Income Tax Severed Letters - 1999-10-15

Ruling

1999 Ruling 9903153 - BUTTERFLY REORGANIZATION

Unedited CRA Tags
55(3)(b)

Please note that the fojiowing 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 990315

Attention: XXXXXXXXXX

XXXXXXXXXX, 1999

Dear Sirs:

Re: XXXXXXXXXX
XXXXXXXXXX
Advance Income Tax Ruling

1999 Ruling 9913973 - RETURN OF PAID -UP BY PUBLIC CORPORATION

Unedited CRA Tags
84(4.1) 84(2)

Principal Issues: See issue sheet.

Position: See issue sheet

Reasons: See issue sheet

1999 Ruling 9914253 - RELEASE OF INCOME INTEREST

Unedited CRA Tags
106(1)

Principal Issues:
1) Does the variation to the trusts cause a disposition of trust property?
2) Will the surviving sons be considered to have received proceeds of disposition where they release and surrender their income interests in an testamentary trust and there is no direction concerning who is entitled to receive the benefit?
3) Do subsections 56(2), 105(1) or 246(1) apply?
4) Can subsection 107(2) be utilized on the distribution of the trust property to the capital beneficiaries?

1999 Ruling 9919863 - SUPPLEMENTARY

Unedited CRA Tags
84(4.1)

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 1-991986
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1999

Dear Sirs:

Re: XXXXXXXXXX
Advance Income Tax Ruling

1998 Ruling 9801813 - CONTROL CHANGE, PARTNERSHIP INTEREST, EARNED DEPLETION

Unedited CRA Tags
reg 1202(2) reg 1202(7) reg 1204(1)(b) 245(2) 96(1)(c)

Principal Issues:

(a) Whether a corporate taxpayer's successor mill could process ore from the corporate taxpayer's non-successor mines not beyond the prime metal stage for the purposes of clauses 1202(2)(b)(i)(C) and (D) of the Regulations. (b) Whether the expression "not operated by him" in clause 1204(1)(b)(iii)(A) of Regulations could be interpreted as "not operated by the Partnership" in the case at hand (i.e., the Partnership would be treated as a separate person) for the purposes of clauses 1202(7)(i)(ii) of the Regulations. (c) What would be a corporate partner's "percentage share" for the purposes of subparagraph 1202(7)(i)(i) and clause 1202(7)(i)(ii)(B) of the Regulations.
(d) Whether GAAR would apply to the proposed transactions.

PositionS TAKEN:
(a) No; (b) Yes; (c) 40%; and (d) No.

Reasons:

1998 Ruling 9802483 - 21-YEAR RULE - ESTATE FREEZE MADE BY A TRUST

Unedited CRA Tags
104(4) 107(2) 85(1)(g) 74.4(2) 75(2)

Principal Issues: Proposed reorganization to mitigate the tax consequences of the 21-year deemed disposition rule that would otherwise apply on January 1, 1999 to the Estate. The beneficiaries under the Estate are the Daughter, Grandchild #1 and Grandchild #2. The children (some of whom are minors) of Grandchild #1 and Grandchild #2 also have contingent capital interests in the Estate if their parents predecease the Daughter. Grandchild #1 and Grandchild #2 have XXXXXXXXXX vested interests in the Estate. The Estate will use 85(1) to exchange the existing property of the Estate for new classes of preferred and common shares of newly incorporated corporations and by using 85(1)(g), will isolate all the ACB of the transferred property into one class of preferred shares. The common shares will then be exchanged for a second class of preferred shares with all the accrued gains using 51(1). The first class of preferred shares with a FMV equal to the ACB will remain in the Estate. The second class of preferred shares with all the accrued gains will then be exchanged for non-voting non-participating common shares using 85(1) of newly incorporated corporations and these common shares will be distributed to Grandchild #1 and Grandchild #2 using 107(2). The Estate will continue to control the property by owning the voting common shares of the corporations. Nonvoting participating common shares with nominal value (with the future growth) wilt be issued to a new trust (Newtrust). The beneficiaries under Newtrust are the same as under the Estate except that Grandchild #1 will only have a XXXXXXXXXX % interest in Newtrust and the other XXXXXXXXXX % interest will be held by a new family trust (Family Trust) which will be created for the benefit of Grandchild #1, his children and grandchildren only if Grandchild #1 survives the Daughter. There is in effect a partial estate freeze in favour of new persons (Family Trust for the benefit of Grandchild #1's children and grandchildren). The main issues are as follows:

1. Will the exchange of the existing property of the Estate for shares of newly incorporated corporations result in the transfer of the Estate's ACB of the transferred property to the first class of preferred shares pursuant to 85(1)(g)?

2. Will the distribution of the non-voting non-participating common shares with all the accrued gains to Grandchild #1 and Grandchild #2 be deemed to occur at the cost amount pursuant to 107(2)?

3. Will Grandchild #1 be deemed to have disposed of a portion of his capital interest in the Estate as a result of the proposed transactions?

4. Will 74.4(2) apply to the Estate, Grandchild #1, Grandchild #2 or the Daughter with respect to the exchanges described above?

5. Will 75(2) apply to attribute income, losses, taxable capital gains or allowable capital losses of Family Trust to Grandchild #1?

6. Will GAAR apply?

Position: 1. Yes 2. Yes. 3. No, provided that Grandchild #1 does not transfer property directly or indirectly by means of a trust or by any other means whatever to Family Trust. 4. No. 5. No, provided that Grandchild #1 does not transfer property directly or indirectly by means of a trust or by any other means whatever to Family Trust. 6. No.

Reasons: 1. 85(1)(g) specifically provides that the cost is allocated first to any preferred shares. 2. Distribution by the trust in satisfaction of the beneficiary's capital interest in the Estate. 3. No, transfer subject to the discussion below.
4. Conditions in 74.4(4) are satisfied. 5. No, transfer subject to the discussion below. 6. 85(1)(g) specifically provides that the cost is allocated first to any preferred shares. Distribution of the non-voting non-participating common shares with all the accrued gains to the beneficiaries not offensive given that any gain would be realized when the beneficiaires subsequently disposed of or are deemed to dispose of the shares. This result was contemplated when the 21 year rule was re-enacted in 1995. Estate freezes are acceptable in policy terms.

Ministerial Correspondence

15 May 1997 Ministerial Correspondence 9712740 - FOREIGN AFFILIATES - DEEMED ACTIVE INCOME

Unedited CRA Tags
95(2)(a)(ii)(D)

Principal Issues: When are corporations "members of a group of corporations" for the purposes of 95(2)(a)(ii)(D)?

Position: When those corporations actually combine their results of operations in arriving at their combined tax liability under foreign tax law.

Reasons: Only then is the interest relevant in computing the income of a group. In any other circumstance the interest is relevant in computing the liability for tax of only one corporate entity.

Technical Interpretation - External

23 September 1999 External T.I. 9924355 - BANKRUPTCY & CARRYFORWARD OF LOSSES

Unedited CRA Tags
128(1)(a) 111(5) 80

Principal Issues: Where a corporation has become a bankrupt and has its bankruptcy annulled because of a proposal accepted by creditors, does the bankruptcy, in and of itself, result in the cessation or change of the Loss Business for purposes of subsection 111(5).

Position: No

Reasons: Subsection 128(1)(a) deems the trustee in bankruptcy to be the agent of the bankrupt for all purposes of the Act, and, as a result, the business activities carried on by the trustee in respect of the estate of the bankrupt are considered to be the business activities of the bankrupt corporation. Thus, where an absolute order of discharge has not been granted, paragraph 111(5)(a) will not apply to prohibit the carryforward of noncapital losses of the bankrupt on an acquisition of control of the bankrupt provided that the conditions in subsection 111(5) are satisfied.

22 September 1999 External T.I. 9921515 - QFP - SEVERING QUAL. PORTION OF LAND

Unedited CRA Tags
110.6(1)

Principal Issues: If a portion of a taxpayer's land is farmed and a portion is not farmed, can the taxpayer sever the farmed portion and sell it to take advantage of the capital gains exemption, i.e., as a qualified farm property

Position: It depends on the facts and circumstances. Further, no assurance given as to whether section 245 applies.

Reasons: Question of fact. Further, the Department comments on the application of subsection 245 only after examining all of the facts and circumstances relating to a given situation.

21 September 1999 External T.I. 9924035 - LTD-LUMP SUM SETTLEMENT

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

Principal Issues: Whether a payment by an insurer of a long-term disability plan, part of which has been described as general damages, is taxable.

Position: The portion of the settlement that is related to the taxpayer's long-term disability plan is taxable.

Reasons: Since there are specific rules in paragraph 6(1)(f) to tax LTD benefits, whether received as a lump-sum or not, our general position concerning general damages would not apply.

20 September 1999 External T.I. 9922995 - PRINCIPAL RESIDENCE EXEMPTION

Unedited CRA Tags
54 45(2) 45(1)(c)

Principal Issues:

Whether there is a deemed disposition of property in a case where a taxpayer has partially converted a principal residence to an income-producing use (rental of basement of house)

Position: Question of fact.

Reasons: See paragraphs 36 to 38 of IT-120R4.

20 September 1999 External T.I. 9923195 - PRINCIPAL RESIDENCE EXEMPTION

Unedited CRA Tags
54

Principal Issues: What portion of a 20-acre property qualifies as a principal residence for purposes of the principal residence capital gains exemption under paragraph 40(2)(b) of the Income Tax Act?

Position: Question of fact

Reasons: See the current version of IT-120, 950565, 982230,
980288, EM1746A, 981265, 9641685, 9728842, 942160, 950238,
952840, 951099, 950960, 950699

16 September 1999 External T.I. 9919855 - CLASS 41, AMALGAMATION

Unedited CRA Tags
class 41(a.1)(iv); 1102(14)

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.

991985
XXXXXXXXXX Denise Dalphy
(613) 957-9231

Attention: XXXXXXXXXX

September 16, 1999

Dear Sirs:

Re: Class 41 and Subsection 1102(14) of the
Income Tax Regulations (the "Regulations")

10 September 1999 External T.I. 9922675 - FOREIGN SPIN-OFFS

Unedited CRA Tags
90

Principal Issues:
Taxation of Canadian shareholders on a spin-off by a foreign corporation.

Position:
The share dividend received by Canadian shareholders is a taxable dividend. Moreover, voluntary foreign spin-offs do not qualify for a remission order.

Reasons:
Amendments to the Income Tax Act would be necessary to permit Canadian residents to defer the taxation of the dividend, The Department of Finance, which has responsibility for changes to the Act, has consistently rejected requests for such amendments.

8 September 1999 External T.I. 9914385 - PRESCRIBED INTERNATIONAL ORGANIZATION (4159)

Unedited CRA Tags
11O(1)(f)(iii) reg 8900

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 991438
G. Middleton
(613) 957-2122
September 8, 1999

Dear XXXXXXXXXX:

1 September 1999 External T.I. 9911035 - EMPLOYEE DEDUCTIONS - PROVINCIAL RATE

Unedited CRA Tags
153(1) Various provincial legislations

Principal Issues: Which provincial payroll deduction rate should be used for an employee who reports to work in a province but resides in another province

Position: The province where he reports to work

Reasons: The rules are governed by provincial law and the Department is only acting as a collection agent

17 August 1999 External T.I. 9921845 - CRCE, FLOW-THROUGH SHARE

Unedited CRA Tags
66.1(6)

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.

992184
xxxxxxxxxx Denise Dalphy
(613) 957-9231

August 17, 1999

Dear XXXXXXXXXX:

Re: Canadian Renewable and Conservation Expenses and
Flow-through Shares

23 June 1999 External T.I. 9908905 - YUKON MINERAL EXPLORATION TAX CREDIT - PE

Unedited CRA Tags
Reg 400

Principal Issues:
Whether a mining exploration company would be considered as having a permanent establishment in the Territory of Yukon for the purpose of the new mineral exploration tax credit under the Income Tax Act (Yukon) (the "Yukon Act")?

Position:
It is always a question of fact and circumstances as to whether a corporation has a permanent establishment in the Yukon.

Reasons:
Pursuant to the Yukon Act, "permanent establishment" means a permanent establishment as defined in the federal regulations. In other words, the expression "permanent establishment" has the meaning assigned by section 400 of the Income Tax Regulations (Canada) (the "Regulations").

22 June 1999 External T.I. 9910135 - REVOKING CLASS 34 ASSET CERTIFICATE

Unedited CRA Tags
Reg 1104(14) Reg 1104(11) 13(6) Class 34 Class 43.1

Principal Issues:
(a) Whether there would be any relief provision in the Regulations in respect of Class 34 property similar to subsection 1104(14) of the Regulations in respect of Class 43.1 property?

(b) If a Class 34 asset certificate has been revoked, would subsection 13(6) of the Act apply to reclassify the Class 34 property to another class(es) effective from the time of its original issue?

PositionS:
(a) No, there is no specific relief provision in the Regulations in respect of Class 34 property. Any relief would have to be provided at the discretion of the Minister of Energy, Mines and Resources.

(b) Subsection 13(6) of the Act would apply to the first nonstatute-barred taxation year of the taxpayer.

Reasons:
(a) There is no specific relief provision in respect of Class 34 property similar to subsection 1104(14) of the Regulations in respect of Class 43.1 property. Accordingly, any relief in respect of deficiency, failing or shutdown - that is beyond the control of the taxpayer - of the system of which the property is part, would have to be made at the discretion of the Minister of Energy, Mines and Resources in determining whether to revoke the Class 34 asset certificate under subsection 1104(11) of the Regulations.

16 June 1999 External T.I. 9912595 - YUKON MINERAL EXPLORATION TAX CREDIT - PE

Unedited CRA Tags
Reg 400

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.

991259
XXXXXXXXXX Peter Lee
(613) 957-8977
Attention: XXXXXXXXXX

June 16, 1999

Dear Sirs:

Re: Permanent Establishment
Yukon Mineral Exploration Tax Credit

Technical Interpretation - Internal

21 September 1999 Internal T.I. 9920697 - QFP-SUBSTITUTED PROPERTY

Unedited CRA Tags
110.6(1)

Principal Issues: Whether subparagraph (a)(vii) of the definition of "qualified farm property" will apply to farm property which was substituted for farm property and acquired after June 17, 1987.

Position: No.

Reasons: Subparagraph (a)(vii) does not apply to property acquired after June 17, 1987, unless such property was acquired under an agreement entered into before that date.

10 September 1999 Internal T.I. 9921957 - TAXABLE BENEFITS - COMPUTER PURCHASE PROGRAM

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

Principal Issues: Tax consequences of electing to re-assign overtime pay to the College, and allow the College to purchase computer hardware or software, which remains the property of the College.

Position: Amounts are taxable to employees.

Reasons: Payments in respect of overtime constitute employment income, even when benefit is directed to another person pursuant to subsection 56(2) of the Act.

1 September 1999 Internal T.I. 9907167 - OETC - XXXXXXXXXX

Unedited CRA Tags
122.3(1)

Principal Issues: Whether all or substantially all of the employment duties are in respect of qualifying activities for purposes of subsection 122.3(1)

Position: No

Reasons: It is because most of the work performed by the employees is relating tp XXXXXXXXXX which are not qualifying activities

25 June 1999 Internal T.I. 9905707 - RESOURCE ALLOWANCE

Unedited CRA Tags
1204(1)

Principal Issues: commodity hedge, resource allowance

Position: Question of fact whether a hedge, and must examine capacity and intent to produce product at time when forward sale is entered.

Reasons: Echo Bay reasons for judgment

Ministerial Letter

27 September 1999 Ministerial Letter 9909738 - MIN-MAIL -XXXXXXXXXX

Unedited CRA Tags
116

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:

10 September 1999 Ministerial Letter 9918068 - REDUCTION OF PAID-UP CAPITAL

Unedited CRA Tags
84(4) 84(4.1) 84(2)

Principal Issues: Conditions under which a public corporation can return paid-up capital to its shareholders tax-free.

Position: A Canadian public corporation can only return paid-up capital to its shareholders tax-free on the winding-up, discontinuance or reorganization of its business.

Reasons: See subsections 84(4), 84(4.1) and 84(2).

14 June 1999 Ministerial Letter 9911358 - MIM-MAIL--7 POINT PLAN

Unedited CRA Tags
n/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:

23 April 1999 Ministerial Letter 9906418 - FOREIGN MERGER (9054-5)

Unedited CRA Tags
87 85.1

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 Colleague:

14 January 1999 Ministerial Letter 980118B - PRODUCTION SHARING & FTC (9312-5)

Unedited CRA Tags
126

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.

File # 980118

XXXXXXXXXX

Dear XXXXXXXXXX:

The Honourable Herb Dhaliwal, Minister of National Revenue, has asked me to reply to your letter to the Minister of Finance dated September 18, 1998, a copy of which was sent to Mr. Dhaliwal.

8 July 1998 Ministerial Letter 9801188 - PRODUCTION SHARING & FTC (9312-5)

Unedited CRA Tags
126

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.

File # 980118
XXXXXXXXXX

Dear XXXXXXXXXX:

Thank you for your letter of December 19, 1997 concerning amounts paid to foreign governments under production sharing contracts.