Income Tax Severed Letters - 2000-12-22

Principal Issues: Whether the exception in subsection 15(2.6) of the Act applies in the situation where a shareholder receives and repays more than one loan in within the time allowed in the subsection.

Position: Question of fact.

Reasons: The exception will only apply if the loans and repayments are not part of " a series of loans or other transactions and repayments".

Principal Issues: Meaning of for the year in paragraph 126(1)(a).

Position: Means the year for which the foreign income or profit tax is exigible in the foreign country.

Reasons: The law.

Principal Issues: Whether certified athletic therapist qualifies as a medical practitioner for the medical expense tax credit

Position: Question of fact

Reasons: If such therapists are authorized by statute to provide services in jurisdiction in which services performed, they would qualify as medical practitioner.

Principal Issues: When is property first used to earn income

Position: question of fact

Reasons: question of fact

Principal Issues: Whether a foreign tax credit can be claimed on the franked dividend in respect of the underlying Australian taxes paid by the Australian corporation paying the dividend.

Position: No

Reasons: The law

Principal Issues: Are individuals deemed to be resident under paragraph 250(1)(a) able to rely on the coming into force rules for subsection 250(5)?

Position: No.

Reasons: The law.

Principal Issues:
If Holdco purchases Opco for full fair market value at a time when Opco has unrealized appreciation in certain assets, will gains realized on subsequent disposition of those assets result in "safe income on hand"?

Position:
Not to the extent gains were accrued prior to acquisition of Opco shares.

Reasons:
The subsequent realization of such accrued gains does not contribute to the gain in the Opco shares since their appreciation has already been reflected in the fair market value paid for the Opco shares.

Principal Issues: Union representatives and employer representatives are negotiating a pay equity plan. In the event the union representatives and the employer representatives do not agree with respect to a particular issue, the matter is referred to an arbitrator who must choose either the union position or the employer position. Would a lump sum payment made in respect of the pay equity plan be a payment (Income from employment) made "pursuant to an order or judgment of a competent tribunal, an arbitration award or a contract by which the payor and the individual terminate a legal proceeding?"

Position: General comments were provided to the effect that a payment made in such circumstances does not qualify.

Reasons: In the Canadian Law Dictionary, "arbitration" is defined as "The settling of a dispute by an arbitrator:" and states that "the decision of an arbitrator is known as an award." It seems likely that the payment is not made pursuant to an arbitration award (essentially a negotiated settlement is involved). Based on similar reasoning, it also seems likely that the payment is not made pursuant to a contract under which the payor and the individual terminate a legal proceeding.

Principal Issues: We have been provided with a specific scenario and asked for comments on a number of issues.

Position: Some general comments were provided on the basis of the limited information available. The comments relate to H & W trusts, PHSPs, and section 20.01 of the Act.

Reasons: See position.

Principal Issues: Whether an independent contractor would be included in the term "agent" for purposes of section 253(b).

Position: Question of Fact.

Reasons: We have not been provided with sufficient information to determine whether an independent contractor is acting as an agent for purposes of section 253 of the Act.

Principal Issues: Application of paragraph 87(8.1)(c) to US merger where one predecessor ceases to exist.

Position: 87(8.1)(c) requirements met.

Reasons: Surviving corporation is considered a "new" corporation.

Principal Issues: We are asked for comments on the application of the draft trust provisions set out in the notice of ways and means motion of June 5, 2000 (the draft legislation) to a proposed transfer of securities from the general segregated fund of a life insurance corporation to a newly created specific segregated fund of the same life insurance corporation established for the benefit of the same persons followed by a subsequent transfer of those securities from the specific segregated fund of that life insurance corporation to a newly-created specific segregated fund of a second life insurance corporation created for the benefit of the same persons. As a result of the subsequent transfer, the specific segregated fund of the first life insurance corporation would cease to exist.

Position: It is our view that the first step of the transaction would probably not constitute a qualified disposition as there would be a change in beneficial ownership that is not within the deeming rule set out in paragraph 107.4(2). The second step of the transaction may be within the exception set out in paragraph (f) of the proposed definition "disposition" in subsection 248(1). The transaction raises anti-avoidance issues in that it tries to achieve a rollover of interests indirectly that could not be achieved directly. Whether or not a qualified disposition of trust assets causes the policyholders to realize a disposition depends upon the formality of the transaction.

Reasons: In order for a transaction to constitute a qualified disposition, it is necessary that there be no change in beneficial ownership of the assets transferred. The proposed legislation provides a deeming rule that, in our view, would have very narrow application, as it requires that a beneficiary retain its proportionate interest in "each particular property" of the transferor trust. We note, in this respect, that a single share is a particular property for the purposes of the Act.

Principales Questions: Les dispositions de l'article 120.4 de la Loi s'appliquent-elles au montant inclus dans le revenu d'un bénéficiaire privilégié qui est un particulier déterminé?

Position Adoptée: non

Principal Issues:
Is the association a non-profit organization as described in paragraph 149(1)(l) of the Act and thus exempt from tax.

Principales Questions:

Est-ce qu'une garantie acceptée par le ministre en vertu du nouveau 220(4.5) relativement à une disposition réputée d'un bien selon 128.1(4)b) est remboursable lorsque, au moment de la disposition, le cédant est considéré comme un résident américain au sens de la convention?
Would a garantee under the proposed 220(4.5) related to a deemed disposition under 128.1(4)b) be refunded where, at the time of the disposition of the property, the vendor is a U.S. resident under the treaty?

Position Adoptée: