Income Tax Severed Letters - 2003-01-03

Ruling

2002 Ruling 2002-013371A - Conversion-taxable CDN Corp to MF Corp

Unedited CRA Tags
131(8) 253.1
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Disposition
addition of retraction right to shares not a disposition

Principal Issues:
1. Does the addition of a retraction right to the share conditions attaching to the common shares of a taxable Canadian corporation result in a disposition of those shares?
2. After the addition of the retraction right will the corporation meet the requirements set out in subsection 131(8) and be a mutual fund corporation?

Position:
1. No 2. Yes

Reasons: The addition of a retraction right or redemption feature to the terms and conditions of the Common shares in this case are not viewed as a significant change to the share attributes so as to cause a disposition of those shares. Based on the facts provided immediately after the addition of the retraction right the corporation satisfies the requirements set out subsection 131(8) and will be mutual fund corporation. However, the determination of whether a corporation meets these requirements at a future time is a question of fact that can only be made following a review of the corporation's activities at that time.

2002 Ruling 2002-0165123 - HEALTH & WELFARE TRUST

Unedited CRA Tags
18(9) 6(1)(a)

Principal Issues:
Whether the proposed transactions will result in the creation of a "health and welfare trust" within the meaning thereof in IT-85R2.

Position: Yes.

Reasons:
The proposed health and welfare trust will satisfy all of the requirements in IT-85R2.

2002 Ruling 2002-0170903 - INDIAN BAND TRUST INCOME

Unedited CRA Tags
149(1)(c)

Principal Issues:
1. Whether the Band is a public body performing a function of government;
2. Whether subsection 75(2) will apply to the Trusts' income; and
3. Whether subsection 105(1) will apply to the distributions made by the Trust to the Band.

Position:
1. Yes.
2. Yes.
3. No.

Reasons:
1. The Band is involved in negotiating a claim settlement with Canada and will continue to be involved in its implementation and administration. The Band is actively involved in the community and provides extensive services and programs;
2. The Band will be considered to constructively receive and contribute the Settlement Amounts to the Trust. The property of the Trust may revert to the Band and may be distributed in accordance with the Bands direction on consent; and
3. Where subsection 107(2) or (2.1) applies to a distribution, there is no benefit for the purposes of subsection 105(1).

2002 Ruling 2002-0171053 - GIFT SUBJECT TO CONDITIONS

Unedited CRA Tags
110.1 15(1)

Principal Issues:
1. Whether a donation constitutes a gift for income tax purposes when the donation is subject to various conditions.
2. Where a corporation, its controlling shareholder and a private foundation enter into an agreement with respect to a donation, will subsection 15(1) apply to include the amount of the donation made by the corporation in the shareholder's income?

Position:
1. Based on the facts, the donation would constitute a gift for income tax purposes.
2. No. The terms of the agreement provide that the corporation may make the gift.

Reasons:
1. In previous files, we concluded that the fact that there are conditions attached to a gift does not, itself, negate the gift. Generally, a donation would qualify as a gift if the donor is freely parting with the funds or property, receives no benefit, other than recognition, in return and the funds or property can never revert to the donor or any related person.
2. The corporation, the shareholder and the private foundation are all parties to the agreement.

Technical Interpretation - External

15 January 2003 External T.I. 2002-0147325 - Attribution - Indirect Transfer

Unedited CRA Tags
74.4(2)

Principal Issues: Whether an individual is considered to have made a transfer or loan, directly or indirectly, to a corporation for the purposes of subsection 74.4(2)?

Position: Generally, no, in the circumstances described.

Reasons: An indirect transfer or loan of property by the individual would generally involve some transfer or loan of property by the individual or a diminution of his interest in property (based on reasoning such as was found in the Kieboom case). An indirect transfer or loan of property does not appear to be made by an individual who controls a corporation in circumstances where the corporation merely transfers internally generated property or makes a loan of such property to another corporation and no related transfer or loan of property is made by the individual to the transferor corporation.

14 January 2003 External T.I. 2002-0154205 F - CARACTERE RAISONNABLE FRAIS

Unedited CRA Tags
67
Summary Under
Tax Topics - Income Tax Act - Section 67
reasonableness of management fees determined by reference to what would be paid a 3rd party

Principales Questions:
Déterminer le caractère raisonnable de frais de gestion payés par une société à une société de personnes lorsque ces derniers couvrent la valeur locative des immeubles et les retraits effectués par les associés dans la société de personnes.

Position Adoptée:
Commentaires généraux. Question de fait.

14 January 2003 External T.I. 2002-0176785 - SUPERFICIAL LOSSES

Unedited CRA Tags
54 40(2)(a)(i) 53(1)(f)

Principal Issues: Do the superficial loss rules apply to a particular scenario?

Position: Yes

Reasons: Application of the Law

13 January 2003 External T.I. 2002-0165285 - RRSP TRANSFER DEATH OF ANNUITANT

Unedited CRA Tags
248(1) 146(1) 60(1)

Principal Issues: Transfer of property from an RRSP on death of the annuitant, where the deceased annuitant has both a spouse and common-law partner.

Position: Provided general information.

Reasons: Information based on appropriate sections of the Act, i.e., definitions of; "refund of premiums", "annuitant", "common-law partner", 146(2)(a)(i), 146(2)(b) and 60(l).

13 January 2003 External T.I. 2002-0177535 - MEDICAL EXPENSE

Unedited CRA Tags
118.2(2)

Principal Issues:
1. Whether cost of TV closed caption device for hearing impaired qualifies as a medical expense
.....2. Whether monthly fee to closed caption service provider would qualify as medical expense

Position:
1.Yes
......2.Yes

Reasons:
1. Provided for in paragraph (q) of regulation 5700
2. device would not otherwise be operational

10 January 2003 External T.I. 2002-0166385 - qsbc shares & connected

Unedited CRA Tags
110.6(1) 186(4) 186(2)

Principal Issues:
1. Would Aco be considered a payer corporation that is connected with Cco for the purposes of the preamble in subparagraph (c)(ii) of the definition of qualified small business corporation share in subsection 110.6(1) of the Act?
POSITION:
1. Question of fact. However, appears to meet the requirements.
REASONS:
1. Our reading of the legislation.

10 January 2003 External T.I. 2002-0174635 - REASONABLE EMPLOYEE AUTOMOBILE ALLOWANCE

Unedited CRA Tags
6(1)(b) 18(1)(r) 7306

Principal Issues: Whether an automobile allowance for purpose of subparagraphs 6(1)(b)(v), (vi) or (vii.1) of the Act is reasonable when it differs from the amount prescribed in section 7306 of the Regulations.

Position: Question of fact, but it is possible, unless excluded by virtue of subparagraphs 6(1)(b)(x) or (xi) of the Act.

Reasons: An allowance designed to cover an employee's out-of-pocket costs to use the automobile in the course of performing the duties of employment, is considered reasonable for the purpose of paragraph 6(1)(b) of the Act. The prescribed amount in section 7306 of the Regulations is only for the purpose of determining the amount deductible by the employer under paragraph 18(1)(r) of the Act.

9 January 2003 External T.I. 2002-0179155 - Overseas Employment Tax Credit

Unedited CRA Tags
122.3

Principal Issues: purpose of and general comments on the OETC were requested

Position: provided comments from budget supplementary information and general comments on the provision

Reasons:

8 January 2003 External T.I. 2002-0133035 - Foreign Reporting of the Settlor

Unedited CRA Tags
233.2, 233.3, 233.6

Principal Issues: Whether the settlor of a non-resident trust can answer no on the T1 return when asked whether he owns foreign property.

Position: Generally yes, but special circumstances have to be considered. However, form T1141 or form T1142 might have to be filed according to section 233.2 or 233.6 of the Act.

Reasons: A settlor does not own the property that he transferred to the non-resident trust. In this situation the settlor does not have an interest in the trust that he created. Accordingly, s. 233.3 of the Act is not applicable.

8 January 2003 External T.I. 2002-0161395 - CAPITAL GAINS RESERVE

Unedited CRA Tags
40(1)(a)

Principal Issues: Whether a reserve under 40(1)(a)(iii) of the Act can be claimed where proceeds consist of trust units held in escrow and released over a 5 year period.

Position: Based on the facts provided, no.

Reasons: Generally, where proceeds consist of trust units or shares which are issued to the taxpayer but held in escrow, no portion of the proceeds can be considered payable after the end of the year.

7 January 2003 External T.I. 2002-0156535 - Article 18 Canada-France Tax Convention

Unedited CRA Tags
Art. 18 (France)

Principal Issues: Whether paragraph 1 of Article 18 of the Canada-France Income Tax Convention applies to pensions paid to a resident of Canada in respect of past dentist self-employment?

Position: No.

Reasons: Paragraph 1 Article 18 clearly states that it only applies to pensions paid in respect of past employment.

10 December 2002 External T.I. 2002-0170495 - OETC - eligibility of wholly-owned sub

Unedited CRA Tags
122.3(2)

Principal Issues: Whether employees transferred from a Canadian employer to an XXXXXXXXXX subsidiary of a Canadian corporation are eligible for the overseas employment tax credit.

Position: Yes, provided all other requirements are met.

Reasons: The definition of "specified employer" includes foreign affiliates. Employees appear to have a qualifying period with each employer.

Technical Interpretation - Internal

16 January 2003 Internal T.I. 2002-0177807 - GST PENALTIES&INTEREST DEDUCTIBILITY

Unedited CRA Tags
9 18(1)(t)
Summary Under
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Income-Producing Purpose

Principal Issues: Whether penalties and interest assessed and/or reassessed under the Excise Tax Act are deductible in computing income for income tax purposes.

Position: Question of fact but generally, yes.

Reasons:
--- For penalties, must meet the criteria set out in 65302 BC Ltd. v. HMQ to be deductible in computing income.
--- Interest paid on late or deficient payments of GST that relate to a business or property will be deductible.

9 January 2003 Internal T.I. 2002-0178147 - Dissolution of foreign Affiliate

Unedited CRA Tags
88(3) 93(1)
Summary Under
Tax Topics - Income Tax Act - Section 88 - Subsection 88(3) - Paragraph 88(3)(d)
upper-tier disposition occurs after lower-tier disposition

Principal Issues: Various issues on 88(3) dissolutions and 93(1) elections

Position: see attached memo

Reasons: see attached memo

9 January 2003 Internal T.I. 2002-0168007 - AIR MILES USED FOR BUSINESS

Unedited CRA Tags
9(1) 18(1)(a) 6(1)(a)

Principal Issues: Tax consequences when corporation reimburses a shareholder/employee for using his personal Air Miles to pay for business-related travel

Position: Question of fact.

Reasons: Deductible to corporation only if payment was made to Mr. X in his capacity as an officer or employee. Not taxable to recipient only where it is clearly established that the employee used his personal Air Miles to pay for business travel, and reimbursement does not exceed fair market value of business trip. Where Mr. X has accumulated both business and personal Air Miles, we will presume that he always uses his business Air Miles first when redeeming the Air Miles for business travel.