Income Tax Severed Letters - 2001-10-12

Principal Issues:

1. The value of a RRIF is included in the income of a deceased annuitant at the time of death. The RRIF is passed through the estate to the deceased's adult children. All other assets of the deceased were owned jointly with the deceased's spouse so they do not become part of the estate. Is the deceased's estate wholly responsible for the tax assessed or can the taxes be paid with property that passed directly to the joint tenant?

2. Is there any way of obtaining other relief?

Position:

1. Provided a detailed explanation of the provisions of the Act that may apply to the situation and referred to other provisions that might also apply.

2. It was not clear what other income sources the deceased had at the time of death. It is possible some relief is available through the filing of special returns. We referred the writer to the Guide on preparing returns for deceased persons.

Reasons:

Principales Questions: Est-ce qu'une commission reçue par un travailleur autonome, qui est courtier d'assurance-vie, suite à la vente d'une police d'assurance-vie dont il est propriétaire est imposable?

Position Adoptée: En général non. Toutefois, si le montant de la commission est substantiel ou important, nous sommes d'avis que la somme est imposable comme revenu d'entreprise.

Principal Issues: Can a minor child open an RRSP?

Position: Yes.

Reasons: There is nothing in the Income Tax Act, which prevents a minor from being the annuitant of an RRSP. However, under common law, a minor is generally precluded from entering into a binding contract; in which case, the person who can legally bind the minor (i.e. the parent or legal guardian of the minor) would enter into the RRSP contract on the minor's behalf.

Principal Issues: Why CCRA in document F 9820337 stated that the position on the application of 251(5)(b) in document E 9421285 is not relevant in applying 256(1.4)(a) ?

Position: The presumptions created under these provisions are not identical and apply for different purposes.

Reasons: The law.

Principal Issues: Whether or not we will apply paragraph 56(1)(d) to periodic payments received under a disability policy.

Position: No

Reasons: Our current practice has been not to apply paragraph 56(1)(d) to these payments.

Principal Issues: For purposes of calculating tax on excess foreign content pursuant to 206(2), when is a share that is foreign property considered to have been acquired, on the record date or the date the shares are delivered?

Position: Shares are considered to be acquired on the date the shares are delivered.

Reasons: All attributes of ownership are not acquired until the date the shares are delivered.

Principal Issues:
1. Can an RRSP or RRIF that is not a spousal or common-law partner ("CLP") plan receive a transfer from a spousal or CLP plan after a marriage breakdown?
2. Must the issuer maintain the designation of the plan as a spousal or CLP plan after the annuitant has died?

Position:
1. Yes, but the transferee plan becomes a spousal or CLP plan.
2. No.

Reasons:
1. The definition of a "spousal or common-law partner plan" in subsection 146(1) of the Act is clear.
2. At death the annuitant may be deemed by subsection 146(8.8) to receive an amount, however, paragraph 146(8.7)(e) provides that the attribution rules are not applicable to such an amount.

Principales Questions:
Comment déterminer le taux d'inclusion de l'élément B de la formule au paragraphe 96(1.7), suite aux modifications du taux d'inclusion des gains en capital ?

Position Adoptée:
Le taux d'inclusion est celui de la société pour son année au cours de laquelle la période d'imposition de la société de personnes prend fin.

Principal Issues: Two individuals, who are spouses and have owned a cottage and a home since some time prior to 1972, have asked about designating the two units with respect to the principal residence exemption for the years 1972 to 1981 (these two individuals have no plans to sell either of the two properties at his time).

Position: It is not possible to designate the two properties at this time. Some general comments with respect to the eventual designation of two properties were also provided.

Reasons: Pursuant to Regulation 2301, a taxpayer's designation of a property as a principal residence for one or more taxation years is to be made in his or her income tax return for the taxation year in which he or she has disposed of the property or granted an option to another person to acquire the property.

Principal Issues: Is a corporation that operates off reserve, and that is owned by an Indian band that qualifies as a municipality, exempt by virtue of 149(1)(d) for the years subsequent to the Otineka Development Corporation Limited court case and prior to 1999 when paragraph 149(1)(d.5) was introduced.

Position: The fact that a corporation may carry on activities off-reserve will not, in and by itself, prevent the corporation from qualifying for the exemption provided in former paragraph 149(1)(d) of the Act.

Reasons: Reasons given by the court in Otineka and former 149(1)(d) did not contain restrictions related to income from activities carried on outside the municipality's geographical boundaries.

Principal Issues: Whether, in a particular situation, corporations are associated with each other under section 256 of the Act. Person requesting technical interpretation believes so. Main impact in the circumstances would be the allocation of the $200,000 business limit between the corporations involved.

Position: Yes.

Reasons: Applying the general factors described in paragraph 23 of IT-64R4 to the factual situation, the two corporations seem to be associated with each other.

Principal Issues: Does subsection 74.4(2) of the Act Apply in three scenarios submitted. 1) Discretionary trust holds the new common shares; beneficiaries are the major children of the individual and his wife. However, wife not entitled to income or capital before the death of the individual. 2) Discretionary trust, the beneficiaries of which are the major children, holds 90,1% of the new common shares; wife holds directly 9,9% of common shares. 3) Discretionary trust holds 90,1% of the new common shares; beneficiaries are the major children of the individual and his wife. However, wife not entitled to income or capital before death of the individual. Wife also holds directly 9,9% of the common shares.

Position: 74.4(2) of the Act would not apply in the first two scenarios. However, 74.4(2) of the Act may be applicable in the third scenario while husband is alive.

Reasons: Technically, wife could be a "specified shareholder" in the third scenario by virtue of paragraph (e) of the definition of "specified shareholder" in subsection 248(1) of the Act.

Principal Issues: An individual becomes resident in Canada. This individual is the settlor and sole trustee of a trust. The individual may receive part of the income and the capital of the trust. On death of the settlor, the residue of the trust is to be transferred to a non-resident beneficiary. Specific questions on some of the fiscal consequences for the individual and the trust if the trust becomes resident in Canada or does not become resident in Canada.

Position: General comments.

Reasons: Insufficient facts.

Principal Issues:
Are two corporations associated pursuant to section 256 in specific fact situations?

Position: Question of Fact.

Reasons:
May be associated under paragraphs 256(1)(b), (c), (d) & (e) where de facto control exists.

Principales Questions:
Est-ce qu'un employeur doit faire des retenues d'impôt en vertu du paragraphe 153(1) à l'égard d'une allocation automobile fixe versée mensuellement lorsqu'en fin d'année, il inclut au T4 de l'employé visé, l'excédent de cette allocation totale sur la somme que l'employé aurait dû recevoir compte tenu des kilomètres parcourus pour affaires ?

Position Adoptée:
oui

Principal Issues: Can an RRSP issuer "deregister" an RRSP trust if the RRSP administration fees are not paid?

Position: This is not governed by the Income Tax Act.

Reasons: The rights and obligations of the issuer are as set out in the declaration of trust.

Principal Issues: (i) Issue relating to the meaning of "trust company" in subsection 95(1) and paragraph 95(2)(l); (ii) Whether an Alberta trust corporation not authorized to carry on a deposit-taking business would qualify as a "trust company" for purposes of paragraph 95(2)(l).

Position: (i) General comments provided on subsection 95(1), paragraph 95(2)(l), Canadian Payments Association Act; (ii) Yes, although we have not considered how GAAR might apply.

Reasons: (i) The definition in subsection 95(1) is inclusive and includes a "loan company" defined in the Canadian Payments Association Act or a "trust company", not necessarily a "trust company" as defined by the Canadian Payments Association Act; (ii) On the assumption that the business of the Alberta trust corporation is subject by law to the supervision of a Alberta regulating authority similar to the Superintendent of Financial Institutions.

Principal Issues:
Taxpayer paid child support to estranged spouse in respect of children from XXXXXXXXXX . The obligation to pay child support ceased on XXXXXXXXXX , when the children began living with taxpayer. Can taxpayer claim Amount for an Eligible Dependent (formerly equivalent-to-spouse) in respect of one of the children?

Position TAKEN:
Question of fact. No, if taxpayer and spouse (or former spouse) were living separate and apart throughout the year or if a deduction was claimed under section 60 in respect of the spouse of former spouse.

Reasons:
Subsection 118(5). Previous opinions.

Principal Issues: Tax treatment of a U.K. endowment policy acquired by a non-resident individual when the individual later immigrates to Canada.

Position: General comments

Reasons: Insufficient information.

Principal Issues: Whether two wind turbines to be used for a wind farm in generating electricity would be qualified as "test wind turbines" for the purposes of subsections 1219(1) and (3) of the Regulations and subsection 66.1(6) of the Act?

Position: Only one of the two wind turbines would qualify as "test wind turbine".

Reasons: Whether a wind turbine would qualify as a test wind turbine would always be a question of fact to be determined based on the circumstances. It is intended by Finance and NR Can that the term "project" used in section 1219 of the Regulations relates to a wind farm project. However, it has never been intended by Finance and NR Can to ring-fenced a wind farm to an area of slightly greater than 1.5 kilometers in diameter as a project, even though there is a reference that the minimum distance between two wind turbines must be greater than 1.5 kilometers in the Class 43.1 Technical Guide issued by NR Can. In the case at hand, the representative of the taxpayer has argued that there are two sites and two wind farm projects at XXXXXXXXXX with a "test" wind turbine on each site. The two wind turbines would be approximately 1.514 kilometres apart. One wind turbine would be made by XXXXXXXXXX and the other one would be made by XXXXXXXXXX . Given that the proposed business plan of the taxpayer would be to have XXXXXXXXXX wind turbines XXXXXXXXXX as a wind farm, given that according to Raj Rangi of NR Can (the wind energy specialist) the variation of the wind power XXXXXXXXXX would be minimal, and given that using two different wind turbines for testing would indicate the primary purpose of the testing may not be determining the quality, quantity and extent of the wind power, but to determine the efficiency and economy of a particular wind turbine equipment, it is our view that only one of the two wind turbines would be qualified as test wind turbine provided that other requirements are met. The representative of the taxpayer has also argued that this wind farm project would be economical only if two wind turbines would be considered as test wind turbines. It is our view that whether the project is economical or not is really not relevant in determining whether a wind turbine would qualify as a test wind turbine.

Principal Issues: Taxation of amount received on maturity of stock-index linked GIC.

Position: The amount is interest included in computing income by virtue of subsections 12(4) and 12(9) of the Act and section 7000 of the Regulations.

Reasons: A stock-index linked GIC is a prescribed debt obligation as described in paragraph 7000(1)(d) of the Regulations. Subsection 7000(3) of the Regulations deems the stock-index linked return to be interest on the obligation for the purposes of section 7000. Paragraph 7000(2)(d) prescribes the amount of interest for the purposes of subsection 12(9) that will be deemed to accrue to the taxpayer as interest, each year the obligation is held, for the purposes of the interest accrual rule in subsection 12(4). Paragraph 7000(2)(d) prescribes the amount to be the maximum amount of interest that could be payable on the obligation in respect of the particular year. In the years prior to the stock-index linked bonus or premium being determinable, the prescribed amount under paragraph 7000(2)(d) would be nil as no event that would trigger an amount being payable has taken place in the year. In the year the amount of the bonus or premium is determinable (e.g. year of maturity), the event triggering an amount payable has taken place and the bonus or premium is then included in income as interest.

Principal Issues: Whether adjustments made under section 1625 of the 181(3)Handbook to the financial statements of a subsidiary corporation are to be backed out from the subsidiary's financial statements in determining the subsidiary's taxable capital for the purposes of Part I.3 tax.

Position: No.

Reasons: Where section 1625 of the Handbook can be applied and it is determined that it is appropriate to apply the provision, such that the accounting records of the subsidiary are adjusted to reflect the revaluation, the financial statements of the subsidiary, prepared on a non-consolidated basis would reflect the comprehensive revaluation provided for under section 1625 of the Handbook.

Principal Issues: Interpretation of Reg. 5000(1.2) in circumstances where assets of the defined benefit provisions of a RPP are held in a master trust and the assets of the defined contribution provisions of the same plan are held by an insurance company.

Position: Pursuant to paragraph 5000(1.2)(a), provided that the participating trusts do not hold any other foreign property, which is a question of fact, the master trust will not be considered to be foreign property.

Reasons: By virtue of the requirements of a master trust in Regulation 5001, the beneficiaries of the master trust are the participating trusts

Principal Issues:
Whether a disposition occurs when a life insurance contract is split into two.

Position:
It is a question of fact whether the variation of the original policy constitutes a partial disposition or is so fundamental as to cause a disposition of the entire policy, including the part of the contract retained by the taxpayer. Where the result of the transaction is that a new policy is created it would not seem arguable that an interest in the existing contract has been transferred to the owner of the new policy.

Reasons: See document.