Income Tax Severed Letters - 1996-08-09

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.

									962161
XXXXXXXXXX							J.A. Szeszycki
(613) 957-2135

Attention: XXXXXXXXXX

July 23, 1996

Dear Sirs:

Re: XXXXXXXXXX
Group Insurance Arrangements

Principal Issues:

The timing of the recognition of revenue and expenses in that segment of the service industry where services is performed upon the property of the client.

Position:

Revenue is recognized at the time the performance of the service contract is billed or able to be billed

Reasons:

Principal Issues:

1.Whether high-low preferred shares issued in the course of an estate freeze would be treated as capital stock or as debt for Part I.3 purposes in light of section 3860 of the CICA handbook? If they are treated as debt, which paragraph of the definition of "capital" in subsection 181.1(3) would they fall into?
2.If the preferred shares are treated as capital stock, would the amount added to capital under paragraph 181.1(3)(a) be the stated capital of the shares or the redemption amount as shown on the balance sheet?
3.If the corporation adopts an alternate presentation that shows the difference between the redemption value and the stated capital as a separate, negative component of shareholders' deficiency described as "Provision for redemption of preferred shares," would the provision be deductible in calculating the corporation's capital? If so, would the net of the provision and retained earnings be deducted as a deficit under paragraph 181.2(3)(i)?
4.Whether handbook section 3860 would affect the determination of capital for Part VI purposes?
5.Whether the preferred shares would be treated as debt or shares for the purposes of subsection 18(4).
6.If a deficit results from the application of handbook section 3860, can the negative adjustment be excluded in determining the corporation's retained earnings for the purposes of subsection 18(4) or, if the corporation adopts the alternate presentation, must the provision for redemption of preferred shares be deducted?
7.If dividends on preferred shares are deducted as interest expense or financing costs for income statement purposes in accordance with handbook section 3860, are there any circumstances under which that amount would not be added back in reconciling book income with income or loss for tax purposes?

Position:

1.Capital stock.
2.Amount reflected on the balance sheet in accordance with GAAP which appears to be the redemption amount.
3.Not deductible.
4.Generally same implications as for Part I.3.
5.Shares.
6.The negative adjustment is included in computing retained earnings to the extent that the amount of retained earnings is reduced to nil. If the alternate presentation is adopted, the provision for redemption of preferred shares is not deducted in computing retained earnings.
7.Generally, no.

Reasons:

Principal Issues:

1.whether the calculation of the "average daily cost of insurance" has changed now that the wording is slightly different in draft Regulation 2702.
2.whether in circumstances where amounts are not paid directly to policyholder those amounts are still considered "paid" for purposes of the calculation.

Position:

1.Essentially, the calculation is the same. The added feature is the reduction of the C amount by that portion of the experience rated refund or dividend that is distributed to individuals insured under the policy
2.The term "paid" in this context includes amounts unconditionally credited to the policyholder or individual insured under the policy, i.e., constructively received by the "payee".

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.

									961788
XXXXXXXXXX							M. Eisner

July 16, 1996

Dear Sir:

Re: Tuition Tax Credit

This is in reply to your letter of March 1, 1996, sent to the Winnipeg Tax Services Office and forwarded to us for reply.

Principal Issues:
Is a revocable living trust established by a person resident in the U.S. a trust described in subsection 70(6) of the ITA for the purposes of paragraph 5 of Article XXIX B of the CDA/US Income Tax Convention - 3rd Protocol.

Position:
No.

Reasons:
A trust described in subsection 70(6) must be established by a t/p's will. Since a revocable living trust is established inter vivos and not by a t/p's will, it is not a trust described in subsection 70(6) for the purposes of paragraph 5 of Article XXIX B.
XXXXXXXXXX

Principal Issues:

Large payout of RPP funds 1. can excess be contributed to an RCA by employee and deducted 2. Can surplus payout be transfered as a refund of contributions.

Position:

1. No.
2. A refund of contributions can be made. Explained rules (but not likely of any real benefit in the case at hand)

Reasons: Routine explanation of law.

Position Adoptée:

Principal Issues:

Article XII paragraph 3 of the U.S. Convention - Are payments for the use of a database for the use of information concerning commercial experience?

Position:

Yes based on these facts (agreements provided). Still question of fact if meets second requirement for exemption that not in connection with a rental or franchise agreement.

Reasons:

Principal Issues:

Whether stock bonus plans are subject to section 7.

Position:

Yes.

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.

									5-961953
XXXXXXXXXX							J. Teixeira
(613) 957-2095

Attention: XXXXXXXXXX

June 7, 1996

Dear Sirs:

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.

									5-960910
XXXXXXXXXX							Michel Lambert
(613) 957-8953

A l'attention de XXXXXXXXXX

Le 27 mai 1996

Mesdames, Messieurs,

Objet: Sommes payables à un bénéficiaire d'une succession