Income Tax Severed Letters - 1997-10-03

Principal Issues:

In circumstances where the payer corporation received a dividend refund, will subsection 55(2) of the Act apply to a taxable dividend that has been fully subject to part IV tax because the recipient is not "connected" to the payer .

Position:

No.

Reasons:

Principales Questions:

Un administrateur bénévole siège sur le conseil d'administration d'un organisme de bienfaisance enregistré et reçoit un remboursement (ou allocation) pour ses frais d'automobile lorsqu'il se rend aux réunions du conseil d'administration. Le remboursement (ou allocation) est fondé sur le nombre de kilomètres parcourus entre sa résidence et le lieu où les réunions du conseil d'administration de l'organisme de bienfaisance enregistré sont tenues. Est-ce que ce remboursement (ou allocation) est imposable?

Position Adoptée:

Principal Issues:

gov't assistance under BC's Forest Worker Transition Program

Position:

income support taxable as business income or bursary depending on the participant's job plan, training grants taxed as bursaries and relocation assistance excluded from income except to the extent that it reduces a claim for that individual's moving expenses

Reasons:

Principal Issues:

Whether Government of the Northwest Territories student bursaries and grants paid to Status Indians and Inuvialuit residents of the Northwest Territories are exempt from tax.

Position:

Generally, bursaries and grants are taxable under paragraph 56(1)(n). However when paid to a Status Indian under a treaty or agreement between a band and Her Majesty, it would be exempt from tax.

Reasons:

Principal Issues:

Whether, in light of comments contained in Income Tax Technical News No.5 dated July 28, 1995, our position concerning the timing of an addition to the ACB of an interest in a partnership under subparagraph 53(1)(e)(viii) in circumstances involving the application of subsection 66.4(6) remains as reflected in identical responses to question number 18 at the Institute of Chartered Accountants of Alberta meeting on May 18, 1994 and question number 4 at the Canadian Petroleum Tax Society meeting on June 2, 1994?

Position:

In calculating the ACB to a taxpayer of an interest in a partnership at a particular time, only amounts deemed under subsection 66.4(6) of the Act in respect of fiscal periods of the partnership ending before that particular time would be included under subparagraph 53(1)(e)(viii) of the Act. In other words, amounts referred to in subparagraph 53(1)(e)(viii) of the Act will not increase the ACB of the partner's interest in the partnership until after the end of the relevant fiscal period of the partnership.

However, the view expressed in the above Roundtable questions would not change provided a fiscal period of the partnership ends after the distribution of partnership assets to the partner and prior to the partnership interest being disposed of by the partner on dissolution of the partnership.

Reasons:

Principal Issues:

partner draw as loan

Position:

more than likely to be perceived as draw and cause negative acb.

Reasons:

Principales Questions:

1-Does status of a pre-1972 spousal trust change upon the death of the spousal beneficiary? 2- 104(13.2)

Position Adoptée:

Principal Issues:

The situation is that an employer has both tax-exempt Indian employees and taxable employees. For exempt employees, the employer will not elect to have CPP coverage. However, if an exempt employee files an election himself, the employee must pay both the "employer's" and the "employee's" share. The employer wants to reimburse such employees for the "employer's" share.

1.Will such reimbursement constitute a deemed election by the employer to have its employees contribute to CPP?

2.Will such reimbursement constitute employment income to the employee?

3.Will such reimbursement be deductible to the employer?

4.Will such reimbursement be considered "salary, wages or other remuneration" for purposes of subsection 78(4) of the ITA?

Position:

1.No.

2.Yes.

3.Yes.

4.Yes.

Reasons:

Principal Issues:

limited partners carrying on business

Position:

limited partner considered to be carrying on business provided limited partnership carries on active business

Reasons:

Position Adoptée:

Principal Issues:

An individual who has made an election pursuant to 110.6(19) with respect to a depreciable property, transfers the property to a corporation and makes an election under section 85. What is the capital cost of the property for the corporation and the ACB of the shares received by the individual?

Position:

Corporation lose the bump-up of capital cost of property. ACB of shares is the agreed amount.

Reasons:

Principal Issues:
Does the Department's position on the application of 146(2)(c.4) apply to the application of 146.3(2)(g)?

Position:
Yes.

Reasons:
The two provisions have the same intended application. The difference in wording appears to be as a consequence of the fact that the term "benefit" is defined for the purposes of section 146 but not for the purposes of 146.3. In the latter section it seems that benefits can include advantages.

Position Adoptée:

Principal Issues:

Deductibility of interest on borrowed funds used to repay capital. Whether the term capital refers to the accounting concept or tax amount

Position:

In arm's length transactions, we look to the accounting concept. In non-arm's length transactions we would not allow interest deductibility on funds borrowed to pay dividends from appraisal surplus.

Reasons:

Position Adoptée:

Principales Questions:

Est-ce que des prêts de non-résidents dont les versements d'intérêts sur des titres de créance qui sont calculés en fonction de la valeur d'une monnaie étrangère sont des "marchandises" (commodity) pour les fins des mots terminaux de l'alinéa 212(1)b)?

Position Adoptée: non

Principal Issues:

Taxation of Disability Pension Paid from Canada to a U.S. Resident Individual

Position:

Taxable but rate restricted by Canada-U.S. treaty

Reasons:

Position Adoptée:

Principales Questions:

Feuillet à utiliser pour inclure les sommes versées par un RPE?

Position Adoptée: