Income Tax Severed Letters - 1997-07-25

Principal Issues:

Is interest expense of a non-resident on borrowed funds from a non-resident parent deductible from the allocation of income of a partnership carrying on business solely in Canada ?

Position:

Generally no

Reasons:

Principal Issues:

1. Whether all Indian bands qualify for exemption under paragraph 149(1)(c) of the Income Tax Act since they all have the power to make by-laws under section 83 of the Indian Act.

2. Whether the passage of by-laws under section 85.1 of the Indian Act is similar to the passage of by-laws under section 83, such that a band will qualify for exemption under paragraph 149(1)(c) of the Income Tax Act if it has passed by-laws under both section 81 and 85.1 of the Indian Act.

Position:

1. No.

2. No.

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.

5-971315
XXXXXXXXXX Michel Lambert

A l'attention de XXXXXXXXXX

Le 9 juillet 1997

Mesdames, Messieurs,

Objet: Application des articles 16.1 et 125.1 de la Loi de l'impôt sur le revenu

Principal Issues:

Whether a proposed change to the Ontario Municipal Act will result in no amount qualifying as an allowance for purposes of s. 81(3) of the Income Tax Act?

Position:

The proposed change can be interpreted in two different ways. Regardless, it is likely that under the proposed change an allowance for purposes of s. 81(3) can still be paid.

Reasons:

Principal Issues:

Whether the following rights or interests are assets used principally in an active business carried on primarily in Canada by a Canadian-controlled private corporation for the purpose of the definition of "qualified small business corporation share" (QSBCS) under subsection 110.6(1) of the Act and the definition of "small business corporation" under subsection 248(1) where the partnership uses all or substantially all of the fair market value of its assets in an active business carried on in Canada where the particular right or interest is:

1. an interest in a limited partnership;
2. a residual interest in a partnership, as described in section 98.1 of the Act; or
3. a right to an allocation of a share of the income or loss of the partnership, as described in subsection 96(1.1) of the Act.

Position:

1. Where a corporation has a partnership interest as one of its assets, it is the underlying partnership's assets (to the extent of the corporation's interest therein) that are used in determining whether all or substantially all of the corporation's assets are used in an active business for the purpose of the definition of small business corporation under subsection 248(1) of the Act and for the purpose of the definition of QSBCS under subsection 110.6(1) of the Act. Provided that these assets are used in an active business carried on primarily in Canada by the partnership, they will qualify as being used by the partner in an active business carried on primarily in Canada by the corporation.

2. None.

3. The position described in 1. above does not apply to a right to an allocation of the income or loss of the partnership, as described in subsection 96(1.1) of the Act. That right is not an asset used in an active business carried on primarily in Canada by the corporation.

Reasons:

Principal Issues:

What is the tax treatment for foreign exchange gain or loss arising as a result of using the weighted average exchange rate for claiming foreign tax credit where the exchange rate at the time the foreign taxes are paid is different from that weighted average exchange rate.

Position:

Rules of subsection 39(2) apply

Reasons:

Principal Issues:

1. Where will provides for assets of deceased to split into 2 testamentary trusts - one in which spouse benefits & child #1 is the residuary beneficiary upon spouses' death & the second whereby spouse still benefits during her lifetime but child #2 is the residuary beneficiary, will the dept apply 104(2) so to aggregate the two trusts?

Position:

1. Depends on facts.

Reasons:

Principal Issues:

1. Whether dividends payable to an Indian living on reserve will be exempt from income tax.

2. Whether there is any limit as to the amount of bonus that can be paid by a corporation to its shareholder/employee.

Position:

1. No, not under the circumstances.

2. Yes -- as per section 67 of the Income Tax Act.

Reasons:

Principal Issues:

Consequences of a release or surrender of an income interest in a trust, followed by a distribution of the assets of the trust to the capital beneficiaries.

Position:

The consequences of a release or surrender of an income interest for no consideration are set out in paragraph 9 of IT-385R2. The terms of the trust and relevant provincial law will determine whether it is possible to distribute the assets to the capital beneficiaries pursuant to subsection 107(2) of the Income Tax Act.

Reasons: As above.

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.

			961823
XXXXXXXXXX		J.D. Brooks

Attention: XXXXXXXXXX

June 19, 1997

Dear Sirs:

Attention: XXXXXXXXXX

Dear Sirs:

Re: "Approved" Association Status

This is in reply to your letter dated May 15, 1997 requesting that XXXXXXXXXX be recognized as an "approved association".

The two brochures giving a brief overview of XXXXXXXXXX do not provide sufficient detailed information required for determining the approval of XXXXXXXXXX.

Principal Issues:

Does contractual arrangement taint spousal trust?

Position:

Yes.

Reasons:

Principal Issues:

Are payroll deductions required for tips when

(a) received in cash by restaurant server?
(b) included on credit card with payment of bill?
(c) included as a flat 15% gratuity fee to patron?

Position: (a) NO, no employer-employee relationship
(b) and (c) Yes, conforms to 153(1)

Reasons: section 153(1)

Principal Issues:

Whether the payment by an employer of external consulting fees in connection with an employee-pay-all plan will taint the status of the plan

Position:

It may if the fees relate to premiums to the plan

Reasons:

Principal Issues:

Whether ancillary rights granted as part of a pre-sale arrangement of a film/video production, such as rights to sell related merchandise, or to develop into interactive format such as CD ROM, would result in the application of subsection 125.4(4).

Position:

Possibly.

Reasons: