Income Tax Severed Letters - 1997-06-27

Principal Issues:

1.Where a taxpayer immigrating to Canada has a right to receive payments under an annuity, would paragraphs 128.1(1)(b) and (c) apply to deem the taxpayer to have disposed of and then reacquired that right at its fair market value immediately before immigration?
2.Whether payments received under two U.S. annuities as part of an out-of-court settlement are subject to tax in Canada.
3.Whether the accrual rules in section 12.2 will apply to a taxpayer who has a right to receive payments under an annuity but is not the owner of the annuity contract.

Position:

1.Generally, a right to receive income would constitute "property" as defined in subsection 248(1). Since paragraphs 128.1(b) and (c) apply to each property of a taxpayer who becomes resident in Canada (with exceptions), a right to receive payments under an annuity would appear to be subject to those provisions.
2.Question of fact. Only provided general comments.
3.Subsection 12.2(1) applies to a taxpayer who holds an interest in a life insurance policy. This is a factual determination. If subsection 12.2(1) is not applicable, paragraph 56(1)(d) may apply as it applies to any amount received by a taxpayer as an annuity payment subject to certain exceptions.

Reasons:

Principal Issues:

what is the effect of a guarantor making good on a partnership loan and the subsequent calculation of a terminal loss?

Position:

If section 80 applies then amount will affect 20(16) calculation.

Reasons:law

Principal Issues:

insufficient dividend rule; if a significant portion of the accrued gain in respect of shares is attributable to the lack of dividends paid on other shares, but the shareholder disposes of the shares to a corporation by means of an 85(1) election for an amount equal to the shares' fair market value less the amount that can reasonably be attributed to the insufficient dividend, will 110.6(8) apply to deny the capital gains deduction?

Position:

Prorating the accrued capital gain to carve out the proportion of the gain that is attributable to the lack of dividends will not necessarily shelter the gain from the application of subsection 110.6(8).

Reasons:

Principal Issues:

Since the application of subparagraph 146(5)(a)(iv.1) is applied on a plan by plan basis, where a transfer of funds between plans occurs, will the 90 day delay be avoided?

Position: No

Reasons:

Principal Issues:

1. Can amounts received from U.K. personal pension schemes be transferred to an RRSP?
2. What other tax implications are there with respect to these types of plans?

Position:

1. Amounts can be transferred if they are taxable under 56(1)(a).
2. There are a number of taxing provisions that may have application with respect to a Canadian resident who has one of these plans. Only general information could be provided at this time.

Reasons:

Principal Issues:

1. Whether the assets of a partnership are looked at for the purpose of the asset test in the definitions of a qualified small business corporation share and small business corporation when determining whether the shares of the owner of real estate qualify.

2. Whether the real estate owned by a corporation is an asset used principally in an active business carried on primarily in Canada by a corporation related to it if the assets are used principally in an active business carried on primarily in Canada by a partnership and a related corporation.

Position:

1. Yes.

2. In the present situation, yes.

Reasons:

Principal Issues:

Can pension benefits be divided between spouses where a marriage breakdown has not occured?

Position:

This would not be possible under Income Tax legislation alone but may be possible if provincial legislation permits it.

Reasons:

Principal Issues:

If a plan provides leave credits in substitution for vacation leave credits and sick leave credits, can all or a portion of any amount paid in respect of the credits be treated as a retiring allowance?

Position:

Principal Issues:

Whether decision not to return to work after a leave of absence could affect DSLP status?

Position: Yes

Reasons:

Principal Issues:

Issues relate to the creation or amendment of RCAs so that section 254(a) of the Act can be applied so annuities can be purchased in the name of the beneficiaries and the RCA woundup. Since this plan appeared to relate to a factual situation, we provided general comments. The principal questions are.
1.Will payments be deductible to the employer?
2.How do the provisions of 107.2(b) apply to RCAs?
3. Will 254(a) apply?
4. Will GAAR apply
5. Will 254(a) override the income accrual rules for annuities?

Position:

1.No reply provided.
2.No reply provided.
3.No reply provided.
4.General statement on GAAR provided.
5. General statement of law provided

Reasons:

Principal Issues:

Whether employee has lost employment when he obtains new employment during lay-off notice period.

Position:

There is no loss of employment if new employment is with an affiliate of former employer.

Reasons:

Principal Issues:

1. Where the assets of a testamentary spousal trust & other testamentary trust are to be combined into one trust after the death of the surviving beneficiary- which date is applicable for purposes of the 21-year rule. re 104(5.8)
2. Where will provides for assets from spousal trust to be transferred to a new trust for the children upon the spouse's death & will also provides for children to have another testamentary trust upon surviving spouse's death will the dept apply 104(2) so to aggregate the two trusts. If so, what date will 104(4) apply?

Position:

1. earliest deemed disposition date applies to assets from both trusts.
2. depends on facts

Reasons:

Principal Issues:

classification of licences for exploration and storage of oil and gas

Position:

Canadian resource property

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.

			5-963537
XXXXXXXXXX			Michel Lambert
(613) 957-8953
A l'attention de XXXXXXXXXX

Le 9 mai 1997

Mesdames, Messieurs,

Objet: Pension alimentaire et usufruit

Principales Questions:

125.4 - % coproduction differe % participation depense

Position Adoptée:

Principales Questions:

1. Lorsqu'un contribuable reçoit une subvention à l'égard d'une dépense, est-ce que l'expression "montants déduits", à l'alinéa 2900(6)a) du Règlement tient compte du montant réduit par la subvention ou du montant brut?

2. Est-ce que les taxes municipales, les primes d'assurance et le coût de l'entretien d'un bâtiment, engagés par le propriétaire d'un bâtiment, sont des dépenses engagées pour l'usage du bâtiment, aux fins du paragraphe 2900(6) du Règlement?

Position Adoptée:

Principal Issues:

Is accumulating income reduced by the amount of the taxable capital gain where a capital encroachment power is exercised and the property or substituted property is distributed to a beneficiary in the same year as the gain is realized?

Position: Yes.

Reasons: