Income Tax Severed Letters - 2003-04-04

Principal Issues: Follow-up inquiry to 2002-017458, in which we provided an opinion that an honorarium earned by a councillor for serving on certain commissions, on behalf of a municipality, is employment income when:
(a) The amount was paid directly to the municipality by the commission at the direction of the councillor or
(b) The amount was paid to the councillor by the commission and then turned over to the municipality by the councillor.
We also indicated that if all the conditions of section 118.1 of the Act were otherwise met, the councillor would be entitled to claim a non-refundable tax credit for a gift made to a Canadian municipality.
In the follow-up inquiry, further information was provided which indicated that the municipality has the authority to demand that a certain commission pay it an honorarium without the concurrence of the councillor. The municipality exercises this authority when the councillor already receives an annual salary for performing the duties of his or her office, which includes representing the municipality on the commission.

Position: If the municipality exercises its authority to demand that the commission directly pay it an honorarium, and does so without the concurrence of the councillor, the amount is not required to be included in the councillor's income under the Act. However, the councillor is not entitled to claim a non-refundable tax credit for the amount under section 118.1 of the Act.

Reasons: The councillor has not received the amount or directed the commission to pay it to the municipality. Therefore, paragraph 6(1)(c) and subsection 56(2) of the Act are not applicable. Further, under these circumstances it is likely that the amount can be considered a reimbursement to the municipality of an amount already paid to councillor and included in the councillor's taxable employment income by the municipality.
The councillor would not be entitled to a non-refundable tax credit under section 118.1. The amount would not be considered a "gift" under these circumstances, nor would it be reasonable to allow a credit in this situation since the amount in question is not included in the councillor's employment income.

Principal Issues: 1. Does policy apply to gifts and awards that do not bear corporate logo, and gifts and awards of leisure, recreational, or travel services?
2. Does policy apply to gifts and awards of points that can be redeemed at financial institutions for services and RRSP contributions?
3. Does policy apply to accumulations of points that can be used to select items from employer-provided catalogue?
4. Does policy apply to gifts made by manufacturers to employees of independent distributors?
5. Does policy apply to rewards given to employees for meeting or exceeding economic targets directly related to their employment duties?
6. Does policy apply to gifts and awards costing more than $500, where the employee reimburses the employer for part of the cost of the item?

Position: 1. No requirement for items to bear corporate logo. Question of fact for travel, leisure and recreational services, depending on whether the item is considered near-cash.
2. Policy does not apply to points that can be redeemed for financial services.
3. Question of fact depending on method by which, and circumstances under which points are accumulated, and variety of merchandise available for selection.
4. Policy does not apply to gifts by third parties.
5. Rewards for achieving economic objectives related to employment duties are presumed to be remuneration, unless the employer can establish the contrary.
6. Policy does not apply to gifts or awards costing more than $500 regardless of whether the employer reimburses the employee for part of the cost.

Reasons: Consistent with underlying rationale for policy.

Principale Question:

Le gain en capital tiré d'un don d'une action cotée à une bourse de valeurs en faveur d'une fondation publique est-il imposable en vertu de l'alinéa 38a.1) de la Loi, si le don fait en sorte que la fondation publique deviendra une fondation privée?

Position Adoptée: Oui
RAISON POUR POSITION ADOPTÉE: Analyse législative

Principal Issues: In a situation where the capital-stock of a corporation is made up of a number of classes of participating common shares, each class being entitled to dividends at the directors discretion, whether (1) the corporation's safe income on hand can be considered attributable only to the shares of one class if the corporation paid a dividend equal to its safe income on hand only on the shares of that class ? (2) If the answer to (1) is yes, can the shares of that class participate in the safe income on hand earned before the issuance of the shares of that class ?

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

Reasons: (1) The fact that a dividend is paid on the shares of one class of discretionary / exclusionary shares is not, in and of itself, determinative of the safe income attributable to the shares of that class of the capital stock of the corporation. The allocation of safe income on hand between different classes of shares cannot be made without knowing all the facts and circumstances surrounding a particular situation, especially when "discretionary dividend shares" are issued and outstanding. (2) CCRA's long standing position is that generally a share participates in the safe income on hand of a corporation, based on its entitlement to participate in the income of the corporation earned during the "holding period" of the share, that is from the time it is acquired to the day of the safe- income determination time.

Principal Issues:
What is the taxation effect to employee in a group savings plan arrangement?

Position:
The arrangement appears to be an RCA. As such, employees are taxed when amounts are paid to them from the RCA.

Reasons:
Employees are not entitled to amounts from the group savings plan until they cease employment with the employer. As such, the arrangement appears to fit the definition of RCA. Under 56(1)(x), an amount received in a year from an RCA is taxable to the recipient.

Principal Issues: (1) Whether ITTN no.24 refers only to increase in spousal support. (2) Whether a breakdown of legal fees between spousal and child support necessary. (3) Whether announced change in position can be applied to the taxation year 2001 if objection period not expired.

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

Reasons: (1) Applies to legal fees incurred to increase both spousal and child support. (2) The same tax treatment is given to fees that relate to both. (3) As mentioned in announcement, change in position applies to all future assessments and reassessments.

Principal Issues: The application of section 84.1 to a group of shareholders who transfer their shares of Opco to a holding corporation, Xyco.

Position: Section 84.1 may apply.

Reasons: It appears that the shareholders are acting in concert and therefore do not factually deal at arm's length with Xyco.

Principal Issues: Is a U.S government pension subject to Canadian tax?

Position: Yes.

Reasons:
Paragraph 1 and subparagraph 2(a) of Article XVIII of Canada-U.S. Income Tax Convention.

Principales Questions:
Les intérêts sont-ils déductibles par suite d'une série de transactions effectuées dans le but de rendre les intérêts déductibles?

Principal Issues:
Whether a severance payment qualifies as a retiring allowance when the former employee may be hired as a consultant.

Position: Question of fact

Reasons:
Unsure whether employment ceased or continues under the circumstances.

Principales Questions: Le paragraphe 107.4(4) s'applique aux fins de la Loi?

Position Adoptée: Oui.

Principal Issues:
Various questions regarding the applicability of subsection 7(1.1)

Position: Question of Fact

Reasons: General comments provided.