Income Tax Severed Letters - 1999-08-20

Miscellaneous

6 August 1999 9911046 - AIR MILES NORTHERN RESIDENTS DEDUCTION

Unedited CRA Tags
110.7(l)(A)

Principal Issues: Treatment of air miles in so far as travel expenses incurred in
I 10.7(1)(a).

Position: Generally reduces the value of expenses incurred.

Reasons: This is consistent with the position taken in E9320858

29 June 1999 9904661 - P.E. - SAME OR SIMILAR ACTIVITIES

Unedited CRA Tags
Art 7 OECD art VII(2)

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.

			Memo to File
								File:	990466
								Date:  June 29, 1999
								Simon Leung

Subject: Permanent Establishment - Same or Similar activities

Ruling

1999 Ruling 9901403 F - RÉGIMES D'OPTION D'ACHAT D'ACTIONS

Unedited CRA Tags
7(1)(b) 7(3)(b) 110(1)(d) 9(1)

Principales Questions:
1. Est-ce que la modification à une convention d’achat d’actions pour faire en sorte que les employés pourront choisir de recevoir un paiement en espèces ou des actions est une disposition des options et aura pour effet d'inclure un montant dans le revenu des emp1oyés selon 1'article 5, 6 ou 7,
2. Est-ce que 1'alinéa 7(1)b) s'applique dans le cas où un employé a le droit de choisir une somme en espèces plutôt que des actions en vertu d’une convention d’achat d'actions?
3. Est-ce que l'alinéa 7(3)b) empêche un employeur de déduire les sommes versées?
4. Est-ce que l'employé a droit à une déduction prévue à l’alinéa 1 10(1)d)?

Position Adoptée:
1. Non.
2. Oui.
3. Non.
4. Oui, Si les conditions sont rencontrées.

Technical Interpretation - External

27 August 1999 External T.I. 9916225 F - OPTIONS D'ACHAT D'ACTIONS

Unedited CRA Tags
7(1)(c) 248(28) 146(8) 4900(l)(e) 4900(12)

Principales Questions:

1. Est-ce qu'une option d'achat d'actions dont 1’avantage est sujet à l'article 7 peut être transférée dans un REER?
2. Est-ce que le paragraphe 248(28) s'applique lorsqu'une prestation est incluse dans le revenu en vertu du paragraphe 146(8) et de alinéa 56(l)h) lorsqu'un avantage avait été inclus dans le revenu selon alinéa 7(l)c).

Position Adoptée:

11 August 1999 External T.I. 9921565 - QUALIFIED FARM PROPERTY

Unedited CRA Tags
110.6(1)

Principal Issues: Whether 2 brothers who owned farmland can transfer the property to a corp in the situation where they had earlier claimed the capital gains exemption in 1994.

Position: Depends on meeting the definition of qualified farm property in 110. 6(2)(a)(vi) (because earlier they had claimed an exemption on the 1994 capital gain under 110.6(19) and property is deemed reacquired after Feb.22, 1994 so that it was last acquired after June 17, 1987.

Reasons: We had commented on these issues previously-see

11 August 1999 External T.I. 9921865 - MINIMUM AMOUNT, AGE IN WHOLE YEARS

Unedited CRA Tags
146.3(1)

Principal Issues: Does the age at the beginning of the year for purposes of the minimum amount in subsection 146.3(1) mean the age in whole years at the end of the previous year?

Position: Yes.

Reasons: All individuals born in the same calendar year should use the same number for purposes of computing the minimum amount.

10 August 1999 External T.I. 9919385 - NORTHERN RESIDENTS DEDUCTION

Unedited CRA Tags
110.7(1)(A)

Principal Issues:

10 August 1999 External T.I. 9911615 - NOTICE OF ASSESSMENT, 146(8.2)(C)(ll)

Unedited CRA Tags
146(8.2)(c)(ii)

Principal Issues: Does the reference to "notice of assessment" in subparagraph 146(8.2)(c)(ii) refer to Part I taxes or taxes under any Part of the Act?

Position: Part I taxes.

Reasons: In the absence of an explicit reference to Part 1 and with no indication that any other Part is intended, the context requires that we interpret the words "notice of assessment" in a provision located in Part 1 as being such a notice in respect of Part 1.

10 August 1999 External T.I. 9912165 - VACATION PAY, RETIRING ALLOWANCE

Unedited CRA Tags
248(1)

Principal Issues: Will a lump-sum payment received on retirement in respect of unused vacation leave qualify as a retiring allowance?

Position: No.

Reasons: Vacation pay does not meet the definition of retiring allowance in subsection 248(1) of the Act and it is considered income from employment for purposes of the Act.

9 August 1999 External T.I. 9915645 F - PARAGRAPHES 104(13.1) ET 112(3.2)

Unedited CRA Tags
104(13.1) 112(3.2) 104(19)

Position Adoptée: oui

6 August 1999 External T.I. 9911145 - RETIRING ALLOWANCE, RETIREMENT

Unedited CRA Tags
248(1)

Principal Issues: Will certain payments prior to an individual's retirement be considered a retiring allowance for purposes of the Act?

Position: No.

Reasons: The payments relate to employment services provided by the individual for the period immediately preceding the individual's mandatory retirement date.

6 August 1999 External T.I. 9919325 - RCA, SOLE SHAREHOLDER CONRIUBUTIONS

Unedited CRA Tags
8(1)(m.2)

Principal Issues: Will contributions by an employee who is also the sole shareholder of the employer be deductible under paragraph 8(1)(m.2) where a plan, requiring matching employee contributions, is established for the employer's executives?

Position: Question of fact.

Reasons: The provisions of paragraph 8(1)(m.2) would have to be satisfied.

6 August 1999 External T.I. 9911545 - BOOK ROYALTIES, EARNED INCOME

Unedited CRA Tags
146(1)

Principal Issues: Can a writer/researcher include royalties for his books in his earned income, within the meaning assigned by subsection146(1) of the Act, for RRSP purposes?

Position: Yes.

Reasons: The provisions of subparagraph 146(1 )(a) (iii) of the definition of earned income clearly provide that such royalties are included in the taxpayer's earned income.

6 August 1999 External T.I. 9831115 F - PRODUIT DE DISPOSITION BIA - RÉDUCTION

Unedited CRA Tags
14(5) 24(1) 20(4.2)

Principales Questions:
1. Vous désirez savoir quel serait le montant à inclure par le vendeur à l'élément E de la formule applicable à son montant cumulatif des immobilisations admissibles dans le cas où le prix de vente pourrait être réduit ultérieurement en fonction de la capacité de gain.

2. Vous désirez savoir si la société aurait droit à une déduction pour tout montant de réduction au cours d'une année d'imposition subséquente. Ce montant de réduction ne serait jamais payé par l'acheteur.

Position Adoptée:
1. Nous sommes d'avis que la société peut devenir en droit de recevoir le prix de vente total de l'achalandage de sorte que la société doit inclure ce montant total à l'alinéa a) de l'élément E dans l'année d'imposition de la vente de l'entreprise.

6 August 1999 External T.I. 9910115 - PART XI, INDIVIDUAL RRSPS OR ALL RRSPS

Unedited CRA Tags
206(2)

Principal Issues: Can we apply the Part XI tax to the aggregate property held by all of an annuitant's RRSPs?

Position: No.

Reasons: The law clearly provides that each trust is subject to the foreign property limits.

5 August 1999 External T.I. 9826635 - RETIREMENT BENEFITS - WORKERS COMPENSATION

Unedited CRA Tags
56(1)(A)

Principal Issues: Whether retirement benefit under Workplace Safety and Insurance Act can be deducted under subparagraph 110(1)(f)(ii)?

Position: Yes

Reasons: On review of further submissions from taxpayer, we reconsidered our original views as expressed in E9808175. These retirement benefits can be characterized as paragraph 56(1)(a) or 56(1)(v) amounts but paragraph 56(1)(v) takes precedence because it is more specific. Accordingly, the amounts are deductible under paragraph 110(1)(f)(ii).

5 August 1999 External T.I. 9917345 - PERSONAL INJURY AWARDS (LOSS OF PARENT)

Unedited CRA Tags
81(l)(G. 1)

Principal Issues:
Does paragraph 81(1)(g. 1) apply to certain awards paid out under the Victims of Crime Act and the Multi-Provincial/Territorial Assistance Program Agreement?

5 August 1999 External T.I. 9912145 - RRSP INVESTMENT IN SHARES OF CCPC

Unedited CRA Tags
146

Position:
Provided our standard reply on this topic.

4 August 1999 External T.I. 9916875 - INTEREST DEDUCTIBILITY-NON ARMS LENGTH LOAN?

Unedited CRA Tags
20(1)(c)

Principal Issues:
Whether interest paid on borrowed money to be loaned by an individual at a lesser rate of interest to a related individual is deductible in whole or in part.

4 August 1999 External T.I. 9908235 F - PARAGRAPHE 112(3.2) - REGLE TRANSITOIRE

Unedited CRA Tags
112(3.2)

Principales Questions: Une lettre échangée entre la compagnie d'assurance et la société bénéficiaire de la police d'assurance-vie spécifiant que la police est souscrite pour financer le rachat d'actions de gel constitue-t-elle une preuve documentaire suffisante pour les fins du sous-alinéa b)(iii) du paragraphe de mise en vigueur du paragraphe 112(3.2) de la Loi?

Position Adoptée: Considèrant la situation soumise, la lettre échangée entre la compagnie d'assurance et la société pourrait constituer une preuve documentaire déterminante pour démontrer qu'au 26 avril 1995, il était raisonnable de conclure qu'un des principaux objets de la police était de financer directement ou indirectement, en totalité ou en partie, le rachat des actions de la société.

3 August 1999 External T.I. 9814455 - FRESH START RULES UNDER 95(2)(K)

Unedited CRA Tags
95(2)(K) 5907(2.9)

Principal Issues: Application of fresh start rules under 95(2)(k)

Position: Finance intends to bring in amendments to deal with computation of capital gains and losses.

Reasons:

3 August 1999 External T.I. 9911675 - UK PENSION RECEIPTS

Unedited CRA Tags
56(1)

Principal Issues:
Are certain payments made out of a UK pension plan taxable in Canada?

Position:
The specific amounts are likely taxable in Canada. However we can only provide general information on the topic.

Reasons:
The situation is a factual one relating to payments that the recipient started to receive in 1998. The file should be considered by the individual recipient's Tax Services Office. We could not provide a ruling on the matter as requested but provide general comments which we also copied to the TSO.

28 July 1999 External T.I. 9920535 F - FRAIS JUDICIAIRES

Unedited CRA Tags
60o.1)

Principales Questions:
1. Est-ce que les honoraires d’une consultation avec un comptable relativement à des conseils concernant une allocation de retraite sont deductibles en vertu de 1’alinéa 60o.1) à titre de frais juridiques payés en vue d'obtenir une allocation de retraite?
2. Est-ce qu'une consultation payée par un contribuable dans le but de se faire conseiller sur l’opportunité de procéder ou non à un rachat de services passés concernant un RPA a droit à une déduction en vertu de 60o.1)?
3. Est-ce que les honoraires payés pour des services de planification financière personnelle peuvent être déductibles?

Position Adoptée:
1.et 2. non
3. Question de fait. Dans certaines circonstances 20(l)e), 20(1)bb) pourrait s'appliquer.

21 July 1999 External T.I. 9915455 - POST-AMBLE TO 212(l)(B)

Unedited CRA Tags
212(1)(b) 212(1)(b)(vii)

Principal Issues:
Whether the post-amble to paragraph 2l2(l)(b) applies to interest payments which fluctuate on the basis of a formula that seeks to determine the extent to which the stock price of the borrower either out-performs or under-performs the short-term money market index.

16 July 1999 External T.I. 9916205 F - FRAIS JUDICIAIRES - ALLOCATON DE RETRAITE

Unedited CRA Tags
60o. 1)

Principales Questions: Est-ce que les frais comptables payés pour calculer le montant à réclamer dans le cadre d’une poursuite dans le cadre d'un congédiement injustifié sont déductibles comme frais judiciaires on extrajudiciaires en vertu de l’alinéa 60o.1)?

Position Adoptée: Non.

16 July 1999 External T.I. 9902155 - SUBSTANTIAL CANADIAN PRESENCE

Unedited CRA Tags
206(1.1)

Principal Issues:

Subparagraph 108(2)(v) of the Act limits a mutual fund's holdings of shares or securities of any one corporation to 10% of the fund's total holdings. Section 206 of the Act also effectively limits a funds holdings in foreign property to 20% of the funds total property. In a particular situation a mutual fund is close to exceeding these limits. However a series of steps may be undertaken which will allow the fund to do so. We were asked to confirm that the writers’ analysis of the transactions was correct and that GAAR would not be applicable in the circumstances.

Position:

The analysis of the provisions appears to be correct in general terms. However we could not advise if the transactions would be subject to GAAR

Reasons:

15 July 1999 External T.I. 9910685 - RRSP OVER CONTRIBUTION

Unedited CRA Tags
146

Principal Issues:
Can undeducted RRSP contributions be reduced to nil where they can not be withdrawn from the RRSP and they are preventing the contribution of new premiums?

Position:
No.

Reasons:
The law does not provide for this. Eventually they can be deducted and the undeducted balance will be reduced.

14 July 1999 External T.I. 9917685 - FOREIGN AFFILIATE EARNINGS COMPUTATION

Unedited CRA Tags
5907
ACB increase for contribution of depreciable property by FA1 to wholly-owned FA2

Principal Issues: Various issues regarding the computation of the earnings and capital gains of a foreign affiliate for the purposes of section 5907 of the Regulations

Position: Please review attached opinion

Reasons: The use of examples is necessary to demonstrate the issues.

13 July 1999 External T.I. 9512475 - FOREIGN AFFILIATES - DEEMED ACTIVE INCOME

Unedited CRA Tags
95(2)(a)(i)

Principal Issues: Whether the income from property of a foreign affiliate was income that was directly related to the active business activities carried on by another corporation for the purposes of subparagraph 95(2)(a)(i).

Position: Yes it was.

Reasons: The activities resulting in the income from property were completely dependent upon and would not have taken place were it not for the active business activities taking place.

Technical Interpretation - Internal

10 August 1999 Internal T.I. 9919487 - MEDICAL EXPENSES - APT RENOVATIONS

Unedited CRA Tags
118.2(2)(I.2)

Principal Issues: Whether renovations to a rented apartment building would qualify under 118.2(2)(l.2)

Position: Yes

Reasons: There is no restriction in the law that the taxpayer's dwelling be owned.

5 August 1999 Internal T.I. 9915357 - VACATION BANKING

Unedited CRA Tags
6(1)(A) 248(1)

Principal Issues: The tax consequences of an arrangement which allows an employee to bank vacation leave until retirement.

Position: It is a question of fact. However, the arrangement may be considered a "salary deferral arrangement."

Reasons: An arrangement which allows an employee to defer vacation leave until retirement, may be considered a salary deferral arrangement if the deferment of tax is one of the main purposes of the arrangement. One of the main purposes may be considered tax deferral, since, under the arrangement, employees are allowed to bank vacation leave and thereby defer income tax on the cash value of the banked vacation leave.

21 July 1999 Internal T.I. 9913367 - DEDUCTION OF TENANT INDUCEMENT PAYMENTS

Unedited CRA Tags
9

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.

PRINCIPAL ISSUE:

Whether the taxpayer is entitled to deduct a tenant inducement payment (TIP) as a running expense given the decision of the Supreme Court in Canderel Limited V. The Queen, 98 DTC 6100 SC

Position TAKEN:

None. Question of fact.

8 July 1999 Internal T.I. 9902987 - BREACH OF EMPLOYMENT CONTRACT (SCHWARTZ)

Unedited CRA Tags
5(1) 6(1)(a)

Principal Issues:

XXXXXXXXXX

The taxpayer claimed damages and, in XXXXXXXXXX, received the sum of $XXXXXXXXXX. The issue is whether or not it is taxable.

Position: The amount is not considered to be taxable.

28 June 1999 Internal T.I. 9907877 - NON QUALIFIED INVESTMENT ACQUIRED BY RRSP

Unedited CRA Tags
146(10) 207.1

Principal Issues: If the insurance conditions were never satisfied, would a non-arm's length mortgage be a qualified investment?

Position: No.

Reasons: 4900(1)(1) not satisfied. Since this occurred in 1991, the application of 146(10) to the annuitants is likely statute-barred. However, the RRSPs can be subjected to taxes under Part XI. 1 given the wording in subsection 207.1(1). Also, the reporting requirements of subsection 214(2) of the Regulations have not been complied with and penalties may apply to the trustee on this basis.