Income Tax Severed Letters - 2003-04-11

Principal Issues:
Is a settlement amount paid to an annuitant for loss incurred by an RRSP investment taxable? If so, how is the amount to be reported and do withholding taxes apply?

Position:
Yes the amount is taxable and withholding taxes apply. The amount should be reported on a T4RSP.

Reasons:
When the RRSP experiences an actionable loss on an investment, any damages are the property of the RRSP and should be paid to the RRSP. If the damages are paid to the annuitant, we are of the view that the annuitant receives a taxable benefit under subsection 146(8).

Principal Issues: Whether paragraph 85(1)(b) applies to a situation where a corporation pays an amount owing to a shareholder by assuming a debt owing by the shareholder, even if the affect of that assumption of debt is to reduce the debt that must be assumed by the corporation on a subsequent transfer of property to the corporation?

Position: No.

Reasons: Providing that there is a genuine pre-existing amount owing by the corporation to the shareholder, paragraph 85(1)(b) will not apply to increase the elected amount because the corporation assumes the debt as a repayment of the previous debt.

Principal Issues: Tax treatment of settlement received in lawsuit against former employer

Position: Question of fact. The representative contends the settlement to be made up of amounts for balance owing under employment contract, compensation for lost opportunity to earn rental income from principal residence, and pre-settlement interest.

Reasons: General comments given. We would need to review final settlement agreement, employment contract, and other relevant documents in order to provide definitive comments.

Principal Issues:
Where an employer pays its employees in one week (payroll period) for the employment services rendered in the previous week (payroll period), will the receipt of salary or wages in the first week of the leave of absence for the services rendered in the employee's last week of employment before the leave of absence offend subparagraph 6801(a)(iii) of the Regulations?

Position: No.

Reasons:
Subparagraph prohibits salary and wages earned from the employer or a non-arm's length person or partnership during the period of leave other than the exceptions in clauses A and B of subparagraph 6801(a)(iii).

Principal Issues: 1) Are the premiums paid in respect of a long-term care insurance policy qualified medical expenses for purposes of the medical expense tax credit? 2) Are the payments under the policy taxable to the recipient?

Position: 1) No 2) No

Reasons: 1) The policy does not specifically provide for the payment or reimbursement of qualifying medical expenses. 2) Benefits under the plan are not required to be included in income under the Act.

Principal Issues:
Can a RRIF make a payment to the annuitant's former spouse as a result of marriage breakdown (under paragraph 146.3(14)(b)) resulting in the RRIF holding property with FMV of less than the minimum amount?

Position: Yes

Reasons:
Paragraphs 146.3(2)(e.1) and (e.2) do not apply. The carrier must pay out the lesser of the minimum amount or the FMV of property remaining in the RRIF after the transfer.

2003-018296
XXXXXXXXXX Renée Shields
(613) 948-5273
April 7, 2003

Principales Questions: Vous désirez savoir si les dispositions de la Loi concernant les pertes apparentes s'appliquent dans la situation où un particulier subit une perte en capital lors de la vente des actions qu'il détient dans une société publique et à l'intérieur d'un délai de 30 jours après cette vente, la fille du particulier achète les mêmes biens ou des biens identiques.

Vous désirez savoir si notre opinion est la même dans la situation où, au lieu d'être la propriété du père, les actions sont la propriété d'une société de gestion détenue à 100 % par le père et la perte en capital est subie par ladite société.

Position Adoptée: Non, les dispositions de la Loi concernant les pertes apparentes ne s'appliquent pas dans les deux situations.

Principal Issues: Does the CCRA accept that value of an interest in a discretionary trust is nil because it is difficult to determine?

Position: No

Reasons: CCRA response to this question at the 1992 BC Conference of the CTF was that it was admittedly difficult to quantify the value of an interest in a discretionary trust. It would be unreasonable to conclude that the FMV of an interest is a discretionary trust holding property with significant value has no value simply because it is difficult to measure. In absence of any term of the trust that would direct the trustees to favour one beneficiary over another, the even handed principle would suggest that value of each beneficiary's interest was approximately equal. Where the facts support a finding that one beneficiary has a lesser chance of receiving a distribution from the trust than another beneficiary, it may be appropriate to discount the value of one interest and increase the value of another.

Principal Issues: (1) Whether payments based upon "net business income", plus a minimum amount, by XXXXXXXXXX to the City of Portland, Oregon and Multnomah County, Oregon are eligible for a foreign tax credit in Canada?
(2) Are the City of Portland, Oregon and Multnomah County, Oregon a "government of a country other than Canada" for the purposes of subsection 126(2)?

Position: (1) Yes to the payments based upon "net business income". No to the minimum amount, but it is eligible as a deduction from business income pursuant to paragraph 18(1)(a). (2) Yes.

Reasons: (1) The payments based on "net business income" are an "income or profits tax". The minimum fee is not, but it is incurred for the purposes of gaining or producing income. (2) The City of Portland, Oregon and Multnomah County, Oregon are each a "political subdivision" of the United States.

Principale Question:

Est-ce que le revenu d'emploi d'un travailleur XXXXXXXXXX est exonéré d'impôt ?

Position Adoptée: Question de fait
RAISON POUR POSITION ADOPTÉE: Commentaires généraux

Principal Issues:
Does the seizure of property held in a DPSP offend paragraph 147(2)(e) which prohibits the surrender or assignment of any rights or interests of a beneficiary of a DPSP?

Position: No.

Reasons:
Paragraph 128(2)(a) deems the trustee in bankruptcy to be the agent for the bankrupt even though the bankrupt's assets vest with the trustee by operation of the bankruptcy statutes. Since an agent acts on behalf of the principal, there is no change in the legal ownership of the assets of the DPSP and paragraph 147(2)(e) is not offended.

Principal Issues:
Does a T2220 for an RRSP transfer on marriage breakdown have to be filed?

Position: No.

Reasons:
Issuer of the transferor RRSP must issue a T4RSP to the transferor with the amount transferred in Box 35 and the S.I.N. of the annuitant of the recipient RRSP in Box 36. Form T2220 must also be completed but is retained by the issuer.

Principal Issues:
Can a minor child receive annuity payments during the year in which he or she is 18 but before the day he or she turns 19 where an annuity is purchased pursuant to 60(l)(ii)(B)?

Position: Yes.

Reasons: The term "age in whole years" as used in clause 60(l)(ii)(B) means age in completed years.

Principal Issues:
Can the beneficiaries of a RRIF utilize a loss realized by a RRIF on distribution of the assets held by the RRIF? The loss originated from a decline in the value of the value of the assets during the period from the date of the RRIF annuitant's death and the date of the distribution of the RRIF assets to the beneficiaries.

Position: No.

Reasons:
There is no provision in the Act that allows the loss to be flowed out of the RRIF to the RRIF beneficiaries.

Principal Issues:
Is the CCRA and the Department of Finance working on trying to find a solution to the problem which exists where the RRSP asset value declines after the death of the RRSP annuitant.

Position: Yes.

Reasons:
Even though there is no provision in the Act that allows the loss to be flowed out of the RRSP to the RRSP beneficiaries, the CCRA, working with the Department of Finance, is looking at the issues. See Comments at 2002 RRSP/RRIF Consultation Session..

Principal Issues: Eligibility for the Tuition Tax Credit

Position:
XXXXXXXXXX

Reasons: General comments provided.

Principal Issues: RRSP - non-qualified investment

Position: This is a completed transaction requiring administrative relief. Forwarded to Assessment & Collections.

Reasons: Not an interpretation request.