Income Tax Severed Letters - 2002-02-01

Ruling

2002 Ruling 2002-0118123 - STRUCTURED SETTLEMENT

Unedited CRA Tags
56(1)(d)

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.

Principal Issues

2002 Ruling 2001-0097253 F - DEDUCTION GAIN EN CAPITAL

Unedited CRA Tags
110.6(8)

Principales Questions:
Est-ce que le paragraphe 110.6(8) de la Loi s'appliquera lors de la disposition par les contribuables de leurs actions pour refuser la déduction pour gains en capital à l'égard d'actions admissibles de petite entreprise si la société a versé très peu de dividendes sur des actions non prescrites qu'elle a émises ?

Position Adoptée:
Nous n'appliquerons pas le paragraphe 110.6(8) de la Loi dans les situations présentées.

2002 Ruling 2001-0107023 - Part XIII

Unedited CRA Tags
212(1) 212(4) 214(15)

Principal Issues: (i) Whether interest paid on a loan from an Austrian corporation to a related Canadian is exempt from the application of paragraph 212(1)(b) of the Income Tax Act (the "Act") by subparagraph 7(c) of Article XI of the Canada-Austria Income Tax Treaty (the "Treaty")? (ii) Whether guarantee fee payable by the Canadian corporation to the related Austrian corporation of an amount representing the fees charged by Osterreichische KoNtrollbank A.G. ("KONTROLLBANK") to the Austrian corporation is deemed interest under paragraph 214(15)(a) of the Act and therefore exempt from paragraph 212(1)(b) of the Act by virtue of subparagraph 7(c) of Article XI of the Treaty? (iii) Whether payments such as legal, accounting and related expenses paid by the Canadian corporation in respect of the credit facility granted to the Canadian corporation and on related agreements, is exempt from withholding tax by virtue of paragraph 212(4)(b) of the Act?

Position: (i) Yes; (ii) Yes; (iii) Yes under certain conditions

Reasons: (i) and (ii) Based on the terms of the Treaty and consistent with our position in previous rulings involving similar transactions; (iii) Only to extent expenses are reasonable and are reimbursement of expenses by company to bank on related loans.

2002 Ruling 2001-0087253 - Butterfly Ruling

Unedited CRA Tags
55(4) 55(3)(b)

Principal Issues:

1. For the purposes of section 55, where an individual A, a trust and company A are related to one another but the children of individual A are not related to the trust and company A, whether the acquisition of control of company A, followed by the acquisitions of shares of company A by individual A's children, will be subject to the application of subsection 55(4)?

2. Whether ITAR 26(5) will apply to a pre-1972 share when the original owner of the share transfers such share to a non-arm's length person and elects under ITAR 26(7) to deem the cost of the share to be its V-day value?

3. Where a trust controls company A, and individual A, the trust and company A are related to one another for the purposes of section 55, whether the shifting of control of company A from the trust to individual A will result in an acquisition of control by individual A for the purposes of section 55?

Position:
1. yes.
2. no.
3. no.

Reasons:
1. As one of the main purposes of having individual A acquiring control of company A is to cause each of individual A's children to be related to company A so that subsection 55(2) will not apply to a dividend.

2002 Ruling 2002-0116493 - SUPPLEMENTAL AMENDMENTS TO FACTS

Unedited CRA Tags
20(1)(c)

Principal Issues:
Request for amendments to the facts and the proposed transactions as well as a minor revision to an advance income tax ruling in respect of advance ruling # 2001-009054 (the "Ruling").

2001 Ruling 2001-0097283 - double d's with U.S. parent

Unedited CRA Tags
20(1)(c) 80

Position:
Opinion given on deductibility of interest on borrowed money used to return paid-up capital.
REASON:
The facts in the present case can be distinguished from the fact pattern in Trans-Prairie Pipelines Ltd. v. M.N.R.

2001 Ruling 2001-0101183 - DEFERRED SHARE UNIT PLAN - EXECUTIVES

Unedited CRA Tags
REG 6801(d)

Principal Issues:
1) Will the creation of a Deferred Share Unit Plan result in an SDA?
2) Will the amendments to the existing Performance Plan result in an SDA?

Position:
1) No.
2) No.

Reasons:
1) Requirements of Regulation 6801(d) are met.
2) Requirements of Regulation 6801(d) are met.

2001 Ruling 2001-0085613 - REORGANIZATION FMV OF PHANTOM STOCK UNITS

Unedited CRA Tags
REG 6801(d)

Principal Issues:

1. Will an employee/director of a public company that retires from office but retains his seat on the public company's board of directors be considered to have terminated his employment?
2. Can we accept that the value of phantom stock units under a 6801(d) plan will be based on the value of the post reorganization entities?
3. Can 6801(d) plan participants choose when amounts in respect of a terminated 6801(d) plan will be taxed?
4. Can we rule regarding SARs issued in XXXXXXXXXX under a new SAR Plan?

Position:

1. No.
2. No.
3. No.
4. No.

Reasons:

2001 Ruling 2001-0112713 - PRESCRIBED PHANTOM SHARE PLAN

Unedited CRA Tags
REG 6801(d)

Principal Issues: Will a proposed plan satisfy the rules under paragraph 6801(d)?

Position: Yes.

Reasons: The amendments will not result in any contravention of the provisions of paragraph 6801(d).

XXXXXXXXXX 2001-011271

2001 Ruling 2001-0090543 - FINANCIAL REORGANIZATION XXXXXXXXXX

Unedited CRA Tags
20(1)(c) 212(1)(b)(vii) 20(1)(e)

Position:
Favorable ruling given.

2001 Ruling 2001-0095403 - INTEREST DEDUCTIBILITY XXXXXXXXXX

Unedited CRA Tags
XXXXXXXXXX 20(1)(c)

Principal Issues:
1. XXXXXXXXXX
2. XXXXXXXXXX .

Position:
1. XXXXXXXXXX .

Reasons:
1. XXXXXXXXXX .
2. XXXXXXXXXX .

Ministerial Correspondence

12 February 2002 Ministerial Correspondence 2002-0119994 - WEAK CURRENCY DEBT

Unedited CRA Tags
20.3 20(1)(C)

Principal Issues:
Suggested amendments to paragraph 20(1)(c).

Position:
Changes already implemented.

Reasons:
A recent amendment to the Income Tax Act added new section 20.3, which came into force on June 14, 2001.

Technical Interpretation - External

22 February 2002 External T.I. 2002-0117895 - QUALIFIED INVESTMENTS

Unedited CRA Tags
REG 4900(1)(s)

Principal Issues:
1. Will a property held by an RRSP or RRIF that ceases to be a qualified investment for the plan be subjected to the various provisions of the Act that deal with the particular plan holding an investment that does not qualify as a qualified investment?

2. Will an RRSP or RRIF which holds shares of a US corporation which qualifies as a qualified investment pursuant to paragraph 4900(1)(s) of the Regulations be subject to the Part XI penalty tax?

Position:
1. Yes.
2. Yes until December 31, 2001.

Reasons:
1. The relevant provisions of the Act do not contain an exception for a property that ceases to be a qualified investment.

21 February 2002 External T.I. 2001-0099095 - DEBT SECURED BY RRSP WITHDRAWALS

Unedited CRA Tags
146(2)(c.3) 146(12) 146(13)

Principal Issues:
Can a Financial Institution secure loans with payments to be made out of an RRSP?

Position:
The question must be answered on a case-by-case basis with the involvement of the Registered Plan Directorate

Reasons: Based on past correspondence a general reply should be given

21 February 2002 External T.I. 2001-0100075 - ADVANTAGES UNDER 146(13.1)

Unedited CRA Tags
146(2)(c.4) 146(13.1)

Principal Issues:
Is there an advantage under subsection 146(13.1) when the RRSP is included in the value of an individual's holdings to determine if the individual gets preferential pricing on financial products.

Position: Yes

Reasons:
If such preferential pricing is linked to the issue or existence of an RRSP, it is prohibited even if it available to other customers.

21 February 2002 External T.I. 2001-0102405 F - ACTIVITE AGRICOLE-ERABLIERE

Unedited CRA Tags
110.6(1) 110.6(2) 248(1)
provision of meals at a sugar shack was a separate non-farming activity
use of maple sugar shack in significant meal preparation operation caused the farm property to not qualify as a “qualified farm property”

Principales Questions:
Est-ce que les repas de cabane à sucre fournis par un contribuable qui exploite une érablière peuvent être considérés comme une activité agricole ?

Position Adoptée:
Non

21 February 2002 External T.I. 2002-0123905 - ADVANCES RECEIVED BY A CASH BASIS FARMER

Unedited CRA Tags
28 12(1)(a)
amounts deemed to be received under s. 12(1)(a) are income under s. 28(1)(a) whereas loans are excluded

Principal Issues:
Taxation of advances received by cash basis farmers.

Position TAKEN:
Clarification. Generally taxable when received.

Reasons:
Error in original letter.

21 February 2002 External T.I. 2001-0108575 - M&P-PREFABRICATION OF LOG HOMES

Unedited CRA Tags
125.1(3)

Principal Issues: Is prefabrication of log homes (but not erection of log homes) considered construction and thus excluded from the M&P credit?

Position: probably not considered construction

Reasons: The Company is apparently not involved in the construction of the log homes only the supply of building materials - since the company is not involved in the construction of log homes the activity (preparing of log home components) would not be considered construction.

XXXXXXXXXX 2001-010857
Shaun Harkin, CMA
February 21, 2002

20 February 2002 External T.I. 2002-0117375 - CEASE TO BE QUALIFIED INV. PENALTIES

Unedited CRA Tags
REG 4900(1)(s) 207.1 146(10.1) 146.1(2.1)

Principal Issues: Will a property held by an RRSP, DPSP, RRIF or RESP that ceases to be a qualified investment for the plan be subjected to the various provisions of the Act that deal with the particular plan holding an investment that does not qualify as a qualified investment?

Position: Yes.

Reasons: The relevant provisions of the Act do not contain an exception for a property that ceases to be a qualified investment.

20 February 2002 External T.I. 2002-0120805 - QUALIFIED FARM PROPERTY

Unedited CRA Tags
110.6(1)

Principal Issues:
Whether the sale of farmland qualifies for the capital gains deduction in a particular situation.

Position:
Question of fact; however, it may qualify in this case.

Reasons:
Since the property was acquired by the taxpayers prior to 1987, and may have been farmed by a parent (as defined in paragraph 252(2)(a) of the Act) for several years, it will likely qualify under subparagraph (a)(vii) of the definition of "qualified farm property" in subsection 110.6(1) of the Act. However, it will have to be determined:
? If when the parent owned the property it was used more than 50% of the time in the course of carrying on a farming business in Canada for at least five years, and
? If that activity would be considered farming as defined in subsection 248(1) of the Act.

20 February 2002 External T.I. 2002-0119025 - PUBLIC SAFETY OCCUPATION ATTENDANTS

Unedited CRA Tags
REG 8500(1)

Principal Issues:
Will attendants at the XXXXXXXXXX meet the definition of "public safety occupation" in subsection 8500(1) of the Regulations?

Position: No.

Reasons: The occupations listed in the definition do not include such officers.

20 February 2002 External T.I. 2001-0114745 F - CONTINUATION SOCIETE EN COOPERATIVE

Unedited CRA Tags
136(2)
consequences of the continuance of a corporation as a cooperative depend on the implementation details

Principales Questions:
Impacts fiscaux de la continuation de l'existence d'une société en une coopérative

Position Adoptée: Aucune

20 February 2002 External T.I. 2001-0105695 F - Remboursement d'impôt d'une fiducie liquidée

Unedited CRA Tags
132
ex-trustee rather than ex-unitholders should be paid the tax refund to which wound-up mutual fund trust was entitled

Principales Questions: Lorsqu'une fiducie de fonds commun de placement est liquidée, est-ce que le remboursement d'impôt auquel elle a droit est versé à l'ancien fiduciaire ou aux anciens détenteurs de parts?

Position Adoptée: Le remboursement d'impôt sera versé au fiduciaire de la fiducie.

19 February 2002 External T.I. 2001-0106495 - LIMITED PARTNERSHIP CARRYING ON FARMING

Unedited CRA Tags
248(1) 96(2.1)

Principal Issues: If a limited partnership is created for the purpose primarily of working land so it well eventually be certified as an organic farm by a certifying body, would that activity be considered farming according to the Income Tax Act (the "Act")?

Position: generally no - tillage of the soil involves more than just providing a service to the land

Reasons: definition of farming and tillage of the soil

19 February 2002 External T.I. 2002-0118495 - S/H LOAN TO EMPLOYEE TO BUY SHARES FROM S/H

Unedited CRA Tags
15(2.4)(E)

Principal Issues: Whether a loan by a closely-held private corporation to an arm's length employee to enable that employee to acquire shares of the corporation from the controlling shareholder will be caught by paragraph 15(2.4)(e). That is, will the loan be considered to be received because of the controlling shareholder's shareholdings, since the loan will be made at the direction of, or with the concurrence of, the controlling shareholder(s), and will be used to fund the acquisition of shares from such shareholder(s).

Position: Question of fact. However, if a loan is made at the direction of a controlling shareholder to enable an employee to buy shares from such a shareholder, our general view is that the employee received the loan "because of any person's shareholding".

Reasons: General views.

19 February 2002 External T.I. 2001-0104395 - INCOME-AVERAGING ANNUITY CONTRACTS

Unedited CRA Tags
61.1 61(4)

Principal Issues:
Does a court order dividing interests in particular annuity contracts cause the contracts to cease to be income-averaging annuity contracts? How should the insurer report the payments under these contracts to the annuitant(s) thereunder?

Position:
Unable to provide opinion. It is recommended that the annuitant(s) under the policies refer all relevant facts and documentation to their responsible tax services offices.

Reasons:
Questions raised could only be answered having regard to all relevant facts and documentation e.g., the annuity contracts, the terms of the court orders. The questions pertain to particular taxpayers' situations and, to significant degree, to payments made in prior taxation years.

18 February 2002 External T.I. 2002-0118835 - TREATMENT OF THE COST OF PENSION SURPLUS

Unedited CRA Tags
14(5) 18(1)(a)

Principal Issues: The income tax treatment of a pension surplus which is acquired by a corporation as part of the acquisition of another corporation's business.

Position: The pension surplus would be a capital outlay for which there is no deduction in the Income Tax Act.

Reasons: The pension surplus fits the legal meaning of a capital asset (i.e., an asset or advantage for the enduring benefit of trade) and is thus subject to paragraph 18(1)(b), and there is no other provision in the Act which allows a deduction for this type of asset.

18 February 2002 External T.I. 2001-0112055 - SUPERFICIAL LOSS ON SHARES

Unedited CRA Tags
40(2)(g) 251.1 54

Principal Issues:
Where an individual disposes of shares to a personal Holdco & Holdco immediately thereafter disposes of same shares to individual's self-directed RRSP will
1) 40(2)(g)(i) apply?
2) 40(2)(g)(iv)(B) apply?
3) GAAR applicable?

Position:
1. No.
2. No.
3. Possible

Reasons:
1. Holdco is affiliated with individual but does not retain shares for 30 days
2. Holdco is not the annuitant of the RRSP
3. See Q41 of CTF 1989 round table-by inference- GAAR should apply

18 February 2002 External T.I. 2001-0107045 - PRINCIPAL RESIDENCE

Unedited CRA Tags
54 45

Principal Issues: 1. General comments on the availability of the principal residence exemption for property held by a trust or alternatively held by beneficiaries of an estate as tenants in common.

Position: 1. Whether a trust is set up by a will or by empowered executors is a question of fact and must be first determined in order to establish whether or not the principal residence exemption can be claimed

Reasons: 1. Where the property has vested indefeasibly in the beneficiaries, it is they who should be the taxing entities and not the "trust/estate"-in which case generally only the co-tenant who "ordinarily inhabited" the housing unit would be entitled to the principal residence exemption
2001-010704
XXXXXXXXXX Lena Holloway
613-957-2104
February 18, 2002

18 February 2002 External T.I. 2000-0046075 - Trust Affiliated with a Corporation

Unedited CRA Tags
104(1) 251.1 40(3.6)

Principal Issues:
Whether a trust could be an affiliated person with a corporation for purposes of subsection 40(3.6) of the Act.

Position:
Yes.

Reasons:
Consistent with previous positions.

15 February 2002 External T.I. 2002-0119675 - RRSP&MORTGAGE FORECLOSURE

Unedited CRA Tags
207.1 146(10)

Principal Issues: Whether the Agency should extend its administrative position (para. 10 of IT-320R2) not to apply the provisions of subsection 146(10) or section 207.1 of the Act beyond the normal one-year period.

Position: Perhaps.

Reasons: Determination that must be made by TSO, comments provided to assist in this determination.

15 February 2002 External T.I. 2002-0118755 - CHILD SUPPORT ARREARS & INTEREST

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

Principal Issues: Deductibility of child support arrears and interest on arrears.

Position: General comments provided - It is our general position that where arrears are settled for an amount which is less than the total periodic amounts that had fallen into arrears, the amount paid and received pursuant to the settlement, whether as a lump sum or by way of instalments, would not be deductible to the payer or required to be included in the recipient's income. As regards to interest in respect of arrears (or in respect of a reduced amount), it is our view that it would not be deductible to the payer, but would be required to be included in the recipient's income.

Reasons: Limited facts provided to us (a review of all relevant court orders and agreements is required). Positions as reflected in other files and in IT-530.

14 February 2002 External T.I. 2002-0118915 F - BIENS ETRANGERS INTERETS COURUS

Unedited CRA Tags
206(2)
cost amount of loan does not include accrued interest

Principale Question:

Aux fins du paragraphe 206(2) de la Loi, doit-on tenir compte des intérêts courus dans le coût indiqué d'un bien?

Position Adoptée:
Généralement non.
RAISON POUR POSITION ADOPTÉE:
Analyse législative et 2001-009767

14 February 2002 External T.I. 2001-0102035 - QUALIFIED INVESTMENT CERTAIN INDEX FUND

Unedited CRA Tags
146(1) reg 4900(1)(N.1)

Principal Issues:
Will units of the Real Assets U.S. Social Equity Pooled Fund be a qualified investment for an RRSP?

Position: Question of fact.

Reasons: No information provided in respect of the fund.

14 February 2002 External T.I. 2002-0121625 - Capital Dividend Account - Trust dist.

Unedited CRA Tags
89(1)

Principal Issues: Whether the effective date for paragraph (f) of "capital dividend account" in subsection 89(1) limits the inclusion of non-taxable capital gains of a trust to those realized by a trust after 1996.

Position: No, the effective date is only concerned with dividends of the corporation payable after 1997.

Reasons: The law - The effective date provision is clear on its face.
2002-012162
XXXXXXXXXX Marc Edelson
(613) 957-2123
February 14, 2002

13 February 2002 External T.I. 2002-011815A - HEALTH & WELFARE TRUST-SURPLUS

Unedited CRA Tags
18(1)(e) 18(1)(o)

Principal Issues: what is legislative basis for position that H&W trust funds may not revert to employer?

Position: 18(1)(o) and (e)

Reasons: 18(1)(o) and (e)

13 February 2002 External T.I. 2002-0119955 - TERMINAL LOSS

Unedited CRA Tags
8(2) 20(16) 13(21)

Principal Issues: Whether an employee can claim terminal loss. How the remissions process works.

Position: An employee cannot claim a terminal loss. General comments provided regarding remissions process.

Reasons: Subsection 8(2) of the Act denies the deduction otherwise claimed under subsection 20(16) of the Act.

13 February 2002 External T.I. 2002-0099785 - UK PENSION TRANSFERS

Unedited CRA Tags
56(1)(a) 60(j)

Principal Issues: Is a locked-in RRSP equivalent to a UK Occupational Pension Scheme?

Position: Unable to reply, would require an interpretation on UK law. Have provided general information on the taxation of any amounts transferred from the UK pension into an RRSP.

Reasons:

12 February 2002 External T.I. 2002-0119355 - Renewable, Conservation Exp-Wind Exploration

Unedited CRA Tags
66.1(6) 1219

Principal Issues: (a) Whether a wide-area wind resource exploration program undertaken by a wind energy corporation to develop a wind energy production capability database would be considered a "project" for the purpose of subsection 1219(1) of the Regulations. (b) Whether the expenses incurred by the corporation in respect of this program would be considered Canadian renewable and conservation expenses for the purposes of subsection 66.1(6) of the Act and section 1219 of the Regulations.

Position: (a) Yes; (b) No

Reasons: (a) Based upon the jurisprudence and the ordinary meaning of the term "project", it is our view that the wide-area wind resource exploration program would be considered a project and the expenses incurred by the wind energy corporation in carrying out the program would be considered "in respect of development of a project" for the purpose of subsection 1219(1) of the Regulations. (b) The program would not meet the requirement that at least 50% of the capital cost of the depreciable property to be used in the project would be the capital cost of any property that is described in Class 43.1 of Schedule II or that would be such property but for subsection 1219(1) of the Regulations. Therefore, it is our view that the expenses incurred by the corporation in respect of the program would not qualify as Canadian renewable and conservation expenses for the purposes of subsection 66.1(6) and section 1219 of the Regulations.

12 February 2002 External T.I. 2001-0115285 - WITHHOLDING TAX FOR DEREGISTRATION

Unedited CRA Tags
153(1)(l) 227(5) 227(5.1)

Principal Issues: taxpayer has filed an assignment for bankruptcy and the bankruptcy trustee has requested that all the assets are to be deregistered. The plan's trustee states that there are not enough funds available in the plan to pay all of the withholding tax required for deregistration and that the only other asset in the plan is a debenture bond that is not cashable or saleable.

Position: taxpayer, the trust company and the trustee in bankruptcy are jointly and severally liable for amounts required to be withheld and other amounts payable, such as penalties and interest, if the payer (the trustee of the Registered Retirement Savings Plan (RRSP) or RRSP administrator or operator as the case may be) fails to withhold.

Reasons: As per subsections 227(5) and (5.1) and prior opinion.

12 February 2002 External T.I. 2001-0107845 - ASSIGNMENT OF RIGHTS RPP DPSP

Unedited CRA Tags
147(2)(e) REG 8502(f)(i)

Principal Issues:
1. Do the assignment exceptions in subparagraph 8502(f)(i) of the Regulations apply to paragraph 147(2)(e) of the Act?
2. Would 147(2)(e) apply to a member's named beneficiary?
3. Will 8502(f) or 147(2)(e) be offended where the RPP or DPSP administrator is served with garnishment orders under section 224 of the Act?

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

Reasons:
1. There is no basis under the Act to include the exceptions.
2. Paragraph 147(2)(e) only refers to an employee beneficiary under the DPSP.
3. Garnishment orders only apply to a right to a payment so it would not offend the provisions.

12 February 2002 External T.I. 2001-0081025 - INTEREST DEDUCTIBILITY

Unedited CRA Tags
20(1)(c)

Principal Issues:
1. Whether interest continues to be deductible if a portion of the investment is sold and the proceeds are used to pay down the principal of the loan.
2. Whether interest on borrowed money used to purchase equity mutual funds or common shares, continues to be deductible as opined in our technical interpretation 2000-0036435.

Position:
1. Yes
2. Yes

Reasons:
1. If the remaining borrowed funds continue to be put to an eligible use, the interest expense relating to the remaining balance of the Loan will continue to be deductible provided that the interest paid satisfies all the conditions in paragraph 20(1)(c)
2. Our position remains unchanged from that stated in our technical interpretation 2000-0036435.

12 February 2002 External T.I. 2001-0091085 - MEANING OF PROPERTY

Unedited CRA Tags
149(1)(l) 149(5) 248(1)

Principal Issues:
Whether payments made to a non-profit organization are considered to be income from property.

Position: Yes

Reasons:
Consideration is received by each member in the form of a promise by the club to repay the sum of $XXXXXXXXXX . Since the promise to pay is given for consideration, it is legally enforceable and therefore constitutes a "right" for purposes of subsection 248(1) of the Act. As such, the club will be considered to have property for the purposes of subsection 149(5) of the Act.

12 February 2002 External T.I. 2002-0120755 - BIBLE COLLEGES-RELIGIOUS ORDER

Unedited CRA Tags
8(1)(c)

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues

Is an organization that operates a Bible College presumed to be primarily educational or are they subject to the same 6 criteria developed by the courts in determining whether an organization is a religious order.

11 February 2002 External T.I. 2002-0117115 - REASONABLE RETIRING ALLOWANCE

Unedited CRA Tags
56(1)(a) 67

Principal Issues: Is a proposed retiring allowance reasonable and deductible?

Position: Question of fact.

Reasons: Question of fact.

11 February 2002 External T.I. 2002-0120775 - SPECIFIED INVESTMENT BUSINESS

Unedited CRA Tags
125(7)

Principal Issues: Whether a corporation can combine full-time employees with part-time employees to meet the requirements of par. (a) of the definition of "Specified Investment Business" in ss. 125(7).

Position: No.

Reasons: Our position is clearly established in par. 15 of IT-73R5 and does not need to be revised following the recent court decisions.

11 February 2002 External T.I. 2001-0107165 - MOVING EXPENSES

Unedited CRA Tags
62

Principal Issues: We have been asked for our views on whether moving expenses can be deducted under subsection 62(1) of the Act in respect of two situations. In each of the two situations, the issue is whether an individual carried out an employment related move (i.e., whether the relocation occurred "to enable the taxpayer ... to be employed at a location in Canada" for the purpose of the definition of "eligible relocation" in subsection 248(1) of the Act.

Position: Some general comments were provided.

Reasons: The issue involves a question of fact and the information provided was very limited.

11 February 2002 External T.I. 2001-0111435 - LEASE OPTION AGREEMENTS

Unedited CRA Tags
9(1) 18(1)(a)

Principal Issues:
Whether a particular agreement would be considered a lease such that the payments made under the terms of the said agreement would be deductible in computing income for purposes of the Act.

30 January 2002 External T.I. 2001-0106695 - Subs. 219(5.3);Article X of Canada-US Treaty

Unedited CRA Tags
219(5.2) 219(5.3)

Principal Issues:
Whether a non-resident insurer who defers branch tax under subsection 219(5.2) should treat a deemed dividend under subsection 219(5.3), which is a recovery of the branch tax deferred, as a dividend or as branch tax for purposes of Article X of the Canada-US Tax Convention. Paragraph 2 of Article X of the Convention generally provides for withholding taxes on dividends of up to 15% (in the absence of 10% share ownership), while paragraph 6 of Article X specifically provides that branch taxes must be limited to 5% in all cases.

Position:
The better view is that paragraph 2 of Article X applies.

Reasons: The Technical Notes to subsection 219(5.3) identify the collection mechanism for deferred branch tax for non-resident insurers as Part XIII tax. It is up to the taxpayer to decide, when the Canadian corporation is incorporated, whether to pay branch tax immediately (to take advantage of the 5% rate or the $500,000 exemption) or to effectively defer that branch tax and pay withholding tax at a later time on any dividends (including deemed dividends). This is consistent with the scheme of the Act for non-residents who are not insurers and who incorporate a Canadian branch. This is also consistent with the general premise that, upon incorporating any type of business, an important consideration is that business profits must be paid out in the future as dividends.

4 January 2002 External T.I. 2001-0116375 - Share for Share Exchange - Non Resident

Unedited CRA Tags
51(1) 86(1)

Principal Issues:
Does the rollover provision in subsection 51(1) or subsection 86(1) of the Income Tax Act (the "Act") apply in a situation where the corporation that is issuing a new share in exchange for its old share is a resident of Canada and the shareholder is a non-resident of Canada.

Position:
Yes.

Reasons: Subsections 51(1) and 86(1) are not restricted to Canadian shareholders.

4 December 2001 External T.I. 2001-0111465 - GAAR COMMITTEE TEI LIAISON 2001

Unedited CRA Tags
245

Principal Issues: TEI Liaison question 8 - The GAAR Committee.

Position: General information on the operation of the GAAR Committee provided

Reasons: General information already available to the public

4 December 2001 External T.I. 2001-0111455 - WITHHOLDING TAX EXEMPTION INTEREST

Unedited CRA Tags
212(1)(b)

Principal Issues:
? Clarification of the position stated in Technical Interpretation E9824125 and E9721405 involving conversion rights on securities for the purpose of the exemption from Part XIII withholding tax on interest.

Position:
? Clarify that the above interpretations involved non-prescribed securities and confirm the position set out in paragraph 7 of IT-361R3.

Reasons:
? In the interpretations referred to above, the conditions for the exemption in subparagraph 212(1)(b)(vii) of the Act were not met since it was possible that, under certain circumstances, more than 25% of the principal amount of the obligation could be paid within five years.

Technical Interpretation - Internal

22 February 2002 Internal T.I. 2001-0095217 F - FAILLITE-PROVINCE DE RESIDENCE

Unedited CRA Tags
120
returns for both stub returns for year of bankruptcy are filed for the province of the individual’s residence on December 31 of that calendar year
return for short taxation year resulting from bankruptcy required to be filed for the province of the individual’s residence on December 31 of that calendar year

Principales Questions:
Dans quelle province de résidence un particulier devra produire les deux déclarations prévues par le paragraphe 128(2) de la Loi lorsqu'il déménage après sa faillite et a une province de résidence différente au 31 décembre de celle où il résidait immédiatement avant le jour où il est mis en faillite?

Position Adoptée:
Dans la province où il réside le 31 décembre de l'année civile de la faillite.

19 February 2002 Internal T.I. 2001-0109657 - SPECIFIED VALUE BENEFIT DEFERRAL

Unedited CRA Tags
7(11)

Principal Issues:
1. For purposes of subsection 7(11), will the specified value of a share be based on the original stock option granted to an employee?
2. Can the specified value be based on the market value of the shares on a subsequent date when the option price is re-priced to reflect a significant reduction in the fair market value of the employer's shares?

Position:
1. Yes.
2. No.

Reasons:
1. The provision is clear that the fair market value at the date of grant has to be used.
2. There is no provision that allows for the use of the fair market value on another date.

19 February 2002 Internal T.I. 2002-0121137 - CASH ADVANCES

Unedited CRA Tags
28(1)(a)

Principal Issues: What crops qualify for "cash advances" received under the Advance Payments Program offered pursuant to the Agricultural Marketing Programs Act?

Position: Such a question is best answered by the staff of Agriculture and Agri-Food Canada.

Reasons: The above Department is responsible for the Agricultural Marketing Programs Act.

15 February 2002 Internal T.I. 2002-0122817 - RRSP OVER-CONTRIBUTIONS

Unedited CRA Tags
204.1 204.3(1) 204.4

Principal Issues: Where RRSP over-contributions have been made by an Indian,
a) Will the Canada Customs and Revenue Agency (CCRA) require that a T1-OVP be filed?
b) Will the CCRA allow the over contributions to remain within the RRSP (without penalty) until such time as the First Nation sign its final agreement?
c) Will the CCRA waive any penalty assessment based on the circumstances? If so, are they required to withdraw the funds from the RRSP?
d) Will the withdrawal be exempt since the income was exempt?
e) Can the CCRA provide a letter to the financial institution advising that they are not required to withhold tax on the withdrawal because it is exempt or must a T3012A be completed for each taxpayer?

Position: a) Yes, b) No, c) Withdrawal is required/penalty may be waived, d) Contributions will be exempt but income earned within the RRSP may be taxable.
e) This determination should be made in consultation with IRPPD.

Reasons: a) 204.3(1), b) 204.1(4)(b), c) 204.1(4)(b), d) section 87 of the Indian Act, e) as indicated above.
February 15, 2002

14 February 2002 Internal T.I. 2002-0116647 - TUITION

Unedited CRA Tags
118.5 118.6

Principal Issues: whether Company providing XXXXXXXXXX preparation course provides courses at the post-secondary level?

Position: yes - the course promotes the acquisition of knowledge for XXXXXXXXXX by providing classroom instruction and exam preparation.

Reasons: 118.5 and 118.6
February 14, 2002

14 February 2002 Internal T.I. 2001-0107757 F - PENSION ALIMENTAIRE POUR ENFANTS

Unedited CRA Tags
56(1)b) 60(b) 56.1(4)
fixed support payments were not required to be applied by the recipient to listed expenses and, therefore, their use was at her discretion and they were allowances
Words and Phrases
allowance
separation agreement was sufficiently general as to the amounts’ use for them to be child support amounts

Principales Questions:
Application de la définition des termes " pension alimentaire " et " pension alimentaire pour enfants " à des faits particuliers.

Position Adoptée:
Le montant est une pension alimentaire parce que le récipiendaire peut l'utiliser à sa discrétion. Par contre, le montant versé au conjoint n'est pas déductible pour le payeur ni imposable pour le récipiendaire parce qu'il constitue une pension alimentaire pour enfants et que l'accord écrit a une date d'exécution.

21 December 2001 Internal T.I. 2001-0093137 - Beneficiary's losses or Estate's losses

Unedited CRA Tags
164(6)

Principales Questions:
Whether subsection 164(6) of the Act applies?

Position Adoptée:
Yes.

7 December 2001 Internal T.I. 2001-0108597 F - Crédit d'impôt emploi étranger Art. 122.3

Unedited CRA Tags
122.3 248(1)
there is a business if profit generated even if the activity was not undertaken primarily for the purpose of earning a profit

Principales Questions: Admissibilité au crédit d'impôt pour emploi à l'étranger.

Position Adoptée: Commentaires généraux.

6 December 2001 Internal T.I. 2001-0110047 F - Revenu d'emploi organisation intern.

Unedited CRA Tags
126(3) 110(1)f)(iii) Reg. 8900 a)
organization that brought together states, government agencies and non-governmental organizations did not qualify as an intergovernmental organization

Principales Questions: Déterminer si le revenu tiré d'un emploi auprès de XXXXXXXXXX constitue un revenu tiré d'un emploi auprès d'une organisation internationale visée par règlement pour les fins du paragraphe 126(3) et du sous-alinéa 110(1)f)(iii) de la Loi de l'impôt sur le revenu.

Position Adoptée: Non.