T.I. 2001-0075665 - EMPLOYER PROVIDED GIFTS AND AWARDS

Unedited CRA Tags
6(1)(a)

Principal Issues: General questions on taxability of employer provided gifts and awards

Position: Generally taxable but one gift (two in year of marriage) may be given tax-free within the guidelines set out in paragraph 9 of IT-470R (Consolidated).

Reasons: Paragraph 6(1)(a) of Act and policy in IT-470R (consolidated)

23 April 2001 External T.I. 2001-0075235 - RETIRING ALLOWANCE IN INSTALLMENTS

Unedited CRA Tags
60(j.1)

Principal Issues: 1) How is 60(j.1) applied to a retiring allowance received in annual installments? 2) How is the "amount eligible for transfer" to be reported each year?

Position: 1) Same as for a single lump sum payment. 2) Commencing with first year of receipt of installments, the amount reported as eligible for transfer should equal lesser of amount paid in the year and portion of the total amount eligible for transfer that has not previously been reported.

Reasons: 1) The rules governing deductibility in 60(j.1) do not vary for a retiring allowance paid in installments 2) Scenario is dealt with in 2000 Employers' Guide - Filing the T4A Slip and Summary Form

23 April 2001 External T.I. 2001-0073315 - REIMBURSE. OF TRAVEL EXPENSES

Unedited CRA Tags
6(1)(a)

Principal Issues: The income tax consequences when: (i) An employee is reimbursed for the cost of his or her meals incurred while travelling on business; and (ii) An employee is reimbursed for the cost of in-room movies, which is shown as a separate charge on the hotel bill, while travelling on business.

Position: Our general position is that a "reimbursement" for travel expenses is not income in the hands of the employee receiving it, unless it represents payment of the employee's personal expenses (which is a question of fact).

Reasons: Para. 51 of IT-522R

20 April 2001 External T.I. 2001-0073935 - PERSONAL USE OF AIRCRAFT

Unedited CRA Tags
6(1)(a) 15(1)

Principal Issues: In calculating benefit on personal use of aircraft, can employer's entire fleet of aircraft be considered in determining extensive personal use?

Position: IT-160R3 sets out general guidelines. In determining whether an aircraft is used extensively for personal use, it is not appropriate to consider an employer's entire fleet of planes.

Reasons: If an employer owned several planes, by considering the total use of all aircraft, it would be almost impossible for an employee-shareholder to be considered to have used an aircraft extensively for personal use.

20 April 2001 External T.I. 2001-0075145 - BREEDING OF DOGS

Unedited CRA Tags
248(1)

Principal Issues: Is dog breeding a farming activity?

Position: Generally, no

Reasons: Jurisprudence

20 April 2001 External T.I. 2000-0038745 - SEGREGATED FUNDS GROUP CONTRACTS

Unedited CRA Tags
138.1 54 248(1)

Principal Issues: An employer is the master policyholder under a group segregated fund contract. The employees of that employer are the certificateholders under the group policy. The contract at issue is fully funded by the employees. The employer sells a division of its company. The new employer assumes the position of group policyholder for the employees of that division which requires a new contract to be written. The terms of the new contract may vary slightly e.g., it may provide for a different management fee, from the terms of the original contract. We are asked to confirm that there is no disposition to the employees on the basis that their "notional underlying trust interest" has not changed.

Position : While the facts of any particular transaction would have to be considered, the transaction would likely result in a disposition to the employees of their interest in the original segregated fund contract.

Reasons: Section 54 provides that a disposition includes a transaction or event entitling a taxpayer to proceeds of disposition. The employees are entitled to proceeds of disposition if their property is transferred or extinguished, and they receive or are entitled to consideration for the property. A transaction or event wherein an interest in a segregated fund trust that is an interest in one insurance contract is extinguished and replaced with an interest in a segregated fund trust that is an interest in another insurance contract would appear to be a transaction or event entitling the employees to proceeds of disposition, even where the two insurance policies derive their value from the same segregated fund.

19 April 2001 External T.I. 2000-0051115 - CAPITAL GAINS RESERVE

Unedited CRA Tags
12(1)(g) 40(1)(a)(iii)

Principal Issues: Whether paragraph 12(1)(g) of the Act applies to a disposition of shares that are sold subject to an earnout agreement in those situations where a taxpayer chooses not to use the "cost recovery method" described in Interpretation Bulletin IT-426.

Position: Yes.

Reasons: Any amounts received pursuant to an earnout agreement will be "an instalment of the sale price" of the shares and therefore be included in income pursuant to paragraph 12(1)(g) of the Act.

19 April 2001 External T.I. 2001-0068175 - NON-ARM'S LENGTH

Unedited CRA Tags
251(1)

Principal Issues: Whether a shareholder that owns less than 50% of the voting shares of a corporation deals at arm's length with that corporation.

Position: Generally, yes but ultimately it is a question of fact.

Reasons: Where a shareholder does not control a corporation, and is otherwise not related to it, the general presumption is that the shareholder deals at arm's length with that corporation.

18 April 2001 External T.I. 2001-0079275 - DISABILITY TAX CREDIT

Unedited CRA Tags
118.2(2)(b.1) 118.3(1)(c)

Principal Issues:
Whether taxpayer may claim disability tax credit and also claim nursing home payments under 118.2(b.1) [instead of under (b) or (d)]?

Position:
No

Reasons:
Cannot claim both disability tc and nursing home payments. Can only claim disability with attendant care payments. Although nursing care may include some attendant care, it is not restricted to this type of care/service.

18 April 2001 External T.I. 2001-0070105 - CCA FOR SHORT FISCAL PERIOD

Unedited CRA Tags
1100(3) 1104(1)

Principal Issues: Whether the rule in subsection 1100(3) of the Income Tax Regulations, which provides for the proration of capital cost allowance when a taxation year is less than 12 months, applies to an individual who begins a business during the year.

Position: Yes.

Reasons: In the case of an individual operating a business, subsection 1104(1) of the Regulations provides that, for purposes of Part XI of the Regulations, if the fiscal period of the business does not coincide with the calendar year (for example, in the case of a new business that begins in the middle of the year), a reference to a taxation year in respect of the business is deemed to be a reference to a fiscal period.

18 April 2001 External T.I. 2001-0078285 - REPAYMENT OF DISABILITY BENEFITS

Unedited CRA Tags
6(1)(f) 8(1)(n) 56(8) 120.3

Principal Issues:
Whether repayment of disability benefits received from insurance company are deductible in a specific situation.

Position TAKEN:
No provisions in the Act that allow it. However, there is relief pursuant to subsection 56(8) and section 120.3 of the Act.

Reasons: N/A

18 April 2001 External T.I. 2001-0064665 - ALLOC. BETWEEN PROVINCES

Unedited CRA Tags
402(3) 402(4) 402(6)

Principal Issues: How to allocate corporation's gross revenue to particular provinces under Regulation 402 where it is a member of partnership(s).

Position: Determine corporation's total gross revenue for the year (including partnership portion using 402(6)), and determine portion thereof which is attributable to particular provinces using the rules in 402(4) on the basis that the corporation has a permanent establishment wherever the partnership has a PE.

Reasons: Reg 402(3), (4) and (6).

17 April 2001 External T.I. 2001-0074915 F - Fonds commun de placement - Disposition

Unedited CRA Tags
54 248(1)

Principales Questions: Est-ce que le changement d'administrateur d'un compte hors REER constitué d'unités de fonds commun de placement constitue une disposition pour les fins de la Partie I de la Loi de l'impôt sur le revenu.

Position Adoptée: Le changement d'administrateur ne constituera pas une disposition pour les fins de la Partie I de la Loi de l'impôt sur le revenu dans la mesure où il ne donne pas droit au détenteur des unités de fonds commun au produit de disposition d'un bien et dans la mesure où il n'entraîne pas de changement dans la propriété effective des unités de fonds commun de placement.

17 April 2001 External T.I. 2000-0056455 F - AVANTAGE IMPOSABLE-EMPLOYE

Unedited CRA Tags
6(1)a)

Principales Questions:
Est-ce qu'il y a un avantage imposable en vertu de l'alinéa 6(1)a) de la Loi lors de la dévolution d'actions par une fiducie en faveur de bénéficiaires du capital qui sont des employés.

Position Adoptée:
Commentaires généraux.

17 April 2001 External T.I. 2001-0064215 - RRSP REFUND OF PREMIUMS SPOUSAL TRUST

Unedited CRA Tags
60(1) 146(8.1) 146.3(6.2)

Principal Issues:
Can payments out of an RRSP or RRIF be made to a spousal trust, be treated as a refund of premiums and be transferred to an RRSP.

Position:
An amount can be treated as a refund of premiums but it cannot be transferred to an RRSP or RRIF if it is not, in fact paid to the spouse (or transferred to the RRSP or RRIF on the spouse's behalf).

Reasons:
The Act allows an amount paid from an RRSP to a deceased annuitant's estate to be treated as a payment received by the spouse and not as a payment received by the estate. If the amount is then transferred or vested by the estate into a spousal trust in accordance with the testamentary requirements applicable to the estate, it will not, in fact, be paid to the spouse. Accordingly a transfer of the amount as a refund of premiums to an RRSP or a RRIF cannot be made under subsection 60(l). A transfer may only be made to an RRSP or RRIF under which the spouse is the annuitant, where it is made by or on behalf of the spouse.

12 April 2001 External T.I. 2001-0064675 - LEASE OPTION AGREEMENT

Unedited CRA Tags
9

Principal Issues:
Lease-option agreement.

12 April 2001 External T.I. 2001-0065425 - DONATION OF FOOD HAMPERS

Unedited CRA Tags
118.1

Principal Issues: Whether a charity established to provide clinical counselling services can issue official tax receipts to individuals who donate food hampers to clients of the charity.

Position: Factual determination.

Reasons: Where a donor makes a voluntary transfer of property to a charity without consideration and is then directed by the charity to deliver the property to a specific recipient on the charity's behalf, there may be a gift for which an official tax receipt may be issued. However, if the donor chooses to make a donation to a client of the charity without being directed to do so by the charity, the donation is not a gift to the charity and the charity cannot issue an official tax receipt in respect of the donation.

12 April 2001 External T.I. 2001-0072355 - INDEX ANNUITY CONTRACT

Unedited CRA Tags
REG 304 12.2

Principal Issues: Taxation of indexed annuity contract

Position: Depends upon the particular annuity contract

Reasons:

12 April 2001 External T.I. 2001-0072445 - PARTNERSHIP SDA OR EBP ARRANGEMENT

Unedited CRA Tags
REG 6801(d)

Principal Issues: Will an arrangement that allows for the employer and employee to contribute to a trust and the amounts held in the trust grow based on the earnings of the employer result in the arrangement being an SDA or an EBP for purposes of the Act?

Position: Question of fact.

Reasons: The proposed transactions should be addressed through a submission for an advance income tax ruling.

12 April 2001 External T.I. 2001-0070425 - PRINCIPAL RESIDENCE HELD BY TRUST

Unedited CRA Tags
40(2)(b) 73(1)

Principal Issues: (1) Whether the transfer of capital property of an individual to a trust results in immediate income tax consequences; (2) Whether the principal residence of an individual transferred to a trust may be designated as such under section 54 of the Act on a subsequent sale by the trust.

Position: (1) Generally yes; (2) Generally, yes.

Reasons: (1) The definition of "disposition" generally includes a transfer of property from an individual to a trust, unless it is a "qualifying disposition" under the rules of proposed subsection 107.4(1) of the Act or is capital property transferred in circumstances to which proposed subsection 73(1.01) of the Act applies; (2) Section 54 of the Act generally provides that a trust can make a principal residence designation if, inter alia, the property otherwise qualifies as a housing unit, is ordinarily inhabited by a specified beneficiary and no other property has been designated by any specified beneficiaries. Subsection 40(4) of the Act applies for the purposes of computing the trust's gain under paragraph 40(2)(b) of the Act (i.e. the principal residence exemption).

12 April 2001 External T.I. 2000-0050655 F - ASSURANCE MUTILATION/INVALIDITE

Unedited CRA Tags
148(9)(h)

Principales Questions:
Une prestation d'assurance suite à une mutilation est-elle imposable? Fait-elle partie du compte de dividendes en capital?

Position Adoptée:
(1) Pas de réponse précise
(2) Non

11 April 2001 External T.I. 1999-0007005 - DEEMED DIVIDENDS ON MARK-TO-MARKET SHARE

Unedited CRA Tags
84(1) 142.5 248(28)

Principal Issues: Whether ss.248(28) would apply in a taxation year to a situation where a ss.84(1) deemed dividend is received on a share that it mark-to-market property.

Position: Ss. 248(28) may apply in some cases to reduce the profit computed under section 142.5 by all or part of the amount included in income for the year under ss. 84(1). .

Reasons: It remains a question of fact to be determined in each case, whether there has been any double inclusion in income to which ss. 248(28) would apply. It would also be necessary to determine on the facts, how much of the ss 84(1) deemed dividend is reflected in the profit computed under ss.142.5(1) as there are generally other factors which would affect the FMV of shares in addition to the receipt of deemed dividends

11 April 2001 External T.I. 2001-0073225 - REPAYMENT OF STOCK OPTION BENEFIT

Unedited CRA Tags
7(1)(a) 110(1)(d) 5(2)

Principal Issues: Can an employee claim a deduction where, pursuant to the terms of a stock option agreement, he is required to repay to his employer corporation an amount equal to the taxable benefit under paragraph 7(1)(a) which was triggered upon the acquisition of shares under the stock option agreement?

Position: No.

Reasons: There is no provision in the Act to allow a deduction either for the amount repaid or the amount repaid less the 110(1)(d) deduction.

11 April 2001 External T.I. 2001-0075615 - EMPLOYEE'S VEH. EXP. EXCEEDING ALLOW.

Unedited CRA Tags
8(1)(h.1) 6(1)(b)

Principal Issues: Whether an employee can claim motor vehicle expenses as a deduction from employment income on Form T777 if the tax-exempt allowance received by the employee is less than the actual motor vehicle expenses incurred by that employee.

Position: If an employee incurs reasonable business-related motor vehicle expenses that exceed the amount of the allowance received, we will accept that the allowance is unreasonably low and allow the employee to include it in income under paragraph 6(1)(b) of the Act.

Reasons: An allowance is not considered unreasonable merely because the employee's total motor vehicle expenses for business travel in the year exceed the total amount of motor vehicle allowances received in that year. (See paragraph 41 of IT-522R.) For example, an employee's motor vehicle expenses may exceed the total allowances received because the employee used a vehicle that was relatively more expensive to operate or because the employee had expensive vehicle repairs in a year.

11 April 2001 External T.I. 2001-0070875 - T2200 FOR TRAVEL BETWEEN HOME AND WORK

Unedited CRA Tags
8(10) 8(1)(h) 8(1)(h.1)

Principal Issues: Whether an employer should provide a T2200, "Declaration of Conditions of Employment," to its employees who travel from their homes to work and vice versa.

Position: No.

Reasons: It is our view that travel between the employee's home and place of work is personal travel. (See paragraph 14 of IT-522R.)

10 April 2001 External T.I. 2001-0074405 - Foreign spin-offs

Unedited CRA Tags
86.1

Principal Issues:
Whether shares of one US corporation distributed by another US corporation to a Canadian shareholder may be received on a tax deferred basis.

Position: Yes

Reasons:
Provided all of the requirements in proposed section 86.1 are complied with.

10 April 2001 External T.I. 2000-0056205 - DISPOSITION OF A LIFE INSURANCE POLICY

Unedited CRA Tags
148(9) 148(7) 15(1)

Principal Issues: Where a life insurance policy is transferred by a company to its corporate shareholder in satisfaction of a dividend payable in kind, will there be an increase to the adjusted cost basis of the policy with respect to the excess of the fair market value of the policy over the cash surrender value of the policy?

Position: No.

Reasons: There is no amount in respect of the disposition of an interest in a life insurance policy which is required to be included in computing the income of the corporate shareholder. The income inclusion is pursuant to paragraph 12(1)(j) with respect to the dividend.

10 April 2001 External T.I. 2001-0071995 - RESP - HRDC GRANT

Unedited CRA Tags
146.1(1)

Principal Issues: Can a $4000 contribution to an RESP which was allocated in error to one beneficiary instead of being divided equally between the two beneficiaries of the plan be re-allocated so that additional Canada Education Savings Grant may be receivable?

Position: Yes, but whether such a re-allocation is acceptable for CESG purposes is at the discretion of Human Resources Development Canada, not the CCRA.

Reasons: The provisions of the Act are not offended.

10 April 2001 External T.I. 2001-0076165 - METIS (INDIAN TAXATION)

Unedited CRA Tags
81(1)(a)

Principal Issues: We have been asked whether the exemption in the Indian Act (and paragraph 81(1)(a) of the Income Tax Act) is applicable to an individual who is a Métis.

Position: No

Reasons: The exemption from taxation set out in the Indian Act is available only to status Indians under that Act. It does not apply to other persons with some claim to aboriginal status, such as Innuit, Métis, or non-status Indians

10 April 2001 External T.I. 2000-0044965 - Grandfathering rules

Unedited CRA Tags
112(3) to (3.32)

Principal Issues:
1. Whether the Holdco shares owned by an individual in each of the three situations will be grandfathered shares for the purpose of the stop-loss rules.
2. Whether an individual's will could be considered as an agreement in writing for the purposes of these rules.

Position:
1. Question of fact.
2. No.

Reasons:
The law.

10 April 2001 External T.I. 2001-0078035 F - RAP PERSONNE DIVROCEE

Unedited CRA Tags
146.01

Position Adoptée:
Oui.

10 April 2001 External T.I. 2001-0075655 - PENSION SURPLUS SURVIVING SPOUSE

Unedited CRA Tags
110.2(1)

Principal Issues: Is a lump sum payment of surplus from a pension plan paid to a deceased member's surviving spouse taxable in full in the year of receipt?

Position: Yes.

Reasons: The amount is pension income and it does not qualify as a lump-sum payment for the purposes of section 110.2 of the Act.

2 April 2001 External T.I. 2001-0077975 - INCOME TAX RULINGS PROCESS - SPEECH

Unedited CRA Tags
2

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.

April 2, 2001
Denise Dalphy

TEXT OF A SPEECH PRESENTED BY DENISE DALPHY, LL.B., ON APRIL 3, 2001 TO CANADIAN BAR ASSOCIATION - ONTARIO IN TORONTO

NOTE: THE COMMENTS REFLECT THE OPINIONS OF THE AUTHOR. THEY DO NOT NECESSARILY REFLECT THE VIEWS OF THE CCRA

24 January 2001 External T.I. 2001-0064595 - Retiring Allowance transfer RRSP

Unedited CRA Tags
60(j.1)

Principal Issues: Will the taxpayer be eligible for the additional $1,500 per year under clause 60(j.1)(ii)(B)?

Position: No

Reasons: Employer contributions to the employer's pension plan will have vested in the employee at the time of payment.
January 24, 2001

27 September 2000 External T.I. 2000-EM20425 - 2000 CTF Paper - Judicial & Adm Developments

Unedited CRA Tags
85(1)(b) 84.1 16.1 39(2)

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.

2000 Canadian Tax Foundation Annual Conference

36:1
Judicial and Administrative Developments
Roy Shultis, Michael Hiltz, Vance Sider, Judith Woods

Technical Interpretation - Internal

24 April 2001 Internal T.I. 2001-0067007 - SHAREHOLDER LOANS

Unedited CRA Tags
15(2) 15(2.4)(f)

Principal Issues:
(1) Does the exception in paragraph 15(2.4)(f) of the Act, to subsection 15(2) of the Act, apply to a loan from a corporation to an employee/shareholder, used to acquire previously publicly traded shares of the corporation, where the loan is not repayable until the shares acquired are sold, the borrower dies or their employment ends?

(2) Does subsection 15(2) of the Act apply to a loan made pursuant to an "oral" agreement?

(3) Does subsection 15(2) of the Act apply to a loan made to a non-resident shareholder?

(4) Can a promissory note be amended so that the requirements of paragraph 15(2.4)(f) of the Act are satisfied at the time the loan was made?

Position: (1) No. (2) Yes. (3) Yes. (4) No.

Reasons:
(1) The three criteria for repayment do not constitute bona fide arrangements for the repayment of the loan.

20 April 2001 Internal T.I. 2001-0080777 - LOSS ON TRANSFER TO RRSP

Unedited CRA Tags
40(2)(g)(iv)

Principal Issues: Is there any relief when an individual transfers property to an RRSP at a loss?

Position: No

Reasons: The loss is denied under 40(2)(g)(iv), and there is no mechanism to provide relief.

19 April 2001 Internal T.I. 2001-0069067 F - PENSION ALIMENTAIRE ACCORD ECRIT

Unedited CRA Tags
56(1)b) 60(b)

Position Adoptée:
Non.

18 April 2001 Internal T.I. 2001-0075877 - RESERVE; PARTNERSHIP

Unedited CRA Tags
34.2 96(1.1) 96(1.6)

Principal Issues: whether retired non-resident partner can claim 34.2 reserve

Position: yes

Reasons: 96(1.1) and 96(1.6) apply for section 34.2 including 34.2(6)

5 April 2001 Internal T.I. 2000-0058107 - Performance Fee

Unedited CRA Tags
20(1)(bb)

Principal Issues:
1. whether subsection 75(2) is applicable.
2. whether performance fees are deductible.

Position:
1. 75(2) would apply to any property transferred to the trust by the trustees as the conditions of the trust would dictate it's application.
2. Performace fees are charged by the manager of the mutual fund to the unitholder provided that certain conditions are met. This fee is not deductible by the unitholder under 20(1)(bb).

Reasons:
1.must ascertain how the units got into the trust...75(2) may apply to any income & gains earned on these units depending on how the trust acquired the units.
2.As the trust holds the units, the performance fee is not deductible at the trust level. It is neither advice on buying or selling a specific share or security by the taxpayer nor is it for the administration or the management of the shares or securities of the taxpayer, as the taxpayer here is the unitholder; in order to be deductible it would have to be paid by the fund and meet the parameters of 20(1)(bb).

30 March 2001 Internal T.I. 2001-0066667 - LOAN CORPORATION

Unedited CRA Tags
REG 405

Principal Issues: Whether or not a corporation whose principal business is the making of loans is a "loan corporation" for purposes of section 405 of the Income Tax Regulations.

Position: Yes.

Reasons: The wording of the legislation

26 March 2001 Internal T.I. 2001-0069747 - investment tax credit

Unedited CRA Tags
127(9) rEG. 2900(2) Reg. 2900(3) 37(1)(a)

Principal Issues:
Taxpayer derives all of its revenue from the prosecution of SR&ED. Whether:

(a) all management and administrative salaries and all other employees' salaries and wages qualify as SR&ED under clause 37(8)(a)(ii)(B);

(b) all administrative and support salaries would fall under paragraph 2900(2)(c) of the Regulations and, therefore, are not prescribed expenditures under clause 2902(a)(i)(A) of the Regulations;

(c) all overheads would be SR&ED on the basis that they are incremental to the prosecution of SR&ED.

Position:
The reason that the taxpayer derives all of its revenue from SR&ED does not support its treatment of the expenditures in the manner described above.

Reasons:
The particular treatment of the expenditures was accorded to sole-purpose SR&ED performers prior to 1995. This treatment was repealed under the law in 1994.

23 March 2001 Internal T.I. 2000-0056097 F - Roulement interne

Unedited CRA Tags
84(1) 84(3) 85(2.1)

Principal Issues:
1. Est-ce qu'il y a un dividende en vertu du paragraphe 84(1) ou 84(3) lors
d'un roulement interne?
2. Est-ce qu'il faut reconnaître le capital versé utilisé par une société si le capital déclaré
de la société n'est pas conforme à la loi sur les société applicables?

Position:
1. Non.
2. Dépend des cas

Reasons:
1. Dépend de la façon dont le roulement interne est réalisé. Dans la situation présentée, il s'agit d'une conversion d'actions. Il n'y a pas eu d'augmentation du capital versé.
2. Il faut examiner le droit applicable et les faits pertinents..

20 March 2001 Internal T.I. 2000-0062937 - Flow through shares - prescribed shares

Unedited CRA Tags
66.3(3) 39(1)(c) 38(c)

Principal Issues:
1. Is it still Rulings position that the cost of acquisition of a prescribed share, that would have otherwise be a flow through share, would not be deemed to be nil by 66.3(3).
2. Can a taxpayer claim an ABIL on prescribed shares.

Position:
1. Yes.
2. Yes.

Reasons:
1. Our position given in letter E9216157 of August 21, 1992 and at the 1999 Annual Conference of Quebec Technical Advisors states that the cost of the shares will not be deemed to be nil under 66.3(3).
2. As long as all the requirements of 39(1)(c) are met, an ABIL could occur on the disposition of the prescribed shares.

9 March 2001 Internal T.I. 2001-0063737 - SCHEDULE III OF THE REGULATIONS

Unedited CRA Tags
Class 13 Sch. III

Principal Issues:
(1) Whether changes in the terms of a lease result in a disposition of a leasehold interest and the acquisition of a new leasehold interest.
(2) How do the changes in the terms of the lease impact the amortization of the leasehold improvements pursuant to Schedule III of the Regulations.

Position:
(1) Yes.
(2) In this particular case, the rules in Schedule III continue apply.

Reasons:
(1) The changes in the terms and conditions of the Original Lease, when taken together, are substantial enough to constitute the disposition of the Original Lease and the acquisition of a new lease.
(2) There is no terminal loss on the disposition of the Original Lease since a new lease was acquired in the same taxation year. The rules in Schedule III continue to apply to the "prorated portion" of the amounts incurred pursuant to the Original Lease.

21 February 2001 Internal T.I. 2000-0053697 - Successored FEDE claims

Unedited CRA Tags
66.7(2) 66(4)

Principal Issues: Can a corporation include the proceeds from the sale of successored foreign property in the calculation of its unsuccessored FEDE deduction under subsection 66(4).

Position: Yes.

Reasons: The income referred to in subparagraph 66(4)(b)(ii) does not distinguish between successored and unsuccessored income. In particular, clause 66(4)(b)(ii)(C) refers to the total of amounts each of which is an amount in respect of a foreign resource property that has been disposed of by the taxpayer. The December 21, 2000 proposed changes to 66(4)(b)(ii)(C) clarify how the deduction determined under subsection 66.7(2) is to be allocated to income for purposes of subparagraph 66(4)(b)(ii).

9 February 2001 Internal T.I. 2000-0024647 - Fusion par absorption

Unedited CRA Tags
14 96(5)

Principal Issues:

(1) What are the steps of a "fusion par absorption" effected under France's Commercial Company Law and Civil Code?
(2) Does the absorbing company terminate because of the "fusion par absorption"?
(3) Should the absorbing company be recognized as a partnership for Canadian tax purposes?
(4) How should a "fusion par absorption" be treated for Canadian tax purposes?
(5) Can goodwill arise on a "fusion par absorption"?
(6) Could subsection 95(6) of the ITA apply in this case?

PositionS:

(1) The French Commercial Company Law (FCCL) and Civil Code (CC) provide that (i) the assets and liabilities of the absorbed company are transferred to the absorbing company (ii) the owners of the absorbed company receive an ownership stake in the absorbing company (shares or a partnership interest) and (iii) the absorbed entity is immediately the wound up.
(2) The absorbing company did not cease to exist.
(3) Yes
(4) Should be treated as if the absorbed company received consideration on the transfer of its assets and liabilities in the form of a partnership interest in the transferee absorbing company immediately followed by the winding up of the absorbed entity.
(5) Yes
(6) No

Reasons:

2 February 2001 Internal T.I. 2000-0058127 F - Convention d'émission d'actions

Unedited CRA Tags
7(1)a) 7(4) 7(2)

Principales Questions: Est-ce que le contribuable doit s'imposer sur un avantage visé à l'alinéa 7(1)a) de la Loi en 1999 ? En quelle année les actions lui sont acquises de façon définitive ?

Position Adoptée: Commentaires généraux

18 January 2001 Internal T.I. 2000-0055097 - PROMISSORY NOTES EXCH. FOR TRADE DEBTS

Unedited CRA Tags
20(1)(i)

Principal Issues: Whether the Taxpayer may deduct a reserve for doubtful debts pursuant to paragraph 20(1)(l) of the ITA in respect of promissory note received from certain debtors in respect of overdue debts which could not be paid on time because of the financial difficulties encountered by them.

Position: Question of fact but likely yes.

Reasons: It depends on whether the Taxpayer accepted the promissory notes as conditional payment or as absolute payment of the original trade accounts. If the promissory notes were accepted as conditional payment only, a reserve may be claimed. Paragraph 3 of IT-436R states that CCRA will assume that the promissory note is received as conditional payment unless the sales agreement clearly indicates that the note has been accepted as absolute payment.

17 January 2001 Internal T.I. 2000-0043747 - VALUATION OF PUBLICITY TRADED SHARES

Unedited CRA Tags
118.1

Principal Issues: Valuation of gifts of publicly traded shares

Position: Provided general comments only.

Reasons: No specific fact situation involved. Charities Division was seeking our general views with respect to the valuation of gifts of publicly traded shares including electronic transfer of shares.
January 17, 2001

12 January 2001 Internal T.I. 2000-0049137 - RELATED PARTY TRANSACTION

Unedited CRA Tags
181

Principal Issues: Whether taxpayer's retained earnings reflect proper GAAP treatment of a related party transaction.

Position: We are not experts on application of GAAP but it would seem that in this case the recording of the transaction at the carrying amounts would be in accordance with GAAP.

Reasons: Facts of particular case and CICA Handbook section 3840.