Income Tax Severed Letters - 2007-09-07

Ruling

2007 Ruling 2007-0225141R3 - XXXXXXXXXX

Unedited CRA Tags
12(11) 212(1)(b)(ii)(C)(I) 214(8)(a) Reg 7000(1)

Principal Issues: 1) Are XXXXXXXXXX prescribed debt obligations? 2) Does withholding apply in respect of interest on XXXXXXXXXX held by a non-resident investor?

Position: 1) No. 2) No.

Reasons: 1) Paragraphs 7000(1)(a) to (d) of the Regulations are not applicable. 2) Subclause 212(1)(b)(ii)(C)(I) will apply to exempt the interest payments from Part XIII tax.

2007 Ruling 2007-0231521R3 - Eligible Dividend Designations

Unedited CRA Tags
89(14) 89(11) Paragraph (c) of the Definition of Excessive Eligible Dividend Designation in 89(1)

Principal Issues: 1. Whether designation of safe income crystallization dividend as eligible dividend results in Part III.1 tax liability. 2. Whether it is acceptable for dividend to be designated as eligible dividend if payment of the dividend attracts dividend refund.

Position: 1. No. 2. Yes

Reasons: 1. While the series of transactions was intended to generate an increase in the safe income dividend recipient's GRIP, as evidenced by the elections of the dividend payers to not be CCPCs under s. 89(11), the safe income dividend can be linked to income of a public corporation that was subject to Part I tax liability at comprehensive corporate tax rates. Therefore, the increase to the safe income dividend recipient's GRIP is not artificial under paragraph (c) of the definition of "excessive eligible dividend designation". However, in other types of situations, such an increase may be artificial, especially where the underlying earnings upon which the safe income dividend is measured were not subject to comprehensive Part I tax. 2. There is no ordering or tracing of the dividend payment to the type of income earned by the CCPC. If a CCPC has a combination of aggregate investment income and GRIP, the rules provide that this result will occur.

2007 Ruling 2007-0237021R3 F - Estate freeze after a butterfly

Unedited CRA Tags
55

Principal Issues: Whether the transfer of real estate to a transferee corporation in exchange for preferred shares of the transferee corporation will be a transaction or event described in paragraph 55(3.1)(a) to 55(.1)(d).

Position: No.

Reasons: Comply with applicable provisions.

2007 Ruling 2007-0239321R3 F - Mise à part de l'argent

Unedited CRA Tags
20(1)c) 245(2)

Principales Questions: (1) L'intérêt sur l'argent emprunté est-il déductible dans une situation de mise à part de l'argent et de remboursement d'un emprunt antérieur? (2) Est-ce que le paragraphe 245(2) s'applique à la situation?

Position Adoptée: (1)Oui. (2) non.

Raisons: (1) Paragraphes 20(3) de la Loi et 16 et 23 du bulletin d'interprétation IT-533. (2) Aucun abus de l'alinéa 20(1)c) de la Loi.

Technical Interpretation - External

27 August 2007 External T.I. 2005-0116031E5 - Cdn. Corporation carrying on business in China

Unedited CRA Tags
2(1) 3

Principal Issues: Is the income or loss of a Canadian resident corporation in respect to a business carried on in China relevant in computing the corporation's income under the Income Tax Act?

Position: Yes

Reasons: Canadian resident corporations are taxed on a worldwide basis.

24 August 2007 External T.I. 2006-0215691E5 F - Ristourne d'un régime d'assurance collective

Unedited CRA Tags
6(1)f)
Summary Under
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(f)
application of rebate by employer-policyholder to reduce premiums payable by employees would render their disability benefits partly taxable

Principales Questions: La ristourne qu'un preneur reçoit conformément à une clause d'un contrat d'assurance collective peut-elle être versée au régime d'assurance en réduction de la prime d'assurance salaire de longue durée de façon à ne pas affecter le statut non imposable des prestations?

Position Adoptée: Non. Les prestations seront imposables entre les mains des bénéficiaires en vertu de l'alinéa 6(1)f) de la Loi puisque le régime ne sera plus considéré comme entièrement financé par les employés.

Raisons: Loi de l'impôt sur le revenu.

23 August 2007 External T.I. 2007-0230431E5 - Interest deductibility

Unedited CRA Tags
20(1)(c)

Principal Issues: Will interest on money borrowed to invest in mutual fund trust units continue to be deductible following a distribution of income from the mutual fund trust under: Scenario 1 - unit holder chooses to have all distributions of income paid to him; and Scenario 2 - unit holder chooses to have all distributions of income reinvested in the same mutual fund trust and subsequently sells exactly the same number of mutual fund trust units as were purchased through the reinvestment?

Position: Scenario 1 - Generally, yes
Scenario 2 - Depends on the current use of the money from the prorated portion of original mutual fund trust units disposed of.

Reasons: Scenario 1 - current use and original use of borrowed money remains the same.
Scenario 2 - current use vs. original use is relevant as noted in IT-533 paragraph 17.

15 August 2007 External T.I. 2007-0244411E5 - Medical Expenses - tuition

Unedited CRA Tags
118.2

Principal Issues: Whether the cost of tuition fees and exams for driver training for a disabled individual would qualify for the medical expense tax credit

Position: Question of fat

Reasons: The law

Technical Interpretation - Internal

29 August 2007 Internal T.I. 2007-0230121I7 - Employee Training Expenses

Unedited CRA Tags
6(1)(a) 67 18(1)(a)

Principal Issues: Are the training expenses of a non-arm's length employee reasonable?

Position: Question of fact. General comments provided.

Reasons: Determined on a case-by-case basis.

28 August 2007 Internal T.I. 2007-0236991I7 - B.C. Forest Revitalization Trust

Unedited CRA Tags
13(21) 9 12(1)(x)

Principal Issues: Tax consequences of payments from the BC Forest Revitalization Trust as a Lost Opportunity Amount to certain eligible contractors as a consequence of the implementation of the Forestry Revitalization Act.

Position: The payments represent proceeds of disposition of a "timber resource property" to the contractors. Consequently, the contractors would include in income under subsection 13(1) any excess of proceeds over UCC of the class.
2) Alternately, the amounts will be taxable under section 9 as compensation for the loss of profits or under subparagraph 12(1)(x)(iii) as an inducement.

Reasons: The contract between the contractor and the licencee meets the definition "timber resource property" in subsection 13(21).
2) Otherwise, under the "surrogatum" principle, the amounts will be taxable as compensation for the loss of an income source. The amounts could also be considered as an inducement for the purposes of paragraph 12(1)(x) as the contractor is obliged to release the licencee from any claims as consideration for the receipt of the amount.

17 July 2007 Internal T.I. 2007-0241701I7 F - Remboursement de primes versées à un RPAM

Unedited CRA Tags
6(1)(a) 248(1)
Summary Under
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a)
refund of premiums when coverage denied did not generate a taxable benefit

Principales Questions: Le remboursement par un employeur des primes versées par un employé à un RPAM constitue-t-il un avantage imposable à inclure dans le revenu de l'employé?

Position Adoptée: Non.

Raisons: L'employé n'a bénéficié d'aucun avantage économique.