Income Tax Severed Letters - 1998-07-10

Ruling

30 November 1997 Ruling 9807253 - GROUP LOSS UTILIZATION SCHEME

Unedited CRA Tags
20(1)(c)

Principal Issues: Interest deductibility, similar to other in-house loss utilization schemes.

Position: Yes

Reasons: n/a

30 November 1997 Ruling 9729423 F - DISP. DE CRÉANCES ET REGLEMENT DE DETTES

Unedited CRA Tags
40(2)g)(ii) 80(13)

Principales Questions:

1. Y aura-t-il une disposition du solde impayé des avances des actionnaires lors de la dissolution de Opérante, selon la définition de ‘disposition de biens’ à l’article 54 de la Loi ?

2. Est-ce que le sous-alinéa 40(2)g)(ii) de la Loi fera en sorte que la perte subie par les actionnaires, suite à la disposition de leurs avances impayées faites à Opérante, sera réputée nulle ?

3. Lors du réglement de dette qui surviendra à l’annulation des créances, le montant déterminé en vertu du paragraphe 80(13) de la Loi sera-t-il un revenu d’entreprise pour Opérante ?

Position Adoptée:

30 November 1997 Ruling 9800983 - BUTTERFLY REORGANIZATION

Unedited CRA Tags
55(3)(b)

Principal Issues:

Whether prior transactions part of a series of transactions or events that include the proposed transactions.

Position:

Ruling given with proviso

Reasons:

30 November 1997 Ruling 9803733 - TIMING OF ADJUSTMENTS TO PARTNERSHIP ACB.

Unedited CRA Tags
53(1)(e)(i) 53(2)(c)(i) 96(1.1) 98.1(1)

Principal Issues:

1. What section of the Act is used to tax income allocated on a monthly basis to a Limited Partner which redeems their Units before the end of the Partnership’s fiscal period?

2. Can a Limited Partner which leaves the Partnership before the Partnership’s year-end, include Partnership income/loss allocated to them in the year of disposition in the computation of their adjusted cost base of their Partnership interest in the year of disposition?

Position:

1. Subsection 96(1) and paragraph 12(1)(l).

2. Yes, if the Limited Partner disposes of all of their interest in the Partnership in that year and receives full payment in that year.

Reasons:

30 November 1997 Ruling 9805243 - POOLED FUND TRUST

Unedited CRA Tags
REG 5000(7)

Principal Issues:

Pension plans can increase the proportion of foreign property held by holding a portion of their funds directly in foreign property and the balance in units of pooled fund trusts (as defined in regulation 5000(7)) which, in turn, limit foreign holdings to less than 20%. The original proposal was to have a portion of the property presently held in a pooled fund trust which limited its holdings to less than 20% transferred to another pooled fund trust which would hold only foreign property. It is now proposed that this new trust will not be a pooled fund trust. Will the rulings provided still be valid?

Position:

Yes

Reasons:

30 November 1996 Ruling 9709193 - BUTTERFLY REORGANIZATION

Unedited CRA Tags
55(3)(b)_ 55(5)(e)

Principal Issues:

Single-wing butterfly, preceded by amalgamation of two predecessor corporations.

Position:

Siblings make up a "group of persons" that control each predecessor.

Reasons:

30 November 1996 Ruling 9719003 - DIVIDEND EQUIVALENT, SDA

Unedited CRA Tags
248(1)

Principal Issues:

Will a dividend equivalent constitute an SDA for purposes of the Act?

Position: No

Reasons:

Technical Interpretation - External

14 July 1998 External T.I. 9805365 - CCA CLASS - ELECTRICAL GENERATING EQUIPMENT

Unedited CRA Tags
Class 1 Class 8 Class 43.1

Principal Issues: Classification of electrical generating equipment

Position: Class 1 unless specifically included in another class in Shedule II

Reasons: Wording of the relevant classes in Schedule II

6 July 1998 External T.I. 9811115 - ATTRIBUTION & GENUINE LOAN

Unedited CRA Tags
75(2)

Principal Issues: Attribution and genuine loan

Position: Generally no attribution where there is a genuine loan and terms of trust are such that subsection 75(2) is not applicable.

Reasons: Genuine loan in and by itself is not considered to result in property held by the trust under the conditions set out in subsection 75(2).

6 July 1998 External T.I. 9804665 - TRANSFER TO RESP & DISPOSITION

Unedited CRA Tags
54

Principal Issues: Whether transfer of property by parent to an RESP for parent's child is a dispositon of property by the parent.

Position: Yes.

Reasons: The parent has not retained all incidents of beneficial ownership.

2 July 1998 External T.I. 9811355 - PERSONAL DAMAGES

Unedited CRA Tags
56(1)(d)

Principal Issues:

An insurance act of New Brunswick (the “Insurance Act)”, which sets out legislation concerning automobile insurance, refers to a loss of income (net of income taxes) that could have been earned between the date of judgement and the date of the vehicle accident minus certain amounts (net of income taxes) that might be received (e.g., amounts received under an income continuation plan). One issue is whether a payment (or payments) representing damages in respect of such a loss of income is non-taxable. A second issue is whether the description of the damages is ultra vires to the extent that it impinges on federal laws relation to taxation pursuant to subsection 91(3) of the Constitution Act.

Position:

1. (specific facts and documentation of an actual situation not available) - On the basis that payments are damages in respect of personal injury, the payments (or payments) would generally be non-taxable.
2. The description does not encroach upon Parliament’s jurisdiction dealing with taxation.

Reasons:

30 June 1998 External T.I. 9809095 - ELIGIBLE CAPITAL PROPERTY,S.116, TCP

Unedited CRA Tags
116

Principal Issues:

Whether an eligible capital property is a taxable Canadian property.

Position:

No.

Reasons:

26 June 1998 External T.I. 9800585 - EARLY RETIREMENT PENALTY REDUCTION

Unedited CRA Tags
8503(15)

Principal Issues:

Where an employer pays part of an employee’s retiring allowance to a pension plan to reduce an early retirement penalty, would the reduction of the early retirement penalty be considered benefits related to before 1990?

Position: yes

Reasons:

26 June 1998 External T.I. 9727085 - CAPITAL GAINS EXEMPTION

Unedited CRA Tags
110.6

Principal Issues:

Whether an ABIL, which is now a net capital loss, affects the capital gains exemption in the year an individual disposes of qualified small business corporation shares?

Position: No.

Reasons:

24 June 1998 External T.I. 9802425 - RESERVES FOR LCT PURPOSES

Unedited CRA Tags
181.2(3)

Principal Issues: Are differences between GAAP and tax that are related to paragraph 20(1)(e) type expenses reserves for LCT purposes.

Position: No.

Reasons: The cost has been incurred - the fact that such amount may not be immediately deductible or deductible at all for tax purposes doesn’t necessarily make the non-deductible portion a reserve.

24 June 1998 External T.I. 9805315 - LIFE ESTATE, REMAINDER, CDN RESOURCE PROPERTY

Unedited CRA Tags
43.1 39

Principal Issues: section 43.1, Canadian resource property

Position: 43.1 does not apply to disposition of life interest in Canadian resource property

Reasons: scheme of Act, wording of 43.1

23 June 1998 External T.I. 9805625 - ROLLOVER US IRA TO RRSP

Unedited CRA Tags
60(j)(ii) 60.01

Principal Issues: Can a foreign retirement arrangement (FRA) that contains amounts transferred from a 401(k) plan (to which employer contributions were made) be an eligible amount to be rolled over to an RRSP under 60(j)(ii) and 60.01?

Position: Yes.

Reasons: Since the individual has acquiesced to such a transfer instead of receiving the funds out of the US retirement or pension plan, he would effectively be contributing the funds to his foreign retirement arrangement (FRA).

23 June 1998 External T.I. 9805005 - RRIF - ANNUAL MINIMUM PAYMENT REQUIREMENT

Unedited CRA Tags
146.3(2)(e) 146.3(2)(e.1)

Principal Issues: Whether a withholding of the minimum amount under a RRIF is required where all of the property in the plan is transferred but remains with the same carrier?

Position: No.

Reasons: Wording of the Act

18 June 1998 External T.I. 9805705 - ASSOCIATED CORPORATIONS

Unedited CRA Tags
256(1.4)

Principal Issues: Does an automatic acquisition or redemption of shares upon the occurrence of a specified triggering event imply that no person has a "right to cause a corporation to redeem or acquire any of its shares", and that therefore paragraph 256(1.4)(b) would not apply in determining whether or not any corporations are associated.

Position: Paragraph 256(1.4)(b) will apply where a person or partnership is in a position to cause the occurrence of a specified triggering event referred to in a unanimous shareholders agreement.

Reasons: The fact that a redemption, acquisition or cancellation of shares is automatic upon the occurrence of a specified triggering event is not, in itself, determinative of whether or not a person has a right to cause a corporation to redeem, acquire or cancel any of its shares owned by other shareholders. For example, where a person is in a position to cause the occurrence of a specified triggering event, the provisions of paragraph 256(1.4)(b) would be met.

12 June 1998 External T.I. 9803685 - RETIRING ALLOWANCE PAID BY INSTALMENTS

Unedited CRA Tags
60(j.1) 248(1)

Principal Issues: Whether retiring allowance may be paid by instalments

Position: Yes

Reasons: Position stated in IT-337R3, par. 8

11 June 1998 External T.I. 9730105 - RESTRICTIVE COVENANT ON ECOLOGICAL LAND

Unedited CRA Tags
118.1 110.1(1)(d) 110.1(5)

Principal Issues:

1- Can a donation receipt be issued by a registered charity in respect of property, a restrictive covenant on ecologically sensitive land, received pursuant to an agreement with a land owner.

2 - How are the components to a capital gain determined with respect to such a transfer (i.e., the adjusted cost base and proceeds of disposition of the restrictive covenant)?

3 - Is the restrictive covenant a taxable Canadian property?

Position:

1 - Yes

2 - The cost of the restrictive covenant is nil or nominal. The deemed proceeds of disposition is the fair market value of the restrictive covenant.

3 - Yes

Reasons:

11 June 1998 External T.I. 9812915 - CEDOE

Unedited CRA Tags
66.1 reg 1206(1)

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 						981291
									Denise Dalphy
Attention:  XXXXXXXXXX 						(613) 957-9231

June 11, 1998

Dear Sirs:

Re: Canadian Overhead and Development Expenses (“CEDOE”)

29 May 1998 External T.I. 9803695 - ECE GRIND ON ACQUISITION FROM RELATED PARTY

Unedited CRA Tags
14(3) 251

Principal Issues: Whether the ECE of a son who acquires eligible capital property from a corporation controlled by his parents would be subject to a reduction under subsection 14(3) of the Act based on an earlier claim for capital gains exemption made by the parents in connection with the disposition the corporation.

Position: Yes.

Reasons: The ECE reduction under ss 14(3) of the Act takes into account capital gains exemption claimed by a person not dealing at arm's length in connection with an earlier disposition by that person to a person not dealing at arm's length.

26 May 1998 External T.I. 9812185 - SPOUSAL TRUST AS RRIF ANNUITANT

Unedited CRA Tags
146.3(1)

Principal Issues: In teh case where a spouse is incompetent, could a spousal trust be named as the successor annuitant under the RRIF contract?

Position: No

Reasons: Law is very clear. Only spouse can be successor, not trust.

26 May 1998 External T.I. 9800025 - UK SOCIAL SECURITY PAYMENTS

Unedited CRA Tags
126(7)

Principal Issues:

Are deductions payable under a United Kingdom pension scheme deductible in any manner?

Position:

No deductions would appear to be available in the specific case.

Reasons:

26 May 1998 External T.I. 9801025 - RETIRING ALLOWANCE V PAY IN LIEU OF NOTICE

Unedited CRA Tags
248(1) 60(j.1)

Principal Issues:

How are amounts related to required notice of termination treated when they are paid as a result of a court order or by settlement.

Position:

Taxed as employment income unless they are awarded as damages in which case they are treated as retiring allowances. Settlements are treated similarly.

Reasons:

21 May 1998 External T.I. 9730475 - PARTNERSHIP INTEREST IN REAL PROPERTY

Unedited CRA Tags
85(2)(a)

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 973047
F. B. Fontaine, FCCA

Attention: XXXXXXXXXX

May 21, 1998

Dear Sirs:

Re: Subsection 85(2) of the Income Tax Act (the “Act”)

21 May 1998 External T.I. 9804835 - EXEMPT CORPORATION

Unedited CRA Tags
149(1)(o.2) 149(1)(o.2)(iii)

Principal Issues: Whether a corporation’s income becomes, and ceases to be, exempt from tax from time to time;

Position: Yes, subject to 149(1)(o.2)(iii) and (iv);

Reasons: Wording of the Act.

21 May 1998 External T.I. 9807315 - CANADIAN FILM OR VIDEO PRODUCTION TAX CREDIT

Unedited CRA Tags
125.4 reg. 1106(3)

Principal Issues:

Entitlement to the film tax credit where loans have been made to the producer that may be participation payments or where shares have been issued for an interest in the producer.

Position:

Question of fact. This would depend on terms of the particular arrangement, whether loans are bona fide loans and whether lenders are investors under 125.4(1). Generally, shares issued by the producer would not cause the purchaser to be an investor for purposes of 125.4(4) of the Act.

Reasons:

20 May 1998 External T.I. 9801045 - 34.2 RESERVE AND ACB OF PARTNERSHIP INTEREST

Unedited CRA Tags
34.2 53(1) 53(2)

Principal Issues:

Whether for the purposes of 53(1)(e), only the incremental amount taken into income each year because of the reserve under 34.2(4) should be added to the ACB, rather than the allocation of the income made by the partnership on which the reserve was originally calculated.

Position:

The amount to be added under 53(1)(e) to the ACB is the amount allocated to the partner by the partnership.

Reasons:

19 May 1998 External T.I. 9730795 - DISPOSITION OF DEPRECIABLE PROPERTY

Unedited CRA Tags
Reg. 1102(14) Reg. 1102(20)

Principal Issues: Does subsection 1102(14) of the Regulations apply where there is a non-arm's length acquisition of depreciable property previously included in Class 34 or Class 43.1?

Position: Yes, subject to the application of subsection 1102(20) of the Regulations.

Reasons: Subject to the application of subsection 1102(20) of the Regulations, subsection 1102(14) of the Regulations applies "for the purposes of this Part and Schedule II" such that it overrides the specific provisions of each of Class 34 and Class 43.1.

19 May 1998 External T.I. 9805935 - WITHHOLDING TAX ON RRSP/RRIF WITHDRAWALS

Unedited CRA Tags
212(1)(l) 212(1)(q) Article XVIII

Principal Issues: What is the withholding tax rate for a lump sum payment out of RRSP or RRIF for a U.S. resident?

Position: 25%

Reasons: Wording of the Convention

13 May 1998 External T.I. 9718325 - 104(13.1) & 104(18)

Unedited CRA Tags
104(13.1) 104(18)

Principal Issues:

Can a subsection 104(13.1) designation be made with respect to amounts deemed payable under subsection 104(18)? (I.e., if the income is not otherwise payable but deemed to be so, is "A" in subsection 104(31.1) an amount other than nil?)

Position:

Generally yes.

Reasons:

30 April 1998 External T.I. 9803165 - MARK-TO-MARKET

Unedited CRA Tags
142.2

Principal Issues: Request for information on Mark-to-Market rules from XXXXXXXXXX

Position: Provided some very general comments and copies of articles and legislation.

Reasons: See above - as requested.

29 April 1998 External T.I. 9804925 - COMPREHENSIVE FEES, RRSP, COMMISSIONS

Unedited CRA Tags
18(1)(u)

Principal Issues:

Will comprehemsive fees provided in respect of property held by an RRSP or RRIF trust have to be allocated between commissions, management fees and investment counsel fees? WIll comprehensive fees provided in respect of investments held by an individual have to be allocated between the three?

Position:

No and Question of Fact

Reasons:

27 April 1998 External T.I. 9803915 - STOCK OPTION - FOLLOW-UP

Unedited CRA Tags
7(1.4)

Principal Issues:
Would 7(1.4) apply where old rights are cancelled and replaced by new rights having the only difference between them the exercise price;

Position: No position;

Reasons: Question of fact.

18 March 1998 External T.I. 9804615 - DAMAGES (PERSONAL) SETTLEMENT

Unedited CRA Tags
81(1)(g.1), (g.2)

Principal Issues: Whether income from an annuity contract is taxable or exempt under paragraphs 81(1)(g.1) and (g.2) of the Act.

Position: The income is taxable.

Reasons: Paragraphs 81(1)(1)(g.1) and (g.1) of the Act only apply if a minor has suffered personal mental or physical injury. This is not the case with respect to the situation under consideration.

16 March 1998 External T.I. 9805355 - MONEY BORROWED TO PAY DIVIDENDS

Unedited CRA Tags
20(1)(C)

Principal Issues:

Whether, in determining "accumulated profits" for purposes of the deductibility of interest on money borrowed to pay dividends, the amount of a writedown recorded by a corporation for accounting purposes in respect of an investment in a subsidiary corporation can be added back to "accumulated profits".

Position:

The amount of the writedown cannot be added back.

Reasons:

23 February 1998 External T.I. 9800515 - SHAREHOLDER LOANS

Unedited CRA Tags
15(2)

Principal Issues: Shareholder Loans

Position: Question of fact - Gave general positions

Reasons:

19 November 1997 External T.I. 9718785 - WHICH BENEFICIARIES ENTITLED TO DIVIDENDS

Unedited CRA Tags
104(19) 84(3)

Principal Issues:

Is the income or the capital beneficiary taxed on subsection 84(3) deemed dividends?

Position:

Depends on the terms of the trust indenture.

Reasons:

19 November 1997 External T.I. 9720035 - 112(1) RE DIVIDEND FLOWED THROUGH TRUST

Unedited CRA Tags
112(1) 104(19)

Principal Issues: Interaction of subsections 104(19) and 112(1).

Position: Corporate beneficiary generally entitled to deduction.

Reasons: Law as explained in paragraph 3 of IT-524.

19 November 1997 External T.I. 9721035 - MEANING OF CONTRIBUTION

Unedited CRA Tags
108(1)

Principal Issues:

Has a beneficiary made a contribution to the trust where the beneficiary returns an income over-payment to the trust?

Position:

Generally, no.

Reasons:

Technical Interpretation - Internal

23 June 1998 Internal T.I. 9811327 - GOVET ASST FOR PERSONAL LOSS ON DISASTER

Unedited CRA Tags
12(1)(x)

Principal Issues: whether the Rev Can Fact Sheet on the tax consequences of the Saugenay Flood apply to other government assistance provided as a result of a natural disaster

Position: yes but care should be taken in interpreting the Fact Sheet

Reasons: while government compensation personal losses is generally not taxable and there is generally no income inclusion as a result of government compensation for business or property losses, the compensation will generally be netted against the cost of repairs

11 June 1998 Internal T.I. 9814567 - YEAR 2000 EXPENDITURES QUESTIONS AND ANSWERS

Unedited CRA Tags
Reg 1100(1) Schedule II

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.

Questions and Answers
final
Millennium Bug Expenditures

The Department of Finance released amendments to the Income Tax Regulations (the “Regulations”) to assist small- and medium-sized businesses address the year 2000 computer compliance problem.

11 June 1998 Internal T.I. 981456A F - BOGUE DE L’AN 2000: QUESTIONS ET RÉPONSES

Unedited CRA Tags
par. 1100(1) du Reglement Ann. II du Reglement

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.

Questions et Réponses
final
Dépenses afférentes au bogue du millénaire

19 May 1998 Internal T.I. 9808940 - MEDICAL DEVICE-PHOTOTHEREPY LAMPS

Unedited CRA Tags
118(2) reg 5700

Principal Issues: Are phototherepy lamps elegible for the medical expense credit?

Position: NO

Reasons: Not listed under Subsection 5700(1) of the Regulations

15 May 1998 Internal T.I. 9719587 - CAPITAL GAINS DEDUCTION ON 72(2)(C) RESERVE

Unedited CRA Tags
72(2)(c) 40(1)(a)(iii) 110.6(2.1)

Position: Yes.

Ministerial Letter

15 May 1998 Ministerial Letter 9729598 - ENTERTAINMENT EXPENSE AT A GOLF COURSE

Unedited CRA Tags
18(1)(l)

Principal Issues: Deductibility of entertainment expenses at a golf course.

Position: Question of fact.

Reasons: Meals and beverages in conjunction with a game of golf are now deductible and not restricted by paragraph 18(1)(l).

25 November 1997 Ministerial Letter 9800668 - TAX TREATMENT OF UNIONS DUES AND STRIKE PAY

Unedited CRA Tags
8(1)(i)

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.

November 25, 1997

XXXXXXXXXX

Dear XXXXXXXXXX:

I am replying to your letter of January 7, 1998, which was written in response to my recent correspondence to you about the deductibility of union dues and the taxation of amounts received by striking employees.