Income Tax Severed Letters - 1998-11-27

Principal Issues: Whether Plan meets requirements of paragraph 6801(a) of the Regulations.

Position: No

Reasons: It should be amended to include:

Principal Issues:

1. Will an employer be related to a former employer of a retiree by virtue of 60(j.1)(v) where years of service with the former employer are used to eliminate an early retirement penalty under the employer's pension plan?
2. Assuming the answer to 1 is Yes, where no portion of the years of employment with the former employer are used to determine pensionable service (because the employee did not buy back the service), can they be counted under the provisions of 60(j.1)(ii)(B).

Position:

1. Yes
2. Yes

Reasons:

Principal Issues:

Would an amount received from the employer qualify as a retiring allowance where employment, pension entitlements and union seniority ends one day and on the next day employment recommences with the same employer, rejoins the pension plan and becomes a new member of a different union with no seniority rights?

Position: No.

Reasons:

Principal Issues:

An RPP provides for the commutation and payment of bridging benefits in a single payment. Can this payment be made in installments?

Position:

They can only be paid in accordance with the terms of the plan.

Reasons:

Principal Issues: What is the fair market value of an investment whose return is based on market performance?

Position: Question of fact.

Reasons: Fair market value should be computed based on all of the facts and no reason to use principal amount because return only computed at maturity.

Principal Issues: Whether salary paid by DIAND deemed situated on reserve per 90(1)(a) of Indian Act.

Position: No.

Reasons: Wages are not the personal property being purchased.

Principal Issues: Why can’t he, an American resident and Canadian citizen, acquire securities through a self-directed RRSP?

Position: Nothing in Act preventing him.

Reasons: The Act does not prevent him from acquiring qualified investments. However, as per the July 3, 1998 XXXXXXXXXX letter to you, it is explained that American securities legislation prohibits non-registered firms and individuals from dealing in investment products with their residents.

Principal Issues: Whether a retiring allowance can be transferred to a spousal RRSP.

Position: No.

Reasons: Wording of the Act.

Principal Issues: 1) Would recaptured depreciation and other income arising on the disposition of all the assets of an active business be included in computing the adjusted earnings amount for the purposes of computing the affiliate's surplus accounts.

Position: Yes to the extent such income is not included in "earnings" of the affiliate under subsection 5907(1) of the Regulations, such amounts net of terminal and other losses would be included in the adjusted earnings amount pursuant to the broad wording of paragraph 5907(2)(f).

Reasons: Position consistent with other interpretations of similar wording.

Principal Issues: Trust’s requirement to file information return in respect of foreign affiliates under section 233.4 of the Act

Position: Trust is a reporting entity by virtue of 94(1)(c) of the Act and thus required to file information return.

Reasons: A reporting entity is defined as a taxpayer resident in Canada of which a non-resident corporation is a foreign affiliate. A trust that is deemed to be a person resident in Canada under 94(1)(c) is a reporting entity in respect of any foreign affiliates of the trust and must file the requisite information returns.

Principal Issues: Does "paid" as used in IT 119R4 require that an amount need to be paid in cash?

Position: No, only that the obligation be discharged

Reasons: Money or money's worth

Principal Issues:
A taxpayer receives shares, which do not meet the definition of prescribed shares for the purposes of section 6205 of the Regulations and dividends are not paid on these shares. The taxpayer exchanges all outstanding shares (special and common) of the corporation in exchange for new special shares. The new special shares would be prescribed shares. The taxpayer then subscribes for new common shares of the corporation at nominal value. Immediately following the share subscription, the taxpayer gifts the common shares to his adult children.

1. Would the gain, if any, realized on the new special shares be eligible for the capital gains deduction since a significant portion of the gain attributable to those shares was attributable to the fact that dividends were not paid on non-prescribed shares?

2. Would subsection 110.6(8) of the Act apply to deny the capital gains deduction in respect of any capital gains realized by the children in the future on the sale of their common share?.

Position:

1. Question of fact but subsection 110.6(8) of the Act would apply.

2. Question of fact but likely subsection 110.6(8) would not apply.

Reasons: See files # 5M08340, 58311, 9225415, 941399, 9816165, 9700935, 931860, 9306161, 9309051, and 9309041.

Principales Questions:

Un contribuable désire faire confirmer le traitement fiscal qu'on accordera aux paiements d'hypothèque (paiement à un tiers) que la Cour lui indique de payer relativement à la résidence familiale que son ex-conjoint et ses deux enfants habitent. Il désire savoir si la formulation modifiée qu'il se propose de soumettre à la Cour lui permettra d'atteindre l'objectif visé, i.e. que le montant soit déductible pour lui en vertu de 60.1(2) de la Loi.

Position Adoptée:

Principal Issues: The tax treatment of training allowance received by trainees of XXXXXXXXXX

Position: The training allowances would be taxable under section 5(1) or paragraph 6(1)(b).

Reasons: According to Revenue Collections, XXXXXXXXXX trainees would be considered employees of XXXXXXXXXX .

Principales Questions:

1. Est-ce que le revenu de placement d’Indiens inscrits serait exonéré d’impôt si des valeurs mobilières étaient acquises par l’entremise d’une maison de courtage qui aurait un bureau dans une réserve mais que les valeurs étaient achetées en dehors de la réserve et gardées par un fiduciaire en dehors de la réserve?

2. Est-ce que le revenu d’entreprise d’une maison de courtage serait exonéré d’impôt si l’entreprise avait un bureau dans une réserve, les clients de l’entreprise étaient des Indiens inscrits mais que les valeurs mobilières étaient achetées en dehors de la réserve et gardées par un fiduciaire en dehors de la réserve?

Position Adoptée:

Principal Issues: Whether the transfer of property into joint ownership causes a disposition of the property.

Position: If beneficial ownership has changed then the transfer results in a disposition.

Reasons: In a true joint tenancy arrangement, beneficial ownership has been transferred and the title to the property vests in the transferee immediately, as such a disposition has taken place.

Principal Issues: What is the effect of the phrase "at any time after 1971" found in 104(4)(a)(ii)? I.e., can a tainted inter vivos trust be purified at any time (even after 31/12/71) up to the 21st anniversary?

Position: It is possible for an inter vivos trust to meet the criteria in 104(4)(a)(iii) and (iv) at some time after 1971 even though those criteria were not met at January 1, 1972. In order to avoid the deemed disposition on the 21st anniversary of the creation of the trust, the stated criteria would have to be met before that time.

Reasons: Unlike subparagraphs (a)(i) and (i.1) which require a trust to qualify from the outset, subparagraph (a)(ii) contemplates that a trust may not qualify at either its creation date or at January 1, 1972 and yet may subsequently qualify. The time to consider whether a trust qualifies is "at ANY time after 1971," not "at ALL times after 1971."

Principal Issues: Would constructive receipt exist where an employee elects not receive property prior to the employee having the right to receive the property.

Position: Generally not.

Reasons: Question of fact but if no right to an amount then how could there be constructive receipt.

Principal Issues:

Are Standard and Poor Depositary Receipts (SPDRs) and World Equity Bench mark Shares (WEBS) qualified investments for registered plans?

Position:

Spdrs are not. Webs are under review

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 5-972387
M. Lambert
Attention: XXXXXXXXXX

October 8, 1998

Dear Sir/Madam:

Re: Third Party Payment for SR&ED Under Subparagraph 37(1)(a)(ii)

Principal Issues:

Confirm our answer given in 981742 that WEBS are not qualified investments for an RRSP?

Position:

Confirmation provided.

Reasons:

Principal Issues:

This is a summary of the Henry Southwind vs. Her Majesty the Queen case prepared for discussion at the 1998 Canadian Tax Foundation. However, the case was not discussed. It deals with the main connecting factors that are to be examined to determine whether business income of an indian is personal property situated on a reserve.

Position:

The main factors to be examined are the location of the business activity, and the location of the customers. Other less significant factors include where decisions affecting the business are made
* the type of business and the nature of the work
* the place where the payment is made
* the degree to which the business is in the commercial mainstream
* the location of a fixed place of business and the location of the books and records
* the residence of the business owner

Reasons:

Principal Issues: whether paragraph 55(3)(a) applies to a particular series of transactions

Position:yes

Reasons: Mr. A would ordinarily control Holdco and therefore be related to Holdco by virtue of being its incorporator.

Principal Issues: Whether the exemption in paragraph 55(3)(a) is applicable

Position: yes

Reasons: Mr. A will ordinary control Newco (and therefore be related to Newco) immediately before the issuance of shares of Newco by virtue of his being the incorporator of Newco