Income Tax Severed Letters - 1999-05-28

Principal Issues: Are the shares of a private corporation that is controlled by an individual that are to be gifted to a registered charity pursuant to the terms of an individual's will on death non-qualifying securities such that subsection 118.1(5) of the Act will not apply?

Position: Question of fact since it involves a determination as to whether the individual's estate would be dealing with the corporation after the time the gift is made. However, assuming the estate is arm's length with the corporation after the gift is made the shares would not be non-qualifying securities.

Reasons: For the purpose of the definition of non-qualifying security in subsection 118.1(18) the relationship must be determined after the gift is actually made to the registered charity and not when the gift would otherwise be deemed to be made.

Principal Issues: Unfair application of Regulation 8504(6)

Position: We must administer the Act as it is written.

Reasons: Explained the law and referred taxpayer to finance

Principal Issues: Change of trustee - does trust cease to exist

Position: Where terms of trust allow for a change of trustees, generally the trust would not cease to exist.

Reasons: Trust law, contract law and definition of "dispostion".

Principal Issues:
An individual is considering a joint tenancy arrangement to avoid probate fees by adding the son to an account currently in the names of the father and mother. He plans to recognize capital gains on the original allocation to the son (1/3), on the death of the 1st parent (1/6) and the remainder (1/2) on the death of the remaining parent. These calculations are based on the capital gains remaining static throughout the period under consideration. He would like an accounting and legal opinion of the transaction.

Principal Issues:
A tax professional has requested clarification of the carry forward of unused tuition and education tax credits pursuant to section 118.61 of the Act. This section does not seem to agree with Schedule 11, a calculation form for an individual’s 1997 and 1998 income tax returns.

Principal Issues: Is employer payment of cost of "mortgage default insurance" a taxable benefit?

Position: Yes

Reasons: Not specifically exempted by 98-99 Employers' Guide to Payroll Deductions; Taxable benefits:
Discussed with Trust Accounts, and they are not willing to expand list of exemptions at this point.
Amount is included as a benefit by legislation.

Principal Issues:
(1) Whether a garage is a qualifying home for the purposes of the Home Buyer's Plan (HBP);

and

(2) whether it would prevent the owner to participate in the HBP.

Position:
(1) No.
(2) No.

Reasons:
The ownership of the garage would not prevent an individual from participating in the HBP, since the garage would generally not be considered to
be a housing unit for these purposes.

Principal Issues: Various issues relating to subsection 6205(2) of the Income Tax Regulations:

Principal Issues: Two educational institutions (“Institution A” and “Institution B”) jointly deliver XXXXXXXXXX courses with each institution carrying out certain functions. Each institution determines the quantum of the registration fee required for its particular functions. It is our understanding that the courses are not at a post secondary level for the purposes of subparagraph 118.5(1)(a)(ii.1) of the Act as they are available to a student as long as the student is at least 18 years of age. Institution A, which collects the registration fee and remits the relevant portion to Institution B is described in subparagraphs 118.5(1)(a)(i) and (ii) (i.e., certified by the Minister of Human Resources Development) of the Act, while Institution B is described in subparagraph 118.5(1)(a)(ii) of the Act.
Institution A promotes the courses, purchases the course material (including books), hires instructors from a list provided by Institution B, provides examination supervisors, and provides the facilities where the examinations are written and the courses are taught. Institution B prepares and marks the examinations, prepares the instructors, and develops the courses. We have been asked whether a receipt for income tax purposes (i.e, the tuition tax credit) can be issued with respect to these costs. We have also been asked whether the cost of a license charged to a student by Institution B can be included on the receipt.

Position: The receipt should not include the cost of the course material and books, or the cost of the license. The fact that a portion of the fees to be charged in respect of courses are determined by reference to the costs of developing courses and preparing instructors, would not, in an by itself, prevent the fees from being regarded as being tuition.

Reasons: It is the Department’s general position that “tuition” refers to instruction. Also, see paragraphs 26 to 28 of IT-516R2. It is also noted that the circumstances of this situation (including the point that only one institution would issue a tuition receipt for income tax purposes in respect of tuition fees relating to both institutions) were discussed with Diane Waterfield of the Assessing and Collections Directorate who did not feel that there were any problems. Ms. Waterfield also confirmed that XXXXXXXXXX has been certified. XXXXXXXXXX has confirmed, in a telephone conversation, that XXXXXXXXXX has also been certified.

Principal Issues:
Tax status of various Indian employees of XXXXXXXXXX store in XXXXXXXXXX per cent of a Commercial Complex is on a reserve but a store which is part of the Commercial Complex is entirely off the reserve. Are the employees of the store taxable on their employment income?

Position:
Application of Indian Act Exemption Guidelines.

Reasons:
In this situation, Guidelines 2 and 4 would not apply as the XXXXXXXXXX is not an employer resident on a reserve. In addition, although the lease agreement indicates that part of the Commercial Complex is partly on the reserve, it also indicates that the XXXXXXXXXX store is entirely off the reserve. Accordingly, the employees of the store would not be employees working on a reserve. Therefore, since none of the XXXXXXXXXX store’s employees perform their employment duties on a reserve, Guideline 3 or Guideline 1 and its proration rule do not apply. In the event that there is a public commitment by DIAND to convert this land to reserve land and the boundaries are established, procedures can be undertaken to treat the land as a reserve until it actually becomes a reserve. Comments were also provided based on the assumption that XXXXXXXXXX % of the store was on reserve and employees worked throughout it.

Principal Issues:
When determining whether a shareholder is a designated shareholder can you consider all shares with the same rights as one class of shares?

Position: No.

Reasons:
Subsection 4901(2) of the Regulations clearly states that each class of shares is looked at separately.

Principal Issues: Payment by a PHSP of a pre-determined daily amount for accommodation.

Position: The patient must show that the accommodation expenses are actually incurred.

Reasons: Paragraphs 34, 35 and 68 of IT-519R2.

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.

CANADIAN TAX FOUNDATION ROUND TABLE
1998 ANNUAL CONFERENCE

SUBJECT: Reasonable Expectation of Profit - the Saga Continues

Issue: