Income Tax Severed Letters - 1996-07-12

Principal Issues:

Principales Questions:

Questions sur 20(1)(c) pour divers scénarios d'achat d'actions ordinaires.

Position Adoptée:

Principales Questions:

Correction de notre position énoncée dans le document 5- 952738.

Position Adoptée:

Principal Issues:

Outline criteria to be met in order to receive approved association status for the purposes of 37(1)(a)(ii)(A).

Position:

Outline of requirements provided.

Reasons:

Principal Issues:

1. Does a taxpayer need to be a former resident of U.S. before he can qualify for the exempt referred to in paragrah 1 of Article XVIII of the Canada-U.S. Income Tax Convention?

2. What information is needed for a taxpayer who receives a periodic pension from International Monetary Fund to claim the exemption mentioned in 1 above?

Position:

1. No.

2. A letter from IMF annually to file with T1.

Reasons:

Principal Issues:

Whether, where paragraph (c) of the definition of "qualified small business corporation share" is modified by paragraph (d) of the definition, the 90% asset test must be met by each subsidiary (i.e., connected corporation) of a subject corporation.

Position:

Although each subsidiary must meet the 90% asset test, the fact that a subsidiary does not meet the test may be of no consequence if the subject corporation can meet the 50% asset test of paragraph (c) without reference to the shares of the subsidiary which do not meet the 90% asset test.

Reasons:

Principal Issues:

can an employer reallocate its commitment to fund employee benefits so employees can enjoy a more benficial income tax result? In an employee-pay-all plan, where the employer agrees to pay a set percentage of the premium costs, is it only the employer's contribution which is added to the employee's income?

Position:

Several specific questions addressed all around the issue of how an employer can reallocate a commitment to fund a set percentage of benefit premium costs, as usually found in the collective agreement. Position is that the only way to change the legal obligations of the employer/employees, as found in the collective agreement (or other applicable documentation), is to change the provisions of the collective agreement (or other applicable documentation). No retroactive changes would be accepted by the Department. On the second issue, an employee-pay-all plan does not exist if the employer is obligated to be any portion of the premiums to the plan (that is, "contributions" to the plan). If the employer opts to pay any premiums which the employee is legally obligated to pay himself/herself, then the employer is paying a personal expense of the employee and this is a 6(1)(a) benefit. It is a question of fact whether an employee-pay-all-plan exists.

Reasons:

Principal Issues:

Deductibility of Intereest

Position:

Gave general position based on law

Reasons:

Principal Issues:

Can property be transferred from a spousal plan to a non-spousal plan?

Position:

yes but non-spousal becomes a spousal plan.

Reasons:

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.

		961824
XXXXXXXXXX	M.P. Sarazin

Attention: XXXXXXXXXX

June 19, 1996

Dear Sirs:

Re: Sale of Assets and Payment of a Retiring Allowance

Principal Issues:

Whether the all and substantially all test applies to a particular employment with the specified employment or to all employments

Position:

To the particular employment with the specified employer; however, we cautioned the client of possible application of GAAR if abuse arises

Reasons:

Principales Questions:

Est-ce que Ministère considère que des actions font partie d'une seule catégorie lorsqu'elles comportent exactement les mêmes caractéristiques, bien qu'elles soient qualifiées comme 2 catégories dans les statuts?

Position Adoptée:

Principal Issues:

Whether, where a corporation accumulates significant cash reserves in order to pay bonuses, the cash reserves constitute assets used principally in an active business for purposes of the definition of "qualified small business corporation shares" in subsection 110.6(1).

Position:

The cash reserves may constitute active business assets.

Reasons:

Principales Questions:

L'employé peut-il quitter son emploi durant la période prévue à 6801(v) du Règlement sans pénalité

Position Adoptée:

Principal Issues:

1)Whether a revived corporation is a continuation of the predecessor corporation?

2)Whether a revived corporation can pay a retiring allowance to its employees based on the years of service both before revival and after revival?

Position:

1)Depends on the corporations Act which governs. In the present case, being an Alberta corporation, revival has a retroactive effect, but would not undo the fact that the corporate assets had been distributed to the shareholders.

2)Since, in the present case, the revival has a retroactive effect and the corporation is the same legal entity, subject to the usual requirements that the retiring allowance be reasonable etc., then the years of service prior to revival may be included in the calculation.

Reasons:

Principal Issues:

Investment in a business corporation as a qualified investment for an RRSP

Position:

Routine reply on 4900(6) and (12) with update for October 31/95 passage of amendments. Comments on commencement of business activities and referral to IT-364 "Commencement of Business Operations".

Reasons: N/A