Income Tax Severed Letters - 2006-01-27

Ruling

2006 Ruling 2005-0165201R3 - revisions to 2005-013289

Unedited CRA Tags
87(2.1)

Principal Issues: whether changes to the proposed transactions would have any impact on the rulings given

Position: no

Reasons: changes are not significant

2005 Ruling 2005-0119891R3 - 132.2 - reorganization of a mutual fund trust

Unedited CRA Tags
132.2 20(1)(c) 87 97(2)

Principal Issues: Reorganization aimed at moving from a trust on corporation XXXXXXXXXX structure to a trust on partnership structure. Use of various rollover provisions in order to achieve that result. Resetting of the XXXXXXXXXX year end of the initial partnership to XXXXXXXXXX as a result of the trust becomming a partner (section 249.1). Use of a newly created partnership with a XXXXXXXXXX year end to preserve the initial XXXXXXXXXX year end for some corporate partners.

Position: In light of the July 18, 2005 proposed changes to 132.2, the use of that provision to achieve the proposed reorganization is acceptable in terms of policy. The XXXXXXXXXX year end of the new partnership will not be challenged.

Reasons: In light of the proposed amendments to 132.2 disclosed in the July 18, 2005 proposed measures, any phantom losses that might stem from the proposed transactions will be denied. The XXXXXXXXXX year end of the new partnership is only intended to preserve the income determination of the new partnership based on a XXXXXXXXXX fiscal period.

2005 Ruling 2005-0128301R3 - Management Fee changes; new Classes of units MFT

Unedited CRA Tags
104(7.1) 248(1) 9

Principal Issues: 1. Does the creation of the new classes of units, having substantially the same rights result resettlement of the trust or in a disposition of units of the trust? The various classes only differ in respect of the amount of management fees and other costs payable by each class.
2. Will the Common Expenses incurred by the Manager in respect of the new classes of units be deductible by the Manager and not by the Fund?

Position: 1. No. 2.Yes.

Reasons: 1.The proposed amendments to the trust indenture will not result in a resettlement of the trust nor will the existing units be considered to have been disposed of.
2. The Funds are liable for and incur the Common Expenses incurred by the Manager in respect of the existing units. Under the structure for the New Units, the Funds will not be liable for the Common Expenses applicable to those New Units as the New Units will bear a higher management fee. The effect of the transactions is to convert the fixed costs of Common Expenses into a management fee computed as a percentage of net asset value. GST Rulings was consulted. As GST is applicable on both the Common expenses and the management fees and the Manger is dealing at arm's length with the Fund, there is no GST concern provided that GST is payable on the total Common Expenses and Management Fees payable to the Manager.

2005 Ruling 2005-0140641R3 F - Internal Spin-Off Reorganization

Unedited CRA Tags
55(3)(a)

Principal Issues: "Spin-Off" reorganization relying on the 55(3)(a) exception to the application of 55(2)

Position: Favorable rulings given.

Reasons: None of the events under 55(3)(a)((i) to (v) are present.

2005 Ruling 2005-0143841R3 - First Nation as a public body

Unedited CRA Tags
149(1)(c)

Principal Issues: Will a First Nation be taxable on income it earns from its participation in a limited partnership and from its ownership of shares of the general partner?

Position: No, the income will be tax exempt.

Reasons: The First Nation qualifies as a public body performing a function of government within paragraph 149(1)(c) of the Act. As a result of this, income of the First Nation is exempt from tax.

XXXXXXXXXX 2005-014384

XXXXXXXXXX , 2005

2005 Ruling 2005-0161521R3 - Postamble of 212(1)(b)

Unedited CRA Tags
212(1)(b)
Summary Under
Tax Topics - Income Tax Act - Section 212 - Subsection 212(1) - Subparagraph 212(1)(b)(vii)
Summary Under
Tax Topics - Income Tax Act - Section 212 - Subsection 212(1) - Paragraph 212(1)(b)
variable interest tracked creditworthiness
Summary Under
Tax Topics - Income Tax Act - Section 212 - Subsection 212(3) - Participating debt interest
variable interest tracked creditworthiness, not profitability

Principal Issues: whether postamble of 212(1)(b) applies

Position: No

Reasons: See previous ruling 2003-0047713. Based on the particular fact situation. Although the interest payable employs a variable that is the result of a formula of debt to EBITDA, these extra amounts payable simply use EBITDA as a tool to assess creditworthiness. As the borrower becomes more profitable, its payments decrease; this reflects the opposite of participating debt. Considering the modern rule of statutory interpretation and the apparent purpose of paragraph 212(1)(b), we are of the view that the phrase "computed by reference to" revenue, profit, cash flow, commodity price or any other similar criterion, has a somewhat narrower meaning in the context of the postamble of 212(1)(b) than it may bear in other sections of the Act.

XXXXXXXXXX 2005-016152

2005 Ruling 2005-0155641R3 - Public body performing a function of government

Unedited CRA Tags
149(1)(c)

Principal Issues: Whether the fact that society has moved off-reserve has an impact on the previously issued ruling.

Position: No.

Reasons: Application of provision does not depend on the location of the entity.

2005 Ruling 2005-0144541R3 - Restricted Share Unit Plan (RSU)

Unedited CRA Tags
7 248(1)
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Salary Deferral Arrangement - Paragraph (k)
exchange of RSUs for DSUs

Principal Issues: Is the arrangement an SDA?

Position: No

Reasons: Amounts are payable to Canadian residents are payable within 3 years.

2005 Ruling 2005-0117902R3 - Additional Ruling

Unedited CRA Tags
80 132.2 253.1 132(6)

Principal Issues: Statements added for greater clarity.

Position: Granted.

Reasons: The additional statements provide the taxpayer with the level of comfort that was initially intended to be provided.

Ministerial Correspondence

28 December 2005 Ministerial Correspondence 2005-0160401M4 - Clergy residence

Unedited CRA Tags
8(1)(c)

Principal Issues: Is a retired minister who still performs on a part-time basis eligible for the 8(1)(c) deduction?

Position: YES on the employment income that meets the function test

Reasons: Policy in IT-141R - provided ministering is still an integral part of the job.

Technical Interpretation - External

27 January 2006 External T.I. 2005-0160671E5 - Private Health Services Plans

Unedited CRA Tags
6(1)(a) 18(1)(a)

Principal Issues: 1. Whether or not the cost of the premiums is deductible to the corporation. 2. Whether or not the cost of the premiums is a taxable benefit for the three employees enrolled in the different plans.

Position: 1. Yes, the cost of the premiums is deductible to the corporation. 2. No, the premiums are not a taxable benefit for the employees in any of the plans.

Reasons: 1. The PHSPs are part of a reasonable coverage package for its employees, therefore, the cost of the premiums is a deductible expense of the corporation which is not prohibited by paragraph 18(1)(a). 2. The premiums are excluded from employment income under subparagraph 6(1)(a)(i).

24 January 2006 External T.I. 2005-0151161E5 - Private Health Services Plan

Unedited CRA Tags
6(1)(a)(i) 15(1) 56(2) 48(1)

Principal Issues: (i) Where the sole shareholder of a corporation is also an employee, would the corporation's payment of premiums for a PHSP represent a shareholder benefit under subsection 15(1)? (ii) What are the potential tax implications if the shareholder's spouse is an employee and also a member of the plan? (iii) If the benefits under the PHSP to a part time employee are based on the proportional rate of pay of that employee, what impact would that have on the determination as to whether the employee-shareholder's benefit under the PHSP is received in his or her capacity as an employee or shareholder.

Position: (i)&(ii) Questions of Fact, (iii) Yes

Reasons: (i)&(ii) Whether 15(1) or 56(2) applies depends if the benefits are conferred by virtue of shareholdings. (iii) It would generally be reasonable to compare the level of benefits provided under the PHSP to an employee-shareholder to the benefits provided to a part time employee, which are based on the rate of pay of the part time employee.

2005-015116
XXXXXXXXXX Rob Ferrari
(613) 957-2138
January 24, 2006

23 January 2006 External T.I. 2005-0125931E5 - Canadian resident selling foreign real property

Unedited CRA Tags
2 3

Principal Issues: What are the consequences of a Canadian resident owning real property in Croatia selling that property?

Position: Generally, any capital gain is taxable in Canada, whether such property is located in Canada or in another country, because Canada taxes its residents on their worldwide income. However, if any tax is paid to Croatia, this will give rise to a foreign tax credit in Canada.

Reasons: We provided only general comments as the question relates to a completed transaction.

19 January 2006 External T.I. 2006-0165471E5 F - Fiducie exemptée d'impôt

Unedited CRA Tags
149(1)z.1) proposé
Summary Under
Tax Topics - Income Tax Act - Section 149 - Subsection 149(1) - Paragraph 149(1)(z.1)
exemption of trust for closure costs of Quebec disposal facility

Principales Questions: Est-ce que les revenus d'une fiducie créée en raison d'une exigence imposée par l'article 56 de la Loi sur la qualité de l'environnement du Québec sont exemptés de l'impôt de la partie I de la Loi?

Position Adoptée: Oui, pourvu que les dispositions proposées soient promulguées telles que prévues.

Raisons: Nouvel alinéa 149(1)z.1) dans les propositions législatives du 18 juillet 2005.

16 January 2006 External T.I. 2005-0116041E5 - allocation of income earned by an estate

Unedited CRA Tags
104(13) 4(13.1)

Principal Issues: 1. Can different types of income of an estate be allocated to different beneficiaries?
2. If the will provides for an equal allocation between two beneficiaries, can one beneficiary be allocated all of the income and the other beneficiary be allocated capital of an equal amount?

Position: 1. Question of fact, but generally yes.
2. One must look to the wording of the will to determine whether or not the income is payable to the beneficiaries and in what proportions.

Reasons: 1. Prior position, see document 2001-0112945.
2. Unless the terms of the will clearly provide for an unequal allocation of income and capital among the beneficiaries, the even hand principle would suggest that, to the extent that the income is payable to the beneficiaries, it is payable to them in proportion to their respective interests in the estate.

5 December 2005 External T.I. 2005-0157491E5 - Bullion as a Qualified Investment for RRSP

Unedited CRA Tags
Reg 4900(1)(t) 4900(1)(u) 4900(1)(v)

Principal Issues: 1) Must bullion purchased by an RRSP trust be held in Canada? 2) Who qualifies to sell bullion? 3) How are the bullion sales reported? 4) Is there a maximum amount of bullion that a plan can buy?

Position: 1) No. 2) Royal Canadian Mint or specified corporations for coins, the metal refiner or specified corporations for bar, ingot or wafer. 3) The Act imposes no special reporting requirements. 4) There is no limit.

Reasons: 1) The Act is silent. 2) 4900(1)(t)(iv) and 4900(1)(u)(iv). 3) The Act is silent. 4) The Act is silent.

Technical Interpretation - Internal

4 January 2006 Internal T.I. 2005-0115801I7 F - Convention de retraite

Unedited CRA Tags
67 248(1)
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Retirement Compensation Arrangement
arrangement was not an RCA because the benefits were not reasonable
Summary Under
Tax Topics - Income Tax Act - Section 56 - Subsection 56(2)
contributions to purported RCA that provided excessive benefits to employee/ultimate shareholders were included in the direct shareholders’ income under s. 56(2)
Summary Under
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(r)
excessive benefits would have resulted in denial under ss. 18(1)(o.2) and 20(1)(r) had the arrangement qualified as an RCA
Summary Under
Tax Topics - Income Tax Act - Section 67
Petro-Canada applied re determining reasonableness
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Salary Deferral Arrangement
contributions to a purported RCA that contemplated excessive benefits also were not in relation to an SDA because the contributions instead were indirect shareholder appropriations

Principales Questions: (1) Est-ce que le mécanisme mis en place pour verser des prestations à des dirigeants de la Société est une convention de retraite?(2) Est-ce que les sommes versées à la fiducie régie par ce mécanisme sont déductibles dans le calcul du revenu de la Société? (3) Les intérêts sur l'emprunt que la société a obtenu de la fiducie sont-ils déductibles? (4) Les frais liés à la mise en place de la convention de retraite sont-ils admissibles comme dépense courante?

Position Adoptée: (1) Non.(2) Non.. (3)Non (4) Non.

Raisons: (1) Les bénéfices à être versés ne seraient pas raisonnables dans les circonstances. Position énoncée lors des congrès 2005 de l'APFF et du CTF. (2) Les sommes versées ne l'ont pas été pour gagner un revenu. De plus, ces sommes ne sont pas raisonnables. Il faut établir ce qu'un homme d'affaire raisonnable aurait accepté de payer en ayant en tête uniquement les intérêts de la société. Quand on évalue le caractère raisonnable d'une dépense, il faut rechercher un élément objectif (3) Les argents empruntés ne sont pas utilisés en vue de gagner un revenu. (4) La dépense aurait été engagée dans le cadre d'une appropriation de fonds.