Income Tax Severed Letters - 2010-12-03

Ministerial Correspondence

2 November 2010 Ministerial Correspondence 2010-0380991M4 - Tax implications of the sale of a duplex

Unedited CRA Tags
54; 40(2)

Principal Issues: What are the tax implications when a taxpayer disposes of a duplex at a loss?

Position: Question of fact. Depends, amongst other things, on whether the duplex - or one of its units - constitutes the principal residence of the taxpayer.

Reasons: A principal residence is a personal use property. The ITA does not recognize, for tax purposes, losses that arise from the disposition of PUP.

Technical Interpretation - External

25 November 2010 External T.I. 2010-0377841E5 F - Catégorie d'amortissement - bateau

Unedited CRA Tags
13(21); 20(1)a); 44h) de la Loi de l'interprétation;
Summary Under
Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 7 - Paragraph 7(c)
“vessel” includes a moored boat without a motor
Summary Under
Tax Topics - Statutory Interpretation - Interpretation Act - Section 44 - Paragraph 44(h)
“vessel” informed by meaning in replacement Canada Shipping Act
Summary Under
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Vessel
"vessel" now defined in (replacement) Canada Shipping Act, 2001
Words and Phrases
vessel

Principales Questions: Dans une situation particulière, dans quelle catégorie d'amortissement pour les fins de la déduction prévue à l'alinéa 20(1)a) serait compris un bateau qui aurait été converti en vue d'exploiter une entreprise de XXXXXXXXXX ?

Position Adoptée: Catégorie 7

Raisons: Dans la présente situation, le bateau serait visé par la définition de navire à 13(21).

25 November 2010 External T.I. 2010-0369801E5 - Acquisition of Farm Quota

Unedited CRA Tags
14(5); 18(1)(a); 18(1)(b); 20(1)(b); 54.

Principal Issues: Whether the acquisition of farm quota under the particular fact situation qualifies as a deductible business expense pursuant to paragraph 18(1)(a) of the Act.

Position: No.

Reasons: In the fact situation provided, the acquisition of the farm quota with an unlimited life is an eligible capital expenditure and is not deductible in the current period pursuant to paragraph 18(1)(b) of the Act. Instead, 75% of the expenditure is added to the cumulative eligible capital account and the taxpayer may claim, on a declining-balance basis, up to 7% of the balance of the account at the end of its taxation year as a deduction under paragraph 20(1)(b) of the Act.

24 November 2010 External T.I. 2010-0380521E5 - Web page costs

Unedited CRA Tags
18(1)(b), 20(1)(a), Schedule II of the Regulations
Summary Under
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Expenditure v. Expense - Patents or other intangible property
Summary Under
Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 12

Principal Issues: Whether expenditures made by a taxpayer to develop a "web page" on the Internet would be a capital or current expense.

Position: Where the "web page" will only have a relatively short useful life the related costs should be treated as a current expense. However, if the "web page" is expected to have a long useful life then the costs should be treated as a capital expense.

Reasons: Guidelines explained in the Interpretation Bulletin IT-128R, entitled Capital Cost Allowance - depreciable property at paragraph 4.

23 November 2010 External T.I. 2010-0376141E5 - Capital Cost allowance

Principal Issues: Whether an indoor golf simulator that cost approximately $50,000 would qualify as a class 52 asset.

Position: This property is a mixture of class 8, 12, and 52 assets.

Reasons: The golf simulator computer which is used principally as electronic process control or monitor equipment would be excluded from class 52 and thus be a class 8 asset along with other components like the cameras, projectors and enclosure/structure. The high definition golf software package is considered to be applications software and is thus a class 12 asset. The optional golf center management system that utilizes a Dell Precision T3500, 19 inch monitor and management software should be treated as a class 52 asset for the computer and systems software with the management software being applications software and a class 12 asset.

22 November 2010 External T.I. 2010-0374861E5 F - Actions - société agricole familiale

Unedited CRA Tags
110.6(1)
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 110.6 - Subsection 110.6(1) - Share of the Capital Stock of a Family Farm or Fishing Corporation - Paragraph (b)
test in para. (b) is applied re the use of the property throughout the period of the taxpayer’s ownership

Principales Questions: Est-ce que les actions vendues par Monsieur Y se qualifient à titre d'"actions du capital-actions d'une société agricole familiale" telle que définie au paragraphe 110.6(1) si Monsieur Y n'utilise plus les biens dans le cadre de l'exploitation d'une entreprise agricole au moment de la vente.

Position Adoptée: Pour établir si un bien a été " principalement " utilisé dans le cadre d'une entreprise agricole au Canada, on doit considérer l'usage du bien tout au long de la période où le contribuable en est propriétaire.

Raisons: Libellé de la définition d'actions du capital-actions d'une société agricole familiale tel que prévu à 110.6(1).

9 November 2010 External T.I. 2010-0380661E5 F - Internal Reorganization

Unedited CRA Tags
55(2), 55(3)(a), 55(3.01)(a)(i), 55(4), 55(5)(e)(i), 251(2), 251(3)
Summary Under
Tax Topics - Income Tax Act - Section 55 - Subsection 55(3) - Paragraph 55(3)(a) - Subparagraph 55(3)(a)(ii)
two siblingcos, although not related to each other, were related to dividend recipient on spin-off transaction
Summary Under
Tax Topics - Income Tax Act - Section 55 - Subsection 55(4)
potential application of s. 55(4) where increase of interest of siblings companies is sheltered by control of Father – unless he held his shares to protect his “economic interests”

Principales Questions: Whether paragraph 55(3)(a) of the Act would apply to the hypothetical situation described in the letter to exclude from the application of subsection 55(2) of the Act the deemed dividends resulting from the cross redemption of shares between two corporations as a result of an internal asset spin-off.

Position Adoptée: General comments provided.

Raisons: Although none of the situations described in subparagraphs 55(3)(a)(i) to (v) seems to occur, the question of determining whether subsection 55(4) is applicable in the particular situation is a question of fact.

9 November 2010 External T.I. 2010-0379751E5 - Regulations 1100(1)(a.2) and 101(5b.1)

Unedited CRA Tags
Regulations 1100(1)(a.2) and 101(5b.1)

Principal Issues: Can the election be made by a partnership? If so, how is it made?

Position: Yes and see response.

Reasons: The law.

9 November 2010 External T.I. 2010-0357091E5 F - Prestation fiscale pour le revenu de travail

Unedited CRA Tags
122.7
Summary Under
Tax Topics - Income Tax Act - Section 122.7 - Subsection 122.7(1) - Eligibile Dependant
qualification as an eligible dependant

Principales Questions: (1) De qui un enfant d'un particulier et de son ex-conjointe sera-t-il la personne à charge admissible aux fins de la prestation fiscale pour le revenu de travail?
(2) Comment expliquer la variation au niveau des montants versés au titre de la PFRT au Québec, selon la situation familiale du particulier demander cette prestation?

Position Adoptée: (1) Question de fait.
(2) Le montant auquel un particulier a droit au Québec sera fonction, notamment, du montant que le particulier aura droit au titre de la Prime au travail, prévue par la Loi sur les impôts.

Raisons: (1) Une personne à charge admissible d'un particulier est un enfant du particulier qui, à la fin de l'année, à la fois:
(a) réside avec le particulier;
(b) est âgé de moins de 19 ans;
(c) n'est pas un particulier admissible.
(2) Pour plus de détails, voir la publication RC4227 de l'ARC.

3 November 2010 External T.I. 2010-0381321E5 - Capital Gains and Farm Property

Unedited CRA Tags
70(9), (9.01), 110.6(1), (1.3), (2) and 69(11)

Principal Issues: Income tax consequences on the transfer of land on death of a parent to a child that was at one time used in a farming business by that individual's parent but is now being rented to an arm's length farmer and a possible sale by that child of such land.

Position: While a question of fact but it is possible that property may qualify for the rollover to the child under the rules in 70(9) and/or qualify as QFP for the purposes of the capital gains exemption in subsection 110.6(2) to the deceased individual and that individual's child. The requirements of these provisions are generally discussed.

Reasons: The law.

20 October 2010 External T.I. 2010-0377251E5 F - Canadian Controlled Private Corporation

Unedited CRA Tags
89(1), 89(11), 125(7), 249(3.1), 249(4), 256(9).
Summary Under
Tax Topics - Income Tax Act - Section 89 - Subsection 89(11)
s. 89(11) election required to be made before target elected to cease to be a public corp so as to oust s. 249(3.1)

Principales Questions: On May 15, 20-A, Company A, a CCPC, acquired all of the issued and outstanding shares of the capital stock of Company B, a public corporation, causing an acquisition of control of the latter. Consequently, Company B had a deemed year-end on May 14, 20-A by virtue of subsections 256(9) and 249(4) (no election under subsection 256(9) was done). Company B decided to establish the end of its fiscal period on May 14 of each year. On June 1, 20-A, Company B elected not to be a public corporation under subparagraph (c)(i) of the definition of "Public Corporation" in subsection 89(1). Company B became a CCPC and had a deemed year-end on May 31, 20-A by virtue of subsection 249(3.1). Company B elected not to be a CPCC by virtue of subsection 89(11) by filing the prescribed form on November 14, 20-B. Whether, in the particular situation, Company B would have a deemed year-end on May 31, 20-A by virtue of subsection 249(3.1).

Position Adoptée: Yes.

Raisons: Since Company B elected not to be a public corporation under subparagraph (c)(i) of the definition of "Public Corporation" in subsection 89(1) as of June 1, 20-A, Company B became a CCPC on June 1, 20-A. Thus, by virtue of subsection 249(3.1), Company B's taxation year would be deemed to end immediately before June 1, 20-A, i.e. on May 31, 20-A, notwithstanding the subsection 89(11) election filed by Corporation B on November 14, 20-B. In order to avoid a May 31, 20-A year-end, Company B had to file the election not to be a CCPC under subsection 89(11) on or before the filing deadline of this particular year which would be November 30, 20-A. Moreover, a subsection 89(11) election cannot be late-filed under subsection 220(3.2) since that election is not prescribed for the purpose of section 600 of the Income Tax Regulations.

Technical Interpretation - Internal

25 November 2010 Internal T.I. 2010-0384481I7 - Lack of books and records

Unedited CRA Tags
230(1) LIR

Principal Issues: Whether loss claimed by a corporation can be disallowed on the basis that there is no satisfactory evidence to support them.

Position: The corporate taxpayer must be able to support and prove the deductions claimed. If, after the CRA has informed the taxpayer of its concerns resulting from the lack of supporting documents, the said taxpayer still does not have sufficient and satisfactory proof of the loss claimed by it, it would be reasonable for the CRA to disallow the deduction of such loss. Of course, the taxpayer would have the right to object to an assessment or a loss determination issued in such a context.

16 November 2010 Internal T.I. 2010-0385801I7 - Repayment of annual bonus and relocation amount

Unedited CRA Tags
8(1)(n)

Principal Issues: Is an annual bonus and relocation payment (previously included in employment income) repaid to the employer when the employee terminates his employment contract early, deductible under paragraph 8(1)(n) of the Act?

Position: Yes

Reasons: The word "period" in paragraph 8(1)(n) of the Act refers to the critical day or days under a contract that the employer must have worked to retain a bonus. Where the employee is required to repay the entire bonus if he did not work the very last day of the contract, then that day is the critical "period throughout which" he did not perform the duties of the office or employment which gives rise to the repayment.

30 September 2010 Internal T.I. 2010-0373901I7 F - Bigamie fiscale - transfert de biens au décès

Unedited CRA Tags
70(6);40(4); 54
Summary Under
Tax Topics - Income Tax Act - Section 70 - Subsection 70(6) - Paragraph 70(6)(a)
s. 70(6)(a) could apply simultaneously to the devise of House A to surviving spouse and of House B to surviving common-law partner
Summary Under
Tax Topics - Income Tax Act - Section 40 - Subsection 40(4) - Paragraph 40(4)(b) - Subparagraph 40(4)(b)(i)
application of s. 40(4)(b)(i) by both surviving spouse re House A and surviving common-law partner re House B – but not for overlapping years

Principales Questions: 1) L'alinéa 70(6)a) s'applique-t-il aux dispositions réputées des immeubles A et B survenues suite au décès d'un contribuable dont l'immeuble A a été légué à son épouse et l'immeuble B a été légué à sa conjointe de fait? 2) Lors de la vente ultérieure des immeubles A et B par l'épouse et la conjointe de fait, ces dernières pourront-elles désigner leur propriété comme étant leur résidence principale en présumant qu'elles auront, de façon respective, normalement habité leur immeuble tout au long de la période où le contribuable en a été le propriétaire et ultérieurement jusqu'au moment de la vente?

Position Adoptée: 1) Oui, les dispositions de l'alinéa 70(6)a) s'appliquent bien par bien. 2) Commentaires généraux concernant l'application du paragraphe 40(4)

Raisons: Application de la Loi.