Income Tax Severed Letters - 2010-12-24

Technical Interpretation - External

17 December 2010 External T.I. 2010-0384511E5 - Honorarium Payments to Union Members

Unedited CRA Tags
3(a), 6(1)(a),8(5),153(1)

Principal Issues: Whether honorarium payments from a union to some of its members are taxable and whether they are subject to withholding requirements.

Position: Depends on the reason for the payment - specifically whether services were provided to the union by the union member.

Reasons: Honorariums are usually payments for services and are generally taxable as income from an office or employment. Withholding is required under 153(1)(a) on salary, wages or other remuneration and amounts should be reported by the payer on a T4 slip. If no services are provided, then the amounts might be considered non-taxable gifts. If the amount of the gift is significant, however, consideration may be given to the application of subsection 8(5) with respect to the employee's deduction of union dues.

16 December 2010 External T.I. 2010-0378051E5 - METC - Cosmetic

Unedited CRA Tags
118.2(2)(a), 118.2(2.1), 6(1)(a), 248(1)

Principal Issues: Whether cosmetic procedures to treat melasma that is severe, persistent and disfiguring qualify for the METC.

Position: Yes, if all the conditions under paragraph 118.2(2)(a) are also met.

Reasons: Medical services to treat melasma that is severe, persistent and disfiguring would generally be considered to have a medical or reconstructive purpose. Thus, paragraph 118.2(2.1) does not apply. All the conditions under paragraph 118.2(2)(a) must also be met.

14 December 2010 External T.I. 2010-0368871E5 - PHSP premiums - 6(1)(a)(i)

Unedited CRA Tags
6(1)(a)(i)

Principal Issues: An employee pays for his or her own PHSP premiums. At the end of the year, the employer gives the employee a cheque for the amount of the PHSP premiums the employee paid during the year. Is the amount of the cheque excluded as a benefit under paragraph 6(1)(a)(i)?

Position: No.

Reasons: The employee has full discretion as to the use of the amount of the cheque. We would not consider that the employer has paid PHSP premiums on behalf of an employee as the employee has paid the premiums.

14 December 2010 External T.I. 2010-0380591E5 - Employer withholding obligations

Unedited CRA Tags
5, 6, 153(1), Reg 100, Reg 101

Principal Issues: Are Employer withholding obligations eliminated because an employee's name allegedly includes a trademark?

Position: No

Reasons: An employer is required to withhold income taxes from remuneration.

13 December 2010 External T.I. 2010-0386261E5 - T4A's for secondary school scholarships

Unedited CRA Tags
56(1)(n), 56(3), Reg. 200(2)

Principal Issues: Are T4A slips required to be distributed to students receiving scholarships to primary and secondary schools?

Position: T4A slips are required to be issued irrespective of the taxability of the amount in the hands of the student.

Reasons: Reg. 200(2) requires all scholarship amounts to be reported in prescribed form.

9 December 2010 External T.I. 2010-0388101E5 F - CCPC status and acquisition of control

Unedited CRA Tags
125(1), 125(7), 249(3.1), 249(4), 251(5)(b),
Summary Under
Tax Topics - Income Tax Act - Section 249 - Subsection 249(4) - Paragraph 249(4)(b)
CCPC whose control has been agreed to be acquired by Pubco can elect to extend its deemed s. 249(3.1) year end under s. s. 249(4)(b)
Summary Under
Tax Topics - Income Tax Act - Section 249 - Subsection 249(3.1)
CCPC which has a December 26 deemed year end under ss. 249(3.1) and 251(1)(b) that is extended to December 31 under s. 249(4)(b) loses SBC for that extended year

Principales Questions: Opco is a CCPC. Opco's regular taxation year-end is July 31. On December 26, 20-A, a public company ("Pubco") and Opco's shareholders would enter into a binding agreement by which Pubco would acquire, provided that some conditions are met, all of the issued and outstanding shares of the capital stock of Opco on January 1st, 20-B. By virtue of paragraph 251(5)b), Pubco would be deemed to control Opco as at December 26, 20-A for purposes of, among other things, the definition of CCPC in subsection 125(7). Subsection 249(3.1) would trigger a deemed year-end for Opco on December 26, 20-A, as it would cease to be a CPCC. Opco would also have a deemed year-end on December 31, 20-A under subsection 256(9) and 249(4) as its control would be acquired by Pubco on January 1st, 20-B. A) Whether Opco may elect under paragraph 249(4)(c) to have its taxation year otherwise ending on December 26, 20-A, deemed to end on December 31, 20-A. B) If so, would Opco be allowed to claim a small business deduction under subsection 125(1) for its taxation year ended on December 31, 20-A?

Position Adoptée: A) Yes; B) No.

Raisons: A) Meets the requirements of the law. B) Since Opco would not be a CCPC throughout the taxation year ended on December 31, 20-A.

9 December 2010 External T.I. 2010-0384881E5 - Eligibility for Non-Refundable Tax Credits

Unedited CRA Tags
118(1)(b), 118(1)(d), 118(1)(c.1), 118(6); 118.3(2).

Principal Issues: (1) Whether the taxpayers' daughter, who is age 18 or older and physically or mentally impaired, is a "dependant" for the purposes of the Act. (2) Whether the taxpayers are eligible for certain non-refundable tax credits in respect of their daughter.

Position: (1) Question of fact, but likely yes. (2) Certain non-refundable tax credits would be available, but each amount may be reduced by the daughter's income.

Reasons: Relevant provisions of the Act.

9 December 2010 External T.I. 2010-0379831E5 - Employee release and settlement agreement

Unedited CRA Tags
248(1) "retiring allowance"; 56(1)(a)(ii)

Principal Issues: What is the correct tax treatment of a payment made to a terminated employee to obtain a general release from future liability?

Position: The payment would be a retiring allowance.

Reasons: The payment satisfies the two-prong test established by the courts for the purpose of determining whether a payment is a retiring allowance.

8 December 2010 External T.I. 2010-0375921E5 - Subsection 20(24)

Unedited CRA Tags
12(1)(a); 12(1)(e); 12(1)(x); 12(2.2); 13(7.4); 20(1)(m); 20(24); 20(25).
Summary Under
Tax Topics - Income Tax Act - Section 20 - Subsection 20(24)
income to both vendor and purchaser if no election/payment by set-off/no prescribed form
Summary Under
Tax Topics - Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(x) - Subparagraph 12(1)(x)(iv)
deferred revenue oblgation assumption was s. 12(1)(x) income

Principal Issues: In the hypothetical fact situation provided, the correct tax treatment for an amount paid by the vendor of a service business to compensate the purchaser for assuming obligations for which the vendor has received deferred revenues included into income under 12(1)(a), where: (1) A joint subsection 20(24) election is made. (2) No subsection 20(24) election is made.

Position: (1) The amount paid may be deducted by the vendor under subsection 20(24) and must be added to the purchaser's income under 12(1)(a). (2) The amount paid must be included in the purchaser's income under 9(1) or 12(1)(x).

Reasons: (1) Wording of the applicable legislation. (2) The amount paid is considered as an amount paid to the purchaser to reduce future expenses with respect to the obligation to provide services beyond the end of the vendor's taxation year.

7 December 2010 External T.I. 2010-0363431E5 F - Date limite cotisation REER

Unedited CRA Tags
146(5)
Summary Under
Tax Topics - Income Tax Act - Section 146 - Subsection 146(5)
60-day contribution deadline is met based on receipt of cheque by issuer, not its deposit
Summary Under
Tax Topics - General Concepts - Payment & Receipt
RRSP premium “paid” when cheque received by issuer, not when it’s deposited

Principales Questions: Un contribuable signe un chèque le 1er mars et le dépose à la poste le jour même à son conseiller. Le conseiller financier fait l'achat d'un placement dans le REER du client uniquement le 15 mars. Est-ce que la cotisation au REER a eu lieu dans les 60 premiers jours de l'année?

Position Adoptée: Non. Une prime a été versée à temps si, à la date limite, l'émetteur du REER a en main un chèque pour une cotisation à un REER et que la date de ce chèque n'est pas plus tard que la date limite. À moins qu'il y ait abus, la date du dépôt au compte REER ne sera pas un facteur à considérer.

Raisons: Séance de consultation 1999 sur les REER; Cotisations aux REER.

16 November 2010 External T.I. 2010-0381541E5 - Red Mile Resources No. 3 Limited Partnership

Unedited CRA Tags
N\A

Principal Issues: Whether Audit's proposal to reassess investors in a limited partnership is contrary to positions taken by the Income Tax Rulings Directorate in ATR 2003-001656.

Position: No

Reasons: ATR 2003-001656 was issued in respect of a proposed investment in a limited partnership that would invest in an oil and gas farm-in arrangement, while the proposed reassessments relate to an investment in a limited partnership that would invest in a royalty in the form of net smelter return. Although the financing structure may be similar, the risks involved in the two investments are quite different.

1 November 2010 External T.I. 2010-0364991E5 - Transaction in securities

Unedited CRA Tags
9, 260

Principal Issues: 1) What is the tax treatment of a gain or loss on a short sale transaction? 2) What is the tax treatment of the compensatory payments on short sale transactions?

Position: 1) Usually considered as income taxable pursuant to subsection 9(1) of the Act. 2) Where the transaction is considered a SLA pursuant to subsection 260(1) of the Act, the tax consequence is governed by the provisions of subsections 260(5) and (6) of the Act.

Reasons: Consistent with CRA's published position set out in paragraph 18 of IT-479R.

27 August 2010 External T.I. 2009-0335101E5 - Interest deductibility

Unedited CRA Tags
20(1)(c), 20.1(1)

Principal Issues: Where part of a loan is repaid using a portion of the property which was acquired with the loan (where the fmv of the acquired property has decreased), is interest expense deductible on the remaining portion of the loan?

Position: Yes

Reasons: Interest on the portion of the borrowed money that can be traced to the existing property is deductible pursuant to subparagraph 20(1)(c)(i) of the Act as a result of direct use test, and the portion of the borrowed money that has been lost because of a decline in value of the property, is deemed to continue to be used for the purpose of earning income from the property, pursuant to subsection 20.1(1) of the Act, and, therefore, deductible pursuant to subparagraph 20(1)(c)(i).

Technical Interpretation - Internal

14 December 2010 Internal T.I. 2010-0379351I7 - CCPC

Unedited CRA Tags
125(7); 251(5)(b)

Principal Issues: Whether a particular corporation is a CCPC.

Position: Yes.

Reasons: Law.

13 December 2010 Internal T.I. 2010-0389131I7 - Paragraph 67.1(2)(c)

Unedited CRA Tags
67.1(1); 67.1(2)(c).

Principal Issues: Whether the meals provided by the taxpayer are subject to the general 50% limitation in subsection 67.1(1) of the Act or allowable at 100% because of the exception in paragraph 67.1(2)(c).

Position: In the fact situation provided, the exception in paragraph 67.1(2)(c) would not apply.

Reasons: The meal costs were not specifically identified in writing to the client paying the compensation.

12 October 2010 Internal T.I. 2010-0367611I7 - Cross Currency swap - Income or Capital

Unedited CRA Tags
39(2)
Summary Under
Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Foreign Exchange
FX swap to hedge dividend-funding loan

Principal Issues: Is the loss on the swap on account of capital or income?

Position: On account of capital

Reasons: Underlying transaction is a loan used for a capital purpose