Income Tax Severed Letters - 2001-01-19

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues

Can payments made to full-time fire-fighters as volunteers for the same municipality be eligible for the $1,000 tax free allowance under subsection 81(4) of the Act?

Position TAKEN
No

Reasons FOR POSITION TAKEN

Principal Issues: Paragraph 39 of IT-513R states that "Because of subsection 118(5), an individual cannot claim a personal tax credit in respect of the individual's spouse or a child for a taxation year after 1996 if the individual is required to pay a support amount ... to his or her spouse or former spouse for that person, and the individual lives separate and apart from the spouse or former spouse throughout the year because of the breakdown of their marriage." As a result of these comments, an individual is not entitled to claim the equivalent-to-spouse credit. We have been asked whether we have a policy that would allow the individual to claim that credit.

Position: No

Reasons: There is no administrative position

Principal Issues:
1. Whether a gift of the residue of a taxpayer's estate to a registered charity would constitute a gift by will under subsection 118.1(5).

2. If the residue gifted consists of publicly traded shares, can the executor elect under subsection 118.1(6)?

3. If the residue gifted consists of publicly traded shares, will the reduced inclusion rate under paragraph 38(a.1) apply to a capital gain arising on the deemed disposition of such shares under section 70?

Position:
1. Yes, provided that the gift is made in accordance with the terms of the will.

2. Yes, provided the requirements of subsection 118.1(6) are met.

3. Yes, provided the requirements of paragraph 38(a.1) are met.

Reasons:
1. Previous opinions.

2. Previous opinions.

3. Where the gift is made in accordance with the terms of the will, it is our view that the reduced inclusion rate will apply if the requirements of paragraph 38(a.1) are otherwise met.

Principal Issues:

1. A taxpayer's will provides that a gift of a specific amount be made to a specific charity. If the executor uses shares to make the gift, can the executor elect under subsection 118.1(6)?

2. A taxpayer's will provides that a gift in cash or shares be made to a specific charity. If the executor uses shares to make the gift, can the executor elect under subsection 118.1(6)?

3. Will the reduced inclusion rate in paragraph 38(a.1) apply to a capital gain arising on the deemed disposition of the shares in either scenario?

Position:

1. Yes, provided the requirements of subsection 118.1(6) are met.

2. Yes, provided the requirements of subsection 118.1(6) are met.

3. Yes, provided the requirements of paragraph 38(a.1) are met.

Reasons:

Principal Issues: (1) What is the appropriate form (T4 or T4A) to be produced by a third party relocation services provider in respect of taxable benefits paid to the employees of the person for whom the services are provided?
(2) Who is responsible for withholding and remitting taxes on any taxable benefits provided to an employee (the third party services provider or the employer using the provider)?

Position: (1) T4 slip.
(2) The employer

Reasons: Answer is based on the assumption that the third party relocation services provider is an agent of the employer using the provider to help the employer's staff to relocate.

Principal Issues: Is the cost of : i. a home traction devise and
ii. a Body Blade;
an allowable medical expense pursuant to subsection 118.2(2) of the Act?

Position: No

Reasons: Neither devise is included in any of the paragraphs of subsection 118.2(2) of the Act. They are also not included as a devise or equipment that is prescribed in section 5700 of the Income Tax Regulations.

Principal Issues: Can an EPSP be established for the benefit of one employee?

Position: Question of fact.

Reasons: we have previously stated no. Because we have never seen an EPSP for one employee, we will only revisit the issue in the context of a ruling request where all of the facts are made available.

Principal Issues: - Sickness or accident insurance coverage provided to the only employee/shareholder of a professional corporation. Subparagraph 6(1)(a)(i) of the Income Tax Act provides an exemption for a "group sickness or accident insurance plan." In order for a group to exist, must there be more than one individual?

Position: Yes - Some general comments were also provided on the issue of "qua shareholder" versus "qua employee."

Reasons: Our current position is that a "group" must be comprised of more than one individual.

Principal Issues:
Whether the exception in subsection 15(2.4) of the Act applies to a loan received by a specified employee where the loan is used by the specified employee to acquire a dwelling for his/her habitation.

Position: Question of fact.

Reasons:
The exception in paragraph 15(2.4)(b) of the Act will generally not apply to a loan to a specified employee. Our general position is that benefits are received as a shareholder, not an employee, where the shareholder can significantly influence the business policies of the corporation. Accordingly, subsection 15(2) of the Act will apply to the loan. Nevertheless, there may be situations where all of the requirements of subsection 15(2.4) of the Act are satisfied such that subsection 15(2) of the Act won't apply in those situations.

Principal Issues:

Principal Issues:

Principal Issues: Is an investment club a qualified investment for RRSP purposes if the investment club holds only qualified investments?

Position: We can't say without more details.

Reasons: We will have to know if the investment club is a trust, partnership or corporation.

Principal Issues: If only a part of the income of a non-resident from a business carried on in Canada would be exempt from tax in Canada under an income tax convention, would the business be a "treaty-protected business" under the definition in subsection 248(1).

Position: Yes

Reasons: The definition of "treaty-protected business" is a business "any income" from which is treaty exempt.

Principales Questions:
1. Est-ce que les déboursés faits pour l'achat de billets de spectacles par une société qui oeuvre dans ce domaine représentent des divertissements sujets au paragraphe 67.1(1) de la Loi compte tenu du fait que le but de l'acquisition de ces billets est de recruter des artistes en vue de les présenter en spectacle ?

2. Si oui, est-ce que la dépense tombe sous l'application de l'exception prévue à l'alinéa 67.1(2)a) de la Loi ?

Position Adoptée:
1. aucune
2. non

Principal Issues: Whether the administrative position set out in paragraph 50 of Interpretation Bulletin 474R ("IT-474R") should be extended to certain dispositions of share options owned by non-residents where subsection 87(5) of the Act applies.

Position: For International Tax Directorate to consider.

Reasons: Administrative position is the responsibility of audit.

Principal Issues: Whether revenue of particular P/S is regulated per definition of "designated limited partnership in ss 5900(7) of the Regulations?

Position: no

Reasons: Revenue is subject to regulation if a complaint is made; otherwise the market determines revenues

Principal Issues: In order to transfer a capital loss from a taxpayer to his or her spouse where the taxpayer elects out of subsection 73(1) of the Act, does the spouse have to hold the loss property for at least 30 days after the transfer of the property?

Position: Yes.

Reasons: If the spouse does not own or have a right to acquire the property 30 days after the transfer of the property, there would not be a superficial loss. If there is a superficial loss then paragraph 40(2)(g) would apply to deny the loss and paragraph 53(1)(f) would apply to add the denied loss to the cost of the property held by the spouse.

Principal Issues: Would the CCRA interpret paragraphs 4, 8 and 9 of Article XXVI A of the Canada-U.S. Income Tax Convention as creating an obligation the collection of which the CCRA would enforce

Position: Yes, provided that the revenue claim has been established by the U.S. and Canada has accepted the request

Reasons: Interpretation of the law

Principal Issues: Whether property can be reclassified from Class 1 to Class 43.1.

Position: Generally, yes, but not enough information was provided to make a determination in this particular case. The classification of property requires a determination be made based on an examination of all the facts regarding the property.

Reasons: Subsection 13(5)of the Act provides for transfers between prescribed classes. In addition, subject to the exception in subsection 1104(14) of the Regulations, subsection 13(5) of the Act would require a property to be transferred out of Class 43.1 when it no longer meets the requirements of the class. In certain situations, subsection 1104(14) of the Regulations deems a property to be operating in a manner required by paragraph (c) of Class 43.1, and would allow a property to remain in Class 43.1 when it would otherwise fail to meet the requirements of paragraph (c).

Principal Issues:
TEI Question: Will an officer of a corporation be considered to be an "employee...employed by the other person" for purposes of subsection 163.2(15)?

Principal Issues: The CCRA is asked for its views as to whether a "debit reserve" such as a provision for a pension asset should be deducted in calculating a corporation's capital for LCT purposes.

Position: There is no basis in Part I.3 of the Act as it currently reads for recognizing "debit" or "negative" reserves.

Reasons: The words of subsection 181.2(3) and 181.3(3) only include reserves "to the extent that they were deducted in computing income". This can never be a negative amount. The court in National Trust Company, in considering an analogous provision in Part VI, confirmed this view and noted that a negative amount for reserves would be contrary to the purpose of the provision.

Principal Issues:
What is the CCRA's assessing practice and how are tenant inducement payments deductible for tax purposes as a result of the Supreme Court decisions in Canderel and Toronto College Park.

Position: Question of fact.

Reasons: The Supreme Court set out six principles for calculating profit for purposes of the Act. These will be applied to each case to determine the deductibility of tenant inducement payments.

Principal Issues:

Principal Issues: Application of section 17

Position: See below

Reasons: See below

Principal Issues: (a) Whether the losses incurred by A Co. from its oil and natural gas price hedging transactions under certain contracts could be considered as losses from speculation for investment purposes and not losses from A Co.'s oil and natural gas production business. (b) Whether these losses could be excluded from the resource profit calculation under section 1204 of the Regulations.

Position: (a) No (b) No

Reasons: (a) Given the jurisprudence and XXXXXXXXXX given that it appears the contracts were entered into in the normal course and as an integral part of A Co.'s oil and natural gas production business even though the contracts might not bear the normal characteristics of its other hedging instruments, we opine that the losses resulting from the contracts would be considered as losses from A Co.'s oil and natural gas production business and not from its speculation for investment purposes. (b) Based on the above-noted conclusion, these losses should be included in the resource profit calculation pursuant to subsection 1204(1) of the Regulations. For certainty, even if subsection 1204(1) of the Regulations did not apply to these losses, given that they relate to the "resource activity" of A Co. within the meaning of the expression in subsection 1206(1) of the Regulations, it is our view that these losses would reduce resource profits under paragraph 1204(1.1)(a) of the Regulations.