Income Tax Severed Letters - 1999-12-10

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: Whether a status Indian employee of XXXXXXXXXX , located off-reserve, is exempt from income tax.

Position: No.

Reasons:.. The Guidelines contemplate the location(s) at which an employee is required to perform duties. In the present case, the employer is located off reserve and that is where the employer provides services to its clients.

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.

Principal Issues:

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: Taxation of reimbursement of a housing loss on termination of employment.

Position: May be taxable or non-taxable depending on circumstances.

Reasons: If the home at location B was purchased because of a relocation prior to October 1998, to a remote place by the same employer who is now providing compensation on termination of employment or at the employer's request and the employer had a housing loss compensation policy in place at the time the home was purchased, in our view, the compensation would be compensation for an eligible housing loss and provided the relocation to location B meets the definition of an eligible relocation in subsection 248(1) of the Act, no amount would be required to be included in income if compensation on the sale of the home at location B is paid before the year 2001.

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 991779
C. Tremblay
November 12, 1999

Dear XXXXXXXXXX:

This is in reply to your letter of June 23, 1999, wherein you seek our assistance in respect of an out of court settlement with an insurance company with regards to a long term disability claim.

Principal Issues: 1) Required explanation of what type of financial instruments a CCPC can issue as a qualified investment for an RRSP

Position: 1) Provided basic explanations of relevant law

Reasons: Gave our standard explanatory letter on this topic, also made modifications to explain our standard position on investment in trusts and warrants and rights.

Principal Issues: How can unrecoverable or zero value mortgages be removed from registered retirement savings plans ("RRSP").

Position: Through disposition.

Reasons: The mortgage cannot be written-off but if legally discharged (through foreclosure or power of sale) the value will be written down and the amount of the proceeds received (which may be nil) will be entered; and if disposed of for fmv same result. If disposition to non-arm's length party and sold for less or more than fair market value, tax consequences to annuitant.

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.

Principales Questions:

Conséquences fiscales au décès d'un des détenteurs d'un compte conjoint.

Position Adoptée:

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: Whether foreign stock exchange index units are qualified investments for deferred income plans

Position: Currently WEBS are qualified investments. Proposed regulations will consider WEBS, SPDRs & DIAMONDs to be qualified investments after 1993.

Reasons: WEBS are shares listed on a prescribed foreign stock exchange. If regulations are amended as proposed, SPDRs & DIAMONDs will be qualified investments.

Principal Issues: Will 7(1.1) apply where shares acquired under a stock option are disposed of to a non-arm's length person?

Position: Yes

Reasons: The provision clearly applies to any disposition of the shares that were subjected to subsection 7(1.1) of the Act.

Principal Issues: Are there any immediate income tax consequences when a broker rebates to an RRSP investor of a percentage of its commission on the deferred sales charges in respect of mutual fund units purchased by the RRSP?

Position: No.

Reasons: Consistent with prior positions. The reimbursement is a transaction between the RRSP investor and the broker and has no impact on the annuitant of the RRSP.