Income Tax Severed Letters - 1999-09-17

Principal Issues: (1) Can an employee, who is a tree planter and works "in different places" for the purposes of paragraph 8(1)(h) of the Act and is entitled to deduct travel expenses under that provision, deduct the cost of a trailer in which the employee would live while working for the reforestation company. (2) In the alternative, can the employee claim capital cost allowance in respect of the trailer?

Position: (1) No (2) Capital cost allowance in respect of the trailer cannot be claimed

Reasons: (1) The cost of a capital asset is not considered to be deductible under paragraph 8(1)(h) of the Act (subparagraph 8(1)(h)(ii) of the Act refers to travel expenses). (2) There is no provision in section which would allow the employee to claim capital cost allowance and subsection 8(2) of the Act restricts an employee to those expenses described in section 8 of the Act.

Position: Question of fact.

Principal Issues: What is the tax treatment of child support amounts payable and spousal amounts payable pursuant to an order made after April 1997?

Position: Child support payments made pursuant to a written agreement or court order that has a "commencement day", as defined in subsection 56.1(4) of the Act, are subject to the new rules and, as such, are not deductible by the payer and are not required to be included in the income of the recipient. Spousal support amounts made pursuant to a post-April 1997 written agreement or court order would be deductible under paragraph 60(b) and taxable under paragraph 56(1)(b) provided all the other conditions of those provisions are met.

Reasons: See 980582, E8M18459, 9825917, 9902707, 9900035, 9823157, 990941

Principal Issues: Whether a child beneficiary of a Trust, who never farmed, could have qualified farm property if a parent, grandparent or great-grandparent met the gross revenue test in clause (a)(vi)(A) and did the farming while they owned the property.

Position: Yes, if the parents or grandparents, including the great-grandparents met the gross revenue test while they owned the property.

Reasons: We have considered these issues before. Refer to E9628495 and E9807845

xxxxxxxxxx John Oulton
1999-000303
September 15, 1999

Principal Issues: Whether the amount paid for a defibrillator is a qualifying medical expense

Position: yes

Reasons: It is considered to described in Regulation 5700(d).

Principal Issues: The characterization for income tax purposes of a hedge transaction which includes a short sale of shares.

Position: The short sale of shares is on account of income unless the taxpayer has elected pursuant to subsection 39(4) of the Act. Where an election under 39(4) has not been made, the characterization of a disposition of a security other than by short sale is a question fact.

Reasons: See IT-479R.

Principal Issues:

Whether the ownership test in paragraph 149(1)(d.6) is on the basis of a single holding of shares or capital or on the basis of two or more separate holdings.

Position:

It is our view that it may be a combination of holdings.

Reasons:

Principal Issues:

(1) Whether the proceeds of disposition for a rental building are affected by a payment by the vendor to the purchaser for the latter's assumption of the obligations with respect to a long-term lease, in the situation where a subsection 20(24) election is filed.
(2) Where an election is not filed, how should the purchaser treat the payment and the expenses with respect to the long-term lease.

Position:

(1) In the situation outlined, the so called "pre-paid rent," which covers a period of 20 years, may, in some circumstances, be considered proceeds of disposition, rather than a prepayment of rent. Assuming that the prepaid rent is for a shorter period, and also, assuming that the amount paid by the taxpayer to the purchaser for the assumption of the lease obligations is reasonable, so that the election under subsection 20(24) is applicable, the amount of proceeds would not be affected by a payment for the assumption of the obligations.

(2) The purchaser would include the payment in income pursuant to ss 9(1) or para. 12(1)(x). The costs incurred with respect to these obligations may be deductible if the taxpayer can demonstrate that they are made for the purpose of earning income from a business or property.

Reasons:

Principal Issues: Pour les fins de la règle du 10% prévue à l'alinéa 55(3.1)c), est-ce que la détermination de la JVM totale des biens doit être effectuée sur la base de la JVM brute des biens ou sur la base de la JVM nette, lorsque l'attribution est effectuée en utilisant la méthode de la JVM nette acceptée par le Ministère?

Position: JVM nette

Reasons: Pour être consistant avec la méthode utilisée pour faire l'attribution.