Income Tax Severed Letters - 1998-07-10

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).

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:

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:

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

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

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.

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:

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.

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.

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:

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.

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.

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:

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:

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.

Principal Issues: Shareholder Loans

Position: Question of fact - Gave general positions

Reasons:

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: