Income Tax Severed Letters - 2002-07-19

Miscellaneous

29 July 2002 2001-007075C F - DEPLACEMENT - TRAVAILLEUR FORESTIER

Unedited CRA Tags
8(1)(H.1)

Principales Questions:
Questions et réponses concernant la déduction pour les frais afférents à un véhicule à moteur d'un employé qui est un travailleur forestier et concernant le changement de notre position.

Position Adoptée:
Les frais afférents à un véhicule à moteur qu'un travailleur forestier paie pour se déplacer entre son domicile et un endroit où il se présente régulièrement pour son travail sont des frais personnels qui ne sont pas déductibles. Dans certaines circonstances, les déplacements des travailleurs forestiers ne sont pas des déplacements de nature personnelle et les frais afférents à un véhicule à moteur sont déductibles.

29 July 2002 2001-007075D - forestry worker - motor vehicle expenses

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

Principal Issues:
Questions and answers concerning the employment deduction for motor vehicle expenses incurred by a forestry worker and the review of our position.

Position: The motor vehicle expenses a forestry worker pays to travel between his home and a place where he regularly reports to work are non-deductible personal expenses. Under certain circumstances, the travelling of a forestry worker is not personal travelling and the motor vehicle expenses are deductible.

Reasons: General position applied to all employees in general.

2002 2002-0141371 - PARTNERSHIP; AT RISK

Unedited CRA Tags
18.1

Principal Issues: minor changes

Position: minor changes

Reasons: N/A

Ruling

2002 Ruling 2002-0123153 - AMALGAMATION OF REG 6801(d) PLANS

Unedited CRA Tags
REG 6801(d)

Principal Issues:
Will an amendment consolidating two 6801(d) plans, of two related corporations, into one 6801(d) plan, be acceptable for purposes of 6801(d) of the Income Tax Act?

Position: Yes.

Reasons: The provisions of 6801(d) continue to be satisfied.

2002 Ruling 2002-0139013 - Pubco Return of PUC; Exchange of Options

Unedited CRA Tags
84(4.1) 7(1.4) 86

Principal Issues:
1. Whether certain assets can be distributed to shareholders of a public company as boot on a section 86 transaction.
2. Whether the exchange of stock options for stock options of two different companies is entitled to a 7(1.4) rollover.

Position:
1. Yes, see reasons below.
2. yes, provided the tests are met in the aggregate.

Reasons:
1. Provided value of the assets distributed is less than the paid-up capital (other than the paid-up capital created by pre-1971 CSOH) and the distribution is not made in lieu of an ordinary dividend.
2. Provided the aggregate "in-the-money" value of the new options does not exceed the "in-the-money" value of the old options. In order for the test to be met the optionholders must receive options which do not entitle them to receive the conditional rights to additional Aco shares (conditional on certain Target Shares being cancelled) that Target shareholders receive.

2002 Ruling 2002-0143563 - uk treaty co-production

Unedited CRA Tags
125.4

Principal Issues:
(1) Whether there is a disposition of a film in a UK treaty co-production arrangement as a result of a particular licence arrangement.
(2) Whether the investor rules in subsection 125.4(4) apply as a result of the involvement of the UK Co-Producer and UK Film Partnership.

Position:
(1) No.
(2) No.

Reasons:
(1) In spite of entering into the licence agreement, legal and beneficial ownership of master negative and rights (including copyright) were retained. However, a caution was provided concerning the terms of a particular distribution agreement.
(2) Consistent with previous positions; investors will not claim a deduction in Canada.

2002 Ruling 2001-009555A - Reversionary Trust - Non-Res Settlor

Unedited CRA Tags
75(2) 107(4.1)

Principal Issues:
1. Where a non-resident individual settled a discretionary inter vivos trust that is resident in Canada and it is now proposed to distribute the property of the trust to non-resident beneficiaries including the settlor, will 107(4.1) apply by virtue of 75(2) having been applicable previously?
2. Will the property that is distributed from the trust constitute capital property in the hands of the beneficiaries.

Position:
1. No.
2. Probably yes.

Reasons:
1. XXXXXXXXXX .
2. The property is purported to be capital property of the trust, and thus the distribution itself of the property will not cause the property to not be capital property when received by the beneficiaries. This is similar to previous rulings provided to other taxpayers.

2002 Ruling 2002-0116653 - Section 86 Share Exchange86

Unedited CRA Tags
245

Principal Issues: Whether section 86 applies to share exchange

Position: Yes

Reasons: All the requirements of section 86 are satisfied

Ministerial Correspondence

2 August 2002 Ministerial Correspondence 2002-0153404 - STATUS OF INDIAN WORKING IN MILITARY

Unedited CRA Tags
8(1)(a)

Principal Issues: The existence of special taxation rights in respect of Aboriginal people working in the military.

Position: General Comments given

Reasons: No special taxation rights, the Guidelines may apply.

26 July 2002 Ministerial Correspondence 2002-0148894 F - POLITICAL CONTRIBUTIONS DEDUCTIBILITY

Unedited CRA Tags
18(1)(n)

Principal Issues: Are amounts contributed to a candidate for a Federal Party Leadership Campaign deductible in computing the contributor's income under the Act?

Position: No.

Reasons: There is no deduction provided under the Act. Contributions are non-deductible and contributors are entitled to claim a credit.

Technical Interpretation - External

14 August 2002 External T.I. 2001-0116385 F - PARTAGE DE COMMISSIONS

Unedited CRA Tags
56(2) 56(4) 9(1)
a reasonable portion of mutual fund commissions received by a firm should be allocated to its representative who made the sales

Principales Questions: Lorsqu'un particulier, actionnaire d'une société qui exploite un cabinet d'assurance de personnes, vend des produits en épargne collective pour le compte d'un autre cabinet exploité par une société dont il n'est pas actionnaire, y a-t-il application du paragraphe 56(2) de la Loi pour le particulier lors du partage de commissions sur la vente de produits en épargne collective entre les deux cabinets ?

Position Adoptée: Oui dans les situations où le montant qui aurait dû être versé au particulier en compensation de services rendus, a été versé à la société dont il est actionnaire.

13 August 2002 External T.I. 2002-0121295 F - PBR DES PARTS PRIVILEGIEES

Unedited CRA Tags
43(1) 298(1)
sale of preferred and retention of common partnership units entailed part disposition of single property/ different s. 43 allocation methods possible
preferred and common partnership units were single property

Principales Questions: Est-ce qu'un contribuable détient une ou deux participations dans la même société de personnes lorsqu'il détient à la fois des parts privilégiées et des parts ordinaires. Comment déterminer le prix de base rajusté (PBR) à attribuer aux parts privilégiées qui seront vendues par le contribuable.

Position Adoptée: Le contribuable détient une seule participation dans la société de personnes dont une fraction est disposée. La détermination du PBR de la fraction de la participation disposée se fait en vertu du paragraphe 43(1) de la Loi. Ce paragraphe mentionne que pour les fins du calcul du gain ou de la perte en capital qu'un contribuable tire de la disposition partielle d'un bien, le PBR de la partie disposée correspond à la fraction du PBR, à ce moment, de la totalité du bien qu'il est raisonnable d'attribuer à cette partie.

8 August 2002 External T.I. 2002-0141755 - DONATION OF REWARD POINTS

Unedited CRA Tags
110.1 118.1

Principal Issues:
1) If reward points can be gifted to a qualified donee, are the points to be valued at the time they are transferred to the qualified donee or at the time the points are redeemed by the qualified donee for property, for purposes of issuing a donation receipt?
2) How would one determine the fair market value of the reward points at the time the points are transferred?

Position:
1) Time of transfer.
2) If the points are not transferable, there is no gift and the determination of fair market value of points is unnecessary. If the points could be transferred, the fair market value would have to be considered on a case-by-case basis.

Reasons:
1) Legislation clearly provides that if a taxpayer wishes to claim a donation tax deduction or credit in respect of a gift to a qualified donee, the taxpayer must provide a tax receipt as proof of the gift. Furthermore, the relevant regulations provide that the tax receipt must show the fair market value of the donated property at the time the gift of the property was made.
2) Our understanding is that under most, if not all, reward points programs the points are not transferable. One of the requisites of a gift for income tax purposes is that property be transferred to a qualified donee.

7 August 2002 External T.I. 2002-0128475 - Woodlots

Unedited CRA Tags
9(1)

Principal Issues: Whether the revenue from the sale of trees is on account of income or capital.

Position: It is a question of fact. General comments given. Based on the facts provided in this situation the revenue would be on account of income.

Reasons: The individual's activities have a sufficient degree of commerciality to consider the revenue to be income.

7 August 2002 External T.I. 2002-0144205 - FOREIGN PROPERTY LIMITED PARTNERSHIP

Unedited CRA Tags
REG 5000(7)

Principal Issues:
Is an interest in a limited partnership foreign property for purposes of Part XI of the Act?

Position: Yes.

Reasons:
Under paragraph (i) of the definition of foreign property in subsection 206(1) of the Act, except as prescribed by Regulation, an interest in a partnership is a foreign property.

6 August 2002 External T.I. 2002-0130735 F - DISPOSITION D'UN PERMIS

Unedited CRA Tags
14 54
licence to operate a seniors home was eligible capital property whereas related agreements with Ministry (that after a point were not automatically renewable) were Class 14 property

Principales Questions:
Est-ce que la disposition d'un permis est une disposition d'immobilisation ou une disposition d'immobilisation admissible?

Position Adoptée:
Selon les informations obtenues du Ministère émettant le permis, la durée du permis ne serait pas limitée. Par conséquent, la disposition du permis serait une disposition d'immobilisation admissible. La détermination finale ne pourrait se faire que suite à une vérification des informations obtenues et à l'analyse des faits et des documents reliés au permis et à sa vente.

6 August 2002 External T.I. 2002-0148245 - SPERM BANKING - WHETHER MEDICAL EXPENSE

Unedited CRA Tags
118.2(2)(9) 118.2(2)(0)

Principal Issues: Whether amounts paid to have an individual's sperm banked (which involved extracting, testing and freezing the sperm), qualifies as a medical expense under subsection 118.2(2) of the Income Tax Act.

Position: Question of fact but may qualify under paragraph 118.2(2)(a).

Reasons: Under paragraph 118.2(2)(a) of the Act, an amount may qualify as a medical expense if it is paid "to a ... public or private licensed hospital in respect of medical ... services..." In the case at hand, the amounts were paid to a public hospital. Further, it is our view that the amounts can be considered to have been paid in respect of medical services given the particular circumstances.

6 August 2002 External T.I. 2002-0141355 - NON-RESIDENT SPOUSE REFUND OF PREMIUMS

Unedited CRA Tags
146(8.8) 146(8.9) 212(1)(l)

Principal Issues: Can a non-resident of Canada open an RRSP?

Position: Yes.

Reasons: There is nothing in the Act to prevent a non-resident from being the annuitant of an RRSP.

2 August 2002 External T.I. 2002-0144225 - MARRIAGE BREAKDOWN RIGHTS

Unedited CRA Tags
146(16)(b)

Principal Issues:
Does the word "rights" in the phrase "settlement of rights arising out of" in paragraph 146(16)(b) include support rights or is its meaning restricted to property rights?

Position:
Word encompasses all rights in law, including support rights.

Reasons:
There is nothing in the Act to restrict the scope of the meaning of the word as used in paragraph 146(16)(b).

2 August 2002 External T.I. 2002-0143165 - Special work site allowance - Angola

Unedited CRA Tags
6(6)

Principal Issues: Is a per diem allowance for board and lodging while working in Angola exempt from tax?

Position: Likely, depends on facts.

Reasons: Criteria in subsection 6(6) of the Income Tax Act appear to be met.

2 August 2002 External T.I. 2002-0140235 - DEDUC CONTRIBUTIONS TO FOREIGN PENSION PLAN

Unedited CRA Tags
147.2(4)

Principal Issues:
A Canadian resident originally from the U.K. is allowed to make current and arrears contributions to the U.K. National Pension Plan ("U.K. Plan") in order to increase the pension she will receive from the U.K. Plan. Can she deduct these additional contributions in computing her income for Canadian income tax purposes?

Position: No.

Reasons: There is no provision in the Act that provides for a deduction.

2 August 2002 External T.I. 2002-0141325 - Income derived from a royalty

Unedited CRA Tags
133(8)

Principal Issues: Whether the income resulting from the disposition of a royalty is income derived from the royalty?

Position: No

Reasons: Consistent with previous position.

2 August 2002 External T.I. 2002-0152445 F - RENTE VIAGERE ET CREDIT

Unedited CRA Tags
118(3) 118(7) 118(8)
an annuity that ceases upon attaining a specified age is not a “life annuity”
Words and Phrases
life annuity

Principales Questions:
Les paiements d'une rente à terme sont-ils admissibles pour le crédit pour pension lorsque le particulier a moins de 65 ans? La rente est-elle une rente viagère?

Position Adoptée:
Les paiements ne sont pas admissibles au crédit. Ce n'est pas un versement d'une rente viagère prévue par un régime de retraite ou d'autres pensions, ou en provenant.

1 August 2002 External T.I. 1999-0013085 - Attribution where settlor is a trustee

Unedited CRA Tags
75(2) 107(4.1)

Principal Issues: 1. Absent specific reversionary conditions attaching to property transferred to a trust, does 75(2) apply when the settlor trust decisions are made by the majority provided that the settlor, who is also a trustee, concurs with the decision?
2. If the answer to Q. 1 is yes, will 75(2) cease to apply if the terms of the trust are changed such that the settlor's explicit consent is not required such that trust decisions are made solely by consensus of the majority, even though the settlor remains one of three trustees?
3. Will 107(4.1) apply to the distribution of property other than the property which was subject to 75(2)?

Position: 1. Yes 2. Generally, yes 3. Yes

Reasons: 1. When the trustees must obtain the consent of the person who contributed the property before distribution or disposition, subsection 75(2) will apply whether or not the contributor is also a trustee.
2. When the settlor or other contributor is one of two or more co-trustees acting in a fiduciary capacity in administering the trust property and there are no specific terms outlining how the trust property is to be dealt with, but rather the property is subject to standard terms ordinarily found in trust indentures, we accept that paragraph 75(2)(b) will generally not be considered applicable. When the conditions which cause 75(2) to apply cease to apply at some future time, such as when the trust is varied, 75(2) will cease to apply at that time.
3. A plain reading of 107(4.1) indicates that it would apply to a capital distribution of any property, and not just the property referred to in 107(4.1)(b) since the reference to "any property" in 107(4.1)(b) does not refer to the same property as referred to in the preamble as "any property". While "the property" referred to in 107(4.1)(c) must refer to the property in 107(4.1)(b) rather than the property referred to in the preamble, this means that the condition in (c) which doesn't result in a FMV distribution can only arise in respect of property that is returned to the contributor. For example, if more than 1 person contributed property to the trust in circumstances under which 75(2) applied, 107(4.1) would apply if any particular property was returned to a person other than the person who contributed the property to the trust.

31 July 2002 External T.I. 2002-0141145 - NPO BENEFITS DISQUALIFY

Unedited CRA Tags
149(1)(l)

Principal Issues:
Will the payment of a refund of fees, the distribution of excess cash or the provision of clothing and parties for members result in an organization ceasing to meet the provisions of paragraph 149(1)(l) of the Act?

Position: Probably but question of fact.

Reasons:
The provision of benefits to members is not allowed under 149(1)(l) of the Act.

26 July 2002 External T.I. 2002-0146365 - BUSINESS INVESTMENT LOSS

Unedited CRA Tags
38(c) 39(1)(c) 50(1)

Principal Issues: Recognition of an ABIL

Position: Question of Fact

Reasons: General comments provided.

25 July 2002 External T.I. 2002-0146695 - PRINCIPAL RESIDENCE APARTMENT

Unedited CRA Tags
54 44(1)

Principal Issues: We have been asked about a situation where one individual (the "Owner") purchased a property (land and building) (the "Property") a number of years ago. Since the purchase of the Property, the Owner has lived in one of the six apartments and rented the other five apartments. The Owner now intends to sell the Property in the near future. The sale will result in a substantial capital gain. We have been asked whether the Owner can claim the principal residence exemption in respect of the five rental units when the Property is sold.

Position: General comments were provided indicating that the Owner could not claim the principal residence exemption in respect of those units. We also provided some general comments on the application of section 44 of the Income Tax Act (the "Act").

Reasons: The "ordinarily inhabited" requirement within the definition of "principal residence" in section 54 of the Income Tax Act (the "Act") would not be satisfied. In addition, a "housing unit" within the definition of "principal residence" is only considered to include one apartment in respect of an apartment building.

25 July 2002 External T.I. 2002-0147085 - EMPLOYEE EXPENSES-DUES

Unedited CRA Tags
8(2)

Principal Issues: A number of medical doctors have established a fund at a hospital to which they contribute annual dues of $XXXXXXXXXX each. The fund is used for food and beverages at meetings, gift baskets for the bereavement of patients or former patients, and retirement gifts. We have been asked whether the medical doctors, who are employees, can deduct the contributions.

Position: Our general position is that the contributions are not deductible.

Reasons: There is no provision within section 8 of the Income Tax Act that allows such a deduction and subsection 8(2) of the Act contains a general limitation denying a deduction from office or employment income except as permitted by section 8 of the Act.

24 July 2002 External T.I. 2002-0143645 - CESSATION OF BUSINESS-CHANGE IN USE

Unedited CRA Tags
13(7)(a) 45(1)(a)(ii)

Principal Issues:

1. Would the "change of use rules" in paragraph 13(7)(a) and/or subparagraph 45(1)(a)(ii) of the Act apply in a scenario where in a particular year a business ceases operations, its assets are sold in the following year and its assets were not used for any purpose from the point of time when the business ceased operating, to the date of the sale of the assets?
2. Would the same change of use rules apply in the same scenario, except that the assets are rented out on a commercial basis from the point of time when the business ceased, to the date of their sale?

Position:

1. No.
2. No.

Reasons:

12 July 2002 External T.I. 2002-0143225 - QUALIFIED FARM PROPERTY

Unedited CRA Tags
110.6(1)

Principal Issues: Would land owned by a partnership be considered QFP.

Position: Likely.

Reasons: Where a partnership owns a parcel of land and carries on the business of farming, it may be considered to principally use the property in that business where all the other requirements of the definition of QFP are satisfied.

10 July 2002 External T.I. 2002-0143035 - SUPERFICIAL LOSS

Unedited CRA Tags
40(2)(g) 54

Principal Issues: Does the superficial loss rule apply to a number of scenarios submitted.

Position: General comments.

Reasons: Application of the Act.

Technical Interpretation - Internal

9 August 2002 Internal T.I. 2002-0145817 F - TAUX DE DEDUCTION - PTPE - ANNEE 2000

Unedited CRA Tags
38 50(1)(A)
BIL realized under s. 50 at end of year (2000) so that ½ an ABIL

Principales Questions:
Est-ce que la perte déductible au titre d'un placement d'entreprise serait égale à la moitié de la perte au titre d'un placement d'entreprise subie par un particulier en 2000 si la perte provenait d'une disposition réputée par le paragraphe 50(1) de la Loi et si le particulier n'avait pas réalisé de gain en capital ni subi d'autres pertes en capital ou PTPE au cours de l'année 2000.

Position Adoptée:
Oui.

6 August 2002 Internal T.I. 2002-0130897 F - RECOMPENSES ES QUASI-MONETAIRES

Unedited CRA Tags
6(1)(D)
gift cards and smart cards with spendable balances do not come within the ITTN 25 gifts policy
s. 67.1(2)(d) exclusion inapplicable to meal or show ticket gifts within ITTN 25 gifts policy
s. 18(1)(l)(ii) applies irrespective whether the membership is an employer gift within the ITTN 25 gifts policy

Principale Question:

1. Est-ce que les cadeaux suivants seraient admissibles à la nouvelle politique sur les cadeaux ?

a) un certificat-cadeau non remboursable;
b) un certificat-cadeau non remboursable dont le solde suite à un achat est converti en
un second certificat-cadeau;

c) une carte à puce ayant une valeur prédéterminée.

2. Est-ce que les cadeaux suivants offerts par un employeur à ses employés sont déductibles:

a) l'achat d'un repas ou d'un billet de spectacle;

b) un abonnement à un club de loisirs ou de sports.

Position Adoptée:

1 a) Non
b) Non
c) Non

2. a) Oui, à 50% s'il s'agit d'un cadeau admissible à la nouvelle politique sur les cadeaux
b) Non

2 August 2002 Internal T.I. 2002-0148547 - S. 17(1), application to taxation years

Unedited CRA Tags
S. 17

Principal Issues: Does subsection 17(1) of the Income Tax Act apply to each taxation year during which the amount owing in question was outstanding, even though at the end of the first taxation year the amount had not yet been outstanding for more than 12 months?

Position: Yes, provided that the amount ultimately was outstanding for more than 12 months.

Reasons: The wording of subsection 17(1) could be interpreted to apply to each taxation year during which the amount owing in question was outstanding provided that the amount ultimately remains outstanding for more than 12 months. This interpretation is also consistent with the Department of Finance's intention.

2 August 2002 Internal T.I. 2002-0148607 - RETIRING ALLOWANCE PARTNERSHIP

Unedited CRA Tags
60(j.1) 248(1)

Principal Issues: Can payment by a partnership to a former partner who has been bought out and to his spouse, who provided consulting services to the partnership, be categorized as retiring allowances.

Position: Question of fact, but based on the information provided, no.

Reasons: In both cases, there was no employment relationship.

29 July 2002 Internal T.I. 2002-0141080 - settlement-retiring allowance

Unedited CRA Tags
56(1)(a)(ii)

Principal Issues: The income tax treatment of various amounts referred to in a settlement agreement between a taxpayer and a former employer.

Position: Question of fact.

Reasons: Since a written settlement agreement is often couched in standard terms, it is necessary to review the statement of claims, relevant correspondence between the parties, etc., as well as the written settlement agreement, to ascertain the true nature of payments made under a settlement agreement.
July 29, 2002

25 July 2002 Internal T.I. 2002-0148697 - STATUS INDIAN-SHAREHOLDER BENEFIT

Unedited CRA Tags
15(1) 81(1)(a)

Principal Issues: Is a subsection 15(1) benefit taxable when received by a status Indian?

Position: It depends on connecting factors.

Reasons: Where the corporation's income is situated on reserve, the 15(1) benefit would be exempt from tax.