Income Tax Severed Letters - 2000-10-13

Miscellaneous

21 August 2000 Miscellaneous 2000-004006A - HARRIS CASE

Unedited CRA Tags
231

Principal Issues: reports of loss of tax revenue on the emigration of a trust or on the distribution of property to a non-resident beneficiary

Position: referred to draft legislation which proposes to ensure that all persons, including trusts, who leave Canada or transfer property from Canada, will realize a deemed disposition at the time of departure (with exceptions for Canadian real estate and Canadian business property which is taxed when sold)

Reasons: House of Commons Standing committee report of Set 18, 1996; draft legislation on migration dated Dec 17, 1999

6 June 2000 Miscellaneous 2000-001204A - INTEREST EXPENSE ATTRIBUTION RULES

Unedited CRA Tags
20(1)(c) 74.1

Principal Issues: Transferee spouse borrows funds to acquire shares from transferor spouse. No 74.5(1) election. Is interest deductible?

Position: Cannot determine without full knowledge of facts.

Reasons: 20(1)(c) test (borrowing to earn income) in hands of transferee spouse is a purpose test. Also 74.5(11) or 245(2).

2000 Miscellaneous 2000-0033571 - Reorganization, change in facts and pro. tran

Unedited CRA Tags
55(3)(b) 55(3.1)(a)(iv)

Principal Issues: none

Position: n/a

Reasons: n/a

2000 Miscellaneous 2000-0038411 - Supplemental to Ruling 2000-002949

Unedited CRA Tags
20(1)(c)

Principal Issues: Supplementary to Ruling 002949

Position: n/a

Reasons: n/a

2000 Miscellaneous 2000-0039851 - Supplementary to Ruling 001446

Unedited CRA Tags
55(3)(b)

Principal Issues: Additional information on ruling 2000-001446

Position: n/a

Reasons: n/a

Ruling

2000 Ruling 2000-0001763 - INDIAN BAND OWNED CORPORATIONS

Unedited CRA Tags
149(1)(d.5)

Principal Issues:
1. Will the XXXXXXXXXX be exempt on any income it may receive from Companies A & B as a municipality in Canada for purposes of paragraph 149(1)(c) of the Act?
2. Will Companies A & B, corporations owned by the XXXXXXXXXX be exempt from tax by virtue of paragraph 149(1)(d.5)?

Position:
1. Yes.
2. Yes.

Reasons:
1. The Band has met tests laid out in Otineka as being a public body exercising powers of self-government and providing services municipalities typically provide and in any period in which they act as described they will be exempt.

2. All of the requirements of paragraph 149(1)(d.5) have been met. Not less that 90% of its capital is owned by the Band. Only the Band has the right to acquire shares or capital of the corporation. The Band Council controls at least 90% of the votes associated with the shares. No more that 10 per cent of its income is earned form activities carried on outside the geographical boundaries of the Band.

2000 Ruling 2000-0022983 - Mutual Fund Trust- Redesignation Feature

Unedited CRA Tags
104(6) (b) 104(7.1) 245(2)

Principal Issues:
This ruling request involves proposed transactions that will be undertaken by a group of mutual fund trusts. The proposals include amendments to a declaration of trust and the execution of an instrument pursuant to the declaration of trust which will permit the mutual fund trusts to rename their existing units; create two new classes of units; and add a redesignation feature to each class of units which, in certain circumstances, will allow these units to be redesignated as another class of units of the same fund. The purpose of the proposed transactions is to permit the manager of the funds to more effectively market the funds to different segments of the investor market and to tailor the fees and expenses applicable to such segments by offering a separate class of units of each such fund. In this ruling, the principal issues are:

2000 Ruling 2000-0005243 - Employee Loans

Unedited CRA Tags
15(2) 15(2.4)

Principal Issues: Is an interest free loan with a XXXXXXXXXX year repayment period to an employee\shareholder excluded from subsection 15(2) by virtue of subsection 15(2.4), that is are there bona fide arrangements for repayment of the loan within a reasonable time?

Position: Yes.

Reasons: Repayment schedule is considered reasonable and in accordance with normal industry practice. XXXXXXXXXX % of the principal of the loan will be repaid before year XXXXXXXXXX.

2000 Ruling 2000-0023443 - Cross-border wind-up bump and distribution

Unedited CRA Tags
88(1)(c) 88(1)(d)

Principal Issues: Availability of bump in situation where non-resident purchaser incorporates Canadian Acquisitionco to purchase Canco. Canco is wound up and shares of Canco's subsidiary are bumped and distributed to non-resident purchaser.

Position: Bump is available.

Reasons: Technical requirements are met. GAAR is n/a.

2000 Ruling 2000-0008413 - Mutual Fund Trust - Reclassification

Unedited CRA Tags
54 104(7.1)

Principal Issues: (a) Whether a reclassification of units of a mutual fund trust from one class to another would be considered a disposition?
(b) Whether the potential reclassification of units of a mutual fund trust from one class to another would trigger 104(7.1) and thus deny the trust a deduction under 104(6)?

Position: (a) No. (b) No.

Reasons: Consistent with other rulings.
(a) The rights, privileges, restrictions and conditions of each class are substantially the same, and the aggregate value of a unitholder's units of the class that will be exchanged will be equal to the aggregate value of the units of the other class.
(b) The purpose in having the two classes is to enable a different allocation of class expenses so as to be able to more effectively market to different segments of the investor market.

2000 Ruling 2000-0028883 - replacement property for former busi. prop.

Unedited CRA Tags
44(1) 13(4.1)

Principal Issues: Whether new land and new building will be considered a replacement property for former business property.

Position: Yes.

Reasons: Properties will satisfy requirements in paragraph 44(5)(a) and/or 13(4.1).

2000 Ruling 2000-0011903 - PHANTOM STOCK PLAN DISPOSTITION OF SUB.

Unedited CRA Tags
REG 6801(d)

Principal Issues:

1. Is the proposed arrangement a prescribed plan under paragraph 6801(d) of the Regulations?
2. If an employee of a subsidiary employer participates in a 6801(d) type of plan of the parent employer, can the disposal of the subsidiary by the parent be treated as a termination of the employee for the purposes of Regulation 6801(d)?

Position:

1. Yes.
2. No.

Reasons:

2000 Ruling 2000-0029493 - Group Loss Utilization Scheme

Unedited CRA Tags
20(1)(c)

Principal Issues: Group Loss Utilization Scheme

Position: Similar to prior rulings, ie 952626, 972734

Reasons: No new issues

2000 Ruling 2000-0014463 - Public company spin-off

Unedited CRA Tags
55(1) 55(3)(b)

Principal Issues:
1. Shareholder with more than 10% of a class of preferred shares will dispose of part of his holdings of common shares.
2. Individual transferring property to a corporation to utilize losses.

Position:
1. Taxpayer relying on comfort letter from Dept of Finance advising of proposed change to definition of specified shareholder for purposes of section 55.
2. Accepted

Reasons:
1. Relying on comfort letter.
2. Individual transferring property affiliated to corporation.

2000 Ruling 2000-0038963 - Affiliated group of persons loss ATIL

Unedited CRA Tags
20(1)(a) 85(1) 87(1.1)

Principal Issues: Whether depreciable assets transferred to wholly-owned subsidiary were for the purposes of gaining or producing income

Position: Yes

Reasons: Depreciable Assets transferred as part of affiliated group loss utilization scheme were held for a period of 10 days to earn income

2000 Ruling 2000-0015373 - Gross Asset Butterfly

Unedited CRA Tags
55(3)(b)

Principal Issues: Slight change in proposed transactions.

Position: Does not affect rulings given.

Reasons: Proposed distribution is still within the subsection 55(2) butterfly exemption of 55(3)(b).

2000 Ruling 1999-0011563 F - PAPILLON

Unedited CRA Tags
55(3)(b)

Principales Questions:
Application de l'alinéa 55(3)b) - papillon

Position Adoptée:
Décisions favorables accordées.

2000 Ruling 2000-0018113 - Partial butterfly

Unedited CRA Tags
55(3)(b) 55(3.2)(c)

Principal Issues: This is a partial split-up butterfly involving related parties, namely a father and mother and their three children. The assets of the distributing corporation (Amalco) consist of public company shares, some of which will be split among the three children by means of a partial butterfly to the children's separate holding companies, so that each child may deal with such property independently from the others. The remaining public company shares will continue to be held by the distributing corporation (Amalco) whose shareholders include the three children and the father and mother's holding company (HoldcoJ). HoldcoJ controls Amalco by virtue of holding all of the voting common shares.

Position: This partial split-up butterfly reorganization involves related parties and is part of the parents' estate planning process. The partial butterfly does not offend subparagraph 55(3.2)(c) because the children's holding companies were established as part of a partial estate freeze to allow the children to participate in the future growth of the public company shares, and did not acquire their shares of the distributing corporation (Amalco) from another person in contemplation of the proposed distributions by Amalco. In fact, the holding companies acquired their Amalco shares directly from Amalco as part of the estate freeze, and not from the children involved in the split-up.

Reasons:

1999 Ruling 9928183 - BUSINESS EXPENSE

Unedited CRA Tags
18(1)(a)

Principal Issues:
Are XXXXXXXXXX amounts deductible for purposes of computing income pursuant to section 9 of the Act?

Position:
Yes, subject to the limitations of paragraph 18(1)(a), 18(9), and 67.1(1) of the Act.

Reasons:
XXXXXXXXXX, as such these payments should be currently deductible provided they are incurred for the purpose of gaining or producing income. However, subsection 18(9) will defer the deduction of the deposit to the years when XXXXXXXXXX. The requirement to provide XXXXXXXXXX can be considered a service to be rendered in the future. In addition, subsection 67.1(1) will limit the deduction over the years to 50% of the actual payment.

1999 Ruling 9928723 - GROSS ASSET BUTTERFLY

Unedited CRA Tags
55(2)

Principal Issues: Standard Gross Asset Butterfly

Position: Rulings Given

Reasons: No significant issues

1999 Ruling 9826003 - BUTTERFLY REORGANIZATION

Unedited CRA Tags
55(3)(b)

Principal Issues: See Issue Sheet

Position: See Issue Sheet

Reasons: See Issue Sheet

1999 Ruling 9901513 - BUTTERFLY REORGANIZATION

Unedited CRA Tags
55(3)(b)

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 990151

Attention: XXXXXXXXXX

XXXXXXXXXX, 1999

Dear Sirs:

Re: XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

1999 Ruling 9917383 - REORGANIZATION

Unedited CRA Tags
55(3)(b) 110.6(7)(a)

Principal Issues: will 110.6(7)(a) apply to deny a capital gain deduction on the disposition of transferee corporation shares undertaken as part of an estate freeze?

Position: yes

Reasons: 3 conditions specified in letter 9510776 have been met so provision will apply

1999 Ruling 9906993 F - NRO PURCHASES RELATED CO'S DEBT FROM BANK

Unedited CRA Tags
133 18(4) 245(2)

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 3-990699
XXXXXXXXXX

À l'attention de XXXXXXXXXX

Le XXXXXXXXXX 1999

Mesdames, Messieurs

Objet : Demande de décisions anticipées
XXXXXXXXXX

1999 Ruling 9921363 - 55(3)(A) BUTTERFLY RULING

Unedited CRA Tags
55(2)

Principal Issues: (See Statement of Principal Issues)

Position: (See Statement of Principal Issues)

Reasons: (See Statement of Principal Issues)

1999 Ruling 9924143 - NRO - MAKING OF A LOAN

Unedited CRA Tags
133(8)

Principal Issues: Whether we will rule favorably that the purchase of previously existing non-arm's length debt (i.e. debt that was not incurred in contemplation of the proposed transactions) by a non-resident-owned investment corporation ("NRO") would not be considered the "making of a loan" for purposes of the definition of NRO in subsection 133(8).

Position: Yes

Reasons: Similar to previous rulings

1998 Ruling 9823003 - ROUTINE SPLIT-UP BUTTERFLY

Unedited CRA Tags
55(3)(b)

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 982300
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1998

Dear Sirs:

Re: XXXXXXXXXX
XXXXXXXXXX
Advance Income Tax Ruling Request

1998 Ruling 9825903 F - 149(1)O.2)(II)(IV)

Unedited CRA Tags
149(1)o.2)(ii) 149(1)o.2)(iv)

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.

Principales Questions

1. La détention d'actions et d'un billet à recevoir va-t-elle empêcher les sociétés de bénéficier de l'exonération de l'impôt de la Partie I en vertu des sous-alinéas 149(1)o.2)(ii) et (iv) de la Loi?

1998 Ruling 9830313 F - ORGANISME SANS BUT LUCRATIF

Unedited CRA Tags
149(1)(e)

Principales Questions:

Est-ce qu'un organisme sujet à 149(1)(e) peut posséder une participation dans une société en commandite qui exploite une entreprise?

Position Adoptée: Oui.

Ministerial Correspondence

2 October 2000 Ministerial Correspondence 2000-0040544 - SOCIAL ASSISTANCE

Unedited CRA Tags
8(1)(b)

Principal Issues: Taxation of Foster Care Payments

Position: Not taxable if conditions of 81(1)(h) are met. Base payments made by non-profit organizations may be exempt

Reasons: Consistent with prior opinions

26 September 2000 Ministerial Correspondence 2000-0023294 - Disposition TCP Emigration Trust from Canada

Unedited CRA Tags
248(1)

Principal Issues: reports of loss of tax revenue on the emigration of a trust or on the distribution of property to a non-resident beneficiary

Position: referred to draft legislation which proposes to ensure that all persons, including trusts, who leave Canada or transfer property from Canada, will realize a deemed disposition at the time of departure (with exceptions for Canadian real estate and Canadian business property which is taxed when sold)

Reasons: House of Commons Standing committee report of Set 18, 1996; draft legislation on migration dated Dec 17, 1999

19 September 2000 Ministerial Correspondence 2000-0044564 F - DON CONTREPARTIE PARTIELLE

Unedited CRA Tags
118.1

Position Adoptée:
Aucune. La question est présentement sous étude.

11 September 2000 Ministerial Correspondence 2000-0040534 F - ALLOCATION DE RETRAITE CESSATION D'EMPLOI

Unedited CRA Tags
248(1) 5(1) 8(1)b)

Principales Questions:? Un paiement tenant lieu de rémunération pour la période de préavis raisonnable de cessation d'emploi prévue dans les conditions d'emploi d'un contribuable est-il considéré comme un revenu d'emploi ou comme une allocation de retraite

Position Adoptée: C'est un revenu d'emploi.

29 August 2000 Ministerial Correspondence 2000-0039524 F - Revenu imposé dans la fiducie

Unedited CRA Tags
75(2)

Principales Questions:
Est-ce que le revenu provenant du revenu généré par les contributions d'une municipalité à une fiducie sera attribué à la municipalité conformément au paragraphe 75(2) de la Loi ?

Position Adoptée:
Non

21 August 2000 Ministerial Correspondence 2000-0039304 - HARRIS CASE

Unedited CRA Tags
231

Principal Issues: reports of loss of tax revenue on the emigration of a trust or on the distribution of property to a non-resident beneficiary

Position: referred to draft legislation which proposes to ensure that all persons, including trusts, who leave Canada or transfer property from Canada, will realize a deemed disposition at the time of departure (with exceptions for Canadian real estate and Canadian business property which is taxed when sold)

Reasons: House of Commons Standing committee report of Set 18, 1996; draft legislation on migration dated Dec 17, 1999

Technical Interpretation - External

10 October 2000 External T.I. 2000-0013545 - INSURANCE BROKER'S RESERVE

Unedited CRA Tags
32

Principal Issues: Availability of Reserve for unearned commissions of an Insurance Broker under subsection 32(1).

Position: General Comments.

Reasons:

10 October 2000 External T.I. 2000-0048695 - MEDICAL EXPENSES - LEASE VAN

Unedited CRA Tags
118.2(2)(1.7)

Principal Issues: Whether any portion of lease payments for a van that is already wheelchair accessible qualifies as an "acquisition" for purposes of paragraph 118.2(2)(l.7) of the Act.

Position: No

Reasons: The leasing of a van is not an "acquisition" and therefore cannot qualify for the medical expense deduction.

10 October 2000 External T.I. 2000-0050385 - Deemed active business income

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

Principal Issues: Whether 95(2)(a)(ii)(B) applies to the situation described in the letter

Position: Yes

Reasons: Interpretation of the provisions of the Act. In this case, notwithstanding that GPco only has a nominal interest in LLP, subclause 95(2)(a)(ii)(B)(II) of the Act applies to the interest paid by LLP to Holdco such that the income derived from that payment by Holdco is deemed to be included in computing the active business income of Holdco. The tracking of funds from LLP to Finco is not necessary in this case because the payment of interest from Holdco to Finco is deductible in computing the active business income of Holdco (refer to paragraph (b) of the definition of "earnings" in subsection 5907(1) of the Income Tax Regulations).

4 October 2000 External T.I. 2000-0016945 - ASSIGN. OF AMOUNT PAYABLE

Unedited CRA Tags
220(6) 220(7)

Principal Issues: Would Rulings Directorate confirm the comments drafted by the law firm.

Position: No.

Reasons: General comments provided on the application of 220(6).

4 October 2000 External T.I. 2000-0020735 - INDIAN TAXATION-RRSP WITHDRAWALS

Unedited CRA Tags
81(1)(a) 146(1)

Principal Issues: Taxation of RRSP withdrawals by status Indians

Position: Withdrawals from an RRSP which relate to contributions in respect of income that was exempt from tax, will generally be exempt from income tax. However, withdrawals of investment earnings will be taxed similarly to ordinary investment earnings.

Reasons: Position taken in previous letters.

3 October 2000 External T.I. 2000-0041025 - Books and Records

Unedited CRA Tags
230(1) 221(1)

Principal Issues: keeping books and records

Position: comments provided.

Reasons: legislation.

3 October 2000 External T.I. 2000-0015565 - Immigration of a foreign affiliate

Unedited CRA Tags
128.1(1)(b) 5907(13)

Principal Issues: Whether, on the immigration of a foreign affiliate, the amount to be added to taxable surplus arising from the deemed disposition of excluded property under paragraph 128.1(1)(b), and included in Fapi pursuant to Regulation 5907(13)(a), takes into account the hypothetical tax that would have been paid if there had been an actual disposition?

Position: No

Reasons: Although paragraph 128.1(1)(b) may deem certain dispositions to have occurred, generally no income or profits tax would actually have been paid by the affiliate in respect of such deemed dispositions. Income or profits tax must be paid before it can be recognized as "underlying foreign tax". In our view, such a result is inconsistent with the purpose of the provision, especially in light of the fact that amount A of paragraph 5907(13)(b) specifically accounts for the notional tax for dispositions deemed by paragraph 128.1(1)(b). The Department of Finance is aware of this anomaly and is considering a relieving amendment.

3 October 2000 External T.I. 2000-0046275 - Dividends on U.S. Spin-Off

Unedited CRA Tags
82(1)

Principal Issues: Tax consequences of receipt of spin-off shares of U.S. company.

Position: The shares of XXXXXXXXXX are considered to be a dividend.

Reasons: It is a pro-rata distribution by XXXXXXXXXX to its shareholders.

2 October 2000 External T.I. 2000-0039355 - HEALTH AND WELFARE TRUSTS

Unedited CRA Tags
6(1)(a) 104

Principal Issues: Would certain amendments to health and welfare trusts be appropriate? In particular, if the trust has a surplus could additional health and welfare plans of the employer be funded through the trust?

Position: Providing the amended Health and Welfare Trust is restricted to using its funds for the items listed in paragraph 1 of IT-85R2, the trust would continue to be an acceptable health and welfare trust.

Reasons: The purpose of a health and welfare trust is to provide specified health and welfare benefits to an employer's employees. Providing the additional benefits to the employees are within those specified in the bulletin, the purpose of the health and welfare trust rules is maintained.

2 October 2000 External T.I. 2000-0043625 - REPLACEMENT PROPERTY

Unedited CRA Tags
44(1) 44(5)

Principal Issues: Replacement Property Rules - Voluntary disposition of a motel and acquisition of a shopping plaza

Position: The replacement property rules in section 44 of the Act would not apply.

Reasons: Comments in paragraph 5 of IT-259R3

2 October 2000 External T.I. 2000-0015825 F - ACTIFS AUX FINS DE LA LOI

Unedited CRA Tags
110.6(1)

Principales Questions:
1) Est-ce qu'un actif d'impôt futur, inscrit au bilan d'une société conformément aux recommandations du ch. 3465 du Manuel de l'ICCA, constitue un "élément d'actif" aux fins de la définition de "action admissible de petite entreprise" prévue au par.110.6(1) LIR et "société exploitant une petite entreprise" au par. 248(1) LIR ?
2) Est-ce qu'un actif d'impôt futur non comptabilisé constitue un élément d'actif aux fins de ces dispositions de la Loi également ?
3) S'il s'agit d'un élément d'actif, est-ce qu'il peut être considéré "utilisé" dans l'exploitation d'une entreprise ?

Position Adoptée:
1) Oui; 2) Oui; 3) Non

29 September 2000 External T.I. 2000-0047685 - BUSINESS USE OF PRINCIPAL RESIDENCE

Unedited CRA Tags
18(1)(b)

Principal Issues: Whether certain expenses incurred by an employee/shareholder are deductible by the corporation for tax purposes and whether the reimbursement of these expenses are a taxable benefit to the employee?

Position: Question of fact.

Reasons: The expenses must satisfy the criteria in the Act for deductibility of business expenses. To the extent that a reimbursement is not in respect of personal expenses, the employee/shareholder would not have received a taxable benefit.

29 September 2000 External T.I. 2000-0024635 - EMPLOYEE-SHAREHOLDER SHARE SALES

Unedited CRA Tags
84.1 84(3) 125(7) 245

Principal Issues:

Scenario 1:
(1) Application of section 84.1 to a group of employees / shareholders who transfer their shares of an operating company to shares of a holding company.
(2) Will the employees be able to claim the capital gain exemption under subsection 110.6(2.1) if all other criteria in section 110.6 are satisfied?
(3) Will GAAR apply?

Scenario 2:
(4) Are cash and near cash assets required to be held by a construction company considered to be assets used principally in an active business?

Position TAKEN:

(1) Whether or not employees / shareholders deal at arm's length with Holdco is a question of fact. If they are not dealing at arm's length, section 84.1 will apply.
(2) Yes.
(3) No.
(4) Generally yes, but question of fact.

Reasons:

29 September 2000 External T.I. 2000-0032095 - STRUCTURED SETTLEMENT

Unedited CRA Tags
56(1)(a)

Principal Issues:
1) Can a structured settlement be designed over a 10 year term where at the end of the term, the principal is rolled over to a new structured settlement if interest rates have increased. If interest rates have not increased, the Claimant can wait to receive the funds and later purchase a life annuity.
2) As part of a settlement can the purchase of a life insurance on the parent caregiver be paid from the annuity and if death of the parent occurs, the life insurance proceeds would be paid to an annuity insurer to purchase a structured settlement to cover future caregiver costs?

27 September 2000 External T.I. 2000-0000535 - CALCULATION OF GROSS FARMING INCOME

Unedited CRA Tags
9(1) 28

Principal Issues: Calculation of Gross Farming Income

Position: Gross income is gross price quoted on cash purchase ticket

Reasons: Consistent with prior opinions

27 September 2000 External T.I. 2000-0037155 - RESTRICTIONS ON TRANSFER OF RRSP

Unedited CRA Tags
146(2)(c.3) 146(10)

Principal Issues: Does the Act permit a financial institution to prevent the transfer of an RRSP while the annuitant has an loan outstanding with the FI?

Position: Subsection 146(10) and paragraph 146(2)(c.3) may apply.

Reasons: Will depend on the terms of the loan and the RRSP, and the relationship between the annuitant and the issuer.

25 September 2000 External T.I. 2000-0038595 - PARTITION OF PROPERTY

Unedited CRA Tags
248(20) 248(21)
initially one property if acquired under one deed

Principal Issues:
(1)Whether subsection 248(21) of the Act would apply to a split up of properties.
(2)Whether subsection 126(1) foreign tax credits would be available if taxpayer pays tax on capital gains in a foreign country.

Position:
(1)Question of fact.
(2)Yes, provided the tax paid is a non-business-income tax.

Reasons:
(1)Must be a partition of property that fits within subsections 248(20) or 248(21) of the Act.
(2)The foreign tax credit applies to non-business-income taxes paid to the
government of another country

25 September 2000 External T.I. 2000-0025855 - PRIVATE FOUNDATION - NOVA SCOTIA LIMITED

Unedited CRA Tags
110.1(3) 75(2)

Principal Issues: It is proposed that an Ontario corporation wholly owned by one individual gift a portfolio of publicly traded shares to a Nova Scotia Company with liability "limited by guarantee" of which that individual is the sole director. We are asked whether the fact that the sole shareholder of the transferor is the sole director of the transferee would negate such a transfer constituting a gift for the purposes of 110.1(3) of the Act. We are also asked whether a Nova Scotia Company with liability "limited by guarantee" would be viewed as a trust for the purposes of subsection 75(2).

Position: The fact that the sole shareholder of the transferor is the sole director of the transferee would not, in and of itself, prevent such a transfer from qualifying as a gift for the purposes of 110.1(3) of the Act. A Nova Scotia Company with liability "limited by guarantee" would not be viewed as a trust for the purposes of subsection 75(2).

Reasons: A gift is a voluntary transfer of property without consideration. Whether or not a gift has been made depends upon the facts. Corporations incorporated under Nova Scotia's Companies Act are corporations for the purposes of the Act.

22 September 2000 External T.I. 2000-0023275 - GOVT ASSIST. FISHING

Unedited CRA Tags
56(1)(a)(vi) 14(1)

Principal Issues: Taxation of payments made by HRDC under the Fisheries Restructuring and Adjustment Program a) licence retirement and b) final cash payment.

Position: Both types of payments taxable whether the recipients were employed or self-employed.

Reasons: a) The relinquishment of a fishing license to the DFO is treated as a disposition of eligible capital property.
b) Self- employed individuals, considered to be earning income from business, in receipt of the final cash payments would be required to include such amounts in income by virtue of section 9 and/or 28 of the Income Tax Act (the "Act"). Lump sum cash payments received by individuals other than self-employed individuals, would be considered other income by virtue of subparagraph 56(1)(a)(vi) of the Act.

22 September 2000 External T.I. 2000-0047885 - LATE WITHDRAWAL HOMEBUYERS

Unedited CRA Tags
146.01(1)

Principal Issues: Whether wife can participate in Home Buyers if she marries purchaser of home after purchase and tries to withdraw in calendar year subsequent to year of purchase.

Position: No

Reasons: Because of "regular eligible amount" requirement that withdrawal occur no more than 30 days after purchase.

22 September 2000 External T.I. 2000-0036885 - INDIAN SCHOOL BOARD TRUSTEE

Unedited CRA Tags
81(1)(a)

Principal Issues: Whether the income of a First Nation school board trustee is exempt. The employer is located off a reserve and the trustee does not live on a reserve.

Position: Likely no.

Reasons: We would expect that a significant portion of the Trustee's time, i.e., her employment activities, would be spent attending Board meetings and in the administrative offices of the School Board, which are located off reserve. Further, while an employer may sometimes allow an employee to perform employment duties away from the employer's location, it is our view that the most relevant locations are those at which the employee is required to perform the duties.

21 September 2000 External T.I. 2000-0034665 - EMPLOYEE-LEGAL FEES

Unedited CRA Tags
8(1)(b)

Principal Issues: The deductibility of legal fees that may relate to human rights violations and compensation for lost wages. (Paragraph 8(1)(b)).

Position: General comments were provided

Reasons: All the relevant information was not available

21 September 2000 External T.I. 2000-0042955 - TRAINING-HELICOPTER PILOT

Unedited CRA Tags
118.5 118.6

Principal Issues: An individual has requested information with respect to the costs of becoming a helicopter pilot.

Position: General Comments were provided

Reasons: See principal issues and position

21 September 2000 External T.I. 2000-0036585 - Mutual Fund Trust - CDA

Unedited CRA Tags
131(1) 104(21) 89(1)

Principal Issues:
It appears that a particular corporation received dividends from another corporation that may or may not qualify as a mutual fund corporation, and received income from various mutual fund trusts. The principal issue is the impact on the recipient corporation's capital dividend account.

Position:
If the dividends are received from a mutual fund corporation, the payor corporation can elect to have the dividends be deemed to be a capital gains dividend, in which case the entire gain will be added to the recipient corporation's capital dividend account. If income is received from a mutual fund trust, the payor trust can designate the income to be a taxable capital gain; however, only the taxable portion of the gain will be added to the recipient corporation's capital dividend account.

Reasons:
Subsection 131(1) applies where the payor is a mutual fund corporation, while subsection 104(21) applies where the payor is a trust (including a mutual fund trust). Pursuant to 131(1), the recipient is deemed to have received a capital gain. Pursuant to 104(21), the recipient is deemed to have received a taxable capital gain, and thus cannot the non-taxable portion of the capital gain recognized by the mutual fund trust is not deemed to be received by the recipient corporation.

21 September 2000 External T.I. 2000-0045675 - DEDUCTIBILITY CONTRIBUTION FOREIGN PP

Unedited CRA Tags
8(8)

Principal Issues: A Canadian resident originally from the U.K. is allowed to make additional contributions to the U.K. State Pension Plan ("U.K. Plan") in order to increase the pension he will receive from the U.K. Plan when he reaches 65 years of age. Can he deduct these additional contributions in computing his income for Canadian income tax purposes?

Position: No.

Reasons: There is no provision in the Act that provides for a deduction.

21 September 2000 External T.I. 2000-0033745 - PUT AND CALL OPTIONS

Unedited CRA Tags
9(1) 39(1) 49

Principal Issues: Comments on put and call options

Position: Comments provided that are consistent with IT-479R

Reasons: See position

20 September 2000 External T.I. 2000-0043435 F - Associé quittant société de personnes

Unedited CRA Tags
53(1)(e)

Principales Questions:
Demande de redressement du prix de base rajusté d'une participation dans une société de personnes lors du départ d'un associé.

Position Adoptée:
Aucune position. Transmission au bureau des services fiscaux de Sherbrooke pour leur considération.

19 September 2000 External T.I. 2000-0033995 - REPLACEMENT PROPERTY

Unedited CRA Tags
44(5)

Principal Issues: Whether a portion of the cost of property can qualify for the replacement property rules in section 44 of the Income Tax Act, in the situation where excess property is acquired.

Position: It is our view that the replacement property rules in section 44 clearly do not allow such a proration. According to these rules, a particular property either qualifies as a replacement property or it does not.

Reasons: The definition of replacement property in section 44.

18 September 2000 External T.I. 2000-0026805 F - PAIEMENTS DANS LE CADRE D'UN CONGEDIEMENT

Unedited CRA Tags
8(1)b) 5(1) 248(1)

Principales Questions: Un paiement tenant lieu de rémunération pour la période de préavis raisonnable de cessation d'emploi prévue dans les conditions d'emploi d'un contribuable est-il considéré comme un revenu d'emploi ou comme une allocation de retraite

Position Adoptée: C'est un revenu d'emploi.

7 September 2000 External T.I. 1999-0009325 - Approved Research Institute

Unedited CRA Tags
37(7) 37(1)(a)

Principal Issues:
The research institute, at the time it was granted "approved" status" under subsection 37(7) of the Act, had submitted that the potential receipt of royalties from patents, etc. would be minimal. However, based on commercial agreements entered into by it for the sale or license of certain rights, the institute will realize a greater amount of fees and royalties than previously anticipated.

The institute had also received status as a registered charity under paragraph 149(1)(f)..

The institute is concerned whether its non-research activities may be a "business", as defined under subsection 248(1) of the Act which it contends is not a requirement under the Act for the purpose of granting "approved status" to an entity, and whether the receipt of revenue from such activities could jeopardize its status as an "approved" research institute and also its status as a registered charity.

Position:

The conditions for granting "approved" status require that the entity be a non-profit organization and that its activities are unquestionably SR&ED. In accordance with the definition of "business" which includes "an undertaking of any kind whatever", any other non-SR&ED activity would technically be a business. Carrying out such other activity produces the risk that the institute's non-profit activities, for a particular period, becoming incidental to its revenue-earning activities which would result in the loss of its non-profit status and "approved" status.

Generally, a non-profit organization may earn income from income-generating activities and maintain its exempt status provided that the income-generating activity is not the principal activity and any resulting income therefrom is used to achieve the institute's declared exempt objectives.

Determination that a particular activity is an entity's principal activity and that it complies with the charitable purpose of a charitable organization are questions of fact which can only be determined retrospectively by the TSO and the Charities Division, respectively.

Reasons:

Technical Interpretation - Internal

3 October 2000 Internal T.I. 2000-0030737 - Subpar 152(4)(b)(iii) and FAPI

Unedited CRA Tags
152(4)(b)(iii)

Principal Issues: Whether a reassessment of a taxpayer to include an amount in income under section 91 in respect of foreign accrual property income ("FAPI") of a controlled foreign affiliate can reasonably be regarded as relating to a transaction involving the taxpayer and controlled foreign affiliate.

Position: Question of fact. If the controlled foreign affiliate does not conduct any business with its Canadian shareholder, a reassessment of income computed under section 91 may reasonably be considered to be made as a consequence of the initial subscription for shares in controlled foreign affiliate by the taxpayer only if the capital is directly invested by the controlled foreign affiliate in FAPI earning property or activities.

Reasons: If the capital invested by the taxpayer is used by the controlled foreign affiliate to earn income from active business and is later used to earn FAPI, the FAPI and the capital infusion by the taxpayer may be too remotely related for the reassessment of the taxpayer for section 91 income to be considered as being made as a consequence of the investment in the foreign affiliate by the taxpayer.

3 October 2000 Internal T.I. 2000-0039997 F - VENDEAU-CONFERENCE ET CONGRES

Unedited CRA Tags
8(1)f)

Principales Questions: Est-ce que les dépenses suivantes engagées par un directeur d'agence (son revenu provient en totalité de commissions) sont déductibles dans le calcul de son revenu d'emploi en vertu de l'alinéa 8(1)f) de la Loi:
* Honoraires comptables pour conférences sur la fiscalité pour les vendeurs de l'agence et pour consultation pour les dossiers des clients
* Congrès des assureurs-vie:

Position Adoptée: Oui pour les honoraires comptables, non pour le congrès.

26 September 2000 Internal T.I. 2000-0028057 - PAYMENTS TO REFUGEES

Unedited CRA Tags
56(1)(u) 110(1)(f)

Principal Issues:
Charitable organisation makes periodic payments to refugees during their first year in Canada. Are the payments taxable income and how should they be reported?

21 September 2000 Internal T.I. 2000-0045017 - Residency under income tax convention

Unedited CRA Tags
110(1)(f)

Principal Issues: Whether individual was resident of the Dominican Republic under the Income Tax Convention.

Position: No

Reasons: The individual was only liable to tax on income from sources in the Dominican and this was not the most comprehensive form of taxation in the Dominican Republic

19 September 2000 Internal T.I. 2000-0034647 - PAY EQUITY-BANKRUPTCY RETURN

Unedited CRA Tags
128(2)(e)

Principal Issues: Whether a pay equity payment has to be reported on the "in-bankruptcy" return filed by the trustee in bankruptcy or the "post-bankruptcy" return filed by the individual where the payment is made while an individual is still bankrupt.

Position: The pay equity payment should be report on the post-bankruptcy return.

Reasons: Although the pay equity settlement is received by the trustee, paragraph 128(2)(a) deems the trustee to be the agent of the bankrupt for purposes of the Act. Further, the income for purposes of the in-bankruptcy return filed by the trustee under paragraph 128(2)(e) is to be calculated as if the only income of the individual for the particular taxation year were the income for the year, if any, "arising from dealings in the estate of the bankrupt or acts performed in the carrying on of the business of the bankrupt by the trustee."

28 August 2000 Internal T.I. 2000-0019437 - STATUTE-BARRED REASESSMENTS

Unedited CRA Tags
152(4) 165(1)

Principal Issues: As the taxpayer-corporation sent a letter to the TSO requesting an adjustment to the 1996 tax return within 90-days of the date of reassessment of that return but after the date the return became statute-barred for reassessment under ITA152(4), can the TSO reassess to adjust the 1996 return?

Position: Yes, if the letter qualifies as an objection for purposes of ITA165(1).

Reasons: ITA 165(5) provides that the time limitations in ITA 152(4) do not apply to reassessments originating from a notice of objection. Whether the letter qualifies as an objection depends on the wording content (e.g., use of words such as object, dispute, disagree) and, as stated in ITA 165(2), the manner in which it was served (i.e., served by being addressed to the Chief of Appeals and either mailed or delivered). Under ITA 165(6), the Minister may accept an objection even if it was not served in the manner set out in ITA 165(2).

Ministerial Letter

1998 Ministerial Letter 980088A - DPS CORRECTION/FACTS

Unedited CRA Tags
248(1)

Principal Issues:
Correction of a drafting error in ruling E of 972932 and additional facts.

Position: N/A.

Reasons:
Reference to Third Party Purchaser in ruling E was clearly in error. Additional facts accepted.