Income Tax Severed Letters - 2011-10-28

Ruling

2011 Ruling 2011-0399121R3 - Article IV(7)(b) and PUC Increase

Unedited CRA Tags
IV(7)(b)

Principal Issues: Whether subparagraph 7(b) of Article IV of the Canada-U.S. Tax Convention will apply to deny treaty benefits where a corporation increases paid up capital and subsequently makes a payment that reduces paid up capital?

Position: No.

Reasons: Previous rulings given. Subsections 84(1) and 212(2) of the Act will apply on the increase of paid-up capital.

Ministerial Correspondence

11 October 2011 Ministerial Correspondence 2011-0418771M4 - Children's Arts Tax Credit

Unedited CRA Tags
118.03

Principal Issues: 1.Do piano and vocal lessons qualify for the CATC?

Position: 1. Yes.

Reasons: 1.The legislation

6 October 2011 Ministerial Correspondence 2011-0418751M4 - Children's Arts Tax Credit

Unedited CRA Tags
118.03

Principal Issues: 1. Does music therapy qualify for the CATC?

Position: 1. Music therapy could qualify for the CATC.

Reasons: 1. The legislation.

Technical Interpretation - External

18 October 2011 External T.I. 2010-0381951E5 - Existence of permanent establishment in Canada

Unedited CRA Tags
2(3)(b), 253, Article V of Canada-US Tax Convention
Summary Under
Tax Topics - Treaties - Income Tax Conventions - Article 5
Canadian server as pe

Principal Issues: Whether or not the Taxpayer is liable for Canadian income tax based on the facts provided for four different scenarios.

Position: Scenario 1, 2 & 3: Question of fact. Scenario 4: Question of fact but likely yes.

Reasons: Scenario 1, 2 & 3: Overview of relevant Treaty Articles provided. Scenario 4: A PE likely would exist pursuant to Article V(2).

18 October 2011 External T.I. 2011-0422021E5 F - Purpose test - Subsection 55(2) of the Act

Unedited CRA Tags
55(2); 55(3)
Summary Under
Tax Topics - Income Tax Act - Section 55 - Subsection 55(2.1) - Paragraph 55(2.1)(b)
dividend from grandchild to child likely does not engage s. 55(2) re sale of shares of grandparent

Principal Issues: A corporate shareholder would own all of the issued and outstanding shares of the capital stock of a holding corporation ("Holdco"). Holdco would own all of the issued and outstanding shares of the capital stock of an operating corporation ("Opco"). For asset protection purposes, the following transactions would be implemented. First, Opco would pay a dividend to Holdco. The amount of such dividend would be almost equal to the value of the common shares of the capital stock of Opco held by Holdco. Holdco would then loan the funds received as a dividend back to Opco.
Whether subsection 55(2) of the Act would apply in a situation where, after completing those transactions, the corporate shareholder of Holdco would sell some of its shares in the capital stock of Holdco to an arm's-length party for proceeds equal to their fair market value.

Position: No definitive position is taken.

Reasons: In some cases and depending on the facts of a particular situation, it could be argued that the purpose test provided for in subsection 55(2) of the Act is not met where there is no sale of the shares of the capital stock of Opco nor any increase in the direct interest in Opco that are part of the same series of transactions or events that includes the dividend paid to Holdco.

18 October 2011 External T.I. 2011-0394041E5 F - Fiducie personnelle- revenu brut

Unedited CRA Tags
3, 75(2), 110.6(1), 110.6(1.3), 110.6(2.1), 104(21.2), 248(1)
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Gross Revenue
gross revenue from farming business did not include capital gains
Summary Under
Tax Topics - Income Tax Act - Section 3
capital gains not included in computing income from a source

Principales Questions: (1) Dans le cas d'une personne visée à l'alinéa 110.6(1.3)a), vous désirez savoir si les gains en capital réalisés par cette personne doivent être inclus dans le calcul de son revenu brut aux termes de la Division 110.6(1.3)b)(i)(A).
(2) Alternativement, dans le cas d'une personne visée à l'alinéa 110.6(1.3)a), vous désirez savoir si les gains en capital réalisés par cette personne doivent être inclus dans le calcul de son revenu provenant de toutes sources autres que l'entreprise agricole aux termes de la Division 110.6(1.3)b)(i)(A).
(3) Si la réponse à la question (1) ou (2) est dans l'affirmative, vous désirez savoir si c'est la notion de gain en capital imposable ou de gain en capital brut qui doit intervenir.

Position Adoptée: (1) Non.
(2) Non.
(3) Sans objet.

Raisons: L'expression "revenu brut... provenant d'une entreprise agricole" visée à la subdivision 110.6(1.3)b)(i)(A)(I) de la Loi exclut les sommes à titre de capital. Puisqu'un gain en capital n'est pas, selon nous, un revenu provenant d'une source, l'expression "revenu ... provenant de toutes les autres sources" ne comprend pas les gains en capital.

18 October 2011 External T.I. 2011-0401381E5 - Capital Cost Allowance for a Partnership

Unedited CRA Tags
13(27); 96(8); Regulations 1100(2.2) and 1100(2.21)
Summary Under
Tax Topics - Income Tax Act - Section 13 - Subsection 13(27)
Summary Under
Tax Topics - Income Tax Regulations - Regulation 1100 - Subsection 1100(2.21)
Summary Under
Tax Topics - Income Tax Regulations - Regulation 1100 - Subsection 1100(2.2)

Principal Issues: 1. Whether the deemed non-arm's length acquisition rule in Regulation 1100(2.21) applies to the deemed acquisition of depreciable property by a partnership that occurs immediately after the particular time pursuant to subparagraph 96(8)(a)(ii). 2. Whether the exception to the half-year rule in Regulation 1100(2.2) applies to a deemed acquisition of depreciable property that occurs pursuant to subparagraph 96(8)(a)(ii). 3. Whether paragraph 13(27)(f) would apply to an acquisition of depreciable property by a partnership.

Position: 1. No. 2. No. 3. No.

Reasons: 1. Paragraph 96(8)(a) does not deem a taxpayer to have disposed of and acquired or reacquired a property. It deems the partnership only to have acquired the property. 2. In a situation where a deemed acquisition of property has occurred under paragraph 96(8)(a), none of the exceptions in Regulation 1100(2.2) would be met. 3. Paragraph 13(27)(f) applies only to property acquired by certain public corporations or their subsidiaries.

17 October 2011 External T.I. 2011-0398711E5 - Tax treatment of prepaid amounts

Unedited CRA Tags
9(1); 12(1)(a); 12(1)(x); 13(7.4); 20(1)(m)

Principal Issues: In a hypothetical fact situation provided, a charitable organization receives a donation of $XXXXXXXXXX . This amount is then paid to a corporation as an advance towards rent to be paid for a period of XXXXXXXXXX years. What are the tax consequences to the charitable organization and the corporation.

Position: The amount received by the corporation may be included under subsection 9(1) or paragraph 12(1)(a). A deduction under paragraph 20(1)(m) may be available.

Reasons: It is a question of fact.

17 October 2011 External T.I. 2011-0423361E5 F - Loi sur le courtage immobilier

Unedited CRA Tags
9(1)
Summary Under
Tax Topics - General Concepts - Illegality
Quebec real estate brokers can earn their remuneration through a corporation
Summary Under
Tax Topics - Income Tax Act - Section 9 - Nature of Income
Quebec real estate broker can generate commissions in a controlled corporation

Principales Questions: Est-ce que la rétribution relative aux services qu'un courtier rend conformément à la Loi sur le courtage immobilier, alors qu'il exerce ses activités au sein d'une société par actions, pourra être incluse dans le calcul du revenu de cette société.

Position Adoptée: Question mixte de fait et de droit. En l'espèce, tout indique que oui.

Raisons: Si les activités exercées par un courtier aux termes de la Loi sur le courtage immobilier peuvent être légalement exercées par une société par actions - ce qui semble être effectivement le cas - la rétribution relative aux activités exercées par le courtier sera imposable entre les mains de cette société par actions.

14 October 2011 External T.I. 2011-0421141E5 F - Computation of capital dividend account

Unedited CRA Tags
53(1)(b); 89(1)
Summary Under
Tax Topics - Income Tax Act - Section 89 - Subsection 89(1) - Capital Dividend Account - Paragraph (a) - Subparagraph (a)(i) - Clause (a)(i)A)
s. 89(1)(a)(i)(A) exclusion re s. 53(1)(b)(ii) is inapplicable if s. 55(2)(a) applied

Principal Issues: On July 16, 2010, the Department of Finance proposed to amend clause 89(1)(a)(i)(A) of the CDA definition to add the expression "computed without reference to subparagraphs 52(3)(a)(ii) and 53(1)(b)(ii)" after "the amount of the corporation's capital gain".
After an increase in the stated capital of shares, the shares are disposed of and a capital gain results from the disposition. Will the proposed amendment to the definition of CDA be applicable in that situation?

Position: It depends on the facts. In a situation where subsection 55(2) did not apply when the stated capital of shares was increased and where proposed subparagraph 53(1)(b)(ii) applied to decrease the amount computed pursuant to subparagraph 53(1)(b)(i), the proposed amendment to clause 89(1)(a)(i)(A) of the CDA definition would apply to change the amount of the capital gain used for the purpose of computing the CDA. However, the amount of the deemed dividend under subsection 84(1) that would be subject to paragraph 55(2)(a), would be deemed not to have been a dividend received by the corporation, and thus would not be included in the amount described in proposed paragraph 53(1)(b)(i) or (ii). Consequently, the proposed amendment to clause 89(1)(a)(i)(A) of the CDA definition would not apply in such a situation.

Reasons: Wording of the proposed amendment.

13 October 2011 External T.I. 2010-0382441E5 F - RSG- Employé / travailleur autonome

Unedited CRA Tags
5; 6;8; 248(1)- employé
Summary Under
Tax Topics - Income Tax Act - Section 5 - Subsection 5(1)
home childcare providers were self-employed given relative autonomy

Principal Issues: Une responsable de service de garde en milieu familial reconnue ("RSG") est-elle une salariée ou une travailleuse autonome?

Position: Selon les faits et lois provinciales, une RSG rend des services de garde en tant que travailleuse autonome.

Reasons: Malgré que les RSG puissent se regrouper et négocier leurs conditions de travail dont, entre autres, pour obtenir un financement additionnel qui est associé aux avantages offerts normalement à des employés, les critères du lien de subordination et de l'intégration propres à une relation employé-employeur ne font pas partie intégrante de la relation contractuelle qui existe entre le BC et les RSG. De plus, la RSG peut déterminer ses horaires, est responsable de fournir le matériel et l'équipement, peut engager une personne pour la seconder, absorbe les risques de perte (si ne travaille pas- n'est pas payée, paie ses dépenses etc).

3 October 2011 External T.I. 2011-0396601E5 - education tax credit and textbook tax credit

Unedited CRA Tags
118.6

Principal Issues: Confirmation of the following statements is requested:
1. The provisions of subsections 118.6(2) and (2.1) of the Act will apply to the Residency Program such that the Residents participating therein will be entitled to the education credit provided by subsection 118.6(2) and the post-secondary textbook credit provided by subsection 118.6(2.1) so long as the relevant designated educational institution files with the Minister the form prescribed for that subsection in respect of such residents.
2. For the purposes of the education credit, the Residents participating in the Residency Program will be entitled to the credit in paragraph (a) of the definition of "B" in the formula in subsection 118.6(2) of the Act.
3. It would be appropriate for XXXXXXXXXX to file with the Minister the form prescribed by subsection 118.6(2) indicating that the Residents participation in the Residency Program qualifies for the education credit and post-secondary textbook credit.

Position: Confirmation is not given to any of the statements.

Reasons: A medical resident in a Residency Program is an employee in a training program and not a student in a qualifying educational program.

29 September 2011 External T.I. 2011-0405391E5 F - Utilisation d'un aéronef

Unedited CRA Tags
6(1)a); 15(1)
Summary Under
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a)
price charged to customers for flights on company aircraft determined taxable benefit to employees/benefit to majority shareholder was qua employee

Principales Questions: Comment calculer l'avantage imposable à inclure dans le revenu d'un employé/actionnaire qui utilise l'aéronef de la société à des fins personnelles.

Position Adoptée: Voir réponse.

Raisons: La réponse est basée sur le bulletin d'interprétation IT-160R3

27 September 2011 External T.I. 2011-0400141E5 F - Allocations pour frais de déplacement

Unedited CRA Tags
6(1)b); 6(1)b)(vii)
Summary Under
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(b)
reasonable daily meal allowance for travelling in local municipality to enhance efficiency is non-taxable

Principales Questions: Une allocation qui est versée à des employés pour leur déplacement à l'intérieur de la municipalité ou de la région métropolitaine où est située leur lieu de travail habituel doit-elle être incluse dans le calcul de leur revenu?

Position Adoptée: Question de fait. En l'espèce, il semblerait que non.

Raisons: Tel qu'annoncé dans les Nouvelles technique No. 40, une allocation de déplacement raisonnable (y compris les allocations de repas) versée par l'employeur relativement au déplacement à l'intérieur de la municipalité ou de la région métropolitaine peut être exclue du revenu. En effet, à compter de 2009, l'ARC acceptera que ces allocations versées pour le déplacement à l'intérieur de la municipalité ou de la région métropolitaine puissent être exclues du revenu si le principal objet de l'allocation est de faire en sorte que les fonctions de l'employé soient exercées de façon plus efficace dans le cadre d'un quart de travail et lorsque les allocations versées n'indiquent pas une autre forme de rémunération.

Technical Interpretation - Internal

17 October 2011 Internal T.I. 2010-0376461I7 - Credit for Interest on Student Loan

Unedited CRA Tags
ITA 118.62

Principal Issues: Whether interest paid on a student loan in collection status is eligible for the credit for interest on student loan.

Position: Yes, providing a court judgment has not been ordered on the particular loan.

Reasons: Section 118.62 specifically excludes amounts paid on account of a judgement.

14 October 2011 Internal T.I. 2011-0410781I7 F - Repas fournis gratuitement

Unedited CRA Tags
6(1)a)
Summary Under
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a)
benefit from free meals delivered on-site

Principales Questions: Est-ce que le fait de fournir des repas gratuitement à des employés constitue un avantage imposable pour ces derniers?

Position Adoptée: Question de fait. En l'espèce, oui, dans la mesure où cet avantage profite principalement aux employés.

Raisons: Loi de l'impôt sur le revenu.

30 September 2011 Internal T.I. 2011-0393171I7 F - Representation or other special allowances

Unedited CRA Tags
6(1)a), 6(1)b)(iii)
Summary Under
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(b) - Subparagraph 6(1)(b)(iii)
foreign service premium received by armed forces member so qualified
Summary Under
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a)
no benefit for excess of rent allowance over cost of comparable Cdn location or where higher class of accommodation is for security reasons

Principales Questions: 1.) What is the meaning of the expression "representation or other special allowances" use in subparagraph 6(1)b)(iii) ?
2.) Whether amounts received by the taxpayer as Rent allowance, Utility allowance and Foreign service allowance are subject to paragraphs 6(1)a) or 6(1)b) ?

Position Adoptée: 1.) General comments.
2.) The Rent allowance and the Utility allowance are reimbursements of which only a part of it is subject to paragraph 6(1)a). The calculation of the taxable benefit should take in consideration the employee economic enrichment in comparison of his pre-assignment housing costs. The Foreign service allowance is subject to subparagraph 6(1)b)(iii).

Raisons: The law.

12 July 2011 Internal T.I. 2010-0366321I7 - Tax treatment of break fees received

Unedited CRA Tags
9(1);12(1)(x); 14(1); 14(5); 39(1); 56(4.2)
Summary Under
Tax Topics - Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(x)
break fee
Summary Under
Tax Topics - Income Tax Act - Section 14 - Subsection 14(5) - Cumulative Eligible Capital
Summary Under
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Expenditure v. Expense - Contract or Option Cancellation
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Disposition
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Disposition
Summary Under
Tax Topics - Income Tax Act - Section 56.4 - Subsection 56.4(1) - Restrictive Covenant
break fee may be included
Summary Under
Tax Topics - Income Tax Act - Section 9 - Compensation Payments
break fee

Principal Issues: A. Whether the break fees received by XXXXXXXXXX from XXXXXXXXXX under the terms of the Support Agreement should be included in XXXXXXXXXX's income or represent non-taxable capital receipts; XXXXXXXXXX

Position: A. The break fees should be included in XXXXXXXXXX 's income pursuant to section 9, paragraph 12(1)(x) or alternatively under section 14 or as proceeds of disposition of a capital property XXXXXXXXXX

Reasons: A. Surrogatum principle. Further, a Court decision describes a break fee as an inducement to a bidder in a takeover transaction; XXXXXXXXXX

31 March 2011 Internal T.I. 2011-0391701I7 - Tax treatment of transaction costs

Unedited CRA Tags
18(1)(b); 20(1)(b)

Principal Issues: A. Whether the costs incurred by XXXXXXXXXX in respect of the proposed acquisition of XXXXXXXXXX , the combination with XXXXXXXXXX and the unsolicited takeover bids by XXXXXXXXXX and XXXXXXXXXX are deductible under subsection 9(1) or eligible capital expenditures. XXXXXXXXXX .

Position: A costs incurred by XXXXXXXXXX with respect to the attempted takeover of XXXXXXXXXX and the stock option buyout costs incurred by XXXXXXXXXX are on capital account, while the other transaction costs are deductible in computing income under subsection 9(1) XXXXXXXXXX

Reasons: A. The attempted acquisition of XXXXXXXXXX shares and the stock option buyout were capital transactions, while case law has held that other transaction costs, which cannot be linked to a capital transaction, are current expenses XXXXXXXXXX