Income Tax Severed Letters - 2010-07-30

Technical Interpretation - External

21 July 2010 External T.I. 2009-0340031E5 - Application of 212(1)(b) to partnership-212(13.1)

Unedited CRA Tags
212(1)(b), 212(13.1); Article XI Canada-US Convention

Principal Issues: Whether the arm's length test of sub-paragraph 212(1)(b)(i) should be applied at the partners' or at the partnership's level considering paragraph 212(13.1)?

Position: Question of facts.

Reasons: Previous position and wording of the Act.

21 July 2010 External T.I. 2010-0372351E5 - Universal Child Care Benefit Income

Unedited CRA Tags
56(6); 63(1).

Principal Issues: 1. What is meant by the term "income" used in subsection 56(6) in order to determine which spouse should report the Universal Child Care Benefit? 2. In the circumstance where the Child Care Expense Deduction is claimed by the spouse with the higher income, and in so doing, this results in he or she having the lower net income, who must claim the Universal Child Care Benefit?

Position: 1. In the context of subsection 56(6), "income" is the same as "net income" used in the CRA's publications and forms. 2. Child care expenses are a deduction in the determination of net income. In accordance with subsection 56(6), if the higher income spouse is otherwise eligible and claims the Child Care Expense Deduction, and in so doing, the result is that he or she will have the lower net income, then he or she should report the Universal Child Care Benefit.

Reasons: Consistent with the calculation of income and the relevant provisions of the Act.

20 July 2010 External T.I. 2010-0373061E5 - Equivalent to Spouse in the year of separation

Unedited CRA Tags
118(1); 118(4); 118(5); 56.1(4); 60(b)

Principal Issues: 1) Is a spouse paying support entitled to claim the "equivalent to spouse" credit in the year of separation? 2) What happens if both spouses want to claim the "equivalent to spouse" and "child tax credit" in the year of separation? 3) Is an amended T1 required in the case where a person was separated late in the year, but entered "married" on the T1 (as the 90 day waiting period did not pass until early in the following year)?

Position: 1) Yes, but only if the individual is otherwise eligible, support payments are not claimed and if spouses agree. 2) Neither can claim the credit. 3) Filing an amended T1 return is not required; however, each taxpayer should file form RC65 after 90 days has passed to inform the CRA of the effective date of separation.

Reasons: 1) 118(4) and (5). 2) 118(4)(b) 3) Pamphlet P102 and RC65.

19 July 2010 External T.I. 2010-0360641E5 - Manufacturing and processing

Principal Issues: Whether the following activities are construction or manufacturing and processing: 1) a road contactor processes material and places the material on a road 2) a contractor is engaged by a road manufacturer or other entity to simply process material in a pit and is not involved in any aspect of the usage or placement of the material.

Position: 1) Construction. 2) Part of the process would be manufacturing and processing.

Reasons: As explained in Interpretation Bulletin IT-411R, paragraph 1, construction activities are considered to be those normally associated with the on-site fabrication and erection of buildings, roads, bridges, parking lots, driveways, etc., which are intended to be permanently affixed to the land on which they are built.
The term "manufacturing or processing", pursuant to subsection 125.1(3) and regulation 1104(9), excludes producing industrial minerals. As explained in Interpretation Bulletin IT-145R (consolidated), paragraph 9, producing industrial minerals is considered to include all activities connected with the mining, excavating and extracting the mineral material from the mine or pit area, including any primary crushing operation required to make it transportable from the mine or pit area as well as the transporting of the material from the mine or pit. Subsequent activities such as crushing, washing, screening and sorting of the mineral material in order to make the product of the mine or pit marketable are considered to be processing activities.

14 July 2010 External T.I. 2009-0345461E5 - Patronage dividends - Definition of payment

Unedited CRA Tags
135(4).

Principal Issues: Whether a patronage dividend paid in the form of shares qualifies under paragraph (a) of the definition of "payment" in subsection 135(4) of the Act.

Position: Not in this case.

Reasons: One of the conditions is that an amount of money be disbursed in the course of redeeming the shares in the year or within 12 months thereafter. Based on the facts provided, the shares will not be redeemed within the stipulated time.

13 July 2010 External T.I. 2009-0311901E5 - Post-Doctoral Fellows--Scholarship Exemption

Unedited CRA Tags
56(1)(n); 56(3); 118.6

Principal Issues: 1. Whether academic post-doctorate fellows can qualify for the full scholarship exemption. 2. Whether they can receive the exemption without having received a Form T2202A.

Position: 1. Unlikely. 2. No.

Reasons: 1. We do not view PDFs to be students. In our view, PDFs usually receive either employment income or research grants. 2. Form T2202A is required in order to receive the scholarship exemption.

30 June 2010 External T.I. 2009-0327881E5 F - FFCP Délai de production T3

Unedited CRA Tags
132.2(2); 150(1)c); Règlement 204(2); Règlement 205(2)
s. 132.1 merger accelerates T3 return-filing deadline
requirements for application to extend T3 filing deadline following s. 132.1 merger
no requirement to file with CDS if MFT is not listed

Principales Questions:
1) Quels sont les délais de production de la déclaration T3 pour des fiducies de fonds commun de placement suite à un échange admissible prévu au paragraphe 132.2 (1) de la Loi lorsque :
une fiducie de fonds commun de placement continue suite à l'échange admissible;
une fiducie de fonds commun de placement disparaît dans le cadre de l'échange.
2) Le commentaire relatif à la question 11 contenu dans la section " Autres renseignements nécessaires " au chapitre 2 du guide T4013 s'applique-t-il à toutes les fiducies de fonds commun de placement?

Position Adoptée: 1a) 90 jours 1b) 30 jours 2) Non

Raisons:
1) Interprétation de la Loi et du Règlement.
2) Les fiducies de fonds commun de placement qui sont des " fiducies ouvertes " sont assujetties aux règles du Règlement 204.1.

Technical Interpretation - Internal

23 July 2010 Internal T.I. 2010-0358761I7 - paragraph 227.1(2)(b) and subsection 227.1(4)

Unedited CRA Tags
s. 227.1(2)(a) & (b), (4)

Principal Issues: Proving a claim against a director of a company that failed to deduct or withhold an amount required pursuant to subsection 227.1(1).

Position: It is necessary for a claim to have been filed with the liquidator within six months from the earlier of the date of the commenced of the proceedings, which is typically the date when the resolution to dissolve was passed, and the date of dissolution.

Reasons: Paragraph 227.1(2)(b) and subsection 227.1(4)
Section 32 of the Interpetation Act, R.S.C., 1985, c. I-21

15 July 2010 Internal T.I. 2010-0353701I7 - Classification foreign entity - Trust Enterprise

Unedited CRA Tags
104, 248(1)
Liechstenstein Trust Enterprise as trust

Principal Issues: Is a Liechtenstein Trust Enterprise a trust or a corporation for the purposes of the Act?

Position: In the present instance, a trust.

Reasons: Two-step approach applied to the facts submitted considering the applicable foreign law.

7 July 2010 Internal T.I. 2010-0352901I7 - Re-characterising Expenses of Statute-Barred Years

Unedited CRA Tags
s. 13(21), 111(3), 152(1) and (4 to 6.2)

Principal Issues: Whether a re-characterisation of expenses requires an assessment.

Position: It depends on the facts.

7 July 2010 Internal T.I. 2010-0358801I7 - Requests for Adjustments from Insolvent Taxpayers

Unedited CRA Tags
s. 128 ITA; s. 71 BIA

Principal Issues: Whether a taxpayer who has filed a proposal under the BIA can request an adjustment to a taxation year.

Position: Yes.

Reasons: S. 128(2)(a) does not apply to a proposal under the BIA. In a proposal, section 71 of the BIA does not ordinarily apply, as the taxpayer's property does not usually vest in a trustee; if it does, it is only to the extent necessary to assure performance of the proposal.

6 July 2010 Internal T.I. 2009-0345911I7 - Foreign spouse trust - XXIX-B(5) Can-US Convention

Unedited CRA Tags
70(6), 248(8), 248(9.1); XXIX-B(5) Canada - US Convention

Principal Issues: 1. Is there one trust or two successive trusts created by the trust indenture?
2. Whether the trust receiving the property may be considered to be created by the deceased's will for the purposes of subsection 70(6) in order to allow the Competent Authority to enter into an agreement pursuant to Article XXIX-B(5) of the Canada - US Convention?

Position: 1. One trust. 2. No.

Reasons: 1. Interpretation of the trust indenture.
2. Question of fact and law; interpretation of the Act.

18 June 2010 Internal T.I. 2010-0359111I7 - Requirement to issue T1204 Slip

Unedited CRA Tags
153(1)(g); ITR 237

Principal Issues: Whether federal bodies are required to issue T1204 slips to non-public servants who are not compensated for their services, such as volunteers and job applicants, but receive a reimbursement for their expenses.

Position: No.

Reasons: Recipient is not a "Payee" for purposes of Regulation 237 such that there is no requirement to issue a T1204.

18 June 2010 Internal T.I. 2010-0357321I7 - Application of Section 111 Losses in a Bankruptcy

Unedited CRA Tags
s. 80, 111, 128(2) ITA.

Principal Issues: 1. Whether section 128(2) allows s. 111 losses reportedly incurred in the bankruptcy period to be applied post-bankruptcy.
2. Whether section 80 would apply to an amount forgiven in the post bankruptcy period.

Position: 1. Yes.
2. Yes.

Reasons: 1. An individual with bankruptcy losses sustained during bankruptcy may apply the losses incurred in the year of the absolute discharge to post-discharge taxable income, while the trustee may apply the losses incurred in the years prior to the year of the absolute discharge to taxable income for an in-bankruptcy year.
2. S. 80(13) provides for an income inclusion of a settlement, which could include one related to a trade receivable.

17 June 2010 Internal T.I. 2009-0326931I7 - Interpretation of Subsection 164(2)

Unedited CRA Tags
s. 164(2), (2.01) ITA

Principal Issues: What is the meaning of "is, or is about to become" as referenced in s. 164(2).

Position: Once the amount of the tax liability can be ascertained, the Minister may apply the amount of the refund or repayment to this liability.

Reasons: While in principal the tax debt comes into existence when the income is earned, the amount of the liability can only be properly determined or estimated at the end of the fiscal year when the income, deductions, and credits can be quantified.