Income Tax Severed Letters - 1997-12-26

Position:

Principales Questions:

1. Est-ce que le législateur ajoute une condition pour qu’un bien soit considéré comme un bien de remplacement par l’effet de la modification proposée le 20 juin 1996 à l’alinéa 44(5)a) de la Loi?

2. Est-ce qu’un camion acquis par une entreprise de camionnage est un bien de remplacement d’un ancien camion ayant subi un sinistre?

Position Adoptée:

Principal Issues:

A taxpayer is in receipt of Old Age Security ("OAS") benefits and net federal supplements ("NFS"). Whether the offsetting deduction for NFS under paragraph 110(1)(f) is reduced to the extent that NFS are repayable as Part I.2 tax?

Position:

OAS benefits and NFS are included in computing income under clause 56(1)(a)(i)(A). However, NFS are effectively rendered non-taxable by virtue of the paragraph 110(1)(f) deduction. Where a taxpayer is in receipt of OAS benefits and/or NFS, the taxpayer may be subject to the Part I.2 tax. Paragraph 60(w) provides a deduction for the amount of Part I.2 tax payable for the year.

While the legislation does not expressly provide for an allocation of the Part I.2 tax between OAS benefits and NFS, the Department's position is that the Part I.2 tax is applied to OAS benefits before NSF. Therefore, any excess of the Part I.2 tax over OAS benefits is considered to be a repayment of NFS to the extent of NFS included in income. Given that a deduction is available under paragraph 60(w) for the amount of Part I.2 tax payable, it is our view that subsection 248(28) would apply to reduce the paragraph 110(1)(f) deduction by the amount of Part I.2 tax that is considered to be a repayment of NFS.

Reasons:

Principal Issues:

Can an RSP that was incorrectly registered as being a spousal RRSP be corrected?

Position:

No correction is required but registered plans should be advised of the correction to the records..

Reasons:

Principal Issues:

Would a promissory note secured by a mortgage on real property be a qualified investment for an RRSP?

Position:

Question of fact.

Reasons:

Position Adoptée:

Principal Issues:

Whether the reserve claimed by a member of a partnership under section 34.2 and included in income in following year when the individual was no longer a member of the partnership would be allocated to his province of residence.

Position:

Cannot be definitive, only general comments available; transaction appeared to be completed transaction.

Income earned in a year in a province computed according to rules under Part XXVI of Regulations and would depend on whether taxpayer carried on a business in the year, resided in the province and had a permanent establishment in or outside the province. Where no income earned from a PE outside the province of residence, any reserve added back under 34.2(5) would be allocated to province of residence.

Reasons:

Principal Issues:

Whether the time an investment is acquired by a deferred plan refers to the day on which the plan acquires the investment?

Position:

No, however a number of investors can acquire investments at the same time.

Reasons:

Principal Issues:

Whether or not a condominium corporation claiming an exemption pursuant to 149(1)(l) will be required to file a NPO return (form T1044)/

Position:

Yes

Reasons:

Principal Issues:

whether either spouse can claim equiv-to-married amt when each spouse is notionally required to pay support to the other in respect of all children (each spouse has custody of the 3 children 50% of the time)

Position:

no equiv-to-married amount, see 118(5). Assumes the spouses live separate and apart from one another throughout the year because of the breakdown of their marriage (or either claim a ded'n under section 60 of the Act for a support amount paid to the spouse or former spouse)

Reasons:

Principal Issues:

The tax implications when a medical insurance plan covers a common law spouse and a separated spouse.

Position:

The plan may still qualify as a private health services plan.

Reasons:

Principal Issues:
Whether an individual must qualify for the disability tax credit to claim the costs of acquiring and maintaining specially-trained animals as medical expenses under paragraph 118.2(2)(l).

Position:
Although there is no requirement under paragraph 118.2(2)(l) that the patient qualify for the disability tax credit, one would expect so.

Reasons:
A person who qualifies under paragraph 118.2(2)(l) by reason of having a severe and prolonged impairment that markedly restricts the use of his or her arms or legs would likely qualify for the disablilty tax credit by reason of this same disability.

Principal Issues:

Whether the fact that a new property is significantly larger than the property it replaces would affect the status of the property as a replacement property for purposes of section 44 of the Act.

Position:

Yes.

Reasons:

Principal Issues:

What are the tax consequences to a Canadian shareholder as a result of a U.K. "demerger" where stock of subsidiaries is distributed to shareholders.

Position:

Dividend to the Canadian shareholder, equal to the fair market value of the distributed shares at the time they are received.

Reasons: