Income Tax Severed Letters - 2003-04-25

Miscellaneous

2003 Income Tax Severed Letter 2003-0006071 - DSU PLAN AMENDMENT

Unedited CRA Tags
REG 6801(d)

Principal Issues:
Will a 6801(d) plan continue to qualify as a prescribed plan under Regulation 6801(d), where certain amendments are made to the plan.

Position: Yes.

Reasons:
The amendments to the plan do not offend the requirements of paragraph 6801(d).

Ruling

2003 Ruling 2002-0177293 - PHANTOM STOCK PLAN

Unedited CRA Tags
REG 6801(d)

Principal Issues:
Will a DSU plan continue to qualify as a prescribed plan under paragraph 6801(d) of the Regulations where certain amendments are made to the plan?

Position: Yes

Reasons: Paragraph 6801(d) is not offended by the amendments.

2003 Ruling 2003-0001013 - FORWARD CONTRACTS UNIT TRUSTS

Unedited CRA Tags
245(2) 206(1)

Principal Issues:
1. Will the proposed forward contract used by a unit trust to mimic the return of the underlying foreign fund be "foreign property" as defined in subsection 206(1)?
2. Will subsection 245(2) apply to the proposed transaction?

Position: 1) No. 2) No.

Reasons:
1. The forward contract will be executed in Canada, governed by the laws of Canada and will not be convertible into, or exchangeable for, foreign property, nor will the unit trust be entitled to acquire any foreign property under the terms of the contract. The counterparty to the forward contract will not be acting as agent for the unit trust nor will it be obliged in any way to hedge its exposure under the contract.
2. The application of subsection 245(2) to similar transactions was previously considered by the GAAR Committee and it was their view that GAAR was not applicable to the proposed transactions.

2002 Ruling 2002-0175813 - INTEREST DEDUCTIBILITY XXXXXXXXXX

Unedited CRA Tags
XXXXXXXXXX 20(1)(C) 104(7.1)

Principal Issues:
1. XXXXXXXXXX
2. XXXXXXXXXX
3. XXXXXXXXXX

Position:
1. XXXXXXXXXX .
2.XXXXXXXXXX .
3. XXXXXXXXXX .

Reasons:
XXXXXXXXXX

Technical Interpretation - External

25 April 2003 External T.I. 2003-0009945 - RESPITE CARE

Unedited CRA Tags
81(1)(h) 56(1)(u)

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 ISSUE:

Is money received by a respite care provider taxable?

Position TAKEN:

Generally, yes.

Reasons:

24 April 2003 External T.I. 2003-0014385 - DSLP AND FAILURE TO RETURN TO WORK

Unedited CRA Tags
REG 6801(a)

Principal Issues: What are the tax consequences if an employee does not return to work after a period of leave under a 6801(a) plan?

Position: Deferred amounts are taxable at the point in time when the conditions in paragraph 6801(a) are not met.

Reasons: The deferred amounts are no longer held under a prescribed plan or arrangement.

23 April 2003 External T.I. 2003-0003305 - RELOCATION EXPENSE REIMBURSEMENT

Unedited CRA Tags
6(1)(a)

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 ISSUE:

Company hires employee, who relocates from another city and has several months remaining on a leased apartment. The employer pays the employee the difference between the monthly rent and the amount that the employee receives from subletting the apartment. Is this a taxable benefit?

23 April 2003 External T.I. 2003-0012695 - QSBC SHARE-24 MTH HOLDING PERIOD TEST

Unedited CRA Tags
110.6(1) 110.6(14)(f)

Principal Issues: Do certain shares qualify as "qualified small business corporation" shares?

Position: Likely no.

Reasons: The 24 month holding period requirement has not been met. Paragraph 110.6(14)(f) deems the newly issued shares to be owned by an unrelated person.

22 April 2003 External T.I. 2002-0169565 F - ACTIF UTILISE DANS L'ENTREPRISE

Unedited CRA Tags
110.6(1) 248(1)
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 110.6 - Subsection 110.6(1) - Qualified Small Business Corporation Share - Paragraph (c)
tax credits generated from an active business due to SR&ED expenditures or over-installing are assets used in that active business as per Ensite

Principales Questions:

1. Est-ce que les crédits d'impôt à recevoir relatifs à la recherche scientifique et ceux relatifs aux activités de transformation d'une société exploitant une entreprise de transformation sont des éléments utilisés principalement dans l'entreprise exploitée activement par la société aux fins de la définition de " action admissible de petite entreprise " au paragraphe 110.6(1) de la Loi et de la définition de " société exploitant une petite entreprise " au paragraphe 248(1) de la Loi?

2. Est-ce que l'impôt à recevoir provenant du fait que les acomptes provisionnels d'impôt sont supérieurs à l'impôt dû par une société exploitant une entreprise est un élément utilisé principalement dans l'entreprise exploitée activement?

Position Adoptée:

17 April 2003 External T.I. 2003-0182165 - GIFTS AND LIFE INSURANCE POLICIES

Unedited CRA Tags
118.1(5.1)

Principal Issues:
1. Whether a portion of a death benefit paid to a qualified donee as a result of a direct beneficiary designation under a life insurance policy would qualify as a charitable gift.
2. Where a term life insurance policy is jointly held by an individual and a registered charity, can the premiums paid by the individual on behalf of the charity qualify as a charitable gift?

Position:
1. Provided that all the conditions set out in subsection 118.1(5.1) are met, subsection 118.1(5.2) will apply to deem the payment of the death benefit to the qualified donee to be a gift for purposes of section 118.1.
2. Possibly, depends on the facts of the particular situation.

Reasons:
1. Legislation.
2. We would need to review the terms and conditions of the particular policy.

17 April 2003 External T.I. 2003-0008215 - SAR OR OPTION RIGHT

Unedited CRA Tags
248(1)

Principal Issues:
1. Are stock option rights or stock appreciation rights considered property within the meaning assigned by subsection 248(1) of the Act?
2. Would they be property for a qualifying disposition in section 107.4?

Position:
1. Yes.
2. Question of fact.

Reasons:
1. Paragraph (a) of the definition includes a right of any kind.
2. No information so we don't know the context that they are asking from.

17 April 2003 External T.I. 2003-0008415 - CHARITABLE GIFT ANNUITIES

Unedited CRA Tags
248(30) 248(31) Reg. 304

Principal Issues:
1. Will regulations to the Income Tax Act be promulgated that will mandate the how the fair market value of an advantage obtained by a donor in the form of an annuity in a charitable annuity gifting arrangement, is to be determined?
2. Absent regulations, if a model were developed, that would calculate fair market values for annuities, would the CCRA accept the valuations provided by the model?

Position:
1. Our understanding is that presently, the Department of Finance is not intending to promulgate regulations mandating the a basis or method for determining the fair market value of annuities acquired in a charitable gift annuity arrangement.
2. The model would have to withstand the scrutiny of the CCRA on an ongoing basis, to ensure the integrity of fair market values being produced by the model.

Reasons:
1. Finance has not indicated to us, an intention to promulgate such regulations, and does not generally mandate how taxpayers are to determine the fair market value of any property.
2. Any model would have to provide reasonable fair market valuations on an ongoing basis. The values produced the model would also have to withstand the scrutiny of comparisons to fair market values that would have been provided by insurance brokers or services or life insurance companies.

17 April 2003 External T.I. 2003-0009205 - QUALIFIED FARM PROPERTY

Unedited CRA Tags
110.6(1) 73(1) 70(5)

Principal Issues: Whether the land owned by a taxpayer is considered to be "qualified farm property"?

Position: Question of fact, general comments provided.

Reasons: Question of fact, insufficient facts provided.

17 April 2003 External T.I. 2003-0003315 - Dutch Pension & Survivor benefits

Unedited CRA Tags
A.18 Canada - Netherlands Income Tax Convention

Principal Issues: Whether Dutch AOW pension and Anw survivor's benefit payments received by residents of Canada are taxable in Canada?

Position: Yes

Reasons: Canada retains its right to tax pension payments arising in the Netherlands and paid to a resident of Canada.

17 April 2003 External T.I. 2003-0003995 - Disposition of TCP by non-resident

Unedited CRA Tags
2(3)(c) Art. 13, p. 1, Canada-XXXXXXXXXX Income Tax Convention

Principal Issues: Whether a resident of XXXXXXXXXX is taxable in Canada on a non-arm's length disposition of land that is a capital property to a resident of Canada for no proceeds of disposition?

Position: Yes

Reasons: The property is taxable Canadian property, the proceeds of disposition are deemed to be at fair market value, and Canada retains its right to tax pursuant to the Canada-XXXXXXXXXX Income Tax Convention.

16 April 2003 External T.I. 2003-0008155 - RRSP OVER-CONTRIBUTION

Unedited CRA Tags
146(8.2)

Principal Issues:
Where property is contributed to an RRSP in error and the property is subsequently extracted out of the RRSP, in claiming the deduction under subsection 146(8.2) will the extraction have to be made at the fair market value of the property on the contribution date or on the extraction date?

Position: FMV on the extraction date.

Reasons:
The provision refers to the payment from the RRSP so the fair market value on the extraction date will be used in applying subsection 146(8.2) of the Act.

16 April 2003 External T.I. 2003-0008135 - RRIF TRANSFER-MINIMUM AMOUNT

Unedited CRA Tags
146.3(2)(e.1)

Principal Issues:
Why does a RRIF have to withhold the minimum amount on a transfer to another RRIF with the same annuitant?

Position: Required under the Act.

Reasons: Paragraph 146.3(2)(e.1) and (e.2).

15 April 2003 External T.I. 2003-0001905 - RESTRICTED STOCK UNITS SDA RULES

Unedited CRA Tags
248(1)

Principal Issues:
Will we consider a restricted share unit (RSU) plan to be a salary deferral arrangement (SDA)?

Position:
Probably an SDA since the FMV of the share underlying the RSU is paid to the employee rather than an amount representing the increase in value from the grant date to the cash out date. However, it will be a question of fact which should be the subject of an Advance Ruling request.

Reasons: General information provided.

10 April 2003 External T.I. 2003-0003095 - Foreign non-business income tax

Unedited CRA Tags
126
Summary Under
Tax Topics - Income Tax Act - Section 20 - Subsection 20(12)
no deduction for taxes on taxable capital gains

Principal Issues: 1. Based on paragraph 6(e) of IT-506, are foreign taxes paid in respect of a capital gain deductible under 20(12)? 2. Whether a portion of foreign tax withheld which was not available for a foreign tax credit could be considered an outlay or expense made or incurred for purposes of making the disposition for purposes of subparagraph 40(1)(a)(i).

Position: 1. No deduction available. 2. No.

Reasons: 1. Wording of IT was based on wording of subsection 20(12) at the time the IT was issued. Wording of subsection was changed effective for 1992 and subsequent years and Finance indicated that the deduction would be available only in respect of foreign taxes paid in respect of income from business or property. 2. Outlays in respect of foreign taxes were as a result of the fact that the property had increased in value so it could not be said that they were made or incurred for purposes of making the disposition. This reflects the position taken in 2002-0128865 and is supported by comments of the TCC in Avis Immobilien G.M.B.H.

9 April 2003 External T.I. 2003-0183755 - Class 43.1 and Expansion Engines

Unedited CRA Tags
Class 43.1

Principal Issues: Must the owner of an expansion engine own the branch distribution line in order to be eligible for Class 43.1 treatment of the equipment?

Position: No. The owner of an expansion engine may qualify for Class 43.1 treatment without owning the branch distribution line.

Reasons: Wording in subparagraph (d)(x) of Class 43.1 in the Regulations supports this position.

Technical Interpretation - Internal

24 April 2003 Internal T.I. 2002-0169537 - SR & ED - ACQUIRING RIGHTS

Unedited CRA Tags
37(4)

Principal Issues: Does subsection 37(4) apply to deny the deduction under section 37 for costs incurred in acquiring a software development platform that is incorporated into the taxpayer's product at the development stage?

Position: Question of fact. In the case set out, we supported the SR&ED Directorate's determination that the acquisition was described in subsection 37(4).

Reasons: Previous positions.

23 April 2003 Internal T.I. 2003-0003397 - capital cost allowance

Unedited CRA Tags
54 52(4) 13(7)(b)

Principal Issues: What is the capital cost of a property that is won or received as a gift and then used for the purpose of gaining or producing income from a farming business.

Position: Question of fact.

Reasons: Subsection 52(4) of the Act deems the cost of the property to be its fair market value. The rules in paragraph 13(7)(b) of the Act would then apply where there is a change in use. The rules in subsection 69(1) would apply to dispositions of property to persons not dealing at arm's length.

17 April 2003 Internal T.I. 2003-0013427 - PROPOSED GIFTING LEG.-MULTIPLE GIFTS

Unedited CRA Tags
248(30) 118.1(2)

Principal Issues:
Effect of an advantage on the calculation of eligible amount with regard to multiple donations for receipting purposes.

Position: Question of fact.

Reasons:
Generally, the advantage is taken into account in the calculation of a single donation but it may be acceptable in certain cases to issue a single receipt for all the donations made in the year.