Income Tax Severed Letters - 2004-02-27

Miscellaneous

2 December 2003 2003-004860A50 - CRP - Rentals and Royalties

Unedited CRA Tags
66(15)

Principal Issues: Effect of proposed amendments to paragraphs (d) and (e) to the Canadian resource property definition.

Position: Above amendments add certain requirements to those paragraphs; however, they do not require that the proceeds of production from a particular well, accumulation or mineral resource be segregated.

Reasons: Review of the proposed amendments.

Ruling

2003 Ruling 2003-0036753 - RETIRING ALLOWANCE FROM FARM OPERATION

Unedited CRA Tags
60(j.1) 248(1) 9

Principal Issues:
Is an amount paid by a farmer to his spouse considered a reasonable retiring allowance given that the spouse worked for XXXXXXXXXX years but was unpaid during XXXXXXXXXX years.?
Is an amount paid considered a reasonable bonus?

Position: Yes, in both cases.

Reasons:
For the retiring allowance, it is in accordance with the guideline provided in Question 10 at the Prairie Tax Conference Round Table and prior rulings given in similar circumstances. For the bonus, it is reasonable considering the facts.

Technical Interpretation - External

26 February 2004 External T.I. 2004-0057261E5 - Terminal Charge - Leased Automobile

Unedited CRA Tags
6(2)

Principal Issues: Whether a terminal charge on a leased automobile should be included in the calculation of a standby charge.

Position: Yes.

Reasons: The amount is part of the employer's cost of leasing the automobile.

25 February 2004 External T.I. 2004-0061851E5 - connected corporation

Unedited CRA Tags
186(4)(b) 245(2)

Principal Issues: whether corporations described in a corporate organization chart are connected to their corporate shareholders

Position: general comments provided

Reasons: appears to relate to actual situation

24 February 2004 External T.I. 2003-0049351E5 F - Dommages moraux

Unedited CRA Tags
56
damages received for pain and suffering or loss of amenities of life are non-taxable

Principales Questions: Un contribuable a reçu des montants pour souffrances morales, pour perte de jouissance de la vie et pour atteinte à son intégrité physique. S'agit-il de montants imposables pour le contribuable?

Position Adoptée: Commentaires généraux

Raisons: Il n'est pas possible de trancher dans un cas particulier pour des raisons de confidentialité

24 February 2004 External T.I. 2003-0044931E5 - Assumption of "high rate" debt

Unedited CRA Tags
54 20(1)(c) 18(9.1)
contingent liability not part of cost

Principal Issues: Where property is sold and the purchaser assumes debt as partial consideration, may the vendor, in computing the "proceeds of disposition", include an amount equal to a penalty amount (early termination penalty clause) that may become payable to the lender of the assumed debt by the debtor at some future time on the happening of an event that may or may not occur.

Position: General comments.
A contingent liability that may be triggered at some future time by the then current debtor is an obligation and not property and as such is not considered as part of the sale price of property sold and should not be included in computing the proceeds of disposition.

Reasons: In the present case the early termination penalty clause provides for a penalty to be imposed on the borrower in the event of repayment of the loan before maturity. This type of arrangement is a contingency, meaning that it is intended to apply on the happening of an event (the early termination) which is not certain to occur and in fact will not occur unless the borrower chooses to repay the debt before its maturity.
Where a purchaser assumes an existing debt as part of the sale price for property acquired, no repayment on the debt has occurred and as a consequence the early termination penalty clause would not be triggered. In circumstances where the early termination penalty clause has not been triggered, no amount is exigible by the lender from the borrower under the said penalty clause.
No amount is owing in respect of the contingent penalty clause on the assumed debt and therefore, no amount relating to the contingent liability should be added to the proceeds of disposition on the pretext that it a "debt" being assumed by the purchaser.

24 February 2004 External T.I. 2003-0041121E5 F - Avantages imposables-installations récréatives

Unedited CRA Tags
6(1)a)
making employer’s resort recreational facilities available to all employees not a taxable benefit

Principales Questions: Est-ce qu'un avantage imposable est conféré aux employés d'un centre de villégiature lorsque ledit centre permet à tous ses employés l'accès à diverses installations sportives pour un prix avantageux ?

Position Adoptée: Non.

Raisons: Le paragraphe 33 du IT-470R prévoit qu'il n'y a aucun avantage lorsqu'un employeur met à la disposition de tous ses employés des installations récréatives qu'il possède. Cette position tient compte du fait qu'il pourrait être difficile en pratique d'estimer la valeur de l'avantage et constitue essentiellement un allègement administratif accordé à l'employeur.

24 February 2004 External T.I. 2004-0060861E5 - Retirement allowance paid into a RCA

Unedited CRA Tags
248(1) Part XI.3

Principal Issues:
Whether or not amounts paid as part of a severance package are retiring allowances. Are amounts paid to an RCA trust? When are the amounts taxable to the individual - at the time of payment to the trust or at the time of the payment by the trust to the individual?
Are amounts that are included under 56(1)(x) deductible under 60(j.1) and 146(5) and 146(5.1).

Position:
Yes, if they are treated as such for purposes of the statutes that we administer (CCP, EI) and are not salary/and/or wages, accrued vacation pay or pay in lieu of notice.
Yes, if the amounts are paid by the employer (or a by a person with whom the employer does not deal at arm's length) to another person in connection with benefits that are to be received on the loss of an office or employment of the taxpayer. Amounts are taxable at the time of payment by the RCA trust to the individual.
Yes

Reasons:
IT-337R4 and "retiring allowance" definition in 248(1).
RCA definition in 248(1) and 56(1)(x).
As limited by 60(j.1) and the unused RRSP deduction room. .

23 February 2004 External T.I. 2003-0051031E5 - 43.1 - Ground Source Heating

Unedited CRA Tags
Class 43.1

Principal Issues: Is a ground source heat pump for use in heating a greenhouse included in Class 43.1?

Position: Yes, under proposed amendments to Class 43.1.

Reasons: Proposed amendments to Class 43.1 will include active solar heating equipment for use in a greenhouse operation.

23 February 2004 External T.I. 2003-0046121E5 - Religious Order- outside source of income

Unedited CRA Tags
8(1)(c)

Principal Issues: Can a member of a religious order earn income from outside sources without jeopardizing the status of the religious order?

Position: Yes within acceptable reasonable limits

Reasons: IT-141R par 11

23 February 2004 External T.I. 2003-0048121E5 F - Paiement reçu - annulation d'un contrat

Unedited CRA Tags
9 18(1)b) 39(2)
surrogatum principle applied to FX hedging termination payment

Principales Questions:
Est-ce que le montant reçu pour l'annulation de contrats de converture, fixant d'avance le taux de change, doit être considéré comme un revenu ou un gain en capital?

Position Adoptée:
Aucune

Raisons:
Question de fait.

23 February 2004 External T.I. 2003-0044255 - INTEREST DEDUCTIBILITY INSURANCE POLICY

Unedited CRA Tags
20(1)(c)

Principal Issues: Will interest paid at 10% to earn income of 8% be deductible

Position: Not if draft legislation is passed

Reasons: Proposed amendments to ITA

20 February 2004 External T.I. 2003-0051961E5 - Application of paragraph 149.1(12)(a)

Unedited CRA Tags
149.1(12)(a)

Principal Issues: Will subsection 149.1(12) deem a charitable foundation not to have acquired control of a corporation where the corporation is controlled by the foundation and other non-arm's length persons, the foundation acquired shares of a corporation for consideration and subsequently, as a consequence of the redemption of shares, the foundation holds more than 5% of the issued shares of a class of a corporation.

Position: No.

Reasons: The 5% "safe harbour" must be satisfied at all times.

20 February 2004 External T.I. 2003-0035361E5 F - Chantier particulier - travail temporaire

Unedited CRA Tags
6(6)
single 3-year term contract could be work of a temporary nature
Words and Phrases
temporary nature

Principales Questions: Est-ce qu'une prime versée à un employé peut être exclue de son revenu en vertu du paragraphe 6(6) de la Loi si :
l'employé signe un contrat de 3 ans?
l'employé signe un contrat de un an lequel a été renouvelé à chaque année depuis cinq ans?

Position Adoptée: Commentaires généraux

Raisons: Nous sommes prêts à accepter que la limite de deux ans ne s'applique pas automatiquement lorsque les faits indiquent clairement que le travail est réellement de nature temporaire. Pour déterminer la durée prévue de l'emploi, il faut se fonder sur des faits connus au début de l'emploi. La période convenue pour laquelle l'employé a été engagé selon son contrat d'emploi ou d'autres modalités d'emploi est l'un des facteurs à considérer.

20 February 2004 External T.I. 2004-0055741E5 - Disability tax credit

Unedited CRA Tags
118.3(1) 118.4(1)

Principal Issues: The individual suffers from or has suffered from several
health-related illnesses, including a heart condition,
cancer and musculo-skeletal problems and asks whether he qualifies for the disability tax credit.

Position: General comments provided as to the eligibility for the
disability tax credit.

Reasons: The determination of whether an individual is eligible
for the disability tax credit is one of fact and individual
circumstance.

17 February 2004 External T.I. 2004-0061271E5 - Share of family farm corporation

Unedited CRA Tags
110.6(1)

Principal Issues: Whether the general comments concerning the application of the definition of "share of the capital stock of a family farm corporation" in ITA 110.6(1) to Situation 1 described in file #2001-0088115 are still valid today.

Position: Yes

17 February 2004 External T.I. 2003-0033915 - Cash pooling - shareholder benefit

Unedited CRA Tags
15(2) 15(2.6)
no automatic set-off
cash pooling with NR parent

Principal Issues: If a Canadian subsidiary enters into a cash pooling arrangement with its non-resident parent corporation, will it have an income inclusion under section 15?

Position: Likely.

Reasons: There is no basis for distinguishing this situation from others where loans are made to shareholders.

6 February 2004 External T.I. 2003-0044021E5 F - Les règles d'attribution et les REER

Unedited CRA Tags
74.1(1) 56(1)h) 146(8)
RRSP withdrawal of property funded with contribution by the annuitant's spouse is income to the spouse under s. 74.1(1)

Principales Questions: Est-ce que le paragraphe 74.1(1) s'applique à des montants retirés d'un REER lorsqu'un particulier avait donné de l'argent à son conjoint pour lui permettre de verser une prime déductible à son REER?

Position Adoptée: Oui.

Raisons: L'argent est un bien transféré au conjoint. Un droit dans un REER décrit à la définition "régime d'épargne-retraite" est un " bien " tel que défini selon le paragraphe 248(1) et un " bien substitué " à l'argent. Le retrait du REER qui est imposable selon 146(8) et 56(1)h) est un revenu provenant d'un bien.

2 December 2003 External T.I. 2003-0048545 - Refund of Non-Deductible Outlay

Unedited CRA Tags
12(1)(x)(iv) 12(2.2)

Principal Issues: Whether 12(1)(x)(iv) applies to a refund of a non-deductible outlay or expense?

Position: Yes

Reasons: The legislation does not differentiate between refunds in respect of amounts that were deductible and those that were not deductible. As well, the position is consistent with previous interpretations.

2 December 2003 External T.I. 2003-0048555 - VANILLA TYPE INTEREST SWAP

Unedited CRA Tags
9(1)
all amounts pursuant to a plain vanilla interest rate swap on account of s. 9 income

Position:
Yes - where payments are made pursuant to a plain vanilla interest rate swap agreement.
REASON:
CCRA's position on interest rate swaps was initially set in response to a question at the Roundtable at the Canadian Tax Foundation's 1984 Annual Conference and again in our response to question # 11 of the Roundtable at the Canadian Tax Foundation's 1993 Annual Conference. This position applies to a swap where the notional amounts are equal and the payment dates match (a "plain vanilla interest rate swap"). It continues to be our view that all amounts payable or receivable, including termination payments, pursuant to a plain vanilla interest rate swap agreement will be considered to be on account of income and will be included in or deductible from the income of the taxpayer pursuant to section 9 of the Act.

2 December 2003 External T.I. 2003-0048565 - PREMIUMS PAID

Unedited CRA Tags
20(1)(c)

Position:
(i) No.
(ii) Perhaps.
REASON:
(i) The premium is simply part of the cost of acquiring a debt instrument and is not a separate amount that may be deducted by the payor.
(ii) We would need to become more familiar with this practice and would be curious to know how many debt issues are re-opened when this would result in a discount.

6 April 2003 External T.I. 2003-0054461E5 F - Traitement fiscal d'un cadeau

Unedited CRA Tags
9(1)
“gift” may be business income to the recipient
Words and Phrases
gift

Principales Questions: Quelles sont les conséquences fiscales de recevoir un cadeau dans le cadre d'un arrangement spécifique?

Position Adoptée: Commentaires généraux

Raisons: Question de fait

2 December 2003 External T.I. 2003-004860A - CRP - Rentals and Royalties

Unedited CRA Tags
66(15)
segregation not necessarily required re 90% test

Principal Issues: Effect of proposed amendments to paragraphs (d) and (e) to the Canadian resource property definition.

Position: Above amendments add certain requirements to those paragraphs; however, they do not require that the proceeds of production from a particular well, accumulation or mineral resource be segregated.

Reasons: Review of the proposed amendments.

Technical Interpretation - Internal

23 February 2004 Internal T.I. 2003-0049157 - ELECTION BORROWED MONEY CAPITALIZE

Unedited CRA Tags
21(1) 21(3)

Principal Issues:
Whether a 21(1) or (3) election may be made after the taxpayer has disposed of the relevant depreciable property

Position: yes

Reasons: scheme of Act - UCC pool is cumulative

23 February 2004 Internal T.I. 2004-0056061I7 - Bus passes distributed by a church

Unedited CRA Tags
56(1)(u)

Principal Issues:
A church organization operates a soup kitchen and shelter for street people. The organization gives bus passes to the street people who volunteer their time at the soup kitchen and shelter. Are the bus passes taxable to the recipients?

Position: No.

Reasons: The purpose of the bus passes is to defray out-of-pocket expenses of the volunteers. By providing the bus passes, the volunteers neither gain nor lose significantly.

20 February 2004 Internal T.I. 2003-0054061I7 - Management Fees

Unedited CRA Tags
67 9(1) 12(1)(B)

Principal Issues: Whether: (1) management wages paid by Holdco are reasonable and (2) management fees earned by Holdco for services provided to Opco are reported properly.

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

Reasons: (1) Wages are within the scope of our policy on the reasonableness of shareholder/manager remuneration. (2) Holdco did not report the management fee income properly under the "earned method" in accordance with subsection 9(1) of the Act, or for greater certainty, the "receivable method" in accordance with paragraph 12(1)(b).

17 February 2004 Internal T.I. 2004-0056041I7 - Nature of organization and whether exempt

Unedited CRA Tags
149(1)(c) 149(1)(l)

Principal Issues: What is the nature of the entity, should it be given business number and appropriate account numbers.

Position: General comments provided. Likely the entity is not a corporation. It may be exempt under paragraphs 149(1)(c) or (l).

30 January 2004 Internal T.I. 2003-0037191I7 F - Fabrication /sous-traitants/frais de gestion

Unedited CRA Tags
125.1 5202 18(1)(a) 67(1)
cost of labour included amounts paid to a sister company that paid the employees on behalf of the manufacturer
s. 153(1) applicable to salaries paid as agent
tasks performed by subcontractors were not normally performed by employees
partial disallowance of salaries of taxpayer where it was not fully reimbursed by the recipient of their services

Principales Questions:
Aux fins de l'article 125.1 de la Loi et de l'article 5202 du Règlement, le " coût en main-d'œuvre " pour société C devait-il inclure les salaires payés aux individus qui lui rendent des services ainsi que les montants payés aux sous-traitants?
Les dépenses encourues par Société B, relativement à des services de comptabilité et d'administration rendus à Société C au cours de son année d'imposition XXXXXXXXXX , mais qui n'ont pas été facturées à Société C, devraient-elles être refusées dans Société B?

Position Adoptée:
1. Oui pour les salaires; non pour les frais payés aux sous-traitants.
2. Oui, en tenant compte des faits.

Raisons:
1. Les faits favorisent cette conclusion. Tient compte aussi de l'intention du législateur et de la jurisprudence.
2. Interprétation de l'alinéa 18(1)a) et du paragraphe 67(1) de la Loi.

30 January 2004 Internal T.I. 2004-0054981I7 - Social Security - Cyprus

Unedited CRA Tags
Art. 18

Principal Issues: Whether Canada's right to tax social security pension payments arising in Canada is limited to the reduced rate under paragraph 1 of Article 18 of the Canada-Cyprus convention and subject to the Cnd$10,000 exemption.

Position: Yes

Reasons: Even if paragraph 5 of the Convention provides that social security pension payments arising in Canada could only be taxed in Canada, such payments are not carved out from the ambit of paragraph 1 and, consequently, the reduced rate and exemption also apply to periodic social security pension payments. XXXXXXXXXX