Income Tax Severed Letters - 1999-08-06

Principal Issues: Will a certain payment qualify as a retiring allowance?

Position: Question of fact but probably not.

Reasons: Relates to a proposed transaction and should be the subject of an advance income tax ruling. Comments will be restricted to general comments.

Principal Issues: Whether subsection 56(4) applies where there unrelated real estate agents assign their commission income to a corporation which is owned equally by the three of them.

Position: Depends on the facts.

Reasons: The question of whether or not commission income “assigned” to a corporation is the corporation’s for income tax purposes will depend on, among other things, the particular fact situation, the terms of the agreement among the parties, and a consideration of any jurisdictional restrictions imposed by federal or provincial statutes. As regards subsection 56(4), in general terms, this provision applies where a taxpayer transfers or assigns a right to an amount to a person with whom the taxpayer does not deal at arm’s length. If persons are not related to each other, it becomes a question of fact whether such persons deal with each other at arm’s length. Paragraph 24 of IT-419R states that there is a general presumption that a shareholder deals at arm’s length with the corporation in which he or she holds shares if the shareholder does not control, nor is otherwise related to, such corporation. In this situation, a shareholder may still be considered not to be dealing at arm’s length with a corporation if he or she is a member of a group of shareholders who act in concert to control the corporation. Acting in concert means a predetermined agreement to act in a certain manner.

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 					Michel Lambert CA, M.Fisc.

						5-982006
Le 3 août 1999

Monsieur,

Objet : Interprétation concernant les fiducies

Principal Issues: The company plans to send three of its employees to school to obtain degrees related to the employer's business. The proposed contracts governing the arrangements provide for the payment by the employer of tuition fees and related educational supplies, and an interest free loan which to be repaid according to a payment schedule upon returning to work. One contract provides for a non-reimbursable living allowance to be paid to student "B".

Position: The company paid tuition fees and supplies are non-taxable to the employees. It is a question of fact whether the non-reimbursable living allowance paid to student "B" is a non-taxable benefit. The loans are subject to deemed interest benefit under section 80.4

Reasons: Technical News #13 guidelines provide that where employer-paid training which may have been a benefit under paragraph 6(1)(a) prior to the release of the newsletter, would now be a non-taxable benefit when the primary beneficiary is the employer. Such benefits includes fees and associated costs such as meals, travel, accommodation.

Principal Issues:
1.Are education costs of employees non-taxable under the guidelines in Technical News number 15 when employees may be reimbursed for courses supporting the development of specialized skills and knowledge related to the insurance business.
2. Are employer-paid membership fees in professional associations taxable benefits.

Position:
1. Yes.
2. If the primary beneficiary is the employer, no benefit. If the primary beneficiary is the employee, there is a benefit.

Reasons:
1. The courses meet the conditions of specific employer related training per Technical News #13.
2. Per Technical News #15, it depends on whether the primary beneficiary is the employer or the employee.

Principal Issues: The application of the replacement property rules to rental properties

Position: Gave general comments on the definition in 248(1) re former business property and explained that there was a specific exclusion for rental properties

Reasons: There is a specific legislative rule that the old property cannot be a rental property.

Principal Issues:
XXXXXXXXXX submitted a number of questions relating to the full-time and part-time Education Tax Credit and IT-515R2.

Principal Issues:
1) whether non-resident can open an RRSP;
2) tax rates applicable to Italian-resident recipient of RRSP payments

Position:
1) Yes
2) rates under Canada-Italy Tax Convention

Reasons:
1) Nothing in Act restricts residence of RRSP annuitant - Registered Plans confirms no prohibition against registering such a plan. N.B. RRIF cannot be registered unless first annuitant has a SIN - definition of “RRIF”;
2) Rates vary depending on amount received and whether "periodic pension payment", lump-sum or combination of both.

Principal Issues: Can we exempt the income earned on investments held in a U.K. Personal Equity Plan from income taxes in Canada because the U.K. does not tax such income?

Position: No.

Reasons: The Act does not provide for this favourable treatment.

Principal Issues: When does the 24 month time period referred to in paragraph a) of draft Regulation 9300 commence?

PositionS: On the first day that principal filming or taping begins.

Reasons: Our reading of the legislation and confirmation of position with CAVCO.

Principal Issues: Est-ce que la récupération de l'amortissement est du revenu d'entreprise?

Position: Oui

Reasons: Il s'agit de revenu d’entreprise si se rattache à une entreprise.

Principal Issues: The extent to which a trustee in bankruptcy is liable for income taxes arising on a disposition of assets held in the estate of the bankrupt.

Position: Under law, it would appear that the bankrupt is liable for all of the income taxes arising in this situation. However, informally, the Revenue Collections Directorate said that this liability is limited to the assets under the trustee's control.

Reasons: Paragraph 128(2)(e) indicates that the trustee is liable for any income taxes arising in dealings of the estate of the bankrupt.

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 991252

Wm. P. Guglich

Attention: XXXXXXXXXX

June 24, 1999

Dear Sirs:

Re: Employment Expense Deduction - Supplies and Equipment

Principal Issues:
Corporation carried on two unrelated businesses prior to acquisition of control. However, each business was related to separate SR&ED work. After control was acquired a business was discontinued while the other was carried on for profit. Is the whole of pre-acquisition pool of SR&ED expenditure related to the continued business to eventually allow the write-off of the pool from income of that one business after control was acquired.

Position:
The law under subsection 37(6.1) does not allow it.

Reasons:
The intent of the law under 37(1)(h) and 37(6.1), together with 249(4) is to restrict trading in corporations having undeducted SR&ED pools.