Income Tax Severed Letters - 2000-12-08

Principal Issues: For purposes of 4900(1)(d.1) of the Regulations, will a mutual fund trust qualify where only a single class of its units are listed on a prescribed stock exchange?

Position: Yes.

Reasons: This interpretation would treat public corporations and mutual fund trusts that have a class of shares or units that trade on a prescribed stock exchange equally.

Principales Questions: L'article 48.1 s'applique-t-il lorsqu'une société perd son statut de SPCC en raison du fait que des actions sont cotées à une bourse de valeurs visée par règlement

Position Adoptée: Généralement oui, l'article 48.1 ayant été modifié justement pour permettre à un contribuable de pouvoir bénéficier de l'exonération accrue sur le gain en capital lorsqu'une société perd son statut

Principal Issues: Will an RRSP payment to a resident of the United States be subject to withholding taxes?

Position: Yes.

Reasons: Under paragraph 212(1)(l) of the Act, an RRSP payment to a resident of the United States is subject to tax under Part XIII of the Act.

Principales Questions : Le paragraphe 245(2) s'applique-t-il si une société prend des mesures pour verser son compte de dividende en capital à certains actionnaires plutôt qu'à d'autres.

Position Adoptée: Ce qu'on appelle en anglais le streaming de dividendes en capital, soit l'acheminement du compte de dividendes en capital à certains actionnaires d'une société plutôt qu'à d'autres n'est généralement pas considéré abusif en soi.

Principal Issues:
Can fees paid to the XXXXXXXXXX Program qualify for a tuition tax credit pursuant to paragraph 118.5(1)(b)of the Act?

Principal Issues:
What is the status for Canadian income tax purposes of an entity governed by the Delaware Revised Uniform Partnership Act (the "DRUPA") ?

Position:
We would considered an entity governed by the DRUPA as a partnership for Canadian income tax purposes.

Reasons:
In our view, the attributes of an entity formed under the DRUPA more closely resemble those of a Canadian general partnership under our common law. Furthermore, it is our view that the existence of a separate legal entity clause contained in foreign partnership legislation would not, in and by itself, preclude an arrangement from being considered as a partnership for purposes of the Canadian Income Tax Act.

Principal Issues:
What is the status for Canadian income tax purposes of an entity governed by the Delaware Revised Uniform Partnership Act (the "DRUPA") ?

Position:
We would considered an entity governed by the DRUPA as a partnership for Canadian income tax purposes.

Reasons:
In our view, the attributes of an entity formed under the DRUPA more closely resemble those of a Canadian general partnership under our common law. Furthermore, it is our view that the existence of a separate legal entity clause contained in foreign partnership legislation would not, in and by itself, preclude an arrangement from being considered as a partnership for purposes of the Canadian Income Tax Act.

Principal Issues: Would the conditions in 6801(a)(v) be satisfied if the employee retires after the leave of absence

Position: No

Reasons: The provision requires that the employee returns to his or her regular employment with the employer or another employer that participates in the same or similar arrangement for a period that is not less than the period of leave. Retirement of the participant would not satisfy this condition.

Principal Issues:
Whether the 24-month ownership holding period test in the definition of "qualified small business corporation share" in subsection 110.6(1) of the Act is met where a taxpayer enters into an agreement before the 24-month holding period is over to sell shares of a small business corporation to a non-related employee of the corporation but does not transfer legal title to the shares and maintains beneficial ownership of the shares until after the 24-month holding period is over?

Position:
Yes.

Reasons:
A buy-sell agreement to sell the shares at a later date for a fixed price does not, in and by itself, mean that there is a change in beneficial ownership of the shares at the time the buy-sell agreement was entered into.

Principal Issues: Can sections 74.1(1) or 74.2(1) apply where property is transferred by an individual to his or her spouse's RRSP?

Position: Yes.

Reasons: Attribution if exception in paragraph 74.5(12)(a) does not apply.

Principal Issues: Are the Inter-American Institute for Cooperation on Agriculture (IICA) and the Organization of American States (OAS) "prescribed international organizations" under section 8900 of the Income Tax Regulations and subparagraph 110(1)(f)(iii) of the Act.

Position: No

Reasons: IICA is a specialized agency of OAS and IICA is an "international organization" as defined in section 2 of the Foreign Missions and International Organizations Act (FMIOA). OAS is also an "international organization" as defined in section 2 of the FMIOA. However, neither IICA nor OAS are "prescribed international organizations" under section 8900 of the Income Tax Regulations (the "Regulations"). The reason for this is that neither IICA or OAS is a "specialized agency that is brought into relationship with the United Nations in accordance with Article 63 of the Charter of the United Nations" as required by section 8900 of the Regulations. Accordingly, neither IICA nor OAS qualify as a "prescribed international organization" for the purposes of subparagraph 110(1)(f)(iii) of the Act.

Principal Issues: In respect of a member of the Canadian Forces that is medically released, is the Department of Veterans Affairs pension tax exempt and the RPP payments taxable in respect of the medical release?

Position: Yes.

Reasons: The Veterans Affairs pension is specifically exempted under paragraph 81(1)(d) and the RPP pension payments are specifically included under subparagraph 56(1)(a)(i) of the Act.

Principal Issues: Whether the 6 consecutive month test in section 122.3 could be satisfied notwithstanding that the employee performed services in connection with two contracts and returned to Canada in the interim.

Position: Yes provided that it was anticipated at the completion of the first assignment that the employee would participate in the second and provided the requisites of subsection 122.3(1) are otherwise satisfied.

Reasons: The application of subsection 122.3(1) to such case would primarily be limited by the requirement that during the relevant period the employee performed all or substantially all of his duties of employment outside Canada in connection with a qualifying contract.

Principal Issues: Can we confirm how the February 28, 2000 budget proposal re the deferral of stock option benefits will apply?

Position: No.

Reasons: There is no legislation released yet to provide any comments with respect to how the Act will apply to defer the recognition of stock option benefits.

Principal Issues: 1. Application of paragraph 88(1)(d.3) where a controlling interest in the shares of a corporation are acquired by a deceased taxpayer's estate upon death of the taxpayer?
2. Does the application of subsection 104(4) when the spouse dies result in an acquisition of control of a corporation?

Position: 1. Yes paragraph 88(1)(d.3) will apply.
2. No - legal control remains with the spousal trust at all times.

Reasons: The law.

Principal Issues:
Where there has been an appeal to a decision of an umpire under the Employment Insurance Act and costs (legal fees) have been awarded to the respondent, will the appellant be entitled to deduct those legal fees pertaining to the respondent's legal representation?

Position TAKEN:
Yes.

Reasons:
Subparagraph 60(o)(ii) of the Income Tax Act permits a taxpayer a deduction for "amounts paid by the taxpayer in the year in respect of fees or expenses incurred in preparing, instituting or prosecuting an objection to, or an appeal in relation to, ...... a decision of ...... an umpire under ..... the Employment Insurance Act. (underlining for emphasis) It is the Canada Customs and Revenue Agency's position that such amounts would generally include the legal fees, if any, paid by the appellant to his own legal representative as well as those legal fees required to be paid by the appellant to the respondent's legal representative as a consequence of costs being awarded by the umpire to the respondent.

Principal Issues: What is the relevant time for determining whether a person is a "specified person" for purposes of subclause 88(1)(c)(vi)(B)(I)?

Position: Relevant time is the time any property which is distributed to the parent on the winding up or any property substituted therefor is acquired by that person

Reasons: Question of statutory interpretation

Principal Issues: Whether counselling for mental or physical health, re-employment, retirement, legal and financial are taxable employee benefits.

Position: All except the latter two are likely non-taxable.

Reasons: Subparagraph 6(1)(a)(iv).

Principales Questions:
1 Est-ce que la politique de l'Agence, telle que présentée par M. John R. Robertson lors du Congrès de l'Association canadienne d'études fiscales de 1981, à l'effet qu'aucune déduction ne doit être effectuée à l'égard d'une dépense ou d'un débours relatif à l'acquisition d'une immobilisation ou d'une immobilisation admissible, ou encore relatif au remboursement d'un emprunt aux fins du calcul du «revenu protégé en main» d'une société, demeure en vigueur?

2. Est-ce que la récupération d'amortissement à l'égard d'une voiture de tourisme, non inclus dans le calcul du revenu du contribuable pour l'année, a un effet sur le revenu protégé en main?

1. Whether the CCRA's general position, concerning the computation of safe income on hand, as presented by Mr. John R. Robertson at the Tax Conference of the Canadian Tax Foundation (see 1981 Conference Report) in respect of the acquisition of a property or an eligible capital expenditure, or a repayment on account of the principal amount of a loan, is still applicable ?

2. Whether the recaptured depreciation not included in computing the taxpayer's income for the year pursuant to subsection 13(2) has an impact on the computation of safe income on hand.

Position Adoptée:

Principal Issues:
Request to confirm the following interpretation :

Subsection 402(5) of the Regulations excludes interest on bonds, debentures or mortgages and dividends on shares of capital stock from the definition of "gross revenue" for the purposes of subsection 402(3) of the Regulations. The reference in subsection 402(5) of the Regulations to "that is not used in connection with the principal business operations of the corporation" refers only to "rentals or royalties from property" and not to the other items enumerated therein.

Position:

We confirm that this is our interpretation of subsection 402(5) of the Regulations.

Reasons: