Income Tax Severed Letters - 1999-07-09

Miscellaneous

22 June 1999 9833526 - VERTICAL AMALGAMATION, GOVERNMENT ASSISTANCE

Unedited CRA Tags
87(2.11) 87(2.1) 127(18)

Principal Issues: 1. On vertical amalgamation, whether ITC of Amalco can be carried back to reduce Part I tax of predecessor subsidiary.

2. Timing of grind by government assistance to qualified expenditures.

Position: 1. No.

2. As qualified expenditures are incurred; cannot result in negative pool.

Reasons: 1. 87(2.11)

12 April 1999 9812726 - ARTICLE XXI CANADA-U.S. (4125-U5-100-21)

Unedited CRA Tags
212(14) article 21

Principal Issues: Whether income derived in Canada by a U.S. master trust is exempt from tax under paragraph 1 of Article XXI of the Canada-U.S. Income Tax Convention.

Position: The Article XXI exemption would not apply to the U.S. master trust.

Reasons: The U.S. master trust is merely receiving income in trust on behalf of unknown recipients.

18 March 1999 9903126 - SUBSECTION 95(6) OF ITA95(6)

Unedited CRA Tags
122.3(1) 95(1)

Principal Issues: Whether subsection 95(6) could apply with respect to provisions of the Act not contained in subdvision i of Division B of Part 1 of the Act

Position: Yes

Reasons: For various reasons stated in the document

Ruling

30 June 1999 Ruling 9908430 - CALU CONFERENCE MAY 1999

Principal Issues: see attached

Position: See attached. Except for question #12, positions in this document came from positions already taken by our Directorate and were reviewed by the Department of Finance XXXXXXXXXX .
Answer to Question #12 was provided by Assessment and Collections Branch. See attached

Reasons: see attached

1999 Ruling 9830153 F - 110.6(8) ACTIONS CONVERTIBLES

Unedited CRA Tags
110.6(8) 6205(1)

Principales Questions:

Est-ce que le paragraphe 110.6(8) de la Loi s’appliquera lors de la disposition par les contribuables de leurs actions dans Gestion A, Gestion B et Opérante pour refuser la déduction pour gains en capital à l’égard d’actions admissibles de petite entreprise si les sociétés n’ont jamais versé de dividendes sur des actions prescrites et non prescrites qu’elles ont émises?

Position Adoptée:

1999 Ruling 9900153 - FARM PROPERTY ROLL TO CHILDREN

Unedited CRA Tags
110.6 73(3)(b)

Principal Issues: Is land qualified farm property?

Position: yes

Reasons: Meets criteria in 110.6(1) definition.

1999 Ruling 9831863 F - REGLE ATTRIBUTION

Unedited CRA Tags
74.1 74.4(2) 56(2) 15(1)

Principales Questions:
A- Les transactions proposées entraînent-elles l’application des dispositions prévues au paragraphe 15(1) de la Loi? B- Les dispositions des paragraphes 56(2), 74.1(1), 74.1(2), 74.4(2) et 74.5(6) de la Loi s’appliquent-elles au transfert effectué par Holdco en faveur de Newco?

Position Adoptée:
A- non B- non

1999 Ruling 9900413 - BUTTERFLY RULING (SPLIT-UP)

Unedited CRA Tags
55(3)(b)

Principal Issues: Butterfly Ruling which contains several issues (See Statement of Principal Issues attached with Ruling).

Position: (see Statement of Principal Issues attached with Ruling)

Reasons: (See Statement of Principal Issues attached with Ruling)

1999 Ruling 9833243 F - 110.6(8), FUSION

Unedited CRA Tags
110.6(8) 6205(1) 6205(2) 6205(4)c)

Principales Questions:
Est-ce que le paragraphe 110.6(8) de la Loi s’appliquera lors de la disposition par les contribuables de leurs actions dans Société A pour refuser la déduction pour gains en capital à l’égard d’actions admissibles de petite entreprise si les sociétés n’ont jamais versé de dividendes sur des actions prescrites et non prescrites qu’elles ont émises?

Position Adoptée:
Le Ministère n’appliquera pas le paragraphe 110.6(8) de la Loi dans les situations présentées.

1999 Ruling 9905903 - REORGANIZATION

Unedited CRA Tags
55(3)(a) 55(5)(e) 251(3)

Principal Issues: use of subsection 251(3) to override paragraph 55(5)(e) such that all transfers are to related parties

Position: allowable according to reply to Q.3 at 1998 APFF.

Reasons:

1999 Ruling 9826053 - XXXXXXXXXX TAX CREDIT

Unedited CRA Tags
125.4

Principal Issues: will purchaser be considered an investor for purposes of the XXXXXXXXXX tax credit rules

Position: no.

Reasons: non-resident with no PE in Canada. Will not make a deduction in calculating Canadian tax.

1999 Ruling 9910853 - LOSS CONSOLIDATION

Unedited CRA Tags
20(1)(c) 245 12(1)(x)

Position:
Ok

1999 Ruling 9831593 - DIVISIVE REORGANIZATION

Unedited CRA Tags
55(3)(a) 251(3) 251(6)(a) & (b)

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
XXXXXXXXXX 3-983159
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1999

Dear Sirs:

Re: XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Advance Income Tax Ruling Request

1999 Ruling 9915423 - LOSS CONSOLIDATION

Unedited CRA Tags
20(1)(c) 12(1)(x)

Position:
No effect on rulings given

1999 Ruling 9833143 - NON-PROFIT ORGANIZATIONS

Unedited CRA Tags
149(1)(l)

Principal Issues: Winding-up of an NPO and the incorporation of a new NPO. Does the NPO being wound-up continue to retain its status as a NPO? Would the new corporation be a NPO?

Position: Question of fact but based on established facts a qualified yes to both.

Reasons: The law.

1998 Ruling 9825113 - QUALIFIED FOR DISTRIBTION TO THE PUBLIC

Unedited CRA Tags
4801(a)

Principal Issues: Will the units of the Funds be "qualified for distribution to the public" within the meaning of paragraph 4801(a) of the Regulations where an Offering Memorandum has been prepared and delivered to the Ontario Securities Commission (OSC) and the units of the Funds are offered to a variety of different types of investors on a private placement basis in reliance on one or more exemptions from the requirement to prepare a prospectus under the Ontario Securities Act (OSA).

Position: Yes

Reasons: An Offering Memorandum has been accepted as a "similar document" for the purposes of paragraph 4801(a) of the Regulations in various rulings and opinions in cases where a prospectus exemption was available under the OSA, an Offering Memorandum was delivered to the OSC, and units were issued on a private placement basis. (See 950743, 960375, 970979, 981035.)

1998 Ruling 982599A - JOINT VENTURE - TAX SHELTER

Unedited CRA Tags
237.1(1)

Principal Issues:
1. Can a ruling with regard to "tax shelter" be given in a joint venture context?
2. Can the acquisition of property on behalf of joint venture participants commence before those participants are identified and the execution of the joint venture agreement?

Position:
1. Yes, in respect of interests in property to be acquired directly by participants.
2. No.

Reasons:
1. The ruling provided was in a format similar to that given in file 971152 and was only with respect to the "statements and representations" specified. In addition, confirmation was not provided as to the nature of the relationship to be created between the parties to the joint venture agreements, i.e., the determination of whether such relationship is in the nature of partnership rather than joint venture is appropriately to be made on an audit basis.

Ministerial Correspondence

17 June 1999 Ministerial Correspondence 9908574 - REPLACEMENT PROPERTY - LARGER SIZE.

Unedited CRA Tags
44(5)

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

Dear XXXXXXXXXX:

In his letter of March 16, 1999, the Honourable Lyle Vanclief, Minister of Agriculture and Agri-Food, has asked me to provide you with clarification on the rules in the Income Tax Act concerning replacement property.

XXXXXXXXXX

Technical Interpretation - External

21 December 1999 External T.I. 9912215 - VEHICLE EXPENSES - RENTAL PROPERTIES

Unedited CRA Tags
18(1)(a)

Principal Issues: There are no income tax issues set out in this letter. We have provided information to an individual who may purchase several rental properties. The information was obtained from the guides entitled “Rental Income” and “Business and Professional Income”.

Position: See principal issues

Reasons: See principal issues.

7 July 1999 External T.I. 9915795 - DISABILITY TAX CREDIT CERTIFICATE

Unedited CRA Tags
118.3(1)

Principal Issues:
Completion of Disability Tax Credit Certificate - Form T2201.

Position:
The individual or representative must complete Part A.
The medical doctor must complete Part B of the Form.

Reasons:
As per information sheet accompanying the Form.

7 July 1999 External T.I. 9916255 - CLOTHING PERSONAL EXPENSE OR CLASS 12

Unedited CRA Tags
18(1)(h) 20(1)(a)

Principal Issues: An individual, in connection with his or her wedding consulting business, purchases a tuxedo. The tuxedo is worn to weddings in connection with the individual’s business. Can a deduction or capital cost allowance be claimed in respect of the cost of the tuxedo.

Position: No

Reasons: The cost of the tuxedo is a personal or living expense.

30 June 1999 External T.I. 9917615 - GIFT OF RESIDUAL INTEREST IN A TRUST

Unedited CRA Tags
38(a.1)

Principal Issues:
Whether shares transferred to a trust the residual capital beneficiary of which will be a charity are subject to the reduced rate in determining the taxable capital gain provided for in paragraph 38(a.1).

Position:
NO

Reasons:
To qualify the shares must be disposed of to a qualified donee which does not include a trust. The gift in this case would be a residual interest in the trust and not the shares.

30 June 1999 External T.I. 9909285 - NPO-GOLF CLUB

Unedited CRA Tags
149(5)

Principal Issues: Whether property used exclusively for and directly...

Position: Question of fact

Reasons:

29 June 1999 External T.I. 9917205 - MUNICIPAL CORPORATION

Unedited CRA Tags
149(1.2)

Principal Issues: Does income from a business carried out under a licence granted by a province qualify under 149(1.2)

Position: No

Reasons: A licence grants the holder a right to carry on a business activity. It is not a contract for services between the holder and the grantor.

28 June 1999 External T.I. 9912585 F - ALLOCATION DE RETRAITE

Unedited CRA Tags
60j.1)

Principales Questions:

Est-ce qu'un individu a pris sa retraite lorsqu’il quitte son emploi avec une université pour être embauché par une autre université?

Position Adoptée: Question de fait à savoir si un individu a pris sa retraite.

28 June 1999 External T.I. 9915905 F - ALLOCATION DE RETRAITE

Unedited CRA Tags
60j.1)

Principales Questions:

Est-il possible de transférer une allocation de retraite à un RPA?

Position Adoptée:

25 June 1999 External T.I. 9911065 - MEANING OF FORMER BUSINESS PROPERTY

Unedited CRA Tags
248(1)

Principal Issues: Whether an apartment building can be considered a "former business property" in the situation where the taxpayer worked full-time at renovating and restoring it.

Position: No.

Reasons: In general terms, a former business property is defined as a capital property of the taxpayer that is real property (other than a “rental property”) used by the taxpayer or a related person primarily for the purpose of gaining or producing income from a business. Rental property is defined for this purpose as real property owned by the taxpayer and used in the particular year principally for the purpose of gaining or producing gross revenue that is rent. Accordingly, even though a property is used to earn business income, it would be disqualified as a former business property if it was used in the taxation year in which it was disposed of principally for the purpose of producing rent.

25 June 1999 External T.I. 9911525 - LOSS ON DISPOSITION - NON-ARM'S LENGTH DEBT

Unedited CRA Tags
40(2)(g)(ii) 80(1) 50(1)

Principal Issues: Whether the loss on the write-off of a loan to a non-arm's length individual to him to start a business can be claimed as an allowable capital loss.

Position: Question of fact.

Reasons: According to sub-paragraph 40(2)((g)(ii), a loss on a settlement of debt is deemed to be nil unless the debt was acquired for the purpose of gaining or producing income from a business or property. According to IT-239R2, money which has been loaned at a reasonable rate of interest generally constitutes a debt acquired for the purpose of gaining or producing income, and any capital loss which arises because it has become uncollectible is generally not deemed to be nil by virtue of paragraph 40(2)(g)(ii). Also, section 80 may apply if the debtor has a gain on the settlement of debt.

25 June 1999 External T.I. 9910015 - INTEREST EXPENSE. BUSINESS COMMENCEMENT?

Unedited CRA Tags
9 20(1)(c)

Principal Issues: Whether mortgage interest on land to be used in a nursery business is income tax deductible.

Position: Interest on amounts payable for property acquired for the purpose of gaining or producing income from a business is generally income tax deductible. However, the business must have commenced.

Reasons: It is the Department's position (see IT-364) that expenditures incurred prior to the commencement of a business are not tax deductible.

24 June 1999 External T.I. 9830665 F - DIVIDENDE EN ACTIONS PRIV ET PAR BILLET

Unedited CRA Tags
55(2) 248(28)

Principal Issues: Est-ce qu'il y a double imposition lorsqu'une société verse un dividende en actions privilégiées ou par l'émission d'un billet et que le dividende est assujetti au paragraphe 55(2)?

Position: Non

Reasons: Paragraphe 248(28)

23 June 1999 External T.I. 9909265 - SUBSECTION 87(11) DESIGNATION - WHEN FILED87(11)

Unedited CRA Tags
88(1)(d)

Principal Issues: when designation made under subsection 87(11) and paragraph 88(1)(d) should be filed

Position: in return of amalgamated entity for its first taxation year

Reasons: intent as indicated in coming-into-force provisions

23 June 1999 External T.I. 9914105 - SPECIAL WORK SITE

Unedited CRA Tags
6(6)

Principal Issues: Correction of prior opinion # 990160 stating that subsection 6(6) allowances are not subject to Employment Insurance premiums.

Position: Subsection 6(6) benefits are insurable even though it is excluded from income. If no cash earnings are received by the employee for the same period, the benefit is not insurable.

Reasons: Regulation paragraph 3(a) of the Insurable Earnings and Collection of Premium Regulations, which came into force on January 1, 1997. Previously, under subsection 3(1)of the Unemployment Insurance Act Regulations, allowances excluded from income under 6(6) of the Income Tax Act were excluded from insurable earnings.

9 June 1999 External T.I. 9828345 F - 2ND ACQUISITION OF LOAN BY NRO

Unedited CRA Tags
133(8)

Principal Issues: Will a NRO lose its designation if it acquires a second debt from a bank when the debtor is a corporation related to the NRO?

Position: No.

Reasons: For the purpose of paragraph (d) of the definition of NRO in subsection 133(8), the acquisition of a second debt would not be qualified as “making of loans”; furthermore, the acquisition of a second debt as an investment would not constitute “trading or dealing in bills, notes or other similar property”.

9 June 1999 External T.I. 9910285 - XXXXXXXXXX AND EDUCATION CREDIT

Unedited CRA Tags
118.5 118.6

Principal Issues:

31 May 1999 External T.I. 9911955 - MEDICAL EXPENSES

Unedited CRA Tags
118.2

Principal Issues: If an individual moves from one city to another city as a result of a mental impairment (Alzhemer’s Disease) so that her family can provide her with the personal care she needs, will the moving expenses qualify as eligible medical expenses under subsection 118.2(2)(l.5) of the Income Tax Act.

Position: No

Reasons: There is no reference to someone who has such an impairment.

31 March 1999 External T.I. 9903655 F - CCA IMPRIMANTE LASER

Unedited CRA Tags
20

Principal Issues: laser printer - CCA class

Position: Une imprimante au laser pourrait constituer du «matériel auxiliaire de traitement de l’information» visé à l’alinéa f) de la catégorie 10 de l’annexe II du Règlement pourvu qu’elle soit utilisée conjointement avec du «matériel électronique universel de traitement de l’information» tel que défini au paragraphe 1104(2) du Règlement.

Reasons: 910300

Technical Interpretation - Internal

2 July 1999 Internal T.I. 9909397 - CAREGIVER TAX CREDIT FOR SPOUSE'S AUNT

Unedited CRA Tags
118(1)(c.1)

Principal Issues: Whether Caregiver Tax Credit can be claimed for aunt or uncle of individual's spouse

Position: Caregiver tax credit cannot be claimed for aunt or uncle of individual's spouse.

Reasons: Paragraph 118(1)(c.1) only refers to the individual's aunt or uncle. Paragraphs 252(2)(e) and (f) do not extend the meaning of aunt or uncle to include the aunt or uncle of a spouse.

30 June 1999 Internal T.I. 9916907 - EMPLOYEES - FREE RECREATIONAL PASSES

Unedited CRA Tags
6(1)(a)

Principal Issues: Employer operates a ski resort and is in the business of providing recreational facilities to the public. Employer gives free recreational passes to all its employees and their family members. Is there a taxable benefit to the employees pursuant to paragraph 6(1)(a) if the employee’s employment duties are administrative/retail and the use of the pass is not directly related to the performance of the employee’s duties? If free passes are provided to family members of all employees, is there a taxable benefit to the employee?

Position: Question of fact as to whether the employer or the employee is the primary beneficiary of the free recreational pass. However, in this case, the employer indicates that knowledge of the resort by all employees is essential for performing their duties of employment. In addition, the Department has a long-standing position that if free recreational passes are provided to all employees and not to a selected group of employees, then there is no taxable benefit to the employees. This is outlined in IT-148 and IT-470.

Reasons:. The determination of whether there is a taxable benefit to an employee is a question of fact that would depend on whether the employee or the employer is the primary beneficiary of the free recreational pass. As the employer has indicated that knowledge of the resort and ski hill are essential for all employees to perform their employment duties, it is reasonable to assume that the employer is the primary beneficiary. With respect to free passes to family members of employees, in our view, the employees are the primary beneficiaries of such a benefit and as such, the value of the pass is a taxable benefit in the hands of all employees whose family members receive such passes pursuant to paragraph 6(1)(a) of the Act.

28 June 1999 Internal T.I. 9900957 - PAYROLL SERVICE PROVIDER

Unedited CRA Tags
227(4)

Principal Issues: What is the effect of ss. 227(4) on a contract between a payroll service company and its client, allowing the service company to invest the client's payroll funds between the time received until the time disbursed.

Position: The employer remains liable for the payroll remittances. Subsection 227(4) applies to the employer, not the payroll service company.

Reasons: The terms of the contract are a matter between the two parties. The payroll company is only an agent of the employer. The employer remains responsible for the payroll remittances.

25 June 1999 Internal T.I. 9909727 - MEALS AND BENEFITS

Unedited CRA Tags
6(1)(a)

Principal Issues: A hotel provides employees with free meals and beverages. The issue is the determination of the taxable benefits.

Position: The benefit should be determined on the basis of the cost, preparation, and service in respect of the food and beverages.

Reasons: The privilege concept discussed in paragraph 2 of IT-470R is considered to be applicable with the result that the benefits should be determined on the basis of paragraph 28 of
IT-470R.

XXXXXXXXXX Tax Services Office HEADQUARTERS
XXXXXXXXXX M. Eisner
Business Audit XXXXXXXXXX (613) 957-213

23 June 1999 Internal T.I. 9916937 - DEATH BENEFIT

Unedited CRA Tags
Regualtion 200(1) 153(1)

Principal Issues: What is the authority for reporting the gross amount of a death benefit on a T4A?

Position: Paragraphs 221(1)(b) and (d) authorize the Governor in Council to make regulations prescribing the evidence required under the Act. Regulation 200(1) refers to the prescribed information returns.

Reasons:

16 March 1999 Internal T.I. 9831477 - LEGAL EXPENSES, DVORCE ACT, CHILD SUPPORT

Unedited CRA Tags
9(1) 18(1)(a) 18(1)(h)

Principal Issues: Does the Divorce Act establish in law the right of a child to maintenance from his or her parents? If so, then does this mean that the portion of legal costs to obtain a divorce, which includes legal fees for enforcing a right that already exists under law to child support, is deductible?

Position: Yes, an argument can be made that the Divorce Act establishes a right under law of a child to maintenance from his or her parents.

Reasons:. Paragraph 18 of IT-99R5 indicates that legal costs incurred to enforce pre-existing rights to either interim or permanent support amounts are deductible. Paragraph 18 also states that a pre-existing right to a support amount can arise from a written agreement, a court order or legislation such as Part III of the Family Law Act of Ontario. An argument can be made that the wording in section 15.1 and paragraph 11(1)(b) of the Divorce Act is similar (i.e., in terms of the obligation it establishes by the parents of the child to support the child) to that in Part III of the Family Law Act of Ontario. We have accepted that Part III of the Family Law Act of Ontario establishes a right under law of a child to maintenance from his or her parents. With respect to spousal maintenance, there is no provision (similar to paragraph 11(1)(b) for child maintenance) in the Divorce Act which requires that the court stay the granting of a divorce until reasonable arrangements have been made for the support of a spouse. Accordingly, if we accept that there is a right established under the Divorce Act of a child to maintenance from his or her parents, then legal fees relating to establishing the quantum of child support under the Divorce Act would be deductible.
March 16, 1999

Ministerial Letter

2 July 1999 Ministerial Letter 9911428 - INIDAN, CPP DISABILITY BENEFIT

Unedited CRA Tags
81(1)(a) 56(1)(a)

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

Dear XXXXXXXXXX:

The Honourable Herb Dhaliwal, Minister of National Revenue, has asked me to reply to your letter of April 8, 1999, concerning the tax treatment of Canada Pension Plan (CPP) disability benefits received by XXXXXXXXXX.