Income Tax Severed Letters - 2002-08-16

Principal Issues: Will a corporation that is a member of a limited partnership be considered to employ the employees of the limited partnership for purposes of the test in clause 206(1.1)(d)(iii)(A?

Position: Generally, yes.

Reasons: In the context of the definition of "specified investment business" we stated at the 1988 CTF Conference Roundtable that "with respect to the partner's income from the particular partnership only, each full-time employee of the particular partnership will be considered to be a full-time employee of each corporate partner, whether general or limited". For the purposes of section 7, we have taken the position that corporate partners may generally be treated as being the employer of the employees of the partnership (in the absence of facts to the contrary such as a separate employment contract between an employee and one of the partners of the partnership).

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

Does outside employment by a member of a religious order jeopardize the status of the religious order that have no restrictions on outside employment or services members can engage in?

Principal Issues: Whether subsection 164(6) of the Act will apply to a situation in which a personal-use property that is a principal residence is transferred to a testamentary trust (estate) upon the death of its owner and then disposed of by the estate at a loss.

Position: Question of Fact

Reasons: Pursuant to subparagraph (a)(iii) of the definition of "personal-use property" in the case of a trust includes property that is used primarily for the personal use or enjoyment of a beneficiary under the trust or any person related to the beneficiary. A residence owned by an estate which has not been used by any of the estate's beneficiaries or any person related to the beneficiaries, would, in our view, not meet subparagraph (a)(iii) of the definition of personal-use property as found in section 54 of the Act and therefore a deductible capital loss (to which subsection 164(6) may apply) can be created on its disposition.

Principal Issues:
Does Section 80 apply in a situation where a parent company makes a contribution of capital consisting of cash to its subsidiary which is then used by the subsidiary to repay a debt to a non-resident sister corporation. The Taxpayer also asked for comments with respect to GAAR.

Position:
Section 80 not likely to apply. General comments were provided with respect to GAAR. Following a meeting with the Policy Review Committee, it was decided that any existing technical interpretations discussing GAAR will be withdrawn

Reasons:
The amount is repaid in full by cash.

Principal Issues: Whether real estate commissions are received as income or reduce the cost of the property acquired.

Position: Commission income.

Reasons: The cost of the property is the amount actually paid therefore. The amount of commissions paid by the vendor is based on this selling price. The amount received by a real estate broker would therefore be received as commissions and therefore included in income.

Principal Issues:
1. Should the calculation in subsection 18(4) be made using the average of the all of the calendar months that end in the year, even if there is no debt or equity outstanding in a particular month?
2. Does the term "beginning of a calendar month" in subparagraph 18(4)(a)(ii) mean the end of the previous month, or any time on the first day of the month?
3. If debt is repaid at the first instance in a month, will the debt be included in the computation of "outstanding debts to specified non-residents" in subparagraph 18(4)(a)(i)?
4. In determining the amount of PUC and contributed surplus at the beginning of a month for purposes of subsection 18(4), will we apply our position in paragraph 9 of IT-474R so that in the absence of a specified time, an amalgamation takes place at the earliest moment on a date?

Position:
1. Yes
2. Neither
3. No
4. Yes

Reasons:
1. The provision appears to contemplate that the averages be computed using all of the calendar months in the year.
2. The term "beginning of a calendar month" means the earliest moment on the first day of the month.
3. If the debt is extinguished at the earliest possible moment in a month, it can't be said to exist prior to that time in the month.
4. Section 87 intends to provide a rollover in an amalgamation that qualifies, and it would be reasonable to apply this position for the thin capitalization rules.

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

Does a specialized minister for ministering to the youth within the XXXXXXXXXX Church qualify for the 8(1)(c) deduction?

Principal Issues: Whether paragraph 93.1(2)(d)(i) of the Act permits the partner a deduction equal to his share of the gross amount of the dividends received by the partnership?

Position: Yes.

Reasons: Based on administrative practice of the CCRA (see paragraph 4 of IT-138R - even though that bulletin has been withdrawn, the position in paragraph 4 still stands) and the policy intent of that subparagraph.

Principal Issues:
(1) Whether clause 95(2)(a)(ii)(D) will apply on the given fact scenario where an income transfer payment as made by one Swedish foreign affiliate to another Swedish foreign affiliate in an amount that is equal to the amount of loss in the latter affiliate?
(2) Assuming there is no income transfer payment and the foreign affiliates merged part way through the year, whether (a) on the given fact scenario and with regard to Swedish income tax law, clause 95(2)(a)(ii)(D) could apply for the first half of the year; or (b) clause 95(2)(a)(ii)(B) could apply to the whole year?

Position: (1) No (2)(a) Yes; (b) No but to latter part of the year.

Reasons: (1) There is no "group" created in the case where there must be a tax deductible payment; (2)(a) under Swedish income tax law, a group exists from the beginning of the merger year so clause 95(2)(a)(ii)(D) can apply; (b) after the merger, clause 95(2)(a)(ii)(B) will apply to payments made by FA3.

Principal Issues: Shares redeemed- application of 84(3)

Principal Issues: Whether reimbursement of work permit charges and visa fees for an employee and his family constitutes taxable employment benefits where the employee moves to Canada to commence work with the employer

Position: Not a taxable benefit

Reasons: Paragraph 35 of IT470R provides that the payment of reasonable removal expenses to move an employee and his family would not be a taxable benefit where the employee moves as a result of starting employment with a new employer. We have previously given opinions that this policy applies where an employee moves into Canada. Since the employee cannot work in Canada without obtaining the work permit, and his family cannot enter Canada without a visa, these costs can be considered as part of the reasonable removal expenses.

Principal Issues: General questions on application of Singapore tax convention.

Position: Singapore convention applies in usual way to income taxes in year of immigration to Canada (the taxpayer will be a part-year resident).

Reasons: n/a

Principal Issues: Whether amount A of the formula in subsection 127(10.2) of the Income Tax Act must include the taxable incomes of all associated corporations if an election under subsection 256(2) of the Act has been filed by one of the corporations.

Position: Yes.

Reasons: The wording in subsection 256(2) provides that an election applies only for purposes of section 125 of the Act

Principal Issues:
Treatment of legal costs and possibly losses resulting in sale and recovery of taxi business

Position:
General information provided.

Reasons:
Insufficient information.

Principal Issues: Does a pro rata cancellation of shares result in a reverse stock-split with no income tax consequences?

Position: No. The outright cancellation of some of the issued shares of a corporation results in a disposition of those shares and possibly a benefit. Based on IT-65 a reverse stock-split can be accomplished without income tax implications but the change to the number of shares under the applicable corporate law must not result in a disposition of those shares.

Reasons: See above.

Principal Issues:
Is the First Nation a Public Body Performing a Function of Government?

Position: General Comments only

Reasons: Question pertains to proposed transaction.

Principal Issues:
Does a medical examination provided by an employer's physician give rise to a taxable benefit where:
(a) It is provided only to executives over the age of 40 at the discretion of the employee.
(b) It is provided to new employees as a condition of their employment.

Position:
(a) Yes.
(b) No.

Reasons:
(a) The employee is the primary beneficiary of the expense incurred by the employer.
(b) The employer is the primary beneficiary.