Income Tax Severed Letters - 2000-08-04

Principal Issues:
Can it be said that security equipment that is installed in a building due to nature of business operated in the building is class 8 equipment rather than class 1.

Position: No.

Reasons:
In order to be in class 8 the property must be described in paragraph (b) .

Principal Issues: Designation of shares for purposes of the capital gains deduction and subparagraph 84.1(2)(a.1)(ii).

Position: We agree that Mr. A can designate the shares that he purchases from Mr. B as being the shares sold to C, and that, as a consequence, the shares purchased from Holdco B would be the shares sold to Holdco A.

Reasons: Since there is no clear prohibition against selecting the shares in respect of which the deduction was claimed and no obvious reason that such selection ought not to be available, it is our view that a taxpayer may identify the shares represented by the deduction claimed. If the taxpayer includes a designation in his return that specifies the shares in respect of which the exemption is claimed, the Agency will consider this designation binding in respect of the future application of subparagraph 84.1(2)(a.1)(ii).

Principal Issues: Whether transactions involving the purchase and sale of options by a taxpayer should be viewed as being on account of income or capital and discussion of loss application rules.

Position: Question of fact - general information provided.

Reasons: See above.

Principal Issues: An individual is a bear hunting guide each spring. However, in March of 1999, the client received $1,000 from the Province of Ontario which represented compensation for income he or she lost when the bear hunt was cancelled in the spring of 1999. Is the $1,000 taxable as business income?

Position: Yes

Reasons: As the amount covers an income deficiency, the amount would be taxable as business income.

Principal Issues: General comments on subsection 70(9), 73(3), 73(1) and 70(6) of the Act.

Position: N/A

Reasons: N/A

Principal Issues: Whether land owned by the taxpayer constitutes "qualified farm property" when the gross revenue test is met by a great-grandparent?

Position: Yes

Reasons: Provided a parent, grandparent or great-grandparent meets the gross revenue test in clause (a)(vi)(A) of the definition of qualified farm property. We have considered this issue before see E9919475.

Principal Issues: 1) Is a capital loss created on the expiry of a life interest recognized on the death of the life interest holder if it is not denied by reason of 40(2)(g)(iii)? 2) Can the ACB of the remainder interest be increased by amounts paid by the estate for capital additions to the property or for the acquisition of the rights of the life interest holder?

Position: 1) yes 2) yes

Reasons: 1) Other than 40(2)(g)(iii), there is no statutory reason to deny a capital loss that arises on the deemed disposition of a life interest under 70(5) immediately before death; however the FMV of the life interest at that time, and thus the deemed proceeds of disposition under 70(5)(a), do not reflect the imminence of death for the reasons set out in the Mastronardi decision. 2) While there is no provision which would increase the ACB of the remainder interest upon the expiry of the life interest, amounts paid for capital improvements to the property or for the rights of the life interest holder are added to the ACB of the property subject to any adjustment required by 69(1)(a).

Principal Issues: Whether legal fees to be incurred by each member of a group of former employees will be deductible for income tax purposes. The legal fees are to be incurred in appealing a decision by the XXXXXXXXXX that denied the partial wind-up of the pension plan of the group of former employees.

Position: Maybe.

Reasons: Paragraph 60(o.1) of the Act allows a taxpayer to deduct, within certain limits, legal expenses paid to collect or establish a right to a pension benefit or retiring allowance, subject to specific quantum limits.

Principal Issues: Whether "healing touch therapy" qualifies as a medical expense under the Act.

Position: Likely not.

Reasons: By virtue of paragraph 118.2(2)(a) of the Act, payments made to a therapist (or any other medical worker for that matter), for medical or dental services will qualify for the medical expense tax credit only if the person to whom payments are made is a "medical practitioner," "dentist," "pharmacist," "nurse," or "optometrist." Paragraph 118.4(2)(a)of the Act provides that, for the purposes of section 118.2 of the Act, a reference to a "medical practitioner," "dentist," "pharmacist," "nurse," or "optometrist" means, for a service rendered, a person who is authorized to practice as such according to the laws of the jurisdiction in which the service is rendered. Accordingly, one must look to provincial legislation to determine whether payments to a medical practitioner will qualify for the medical expense tax credit.

Principal Issues:
Would there be any capital cost allowance, depletion allowance, or/and other deductions to be claimed by a taxpayer in respect of the cost of the planted seedlings in his/her tree-growing operation when there is tree loss each year due to natural causes. This tree-growing operation includes planting certain types of tree seedlings on the taxpayer's land and growing the trees from these seedlings to a certain height. These trees would be sold on a wholesale distribution basis to nurseries and greenhouses and, in turn, these trees would be re-sold to landscape contractors and other customers for planting.

Position:
No capital cost allowance and depletion allowance in respect of the planted seedlings would be allowed. There might be inventory deduction in respect of tree loss, depending upon the circumstances of the situation.

Reasons:
Similar to the situation in a Christmas tree growing operation as described in paragraph 14 of Interpretation Bulletin IT-373R2, in the case at hand, a stand of trees is not viewed as a timber limit since the output is trees, not timber or similar products. Therefore, the depletion allowance provisions in Schedule VI of the Regulations are not applicable. Furthermore, there is no other depletion allowance or capital cost allowance that would be available for deduction under the Act or Regulations. When the accrual method for income reporting is used and some of the inventory of trees that were being grown for sale are lost due to natural causes, it is expected that the value of the inventory would be affected. Depending upon the particular inventory valuation and inventory reporting that is used, there may or may not be a deduction available. This determination would have to be made by examining the relevant facts of the actual situation. The case at hand can be differentiated from the case of Northwood Pulp and Timber Limited wherein the Court decided that silviculture expenses would be considered as period costs and not inventory costs. The case at hand is similar to a nursery operation and it is not considered as a timber harvesting operation. (See also file #E58517 dated September 19, 1989, wherein we opined that tree seedlings were inventory in a nursery operation.)

Principal Issues: Whether the travelling expenses of a group of farmers incurred when visiting New Zealand may be deducted for income tax purposes.

Position: Question of fact.

Reasons: Under subsection 9(1) of the Act, a taxpayer's income from a business or property is the "profit" therefrom for the year, subject to the particular rules in Part I of the Act. Some of these rules are: (i) under para. 18(1)(a), expenses must be incurred for the purpose of producing or gaining income from a business or property, (ii) under para. 18(1)(h), personal or living expenses may not be deducted, except for travel expenses incurred by a taxpayer while away from home in the course of carrying on the taxpayer's business, (iii) under section 67, an outlay or expense is only deductible in computing income to the extent that it was reasonable in the circumstances, and (iv) under paragraph 18(1)(b), an outlay, loss or replacement of is not deductible unless expressly permitted under the Act.

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.

2000-002760
XXXXXXXXXX Peter Lee
(613) 957-8977

Attention: XXXXXXXXXX

July 18, 2000

Dear Sirs:

Re: Technical Interpretation Regarding Regulation 1104(14) and Class 43.1

Principal Issues: Meaning of "same business" in Reg 1103(1)

Position: question of fact

Reasons: question of fact

Principal Issues: Whether employees of XXXXXXXXXX working on runs which do not leave the municipality or metropolitan area for more than fours hours should be allowed a deduction for meal expenses under paragraph 8(1)(g) of the Act.

Position: No.

Reasons: The CCRA will administratively allow meal deductions after four hours away from the municipality, this position will not be extended to include situations which do not meet the four hour requirement.

Principal Issues: What is the time period for assessment of partnership information returns where demand by Minister for the return?

Position: 3 years from the later of (a) the day when the return would have been required to file a return if no Ministerial waiver existed and (b) the day when the return is actually filed (whether voluntarily or pursuant to Ministerial demand)

Reasons: wording of 152(1.4)

Principal Issues: What are the Canadian income tax implications to an immigrating individual as a consequence of the individual owning stock options granted by a foreign corporation (and employer) under paragraph 128.1(1)(b) of the Act.

Position: No deemed disposition/re-acquisition under paragraph 128.1(1)(b) on immigration.

Reasons: The law.

Principal Issues: Does farm property vest indefeasibly with the beneficiary if it is received subject to a mortgage or charge, the amount of which is described in the will by formula rather than as a fixed amount?

Position: yes

Reasons: The manner in which the amount of the mortgage or charge is determined does not affect the position set out in paragraph 3(d) of IT-349R3 and 8(e) of IT-449R.

Principal Issues:

Principales Questions:

Est-ce qu'une fiducie visée par le paragraphe 248(9.1) de la Loi serait considérée comme étant une «fiducie testamentaire» au sens du paragraphe 108(1) de la Loi même si elle n'avait pas commencé à exister au décès d'un particulier?

Position Adoptée: