Income Tax Severed Letters - 1997-10-17

Miscellaneous

30 September 1997 970321A - ORDINARY AND ACCOUNTING MEANING OF THE WORD "SURPLUS"

Unedited CRA Tags
181.3(3)(d)(ii) 181.3(3)(d)(i)

Principal Issues:

Whether the "Head Office Account" of a Canadian branch of a non-resident insurer should be included as "any other surpluses" under subparagraph 181.3(3)(d)(ii) of the Act.

Position:

Yes, except amounts already included under subparagraph 181.3(3)(d)(i).

Reasons:

Ruling

30 November 1996 Ruling 9714643 - INTEREST DEDUCTIBILITY

Unedited CRA Tags
20(1)(c)

Principal Issues:

1.Lumpy dividend of $XXXXXXXXXX, is it subject to subsection 55(2)?
2.Deductibility of interest in targetco which is profitable.

Position:

1.No. No gain that would have occurred, but for the dividend.
2.Ok.

Reasons:

30 November 1996 Ruling 9711103 - UNFUNDED RETIREMENT PLAN

Unedited CRA Tags
248(1) 207.5

Principal Issues:

1.Is the amount something other than a pension due to short work history?
2Is the amount something other than a pension because of the non-competition clause?
3.Will shareholder's guarantee result in funding of the plan.

Position:

1. No.
2. No.
3. No.

Reasons:

Technical Interpretation - External

14 October 1997 External T.I. 9724355 - INTERPRETATION OF SUBSECTION 98.1(2) OF THE ACT

Unedited CRA Tags
98.1
Summary Under
Tax Topics - Income Tax Act - Section 98.1 - Subsection 98.1(2)

Principales Questions:

do the provisions of subsection 98.1(2) apply where a number of US limited partnerships merge to form a single limited partnership which assumes and agrees to satisfy all of the rights of the partners of the former limited partnerships without a distribution of any assets of the partnerships?

Position Adoptée:

7 October 1997 External T.I. 9614265 - TEXAS STATE FRANCHISE TAX

Unedited CRA Tags
95(1) 94(1)

Principal Issues:

Whether Texas State Franchise Tax is an income or profits tax for the purposes of "foreign accrual tax" definition in subsection 95(1).

Position:

Not if based on net taxable capital. May be if based on net taxable earned surplus in certain circumstances.

Reasons:

7 October 1997 External T.I. 9724275 - OPTION PRICE REDUCTION, DISPOSITION

Unedited CRA Tags
7(1.4)
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Disposition
Summary Under
Tax Topics - Income Tax Act - Section 7 - Subsection 7(1.4)

Principal Issues:

Will a reduction in the option price result in the application of 7(1.4)?

Position:

No

Reasons:

6 October 1997 External T.I. 9725035 - PROPOSED SECTION 18.1 OF THE ACT

Unedited CRA Tags
18.1

Principal Issues:

Potential application of proposed section 18.1 of the Act

Position:

Proposed section 18.1 of the Act does not apply to an expenditure for which a deduction is provided under section 20 of the Act. Discussion of proposed subsection 18.1(15) of the Act.

Reasons:

3 October 1997 External T.I. 9640575 - LOSS DEDUCTIONS FOR PART-TIME RESIDENTS

Unedited CRA Tags
114 111(1) 111(8)

Principal Issues:

Whether an allowable capital loss incurred in the paragraph 114(b) period (i.e. non-resident period) can be applied back to offset a taxable capital gain realized in the paragraph 114(a) period (i.e. resident period)?

Position:

No.

Reasons:

2 October 1997 External T.I. 9722375 - COMPREHENSIVE FEES, RRSP

Unedited CRA Tags
146(1)

Principal Issues:

Would we take a position that a set % of fees is considered investment counsel fees and the balance is management fees where the fees are for comprehensive services and nearly impossible to prorate?

Position:

No

Reasons:

2 October 1997 External T.I. 9725425 - FORGIVENESS OF ONE JOINT DEBTOR

Unedited CRA Tags
80(2)(o)
Summary Under
Tax Topics - Income Tax Act - Section 80 - Subsection 80(2) - Paragraph 80(2)(o)

Principal Issues:

Whether 80(2)(o) causes section 80 to apply to only 1 of several joint debtors with respect to portion of debt forgiven.

Position:

Yes.

Reasons:

2 October 1997 External T.I. 9724115 - PLAN MEMBER MORTGAGE, RPP

Unedited CRA Tags
8514(1)

Principal Issues:

Can an rpp invest in a mortgage issued by a plan member?

Position:

yes

Reasons:

1 October 1997 External T.I. 9724295 - APPLICATION FOR AN APPROVED RESEARCH INSTITUTE

Unedited CRA Tags
37(1)(a)(ii)

Principales Questions:

application for an approved research institute

Position Adoptée:

1 October 1997 External T.I. 9722825 - NON-MONETARY INCENTIVE AWARDS

Unedited CRA Tags
6(1)(a)

Principal Issues:

Is an employee taxed on the receipt of non-monetary incentive awards. Whether an amount is to be included in an employee's income for an award if the award has a departmental logo permanently affixed or engraved on it.

Position:

Yes. While a logo or engraving may lessen the value of an award, it does not mean an award has no value because of the existence of a logo or engraving.

Reasons: 9710695, 9710616

30 September 1997 External T.I. 9718305 - QUALIFIED SMALL BUSINESS SHARES

Unedited CRA Tags
110.6 186(4)

Principal Issues:

1) Are loans to related individual and to related corporations assets used principally in an active business carried on in Canada ?
2) Are the companies connected for the purposes of subsection 186(4) of the Act?

Position:

1) Not enough information however it doesn't appear that the loans qualify
2) No

Reasons:

30 September 1997 External T.I. 9724075 - QUALIFYING ACTIVE BUSINESS START UP PERIOD

Unedited CRA Tags
REG 4900 REG 5100

Principal Issues:

30 September 1997 External T.I. 9705165 - CANADIAN PARENT/U.S. SUB (ASSOCIATED?)

Unedited CRA Tags
256(1)

Principal Issues:

Whether a Canadian corporation and its wholly-owned U.S. subsidiary are associated for purposes of the Act.

Position:

No definitive comments given.

Reasons:

29 September 1997 External T.I. 9629865 - MEANING OF "REAL PROPERTY" (MACHINERY AFFIXED)

Unedited CRA Tags
Art XIII

Principal Issues:

Whether certain machinery affixed to the floor of a building constitutes "real property" for purposes of the Canada-U.S. Income Tax Convention.

Position:

No definitive answer given.

Reasons:

26 September 1997 External T.I. 9722915 - ROYALTY INCOME AS ACTIVE BUSINESS INCOME

Unedited CRA Tags
125 129(4)
Summary Under
Tax Topics - Income Tax Act - Section 125 - Subsection 125(7) - Specified Investment Business
income from copyrighted music

Principal Issues:
Whether royalty income from copyrighted music is active business income or income from property.

Position:
Depends.

Reasons:
If royalty income derives from a product created by the company, then generally would be considered active business income; if derived from product created by someone else, then question of fact.

26 September 1997 External T.I. 9723425 - ELIGIBLE AMOUNT, RESIDENCY

Unedited CRA Tags
60.01
Summary Under
Tax Topics - Income Tax Act - Section 60 - Paragraph 60(o.1)

Principal Issues:

Can amounts not eligible for 60(j)(i) deduction be transferred to an IRA in order to qualify for 60(j)(ii)?

Position:

GAAR may be applied if primary purpose is to avoid 60(j)(i).

Reasons:

26 September 1997 External T.I. 9725115 - DEDUCTION OF PRE-SYNDICATION COSTS

Unedited CRA Tags
20(1)(e)(i)
Summary Under
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(e)

Principal Issues:

Whether 20(1)(e) deduction available to an investor who purchases an interest in a real estate syndicate where the expenses relate to pre-syndicate costs.

Position:

No.

Reasons:

26 September 1997 External T.I. 9721535 - BURSARY FOR DISABLED STUDENT

Unedited CRA Tags
56(1)(n)

Principal Issues:

Whether government bursary received to enable disabled student to further education is taxable (grantor of bursary requires that amount be used to pay for services to assist the disabled student - in this case sign language interpreter at courses).

Position:

Yes.

Reasons:

25 September 1997 External T.I. 9703175 - TRANSFER OF CORPORATE DEBT AND DENIED LOSS

Unedited CRA Tags
53(1)(f.1) 18(13) 85(4)

Principal Issues:

Denied loss on application of 53(1)(f.1) and 18(3)

Position:

1) 53(1))f.1) denied loss added to acb of transferre
2) 18(3) denied loss is preserved and deducted by transferor on eventual liquidation or sale of the property

Reasons:

25 September 1997 External T.I. 9712335 - AUTO BENEFITS FOR "ON CALL" EMPLOYEES

Unedited CRA Tags
6(1)(a) 6(1)(b) 6(1)(e) 6(1)(k) 6(2)

Principal Issues:

Auto benefits taxability for "on call" employees

Position:

Yes

Reasons:

24 September 1997 External T.I. 9718365 - PROCEEDS BASED ON PRODUCTION OR USE

Unedited CRA Tags
12(1)(g)
Summary Under
Tax Topics - Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(g)

Principal Issues:

Whether paragraph 12(1)(g) applies to disposition of a partnership interest held as capital property.

Position:

Yes.

Reasons:

24 September 1997 External T.I. 9642195 - TENNESSEE LLC (CORPORATE STATUS?)

Unedited CRA Tags
248 art IV
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Corporation

Principal Issues:

Is a Tennessee limited liability company a corporation for purposes of the Income Tax Act?

Position:

Yes.

Reasons:

24 September 1997 External T.I. 9719925 - CHANGE IN PAYROLL DATES - ADVANCE OR LOAN

Unedited CRA Tags
5(1) 80.4

Principal Issues:

Whether payment is an advance or loan to employee

Position:

Question of fact.

Reasons:

23 September 1997 External T.I. 9721605 - MUNICIPAL ELECTED OFFICIAL EXEMPTION

Unedited CRA Tags
81(3) 6(1)(c)

Principal Issues:

Whether any part of amount paid to a "management body" board member is tax-free municipal elected official allowance.

Position:

Not enough information & must be determined by TSO.

Reasons:

22 September 1997 External T.I. 9717475 - IN-TRUST ACCOUNTS

Unedited CRA Tags
75(2) 108(1)
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(2)

Principal Issues:

Are In-trust accounts trusts?

Position:

Depends on facts of case

Reasons:

22 September 1997 External T.I. 9641615 - INVESTMENT BUSINESS-TRADING IN COMMODITIES BY FA

Unedited CRA Tags
95(1)
Summary Under
Tax Topics - Income Tax Act - Section 95 - Subsection 95(1) - Investment Business

Principal Issues:

Whether hedging in commodities or commodity futures would be an investment business as defined in subsection 95(1).

Position:

Question of fact - if facts show that hedging activity is incidental to the active business and thus not a separate business then the income from the hedging activities would be active business income.

Reasons: Law, intent.

17 September 1997 External T.I. 9709525 F - REVENUS DE LOCATION - SOCIÉTÉ DE PERSONNES

Unedited CRA Tags
248(1) 9

Principales Questions:

1. Est-ce que la notion d'exploitation d'une entreprise du Code civil du Québec sert à déterminer la nature des revenus de location gagnés par une société de personnes aux fins de la Loi?

2. Est-ce qu'un associé aurait droit à une déduction en vertu du paragraphe 34.2(4) de la Loi relativement aux revenus de location que la société de personnes gagne?

Position Adoptée:

Technical Interpretation - Internal

3 October 1997 Internal T.I. 9718927 - INFORMATION SLIPS - LABOUR-SPONSORED FUNDS TAX CREDIT

Unedited CRA Tags
127.4(1) 204.81 127.4(2)

Principal Issues:

The Province of Saskatchewan issues information slips to individuals who invested in a share of the capital stock of a prescribed labour-sponsored venture capital corporation. Is this the correct way to issue these slips?

Position:

None.

Reasons:

2 October 1997 Internal T.I. 9723127 F - FONDS DE LUTTE CONTRE LA PAUVRETE (QUEBEC)

Unedited CRA Tags
9

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.

30 September 1997 Internal T.I. 9725666 - ACQUIRED PROPERTY FOR PURPOSE OF 94(1)

Unedited CRA Tags
94(1)

Principal Issues:

Application of subsection 94(1) where investment funds are provided to a non-resident corporation owned by a non-resident trust.

Position:

Subsection 94(1) applies.

Reasons:

30 September 1997 Internal T.I. 9703217 F - DEFINITION DU MOT "SURPLUS" SELON SON SENS COMMUN

Unedited CRA Tags
181.3(3)d)(ii) 181.3(3)d)(i)
Summary Under
Tax Topics - Income Tax Act - Section 181.3 - Subsection 181.3(3) - Paragraph 181.3(3)(d)

Principales Questions:

Est-ce que le solde du compte "Head Office account" d'une succursale canadienne d'un assureur non-résidant devrait être inclus en tant que "tout autre surplus" en vertu du sous-alinéa 181.3(3)d)(ii)?

Position Adoptée:

26 September 1997 Internal T.I. 9717730 - FTC IN RESPECT OF U.S. AMT AND MTC

Unedited CRA Tags
art XXIX of Canada-U.S. Treaty 126

Principal Issues:

Whether foreign tax credit should be granted for U.S. alternative minimum tax and whether the U.S. credit for prior year minimum tax would affect the computation of Canadian foreign tax credit

Position:

Assuming that the U.S. AMT arises solely as a result of the application of the rule limiting alternative minimum tax foreign tax credit to 90% of tentative minimum tax, Canadian foreign tax credit is allowed for the portion of U.S. AMT on U.S. source income resourced to Canada only. To the extent that the U.S. credit for prior year minimum tax is attributable to Canadian source income for which no Canadian tax credit has previously been granted, such U.S. credit would not affect the amount of the U.S. federal tax otherwise payable for the purposes of computing Canadian foreign tax credit.

Reasons:see memo

26 September 1997 Internal T.I. 9524810 - U.S. CITIZENS RESIDENT IN CANADA

Unedited CRA Tags
ART XXIV of Canada-U.S. Treaty 126 20(11)

Principal Issues:

Foreign tax credit computation for U.S. citizens resident in Canada

Position:

Paragraphs 4, 5 and 6 of Article XXIV of Canada-U.S. Income Tax Convention should be followed.

Reasons:

24 September 1997 Internal T.I. 9718257 - INTERPRETATION OF SUBSECTION 127(18) OF THE ACT

Unedited CRA Tags
127(18) 127(11.1)c)
Summary Under
Tax Topics - Income Tax Act - Section 127 - Subsection 127(18)

Principales Questions:

Interpretation of subsection 127(18) of the Act

Position Adoptée:

4 September 1997 Internal T.I. 9719077 - MAJOR RENOVATIONS TO A VESSEL

Unedited CRA Tags
127(9)

Principal Issues:

Does the cost of renovating a fishing vessel qualify as the capital cost of a qualified property for the investment tax credit?

Position:

Major renovations to a taxpayer's qualified property that are capital in nature will normally be creditable investments provided that the renovated equipment continues to satisfy the other eligibility conditions. Where, subsequent to the acquisition of used equipment, a taxpayer carries out major renovations only the costs of the renovations may qualify.

Reasons:

11 August 1997 Internal T.I. 9713837 F - ALLOCATION DE RETRAITE CENTRE HOSPITALIER

Unedited CRA Tags
60(J.1) 251(2)

Principales Questions:

Est-ce qu'on peut considérer que les centres hospitaliers sont liés pour les fins de 60(j.1)?

Position Adoptée: