Income Tax Severed Letters - 1998-05-01

Principal Issues:

1) Whether farm land acquired to replace property sold qualifies as replacement property if no farming activities are carried on it prior to being gifted to son, because land is covered by snow (land purchased during winter). 2) Whether this land qualifies for rollover under 73(3). 3) Whether situation is different if son farms the land before it is given to him (later in the year).

Position:

1) The land purchased by the taxpayer as a replacement for his former property is used by him for a use that is the same as or similar to the use to which he put the former property. The land qualifies as a replacement property and an election under 44(1) is available provided the other conditions of section 44 are met. 2) The land was, before the transfer, used in the business of farming in which the taxpayer was actively engaged on a regular and continuous basis. If that use is the primary use of the land, the rollover is available provided the other conditions of 73(3) are met. 3) The situation is not different. The answers in 1) & 2) apply.

Reasons:

Principales Questions:

Conséquences fiscales d’une police d’assurance-vie pour garantir une dette

Position Adoptée:

Principal Issues:

Whether a seniors’ housing apartment which replaces a private care hospital qualifies as a “replacement property” for purpose of section 44.

Position:

Likely not.

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.

972995
XXXXXXXXXX B. Kerr

April 15, 1998

Dear Sirs:

Re: Replacement Trees

This is in response to your letters of November 11 and 14, 1997, concerning the deductibility of the cost of planting fruit trees.

Principal Issues:

(1) Two single women live in the same house and share responsibility for the biological child of one of the women. Can the other woman, A, claim the equivalent to spouse tax credit for that child?
(2) If the answer to (1) is yes, can the biological mother claim the Child Tax Benefit ("CTB") and a GST credit for the child?

Position:

(1) To qualify for the equivalent to spouse tax credit, the requirements in paragraph 118(1)(b) must be satisfied. One such requirement is that the individual must be related to the child. In the circumstances described, the key is whether A can be considered to have factually adopted the child. This is a question of fact and law. Accordingly, we are unable to provide a definitive answer. However, we have set out the relevant criteria as established by jurisprudence.
(2) Generally, the provisions of the Act do not preclude a biological mother from claiming the CTB and a GST credit for her child if she otherwise meets all the requirements in sections 122.6 and 122.5 of the Act. It is a factual determination as to whether these requirements are met.

Reasons:

Principal Issues:

Can a deferred salary leave plan be modified without losing its status as prescribed plan?

Position: Yes;

Reasons:

Principal Issues:

Request an opinion on the tax status of clothing provided to an employee by an employer in various situations.

Position:

Provided general comments on the Department's position stated in IT-470R, paragraphs 29 and 30. This position was extended to cover situations of reimbursements and allowances.

Reasons:

Principal Issues:

Whether a sale by a joint venture to one of the joint venturers constitutes a sale. Also, qualification of asset for Class 43.1 treatment.

Position:

It is a sale only for the other joint venturers. The asset may qualify as a Class 43.1 even if there is no sale of steam.

Reasons:

Principal Issues:

Whether a court order that only deals with accumulated arrears and not the amount payable on a periodic basis, would constitute a new order for the purposes of paragraph (a) of the definition of "commencement day" in subsection 56.1(4) of the Income Tax Act (the "Act").

Position:

Not a new order

Reasons:

Principal Issues:

Under what circumstances will the Department not seek to apply the provisions of subsection 18(6) to a back-to-back loan arrangement.

Position:

When each of the loans in such arrangement are made to corporations resident in Canada controlled (de jure) by the non-resident person who made the first loan.

Reasons:

Principal Issues:

Principal Issues:

A) Can the income or profits tax paid by a Canadian corporation ("Canco") to the U.S. government in respect of the income of a U.S. limited liability company ("LLC") be considered as "applicable" to a dividend distribution out of such income made by such LLC to Canco for the purposes of 113(1)(c)(i)(A)?

B) Would our position be the same if the income or profits tax was paid by Canco for a previous taxation year. Would the tax still be considered as a "non-business income tax paid by the corporation applicable to" a dividend received in the current year on share a foreign affiliate?

Position:

A) Yes but the portion of the tax paid that can be considered applicable to a dividend is a question of fact.

B) Yes

Reasons:

Principal Issues:

What are the tax consequences to a Canadian shareholder as a result of a U.S. spin-off (or divestiture) where stock of subsidiaries is distributed to shareholders?

Position:

Dividend to the Canadian shareholder, equal to the fair market value of the distributed shares at the time they are received.

Reasons:

Principal Issues:

Would Canada retain the right to tax a trust which is resident in Barbados which is deemed to be resident in Canada pursuant to paragraph 94(1)(c)?

Position:

Yes.

Reasons:

Principal Issues:

If the shares of a foreign affiliate which survives a merger of two foreign affiliates are excluded property, would the fact that the shares of one of the predecessor foreign affiliates which were not excluded property and which were acquired with borrowed funds, cause interest paid after the merger on those borrowed funds to fail the test in 95(2)(a)(ii)(D)(III)

Position:

No. The borrowed funds would satisfy the test in 95(2)(a)(ii)(D)(III) after the merger.

Reasons:

Principal Issues:

A foreign affiliate is in the business of lending money to related non-resident companies in circumstances where the interest on the loans subject to 95(2)(a)(ii) of the Act. The loans are on income account. Would the foreign affiliate's foreign exchange gains and losses on repayment of those loans and gains and losses from hedging such loans be included in its active business income pursuant to 95(2)(a)(i)?

Position:

No

Reasons:

Principal Issues:

1. Paragraph 5(b) of IT-365R2 (one of the conditions of a structured settlement) states that "the claimant and the casualty insurer must have reached agreement under which the latter is committed to make at least periodic payments to the claimant for either a fixed term or the life of the claimant." When a court, pursuant to the Courts of Justice Act, orders that damages in respect of personal injury or death be paid in periodic payments and the arrangement otherwise satisfies the conditions in paragraph 5 of IT-365R2, will the arrangement qualify as a structured settlement?

Position:

1. Yes. However, as is the case with all structured settlements, there is the concern that the claimant may be entitled to a lump sum which is then used to purchase the related annuity contract. The relevant circumstances can be considered on an advance income tax rulings basis.

Reasons: