Income Tax Severed Letters - 2007-01-19

Ruling

2006 Ruling 2006-0199731R3 - Partnership Reorganization

Unedited CRA Tags
125(7)("personal services business") 125(7)("specified partnership income")

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

Position: Yes.

Reasons: As long as the partner in his or her role of an employee of the professional corporation providing the services of the "professional function" would not, but for the corporation, be considered an employee of the partnership, then the business of the corporation is not a personal services business. Also, provided that the professional corporations are not themselves carrying on business in partnership, there is no specified partnership income. This ruling is the same as previous rulings given, in particular see our document E2006-0170321R3.

2006 Ruling 2006-0212861R3 - Amendment to Flow-Through Share Agreement

Unedited CRA Tags
66(15) 66(12.73) 66(12.66)

Principal Issues: Whether certain amendments to a written agreement, pursuant to which shares intended to be flow-through shares were issued, can be made without resulting in the termination of that agreement.

Position: Yes.

Reasons: Based upon the nature of the amendments and the application of existing jurisprudence to the facts of this situation.

2006 Ruling 2006-0197501R3 - Multiple-wing Butterfly

Unedited CRA Tags
55(3)(b) 80.01(4)
Summary Under
Tax Topics - Income Tax Act - Section 55 - Subsection 55(1) - Distribution

Principal Issues: Standard multiple-wing butterfly. No new issues.

2006 Ruling 2006-0198551R3 - Partnership Reorganization

Unedited CRA Tags
125(7)("personal services business") 125(7)("specified partnership income")

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

Position: Yes.

Reasons: As long as the partner in his or her role of an employee of the professional corporation providing the services of the "professional function" would not, but for the corporation, be considered an employee of the partnership, then the business of the corporation is not a personal services business. Also, provided that the professional corporations are not themselves carrying on business in partnership, there is no specified partnership income. This ruling is the same as previous rulings given, in particular see our document E2006-0170321R3.

Ministerial Correspondence

24 October 2006 Ministerial Correspondence 2006-0201031M4 - RRSP Qualified Investments - Mortgages

Unedited CRA Tags
4900(1)(j)

Principal Issues: Is a mortgage a qualified investment for an RRSP?

Position: Question of fact.

Reasons: Based on the question posed by the taxpayer, provided the conditions of paragraph 4900(1)(j.1) of the Income Tax Regulations are satisfied, a debt obligation secured by a mortgage in respect of real property situated in Canada is a qualified investment for an RRSP.

Technical Interpretation - External

17 January 2007 External T.I. 2005-0152601E5 F - Politique d'application RS & DE 1996-02

Unedited CRA Tags
37(1) 37(2) 127 REG 2900
Summary Under
Tax Topics - Income Tax Act - Section 37 - Subsection 37(1) - Paragraph 37(1)(a)
LGL and Tigney pro rata approach to in-Canada requirement

Principales Questions: Quelle est la pertinence de la politique d'application 1996-02 de l'Agence du revenu du Canada en matière de RS & DE à la lumière des arrêts Canada c. Tigney Technology Inc. et LGL Ltd. c. Canada de la Cour d'appel fédérale?

Position Adoptée: Il n'y a pas lieu de réviser la politique de l'Agence du revenu du Canada.

Raisons: Interprétation de la Loi de l'impôt sur le revenu.

16 January 2007 External T.I. 2006-0187761E5 - Meal Reimbursement Policy

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

Principal Issues: How to treat meal reimbursements received by travelling employees where it is not viable to bring their own lunch.

Position: Question of fact.

Reasons: Based on facts and whether subparagraphs 6(1)(a) or 6(1)(b)(viii) would apply.

16 January 2007 External T.I. 2006-0217641E5 F - Dépenses de vêtements - travailleur indépendant

Unedited CRA Tags
18(1)b) 18(1)h) 20(1)a)
Summary Under
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(h)
clothing expenses of personal stylist are non-deductible

Principales Questions: Une contribuable qui exploite une entreprise à titre de conseillère et styliste personnalisée peut-elle déduire les coûts pour ses vêtements, sa coiffure et ses frais de nettoyage à sec de son revenu d'entreprise?

Position Adoptée: Non, il s'agit de dépenses personnelles ou de subsistance aux termes de l'alinéa 18(1)h) de la Loi de l'impôt sur le revenu.

Raisons: Loi de l'impôt sur le revenu, analyse de jurisprudence, position énoncée dans des bulletins d'interprétation.

16 January 2007 External T.I. 2006-0217851E5 - Tax deferred cooperative shares

Unedited CRA Tags
135.1(1)

Principal Issues: 1. Can a class of shares meet the definition of "tax deferred cooperative share" ("TDCS") in subsection 135.1(1) if some of the shares of that class meet the definition but others do not? 2. If the answer to question 1 is no, what happens if initially a class of shares meets the TDCS definition but, due to the issuance of a share to an ineligible member in a subsequent tax year, it now fails to meet the TDCS definition?

Position: 1. No. 2. The share issued to an ineligible member would not be a TDCS but the issuance of such share has no impact on shares of that class previously issued or those that may subsequently be issued.

Reasons: Legislation

XXXXXXXXXX 2006-021785

16 January 2007 External T.I. 2006-0197401E5 - Subsection 14(1.01) Election - Quota

Unedited CRA Tags
14(1.01) 14(1.03)

Principal Issues: Where a taxpayer has a partial disposition of farm quota, which are essentially identical properties, that may be qualified or unqualified as a consequence of subsection 14(1.03), can the taxpayer determine the extent of qualified property disposed using a pro-rata calculation?

Position: Yes.

Reasons: The Act provides for the election in respect of the disposition of certain ECP. A pro-rata calculation in the circumstances of identical properties provides a reasonable approach to determine relevant amounts.

15 January 2007 External T.I. 2006-0212201E5 - Eligible Medical Expense

Unedited CRA Tags
118.2(2)(n) 118.2(1)

Principal Issues:
Whether the cost of a particular over-the-counter medication is an eligible medical expense pursuant to paragraph 118.2(2)(n) for purposes of the medical expense tax credit

Position:
No, amounts are eligible only if the particular medication is included in Schedule I of the Drug Schedule Regulations to the relevant provincial legislation and purchased for use by the patient as prescribed by a medical practitioner or dentist and as recorded by a pharmacist.

Reasons:
In interpreting the phrase "as prescribed by a medical practitioner or dentist and as recorded by a pharmacist", the CRA relies on the legislative authorities governing the sale, dispensing or disposal of drugs and devices. This approach is consistent with the decision of the Federal Court of Appeal in Ray [2004] DTC 6028.

15 January 2007 External T.I. 2006-0194881E5 - Clergy Residence Deduction

Unedited CRA Tags
8(1)(c)

Principal Issues:
Whether the clergy residence deduction applies to self-employment income

Position:
No.

Reasons:
Reading of the legislation.

15 January 2007 External T.I. 2006-0196531E5 - Breach of Contract Settlement

Unedited CRA Tags
84(3) 248(1) 56(1)(a)(ii)

Principal Issues:
Whether the breach of contract settlement received is a deemed dividend for tax purposes based on the terms and conditions of the contract of employment.

Position:
No.

Reasons:
In our opinion, the breach of contract settlement amount is a retiring allowance for purposes of the Act as defined in subsection 248(1) and included in the income of the recipient under subparagraph 56(1)(a)(ii).

15 January 2007 External T.I. 2006-0207651E5 - New Dividend Reporting Rules - CCPC Dividends

Unedited CRA Tags
89(1) 89(14)

Principal Issues: How a dividend paid by a CCPC during 2006 is to be reported by a shareholder.

Position: Depends upon its characterization as an eligible dividend or other taxable dividend from a taxable Canadian corporation.

Reasons: The Act.

15 January 2007 External T.I. 2006-0208691E5 - Transfer of Property Prior to Share Sale

Unedited CRA Tags
110.6(14)(f)

Principal Issues: If real property that is owned by a shareholder of a corporation, but used by the corporation in its business, is transferred to the corporation prior to a sale of shares, will the capital gains exemption be available?

Position: No.

Reasons: Per paragraph 110.6(14)(f), the shares issued on transfer will be deemed to have been owned by a person not related to the shareholder and thus will not meet the definition of QSBC shares. Consistent with CRA position taken in response to 1988 Round Table question.

10 January 2007 External T.I. 2006-0171132E5 F - Revenu locatif

Unedited CRA Tags
9
Summary Under
Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit
house rented to daughter at below-market rent was not a source of income – rents excluded form income
Summary Under
Tax Topics - Income Tax Act - Section 54 - Principal Residence - Paragraph (a)
exemption potentially available re bungalow rented (but not as a source of income) to daughter

Principales Questions: Le contribuable a acheté une propriété qu'il loue à sa fille. La question est comment doit être reportée ce loyer au point de vue fiscal?

Position Adoptée: Dans le cas présent, le revenu de location est non imposable.

Raisons: Puisque l'activité de location semble comporter un aspect personnel, il est nécessaire que l'activité soit exercée de façon suffisamment commerciale. Si tel n'est pas le cas, l'ARC ne peut conclure à l'existence d'une source de revenu.

18 December 2006 External T.I. 2006-0211891E5 - DSLP - Leave Period

Unedited CRA Tags
6801(a)

Principal Issues: Can an employee take a leave period of less than six months?

Position: Routine

Reasons: Routine

2006-021189
XXXXXXXXXX Bruce Hartt
(613) 946-3558
December 18, 2006

Technical Interpretation - Internal

15 January 2007 Internal T.I. 2006-0216011I7 - Repayment of education

Unedited CRA Tags
8(1)(n)

Principal Issues: The deductibility of the repayment of education assistance by a taxpayer pursuant to an agreement entered into while an employee, which provided that the employer would provide such assistance while the taxpayer completed his residency requirements to become a doctor and, in return, the taxpayer agreed to return as an employee of the employer for the same length of time that the assistance was received or, failing that, repay the amount received.

Position: The repayments are deductible under paragraph 8(1)(n) to the extent of the amounts previously included in income as employment income.

Reasons: All of the conditions in paragraph 8(1)(n) are met, and, as well, the deduction is consistent with the policy in paragraph 9 of IT-340R.