Income Tax Severed Letters - 2000-06-23

Principal Issues:
Can a payer of support payments deduct the legal expenses incurred to enforce the support agreement ?

Principal Issues: 1. No provision in ITA which permits a deduction to employees for the cost of acquiring mechanics' tools.

2.Whether small tools costing less than $200 would be deductible to an automotive mechanic employee.

Position: 1. 8(1)(i)(iii) of ITA refers to the cost of supplies consumed but this does not contemplate the deduction of mechanics' tools since they cannot be consumed.

The Standing Committee on Finance examined the issue of employment expenses, including the non-deductibility of mechanics' tools. The Committee received submissions from the Canadian Automobile Repair and Service Institute regarding the issue and presented its report to the House of Commons on June 10, 1992. The Committee concluded that the issue of employment expenses was complex and therefore, no recommendations were made regarding legislative changes.

2. No.

Reasons: 1. Standing Committee 's Report.
2. Small tools are capital assets under Class 12(h) of the Income Tax Regulations and not deductible under the ITA CCA allowed. to a self-employed businessperson not an employee.

Principal Issues: Whether portion of status Indian's employment income is tax
exempt.

Position: Yes

Reasons: Proration rule to Guideline 1 applies - less than 90% of employment
duties performed on a reserve and none of the other guidelines apply .

Principal Issues: Will the appointment of a non-resident as the trustee of a testamentary trust cause the trust to be a non-resident trust, and if so, what are the consequences of such an appointment, assuming that the beneficiaries continue to be resident in Canada?

Position: Likely a non-resident trust and general comments given concerning some of the differences between the taxation of a non-resident personal trust and a resident personal trust

Reasons: IT-447 sets our criteria for determining the residence of a trust. The tax consequences of establishing a non-resident testamentary trust, rather than a resident testamentary trust, includes the possible application on 94(1)(c), the taxation of world-wide income vs. income earned from Canadian sources, Part XIII tax on dividends rather than Part I, the ability to designate dividends under 104(19) and (20), the inability of the trust to use the principal residence exemption even if a property is designated as such and the requirement to file various forms, including T1142 for distributions from a n/r trust and T2062 on the disposition of TCP

Principales Questions:
Dans quelles circonstances précises, la culture maraîchère est-elle considérée comme une entreprise agricole ?

Position Adoptée:
La culture maraîchère sera considérée comme activité agricole si elle implique la culture et la croissance des plantes.

Principal Issues: Are expenses incurred by an employer to provide certain benefits to employees deductible by the employer and are the benefits taxable in the hands of the employees?

Position: A question of fact.

Reasons: Answer depends on whether there is a business, whether the expenses are reasonable and the nature of the benefits to the employees.

Principal Issues: Whether amount paid to a Canadian resident by the Federal Republic of Germany from the Claims Conference Article 2 Fund is excluded in computing the income of the Canadian resident under paragraph 81(1)(g) of the Act

Position: Yes

Reasons: It is because all the conditions of that paragraph have been met.

Principal Issues: 1.Whether a Tax Remission Order exists to set aside Indian Land in the Northwest Territory.

2. Whether the Indian Act Exemption for employment income Guidelines apply.

Position:1. No Remission Order found.

2. Guideline 4 might apply .

Reasons:1. None found in our research.

Principal Issues:
Whether the non-deductible portion of an allowance for impaired loans should be included in computing the capital of a financial institution as a reserve under subparagraph 181.3(3)(a)(iii).

Position:
Yes.

Reasons:
A financial institution in respect of which subparagraph 181.3(3)(a)(iii) applies is required to include in its capital tax base the amount of its reserves for the year except to the extent they were deducted under Part I. Accordingly, where an allowance for impaired loans exceeds the tax reserve deducted under subparagraph 20(1)(l)(ii), the excess will be included in computing capital under subparagraph 181.3(3)(a)(iii).

Principal Issues:
1. Would investment income earned by status Indians from a Credit Union located on reserve and the majority of members are status Indians be exempt from income tax?
2. In this situation does it make a difference whether the status Indian lives on or off reserve?
3. In this situation would the taxation of interest income earned on savings accounts and terms certificates by the Credit Union be viewed differently than banker's acceptances and mutual fund?

Position:
1. No, unless the Credit Union's income generating activities are connected to a reserve.
2. No.
3. No.

Reasons:
1. The Court in Recalma, placed greater weight on the location of the issuer's income generating activity than any other connecting factor and if this factor is not present, we believe that the presence of other connecting factors would likely be insufficient to establish that the investment income of an Indian would be exempt from tax.
2. See question 1.
3. The taxation of interest income earned on savings accounts and term certificates issued by the Credit Union would be viewed in the same manner as the taxation of banker's acceptances and income from mutual fund units.