Income Tax Severed Letters - 2002-04-12

Principal Issues: What can a taxpayer do to ensure that the interest paid on an equalization payment is reported by an ex-spouse?

Position: Under our self-assessment system, the onus is on taxpayers to file their income tax returns accurately. There are also review processes in place to ensure the integrity of our tax system.

Reasons: There is no requirement for taxpayers to report the payment of this type of income on an information return.

Principal Issues: Would the relieving provisions in subparagraph 206(2)(a)(iii) of the Act apply where a registered plan chooses to exchange shares in a Canadian corporation for shares of a foreign corporation that has acquired a substantial number of shares of the Canadian corporation?

Position: Question of Fact.

Reasons: The security acquired in the exchange must be a "qualifying security" as defined in subsection 206(3.2) of the Act.

Principales Questions:

Est-ce que les remboursements suivants par l'employeur sont des avantages imposables selon l'alinéa 6(1)a) de la Loi?

1. Le remboursement d'une mallette que les professeurs utiliseront pour transporter du matériel dans le cadre de leur emploi.
2. Le remboursement pour l'achat de vêtements fait à des professeurs par l'université lorsqu'ils doivent, dans le cadre de leur emploi, préparer des cours sur XXXXXXXXXX .

Position Adoptée:

Principales Questions: Une cotisation d'un employeur à un RPDB sera-elle déductible de son revenu même si cette cotisation l'amène à réaliser une perte d'entreprise?

Position Adoptée: Oui, si toutes les conditions sont rencontrées.

Principal Issues: whether expenses are medical expenses

Position: -insufficient facts to determine whether a particular expense is deductible since we have no information on the expenses, but the cost of herbal remedies is not deductible

Reasons: must be described in 118.2

Principal Issues:

1) With respect to the application of subsection 14(1.01):
(a) Is it possible to satisfy the condition in this provision, which requires that "the cost of the property to the taxpayer can be determined", by averaging the total cost of the quotas by the total number of units held?
(b) Since the election under the provision results in a disposition of a capital property, "could alternative minimum tax apply"?
(c) Could the resulting capital gain "qualify for the capital gains reserve"?

2) Whether a certain building is class 1 or class 6.

Position:

1) For each question:
(a) Yes.
(b) Yes.
(c) Yes.

2) Class 1.

Reasons:

Principal Issues: Whether a change in the legal title of a parent's investment account to joint tenancy of the parent and the parent's child constitutes a disposition.

Position: It depends on whether there has been a change in beneficial ownership.

Reasons: By virtue of paragraph (e) of the definition of "disposition" in subsection 248(1) of the Income Tax Act, a disposition does not include a transfer of property in which there is a change in the legal ownership without any change in the beneficial ownership.

Principal Issues:
1) When a partnership agreement states the partnership ends on the death of a partner could a new partnership of the deceased partner's spouse and the remaining partner be considered a continuation of the original partnership so that only one T2042 could be prepared for the year?
2) Two spouses are equal partners in a Canadian farm partnership. One of the spouses dies. The surviving spouse is the sole beneficiary and estate trustee of the deceased partner's estate. Could the surviving spouse execute and file a T2060, Election for Disposition of Property Upon Cessation of Partnership, on behalf of the deceased partner's estate, so that subsection 98(3) of the Income Tax Act (the "Act") could apply?

Position: 1) No 2) No

Reasons:
1) No provision of the Act could consider the new partnership to be a continuation of the original partnership for the purpose of preparing one T2042 for the year - the partnership of the deceased partner's spouse and remaining partner is a new and separate partnership because at law, per the partnership agreement, the original partnership ceased upon the death of a partner and did not have any provision to allow the original partnership to continue or admit new partner members upon the death of a partner.
2) The estate of the deceased could not be considered a "member of the partnership" immediately before it ceased.

Principal Issues:
Can a mortgage on farmland owned by a corporation be a qualified investment for an RRSP if the annuitant of the RRSP, his spouse and his two adult children are the only shareholders of the corporation.

Position:
Yes, provided that the provisions of paragraph 4900(1)(j), where the annuitant and the mortgagor are at non-arm's length, are satisfied.

Reasons:
The Corporation does not deal at arm's length with the annuitant of the RRSP pursuant to paragraph 251(1)(a) and subparagraph 251(2)(b)(ii).

Principal Issues: Are fees paid for courses taken with XXXXXXXXXX , that lead to a Master of Science in Astronomy eligible for the tuition tax credit?

Position: No

Reasons: The t/p is not a full time student because he is taking courses through correspondence/distance education only. Also, it appears that the courses may be less than 13 weeks in duration.

Principal Issues: Whether business of a corporation is considered a specified investment business for the purposes of ss. 125(7) of the Act.

Position: Yes.

Reasons: Corporation does not employ in the business throughout the year more than 5 full-time employees.

Principal Issues:
1. Does a sharecropping arrangement result in the earning of active business income by a corporation?
2. If the sharecropping arrangement results in the corporation earning rental income, would withdrawals from NISA Fund No. 2. be investment income and taxed as inactive income?
3. Would the sale of breeding hogs by a corporation result in a capital gain or business income?
4. Would a corporation involved in the activities discussed above be considered a farm corporation?

Position TAKEN:
1. Question of fact.
2. No.
3. Business income.
4. Question of fact.

Reasons:
1. Question of fact.
2. Withdrawals from NISA Fund No. 2 are included in income pursuant to subsection 12(10.2). These amounts are included in "income of the corporation for the year from an active business" pursuant to paragraph (b) of the definition in subsection 125(7).
3. Subsection 248(1) defines livestock held in the course of carrying on a farming business to be inventory.
4. Whether a corporation is a farm corporation is a question of fact.

Principales Questions:
1. Est-ce que l'employeur a l'obligation de compléter le formulaire T2200 prévu au paragraphe 8(10) de la Loi pour ses employés en télétravail ?
2. Est-ce que le fait que l'employé adhère volontairement au télétravail empêche ce dernier de réclamer la déduction des dépenses encourues pour maintenir son espace consacré au travail à domicile dans le calcul de son revenu d'emploi ?
3. Est-ce que le fait que l'employeur prévoit un espace de travail individuel ou commun à son lieu d'affaires pour les employés en télétravail a une influence sur l'admissibilité d'un employé à réclamer la déduction des dépenses encourues pour maintenir son espace consacré au travail à domicile dans le calcul de son revenu d'emploi ?
4. Est-ce que le temps travaillé sur la route peut être assimilé à du temps de travail à domicile pour les fins de déterminer si l'employé accomplit principalement les fonctions de son emploi à son domicile selon le sous-alinéa 8(13)a)(i) de la Loi ?

Position Adoptée:
1. Dans la présente situation, l'employeur devrait remplir le formulaire T2200.
2. Non.
3. Non.
4. Non.

Principal Issues: Continuing education requirement to profession. Do amounts expended on professional development courses qualify as professional membership dues under 8(1)(i)(i)?

Position: No.

Reasons: Fees levied are more appropriately classified as on account of training rather than as membership dues.

Principal Issues:

Principal Issues: Whether multi-use communication cable is included in Class 3 of Schedule II of the Regulations or whether it can qualify for inclusion in Class 10 of Schedule II of the Regulations.

Position: Question of fact.

Reasons: A review of each specific situation would determine which class is most appropriate.

Principal Issues:
Discussion of the income tax treatment of a premium on a corporate bond purchased in the secondary market

Principal Issues: 1) Whether, in a given fact situation, shares would be shares substituted for other shares for the purposes of paragraph 84.1(2)(a.1) of the Act.
2) Whether the application of subsection 84.1(1) to the transfers of shares would result in a dividend being deemed to be paid to a particular taxpayer pursuant to the provisions of paragraph 84.1(1)(b).

Position: 1) If a taxpayer would in fact dispose of all of the common shares on the exchange, the new common shares acquired afterwards by the son of the taxpayer would be shares substituted for other shares for the purposes of paragraph 84.1(2)(a.1) of the Act.
2) No. In the particular situation, the son should be able to establish a "nil" amount, pursuant to subparagraph 84.1(2)(a.1)(ii) of the Act, as being the amount in respect of which a deduction under section 110.6 was claimed.

Reasons: Wording of paragraph 84.1(2)(a.1) of the Act and previous positions.

Principal Issues: Whether land owned by an individual and farmed by the grandparents can meet the "qualified farm property" requirements in ss. 110.6(1).

Position: Yes.

Reasons: Consistent with previous positions.

Principales Questions: Traitement fiscal d'une allocation de retraite versée à un non-résident par un non-résident en regard de services rendus au Canada et à l'étranger.

Position Adoptée: Commentaires généraux.

Principal Issues:
What is the appropriate method to be used in determining the adjusted cost base of a foreign mutual fund units acquired at different times?

Position:
Average cost method where the cost of each acquisition is computed at that time in terms of its Canadian dollar equivalent.

Reasons:
Section 47 of the Act and current positions.

Principales Questions: Application du choix prévu au paragraphe 107(2.11) de la Loi de l'impôt sur le revenu.

Position Adoptée: Ce choix s'applique à toutes les attributions visées par le paragraphe 107(2.1) qui ont été effectuées au cours de l'années d'imposition.

Principales Questions: Intérêts payables à l'égard d'un remboursement au titre de gains en capital.

Position Adoptée: Commentaires généraux.