Income Tax Severed Letters - 2006-03-17

Ruling

2006 Ruling 2006-0172441R3 - Paragraph 55(3)

Unedited CRA Tags
55(3)(a)

Principal Issues: Minor change in a proposed transaction.

Position: The proposed change does not affect any of the rulings given and/or the basis for giving such rulings.

Reasons: See above.

2006 Ruling 2005-0139001R3 - Canadian Branch of a Foreign Entity

Unedited CRA Tags
149(1)(l) Reg 805 Reg 105

Principal Issues: (A) Does the particular entity qualify for the tax exemption as a non-profit organization for purposes of paragraph 149(1)(l) of the Income Tax Act? (B) Is Part XIII tax applicable to rental income received by the non-resident entity from the leasing of real property in Canada, where the rental income is included in the computation of taxable income of the entity from operations in Canada pursuant to Part I of the Act?

Position: (A) yes (B) no

Reasons: (A) Based on the legislation, organizational documents and other Rulings given in similar situations. However, whether or not the corporation is operated for purpose other than profit as required under 149(1)(l) will be a question of fact each year. (B) To the extent the rental income is included in income of the taxpayer for purposes of Part I of the Act; subsection 805(1) of the Regulations provides that Part XIII will not apply. It should be noted that subsection 805(2) of the Regulations grants the Minister discretion in this regard.

2006 Ruling 2005-0157121R3 F - Butterfly Transaction - Papillon

Unedited CRA Tags
55(3)(b) 55(3.1) 55(2)

Principal Issues: Split-up butterfly transaction.

Position: Favourable rulings provided.

Reasons: Meets the requirements of the law.

2005 Ruling 2005-0125982R3 - Purchase of Target and Bump

Unedited CRA Tags
88(1)(c) 88(1)(d) 87(11)

Principal Issues: Acquisition of control of a Target. Amalgamation of the Target with the Parent, and bump of the cost of shares held by the Target. Drop-down of the bumped shares under the buyer's operating corporation.

Position: Favourable rulings provided.

Reasons: In compliance with the law.

2005 Ruling 2005-0163131R3 - Supplemental Ruling - 2005-012598

Unedited CRA Tags
88(1)(c) 88(1)(d) 87(11)

Principal Issues: Changes to the proposed transactions described in the advance income tax ruling no. 2005-012598.

Position: Confirmation that, subject to the conditions, limitations, qualifications and comments set out therein, the original ruling no. 2005-012598 will continue to be binding on the CRA.

Technical Interpretation - External

17 March 2006 External T.I. 2006-0174061E5 - Education tax credit

Unedited CRA Tags
118.6

Principal Issues: Before the revisions to the definition of "qualifying education program" in 118.6 for 2004, the post graduate medical students at the University could not claim the education tax credit because the program was taken by a student in connection with or as part of the duties of the office or employment. While this aspect is no longer relevant, a program is now excluded if the student receives, from a person with whom the student is dealing at arm's length, any allowance, benefit, grant or reimbursement for expenses in respect of the program. 90% of the students get free tuition so the question is whether they will have received a benefit, so that the particular post graduate program will not be a qualifying education program. The remaining 10% will have their fee paid by the sponsoring organization.

Position: In general terms, free tuition will only be considered to not be a benefit when the program is available to the public at large. Although it is ultimately a question of fact, it would appear that this is not the case and thus the program would qualify for the education tax credit.

Reasons: As stated in paragraph 16 of IT-515, "free tuition" is not considered to be a benefit if the program is available to the public at large at no cost. This does not seem to be the case for the University.

16 March 2006 External T.I. 2006-0167361E5 F - Options et droits - Alinéa 251(5)b)

Unedited CRA Tags
251(5)b)
bankruptcy exception does not include mere insolvency/no application where corporation is required under USA to redeem shares or under a letter of intent

Principales Questions: (1) Sous réserve de l'article 65.1 de la Loi sur la faillite et l'insolvabilité, l'alinéa 251(5)b) de la Loi de l'impôt sur le revenu s'applique-t-il dans le cas d'une clause prévoyant le retrait des affaires d'un actionnaire si ce dernier prend avantage à l'égard de lui-même d'une loi visant la protection des insolvables?
(2) L'alinéa 251(5)b) de la Loi de l'impôt sur le revenu s'applique-t-il dans le cas d'une clause prévoyant le retrait des affaires d'un actionnaire si ce dernier fait cession volontaire de ses biens pour le bénéfice de ses créanciers?
(3) Quels sont les motifs ayant permis à l'Agence du Revenu du Canada de conclure dans l'interprétation technique 2002-0172315 datée du 5 décembre 2002 que l'alinéa 251(5)b) ne s'applique pas à un actionnaire trouvé coupable de fraude?
(4) L'alinéa 251(5)b) de la Loi de l'impôt sur le revenu s'applique-t-il dans le cas d'une lettre d'intention conclue entre deux parties lorsque cette lettre comporte des clauses permettant à l'acheteur et au vendeur de mettre fin unilatéralement à la vente des actions?

Position Adoptée: (1) Oui.
(2) Non.
(3) La personne doit avoir le droit d'obliger la société à racheter, acquérir ou annuler des actions de son capital-actions appartenant à d'autres actionnaires de la société.
(4) Non, dans les cas où la lettre d'intention ne crée pas entre les parties le droit ou l'obligation d'acheter ou de vendre selon le cas.

Raisons: Interprétation de la Loi de l'impôt sur le revenu et les positions administratives prises antérieurement par l'ARC.
PUBLICATIONS DE L'ARC: IT-419R2; 2002-0172315; 2002-0145225; 2002-0176825;

15 March 2006 External T.I. 2005-0124911E5 F - Prestation compensatoire française

Unedited CRA Tags
56(1) 56(1)b)
life annuity, but not lump sum, received from divorced ex-spouse in France as “compensatory allowances” under the French Civil Code was taxable as support
life annuity, was to be treated for Treaty purposes as alimony or similar payments since it was treated by CRA as a support amount under ITA
treatment of a life annuity under ITA, as a support amount meant that it was to be treated for Treaty purposes as alimony or similar payments
non-taxability of lump sum compensation allowance under French law not altered by Art. 21

Principales Questions: (1) Le montant forfaitaire versé ainsi que les montants versés mensuellement sont-ils assujettis à l'impôt au Canada ou constituent-ils des montants de capital non-imposables?
(2) Selon l'ARC, l'expression "autres paiements analogues" utilisée à l'article 18(4) de la Convention fiscale Canada-France vise-t-elle les "prestations compensatoires"?
(3) Dans la négative, quelle est la position de l'ARC relativement à la qualification des montants en cause dans la présente en regard de la Convention fiscale Canada-France?
(4) Dans l'hypothèse où l'un ou l'autre de ces montants ou les deux ne serai(en)t pas assujetti(s) à l'impôt sur le revenu canadien conformément au droit interne canadien, l'article 18(4) de la Convention Canada-France recevra-t-il tout de même application?

Position Adoptée: (1) Le montant forfaitaire constitue un montant versé à titre du capital et n'est pas imposable au Canada. La rente viagère constitue une pension alimentaire selon le paragraphe 56.1(4) de la Loi de l'impôt sur le revenu.
(2) S/o. Seule la prestation compensatoire versée sous forme de rente viagère est incluse sous le paragraphe 18(4) de la Convention Canada-France et ce, en tant que pension alimentaire.
(3) Relativement à la prestation compensatoire versée sous forme forfaitaire, ces montants sont régis par le paragraphe 21(2) de la Convention Canada-France.
(4) Si le paragraphe 18(4) de la Convention Canada-France s'applique à une somme mais que le droit fiscal canadien prévoit la non-imposition de cette somme, il s'agit de la fin de l'histoire.

Raisons: Le droit civil et fiscal français; la Loi de l'impôt sur le revenu; la jurisprudence.

14 March 2006 External T.I. 2006-0170971E5 F - CRCE/Test Wind Turbine-FEREEC/Éolienne d'essai

Unedited CRA Tags
Reg 1219(1) 1219(3) 66.1(6)
requirement for 1500 m spacing of wind turbines not satisfied

Principal Issues: Whether certain wind turbines will qualify as test wind turbines under subsections 1219(1) and (3) of the Regulations?

Position: No.

Reasons: Based upon the wording of the relevant provisions of the Regulations, a written opinion obtained from Natural Resources Canada and the facts of the situation.

13 March 2006 External T.I. 2005-0151691E5 - Pension corporation

Unedited CRA Tags
149(1)(o.2)(iii)

Principal Issues: Whether the assignment of a commitment to make a contribution of capital to a financial institution would be considered to be a debt obligation for purposes of paragraph 149(1)(o.2)(iii)

Position: General comments given. Question of fact.

Reasons: A review of the pertinent assignment documents would be required before such a determination could be made.

2005-015169
XXXXXXXXXX G. Moore
(613) 957-8982
March 13, 2006

6 March 2006 External T.I. 2006-0171111E5 - Election under Regulation 1103(1)

Unedited CRA Tags
Reg. 1103(1) Reg. 1101(1)

Principal Issues: In order to avoid CCA recapture on the sale of its depreciable business assets consisting of heavy equipment, the taxpayer-corporation wishes to elect under Reg. 1103(1) to transfer them into class 1 prior to acquiring a commercial rental building that would also fall into class 1. If the heavy equipment and the building are not used in the same business, can the Reg. 1103(1) election be effective to avoid the CCA recapture on the heavy equipment by the purchase of the building?

Position: No

Reasons: Reg. 1101(1) prescribes a separate class for properties that otherwise would fall into the same class but are used in separate businesses. Reg. 1103(1) election applies to assets used in the same business.

24 February 2006 External T.I. 2005-0153591E5 - Medical Expenses - Clinical Counsellors

Unedited CRA Tags
118.2(2)

Principal Issues: Whether fees paid for XXXXXXXXXX counsellors would qualify as medical expenses for the purposes of coverage under a private health services plan.

Position: Yes, if the counsellors: (a) are working in a recognized mental health clinic, community agency or hospital, (b) are members of the association governing their particular profession, and (c) are providing the medical services at the request of, or in association with, a medical practitioner.

Reasons: Prior positions dealing with social workers, counsellors and health professionals.

13 February 2006 External T.I. 2005-0153561E5 F - Aggregate Investment Income

Unedited CRA Tags
129(4) 108(5)(a)

Principal Issues: Whether property income earned by a unit trust and paid to its beneficiaries is always included in the aggregate investment income of a corporation under subsection 129(4)?

Position: No

Reasons: Exceptions in paragraph (b) of "income" as defined in subsection 129(4) could apply depending on the circumstances.

Technical Interpretation - Internal

3 March 2006 Internal T.I. 2005-0151871I7 F - Déduction des intérêts

Unedited CRA Tags
20(1)c)
notes issued to replace notes issued to pay dividends did not qualify as refinancing borrowed money under s. 20(3) or as being for the acquisition of property per s. 20(1)(c)(ii)

Principales Questions: Les intérêts sur des montants dus aux actionnaires d'une société sont-ils déductibles du revenu de la société

Position Adoptée: non

Raisons: Les conditions d'application de l'alinéa 20(1)c) ne sont pas respectées.