Income Tax Severed Letters - 2000-11-10

Principal Issues: Whether salaries paid to employees of private agency to provide foster care in their homes are exempt under paragraph 81(1)(h).

Position: Question of fact; however they may be exempt.

Reasons: The fact that foster care payments may be received by an individual as an employee is not determinative in ascertaining whether payments are exempt since the legislation refers to payments received directly or indirectly.

Principal Issues: What is the income tax treatment of amounts paid to employees upon retirement to compensate them for relocating.

Position: (1) Generally taxable, unless exception in paragraph 36 applies. The exception applies to the reimbursement of moving expenses of retiring employee relocating out of a remote work location. (2) Further, any benefit from having an employer reimburse the employee for a housing loss is likely taxable under subsection 6(19).

Reasons: (1) Except where the Act provides otherwise, taxpayers are generally taxable on the value of all benefits they receive by virtue of their employment. Paragraph 36 of IT-470R provides an exception. (2) This is because to fit the definition of an "eligible housing loss" and qualify for a lesser benefit under subsection 6(20), a relocation must be an eligible relocation. One of the conditions of an eligible relocation is that it must enable the taxpayer to carry on business or to be employed at a location in Canada (or to be a student in full-time attendance enrolled in a program at a post-secondary level at a location of a university, college or other educational institution).

Principal Issues: Could we explain why the original carrier of a RRIF has to retain the balance of any unpaid portion of the minimum amount when the property is being transferred to another RRIF carrier?

Position: Yes.

Reasons: Without this requirement, the minimum amount would not get paid out in the year of a transfer between carriers.

Principal Issues: We are asked to comment on two issues. First, whether the organization may issue donation receipts. Second, whether the organization is exempt from tax.

Position:. The organization may not issue donation receipts. It appears unlikely that the organization is tax exempt, as currently constituted.

Reasons: We are advised by charities that the organization is not registered; therefore, it may not issue donation receipts. The articles of the organization do not seem to prevent the members of the organization from personally benefiting from its income. Therefore, it is unlikely that the organization currently constitutes and NPO. However, this determination can only be made by the TSO, having regard to all the facts.

Principal Issues:
Can an amount be transferred out of a RRIF on a tax-deferred basis to an adult child of the annuitant of the RRIF on the death of the annuitant?

Position:
The amount may be transferred on a tax-deferred basis to an RRSP, a RRIF or an annuity under which the child is the annuitant, if the amount is a "refund of premiums" as that term is defined in the Act.

Reasons:
The Act provides for tax-deferred transfers of amounts between registered plans for the benefit of dependent children in certain circumstances.

Principal Issues: Is the reimbursement of an employee's medical health plan premiums by the employer a taxable benefit?

Position: Yes. It could be non-taxable if the payment is made directly by the employer to a private health services plan.

Reasons: One of the exceptions to taxable benefits in subparagraph 6(1)(a)(i) is "any benefit derived from contributions of the taxpayer's employer to or under a...private health services plan." In this case the contribution is being made by the employee and is reimbursed by the employer.

Principal Issues:
1. Can LSVCC shares be held in a RRIF?
2. Does the annuitant of a RRIF get the LSVCC tax credit if shares are purchased in a RRIF?
3. What happens to the LSVCC tax credit if shares are redeemed to pay minimum amount under a RRIF?

Position:
1. LSVCC shares may be held in a RRIF, but may not be issued to a RRIF by a federal LSVCC.
2. No.
3. Part XII.5 may be payable by the RRIF.

Reasons:
1. Shares of an LSVCC in section 6700 of the Regulations are qualified investments for a RRIF. Federal LSVCCs are issuable only to individuals and RRSPs under the registration requirements in subsection 204.81(1) of the Act.
2. RRIFs are not "qualifying trusts" under section 127.4 of the Act.
3. Part XII.5 tax is payable if a share is redeemed, acquired or cancelled less than 8 years after it is issued.

Principal Issues:
1. Will clause 1106(1)(a)(ii)(A) of the draft Regulations, at the definition of excluded production, apply to deny a Canadian producer's film tax credit, as a result of particular foreign distributors' participation in the production? This will involve distribution agreements with a potential term of 95 years.
2. Will subsection 125.4(4) of the Act apply to deny a Canadian producer's film tax credit, as a result of the same foreign distributors' participation in the production?

Position:
1. & 2. No, based on the facts as presented.

Reasons:
1. Since the film is a treaty co-production, clause 1106(1)(a)(ii)(A) of the draft Regulations, at the definition of excluded production, does not apply to the film.

2. Since the foreign distributors are not subject to tax in Canada, neither of the distributors would be an investor that may deduct an amount in respect of the film in computing its income, as is contemplated in order for subsection125.4(4) of the Act to apply.

Principal Issues: Interaction between subsection 70(6) of the Income Tax Act and paragraph 5 of Article XXIX B of the Canada-United States Income Tax Convention

Position: See our comments in the letter

Reasons: Interpretation of the law

Principal Issues:
Whether a payment received from an employee's union is a retiring allowance.

Position: Yes.

Reasons:
The definition of "retiring allowance" in section 248(1) of the Act includes a payment "in respect of" a loss of employment and this includes payments from third parties.

Principal Issues:
1. Deductibility of home-office expenses by an employee?
2. Whether certain travel expenses are considered to be personal or business in nature?

Position:
1. Depending on the circumstances.
2. Travel from one's residence to one's regular work place is personal in nature.

Reasons:1. Where the condition of employment requires the employee to maintain a home-office, the expenses are reasonable and are not reimbursed, they are deductible.

Principal Issues: Whether concrete ready-mixers are "exempt property" and therefore, a "prescribed property" for purposes of section 16.1.

Position: No

Reasons: Similar to court decision

Principal Issues:
Can a spousal RRSP be transferred to a non-spousal RRSP after a divorce and therefore the attribution rule in 146(8.3) would not be applicable?

Position: Yes. However, the transfer will change the status of the transferee "non-spousal" RRSP to that of a "spousal RRSP".

Reasons:
An RRSP is a "spousal RRSP" when the RRSP has received a contribution from a taxpayer at a time that the taxpayer was the spouse of the annuitant of the RRSP (or the RRSP has received a payment from another RRSP or RRIF that was a spousal plan).

Principal Issues: Whether a corporation is a "Canadian" as defined in draft regulation 1106(1).

Position: It appears so.

Reasons: It appears meet paragraph (c) of the definition of "Canadian"

Principal Issues:
1. Can a portion of a retiring allowance be used by the employer to purchase increased pension benefits under its defined benefit pension plan in respect of the departing employee?
2. 2. If so, would this be considered to be an employer contribution and therefore not be taxable to the employee?

Position:
1. Insufficient information to offer an opinion.
2. 2. All of the retiring allowance will be included in the employee's income pursuant to paragraph 56(1)(a)(ii).

Reasons:
1. Requires a review of the terms of the pension plan and the relevant pension legislation (pension benefits standards act) governing the RPP.
2. 2. Character of the amount contributed to the RPP, if such a contribution is possible, would not change from that of a retiring allowance.

Principal Issues:
The calculation of the amount of a retiring allowance that may be transferred to an RRSP when employees have had various employers over a number of years?

Position:
We provided basic comments on the calculation of an example transfer that covered a number of situations.

Reasons:
A determination can only be made on the basis of the facts present in a given situation.

Principal Issues:

Principales Questions: Où en est l'étude de l'Agence quant à sa position administrative à l'égard de l'application de l'alinéa 85(1)b)? / How is CCRA's study doing on its administrative position regarding the application of paragraph 85(1)(b)?

Position Adoptée: L'Agence a complété l'étude de cette question et a décidé d'abandonner la position administrative antérieure à l'effet qu'une dette pouvait être créée pour éviter l'application de l'alinéa 85(1)b), pour toute disposition de biens effectuée à compter du 1er janvier 2001. / CCRA has completed its study of this question and has decided to abandon its previous administrative position allowing the creation of a debt to avoid the application of paragraph 85(1)(b), with respect to all dispositions of property after December 31, 2000.

Principales Questions: Les conditions énoncées au paragraphe 4900(12) doivent-elles être satisfaites à l'égard de nouvelles actions obtenues dans le cadre d'une réorganisation visée par les paragraphes 51(1) ou 86(1) de la Loi ?

Position Adoptée: Oui. Les conditions énoncées au paragraphe 4900(12) doivent être satisfaites au moment où une fiducie régie par un REÉR acquiert les nouvelles actions.

Principales Questions: Quels sont les progrès réalisés par l'Agence dans l'établissement de lignes directrices quant à l'application de la pénalité pour les professionnels?

Position Adoptée:

Principales Questions: Doit-on considérer les activités d'une filiale et les activités d'une société de personnes dont une société est membre pour déterminer si les activités de la société consistent principalement à exploiter une entreprise de production cinématographique ou magnétoscopique canadienne?

Position Adoptée: 1- Il ne faut pas tenir compte des activités d'une filiale. 2- Une société pourra tenir compte des activités d'une société de personnes dont elle est membre si en vertu du droit civil ou du droit commun les activités de la société de personnes sont exercées par la société qui en est membre.

Principales Questions: Comment doit-on traiter des dommages-intérêts à l'égard d'un REÉR ?

Position Adoptée: Ce n'est pas une prestation si le montant est versé directement au REÉR. Si les sommes sont versées au rentier, il s'agit d'une prestation imposable.