Income Tax Severed Letters - 1998-12-25

Principal Issues:

Whether and how could LSVCC shares increase the foreign property limit of a trust governed by an RRSP.

Position:

Based on the current wording of the Act and Regulations, it is our opinion that, generally, an otherwise eligible corporation that is described in both sections 6700 and 6701 of the Regulations (for example a RLSVCC) qualifies as an eligible corporation for the purpose of the small business amount definition in subsection 206(1), even if it is a trader or dealer or a money-lender.

Reasons:

Principales Questions:

Traitement des taxes municipales lorsqu’un créancier hypothécaire acquiert le bien donné en garantie.
Est-ce que 79 affecte le montant des dépenses dans le calcul du revenu du débiteur?

Position Adoptée:

Principal Issues: Does 87(8.1) apply where one corporation does not exchange its shares?

Position: Yes.

Reasons: Surviving corporation is new corporation.

Principales Questions: Le paragraphe 104(18) de la Loi peut-il s'appliquer pour réputer payable un gain en capital réalisé par une fiducie?

Position Adoptée: Si au cours d’une année d’imposition une fiducie réalise un gain en capital imposable et qu’en vertu de l’acte de fiducie ce gain en capital n’est pas payable aux bénéficiaires au cours de l’année, nous sommes d’avis que ce gain en capital pourrait être un montant visé par le paragraphe 104(18) de la Loi pourvu que toutes les autres condition prévues à ce paragraphe soient rencontrées.

Principal Issues:

1. Whether a payment for unused sick leave credits originating from a supplemental sick leave program could qualify as a retiring allowance. The supplemental sick leave bank is accessible throughout the employee’s career and credits may be exchanged for cash provided an election is made in the prior calendar year.

2. Whether such payment could be used to buy back years of service under a pension plan.

Position:

1. As stated in paragraph 5 of IT-337R3, payments for unused sick leave credits usually qualify as a retiring allowance. If the credits can be traded for cash, however, the SDA provisions might apply and result in an income inclusion in the year they are credited to the employee.

2. A deduction under paragraph 60(j.1) would only be available for the purposes of buying back years of service if the payment of the unused sick leave credits balance could be considered a retiring allowance. However, provided the pension plan allows this, it may be possible to buy back years of service under subsection 147.2(4).

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 		983113

December 4, 1998

Dear XXXXXXXXXX:

We are writing in response to your letter of November 19, 1998 concerning the tax consequences to Canadian shareholders as a result of the 1998 spin-off or distribution by XXXXXXXXXX of its subsidiary XXXXXXXXXX.

Principal Issues: Will a retired person continue to be considered “retired from the workforce” where he or she does odd handy man projects during the summer?

Position: Question of Fact.

Reasons: The Department has certain established positions in respect of retirement for the purposes of retiring allowances and these positions should be applied equally when determining whether a person has retired from the workforce.

Principal Issues: provided general comments on Part IV tax

Position:

Reasons:

Principal Issues: no new issues, general comments provided

Position:

Reasons:

Principal Issues: 1) Are medical expenses incurred outside Canada eligible?

Position: YES

Reasons: 118.2(2), par 13 of IT 519R2

Principal Issues:

(1) First scenario: (a) whether the tax paid in respect of a capital gain arising from the disposition of a U.S. real property to the extent it relates to portion of the gain accruing prior to immigration forms part of "non-business-income tax" under paragraph 126(1); and

(b) whether the foreign tax credit that is calculated under subsection 126(1) in respect of the aforesaid U.S. tax can be applied against Canadian tax otherwise payable on all U.S. source non-business income.

(2) Second scenario: (a) whether the tax paid by an individual Canadian resident who is a shareholder of a U.S. S-corporation to the U.S. government in respect of the income of the U.S. S-corporation, is deductible by the individual under subsection 91(4) of the Act;

(b) if paragraph 5 of Article XXIX of the Canada-U.S. Income Tax Convention (1980) (the “Treaty”) is applicable, whether income of the U.S. S-corporation that is deemed to be FAPI of the individual, is foreign source income for the purpose of computing the individual's foreign tax credit under subsection 126(1); and

(c) whether the aforesaid U.S. tax paid by the individual in respect of the income of the U.S. S-corporation forms part of "non-business-income tax" for the purpose of computing the individual’s foreign tax credit under paragraph 126(1).

Position:

(1) . First scenario: Yes to both questions (a) and (b).

(2) . Second scenario: No to question (a), and yes to questions (b) and (c).

Reasons:

Principal Issues: Whether foreign tax credit is available for U.S. tax paid on income of U.S. LLC as a form of compensation for services rendered to the LLC

Position: No position has been established

Reasons: It is not clear whether compensation for services rendered is in fact a payment of dividend