Income Tax Severed Letters - 2003-07-18

Miscellaneous

2003 Income Tax Severed Letter 2003-0019881 - Mutual Fund Corporation

Unedited CRA Tags
131(8)

Principal Issues: Minor changes in definitions and facts.

Position: No effect on Ruling

Reasons: Minor changes.

Ruling

2003 Ruling 2003-0183723 - Share-For-Share Exchange

Unedited CRA Tags
85.1 135(4)

Principal Issues: (1) Whether share exchange transaction satisfies the requirements of s. 85.1 and (2) whether application of allocation in proportion to patronage to liability of customer to purchase shares constitutes payment under s. 135(4) of the Act.

Position: (1) Yes and (2) Yes.

Reasons: Complies with requirements of relevant provisions as worded.

2003 Ruling 2003-0003283 - Royalty - CRP

Unedited CRA Tags
XXXXXXXXXX 206(1)

Principal Issues:
(i) Can we rule that a particular royalty, relating to XXXXXXXXXX in Canada, will constitute a "XXXXXXXXXX "?
(ii) Can other revenues be included in the royalty up to 10% of the total of such revenues and production revenues as has historically been allowed?
(iii) Will an interest in the new trust be "foreign property"? Will units in the trust that holds the new trust be "foreign property"?
(iv) Does the loaning of funds by a mutual fund trust to a subsidiary to acquire special units of the new trust rather than acquiring these units directly constitute a "misuse or abuse" with regard to the Act, and especially the "foreign property" rules?

Position:
(i) No, however, an opinion was given that it will so qualify provided the amendments to the definition of that phrase are enacted substantially in the form released by the Department of Finance on December 20, 2002.

(ii) Yes. Proposed amendment is not intended to alter existing practice.
(iii) Yes and not necessarily. An interest in the new trust will be "foreign property", however, units in the trust holding the new trust will not be "foreign property" due to this factor unless the cost amount to the former trust of all such property (and other "foreign property") held by it exceeds 30% of the cost amount to it of all property held by it.
(iv) No, based upon the facts of this situation, including that the assets and activities of the subsidiary and the new trust are in Canada.

Reasons: Based upon the facts of the situation as well as the wording of the proposed amendments in question and other relevant provisions.

2003 Ruling 2003-0007243 - XXXXXXXXXX - Mutual Fund

Unedited CRA Tags
131(8)(c) Reg. 6202.1

Principal Issues:
1. Whether a XXXXXXXXXX month delay before shares can be redeemed is offside of the requirement under 131(8)(c)(i) that the shares be redeemable" on demand."
2. Whether the conversion feature attached to the mutual fund shares cause XXXXXXXXXX

Position: 1. No.
2. No

Reasons: 1. This does not offend 131(8)(c)(i) in this situation. We have ruled that delays are permissible to permit liquidation of XXXXXXXXXX in an orderly manner to obtain funds to satisfy initial requests for redemptions. In the case at hand, the shares held are concentrated among a few corporations and are not liquid enough to support the expected number of redemption requests that would occur.
2. The general intent of the prescribed XXXXXXXXXX regulations is to ensure that a share would qualify for treatment as a XXXXXXXXXX only if the investor is truly at risk for the consideration for which the share was issued. The conversion privileges attached to the various series of shares within Class 1, and the right to exchange shares between classes at the net asset value of the share do not cause the XXXXXXXXXX to be prescribed under 6202.1.

2003 Ruling 2003-0008513 - STOCK OPTION PLAN SAR EMPLOYEE RIGHTS

Unedited CRA Tags
7(1)(b)

Principal Issues:
Will a proposed amendment to the terms of an employee stock option plan result in the application of paragraph 7(1)(b) of the Act?

Position: No

Reasons:
The proposed amendments do not constitute a change so fundamental as to constitute a new agreement.

2003 Ruling 2003-0011913 - AMENDED PLAN

Unedited CRA Tags
REG 6801(d)

Principal Issues:
Will the proposed amendments to an existing DSU plan result in the plan ceasing to qualify under paragraph 6801(d) of the Regulations?

Position: No

Reasons: The requirements of paragraph 6801(d) are still met.

2003 Ruling 2003-0183713 - Spin-Off Butterfly

Unedited CRA Tags
55(3)(b)

Principal Issues: This is a 55(3)(b) spin-off butterfly of the assets of Investco, controlled by a Trust, among 9 Holdcos, also controlled by the Trust, in preparation for the distribution of the Trust assets now held by the 9 Holdcos among the 9 individual beneficiaries of the Trust. The assets of Investco consist primarily of cash and near-cash property and marketable securities.

Position: The spin-off butterfly qualifies under paragraph 55(3)(b).

Reasons:

Technical Interpretation - External

8 July 2003 External T.I. 2003-0011245 - LLP ELIGIBILITY OF MEDICAL RESIDENTS

Unedited CRA Tags
146.02

Principal Issues: Can medical students who begin their residency participate in the lifelong learning plan?

Position: Question of Fact

Reasons: General information provided.

8 July 2003 External T.I. 2003-0016065 - DEDUCTION FOR RA PAID TO FORMER SPOUSE

Unedited CRA Tags
60(j.1)

Principal Issues:
Can a taxpayer deduct the portion of his retiring allowance he paid to his ex-wife pursuant to a court order arising as a result of the breakdown of their marriage?

Position: No deduction per se.

Reasons:
A payment in settlement of property rights arising from marriage breakdown is of a capital nature and is not deductible. Further, there is no provision in the Act to transfer part of a retiring allowance to the RRSP of a spouse or former spouse and therefore no corresponding deduction.

8 July 2003 External T.I. 2003-0016685 - TRANSFER OF RA TO RRSP

Unedited CRA Tags
60(j.1)

Principal Issues:
How is 60(j.1) applied to calculate how much of a retiring allowance can be transferred to the employee's RRSP?

Position: General information provided.

Reasons:
Previous positions taken and the application of the legislation to the examples provided.

26 June 2003 External T.I. 2003-0022535 - Income from a Mine

Unedited CRA Tags
Reg 1104(5)

Principal Issues: Clarification of our views on the meaning of the term ' income from a mine' as it is used in subsection 1104(5) of the Regulations.

Position: Income attributable to processing ore from a mineral resource owned by a taxpayer to a stage not beyond the prime metal stage or its equivalent, would be included in income from a mine under subparagraph 1104(5)(a)(i) of the Regulations. If more than 10% of the ore processed by the taxpayer is custom processing, none of the income attributable to the custom processing would be included in income from a mine. This reasoning also applies to the subparagraphs (a)(ii) to (iv).

Reasons: Intention of the amended regulation.

Technical Interpretation - Internal

4 July 2003 Internal T.I. 2002-0173367 - Timber Royalty

Unedited CRA Tags
212(1)(e) 115(1)(b) 212(1)(d)(v)

Principal Issues: Whether amounts arising in respect of timber harvesting performed by third parties on non-commercial woodlots owned by non-residents of Canada would constitute "a timber royalty in respect of...a timber limit in Canada" for purposes of paragraph 212(1)(e).

Position: Whether or not the provisions of paragraph 212(1)(e) will apply is a question to be determined having regard to all the facts relevant to a particular situation.

Reasons: Review of the relevant provisions of the Act and Regulations as well as relevant jurisprudence.

6 June 2003 Internal T.I. 2002-0143267 - Distributions from non-res trust

Unedited CRA Tags
104(13)

Principal Issues: The issue involves distributions from a non-resident trust prior to its 5th year. Where the trust receives cash income in the year and uses the cash to pay off loans, can we consider the payment to be a distribution of income (the note-holder is also the income beneficiary)?

Position: No. (question of fact)

Reasons: Since it is a discretionary trust, the Trustee is able to determine whether to retain cash income, to use cash income to pay expenses or repay debt, or to distribute cash income to the income beneficiary. In the fact situation, the Trustee used the cash to repay loans.

6 June 2003 Internal T.I. 2003-0183437 - Distributions from non-res trust

Unedited CRA Tags
104(13)
income which as a factual matter was distributed in the year earned to a resident beneficiary purportedly as capital was included in her income

Principal Issues: The issue involves distributions from a non-resident trust on winding up prior to its 5th year. Where the trust receives cash income in the year and uses the cash to pay off loans, can it distribute the remaining property as a distribution of capital even though there was no accounting capital at the start of the year?

Position: No.

Reasons: Distributions must be from either income or capital, and the trustee cannot change the nature of income into capital. For example, if the trustee capitalized income during the year and distributed that capitalized amount to the capital beneficiary in the same year, it would nevertheless constitute a distribution of income (for tax purposes). While the trust agreement may permit this to be done, the tax effect is that the trustee would be distributing income.
Since the trust was wound up and all of its property was distributed, and the trust would not be entitled to make a designation under 104(13.1), it is our view that the beneficiary would have income pursuant to 104(13).