Income Tax Severed Letters - 2011-07-22

Ruling

2011 Ruling 2011-0393521R3 - Supplemental Ruling for 2010-0365371R3

Unedited CRA Tags
Article 10(2)(a) of the Canada-Luxembourg Tax Convention

Principal Issues: Applicable rate of tax to be applied to dividends paid by Canadian-resident corporation to Luxembourg-resident company that holds all of the voting equity of the dividend payor.

Position: 5%

Reasons: Provided Luxembourg-resident recipient is beneficial owner of dividends, the requirements of Article 10(2)(a) of the Luxembourg Treaty will be satisfied.

2010 Ruling 2009-0350491R3 - Alter Ego Trust Planning

Unedited CRA Tags
88(1)(d), 118.1, 40(3.6), 88(1)(c.2)(ii)
Newco subsidiary of alter ego trust for Mr. X acquired the parent of subs (before winding them up) as directed by trust deed upon Mr. X’s death, so that s. 88(1)(d.3) applied

Principal Issues: 1. Whether s. 88(1)(d) bump is available where alter ego trust holds shares of subsidiary. 2. Whether 88(1)(d.3) will apply to deem acquisition of control from non-arm's length person. 3. Whether partnerships and trusts are to be recharacterized as corporations for the purposes of ascertaining specified shareholders for the purpose of s. 88(1)(c)(vi). 4. Whether alter ego trust may claim charitable donation tax credit upon making gift to registered charity. 5. Whether capital losses arising on share-for-share exchange involving trust and wholly-owned subsidiary that are denied under subsection 40(3.6) will be realized on dispositions of shares to beneficiaries and donees of trust and are available to be carried back by trust to offset capital gains realized by trust pursuant to s. 104(4).

Position: 1. Yes 2. Yes 3. Yes 4. Yes 5. Yes

Reasons: 1. Technical requirements are met. 2. Shares of subsidiary are acquired as a consequence of death pursuant to the directions of the settlor in the terms governing the alter ego trust, trustees of the alter ego trust under equitable obligation to transfer shares of subsidiary to parent on the death of the settlor. 3. Wording of s. 88(1)(c.2) provides that recharacterization rules are to be taken into account for the purposes of s. 88(1)(c)(vi). 4. Trustee has full discretion to make voluntary transfer of property to charity in accordance with the intent of the settlor. 5. Property of trust will be fully distributed before the end of the third taxation year of the trust following the year in which it is deemed to dispose of its property pursuant to s. 104(4).

Ministerial Correspondence

14 July 2011 Ministerial Correspondence 2010-0386191M4 - Canadian withholding taxes

Principal Issues: Withholding and remittance requirements for certain payments made by a Canadian resident to a non-resident

Position: General comments provided

Technical Interpretation - External

13 July 2011 External T.I. 2011-0400951E5 F - Alinéa 73(1.01)b) - régime de séparation de biens

Unedited CRA Tags
73(1.01)b)
s. 73(1.01)(b) can apply to a transfer occurring pursuant to an ancillary agreement

Principales Questions: Est-ce que l'alinéa 73(1.01)b) s'applique dans une situation donnée?

Position Adoptée: Oui

Raisons: Nous sommes d'avis que l'expression " en règlement de droits découlant de leur mariage " contenue à l'alinéa 73(1.01)b) est suffisamment large pour inclure les droits créés par une convention sur les mesures accessoires.

12 July 2011 External T.I. 2011-0393881E5 - Ordinary Business of Money Lending

Unedited CRA Tags
15(2), 15(2.3)

Principal Issues: Whether the exception in subsection 15(2.3) to the application of subsection 15(2) applies in a situation where a corporation makes loans to non-arm's length non-resident corporations.

Position: Question of fact. The fact that a lender may make a non-arm's length loan in a given situation would not by itself be a determinative factor that would automatically lead to the conclusion that the ordinary business of the lender is not money lending.

Reasons: We have previously issued favourable advanced income tax rulings on subsection 15(2.3) in the context of proposed transactions involving lending money to non-arm's length non-resident corporations.

11 July 2011 External T.I. 2010-0367021E5 F - Cotisations excédentaires au REER

Unedited CRA Tags
146(8); 146(8.2); 204.1(1.2); 204.2(1.1); 204.2(1.2); 204.3(1); 204.3(2)
a taxable RRSP withdrawal reduces undeducted RRSP premiums and, as a result, the cumulative excess amount in respect of RRSPs
s. 204.1(2.1) tax ceases when, at the end of the month, there is no cumulative excess amount in respect of RRSPs

Principales Questions: 1) Quel est l'impact d'un retrait sur l'élément J de la formule algébrique du paragraphe 204.2(1.2)?
2)À quel moment l'impôt de la partie X.I prends fin?

Position Adoptée: 1) En général, un retrait imposable d'un REER vient réduire les primes non déduites versées à des REER et, par le fait même, l'excédent cumulatif au titre des REER.
2) Il n'y a pas d'impôt de 1% à payer en vertu du paragraphe 204.1(2.1) pour un mois particulier lorsque, à la fin de ce mois, il n'y a pas d'excédent cumulatif au titre des REER.

Raisons: Texte de loi

8 July 2011 External T.I. 2011-0397631E5 - Indian Exempt Income - METC Claimed by Spouse

Unedited CRA Tags
81(1)(a); 118.2(2)(q)

Principal Issues: Whether the spouse of an Indian earning exempt income may claim the METC in respect of that Indian.

Position: Yes

Reasons: Subsection 118.2(1) does not impose any threshold on the amount of income earned by an individual in order for the METC to be claimed by the individual's spouse.

7 July 2011 External T.I. 2011-0396391E5 - Qualified Farm Property (Acq. before June 18, 87)

Unedited CRA Tags
110.6(1), 110.6(1.3), 110.6(2), 248(1)

Principal Issues: Requirements for a taxpayer's farmland to be considered as QFP.

Position: To meet the definition of QFP, the property must meet the ownership test and the farming-use test in subsection 110.6(1.3).

Reasons: Wording of the Act

23 June 2011 External T.I. 2011-0408941E5 - Oxygen Therapy

Unedited CRA Tags
118.2(2)(i); Regulation 5700

Principal Issues: Whether the cost of renting equipment for Topical Pressurized Oxygen Therapy qualifies as a medical expense for purposes of the METC.

Position: Yes.

Reasons: It is the law, paragraph 118.2(2)(i) of the Income Tax Act.

23 June 2011 External T.I. 2011-0406901E5 - Private Health Services Plan

Unedited CRA Tags
248(1)

Principal Issues: Whether a particular arrangement qualifies as a PHSP.

Position: Question of fact. General comments are given

23 June 2011 External T.I. 2010-0407341E5 - Medical Expenses

Unedited CRA Tags
118.2

Principal Issues: Whether amounts paid for homeopath and naturopath services qualify as medical expenses for purposes of the medical expense tax credit.

21 June 2011 External T.I. 2011-0395031E5 - Long-term care at a hospital and the DTC

Unedited CRA Tags
118.3(1)(c); 118.2(2)(a); 118.2(2)(b); 118.2(2)(b.1)

Principal Issues: Whether an individual can claim a medical expense tax credit ("METC") for payments made for long-term care at a hospital and the disability tax credit ("DTC").

Position: Question of fact.

Reasons: The wording of Paragraph 118.3(1)(c) of the Act prevents an individual from claiming both the disability tax credit and the medical expenses for nursing home care or attendant care if a claim is made under paragraph 118.2(2)(b). This restriction does not apply if a medical expense claim is made in respect of part-time attendant care under paragraph 118.2(1)(b.1).

13 June 2011 External T.I. 2011-0393561E5 - Debt forgiveness

Unedited CRA Tags
80, 20(1)(p), 39(1)(c), 40(2)(g)(ii), 61.3

Principal Issues: What are the tax consequences to a debtor and a creditor in a debt forgiveness transaction.

Position: General information provided.

5 May 2011 External T.I. 2010-0380451E5 - Condominium Corporation--Solar Panels

Unedited CRA Tags
149(1)(l)

Principal Issues: Will installing solar panels on the roof of a condominium corporation with a view to participating in Ontario's FIT program prevent the corporation from claiming the tax exemption in paragraph 149(1)(l) of the ITA?

Position: Question of fact.

Reasons: An organization claiming this tax exemption can earn a profit as long as the profit is incidental and the activity is in support of the organization's not-for-profit objectives.

28 April 2011 External T.I. 2011-0403641E5 - Acceptance of US GAAP statements for filing return

Unedited CRA Tags
9, 150

Principal Issues: A public Canadian corporation is listed on the TSX and Nasdaq. US Securities Regulators require the filing of financial statements in US GAAP for securities purposes. The Canadian Securities Administrators will accept US GAAP based financial statements for Canadian securities reporting purposes. Will the CRA accept the US GAAP-based, US dollar financial statements for filing returns?

Position: In the circumstances outlined, yes. However, the taxpayer must still ensure that the various amounts reported in the US GAAP-based statements are acceptable for the various provisions of the Act.

Reasons: In the situation described the corporation is not required to produce IFRS-based financial statements for tax purposes.

31 March 2011 External T.I. 2009-0340841E5 - GRIP addition for 2006

Unedited CRA Tags
89(7)

Principal Issues: Computation of a corporation's GRIP addition for 2006 under paragraph (c) of element A in subsection 89(7) where the "full-rate taxable income" earned by the payer corporation after 2000 and before 2006 is less than the aggregate dividends it paid or is deemed to have paid to connected corporations during the same period of time

Position: A pro-rata approach should be used to the determine the portion of the dividend attributable to the payer's "full rate taxable income" that must be allocated to each dividend recipient under paragraph (c) of element A in subsection 89(7)

Reasons: The wording of the Act as interpreted in previous CRA's administrative positions

Technical Interpretation - Internal

13 July 2011 Internal T.I. 2011-0405541I7 - Condo Corporations; Cell Towers

Unedited CRA Tags
149(1)(l)

Principal Issues: Whether a cell tower arrangement jeopardizes the tax-exempt status of a condominium corporation.

Position: No, as long as the income is the income of the unit owners not the corporation. Otherwise, it may.

Reasons: Provincial law - unit owners are owners of common areas as tenants in common. Cell tower income either belongs to unit owners or is available for the personal benefit of unit owners.

12 July 2011 Internal T.I. 2011-0402581I7 - Allowance for workspace in the home

Unedited CRA Tags
6(1)(b), 8(13)

Principal Issues: Is an allowance received by employees to cover a portion of their home office expenses considered a taxable benefit if the employee cannot deduct the home office expenses?

Position: Yes.

Reasons: The allowance is considered a taxable benefit under 6(1)(b) regardless of whether the home office expenses are allowed as a deduction under 8(13).

24 June 2011 Internal T.I. 2011-0397651I7 - Proration of Indian Fishing Income

Unedited CRA Tags
81(1)(a)

Principal Issues: Is income received by Indian fishers for preparing fish for transportation exempt from tax if the fish are prepared on a reserve?

Position: Possibly.

Reasons: The income related to preparing the fish must be separately identifiable from the fishing income and not be incidental to the fishing income.

10 June 2011 Internal T.I. 2011-0398661I7 - 149(1)(l)--Profit Purpose and Income to Members

Unedited CRA Tags
149(1)(l)

Principal Issues: Did the corporation qualify for the tax exemption provided by paragraph 149(1)(l) of the Act for the taxation years under review?

Position: No.

Reasons: The corporation operated a for-profit business during those years. In addition, income of the corporation was made available to one of its members.

25 February 2011 Internal T.I. 2008-0277561I7 - Small-CCPC

Unedited CRA Tags
157(1.2)(a) and (b); 157(1.3)(b); 157(1.4)

Principal Issues: 1. Whether the "taxable income" and the "taxable capital employed in Canada" of a parent corporation and its wholly-owned subsidiary for the taxation year that ended immediately before the taxation year in which they amalgamated can be taken into account under paragraphs 157(1.3)(b) and 157(1.4)(b) in determining whether the amalgamated entity qualifies as a small-CCPC for the particular taxation year? 2. Whether the "taxable income" and the "taxable capital employed in Canada" of a parent corporation and its wholly-owned subsidiary for the taxation year that ended immediately before the taxation year in which they wound-up can be taken into account under paragraphs 157(1.3)(b) and 157(1.4)(b) in determining whether the parent corporation qualifies as a small-CCPC for the particular taxation year?

Position: 1. No. 2. Yes. The taxable income and the taxable capital employed in Canada of the parent corporation and its wholly-owned subsidiary for the taxation year that ended immediately before the taxation year in which they wound-up taxation must be taken into account pursuant to paragraphs 157(1.3)(b) and 157(1.4)(b)

Reasons: 1. The amalgamated entity is deemed to be a new corporation, and the predecessor corporations are deemed to have ceased to exist further to their amalgamation pursuant to paragraph 87(2)(a). 2. The parent corporation remained in existence after the wind-up. The parent corporation was associated with its wholly-owned subsidiary for the taxation year that ended immediately before the taxation year in which they wound-up.