Income Tax Severed Letters - 1998-06-12

Principales Questions:

1. Est-ce que le prix de base rajusté d’une participation dans une société de personnes tient compte du montant déduit par un associé conformément au paragraphe 34.2(4) de la Loi?

2. Lorsqu’une société de personnes rachète la participation dans la société de personnes détenue par un associé, à quelle date se termine le calcul du prix de base rajusté de la participation? Quand doit-on ajouter, au prix de base rajusté de la participation, la part de l’associé qui se retire dans le revenu de la société de personnes pour l’exercice financier de son départ?

3. Est-ce que l’associé qui se retire doit inclure dans ses revenus le montant qui n’avait pas été inclus dans le revenu de la société de personnes pour l’exercice financier précédent en raison d’un choix effectué conformément à l’alinéa 34a) de la Loi?

Position Adoptée:

Principal Issues:
Whether expense for renting an office/suite in other cities in lieu of travelling expenses and hotel costs for sale representatives would be deductible. Expenses would be accommodation/office costs, including parking, meals, etc.

Position:
Rent and parking expenses would be deductible to the extent they are reasonable and relate exclusively to the business. Furniture purchased to furnish the office/suite is a capital expenditure on which capital cost allowance may be claimed. Meals would be deductible as provided for by section 67.1, provided they are for business purposes.

Reasons:
On the basis of Ozvegy v. MNR, 78 DTC 1772, there would be no difference between paying an hotel accommodation and rent for an apartment used for business purposes. With respect to parking and meals, the expense is deductible if it is incurred to earn income - paragraph 18(1)(a) of the Act. Additional restrictions apply to meals under section 67.1. Finally, the cost of the furniture is a capital expenditure and cannot be deducted by virtue of paragraph 18(1)(b) of the Act. However, capital cost allowance may be claimed under paragraph 20(1)(a) of the Act.

Principal Issues: Whether part of the fees paid to a retirement centre that is not a nursing home qualify as a medical expense

Position: No

Reasons: As stated in IT-519R2, imputed remuneration does not qualify. To qualify under 118.2(2)(b), there must be salary or remuneration actually paid.

Principal Issues:

Tax Status of various Indian employees and subcontractors of School Board

Position:

Application of Indian Act Exemption Guidelines, employees living off reserve and performing duties of employment off reserve for employer situated off reserve are taxable on employment earnings. School Board Trustee may be taxable, dependent on where duties are performed. Existence of reimbursement of some salary costs by XXXXXXXXXX does not affect tax status.

Subcontracted language teacher’s tax status must be reviewed by examining the nature of the subcontract relationship. Insufficient information

Reasons:

Principal Issues:

Flex Plans - Change in allocation of credits due to occurrence of specified life events. Is the change permissible where:

a) employee changes allocation mid-year from $500 to $600. Medical expenses incurred prior to change $400 and flex credits accrued $250. Up to $150 of medical expense can be reimbursed by the plan before the end of the year.
b) employee changes the allocation to increase it from $200 to $600. Increase cannot be applied toward expenses incurred before change of allocation. Only $200 of the $400 medical expenses incurred prior to the change would be reimbursed by the plan.
c) employee changes allocation mid-year from $500 to $250. Medical expenses incurred prior to change is $100 and flex credits accrued $250. Up to $150 of medical expenses can be reimbursed from the plan before the end of the year.

Position:

a), b) and c) Yes, as long as the agreement provides for the life events in question and contains rules concerning the restrictions on the reimbursements of the expenses incurred prior to the change of allocation. Also, the expenses incurred by single people prior to the change must be for themselves and not for the future spouse. Otherwise, the change would be retroactive.

Reasons:

Principal Issues:

1) Whether a "parenting benefit" is an eligible expense for a PHSP,
2) If not, whether the plan ceases to qualify as a PHSP,
3) If yes to 2), whether contributions by employer are to be included in employee’s income and to what extent, and whether payment out of the plan are taxable and to what extent.

Position:

1) Fees for parenting counselling are not an eligible expenses,
2) The plan ceases to qualify as a result of the payment of non-eligible expenses (unless for the PHSP part of the plan if there is separate accounting as provided in IT-85R2 par. 4)
3) Contributions to the plan by the employer are not employment income. However, all payments received by the employee out of the plan are employment income in the year of receipt.

Reasons:

Principal Issues:

Up-front payment under a timeshare agreement and other rental expenses.

Position:

1) The cost of the timeshare may be a deductible expense in the year incurred or when the services/goods/asset to which it relates are consumed;

2) interest on monies borrowed to purchase the timeshare may be a deductible expense.

Reasons:

Principal Issues:

(1) The tax consequences of changes to the amount of flex credits awarded to an employee where the flex credits are awarded on the basis of an employee’s salary, which changes during the year.
(2) Interpretation of paragraph 8 of IT-529. In particular, the value of allocated credits constructively received by an employee and whether all employees of the plan or only the particular employee is affected.
(3) The tax consequences of a change in a flex plan from credit carry-forward to medical expense carry-forward and vice versa.
(4) The interpretation of paragraph 7 of IT-529. In particular, whether the requirement (that nothing of value be forfeited by the employee to obtain flex credits if flex credits are considered to have no value) will apply where an employee benefit plan is cancelled in favour of a flexible benefit plan.

Position:

(1) In some cases the increased flex credits will have no effect on the plan. In other cases, the particular employee will be considered to have constructively received employment income equal to the value of the allocated credits, or, alternatively, the entire plan may be considered an employee benefit plan.
(2) The value of the allocated credits is just that, the value of the credits, not the value of the benefits paid to the employee. Constructive receipt applies to all employees.
(3) A one-time change may be acceptable. A plan that allows changes from year to year will likely not qualify as a PHSP.
(4) No comments given.

Reasons:

Principal Issues:

whether prejudgment & post-judgment interest on wrongful dismissal awards is taxable

Position:

prejudgment interest may be excluded from income but post-judgment interest is taxable under 12(1)(c) - no withholding required on either

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.

XXXXXXXXXX 973084
B. Kerr
Attention: XXXXXXXXXX

April 27, 1998

Dear Sirs:

Re: Cost of Apple Trees

This is in response to your letter of November 11, 1997, concerning the deductibility of the cost of planting apple trees.

Principal Issues:

Indian Act Tax Exemption for employment income: where the Cree School Board contracts with a college to provide support services for Cree students, is the college’s employee exempt on this employment income?

Position: no

Reasons:

Principal Issues:

Principal Issues:

Est-ce que le rachat des actions privilégiées fait partie de la même serie de transaction que la vente des actions ordinaires dans 2 situations?

Position:

Oui pour la première situation. Pas en mesure de nous prononcer sur la deuxième situation.

Reasons: