Income Tax Severed Letters - 1998-03-06

Principal Issues:

Whether the deemed accrual rules under section 12.2 of the Act can apply to a US tax deferred annuity? If the deemed accrual rules apply and the foeign tax credits are unable to be fully utilized due to the mismatching of income and income taxes between the Canada and the US is there any relief under the Canada-US Income Tax Convention?

Position:

The treatment of a particular foreign based tax deferred product is a question of fact but section 12.2 does in fact apply to a foreign annuity. It is also possible that there is no relief under the Canada-US Income Tax Convention but this too will ultimately depend on whether the tax deferred product is considered to be a pension, employment benefit or some other form of retirement plan.

Reasons:

Principal Issues:

Whether the deemed accrual rules under section 12.2 of the Act can apply to a US tax deferred annuity? If the deemed accrual rules apply and the foeign tax credits are unable to be fully utilized due to the mismatching of income and income taxes between the Canada and the US is there any relief under the Canada-US Income Tax Convention?

Position:

The treatment of a particular foreign based tax deferred product is a question of fact but section 12.2 does in fact apply to a foreign annuity. It is also possible that there is no relief under the Canada-US Income Tax Convention but this too will ultimately depend on whether the tax deferred product is considered to be a pension, employment benefit or some other form of retirement plan.

Reasons:

Principal Issues:

several issues concerning interaction of paragraph 128.1(4)(b) and tax treaties to a dual resident

Position: general comments provided

Reasons:

Principal Issues:

1. When are adjustments made to the partnership acb's to reflect operating losses in a scenario involving exempt interests in the partnership?

2. How can partnership interests lose their exempt interest status?

Position:

1. In computing the ACB of a partner's exempt interest in a partnership at any time, a reduction is required for that partner's share of the partnership's operating loss for fiscal periods ending before that time.

2. Subject to certain exceptions noted 96(2.5) of the Act, an exempt interest in a partnership can lose that status where after February 25, 1986, there has been a substantial contribution of capital to the partnership or a substantial increase in the indebtedness of the partnership.

Reasons:

Principal Issues:

Whether land owned by a taxpayer is considered to be "qualified farm property"

Position:

Perhaps

Reasons:

Principal Issues:

Inclusion under 12(1)(a) ITA of deposits received and related reserve under 20(1)(m) ITA.

Position:

Deposits are not income under 12(1)(a) ITA.

Reasons:

Principal Issues:

Inclusion under 12(1)(a) ITA of deposits received and related reserve under 20(1)(m) ITA.

Position:

Deposits are not income under 12(1)(a) ITA.

Reasons:

Principal Issues:

1. Would the exchange of classes of interests in a partnership result in a disposition of the exchanged partnership interest?

2. If so, could 97(2) be used to defer any gain by rolling the partnership interest back to the same partnership in exchange for the other class of partnership interest?

Position:

1. No response was given to their questions, since it appeared to be a factual situation involving a partnership and an estate freeze. We cautioned them on the possible application of section 103 of the Act.

Reasons:

Principal Issues:

Taxable benefit relating to providing employees with the opportunity of purchasing company leased vehicles at less than fair market value.

Position:

The difference between the sale price (book value) and the fair market value is a taxable benefit.

Reasons:

Position: Question of fact.

Principal Issues: Personal services business?

Position: Question of fact -

Reasons: to be determined after the end of the year

Principal Issues:

1. Will labour-sponsored funds tax credit have to be repaid if LSVCC shares held in a spousal RRSP are exchanged inside the RRSP for non-LSVCC shares?

Position:

1. Depends on the facts. In certain scenarios where the individual retires, no repayment of the tax credit is required (i.e. shares acquired before March 6, 1996 which are held for more than 2 years).

Reasons:

Principal Issues:

1- Do federally incorporated corporations only qualify under paragraph 149(1)(i)?
2- Do organizations that do not make a profit qualify?
3- How is "low-cost" defined

Position:

1- no
2- not necessarily
3- basically accommodation at a rent lower than other similar accommodation in the community.

Reasons:

Principal Issues:

1. Will labour-sponsored funds tax credit have to be repaid if LSVCC shares held in a spousal RRSP are exchanged inside the RRSP for non-LSVCC shares?

Position:

1. Depends on the facts. In certain scenarios where the individual retires, no repayment of the tax credit is required (i.e. shares acquired before March 6, 1996 which are held for more than 2 years).

Reasons:

Principal Issues:

Whether the transfer of property to a registered charity qualifies as a gift where the gift is made as a result of some person agreeing to stop litigation on disputed assets and agreeing to the validity of a particular will.

Position:

The transfer does not qualify as a gift.

Reasons:

Principal Issues:

Can an EPSP provide for the allocation of amounts to former employees?

Position: No.

Reasons:

Principal Issues:

General question on tuition credits.

Position:

Copy of IT-516R2 forwarded as general information.

Reasons:

Principal Issues: Loss Consolidation Transactions

Position: Affiliated corporate taxpayers

Reasons: Technical news

Principal Issues:

Whether a gift of personal-use property to a registered charity would qualify for the non-refundable tax credit relating to donations.

Position:yes

Reasons:

Principal Issues:

Can an election to be a public corporation have effect from an earlier point in time than its time of filing such that shares of the corporation will be qualified investments for an RRSP at that earlier point in time?

Position: No.

Reasons:

Principal Issues:
Whether transportation, room and board expenses can be considered tuition fees under existing and proposed legislation.

Position:
no.

Reasons:
IT-516R2 clearly states that such expenses do not qualify as tuition fees. The proposed introduction of subsection 118.5(3) should not change this position. The proposed legislation was not intended to allow such expenses according to Mr. Robert Dubrule of Finance.

Principal Issues:

Whether payments made prior to 1997 can be used to have an agreement or order deemed to be made in 1996.

Position:

No

Reasons: