Income Tax Severed Letters - 1997-05-30

Principal Issues:

1)Is the "gross revenue" from indebtedness, where subsection 95(2.4) of the Act applies, excluded from the 90% gross revenue test in paragraph 95(2)(a.3) of the Act?
2)Does "gross revenue" from the sale of indebtedness include the full proceeds of disposition ("POD") received on the sale or only the "spread" (i.e., gross profit)?

Position:

1)No
2)POD

Reasons:

Principal Issues:

Can death Benefit from CPP\QPP be reported by recipient or must it be reported by estate?

Position:

Option to be reported by either recipient or estate.

Reasons:

Principal Issues:

When is interest "relevant in computing the liability for income taxes...of a group of corporations" for the purposes of 95(2)(a)(ii)(D)(V).

Position:

Such would be the case where a group of corporations combine their results of operations for taxation year under the tax laws of a foreign country and the interest paid by the second affiliate reduces the combined results otherwise determined.

Reasons:

Principal Issues:

Can accrued vacation pay due to be paid on retirement be deferred until a subsequent taxation year?

Position:

No

Reasons:

Principal Issues:

Does a requested rezoning change result in a change in use and can the proerty be transferred under section 85 deferring the can on the ultimate sale to the sisterco.

Position:

A question of fact however a zoning change is not a disposition and results in a notational disposition on the date of conversion. A section 85 rollover is a disposition to which the notational increase is relevant.

Reasons:

Principal Issues:

Whether there is a capital loss on disposition of bond to controlled corporation and whether on the subsequent disposition by the corporation it is income or capital.

Position:

As the transaction occurred prior to April 26, 1995 subsection 85(4) applies and it is a question of fact whether the gain is on account of income or capital

Reasons:

Principal Issues:

An individual may purchase land with a leased building on it. A short time following the purchase, the building may be torn down. The issue is whether a terminal loss can be claimed in respect of the demolished building.

Position:

Likely not

Reasons:

Principal Issues:

Are lease cancellation payments deductible under 8(1)(h.1)?

Position:

No

Reasons:

Principal Issues:

Is an RESP restricted to acquiring property that qualifies as a qualified investment under subsection 146(1) of the Act?

Position:

No

Reasons:

Principales Questions:

Si Monsieur X a fait un choix selon le paragraphe 110.6(19) de la Loi à l'égard de la totalité du bien alors que seulement 50% du bien lui appartient et que l'autre 50% appartient à Madame X, est-ce que :

1. Monsieur X peut modifier son choix initial même si le montant indiqué dans son choix initial excède, en théorie, 11/10 de la juste valeur marchande du bien qui lui appartient réellement.

2. Madame X peut faire un choix tardif sans pénalité sur sa part du bien.

Position Adoptée:

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.

		  					970535
XXXXXXXXXX					  B.Kerr

Attention: XXXXXXXXXX

May 5, 1997

Dears Sirs:

Re: Eligible Expenses Under Subsection 118.2(2)

Principal Issues:

Whether subsection 15(1) of the Act would apply in a situation where the capital of a wholly-owned subsidiary is reorganized under section 86 in a manner such that the provisions of subsection 86(2) does not apply because of the exception with respect to "wholly-owned subsidiaries".

Position:

NO.

Reasons:

Principal Issues:

Due to the new accounting rules on financial instruments contained in section 3860 of the CICA Handbook, will the removal of the retraction feature of the preferred share cause any tax consequences.

Position:

Yes.

Reasons:

Principal Issues:

Why is pension income from foreign plan taxable when contributions to plan were not tax-deductible.

Position:

Assuming the U.K. National Insurance is a "pension plan" to which employer contributions were made, it is an EBP or, after 1987 (assuming no material alterations between Oct. 8, 1986 and Dec. 31, 1987), a "resident's arrangement" RCA; alternatively, it is a social security arrangement. Contributions by Canadian-resident employee to any of these arrangements are not tax-deductible. The return of contributions from an EBP or RCA is, respectively, exempt from taxation under 6(1)(g)(ii) or deductible under paragraph 60(t); the return of contributions from a social security arrangement are taxable in full as "pension" pursuant to Article 17 of Canada-U.K. Treaty and paragraph 56(1)(a)(i) of the Act.

Reasons:

Principal Issues:

Does capital loss in year of death apply against other income for any year?

Position:

No, Applies only to year of death and immediately preceding year

Reasons:

Principal Issues:

Application of proposed amendments in Bill C-69

(1) Whether disposition of property to be exempted under 55(3)(a)(i) has to meet description of both clauses (A) and (B) of 55(3)(a)(i).

(2) Whether redemption of shares for fmv would meet the description of one of clauses (A) or (B) of 55(3)(a)(i).

Position:

(1) No. (2) Yes.

Reasons:

Principal Issues:

whether salary paid to spouse is deductible if the salary amount is not insurable under the Employment Insurance Act

Position:

section 67 will operate to disallow any portion of the salary which is not reasonable in the circumstances

Reasons:

Principal Issues:

Cessation of Business

Position:

The determination of whether a corporation is a specified investment business can only be determined after a review of all the facts. However, generally when the nature of a business has changed to one of investment activity only, it would generally fit the definition of a specified investment business.

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.

			962165
XXXXXXXXXX			B. Kerr

Attention: XXXXXXXXXX

April 9, 1997

Dear Sirs:

Re: Fund Raising for a Non-Profit Organization

Principal Issues:

Whether the shares in a corporation incorporated under other than "cooperative legislation" can qualify as a principal residence.

Position:

Must be incorporated under cooperative legislation.

Reasons: