Income Tax Severed Letters - 1998-07-24

Principal Issues: director's liability when employer fails to withhold income tax from Canadian resident employee and the provisions of 227.1(1) of the Act apply

Position: director will only be required to pay the amount of the employer's outstanding liability on account of source deductions and that does not include income tax that was not withheld from the employee

Reasons: 227(8) only imposes a penalty for the failure to withhold from a Canadian residents remuneration because the employee is liable for the balance of tax owing for that year. tax payable by the employee If 227.1(1) applies, the Department will not require any more from the directors than was required of the corporation

Principal Issues:

1. Whether farm property qualifies for the $500,000 capital gains deduction pursuant to subsection 110.6(2) of the Act.

2. Must the property be used for a period of 24 months in the business of farming to qualify for the capital gains deduction pursuant to subsection 110.6(2) of the Act.

3. Whether the gain on the sale of farm property can be deferred using the replacement property rules in section 44.

Position:

1. No.
2. Yes
3. No

Reasons:

Principal Issues: 1. rules for cca re: videotape cassettes

Position: Class 12 or class 8 depending on rental arrangements.

Reasons: regulations

Principal Issues:

Whether land and building “used principally” in an active business in relation to the definition of qualifying small business corporation share and small business corporation.

Position:

Law generally explained

Reasons:

Principal Issues: Can charitable donation receipts be issued in respect to certain membership fees?

Position: No.

Reasons: Membership fees entitle payor to benefits.

Principal Issues:
Where a court order or agreement is made before May 1997, and child support amounts are otherwise deductible, the order will be considered to have a “commencement day” (as defined in subsection 56.1(4)) if the order is varied after April 1997 to change the child support amounts payable to the recipient in accordance with subparagraph (b)(ii) of the definition of “commencement day” in subsection 56.1(4). Does subparagraph (b)(ii) of the definition of “commencement day” in subsection 56.1(4) apply where a pre-May 1997 court order includes a cost of living adjustment (COLA)?

Position:
No. Subparagraph (b)(ii) of the definition of “commencement day” in subsection 56.1(4) of the Act is not considered to be applicable.

Reasons:
See 9717155, 9718317. It is the Department’s position that an agreement or order made before May 1997 has not been varied where a change in child support amounts payable such as a COLA clause is automatic and is built into the agreement or order.

Principal Issues: Whether OETC is available to an individual where a Canadian personal service corporation is interposed between the individual and a specified employer provided that all the other conditions would otherwise have been met?

Position:. Yes

Reasons: It is clear from the Explanatory Notes issud by Finance on December, 1996 when subsection 122.3(1.1) was first introduced that that subsection would not apply if the person who receives the services is a specified employer of the individual had it not been the existence of the personal service corporation. XXXXXXXXXX

Principal Issues: Taxation of a Grant received by a Status Indian

Position: Depends on the income categorization of the grant.

Reasons:

Principal Issues:
Whether the negative resultant amount which is produced under the subtraction equation in paragraph (a) in the definition of "capital dividend account" in subsection 89(1) of the Act when the non-deductible portion of the capital losses are greater than the non-taxable portion of the capital gains, should have an impact on the computation of a corporation's capital dividend account.

Position:
The negative resultant amount which is produced under paragraph (a) in the definition of “capital dividend account”, should have no impact on the computation of the corporation's capital dividend account.

Reasons:
The use of the word "exceeds" in the subtraction equation of paragraph (a) in the definition of "capital dividend account" will restrict the resultant amount to be a positive number.

Principal Issues: whether sign language interpretative services, sign language training for parents and travel for parents qualifies as a medical expense

Position: interpretative services - yes, training - yes effective for 98
travel - to visit child at school for deaf - no, -to obtain medical services, including the training, yes to the extent provided by (g) & (h)

Reasons: C-28 passed june 18,1998 includes 118.2(2)(l.4), 98 budget proposes to allow training for 98 & subs, travel - allowed to the extent permited by 118.2(2)(g) and (h)

Principal Issues:

1. Are the support payments subject to the new child support rules given that the court order issued after May 1, 1997, retroactively replaces a XXXXXXXXXX court order? Is a retroactive court order “made”, for the purposes of the definition of “commencement day” in subsection 56.1(4), at the beginning of the first time period that payments were required to be made under the new order? Does subsections 56.1(3) and 60.1(3) apply?

2. The taxpayer has asked for our technical interpretation regarding three different possible scenarios (depending on the actual wording of the court order) under which the actual amount of the support payments the taxpayer is required to make in the future is reduced and:

a) his ex-wife is ordered to repay excess support payments made since XXXXXXXXXX
b) his ex-wife is not ordered to repay the excess support payments made but the overpayments are applied to future child support payments; or
c) his ex-wife is not required to repay the excess support payments and there is no offsetting reduction of future support payments the taxpayer will make. The taxpayer will commence a separate legal action against his ex-wife to recover the amount owing.

Position:

1. Question of fact. We do not have a copy of the court order so we can only issue general comments. According to the client’s lawyer, they will be asking the court to issue a retroactive court order (after May 1, 1997), replacing a XXXXXXXXXX court order such that there will be a reduction of child support from $XXXXXXXXXX per month before tax to $XXXXXXXXXX per month with taxes to be paid by the ex-wife retroactive to XXXXXXXXXX

2. We have only provided general comments about the three scenarios.

Reasons:

Principal Issues: Whether previous employer (the RCMP) related to current employer (the Bank of Canada) for purposes of retiring allowance.

Position: Same employer.

Reasons: Previous positions.

Principal Issues: Will vacation pay and accumulated sick leave qualify as retroactive payments of subsection 100(3.2) of the Regulations?

Position: No

Reasons: Term not defined so will give it ordinary meaning

Principal Issues: if partnership holds shares with dividend entitlement if dividends not declared can it still be said that there is an excluded interest in oartnership per 40(3.15)?

Position: Yes. can be said to earn income from property

Reasons: provided dividends have been paid at any time in the time period.

Principal Issues: Whether our following position remains applicable: where a foreign currency which is converted to a qualified investment within a reasonable time would not be considered to be a non-qualified investment?

Position: Yes.

Reasons: Wording of the Act and previous positions

Principal Issues: Is interest paid on property taxes overpayments taxable?

Position: YES

Reasons: meets the definition of interest

Principal Issues: The income tax consequences where a new court order may be issued in XXXXXXXXXX of 1998.

Position: It is a question of fact although the new order may have a commencement on the day it is made. Comments concerning the application of the new rules were also made.

Reasons: For the purposes of the definition of “commencement day” in subsection 56.1(4) of the Act, the new order may have a commencement day on the day it is made.