Income Tax Severed Letters - 2004-03-26

Ruling

2003 Ruling 2003-0038863 F - Butterfly Transaction

Unedited CRA Tags
55

Principal Issues: Spin-off butterfly

Position: Favourable rulings given.

Reasons: Complies with the rules in section 55.

2003 Ruling 2003-0050183 - EXEMPT CORPORATION

Unedited CRA Tags
149 9 149(1)(d)

Principal Issues:
Whether two proposed corporations would qualify for the exemption under paragraph 149(1)(d.3).

Position: Yes.

Reasons: The share ownership test in subparagraph 149(1)(d.3)(i) would be met.

XXXXXXXXXX 2003-005018

Technical Interpretation - External

26 March 2004 External T.I. 2004-0061281E5 - Employer Paid Meal Allowances To Truck Drivers

Unedited CRA Tags
6(1)(b)(vii) 6(6) 67.1(1) 67.1(2)

Principal Issues: (a) Whether daily allowances paid by an employer to individuals employed as truck drivers for meal expenses incurred while travelling in the course of employment, is exempt from inclusion in income under subsection 6(6) of the Act where they are required to travel away from their permanent residences for more than 36 hours. In other words, is the truck considered a special work site or remote work location? (b) Whether the employer's deduction for the meal allowances is restricted to 50% of the amounts paid because of subsection 67.1(1) of the Act?

Position: (a) No, however, subparagraph 6(1)(b)(vii) may apply. (b) No.

Reasons: (a) In the context of subsection 6(6) of the Act, a special work site or remote work location refers to a geographic location at which the employee regularly reports to work to perform the duties of employment. A truck cannot be a special work site or remote work location. (b) There are exceptions to the application of subsection 67.1(1) of the Act contained in subsection 67.1(2), including exceptions that may apply in respect of certain amounts that would otherwise be included in computing an individual's employment income but for subsection 6(6) of the Act; however, there is no exception for allowances that are excluded from an individual's employment income under subparagraph 6(1)(b)(vii1).

25 March 2004 External T.I. 2004-0065271E5 - Workers' Compensation Reporting

Unedited CRA Tags
56(1)(v) ITR 232

Principal Issues: Are lump sum WCB payments in respect of death required to be reported on the T5007?

Position: No.

Reasons: Paragraph 232(4)(e) of the Regulations excludes from reporting payments in respect of "the death of the employee, other than periodic payments made after the death of the employee."

23 March 2004 External T.I. 2003-0049031E5 F - Paragraphe 15(2) de la Loi et "montant remis"

Unedited CRA Tags
15(2) 80(1)
loan that was anticipated to be forgiven was not a bona fide loan, so that s. 15(2) did not apply
loan that was anticipated to be forgiven was not in fact a loan
inclusion under s. 56(2) avoided second inclusion under s. 15(1.21)
loan included in income under s. 15(2) was excluded obligation re its subsequent forgiveness

Principales Questions: En 2003, Opco effectue un prêt à l'enfant majeur de son unique actionnaire. Ces fonds sont utilisés pour payer ses frais de scolarité. L'enfant n'est pas un employé d'Opco et il a inclus en 2003, la somme du prêt dans ses revenus en vertu du paragraphe 15(2) de la Loi. Il est prévu qu'Opco éteindra la dette qui lui est due par l'enfant en 2006 lorsque ce dernier aura terminé ses études et travaillera à temps plein. Quelles seront les conséquences fiscales liées à cette remise de dette pour Opco, l'actionnaire de Opco et pour l'enfant majeur de l'actionnaire ?

Position Adoptée: S'il ne s'agit pas d'un prêt véritable: les paragraphes 56(2) et 15(1) de la Loi seront applicables pour inclure les sommes versées à l'enfant dans le revenu de l'actionnaire de Opco dans l'année du prêt. Il n'y aurait alors aucune implication fiscale pour Opco et l'enfant de l'actionnaire. S'il s'agit d'un prêt véritable : compte tenu du fait que le montant du prêt a été ajouté au revenu du fils en vertu du paragraphe 15(2) de la Loi dans l'année du prêt, aucun avantage n'aura à être calculé en vertu du paragraphe 15(1) de la Loi pour être inclus au revenu du père au moment où la dette est éteinte. Le paragraphe 80(2) de la Loi n'est pas applicable puisqu'il ne s'agit pas d'une dette commerciale.

Raisons: Les questions posées impliquent des questions de fait et de droit. Les conséquences fiscales dépendent de la nature réelle de la transaction, à savoir si nous sommes en présence d'un prêt véritable ou si la somme versée à l'enfant est un paiement fait suivant les instructions ou avec l'accord de l'actionnaire de Opco à titre d'avantage que celui-ci désirait voir accorder à son enfant. Dans la situation présentée, il semble que ce n'est pas un prêt véritable.

23 March 2004 External T.I. 2004-0060001E5 - Taxable Benefits - Special Clothing

Unedited CRA Tags
6(1)(a) 6(1)(b)

Principal Issues: Whether an allowance for special clothing gives rise to a taxable benefit under either of paragraph 6(1)(a) or paragraph 6(1)(b) of the Act.

Position: Question of fact.

Reasons: Where a uniform or special clothing, including protective clothing, is supplied by, or the cost thereof is reimbursed by, the employer, there is no taxable benefit. Where an employee receives an unaccountable allowance to compensate for the cost of special clothing, the amount received is generally considered to be employment income pursuant to paragraph 6(1)(b) of the Act.

22 March 2004 External T.I. 2004-0060641E5 - Unpaid Remuneration

Unedited CRA Tags
78(4)

Principal Issues: Whether the administrative position in paragraph 15(a) of IT-109R2 also applies to unpaid remuneration.

Position: No. However, the administrative position outlined in the 1987 Revenue Canada Round Table may apply.

Reasons: The administrative position in paragraph 15(a) of IT-109R2 only applies to unpaid amounts subject to the application of subsection 78(1) of the Act. However, where the employer remits the applicable payroll withholdings, issues a T4 information return and the employee includes the accrued wages in income, it is our administrative position not to apply subsection 78(4).

22 March 2004 External T.I. 2004-0063441E5 - Income From Employee Inventions

Unedited CRA Tags
6(1)(a)

Principal Issues: The taxable status of income earned by an employee from an invention.

Position: Question of fact.

Reasons: The determination will depend on a number of factors, including ownership of the invention and the nature of the amounts received, which can only be made after a review of all relevant documentation.

22 March 2004 External T.I. 2003-0046691E5 - Youth Employment Program

Unedited CRA Tags
56(1)(r)

Principal Issues: Are payments made under a program funded by HRDC taxable?

Position: Yes. Direct payments to participants are taxable under subparagraph 56(1)(r)(i). Subsidies paid to participating employers, who then pay the employees, are taxable as employment income.

Reasons: Payments are earnings supplements under a government program encouraging participants to obtain or keep employment. The payments are calculated based on the provincial minimum wage.

19 March 2004 External T.I. 2003-0037301E5 - IRA transfer to RRSP; foreign tax credits

Unedited CRA Tags
126 60(j)
income from IRA not property income

Principal Issues: Is there any relief available where the foreign tax credit that is available on a substantial lump sum transfer from a foreign retirement arrangement to an RRSP cannot be fully used?

Position: The amount of relief available depends on a number of factors and in particular whether the recipient is an American citizen (including persons with dual citizenship)..

Reasons: The Canada-U.S. treaty provisions have application to override those available to non-U.S. citizens.

18 March 2004 External T.I. 2004-0060841E5 - Indian employees working adjacent to a reserve

Unedited CRA Tags
81(1)(a)

Principal Issues: Would the employment income of status Indian employees working adjacent to a reserve be subject to tax?

Position: Yes.

Reasons: Application of the Guidelines. Furthermore, extenuating circumstances do not appear to exist that would create additional connection factors sufficient to merit an exemption. If they do, employer could seek an advance income tax ruling.

2004-006084
XXXXXXXXXX Renée Shields
(613) 948-5273

17 March 2004 External T.I. 2003-0046891E5 - Purchase of past service

Unedited CRA Tags
8503(3)(a)

Principal Issues:
Can an employee purchase past service in a particular case?

Position:
The determination of whether or not an employee can purchase past service is a question of fact, which requires a review of the employer's RPP and the determination of an employer/employee relationship in a particular case.

Reasons:
Pursuant to the definition of "eligible service" in subparagraph 8503(3)(a)(i) of the Regulations, if an employee received remuneration from an employer who participates in the plan during the relevant period, the employee could purchase past service depending on the terms of the employer's RPP.

16 March 2004 External T.I. 2004-0066761E5 - Taxation of Indian self-employed fishing income

Unedited CRA Tags
81(1)(a)

Principal Issues: Is the income of self-employed status Indian fishers in a particular situation taxable?

Position: Yes

Reasons: Based on the Williams connecting factors analysis and the guidance provided by the Southwind case, the most significant factors are the location where the income earning activity takes place, and the location of the customers. Since fishing here takes place off the reserve and is sold at an off-reserve plant to off-reserve buyer, insufficient connecting factors exist to tie the income to a reserve.

15 March 2004 External T.I. 2003-0022651E5 - Canada-Mexico Income Tax Convention - Assets Tax

Unedited CRA Tags
126(2) 126(7)

Principal Issues: Whether assets tax under the Assets Tax Law is an "income or profits tax" for purposes of the Foreign Tax Credit?

Position: No

Reasons: Assets Tax liability is not computed by reference to income.

10 March 2004 External T.I. 2003-0034691E5 - Class 43.1 - Wood Waste System

Unedited CRA Tags
Sch II Class 43.1

Principal Issues: Is the cost of modifying a recovery boiler and the cost of a new turbo generator included in the cost of property described in Class 43.1?

Position: General comments

Reasons: Actual situation considered.

3 March 2004 External T.I. 2003-0047151E5 - Canadian Taxation of US Pension/IRA Distributions

Unedited CRA Tags
56(1)(a)(i) 110(1)(f)

Principal Issues: Whether US estate taxes are deductible or creditable in respect of a lump-sum pension payment received by a Canadian beneficiary as a consequence of the death of another person.

Position: No

Reasons: Neither clause 56(1)(a)(i)(C.1) of the Act nor paragraph 1 of Article XVIII of the Canada-US Tax Convention applies. No provisions in the Act to allow for the deduction.

25 February 2004 External T.I. 2004-0056681E5 - 164(6) losses and prior tax yrs

Unedited CRA Tags
164(6)(f)

Principal Issues: Where the net capital loss for the year of death includes capital losses arising from the year of death and from the application of subsection 164[6], can the deemed capital losses arising from the application of subsection 164(6) be applied against the taxable capital gains incurred in the year of death such that the capital losses incurred in the year of death can be applied against income in other years?

Position: No.

Reasons: A capital loss incurred in a taxation year cannot be applied against the income of any other year; where the amount of allowable capital losses exceed the taxable capital gains realized in a particular taxation year, the resulting excess will form a net capital loss for the year as determined under subsection 111(8), which in the case of the year of death can be applied against income of any kind in the year of death or preceding year because of the operation of 111(2). Although an election under subsection 164(6) may increase the net capital loss or non-capital loss for the year of death by reason of the increase in the capital losses which are deemed to have occurred in the year of death, paragraph 164(6)(f) prevents the application of any such increase in the net capital loss or non-capital loss to any previous year. However, the increase in the net capital loss can be applied against other income earned in the year of death.

6 February 2004 External T.I. 2003-0054041E5 F - Application de 94(1) et 128.1(1)

Unedited CRA Tags
94(1) 128.1(1) 115(1) 95(1)

Principales Questions: Précisions concernant l'interprétation technique 2003-0013445.

Position Adoptée: Commentaires généraux

Raisons: Dispositions de la Loi.

28 January 2004 External T.I. 2003-0028891E5 F - Perte sur change relative à des contrats de change

Unedited CRA Tags
18(1)a) 18(1)e)
CGE established that accrued loss on FX forward contract is not a contingent liability
CRA position regarding recognition of accrued income account losses is subject to any application of ss. 18(1)(a) and (e)

Principales Questions: (1) Est-ce qu'un contribuable peut utiliser la méthode d'exercice mentionnée au paragraphe 8 du IT-95R pour déterminer ses pertes sur change étranger relatives à des contrats de change acquis afin de couvrir les opérations courantes de l'entreprise? (2) Dans l'affirmative, est-ce que cette perte sur change non matérialisée sera déductible compte tenu de l'alinéa 18(1)e)?

Position Adoptée: (1) Oui, dans la mesure où cette méthode est conforme aux PCGR et qu'il s'agit d'opérations afférentes au revenu. (2) La perte sur change non matérialisée déterminée conformément à la méthode d'exercice mentionnée au paragraphe 8 du IT-95R sera déductible dans la mesure où il s'agit d'une dépense "engagée" au sens de 18(1)a) et qu'il ne s'agit pas d'un montant au titre d'une éventualité au sens de 18(1)e).

Raisons: (1) Bulletins d'interprétation IT-95R et IT-346R et opinions de Finance XXXXXXXXXX . (2) Jurisprudence et positions antérieures.

Technical Interpretation - Internal

19 March 2004 Internal T.I. 2003-0054201I7 - Legal Expenses - Commencement of a Business

Unedited CRA Tags
18(1)(a)

Principal Issues: Whether a taxpayer would be entitled to deduct legal expenses incurred while applying for the Quebec Bar.

Position: No.

Reasons: There has not been a commencement of a business and the expenses are likely personal and capital in nature.

18 March 2004 Internal T.I. 2004-0047851I7 - Taxation of status Indian employment income

Unedited CRA Tags
81(1)(a)

Principal Issues: The taxpayer is a status Indian who works for an employer who occupies, at least in part, premises formerly occupied by a company which was the employer in the case of Amos and Mark v. the Queen. The taxpayer seeks confirmation that her employment income is tax-exempt so that we can advise her employer not to deduct income tax at source.

Position: Question of Fact. Referred to TSO for a determination.

Reasons: Whether the case of Amos and Mark v. the Queen applies to this taxpayer can only be determined by examining the facts. It is possible that the current facts of her situation are distinguishable from the case. We do not have sufficient information to determine whether any of the Guidelines would apply.

15 March 2004 Internal T.I. 2004-0058591I7 F - Projet agricole au sens de 122.3(1)b)(i)(B)

Unedited CRA Tags
122.3(1)b)(i)
foreign woodlot operation was farming

Principales Questions: Révision de l'interprétation technique 2003-000008 à la lumière de nouveaux éléments de faits.

Position Adoptée: La condition prévue à la division 122.3(1)b)(i)(B) semble rencontrée, à savoir que les travaux effectués en XXXXXXXXXX semblent se rapporter à un projet agricole.

Raisons: Les nouveaux éléments de faits appuient une telle conclusion.