Income Tax Severed Letters - 2005-09-02

Ruling

2005 Ruling 2004-0106731R3 - Irish Common Contractual Fund

Unedited CRA Tags
215

Principal Issues: Whether an Irish Common Contractual Fund (CCF) is a non-entity for Canadian tax purposes where the Custodian, through a related company resident in Canada, is responsible to withhold and remit Part XIII tax on behalf of the investors of the CCF?

Position: Yes.

Reasons: In a previous ruling, we have ruled that a CCF is a non-entity and each investor in the CCF is a co-owner of the assets of the CCF. It is standard practice for a custodian of an investment undertaking to withhold and remit withholding taxes.

2005 Ruling 2004-0109361R3 F - Échange d'actions

Unedited CRA Tags
95(1) 85.1(3)

Principal Issues: (1) qualification d'une société anonyme française à titre de société étrangère affiliée; et (2) application de 85.1(3) à l'égard de l'échange d'actions d'une société anonyme française en contrepartie d'actions d'une société par actions simplifiée française.

Position: (1) oui; et (2) oui.

Reasons: (1) les conditions énoncées à 95(1) sont rencontrées; et (2) les conditions énoncées à 85.1(3) sont rencontrées.

XXXXXXXXXX 2004-010936

Le XXXXXXXXXX 2005

2005 Ruling 2005-0144741R3 - Withholding tax; interest

Unedited CRA Tags
212(1)(b)(vii) 245(2)

Principal Issues: Request for minor amendments to the facts and proposed transactions described in the Ruling.

Position: Requested amendments were incorporated into the Ruling by way of a Supplemental Ruling document.

Reasons: The amendments do not affect the Rulings given and also by incoporating the requested changes we provide the ruling applicant with the comfort and certainty intended by the ruling document.

Technical Interpretation - External

29 August 2005 External T.I. 2005-0125391E5 - Transfer of Life Insurance Policy to Child

Unedited CRA Tags
148(8)

Principal Issues: Is the requirement under subsection 148(8) of the Act, that a child of the policyholder or a child of the transferee be the only life insured under the policy, a condition that must be satisfied since the policy was issued, or must the condition only be satisfied at the time of the transfer referred to in subsection 148(8)?

Position: Our general view is that the child must be the only life insured under the policy at the time the policy is transferred to a child of the policyholder.

Reasons: Consistent with previous position in document 2005-0116681C6.

26 August 2005 External T.I. 2005-0130561E5 - Disposition -Interest in a Life Insurance Policy

Principal Issues: The taxpayer required clarification on whether the calculation of a gain on the disposition of a policy with a "return of premium" benefit is correct.

Position: Appears correct

Reasons: Our review of relevant provisions and information provided by the insurer and taxpayer.

26 August 2005 External T.I. 2005-0138861E5 - Reimbursement of Pension Contributions

Unedited CRA Tags
248(1) 5(1) 153(1)

Principal Issues: Where an employee pays the full cost to buy-back pensionable service and the employer later reimburses the employee for one half of the cost to buy-back the service, how will the reimbursement be reported for tax purposes?

Position: Income from employment.

Reasons: Where the terms of an RPP provide that the obligation to pay the employer's share of the contributions to buy-back pensionable service rests with the employee and the employer reimburses the employee, it will be a taxable benefit to the employee.

25 August 2005 External T.I. 2005-0139411E5 - Out of court settlement-Tax treatment

Unedited CRA Tags
9(1) 14(1) 14(5)(a)(iv)

Principal Issues: Tax treatment of settlement proceeds received from vendor for release from purchase/sale agreement of land that was going to be used in a residential housing development. Are the proceeds received an income receipt or a capital receipt and if a capital receipt, is it an eligible capital amount.

Position: An income receipt

Reasons: Had the development project proceeded as planned, the income would have been reported as business income. If there has been no destruction of or damages to the whole profit making apparatus of the Developer and the Financing company, then we would consider the settlement proceeds received (as a result of the vendor backing out of the agreement to sell the land) to be a surrogatum for future profits lost and therefore, an income receipt rather than a capital receipt.

24 August 2005 External T.I. 2005-0125401E5 - Tiered partnerships, life insurance

Unedited CRA Tags
53(1)(e)(iii) 89(1) 53(2)(v)

Principal Issues: Whether subparagraph 53(1)(e)(iii) operates in tiered partnerships to provide "bump up" to ultimate partner?

Position: Unlikely

Reasons: The words "in consequence of" in subparagraph 53(1)(e)(iii) is not wide enough to encompass the hypothetical situation and it is not established that the payment received by the partnership retained the character of "proceeds of a life insurance policy".

16 August 2005 External T.I. 2005-0136091E5 - temporary base away from home- living exp

Unedited CRA Tags
56(1)(o)(i)

Principal Issues: Whether living expenses while on sabbatical to another city are allowable expenses for the purposes of computing income under 56(1)(o) from research grant.

Position: No.

Reasons: If, while engaged in research work the taxpayer establishes a temporary base in a place other than their home, we would generally consider the taxpayer to be temporarily residing in that place and therefore sojourning rather than travelling. Subparagraph 56(1)(o)(i) specifically provides that personal living expenses may not be deducted in computing income from the research grant.

From: Fitzgerald, Tim
Sent: August 16, 2005 12:12PM
To: XXXXXXXXXX
Subject: Research grant question

26 July 2005 External T.I. 2004-0097031E5 F - Règles sur les entités de placement étrangères

Unedited CRA Tags
94.1 94.2
Summary Under
Tax Topics - Income Tax Act - Section 95 - Subsection 95(8)
description of Barbados cell company in context of previous tracking interest rules

Principales Questions: 1. Est-ce que le paragraphe 94.1(3), tel que proposé aux Propositions législatives concernant la Loi de l'impôt sur le revenu du 18 juillet 2005, s'applique à une société résidant au Canada lorsque l'entité non résidente est une société étrangère affiliée contrôlée de celle-ci?
2. Est-ce que les règles de revenu imputé prévues au paragraphe 94.1(4), tel que proposé, pourraient s'appliquer à une société résidant au Canada même si l'entité non résidente est une société étrangère affiliée contrôlée de celle-ci?

Position Adoptée: 1. Le paragraphe 94.1(3), tel que proposé, ne s'appliquerait pas.
2. La société résidant au Canada pourrait être sujette au paragraphe 94.1(4) si le paragraphe 94.2(9) s'applique sauf si la société résidente remplit les conditions prévues au paragraphe 94.2(3).

Raisons: 1. L'action que détient la société résidant au Canada dans le capital-actions de l'entité non résidente est une participation exempte.
2. Texte de loi.

19 July 2005 External T.I. 2004-0074241E5 - 212(13.1)(b) and ITAR 10(6)

Unedited CRA Tags
212(13.1)(b) ITAR 10(6)

Principal Issues: Interaction between paragraph 212(13.1)(b) of the Income Tax Act and subsection 10(6) of the Income Tax Application Rules

Position: The specified treaty rate will apply.

Reasons: Because generally we look through the partnership to the partners in a treaty country with respect to withholding rate under Part XIII of the Income Tax Act.

14 July 2005 External T.I. 2003-0048251E5 - Partnership as a taxpayer

Unedited CRA Tags
93.1(2)(d)(i) 95(2)(m) 85.1(3) Reg.5905(5)(a)

Principal Issues: (i) Whether 93.1(2)(d) deals with the deductibility of the gross amount of dividend or the net amount? (ii) Whether a partnership would have a qualifying interest in respect of a foreign affiliate? (iii) Whether 85.1(3) would apply to a partnership? (iv) Whether paragraph 5905(5)(a) of the Income Tax Regulations would apply where a partnership transfers shares of a foreign affiliate to a taxable Canadian corporation which is 100% owned by the partnership, provided that the other conditions are met?

Position: (i) Yes. (ii) Yes. (iii) Yes. (iv) Yes.

Reasons: (i) Finance's intention. (ii) 95(2)(m) is relevant to the computation of income from a source of a partner of the partnership such that 96(1) applies to treat the partnership as a person resident in Canada for FAPI computation purposes. By virtue of subsection 93.1(1) the shares of the foreign corporation are owned by the partners for purposes of determining whether the foreign corporation is a foreign affiliate of the partners for purposes of section 113 and related Regulations as well as section 95 to the extent that it is applied for purposes of section 113 and related Regulations. However, subsection 93.1(1) does not apply for the purposes of determining whether a partner has a qualifying interest in respect of the foreign affiliate. This is the work of subparagraph 95(2)(m)(iv). By virtue of that subparagraph, the shares of the foreign affiliate are deemed to be owned by the partners for the purposes of paragraph 95(2)(m). (iii)By virtue of subsection 96(1) as discussed in (ii) above. (iv) Regulation 5905(5)(a) is relevant to the deduction in subsection113(1) (i.e., the computation of taxable income) and is not relevant to the computation of income of a partner of the partnership. Therefore, subsection 96(1) would not apply. However, subsection 93.1(1) would apply.

6 July 2005 External T.I. 2005-0125271E5 - Wilthholding of income tax

Unedited CRA Tags
104(13) 104(13.1)

Principal Issues: Does the trustee have to deduct or withhold an amount of income tax from the payment of the income payable to a Canadian resident by a trust?

Position: No.

Reasons: There is nothing in the Income Tax Act nor in the Income Tax Regulations providing for such a deduction or withholding.

Conference

26 May 2005 Roundtable, 2005-0125801C6 - Foreign affiliates - deemed active business income

Unedited CRA Tags
95(2)(a)(i)

Principal Issues: Whether certain investment income of foreign affiliate in reinsurance business would be recharacterized as active business income.

Position: In the circumstances described it would be.

Reasons: Income is from activities directly related to active business activities of related foreign affiliate and would income from active business if earned by it.