Income Tax Severed Letters - 2012-02-03

Principal Issues: Whether CRA has authority to waive taxes imposed under sections 207.04 or 207.05 in respect of RRSP or RRIF prohibited investments and advantages. If so, what are the procedures for requesting a waiver?

Position: 1. Yes. 2. Outlined waiver procedures established by CRA Assessment and Benefit Services Branch.

Reasons: 1. Subsection 207.06(2) of the Act gives the Minister of National Revenue authority to cancel or waive all or part of the taxes on prohibited investments and advantages in appropriate circumstances, taking into account factors such as reasonable error and whether the transaction or series of transactions that gave rise to the tax also resulted in another tax being payable under the Act. In the case of a waiver of the advantage tax, subsection 207.06(3) requires that the annuitant withdraw an amount from their RRSP or RRIF without delay equal to the amount of the tax being waived. 2. Application of administrative policy.

Principal Issues: Whether an amount paid by the taxpayer for a rehabilitive splinting system to stretch the tissue in the elbow would qualify as a medical expense for purposes of calculating the medical expense tax credit.

Position: Likely yes.

Reasons: Paragraph 118.2(2)(i) of the Income Tax Act applies to different devices, including a brace for a limb.

Principal Issues: Whether an amount paid by the taxpayer for dental applicance designed to treat sleep apnea would qualify as a medical expense for purposes of calculating the medical expense tax credit.

Position: It is a question of fact based on the determination of whether the patient is suffering from a "severe chronic respiratory ailment" and whether the dental applicance was "designed exclusively for use by" such a patient for that ailment.

Reasons: The law.

Principal Issues: Whether amounts paid for: 1) a Polar Care Cube, a motorized cold therapy device, prescribed by a doctor to control and reduce knee pain and swelling and 2) an electrical muscle stimulation (EMS) device used for muscle stimulation and strengthening after a knee injury, qualify as medical expenses for purposes of the medical expenses tax credit (METC).

Position: 1) No. 2) Yes.

Reasons: 1) Cold therapy devices are not provided for under subsection 118.2(2) of the Act or section 5700 of the Regulations. 2) An EMS device appears to be a form of electrotherapy device that meets the conditions described under paragraph 5700(z.2) of the Regulations.

Principal Issues: Whether certain expenditures incurred to construct road ramps, roadways and other road related improvement could be treated as Class 17 depreciable assets on the basis that the requirements of paragraph 13(7.5)(b) have been satisfied.

Position: Question of fact. General comments only.

Reasons: See above.

Principal Issues: Whether the costs relating to 1) the services provided by a naturopath in Ontario and 2) remedies purchased through a naturopath, such as injectable vitamin C and mistletoe, would qualify as medical expenses for purposes of the METC.

Position: 1) Yes. 2) Generally no, unless the remedies qualify under 118.2(2)(k) which allows the cost of insulin, oxygen, liver extract injectible for pernicious anaemia or vitamin B12 for pernicious anaemia as prescribed by a medical practitioner. Only drugs that can lawfully be purchased only by prescription (or only with the intervention of a medical practitioner) will qualify under 118.2(2)(n). However, it is a question of fact whether a particular drug may lawfully be acquired only by prescription (or only with the intervention of a medical practitioner).

Reasons: 1) As indicated on the CRA web site, naturopaths are recognized as medical practitioners in Ontario. 2) Wording of 118.2(2)(k), 118.2(2)(n) and Regulation 5701.

Principal Issues: Whether it is an offence under the Income Tax Act for an employer to disclose the social insurance numbers of its employees to the union in accordance with a provision of a collective agreement.

Position: General comments provided.

Reasons: Unless the employee provides their written consent, the SIN can only be disclosed in the circumstances outlined in subsections 237(3) and (4). Under 239(2.3) of the Act unauthorized disclosure or communication of the SIN is an offence. However, there are a number of situations where there is a legislative requirement for employees to provide their SIN to their employer.

Principal Issues: Does the 2011 federal budget effectively prohibit all swap transactions in RRSPs and RRIFs?

Position: Yes, subject to limited exceptions.

Reasons: The amendments in Bill C-13 (which received royal assent on December 15, 2011) extend the existing TFSA rules for swap transactions in Part XI.01 of the Act to RRSPs and RRIFs. These rules eliminate all current and future benefits associated with swap transactions, regardless of whether the transaction occurs at fair market value. This serves, in effect, as a prohibition on swap transactions. Position is consistent with statement in Department of Finance News Release dated October 16, 2009, which first introduced prohibition on swap transactions for TFSAs.

Principal Issues: Whether a corporation with multiple classes of common shares each with different dividend entitlements and no preferred shares would be disqualified from meeting the definition of a mortgage investment corporation in subsection 130.1(6).

Position: No.

Reasons: The existence of multiple classes of shares each with different dividend entitlements would not be contrary to paragraph 130.1(6)(e). This paragraph does not prohibit either multiple classes of common shares or different dividend entitlements among common shareholders. Rather, it provides for a specific ordering in the payment of dividends. Where the corporation has no preferred shares, it is not precluded from qualifying as a MIC to the extent it otherwise meets the MIC definition.

Principal Issues: Can a lump sum payment made on behalf of a Canadian resident from a Philippine pension plan in respect of non-resident services be transferred to an RRSP under subparagraph 60(j)(i) of the Act?

Position: Yes, provided the taxpayer does not claim a deduction under subparagraph 110(1)(f)(i) for the treaty-exempt income.

Reasons: Satisfies the conditions in subparagraph 60(j)(i). In particular and in contrast to other provisions of the Act that preclude their application where the amount "is deductible" or "may be deducted" under another provision, subparagraph 60(j)(i) only precludes its application where the amount "is deducted". The subparagraph 110(1)(f)(i) deduction is a permissive deduction.

Principal Issues: Are amounts paid from an unfunded supplemental pension plan eligible for pension income splitting?

Position: In general, no.

Reasons: Definition of "eligible pension income" in section 60.03 and subsection 118(7) and the amounts specifically excluded from the definition by virtue of subsection 118(8). Paragraph 118(f) specifically excludes amounts paid out of an unfunded supplemental plan.