Income Tax Severed Letters - 1999-12-10

Principal Issues: Whether the transfer of title of wholly owned property to joint ownership constitutes a disposition when there is no change in beneficial ownership.

Position: No disposition.

Reasons: Paragraph (e) of the definition of the term "disposition" in subsection 54(1) of the Act makes it clear that a disposition will not occur as a result of any transfer of property by virtue of which there is a change in legal ownership without any change in beneficial ownership. It is not clear if in such a situation, probate fees upon the death of one of the joint owners would be eliminated.

Principal Issues: Whether paragraph 6(1)(a) and subsection 6(15) of the Income Tax Act would apply to the part of an interest free loan received while employed that is forgiven by the taxpayer's former employer.
Would the provisions apply if, instead of a discount to induce repayment of the loan, the former employer would prepay the employee's interest costs in obtaining a loan to repay the employer?

POSITION: The provisions would apply so that the taxpayer would receive a taxable benefit.

Reasons: Subsection 6(15) provides, for purposes of paragraph 6(1)(a), for a deemed benefit at a specified value where an obligation issued by the taxpayer is settled or extinguished. Under paragraph 6(1)(a), the benefit is included in computing a taxpayer's employment income if the benefit is received or enjoyed in respect of, in the course of or by virtue of an office or employment. The deemed benefit stems from the extinguishment or settlement of an interest free loan received while an employee of the lender. It would be difficult to envisage a situation where such a loan would not have been received by the taxpayer "in respect of, in the course of, or by virtue of an office or employment".

Principal Issues:

Principal Issues: Subsection 20.01 of the Income Tax Act (the "Act") sets out rules for the deduction of PHSP premiums payable by a proprietor in respect of himself or herself, his or her spouse and members of his household. Paragraphs 20.01(2)(c) and (d) of the Act set out limitations concerning the deduction. Paragraph 20.01(2)(c) sets out a formula but is subject to paragraph 20.01(d) of the Act. Paragraph 20.01(2)(d) of the Act refers to one of more persons with whom the individual (the proprietor) deals at arm's length and are described in subparagraph 20.01(2)(b)(i) of the Act. Do the persons include a part-time employee?

Position: No

Reasons: Subparagraph 20.01(2)(b)(i) of the Act refers to certain persons employed on a full-time basis.

Principal Issues: Where an employee makes both the employee's and the employer's contributions to an RPP (generally to buy back a period of leave or past service) will the employee get a deduction for an amount calculated under 60(j.1)(ii)(B) on the transfer of a retiring allowance to an RRSP?

Position: Not in general.

Reasons: This position was taken in 1986 after consultation with our legal advisors and is based on our view that the legislation only intends to increase the 60(j.1) deduction for those years that the person does not have concurrent pension plan coverage.

Principal Issues: An individual ( a mother) has 5 separate accounts with a stockbroker. For estate planning purposes, the individual has registered each of her five children with respect to right of survival (i.e., each child is registered with respect to one account). For income tax purposes, the individual currently considers herself to be the owner of property in respect of the accounts. As there are large variances in the fair market value of each account, the individual would like to consolidate the five accounts into one account with all five of her children named on the account with right of survival. Would the consolidation result in a disposition?

Position: This issue involves a question of fact. However, it is our general that a disposition would not occur.

Reasons: As a result of the term "right of survivor" (this term is understood to refer to the right of a survivor to certain property of a person following the death of that person), it is our general view that a disposition would not occur.

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		992702
C. Tremblay
Attention: XXXXXXXXXX 

November 15, 1999

Dear XXXXXXXXXX:

Principales Questions :

(1) Déterminer si une allocation versée en vertu d'un programme de stage est admissible au traitement fiscal du sous-alinéa 6(1)b)(iii) ?

(2) Déterminer si les étudiants ont droit à une déduction "pour séjour".

Position Adoptée :

Principal Issues: Expenses regarding financing

Position: general comments

Reasons: should be a ruling

Principal Issues: Does plan satisfy Regulation 6801

Position: No

Reasons: several provisions missing or not clearly stated

Principal Issues: (i) The effect of a subsection 20(24) election where an amount is paid by a seller of a property to compensate the buyer for assuming lease obligations for which the seller has received prepaid rent. (ii) The income tax treatment where an amount is not paid but the purchaser pays less than fair market value for the property.

Position: (i) The amount may be deducted by the seller under 20(24) and must be added to the income of the buyer under 12(1)(a). (ii) The difference between the FMV of the property and the amount paid by the purchaser must be included in the purchaser's income under 9(1) or 12(1)(x).

Reasons: (i) Based on the words in 20(24). (ii) The difference may be considered as an amount received by the purchaser to reduce the future expenses with respect to the lease.

Principal Issues: Whether U.S. IRA "SAR/SEP" plan (IR Code 408(k)) is subject to Reg 8308.1 Pension Adjustment or 8308.2 RRSP Reduction

Position: Subject to 8308.2

Reasons: Services rendered in U.S.. Would be an RCA but for par (l) of definition of RCA

Principal Issues: where a trust that is a partner of a partnership that holds the exclusive right to produce and publish a newspaper or periodical how is that ownership and income tests satisfied.

Position: look through to the beneficiaries

Reasons: similar to 19(6)

Principal Issues: 1) Whether CIDA contribution was a loan assistance funds as a result of being repayable contingent upon the occurrence of an event.

2) Whether a right to a commission was deemed disposed of pursuant to 128.1 on emigration.

Position: 1) A contingently repayable contribution is not loan assistance funds.

2) A right to receive a commission is only deemed disposed of if it relates to a sale that has already been made.

Reasons: 1) The definition of the term "loan" does not include a contribution that may or may not have to be repaid.

Principal Issues:

Will an arrangement that encompasses both a section 7 - employee stock option plan and a performance incentive plan be excluded from the SDA rules?

Position:

The issue should be addressed as the subject matter of an advance income tax ruling. However, in general we would be inclined to treat the arrangement as being two separate although interrelated plans.

Reasons:

Principal Issues: Whether child care expenses can be claimed by a non-custodial parent

Position: No

Reasons: See 982344. In the case where two parents are divorced and only one parent is the custodial parent, child care expenses for the year will be allowed only to the individual who resided with the child at the time the child care expense was incurred and only to the extent that they were paid by that individual to enable the individual to engage in the activities listed in paragraph 1 of IT-495R2, Child Care Expenses. If the non-custodial parent pays the child care expenses, the non-custodial parent is not entitled to deduct the child care expenses. As a general rule, when there is no longer a "supporting person" (as defined in subsection 63(3) of the Income Tax Act), the individual claiming the child care expense deduction must have paid the child care expenses and must have resided with the child at the time the child care expenses were incurred.

Principal Issues: Would the reimbursement of fees associated with the early redemption of mutual funds held by an RRSP constitute a prohibited advantage under paragraph 146(2)(c.4) where the property in the RRSP is being transferred into an insurance company's insured RRSP?

Position: No

Reasons: The reimbursement into the RRSP trust is simply earnings of the RRSP and is not an advantage, benefit or contribution.

Principal Issues: Whether paragraph 122.3(1.1)(a) of the Act applies in the particular situation.

Position: None.

Reasons: The issue is irrelevant. Since the condition provided under paragraph 122.3(1.1)(c) is not met in the particular situation, subsection 122.3(1.1) of the Act cannot apply.

Principal Issues: Will income tax be reduced in accordance with reduced amount of superannuation received by virtue of application for spousal benefits?

Position: Yes

Reasons: Wording of ITA 56(1)(a)

Principales Questions : Précisions demandées au sujet de F9729225, à savoir ce qu'on entend par le fait que la détention d'actions doit être clairement nécessaire aux opérations du contribuable pour que le bien soit considéré comme utilisée dans l'exploitation active de l'entreprise.

Position Adoptée : selon les faits en présence, les actions de Groupe ne seraient pas des actifs utilisés principalement dans l'exploitation active d'une entreprise de Marchand.

Principal Issues:
Can an FI secure loans with payments to be made out of an RRSP?

Position:
The question must be answered on a case by case basis with the involvement of Registered Plans Division.

Reasons:
An in depth review of this issue was done in 1992 and 1993 and it was then determined that a general reply should not be provided. There is no indication that any further clarification has been provided since.

Principal Issues: Whether non-residents are eligible for subsection 6(6) exemption.

Position: General comments provided.

Reasons: Must be determined on a case by case basis.

Principal Issues: Does a change in a stock option plan to give the employer the right to pay an employee cash instead of shares cause an immediate disposition pursuant to 7(1)(b)?

Position: No.

Reasons: As long as the employee could potentially still receive shares under the agreement (albeit at the employer's discretion) the plan still falls within the ambit of s.7 & no 7(1)(b) disposition.