Income Tax Severed Letters - 2007-06-15

Ruling

2007 Ruling 2006-0196451R3 - Reorganization of an income trust

Unedited CRA Tags
132.2 253.1 245

Principal Issues: Whether: (1) the reorganization is a qualifying exchange within the meaning of 132.2; (2) the requirements of 253.1 are met where the income trust holds units of a limited partnership and shares of the general partner; and (3) GAAR applies.

Position: (1) Yes; (2) Yes; and (3) No.

Reasons: (1) As set out in the ruling, the requirements of 132.2 will be met; (2) the requirements of 253.1 will be met as the trustees of the income trust will not form the majority of the board of directors of the general partner; and (3) the GAAR Committee has considered the issue in similar restructurings and determined that GAAR does not apply.

2007 Ruling 2007-0220301R3 F - Assurance-vie - versements mensuels

Unedited CRA Tags
12.2 56(1)d) 148

Principales Questions:
La prestation de décès payable mensuellement durant une certaine période après le décès de l'assuré sera-t-elle imposable?

Position Adoptée:
Non.

Raisons:
Dans cette situation, les versements mensuels ne seront pas effectués en vertu d'un contrat de rente mais en vertu d'une police d'assurance vie et ils seront des prestations versées en vertu d'une police d'assurance vie exonérée qui ne constituent pas une disposition selon le paragraphe 148(9). Par conséquent, les dispositions de l'alinéa 56(1)d) ne s'appliquent pas.

2007 Ruling 2007-0223091R3 F - Assurance-vie - versements mensuels

Unedited CRA Tags
12.2 56(1)d)

Principales Questions:
La prestation de décès payable mensuellement durant une certaine période après le décès de l'assuré sera-t-elle imposable?

Position Adoptée:
Non.

Raisons:
Dans cette situation, les versements mensuels ne seront pas effectués en vertu d'un contrat de rente mais en vertu d'une police d'assurance vie et ils seront des prestations versées en vertu d'une police d'assurance vie exonérée qui ne constituent pas une disposition selon le paragraphe 148(9). Par conséquent, les dispositions de l'alinéa 56(1)d) ne s'appliquent pas.

2007 Ruling 2007-0224131R3 - wind up of a personal trust

Unedited CRA Tags
248(1) 107(2)

Principal Issues: 1. What is the amount of the stock dividend?
2. Will the distribution of shares to the beneficiaries be subject to subsection 107(2)?

Position: 1. The amount determined under paragraph (c) of the definition of stock dividend; generally the amount by which the paid up capital of the corporation is increased. 2. Yes

Reasons: 1. With respect to the amount of a stock dividend, paragraph (c) of the definition of "amount" in subsection 248(1) states that for purposes other than those specified in (a) or (b) of that definition, the amount of the stock dividend is the amount by which the paid-up capital of the corporation is increased as a result of the payment of the stock dividend. Neither paragraph (a) or (b) applies since none of subsections 112(2.1), (2.2), (2.4), 258(3), 258(5), 95(7) or sections 191.1, 187.2, 187.3 apply in this case.
2. The trust is a personal trust and the trustee will not make the election under 107(2.001).

2007 Ruling 2007-0225751R3 - Whitholding Tax Exemption

Unedited CRA Tags
212(1)(b)(vii) 15(2.3) 20(1)(c) 245(2)

Principal Issues: 1. Will interest payments paid or credited by Finco to non-resident lenders in respect of a term loan be exempt from Part XIII tax? 2. Will subsection 15(2) apply to amounts loaned to the LP? 3. Will GAAR apply?

Position: 1. Yes. 2. No. 3. No

Reasons: 1. The requierements of subparagraph 212(1)(b)(vii) are met. 2. Subsection 15(2.3) will apply to the loaned amount. 3. There is no abuse or misuse.

2007 Ruling 2007-0229281R3 F - Don d'un bien et prêt à usage

Unedited CRA Tags
248(30) 118.1(1)

Principales Questions: Le don d'un œuvre d'art à un musée assorti d'un prêt à usage peut-il donner lieu à un crédit d'impôt pour don.

Position Adoptée: Oui. Le crédit pour don sera calculé en fonction de la valeur du bien donné moins la valeur du prêt à usage.

Raisons: Texte de Loi.

2007 Ruling 2004-0106281R3 - Bituminous Sands Project

Unedited CRA Tags
1100(1)(y); 1101(4c); 1102(14) 1104(5); 1104(7) Class 10; Class 41(a)

Principal Issues: Whether a bituminous sands project is a single mine and whether related depreciable property is described in Class 41?

Position: Yes, with some qualification.

Reasons: NRCan concluded that the proposed initial wells, utilizing SAGD technology, constituted a single project. Based on their opinion and our analysis, we concluded the project was a mine and, generally speaking, depreciable property acquired in connection with the project, would be included in Class 41. XXXXXXXXXX Although the XXXXXXXXXX will be property included in Class 41, it is not property that we consider is part of the extractive unit that comprises the project (it is the project that is deemed to be a single mine).

Ministerial Correspondence

11 June 2007 Ministerial Correspondence 2007-0235931M4 - Children's fitness tax credit

Unedited CRA Tags
118.03

Principal Issues: Will children's camps of four day's duration qualify for the credit?

Position: likely not

Reasons: The Department of Finance has indicated that in order for fees paid for camps to qualify for the credit, the camp must have a 5-day duration with more than 50% of the program time devoted to physical activity.

7 June 2007 Ministerial Correspondence 2007-0222451M4 F - Crédit pour la condition physique des enfants

Principales Questions: Les entités admissibles - telles que définies au paragraphe 118.03(1) de la Loi de l'impôt sur le revenu - doivent-elle posséder un permis ou tout autre document prouvant leur admissibilité au programme du crédit d'impôt pour la condition physique des enfants?

Position Adoptée: Non.

Raisons: Texte de l'article 118.03 de la Loi de l'impôt sur le revenu.

Technical Interpretation - External

11 June 2007 External T.I. 2006-0185291E5 - Capital Dividend Account

Unedited CRA Tags
89(1) 83(2) 152(3.1)

Principal Issues: Whether a gain originally reported by a corporation as a capital gain, in a taxation year in respect of which the normal reassessment period has now expired, can be recharacterized as an income gain when reviewing the capital dividend account balance relevant to a capital dividend election in a subsequent taxation year.

Position: Yes; subject, generally, to the normal reassessment period relevant to the subsequent taxation year.

Reasons: In accordance with the definition of capital dividend account in subsection 89(1) which provides for a cumulative determination which may span several taxation years.

11 June 2007 External T.I. 2006-0213981E5 - Processing Membership Dues

Unedited CRA Tags
8(1)(i)(i)

Principal Issues: 1.) Is it acceptable to treat all professional dues paid by an Employer as taxable benefits to employees? 2.) Is it acceptable to report professional dues, which are a taxable benefit, in Box 14 of the T4 slip, with an explanatory reference in the "Other Information" area using Footnote Code 40, "Other taxable allowances and benefit?" 3.) Is it acceptable for an Employer to instruct employees to claim the professional membership dues included on their T4 as a deduction on line 212 of their income tax return?

Position: 1.) Question of fact. Depends upon who the primary beneficiary is. When membership is not a condition of employment, the question of primary beneficiary must still be resolved in order to determine whether a taxable employment benefit arises. The employer will be responsible for making this determination and must be able to justify its decision if so requested by the CRA. 2.) Yes. In situations in which it is determined that a taxable employment benefit results from the payment of professional membership dues, the amount must be reflected on the T4 slip. 3.) Question of fact. Professional membership dues paid by an employer and included in the employee's income as a taxable employment benefit, are deductible by the employee provided the criteria in subparagraph 8(1)(i)(i) of the Income Tax Act are met.

Reasons: Previous positions taken.

7 June 2007 External T.I. 2007-0228831E5 F - Pénalité au rachat d'une obligation

Unedited CRA Tags
12(1)c) 39(1) 40(1)a)(i)
Summary Under
Tax Topics - Income Tax Act - Section 40 - Subsection 40(1) - Paragraph 40(1)(a) - Subparagraph 40(1)(a)(i)
bond redemption premium entered into computation of capital gain or loss of bondholder notwithstanding withholding of premium from accrued interest

Principales Questions: Une pénalité au rachat d'une obligation vient-elle réduire le revenu d'intérêt du détenteur de l'obligation

Position Adoptée: Non

Raisons: La pénalité est une opération se rapportant au rachat de l'obligation. Elle peut être prise en considération dans le calcul du revenu ou de la perte en capital découlant de la disposition de l'obligation.

7 June 2007 External T.I. 2007-0229901E5 - Travel insurance as a medical expense

Unedited CRA Tags
118.2(2)(q) 248(1) private health services plan

Principal Issues: Can premiums paid by an individual to purchase additional medical travel insurance be claimed as a medical expense?

Position: To be a medical expense under 118.2(2)(q), one of the requirements is that the premiums must be paid to a private health services plan. Insufficient information to conclude. General comments provided.

Reasons: Our reading of the legislation

2007-022990
XXXXXXXXXX Allan Nelson, CMA
(613) 443-7253
June 7, 2007

5 June 2007 External T.I. 2006-0174521E5 F - Avantages imposables - Ordinateur et Internet

Unedited CRA Tags
6(1)a)
Summary Under
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a)
85% personal use of employer-funded home computer does not generate taxable benefit if computer is essential to performance of employment duties

Principales Questions: 1. Une commission scolaire prête un ordinateur à tous ses commissaires et leur rembourse le coût du service Internet. Est-ce que ces éléments constituent des avantages imposables pour les commissaires qui utiliseront l'ordinateur et le service Internet entre 10 % et 20 % du temps dans l'exécution des tâches reliées à leur emploi?
2. Si oui, quelle est la valeur des avantages qu'ils devront inclure dans leur revenu?

Position Adoptée: 1. Question de faits.
2. La valeur de l'avantage relié au service Internet serait égale à l'excédent du montant remboursé sur la portion des frais du service Internet et de modem qui sont directement reliés à leur emploi. Pour ce qui est de l'ordinateur, nous estimons qu'il serait raisonnable d'inclure dans le revenu de l'employé un tiers de la valeur de l'ordinateur duquel on déduirait la portion équivalant à l'usage relié à son emploi.

Raisons: 1. Si l'ordinateur prêté et le service Internet à la maison sont essentiels pour l'accomplissement des fonctions d'emploi des commissaires, nous sommes d'avis qu'il n'en résulterait pas d'avantage imposable pour ceux-ci malgré l'usage personnel qu'ils pourraient en faire à condition que l'usage personnel n'occasionne pas de frais additionnels pour l'employeur. Si par contre l'usage d'un ordinateur et/ou du service Internet à la maison ne sont pas essentiels dans le cadre des fonctions de leur emploi, il en résulterait un avantage imposable pour l'employé aux termes de l'alinéa 6(1)a).
2. La méthode de calcul de l'avantage relié au prêt d'un ordinateur tient compte du pourcentage d'usage personnel qu'en fera l'employé ainsi que du fait que la valeur résiduelle d'un ordinateur après trois ans est négligeable par rapport à son coût d'acquisition.

2006-017452
XXXXXXXXXX C. Lalonde
(613) 957-8953
Le 5 juin 2007

Technical Interpretation - Internal

30 May 2007 Internal T.I. 2007-0224371I7 - capital loss reduction under 112(3.2) for estate

Unedited CRA Tags
112(3.2); 112(7); 51

Principal Issues: The shares owned by the deceased (Class A shares) were converted into two classes of shares (Class B and Class C shares) under section 51 following the death. Subsequently, a loss was realized on some of the shares (Class C shares) when they were redeemed. Subsection 112(7) has no application in this particular situation. 1. In determining the amount of the loss reduction under subsection 112(3.2) in respect of the Class C shares, must the capital gain realized by the deceased on the shares held at the time of death be allocated among the classes of shares received by the estate as a result of a section 51 conversion of the shares held at death? Such an allocation would result in less than the full amount of the taxable capital gain on death being used to limit the loss reduction on the shares that gave rise to the capital loss of the estate.
2. If the answer to the first question is yes, how should the capital gain realized on a Class A share be allocated between the Class B and Class C shares received on the conversion?

Position: 1. Yes 2. Based on the relative adjusted cost base of each share, in a manner consistent with the approach used in paragraph 4 of IT328 for the allocation of dividends received on the former shares.

Reasons: 1. The stop loss reduction under subsection 112(3.2) and the conversion under section 51 are each computed on a share by share basis. 2. The Class A shares were converted into a combination of Class B and Class C shares such that the ACB of the Class A shares was allocated between the Class B and Class C shares according to the formula in section 51. The auditor allocated the capital gain realized by the deceased on the same basis. The auditor's calculation is consistent with the procedure shown in paragraph 4 of IT-328 for the allocation dividends received on the old shares where a conversion has taken place.

29 May 2007 Internal T.I. 2006-0217401I7 F - 110(1)d): Moment de la conclusion de la convention

Unedited CRA Tags
110(1)d)
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 110 - Subsection 110(1) - Paragraph 110(1)(d) - Subparagraph 110(1)(d)(ii) - Clause 110(1)(d)(ii)(A)
where options previously granted were not exercisable until an employer “Exercise Notice,” the stock option agreement was made at such notice time
Summary Under
Tax Topics - Income Tax Act - Section 7 - Subsection 7(5)
not giving exercise notice to employees who are not shareholders (so that they cannot exercise their options) may engage s. 7(5)

Principales Questions: Dans une situation particulière donnée, à quel moment une société a-t-elle convenu d'émettre des actions de son capital-actions à certains de ses employés (Participants).

Position Adoptée: Au moment où un avis de levée est envoyé par la société aux Participants.

Raisons: En l'espèce, l'avis de levée constitue le document par lequel la société s'engage de manière unilatérale vis-à-vis les Participants à émettre les actions de son capital-actions.