Income Tax Severed Letters - 2024-03-27

Technical Interpretation - External

1 February 2024 External T.I. 2023-0993691E5 - Principal Residence Exemption

Unedited CRA Tags
40(2)(b), 54 “principal residence
Summary Under
Tax Topics - Income Tax Act - Section 54 - Principal Residence - Paragraph (a)
COVID-related travel restrictions will not be accommodated in applying the "ordinarily inhabited" condition regarding a foreign townhouse exemption

Principal Issues: Whether a townhouse located outside of Canada qualifies as an individual’s “principal residence”, as defined in section 54 of the Act, in respect of the 2020 and 2021 taxation years where the individual did not travel to the location of the townhouse during those years.

Position: Question of fact. Depends if the townhouse was "ordinarily inhabited" in the year by the individual, the individual’s spouse, common-law partner, former spouse, former common-law partner or child.

Reasons: For a property to qualify as a taxpayer’s principal residence, the property must, among other things, be “ordinarily inhabited” by the individual, the individual’s spouse, common-law partner, former spouse, former common-law partner or child in the year.

1 February 2024 External T.I. 2023-0994141E5 - Cost Recovery Method in IT-426R (Archived)

Unedited CRA Tags
12(1)(g), 39(1).
Summary Under
Tax Topics - Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(g)
CRA is reconsidering whether a partnership selling shares on an earnout basis can utilize the cost-recovery method

Principal Issues: Whether the cost recovery method as described in IT-426R (Archived) should be applicable to Canadian resident partners of partnerships that sell shares subject to an earnout agreement.

Position: No position disclosed in the letter.

Reasons: The Income Tax Rulings Directorate will re-examine that issue in consultation with internal stakeholders.

23 January 2024 External T.I. 2023-1000021E5 - Total charitable gifts for a particular year

Unedited CRA Tags
118.1(1), (3)
Summary Under
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(1) - Total Charitable Gifts - Paragraph (c) - Subparagraph (c)(i) - Clause (c)(i)(A)
an individual can carry forward unclaimed charitable donations
Summary Under
Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(2.1)
claims made on a FIFO basis

Principal Issues: Whether a charitable gift must be claimed in the year that the gift was made for purposes of computing the donation tax credit?

Position: A charitable gift may be claimed in the year a gift is made or carried forward to a subsequent taxation year within the time frame allowed for in the Income Tax Act.

Reasons: The definition "total charitable gifts" in subsection 118.1(1) allows for the carry-forward of gifts.

22 December 2023 External T.I. 2023-0986461E5 - Commissions Paid to a Canadian branch

Unedited CRA Tags
Regulation 105
Summary Under
Tax Topics - Income Tax Regulations - Regulation 105 - Subsection 105(1)
a fee paid by a non-resident for a service rendered by the Canadian branch of another non-resident is subject to Reg. 105 withholding

Principal Issues: Whether commissions paid to a Canadian branch of a non-resident corporation made in respect of services provided by the latter in Canada are subject to Regulation 105 withholding.

Position: Yes.

Reasons: A Canadian branch of a non-resident corporation is not a separate.

19 December 2023 External T.I. 2023-0974871E5 - METC-Interocular lens & prepaid medical expenses.

Unedited CRA Tags
ITA: Section 118.2, subsection 118.2(1), paragraphs 118.2(2)(a), 118.2(3)(b) and 118.2(2)(j)

Principal Issues: Whether the amount paid for an interocular lens would qualify as an eligible medical expense for the purposes of the medical expense tax credit (METC). If yes, what 12-month period can the expense be claimed in and what documentation is needed to support the claim?

Position: Yes, the amount paid for an interocular lens as part of cataract surgery would qualify as an eligible medical expense under paragraph 118.2(2)(a) of the ITA. Eligible medical expenses may qualify for the METC in the taxation year of payment since only amounts paid qualify for the METC. Under the Act, an individual can choose any 12-month period ending in the year, provided the expenses have been paid during the period chosen.

Reasons: Under paragraph 118.2(2)(a), amounts paid to a medical practitioner for cataract surgery, including interocular lens are generally considered eligible medical expenses. Paragraph (d) of variable B in subsection 118.2(1) provides that medical expenses must have been paid within any 12-month period ending in the calendar year.

19 October 2023 External T.I. 2023-0974081E5 - METC – Purchase price & installation of generator

Unedited CRA Tags
ITA: Section 118.2, subsection 118.2(2); paragraphs 118.2(2)(i), (l.2), and (m).

Principal Issues: Whether the purchase price, including installation cost, of a generator qualify as an eligible medical expense for the purposes of the medical expense tax credit (METC).

Position: 1) No, the cost of a generator, including installation, would not qualify as an eligible medical expense, but a reasonable portion of the operating costs to run the generator to operate an artificial kidney machine for the patient would qualify as an eligible medical expense under paragraph 118.2(2)(i). 2) No operating costs are eligible where the generator is used to operate an automated cycler machine.

Reasons: 1) A generator is not necessary for the installation of an artificial kidney machine, and it is unlikely that the hospital who authorized the installation of the artificial kidney machine required the generator in order to install the artificial kidney machine. 2) An automated cycler is not listed as an eligible device under paragraph 118.2(2)(i).