Income Tax Severed Letters - 2008-05-02

Ruling

2007 Ruling 2007-0257241R3 - XXXXXXXXXX Ruling

Unedited CRA Tags
95(2)(a)(ii) 17(1) 95(6)(b)

Principal Issues: Whether (i) paragraph 95(2)(a) would apply to re-characterize income from property of a foreign affiliate on the basis that it was derived from payments deductible in computing active business income, made by another foreign affiliate of a Canadian corporation under a lease agreement with a third party? (ii) Whether section 17 would apply?

Position: (i) Yes. (ii) No.

Reasons: (i) interpretation of the word 'indirectly' in subparagraph 95(2)(a)(ii); (ii) loan made by foreign affiliate fell into the exception contained in paragraph 17(3)(b).

Technical Interpretation - External

29 April 2008 External T.I. 2007-0260221E5 - Eligible Dividend Designation

Unedited CRA Tags
83(2) 89(14) 184(3)

Principal Issues: In the circumstances described, can an eligible dividend designation be made after the time that a dividend is paid.

Position: No.

Reasons: Subsection 89(14) requires the designation be made on or before the time of payment of the particular dividend.

23 April 2008 External T.I. 2007-0244291E5 - Disposition of taxable Canadian property

Unedited CRA Tags
116

Principal Issues: Does section 116 of the Act apply in a particular situation?

Position: General comments concerning the residence of an estate and the need of compliance certificate whether a trust is resident of Canada or not. General comments concerning the disposition of a capital interest in a trust resident in Canada by a non-resident beneficiary.

Reasons: Question of fact. We cannot provide a definitive answer because it would require an examination of the relevant facts to determine, inter alia, whether one of the executors is resident of the United States and to determine who exercises the management and control over the estate.

22 April 2008 External T.I. 2005-0152261E5 F - Interaction 24(2) et 14(3)

Unedited CRA Tags
14(3) 14(5) 24(2)
s. 14(3) takes precedence over s. 24(2)

Principales Questions: Est-ce que l'application du paragraphe 14(3) a préséance sur l'application du paragraphe 24(2)?

Position Adoptée: Oui

Raisons: Généralement oui, compte tenu tu libellé introductif du paragraphe 14(3). Cependant, il nous faudrait étudier une situation précise comprenant tous les faits et documents pertinents avant de nous prononcer de façon définitive.

2005-015226
XXXXXXXXXX A. Dagenais, Avocate,
M. Fisc.
Le 22 avril 2008,

22 April 2008 External T.I. 2007-0245171E5 - Computation of income

Unedited CRA Tags
9

Principal Issues: Taxability of profits from the sale of a book.

Position: General comments only.

Reasons: The law.

XXXXXXXXXX 2007-024517
Michael Cooke
April 22, 2008

21 April 2008 External T.I. 2007-0220471E5 F - Excessive Capital Dividend and 220(3.2)

Unedited CRA Tags
184(3) 184(4) 83(2)
no s. 184(4) election available where one of the shareholders was dissolved
s. 220(3.2) revocation is an alternative if a s. 184(4) election cannot be made

Principal Issues: In a case where a corporate taxpayer has made an excessive capital dividend election and, technically, is unable to make the election under subsection 184(3) because one of the requirements under subsection 184(4) cannot be met as one of the dividend recipients, a corporation, has since been dissolved, whether (1) the CRA would accept administratively that the election under subsection 184(3) be made if the directors of the dividend recipient corporation in office at the time the dissolution gave their consent in place of the dissolved corporation and (2) if the answer to question 1 is negative, the CRA would request from the department of Finance that the law be changed to permit a corporation in such a situation to be able to make the election under subsection 184(3).

Position: (1) and (2) No.

Reasons: In such cases, the corporate taxpayer can make a request under subsection 220(3.2) that the minister cancels the taxpayer's capital dividend election under subsection 83(2).

Conference

5 October 2007 APFF Roundtable, 2007-0242441C6 F - Gains ou pertes sur taux de change

Unedited CRA Tags
39(1) 39(2)

Principales Questions: Un investisseur achète des titres en utilisant des devises étrangères et reçoit des devises étrangères lors de leur vente. Est-ce que l'investisseur doit isoler ses gains et pertes sur taux de change pour les inclure dans son revenu en vertu du paragraphe 39(2) L.I.R. et ce, que les placements soient des immobilisations ou des biens en inventaire? An investor acquires securities using foreign currencies to pay for them and receives foreign currencies when he sells them. Must the investor separate his foreign exchange gains or losses in order to include them in computing his income pursuant to subsection 39(2) of the ITA, regardless of whether or not the investor's investments are capital property or inventory?

Position Adoptée: Relativement à un gain ou à une perte résultant de la disposition d'un bien qui est une immobilisation, le paragraphe 39(2) s'appliquera si et seulement si ce gain ou cette perte, tel que calculé à l'article 40 L.I.R., est uniquement attribuable à la fluctuation de la valeur d'une monnaie étrangère par rapport à la monnaie canadienne. Si ledit gain ou ladite perte n'est pas uniquement attribuable à la fluctuation de la valeur d'une monnaie étrangère par rapport à la monnaie canadienne, c'est le paragraphe 39(1) L.I.R., et non le paragraphe 39(2) L.I.R., qui doit être utilisé afin de calculer le gain en capital ou la perte en capital résultant de la disposition du bien. With respect to a gain or a loss resulting from the disposition of a property that is a capital property, subsection 39(2) will apply if, and only if, this gain or loss, as calculated in accordance with section 40 of the ITA, is solely attributable to the fluctuation in the value of a foreign currency relative to the Canadian currency. Is the aforesaid gain or loss is not solely attributable to the fluctuation in the value of a foreign currency relative to the Canadian currency, subsection 39(1) of the ITA and not subsection 39(2) ITA, must be used to calculate the capital gain or loss resulting from the disposition of the property.
Par ailleurs, si les placements détenus par l'investisseur ne sont pas des immobilisations mais des biens en inventaire, le paragraphe 39(2) L.I.R. ne s'appliquera pas. Furthermore, if the investments held by the investor are inventory rather than capital property, subsection 39(2) of the ITA will not apply.

Raisons: Positions antérieures, libellé de la Loi et jurisprudence. Previous positions. Wording of the Act and jurisprudence.

Technical Interpretation - Internal

21 April 2008 Internal T.I. 2007-0251761I7 F - Billet à payer

Unedited CRA Tags
20(1)c) 20(1)d)
addition of unpaid interest to principal did not establish a loan of that interest or a novation of the debt – so that interest on such capitalized interest non-deductible until paid
addition of unpaid interest to principal was not a payment or crediting of the interest so as to engage Pt. XIII tax
addition of unpaid interest to principal was not a loan of money, nor a payment or crediting of interest

Principales Questions: Les intérêts qui sont ajoutés au principal de la dette selon le paragraphe 3 du billet à payer constituent-ils un emprunt de la part du contribuable ou s'agit-il d'intérêts composés ?

Position Adoptée: non

Raisons: Il n'y a pas eu tradition d'argent à l'égard de ces intérêts. On ne peut pas conclure que les intérêts calculés sur les intérêts capitalisés sont déductibles selon l'alinéa 20(1)c

15 April 2008 Internal T.I. 2008-0266251I7 - Liechtenstein foundation

Unedited CRA Tags
75(2) 94 104
DRUPA partnership as partnership

Principal Issues: Is a Liechtenstein foundation a trust or a corporation for the purposes of the Act during the years XXXXXXXXXX ?

Position: Review of our previous position. A Liechtenstein foundation will generally be considered as a trust for the purposes of the Act.

Reasons: In our view, the attributes of a Liechtenstein foundation more closely resemble those of a Canadian trust under our common law. It is our view that the existence of a separate legal entity clause contained in foreign foundation legislation would not, in and by itself, preclude an arrangement from being considered a trust for purposes of the Act.

14 April 2008 Internal T.I. 2008-0271861I7 - Taxation of payment to Nisga'a citizen

Unedited CRA Tags
81(1)(a)

Principal Issues: Whether a payment by the Nisga'a Lisims Government to a Nisga'a citizen XXXXXXXXXX is taxable and, if it is taxable, whether a Remission Order applies.

Position: Likely taxable. The Remission Order might apply.

Reasons: This payment appears to be a payment out of a Nisga'a Settlement Trust. These payments are deemed to be payments of trust income and are taxable, pursuant to the Nisga'a Nation Taxation Agreement. The Remission Order only applies if the amount paid is situated on former reserve lands (i.e., if s.87 of the Indian Act would have applied if the reserve lands had not been surrendered). We have insufficient facts to determine whether or not the payment is taxable or whether the Remission Order applies.

12 March 2008 Internal T.I. 2007-0261541I7 - Deemed residency

Unedited CRA Tags
250(1)(c)

Principal Issues: Pursuant to paragraph 250(1)(c) of the Act, a person mentioned in subparagraph (i) or (ii) has to receive representation allowances in respect of the year or has to be resident in Canada immediately prior to appointment or employment by Canada. What is meant by "immediately prior to appointment or employment in Canada"?

Position: It means immediately prior to the time when the person is hired.

Reasons: Previous position taken that it refers to hiring rather than actual commencement of employment.