Income Tax Severed Letters - 2002-08-02

Ruling

2002 Ruling 2002-0134163 F - ALLOCATION DE RETRAITE TRANSFEREE-REER

Unedited CRA Tags
60(j.1) 56(1)a)(ii) 248(1)

Principales Questions:
Un montant qu'un contribuable reçoit constitue-il une allocation de retraite? Le contribuable a-t-il le droit de transférer ce montant à son REÉR?

Position Adoptée:
Il ne s'agit pas d'une allocation de retraite. Le montant ne peut pas être transféré au REÉR du contribuable et donner lieu à une déduction en vertu de l'alinéa 60j.1) de la Loi. Il s'agit d'un revenu d'emploi.

2002 Ruling 2002-0138993 - XXXXXXXXXX . - 95(2)(a)(ii)(D)

Unedited CRA Tags
95(2)(a)(ii)(D) 84(3)
Summary Under
Tax Topics - Income Tax Act - Section 84 - Subsection 84(3)
Summary Under
Tax Topics - Income Tax Act - Section 95 - Subsection 95(2) - Paragraph 95(2)(a) - Subparagraph 95(2)(a)(ii) - Clause 95(2)(a)(ii)(D)

Principal Issues: Where a foreign affiliate of a taxpayer acquires shares of the taxpayer to be delivered to the shareholders of a public corporation resident in the same country of the foreign affiliate for their shares of the public corporation, would such initial acquisition of the taxpayer's shares jeopardize the application of subclauses 95(2)(a)(ii)(D)(I) and 95(2)(a)(ii)(D)(III) where the funds used to make the acquisition is borrowed from a sister affiliate?

Position: No.

Reasons: As in the case of paragraph 20(1)(c), our position is that the current eligible use of the funds is the key, not the former ineligible use.

2002 Ruling 2002-0141723 - ATR FLEXIBLE BENEFIT PLAN

Unedited CRA Tags
6(1)(a)

Principal Issues:
Changes to an existing flexible benefit plan, whereby an employee would forgo the right earn further continuous service for the purposes of long-service payments, in lieu of additional flex credits under the plan.

Position:
Favourable ruling given.

Reasons:
See Statement of Principal Issues.

2002 Ruling 2001-0083623 - XXXXXXXXXX

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

Principal Issues: Standard paragraph 55(3)(a) exception from the application of subsection 55(2). Whether the acquisition of shares by Parent as part of the series caused subsection 55(4) to apply?

Position: Paragraph 55(3)(a) exception met. The taxpayer provided a statement that none of the main purposes of the acquisition of the shares by Parent was to cause two or more persons to be related to each other.

Reasons: The law.

2002 Ruling 2002-0151293 - ACB ADJUSTMENT PARTNERSHIP

Unedited CRA Tags
53(1)(e)(i) 54 53(2)(c)(i)

Principal Issues:
ACB adjustment to partnership interest on winding-up because year end is XXXXXXXXXX and for business reasons the partnership can't terminate immediately after year end.

Position: Give 53(1)(e)(i) ruling

Reasons:
Administrative relief to avoid double taxation and take in oversight on original ruling request

2002 Ruling 2001-0100573 - GIFT OF CULTURAL PROPERTY

Unedited CRA Tags
110.1(1)(c) 118.1(1) 39(1)(a)(i.1) 118.1(10)

Principal Issues:
1. Whether or not certain properties which are to be donated to a designated institution as cultural property will qualify as a gift.
2. Will the fact that a sale of similar properties to the same designated institution which will occur at the same time as and is conditional on the donation of the other properties defeat the fact that a gift has been made?

Position:
1. Yes
2. No

Reasons:
1. The transfer of the properties meet the requirements of a gift for purposes of the Income Tax Act
2. The sale is to take place at fair market value.

2002 Ruling 2002-0119293 - Split up Butterfly

Unedited CRA Tags
55(3)(b)

Principal Issues: Split-up butterfly

Position: Rulings granted

Reasons: Standard butterfly

2002 Ruling 2002-0127033 - EXCHANGE OF PROPERTY

Unedited CRA Tags
44 13(4) 13(7)(e)

Principal Issues: Whether two brothers who have joint-ownership of several pieces of land, and propose to exchange their interest with each other so that each has an undivided interest in certain parcels, can defer the resulting capital gains using subsection 44(1) of the Act.

Position: Replacement property election can be made. However, land would be depreciable property in this case because each parcel is a timber limit. Accordingly, paragraph 13(7)(e) would be relevant in determining the capital cost for CCA purposes.

Reasons: The replacement property rules can apply to non-arm's length sales. Even though no CCA has been claimed on the timber limits, paragraph 13(7)(e) would still be applicable in determining the cost of the property for CCA purposes. This deemed cost would be used in the 44(1)(f) formula, but only for CCA purposes. The preamble to subsection 13(7) provides that the subsection only applies for CCA purposes.

2002 Ruling 2002-0134143 F - ALLOCATION DE RETRAITE TRANSFEREE-REER

Unedited CRA Tags
248(1) 60(J.1) 56(1)A)(II)

Principales Questions:
Un montant qu'un contribuable reçoit constitue-il une allocation de retraite? Le contribuable a-t-il le droit de transférer ce montant à son REÉR?

Position Adoptée:
Il s'agit d'une allocation de retraite. Le montant peut être transféré au REÉR du contribuable et donner lieu à une déduction en vertu de l'alinéa 60j.1) de la Loi.

Ministerial Correspondence

19 August 2002 Ministerial Correspondence 2002-0142374 F - DEPENSE AUTO - RECENSEURS FEDERAUX

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

Principales Questions: Les employés peuvent-ils déduire des frais de véhicules à moteur s'ils reçoivent une compensation imposable pour les frais qu'ils doivent engager dans l'accomplissement des fonctions de leur emploi?

Position Adoptée: Oui.

7 August 2002 Ministerial Correspondence 2002-0146444 - MC REPAIR VERSUS CAPITAL

Unedited CRA Tags
20(1)(A)

Principal Issues:
The detrimental effect certain provisions of the Income Tax Act may have on the willingness of landlords to maintain or rejuvenate inner-city housing.

Position:
Requires legislative change.

Reasons:
See below

31 July 2002 Ministerial Correspondence 2002-0149214 - MC FINES & PENALTIES 65302 BC LTD

Unedited CRA Tags
18(1)(A)

Principal Issues:
Supreme Court decision in 65302 British Columbia Limited - whether the Act would be amended.

Position:
Finance's responsibility.

Reasons:
CCRA's role to administer the Act as passed by parliament.

30 July 2002 Ministerial Correspondence 2002-0148224 - MC MOVING EXPENSES XXXXXXXXXX

Unedited CRA Tags
6(1)(A)

Principal Issues:
Whether or not moving expenses reimbursed by XXXXXXXXXX to an officer, to enable the officer to move out of a remote place upon retirement, constitutes a taxable benefit.

Position:
No. Referred the matter to the TSO to adjust the return.

Reasons:
The position in paragraph 36 of IT-470R regarding remote places, applies to XXXXXXXXXX , and therefore the moving expenses are not taxable. Further, since the original move to XXXXXXXXXX was an eligible relocation, subsection 6(20) rather subsection 6(19) applies with respect to the reimbursement of the housing loss.

10 July 2002 Ministerial Correspondence 2002-014822A - REFFERAL MC MOVING EXPENSES XXXXXXXXXX TO TSO

Unedited CRA Tags
6(1)(A)

Principal Issues:
Whether or not moving expenses reimbursed by XXXXXXXXXX to an officer, to enable the officer to move out of a remote place upon retirement, constitutes a taxable benefit.

Position:
No. Referred the matter to the TSO to adjust the return.

Reasons:
The position in paragraph 36 of IT-470R regarding remote places, applies to XXXXXXXXXX , and therefore the moving expenses are not taxable. Further, since the original move to XXXXXXXXXX was an eligible relocation, subsection 6(20) rather subsection 6(19) applies with respect to the reimbursement of the housing loss.

Technical Interpretation - External

27 August 2002 External T.I. 2002-0128435 - Flow-Through Special Warrants

Unedited CRA Tags
66(15)

Principal Issues: Can a loss be claimed when no expenses are renounced with respect to flow-through shares?

Position: No

Reasons: FTS have an acb of nil

26 August 2002 External T.I. 2002-0149165 - STOCK BASED COMPENSATION PART1.3 AND PART V1

Unedited CRA Tags
190.13(a)(ii) 181.3(3)(a)(ii)

Principal Issues:
Are stock-based compensation amounts, as described in section 3870 of the CICA Handbook, included in capital for the purposes of Part I.3 and Part VI of the Act?

Position: Yes

Reasons:
181.3(3)(a)(ii) and 190.13(a)(ii) includes in the calculation of capital, among others, the amount of retained earnings and contributed surplus. It is now our position that where terminology used in Part I.3 derives its meaning from accounting concepts, the accounting meaning of the term will determine whether the item is to be included in capital.

23 August 2002 External T.I. 2002-0152695 - CHARITABLE DONATION LOANBACK

Unedited CRA Tags
118.1(1) 110.1(1) 118.1(16)

Principal Issues:
Whether or not a charitable donation has been made in circumstances where a sum of cash is donated to a registered charity and the same amount is thereafter loaned back to the donor for a specified term with interest payable on a regular basis or in a lump sum at the end of the term.

Position: No

Reasons: Insufficient facts. Does not meet the definition of a gift.

21 August 2002 External T.I. 2002-0153455 - MEALS PROVIDED AT A YOUTH FACILITY

Unedited CRA Tags
67.1(1) 67.1(2)

Principal Issues:
Are Meals Provided At A Youth Facility Subject To The 50% Limitation?

Position:
No.

Reasons:
67.1(2)(a)

21 August 2002 External T.I. 2002-0157765 - M&E EXPENSES STAFF PARTIES

Unedited CRA Tags
67.1(2)(F) 67.1(1)

Principal Issues:
Application of paragraph 67.1(2)(f) to two situations.

Position: See below

Reasons: See below.

19 August 2002 External T.I. 2002-0150325 - PART 1.3 ALL OR SUBSTANTIALLY ALL

Unedited CRA Tags
181(1) 181(3) REG 8604(a)

Principal Issues:
What measuring basis does the Agency use to apply the criteria "all or substantially all" in subsection 8604(a) of the Regulation?

Position:
Generally, the cost of the assets as presented in the financial statements is an appropriate measurement basis. However, this is subject to what is reasonable in the particular circumstances depending on the facts of the particular situation.

Reasons:
8604(a) does not specify a measuring basis. This is consistent with the Agency's position which has been to use the cost of the assets or liabilities for accounting purposes (see E9309871).

16 August 2002 External T.I. 2002-0153435 - GIFT BY WILL INCLUSION RATE

Unedited CRA Tags
38(a.1)

Principal Issues:
Does the reduced inclusion rate under subparagraph 38(a.1)(ii) apply to a gift made to a private foundation?

Position: No.

Reasons:
Wording of the Act. The gift has to be made to a qualified donee other than a private foundation.

13 August 2002 External T.I. 2001-0108715 - French General Partnerships

Unedited CRA Tags
Art. X(2); Art. IV Art. III of Canada - France Income Tax Convention

Principal Issues: Would the 5% reduced rate of withholding tax under Article X(2)(a) of the Canada-France Income Tax Convention (the "Canada-France Treaty") apply to dividends paid by a Canadian-resident corporation ("Canco") to a French SNC which owns all the shares of Canco, where the SNC has elected to be subject to corporate income tax under the domestic income tax laws of France?

Position: An SNC that has elected to be subject to corporation income tax under French tax law, that has its place of effective management in France for French tax purposes and is liable to tax as a corporation considered resident in France for French tax purposes is entitled to claim the benefit of the 5% reduced withholding tax rate under Article X(2)(a) of the Canada-France Treaty in respect of dividends received from Canco, where the SNC owns all the issued and outstanding shares of the Canco.

Reasons: Such an SNC is a resident of France for purposes of the Canada-France Treaty because it is a person who, under the laws of France is liable to tax in France by reason of its domicile, residence, place of management or any other criteria of a similar nature. Such an SNC is also the beneficial owner of the dividends received from Canco and a company liable to corporation tax which controls at least 10% of the voting power in Canco.

13 August 2002 External T.I. 2002-0143295 - LUMP SUM AMOUNTS

Unedited CRA Tags
110.2(1)

Principal Issues:
Whether a retroactive lump-sum payment received as a result of a job classification grievance is a "qualifying amount" for the purposes of a deduction in the computation of taxable income under section 110.2 of the Income Tax Act (the Act).

Position:
In this case, no.

Reasons:
Subsection 110.2(1) definition of qualifying amount requires that the amount be received pursuant to:
(1) An order or judgment of a competent tribunal;
(2) An arbitration award; or
(3) A contract by which the payor and the individual terminate a legal proceeding.
The retroactive wage settlement agreement reached between the taxpayer and the employer in this case was not pursuant to one of these conditions.

12 August 2002 External T.I. 2002-0150095 F - Capital Dividend Account

Unedited CRA Tags
89(1)
Summary Under
Tax Topics - Income Tax Act - Section 89 - Subsection 89(1) - Capital Dividend Account - Paragraph (d)
surrogatum principle not applied to damages received from insurance company for alleged default in paying life insurance proceeds

Principal Issues: Whether an amount received by a corporation from an insurer pursuant to an out of court settlement with respect to the negligence of an insurance agent can be included in its capital dividend account.

Position: No.

Reasons: Not proceeds of a life insurance policy.

8 August 2002 External T.I. 2002-0143015 - PRESCRIBED INTERNATIONAL ORGANIZATION

Unedited CRA Tags
110(1)(F) 8900(A)

Principal Issues:
Whether XXXXXXXXXX is a prescribed international organization.

Position:
No.

Reasons:
Paragraph 8900(a) of the Regulations requires that the agency in question be a "specialized agency" brought into a relationship with the United Nations under Article 63 of the Charter of the United Nations. While XXXXXXXXXX is indirectly associated with XXXXXXXXXX (a specialized agency under the Charter), it is apparent from Article 63 that XXXXXXXXXX itself must be brought into relationship with the United Nations by an agreement that has been approved by the General Assembly

31 July 2002 External T.I. 2002-0148185 F - Public Corporation

Unedited CRA Tags
110.6(1) 125(7) 89(1)

Principal Issues: Whether, in a particular fact situation, a corporation with a class of shares of its capital stock traded over-the-counter on NASDAQ or on the Tier 3 of the Canadian Venture Exchange is a "public corporation" under paragraph (a) of the definition of public corporation in subsection 89(1) of the Act, or meets the condition provided under paragraph (c) of the definition of "Canadian controlled private corporation" in subsection 125(7) of the Act.

Position: No.

Reasons: No categories of shares listed on a prescribed stock exchange.

31 July 2002 External T.I. 2002-0145335 - WAGE LOSS REPLACEMENT PLAN - TAX STATUS

Unedited CRA Tags
6(1)(A) 6(1)(F)
Summary Under
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(f)

Principal Issues: Whether a disability insurance plan is an employee-pay-all plan

Position: Question of fact. Status of plan can only be determined by reviewing all of the documentation including the contract with the plan carrier, and the employment contract.

Reasons: For a plan to be an employee-pay-all plan, the employees must be legally responsible for paying all of the premiums, notwithstanding that the employer may withhold the premiums from the employees' wages and remit them on behalf of the employees.

29 July 2002 External T.I. 2002-0146715 - FYE JOINT VENTURE

Unedited CRA Tags
249.1

Principal Issues:
Whether the CCRA's administrative position on joint venture fiscal year-ends, announced in question 40 at the 1989 Round Table, will apply in a specific case so that the joint venture can have a fiscal year-end different from its participants, and a corporate participant can report its share of income from the joint venture for the fiscal period of the joint venture ending in or coincident with its taxation year.

Position:
Unable to provide definitive comments.

Reasons:
There must be a valid business reason for this administrative position to apply - insufficient information provided to make such a determination. The local TSO would be in the best position to provide assistance.

Technical Interpretation - Internal

27 August 2002 Internal T.I. 2002-0140967 - EXPENSES - WORK SPACE IN HOME

Principal Issues: A Tax Services Office has written to us about work space in the home expenses (subsection 18(12) of the Income Tax Act (the "Act")) where, in respect of past taxation years, an individual's business expenses exceeded the individual's income from her business (the business is providing care to children) such that she has a carry forward of work space expenses. As the individual is going to take a period of "maternity leave", we have been asked about the carry forward of the excess expenses.

Position: (i) It is our view that if the individual did not carry on the business operation for a full taxation year (i.e., from January 1 to December 31 of the year following the year in which there was a temporary cessation of the business), it would no longer be possible to carry forward any excess expenses.
(ii) It is our view that the business carried on before and after the temporary cessation would have to be construed to be the same business by virtue of the wording in subsection 18(12) of the Act. Whether such is the case involves a question of fact.

Reasons: (i) By virtue of paragraph 18(12)(c) of the Act, if the conditions of paragraph 18(12)(a) of the Act are not satisfied in a taxation year, the carry forward of work space expenses from the immediately preceding year could not be carried forward to any other year, as the carry forward would no longer be "by reason only of" paragraph 18(12)(b) of the Act.
(ii) Paragraphs 18(12)(b) and (c) use the phrase "the business". IT-206R provides guidelines on whether the same business can be considered to be carried on where there are successive business operations.

August 27, 2002

19 August 2002 Internal T.I. 2002-0153887 - NPO JURISPRUDENCE

Unedited CRA Tags
149(1)(l)

Principal Issues: Summary of jurisprudence on NPOs

16 August 2002 Internal T.I. 2002-0154717 - INCOME AVERAGING ANNUITY CONTRACT

Unedited CRA Tags
61(4)

Principal Issues:
Are annuity payments received by an individual in respect of an IAAC which is a life annuity limited by the guaranteed term to a maximum term of 15 years?

Position: No.

Reasons: The wording of the Act.

16 August 2002 Internal T.I. 2002-0156577 F - ASSURANCE - INVALIDITE - PARITE

Unedited CRA Tags
6(1)(F)
Summary Under
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(f)
previous contributions could be deducted from subsequent equalization adjustment received

Principale Question:

Est-ce qu'un contribuable peut déduire des cotisations versées à un régime d'assurance invalidité entre 1990 et 2001 à l'encontre d'un rajustement paritaire reçu en 2001 qui est lié à des prestations d'assurance invalidité dont le contribuable avait bénéficié en 1988 ?

Position Adoptée:
Oui.

31 July 2002 Internal T.I. 2002-0143137 - EXPENSES & BENEFITS YACHTS

Unedited CRA Tags
18(1)(1) 1102(1)(F) 15(1)

Principal Issues:
(1) Deduction of capital cost allowance and operating expenses by a corporation with respect to a yacht owned jointly by it and the sole-shareholder.
(2) Whether the sole-shareholder is receiving a benefit for personal use of the yacht.

Position:
(1) No deductions permitted by the corporation.
(2) Depends on the facts.

Reasons:
(1) Paragraph 18(1)(l) of the Act and paragraph 1102(1)(f) of the Regulations.
(2) Subsection 15(1) of the Act and paragraph 11 of IT-432R2.
July 31, 2002

24 July 2002 Internal T.I. 2002-0137407 - Overseas Employment Tax Credit

Unedited CRA Tags
122.3(1) 122.3(1.1)

Principal Issues: Whether a personnel agency carries on business outside Canada when it assigns its employees to perform services outside Canada for its client?

Position: Probably no.

Reasons: In the case of a personnel agency, the place where it carries on business may be different from the place where its employees are assigned to perform the employment duties.