Income Tax Severed Letters - 2005-12-16

Ruling

2005 Ruling 2004-0104681R3 - Partner Creating Professional Corporation

Unedited CRA Tags
96(1) 125(7) 256(2.1) 125(1)

Principal Issues: When a partner of a partnership (while remaining a partner) creates a professional corporation through which professional services will be provided to the partnership, will the professional corporation be eligible for the small business deduction?

Position: Yes

Reasons: Legislation.

2005 Ruling 2005-0144831R3 - Split-up butterfly

Unedited CRA Tags
55(3)(b)

Principal Issues: Whether the proposed butterfly meets the requirements of paragraph 55(3)(b)?

Position: Yes.

Reasons: It meets the requirements of the law.

2005 Ruling 2005-0151921R3 - Butterfly Distribution

Unedited CRA Tags
55(3)(b) 40(3.4)

Principal Issues: Butterfly distribution - two distributing corporations owned equally by the same shareholders. No new issues.

Position: Favourable rulings issued.

Reasons: The transactions comply with the law.

2005 Ruling 2005-0153641R3 - Withholding - on Loan to a partnership

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

Principal Issues: 1. Are interest payments made by Finco to a Non-resident arm's length person exempt under 212(1)(b)(vii)? 2. Does a disposition of a partnership interest affect the withholding tax exemption available to Finco? 3. Is there a new obligation if a Lender assigns its obligation under the Loan agreement that causes the withholding exemption to cease?

Position: 1. YES 2. No 3. No

Reasons: 1. and 2. Finco is responsible for the loan, 3. Terms of the Loan agreement.

XXXXXXXXXX 2005-015364

Technical Interpretation - External

16 December 2005 External T.I. 2005-0135831E5 - termination payment paid to non-resident

Unedited CRA Tags
6(3); 56(1)(a)(ii); 212(1)(j.1) 248(1) definition of retiring allowance

Principal Issues: Tax implications of a termination payment received by a resident of the U.S. from a Canadian corporation where no employment services were performed after the start date of employment contract due to illness of the individual.

Position: Provided general comments on the applicable law.

Reasons: As per legislation.

13 December 2005 External T.I. 2005-0136041E5 - Stop-Loss Rules - 112(3)

Unedited CRA Tags
112(3)

Principal Issues: Status of certain shares under the transitional provisions to subsection 112(3) of the Act which are contained in subsection 131(1) of S.C. 1998, c.19 (the "grandfathering rules").

Position: General comments.

Reasons: The law.

12 December 2005 External T.I. 2005-0137151E5 - Life Policy Transfer to a Child

Unedited CRA Tags
148(8)

Principal Issues: 1. Can ss. 148(8) apply to a transfer of a joint-last-to-die policy where the first life has died prior to the transfer?
2. Must the "child of the policyholder" referred to in paragraph 148(8)(b), be the same child of the policyholder that is referred to in paragraph 148(8)(a), for subsection 148(8) of the Act to apply to the transfer of the policy?

Position: 1. Yes
2. No

Reasons: 1. The words of the legislation.
2. The words of the legislation.

Technical Interpretation - Internal

14 December 2005 Internal T.I. 2005-0149181I7 - Indian employment income while suspended with pay

Unedited CRA Tags
81(1)(a)

Principal Issues: If a status Indian employee's salary is 100% exempt under the Guidelines, what is the tax treatment of his employment income received while suspended with pay?

Position: The Guidelines must be applied to the salary received during the period of suspension. If the requirements of one of the Guidelines are met with respect to the salary received during the period of suspension, then it will be exempt.

Reasons: Salary is income from employment and taxable under section 5. As we stated in Document 9705315, during a period of suspension, it cannot be said that 90% of employment duties (Guideline 1) or 50% of employment duties (Guideline 3) or some lesser percentage of employment duties (proration) are performed on a reserve. Accordingly, the employment income cannot be exempt under these Guidelines.
Although we look to the taxation of prior employment to determine the tax treatment of employment related benefits, such benefits are not salary or wages taxable under section 5.

7 December 2005 Internal T.I. 2005-0155071I7 - Employment Income of a Status Indian

Unedited CRA Tags
81(1)(a)

Principal Issues: Will the employment income earned by a status Indian be tax-exempt pursuant to 81(1)(a) of the Income Tax Act in the circumstances?

Position: Ultimate determination should be made by the TSO once all the facts have been determined; however, based on the information provided, it seems unlikely

Reasons: Employment Income Guidelines do not apply in the circumstances as the status Indian individual does not work on reserve, nor is the employer located on reserve.

7 December 2005 Internal T.I. 2005-0157831I7 - Education Tax Credit - Foreign University

Unedited CRA Tags
118.5 118.6

Principal Issues: Can an individual enrolled in a university outside Canada claim either the full-time or part-time education tax credit, depending on the circumstances?

Position: Yes

Reasons: There is nothing in the legislation that would prevent either the full-time or the part-time claim, provided the individual was in fact enrolled at the university either on a full time or part-time basis and met the provisions of the Act with respect to a "qualifying educational program" or a "specified educational program" respectively.

6 December 2005 Internal T.I. 2005-0147401I7 - Grandfathering-Stop Loss Rules

Unedited CRA Tags
112(3)

Principal Issues:
1. Whether a redemption agreement entered into after April 26, 1995 without other supporting evidence is sufficient to satisfy the "main purpose" test referred to in paragraph 131(11)(b) of the Income Tax Amendments Act, referred to as the grandfathering rules to the stop loss provisions in subsection 112(3) of the Income Tax Act.
2. Where the conditions of paragraph 131(11)(b) are met, whether new shares issued pursuant to section 85 of the Income Tax Act are grandfathered.

Position:
1. No
2.Yes

Reasons:
1. Where the only document provided by the taxpayer to support the main purpose of the insurance policy in existence on April 26, 1995 is a redemption agreement entered into after April 26, 1995, the taxpayer has not established that it was reasonable to conclude that the main purpose of the insurance policy in existence on April 26, 1995 was to fund, in whole or in part the redemption of shares held by the taxpayer on April 26, 1995.
2. In accordance with the deeming rule in subsection 131(12), where new shares are issued pursuant to a section 85 the new shares will be deemed to be the same as the grandfathered shares.