Income Tax Severed Letters - 2002-02-15

Principal Issues: Who is required to comply with the filing requirements of Regulation 200(2)(g) in respect of a benefit within the meaning of paragraph 6(1)(a).

Position: The person making the payment or conferring the gift on the employee.

Reasons: The law - .

Principal Issues: Paragraph 118.2(2)(l.7) of the Income Tax Act (the "Act") provides that a portion of the amount paid for the acquisition of a van that has been adapted (at the time of its acquisition or within 6 months after that time) for the transportation of a patient that requires the use of a wheelchair qualifies as a medical expense. The amount that could qualify as a medical expense is the lesser of $5,000 and 20% of the amount paid for the acquisition of the van after deducting any amount included therein, which qualifies as a medical expense pursuant to paragraph 118.2(2)(m) of the Act (Paragraph 118.2(2)( m) effectively refers to section 5700 of the Regulations-of which paragraphs 5700(m) and (n) refer to certain devices or equipment that may be added to a vehicle). We have been asked whether (i) 20% of the cost of the van and (ii) the actual cost of the device or equipment are eligible for the medical expense tax credit.

Position: The amounts referred in (i) and (ii) are both eligible medical expenses.

Reasons: Paragraph 118.2(2)(m) of the Act has been carved out of paragraph 118.2(2)(l.7) of the Act.

Position Adoptée:
Non.

Principal Issues:
Will the offer by the employer to cancel outstanding stock options for a promise to grant new options to the employee at a date that is least six months and one day after the cancellation of the old option be a disposition for purpose of subsection 7(1.4).

Position: Question of fact whether a disposition has occurred.

Reasons:
A determination can only be made after a thorough review of all agreements.

Principal Issues: Two previously married individuals ("Individual A" and "Individual B") became divorced and, pursuant to the divorce judgment (the "Judgment"), Individual A was required to make child support payments to Individual B. The child support was deductible by Individual A under paragraph 60(b) of the Income Tax Act (the "Act") and was required to be included in the income of Individual B under paragraph 56(1)(b) of the Act. After April 30, 1997, Individual A and Individual B entered into an amending agreement (the "Amending Agreement") which was approved by the court and which provided for an increase in the child support paid in respect of a child that was not set out in the Judgment. Does the Judgment have a "commencement day" as defined in subsection 56.1(4) of the Act?

Position: Yes -

Reasons: As indicated in paragraph 7 of IT-530, an agreement or order made before May 1997 will have a commencement day where the order or agreement is varied after 1997 to increase or decrease child support amounts payable.

Principal Issues: What are the income tax implications of using the proceeds of disposition from the disposition, at a gain, of industrial condominium units to purchase or build a property for the purpose of renting the property?

Position: Replacement rules do not apply.

Reasons: From the limited information submitted, the properties being sold and those being purchased all seem to be "rental property" excluded from the definition of "former business property".

Principales Questions:
1. Une allocation pour l'usage d'une autocaravane (" motorhome ") reçue par un employé, pour voyager dans l'accomplissement des fonctions de son emploi, pourrait-elle être exclue en vertu du sous-alinéa 6(1)b)(vii.1)?
2. L'employeur serait-il sujet à la restriction visée à l'alinéa 18(1)r)?

Position Adoptée:
1. Commentaires généraux
2. Non.

Principal Issues:
Will bank guarantee fees paid by a corporation to its owner/manager be considered earned income within the meaning assigned by subsection 146(1) of the Act?

Position: No.

Reasons:
Unles the taxpayer is in the business of providing loan guarantees, the amount would not be considered employment or business income for purposes of inclusion in the earned income definition.

Principales Questions:
1. Est-ce qu'un immeuble dont une partie est utilisée par une société liée dans une entreprise exploitée activement et dont une autre partie est louée à des tiers est un actif utilisé principalement dans l'exploitation d'une entreprise ?
2. Pourrait-on affirmer que l'immeuble n'est pas utilisé dans l'exploitation d'une entreprise du seul fait que, pour des raisons commerciales, Holdco doit d'abord le louer au franchiseur, qui subséquemment, le sous-loue à Opco ?
3. Les actions du capital-actions du franchiseur détenues par Opco peuvent-elles constituer des éléments d'actifs utilisés principalement dans l'exploitation d'une entreprise active ?

Position Adoptée:
1. Aucune
2. Non
3. Probablement que oui.

Principal Issues:
Whether a "proper court judgment and order" is required before subsection 224(1) of the Act can be used to garnishee a payment to a "tax debtor".

Position: No.

Reasons: Subsection 224(1) of the Act provides that the requirement to make a payment under a garnishment is legally valid when the garnishment is delivered in writing and the CCRA has shown that a liability to make a payment under the Income Tax Act exists.

Principal Issues: Whether the U.S. patronage dividend would be considered to be foreign business income, foreign non-business income or income from an active business carried on in Canada to a Canadian co-operative corporation?

Position: It is a question of fact to be determined after all the relevant facts and circumstances of the situation have been examined.

Reasons: It could be either of the above depending on the facts of the situation.

Principal Issues: Whether U.S. estate tax is deductible or creditable in respect of a lump-sum pension payment received by a beneficiary as a consequence of death of another person?

Position: No.

Reasons: The estate tax is not an income or profit tax and there is no provision in the Income Tax Act or the Canada-United States Income Tax Convention to allow for such deduction or credit.

Principal Issues: Are various amounts received by T/P as a result of a settlement for employment termination taxable?

Position: question of fact

Reasons: some amounts may be considered retiring allowance and therefore taxable

Principal Issues: Whether employment income guidelines apply to exempt the employment income of status Indian employees?

Position: Question of Fact

Reasons: General comments provided.

Principales Questions:
Est-ce que, dans le cas présenté, une société mère pourrait majorer, en vertu des alinéas 88(1)c) et d) de la Loi, le coût de certains biens (des actions d'une autre société), qui lui sont attribués lors de la liquidation de sa filiale?

Position Adoptée:
Probablement que non.

Principal Issues: Transfer of RRSP from on trustee to another - foreign property transferred first.

Position: Subject to the provisions of subsection 206(2), however administrative relief may apply.

Reasons: Where all the property of the RRSP has been transferred and the remaining Canadian property is transferred in the month immediately following the transfer of the foreign property, administrative relief from the penalty may be provided.

Principal Issues: Can a trust for the benefit of a corporation's employees be a beneficiary of an employee profit sharing plan?

Position: No.

Reasons: The arrangement requires that certain amounts be allocated to employees. These requirements would not be satisfied when an allocation is made to a trust for the benefit of an employee.

Principal Issues: What are the guidelines or criteria used by the CCRA to determine whether a corporation is insolvent for the purposes of clause 50(1)(b)(iii)(A) of the Act.

Position: No established guidelines or criteria on this point.

Reasons: The question whether a particular corporation is insolvent or not is a question of law and fact to be determined from all of the relevant facts and circumstances of a particular situation. Reference to the answer given to question 1.4 of the Round Table of the 1992 APFF Congress. The word "insolvent" should be given its ordinary meaning, since this term is not defined in the Act. Dictionary definition of "insolvent": "unable to pay its debts." Accordingly, a corporation possessing neither assets nor liabilities at the end of a taxation year (or a corporation with no outstanding liabilities at such time) could not, as a general rule, be considered insolvent for the purposes of subparagraph 50(1)(b)(iii) of the Act.