Income Tax Severed Letters - 2001-03-02

Miscellaneous

2000 Miscellaneous 2000-0029971 - Supplemental Ruling

Unedited CRA Tags
15(2)

Principal Issues: Change in facts and proposed transactions.

Position: Supplemental Ruling granted.

Reasons: Repayment transactions have not been completed.

Ruling

2001 Ruling 2000-0055453 - Retiring Allowance

Unedited CRA Tags
60(j.1) 248(1)

Principal Issues:

1. Is a retiring allowance in the amount equal to the amount eligible for the paragraph 60(j.1) rollover reasonable for the purposes of section 67?
2. Can an individual be considered to be employed for the purposes of paragraph 60(j.1) where he or she is a shareholder of the employer and all remuneration is received in the form of dividends?
3. Can an individual be considered to be still employed within the meaning of paragraph 60(j.1) if he or she ceases to be performing duties related to an active business but continues as an employee managing a rental property? Usually the query is whether the employee can be considered to be retired notwithstanding his or her continuing to provide services in respect of a rental property. Here, the client wants all years, including the years he managed the rental property, until the year after the rental property was sold, to count as years of employment for the purposes of paragraph 60(j.1). Some of these latter years are pre-1996 and therefore the answer affects how much can be rolled over to an RRSP.

Position:

1. Generally yes. 2. Yes. 3. Yes.

Reasons:

2001 Ruling 2000-0061203 - INCORPORATE PARTNERSHIP

Unedited CRA Tags
125(7)

Principal Issues: whether incorporation of partnership as professional corporation is a personal services business

Position: no - if Principal carrying out services through a Contracting Company does not provide services to Newco in his/her capacity as an employee or officer of Newco

Reasons: same as 2000-0034813 and E 9915403

2001 Ruling 2000-0062493 - TRUSTEE IN BANKRUPTCY

Unedited CRA Tags
128(1)(c)

Principal Issues: Whether a trustee will be considered to have disposed of several properties as a result of receiving a payment from the bankrupt in return for the trustee disclaiming interest in properties.

Position: No.

Reasons: By virtue of paragraph 128(2)(c), properties remain vested in bankrupt and trustee is an agent of the bankrupt for purposes of calculating income and taxable income.

2001 Ruling 2000-0056693 F - RPE BONIS

Unedited CRA Tags
248(1) 6(1)g) 32.1

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.

PRINCIPALE QUESTION

Le régime est-il un régime de prestations aux employés tel que défini au paragraphe 248(1) de la Loi?

Position Adoptée

Oui.

RAISON POUR POSITION ADOPTÉE

Analyse législative et les dossiers 2000-0010723, 9637743

2001 Ruling 2000-0056883 F - MODIFICATION CONVENTION D'ACHAT D'ACTIONS

Unedited CRA Tags
110(1)(d) 7(3)b) 7(1)b)

Principales Questions:

2000 Ruling 2000-0002083 - XXXXXXXXXX

Unedited CRA Tags
15(2)

Principal Issues: Whether the loans to U.S Parent by Cansub constitute a series of loans and repayments subject to the application of subsection 15(2) and paragraph 214(3)(a).

Position: No.

Reasons: Based on two Tax Court decisions where shareholder loans are repaid by the declaration of dividends (or salary) such repayment followed by new loans does not constitute a series of loans and repayments. In Cansub's situation the loans to U.S. Parent are to be made from current earnings of Cansub and repaid by funds generated by dividends declared and paid to U.S. Parent. this is in accordance with the two Tax Court decisions which have not be challenged.

2000 Ruling 2000-0043243 - PHANTOM STOCK PLANS

Unedited CRA Tags
REG 6801(d)

Principal Issues: Will implementation of deferred share unit plan and the change of a SAR plan to such a deferred share unit plan result in an SDA?

Position: No.

Reasons: Plan to be implemented satisfies 6801(d) and conversion of rights under SAR is accommodated by rules in 6801(d).

Ministerial Correspondence

Technical Interpretation - External

2 March 2001 External T.I. 2000-0039535 - EXPENSES TO USE RESORT OR LODGE

Unedited CRA Tags
18(1)(l)

Principal Issues: What portion, if any, of the expenses of taking employees or customers to a resort would be deductible in three scenarios presented?

Position: Scenarios one and three represent the two extremes and clearly the first situation is deductible and the third is not. The second scenario is an even split between attending meetings and participating in recreational activities. The facts would need to be reviewed to determine what the principal activity was.

Reasons: We indicate in paragraph 3 of IT-148R3 that paragraph 18(1)(l) will not be applied if a hotel or lodge is used for a genuine business purpose which does not include the entertainment or recreation of clients or employees. There could be situations where half the normal work day or work week is used for business meeting but the main activity would nevertheless be recreation. If the main activity is recreation then 18(1)(l) applies and there is no deduction (i. e. the expenses related to the prorated portion of the time used for business cannot be deducted).

2 March 2001 External T.I. 2000-0052385 - QFP-LAND FARMED BY FATHER-IN-LAW

Unedited CRA Tags
110.6(1) 252(2)(a)(iii)

Principal Issues: Whether land qualifies as qualified farm property under the definition in subsection 110.6(1) of the Act. The taxpayer received a 1/3 interest in a parcel of land prior to June 17, 1987, from her spouse's estate. The father-in-law passed away in 1990, leaving his 2/3 interest to the taxpayer. The land was farmed by the taxpayer's father-in-law for a period of more than 5 years during which he owned his interest in the land. During each of those 5 years, the father-in-law's gross income from farming exceeded all of his income from other sources.

Position: Question of fact. However, the 24-month gross revenue test in subparagraph (a)(vi) may be satisfied by the taxpayer's father-in-law, assuming the father-in-law relationship existed throughout the applicable 24-month period.

Reasons: In this regard, a parent includes a father-in-law pursuant to subparagraph 252(2)(a)(iii) and paragraph 252(1)(c) of the Act.

2 March 2001 External T.I. 2001-0069105 - EMPLOYEE MOTORHOME EXPENSE

Unedited CRA Tags
8(1)(f) 8(1)(j)

Principal Issues: Can expenses be claimed by an employed commission salesperson in respect of a motorhome to be used for transportation to customers, displays, meetings, paperwork and sleeping accommodations?

Position: Expenses of a commission salesperson are set out in IT-522R. The expenses could include the appropriate percentage of expenses relating to a motorhome used to earn the commission income.

Reasons: See IT-522R

1 March 2001 External T.I. 2000-0050275 F - Remboursement de prime / enfant infirme

Unedited CRA Tags
146(8.8) 146(8.1) 146(8.9) 60(l)

Principales Questions:
Un enfant majeur atteint d'une infirmité mentale ou physique peut-il recevoir libre d'impôt le REÉR de sa mère au moment du décès de cette dernière ?

Position Adoptée: Question de fait

1 March 2001 External T.I. 2000-0030975 - QUALIFIED FARM PROPERTY

Unedited CRA Tags
110.6(1) 73(3)

Principal Issues:

28 February 2001 External T.I. 2001-0069345 - EDUCATION TAX CREDIT

Unedited CRA Tags
118.6

Principal Issues: whether senior who receive free tuition may claim the education tax credit

Position: no

Reasons: this is a benefit that is not available to the public at large

28 February 2001 External T.I. 2000-0054275 - QUALIFIED FARM PROPERTY

Unedited CRA Tags
110.6(1)

Principal Issues:
Whether a specific farmland can be considered a "qualifying farm property" for the purposes of claiming the capital gains deduction under subsection 110.6(2) of the Act.

Position:
Likely, yes.

Reasons:
According to the information provided, it appears the farmland was last acquired before June 18, 1987 and was used principally in a farming business for more than five years by the parents of the taxpayer while they owned the property, as required by clause (a)(vii)(B) of the definition of qualified farm property in subsection 110.6(1) of the Act.

28 February 2001 External T.I. 2001-0066505 - EMPLOYEE CASH AWARDS

Unedited CRA Tags
6(1)(a)

Principal Issues:
Are cash awards for long-service taxable?

28 February 2001 External T.I. 2000-0059405 - PRINCIPAL RESIDENCE-EXCESS LAND

Unedited CRA Tags
54

Principal Issues:
What portion of a 4 hectare property qualifies as a principal residence for purposes of the principal residence capital gains exemption under paragraph 40(2)(b) of the Income Tax Act?

27 February 2001 External T.I. 2000-0062255 - Warrant, qualified investment

Unedited CRA Tags
4900(1)(e)

Principal Issues:
An RRSP acquires a share of a mortgage investment corporation that is a qualified investment under paragraph 4900(1)(c) of the Regulations. Is a warrant that is issued with the share, giving the holder a right to acquire another identical share, a qualified investment?

Position: Yes.

Reasons:
Under 4900(1)(e), a right to acquire a qualified investment is also a qualified investment.

27 February 2001 External T.I. 2001-0069475 - Deferred Salary Leave Plan

Unedited CRA Tags
6801(a)

Principal Issues:
1. Will the fact that a teacher who is a member of a DSLP can now retire immediately after his leave of absence because of a reduction in the age and years of service requirements of his pension plan cause an immediate inclusion of all deferred amounts under the DSLP?
2. Will the diagnosis of a disease which could force the individual on to long term disability cause an immediate income inclusion of all deferred amounts under the DSLP?

Position: 1. No. 2. No.

Reasons:

27 February 2001 External T.I. 2001-0068515 - Legal Fees, marriage breakdown

Unedited CRA Tags
60(o.1)

Principal Issues:
Are legal fees paid to enforce rights to a spouse's pension assets on a marriage breakdown deductible?

Position: No.

Reasons: Specifically prohibited under paragraph 60(o.1) of the Act.

27 February 2001 External T.I. 2000-0046755 - Rent Free Occupancy of Residence

Unedited CRA Tags
105(1) 105(2)

Principal Issues: Whether a taxable benefit under either 105(1) or (2) is imposed on a beneficiary of an estate for living "rent free" in property of the deceased where the property would have qualified as the beneficiary's principal residence if she had owned it.

Position: no benefit provided that upkeep is paid out of capital and the property would have been the principal residence of the life tenant if the life tenant had owned the property

Reasons: 105(2) only applies if the upkeep is paid out of the income of the trust and as stated at the 1988 & 1989 CTF conferences, the ccra will generally not assess a 105[1] benefit if the property would qualify as the life tenant's principal residence if the life tenant had owned it

26 February 2001 External T.I. 2000-0017635 F - choix modifié et PBR rajusté

Unedited CRA Tags
85(1)c.1)

Principales Questions:

Est-ce que la somme convenue sera modifiée au sens de l'alinéa 85(1)c.1) de la Loi, dans le cas où, à la suite d'un rajustement du prix de base rajusté du bien transféré, la somme convenue est devenue inférieure à la limite prévue à ladite disposition, et que l'année d'imposition du cédant (année du transfert) est prescrite?

Position Adoptée:

23 February 2001 External T.I. 2000-0024775 - Affiliated Rules and Trusts

Unedited CRA Tags
40(3.6) 251.1

Principal Issues: examination of two separate scenarios involving trusts, affiliated rules & stop loss provisions

Position: In both scenarios presented the loss would be denied

Reasons: Where the trust controls the estate/trust before & after a redemption of shares, it is the trust that is affiliated regardless of the fact that the trustees are not affiliated.

23 February 2001 External T.I. 2001-0066655 - PROFESSIONAL MEMBERSHIP FEES

Unedited CRA Tags
8(1)(i)(i)

Principal Issues: An individual pays examination fees to Transport Canada which issues licenses with respect to flying aeroplanes. Are the examination fees deductible under subparagraph 8(1)(i)(i) of the Act.

Position: no

Reasons: Subparagraph 8(1)(i)(i) of the Act refers to "annual" membership fees paid by an individual to "maintain" a professional status (a deduction in computing employment income).

23 February 2001 External T.I. 1999-0015735 - Stock Option Deduction Foreign Affiliate

Unedited CRA Tags
5907(1) 5907(2)

Principal Issues:
Whether deduction taken by U.S. foreign affiliate in respect of a stock option plan where options for its shares are issued to its employees can be added back to earnings.

Position:
Since this is a notional deduction, it should not be deducted in the determination of earnings under Regulation 5907(1). However, if the foreign affiliate has compensated the Canadian parent, there should be no addback as the affiliate does not have that surplus.

Reasons:
See the summary on file 2000-002196, which deals with the same issue.

22 February 2001 External T.I. 2000-0063105 - RRSP - Qualified Investment

Unedited CRA Tags
146(1) 4900(12)

Principal Issues:
1. For the purposes of Regulation 4900(12) is there an acquisition of shares when 86(1) applies to an exchange of shares?
2. For the purposes of Regulation 4900(12) is there an acquisition of shares when 51(1) applies to an exchange of shares?
3. Where an RRSP holds shares of a corporation as a qualified investment , will the acquisition of additional shares by an RRSP or an annuitant of an RRSP cause the shares already held to become non qualified?

Position:
1. Yes.
2. Yes.
3. Not in normal circumstances.

Reasons:
There is an acquisition of shares under both 86(1) and 51(1) of the Act at the time of the exchange. However there may be a carryover of the cost amount of the shares for purposes of the provision.

22 February 2001 External T.I. 2001-0067715 - Qualified investment, CCPC shares

Unedited CRA Tags
4900(12)

Principal Issues:
Will shares of a CCPC be a qualified investment for an RRSP?

Position:
Discussed 4900(6)(a) and 4900(12)(a).

Reasons:
We cannot comment on the qualification of a specific corporation except in the context of an advance income tax ruling where an interpretation of law is required vis-a-vis the specific facts of the case.

22 February 2001 External T.I. 1999-0014605 - Hong Kong

Unedited CRA Tags
95(2)(9.1)

Principal Issues: Whether Hong Kong is considered part of China for purposes of paragraph 95(2)(a.1)

Position: Yes

Reasons: As a result of the unification of Hong Kong and the People's Republic of China, there is no reason, for purposes of paragraph 95(2)(a.1), to distinguish the two.

22 February 2001 External T.I. 2000-0058715 - BUSINESS INVESTMENT LOSSES

Unedited CRA Tags
39(1)(c)

Principal Issues:
Whether a loss on debt would qualify as a "business investment loss".

Position:
No, based on the limited information provided

Reasons:
The corporation owing the debt is not, nor has it been at any time in the previous 12 months, a "small business corporation" as defined in subsection 248(1).

22 February 2001 External T.I. 2000-0048075 - Return of Capital

Unedited CRA Tags
86

Principal Issues: Whether a particular series of transactions would be governed by section 86 of the Act

Position: Yes

Reasons: see attached interpretation

22 February 2001 External T.I. 2000-0042795 F - Epargne indiciellle et JVM

Unedited CRA Tags
7000 12(1)c) 12(4)

Position Adoptée:
Question de faits.

21 February 2001 External T.I. 2000-0047815 - income from partner. from invest.

Unedited CRA Tags
125(7)

Principal Issues: Whether a corporation's income from a partnership is income from a specified investment business. The partnership's only activity is the holding of real estate for the purpose of earning rental income, and it does not employ more than five full-time employees. However, the corporation, which itself has employees, acts as property manager for some of the properties held by the partnerships, while the other properties are managed by unrelated third parties.

Position: Question of fact.

Reasons: It would be necessary to confirm the legal relationship between all parties (i.e., whether a partnership or co-ownership exists), whether the employees were employed by the partnership or the corporation, and whether services are provided by an associated corporation such that it would be reasonably expected to require more than five full-time employees if those services had not been provided.

21 February 2001 External T.I. 2000-0050145 - RRSPS OF STATUS INDIANS

Unedited CRA Tags
81(1)(a) 60(j.1)

Principal Issues:
Calculation of taxable exempt portions of withdrawals from an RRSP held by a status Indian.

Position TAKEN:
In a situation where a status Indian contributes to an RRSP based on tax-exempt income, such that the contributions are not deductible, in our view, withdrawals of the principal would be tax-exempt. However, the withdrawal of any investment earnings should be taxed similarly to ordinary investment income.

However, in situations where the status Indian technically has RRSP contribution room, eligible retiring allowance(s), or transfers from an RPP, and payments from an RRSP principal or income) relate to income that was exempt from tax (or accorded treatment by a remission order), the payments will usually be exempt from tax.

Reasons:
See earlier positions.

21 February 2001 External T.I. 2000-0051515 - MUNICIPAL ELECTION CAMPAIGN FUND

Unedited CRA Tags
127(3)

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.

Principal Issues

Must a municipal alderman who will no longer seek re-election in an upcoming city election and has been given legal advice that she can keep the campaign funds accumulated to date include the contributions as income when and if she takes the funds?

21 February 2001 External T.I. 2000-0055605 - Employment International Traffic Cyprus

Unedited CRA Tags
Art 15 Art 29

Principal Issues: Application of paragraph 3 of Article 15 of the Canada-Cyprus Income Tax Convention to hypothetical situation

Position: see attached letter

Reasons: see attached letter

21 February 2001 External T.I. 2001-0066935 - Expenses of Real Property held in RRSP

Unedited CRA Tags
146(1)

Principal Issues:
An RRSP has acquired a real property as a consequence of a mortgage foreclosure and is attempting to sell it. Can the RRSP trust incur reasonable expenses to put the property in a salable state and for its upkeep?

Position:
Yes.

Reasons:
Real property can be held by the trust in accordance with the position stated in paragraph 10 of IT-320R2 Registered Retirement Savings Plans - Qualified Investments. It is appropriate that the trust should be able to maintain the property and make it salable.

21 February 2001 External T.I. 2000-0053175 - Donation receipts - Sponsors

Unedited CRA Tags
118.1 110.1

Principal Issues: Whether or not a particular contribution is a charitable donation.

Position: It depends on whether a benefit is provided to the contributor.

Reasons: The meaning of a gift.

20 February 2001 External T.I. 2000-0052345 - Stop-loss Rules and Trusts

Unedited CRA Tags
40(3.6) 251.1

Principal Issues: examination of two separate scenarios involving trusts, affiliated rules & stop loss provisions

Position: In both scenarios presented the loss would be denied

Reasons: Where the trust controls the estate/trust before & after a redemption of shares, it is the trust that is affiliated regardless of the fact that the trustees are not affiliated.

16 February 2001 External T.I. 2000-0049115 - Korea Treaty

Unedited CRA Tags
Art 14

Principal Issues: Whether Canada is precluded (by virtue of Article 14 of the Canada-Korea Income Tax Convention) from taxing a Canadian resident individual's income from employment in respect of personal services performed in Korea as a flight training instructor?

Position: No

Reasons: Paragraphs 1 and 2 of Article 14 do not affect Canada's right to tax a Canadian resident individual. Paragraph 3 of Article 14 does not apply to the facts of this case.

16 February 2001 External T.I. 2001-0067015 - HBP, owner-occupied, corporation

Unedited CRA Tags
146.01(1)

Principal Issues: Can a person participate in the Home Buyers Plan if they reside in a home that they have rented from their wholly-owned corporation for the past five years?

Position: Yes.

Reasons: The definition of regular eligible amount in the Act refers to an owner-occupied home. The home is owned by a corporation so it would not be an owner-occupied home.

16 February 2001 External T.I. 2001-0067755 - Directed Donation not a Gift

Unedited CRA Tags
118.1

Principal Issues:
Can a donation receipt be issued to a donor where the donor has specified that the contributed funds are to be used to help a specific person who is known to them?

Position: No

Reasons:
Donation receipts can only be issued for gifts received by a registered charity. Where a donor specifies that the registered charity must use the funds received to benefit a particular person, the donor has not made a gift as the term is defined in the common law.

14 February 2001 External T.I. 2000-0054395 - Partnerships - Qualified Inv. & Foreign PPTY

Unedited CRA Tags
4900(1)(i) 206(1)(g)

Principal Issues:
For the purposes of the definition of "qualified investment" in paragraph 4900(1)(i) of the Regulations and paragraph (g) of the definition of "foreign property" in subsection 206(1) of the Act will notes issued by a partnership be considered to be notes issued by each of the partners?

Position:
Yes, but each partner is jointly and severely liable for an undivided interest in the debt.

Reasons:
Under common law a partnership is a relationship and not a separate legal entity. As such, it cannot legally own assets or issue debt in its own right. The partners of a partnership all have undivided interests in all of the assets and liabilities of the partnership. The test for foreign property and qualified investment where debt is issued by a partnership is that each partner must satisfy the particular test applied as if the partner issued the debt itself directly to investors and not through the partnership. If the debt would not be a qualified investment if it was issued directly by one of the partners then all of the debt issued in the name of the partnership will be a non-qualified investment. Similarly, if one of the partners is a non-resident then all of the debt issued by the partnership will be foreign property. The test must be applied to any new member of the partnership in determining the status of the debt as foreign property and/or a qualified investment.

13 February 2001 External T.I. 2000-0053735 - CAPITAL COST ALLOWANCE-VEHICLES

Unedited CRA Tags
20(1)(a) Reg. 7307(1)(b)

Principal Issues:
Inclusion of federal and provincial sales taxes in the cost of passenger vehicles for capital cost allowances. In the case of the PST where the province levies the tax on a graduated basis from 7% on vehicles costing under $32,000 to 10% on vehicle costing more than $34,000, would such tax be calculated at 7% or 10% if the passenger vehicle was acquired for $50,000.

Position:
PST component of the cost for CCA purposes would be based on 7% of $27,000.

Reasons:
Limitation prescribed by paragraph 7307(1)(b) of the Regulations.

13 February 2001 External T.I. 2001-0066995 - LIRA, Part XI taxes

Unedited CRA Tags
206(2)

Principal Issues:
Is a locked-in LIRA that is registered as an RRSP for purposes of the Act subject to Part XI taxes on excess foreign property?

Position: Yes.

Reasons:
An RRSP is a taxpayer referred to in section 205 and it is subjected to taxes under Part XI of the Act.

13 February 2001 External T.I. 2000-0031185 - ARREARS INT.-REPLAC. PROPERTY ACQUIRED

Unedited CRA Tags
44(1)

Principal Issues: The calculation of arrears interest when a taxpayer disposes of a "former business property" in year 1 and does not pay the resulting income taxes on the capital gain and recapture of capital cost allowance ("recapture") by the due date: Whether the arrears interest will be reduced when the taxpayer acquires a "replacement property" in year 2, and if it matters whether security is provided or not.

Position: Arrears interest may be reduced to nil if the cost of the replacement property acquired in year 2 completely offsets the capital gain and the recapture from the disposition of the former business property in year 1.

Reasons: Based on the rules in subsection 161(1).

13 February 2001 External T.I. 2001-0066985 - WCB, earned income, eligible service

Unedited CRA Tags
146(1) 8503(3)(a)

Principal Issues:
1) Will a period while an employee is off collecting WCB qualify for eligible service under an RPP?
2) Can WCB income be included in determining an individual's earned income under subsection 146(1) of the Act?

Position:
1) Question of fact.
2) No.

Reasons:
1) There is nothing in the Regulations preventing such service from being eligible. We would have to review the terms of the particular plan.
2) WCB income is not included in the earned income definition.

8 February 2001 External T.I. 2001-0064555 - Meaning of Amount

Unedited CRA Tags
17(1) 17(9)

Principal Issues:
Whether subsection 17(1) of the Act applies when a resident corporation pays an amount to a third party on behalf of a related non-resident corporation in consideration for shares of the non-resident corporation and the non-resident corporation fails to issue the shares.

Position: Yes, although the situation outlined in the letter was somewhat unclear.

Reasons: Subsection 17(1) of the Act refers to an "amount" owing from a non-resident person to a resident corporation. This term is broad enough to include the value of the obligation of the non-resident corporation to the resident corporation in the situation outlined in the letter.

8 February 2001 External T.I. 1999-0009715 - Article XXI(6) of Canada-US Tax Convention

Unedited CRA Tags
Art XXI(US) 69(1)(b)(ii)

Principal Issues: Where is the source of the capital gains when a taxpayer disposes of securities listed on a U.S. stock exchange by way of a gift to a U.S. charity?

Position: Generally, it is the place of residency of the donor.

Reasons: There is no particular place at which the securities are disposed of, so it is reasonable to consider the source of the capital gains to be place of residency of the owner of the securities.

Technical Interpretation - Internal

27 February 2001 Internal T.I. 2001-0068447 - Stock options, order of dispositions

Unedited CRA Tags
7(1)

Principal Issues: Where an individual owns shares of his employer that he acquired on the open market and he subsequently acquires shares under an employee stock option, is there a method to determine the order of any disposition of the shares held by the individual?

Position: Yes.

Reasons: An ordering provision has been proposed in the Legislative Proposals and Explanatory Notes Relating to Income Taxes published by the Department of Finance in December 2000.

16 February 2001 Internal T.I. 2000-0061317 - BENEFITS-RECREATIONAL FACILITIES

Unedited CRA Tags
6(1)(a)

Principal Issues: Free passes to its recreation facilities are provided by a city to its employees. However passes are not provided to firefighters who are paid an hourly rate when they respond to a call with respect to a fire or attend some fire drills. Some other individuals, who are volunteers (e.g., senior centre volunteers) and are not paid any remuneration, are also not provided with free passes. In relation to the CCRA's position in paragraph 33 of IT-470R, it is our general position that the facilities must be provided to all employees (see E 9916907)in order that the passes not give rise to taxable employment benefits. Do the free passes give rise to tax exempt benefits even though volunteers are not provided with them (or in the alternative the only volunteers provided with passes are firefighters)?

Position: Whether or not the volunteer firefighters are provided access to the city's recreational facilities while the unpaid volunteers are not, it is our view that such action will not, of itself, cause the comments in paragraph 33 of IT-470R not to apply.

Reasons: The CCRA accepts that the volunteer employees may be excluded.

14 February 2001 Internal T.I. 2000-0061117 - Rabbi Trust and RCA

Unedited CRA Tags
248(1)

Principal Issues: Can the assets of an RCA trust be subject to the claims of the employer corporation's creditors in the event of an insolvency or bankruptcy of the employer corporation?

Position: Yes.

Reasons: Nothing in the Act to prevent this where the terms of the arrangement allow for it.

13 February 2001 Internal T.I. 2001-0064807 - Qualifying active business, leasing property

Unedited CRA Tags
5100(1)

Principal Issues:
Will the leasing of property to franchise businesses constitute a qualifying active business within the meaning of subsection 5100(1) of the Regulations?

Position:
Question of fact.

Reasons:
There is insufficient information regarding the proposed transactions to make this determination.

12 February 2001 Internal T.I. 2000-0058187 - "Canadian assets" definition

Unedited CRA Tags
181(3)(a)

Principal Issues:
1. Do we look to the amounts on the balance sheet or the amounts that would be reflected in the return referred to in paragraph (a) of the definition of "Canadian assets" in section 8600 of the Income Tax Regulations ("Regulations") to determine the amount of a "Canadian asset"?
2. Are intercompany accounts to be eliminated as required by the Office of the Superintendent of Financial Institutions ("OSFI") when determining which assets are "Canadian assets"?
3. The return referred to in paragraph (a) of the definition of "Canadian assets" in section 8600 of the Regulations is to be prepared for the OSFI using the equity method of accounting. When computing the amount of the "Canadian assets" are we to follow the requirement in paragraph 181(3)(a) of the Income Tax Act which stipulates that the equity method of accounting is not to be used in determining the carrying value of a particular asset?
4. Same question as 2 above but when dealing with a financial institution other than a bank.
5. Is an interest in a non-resident partnership to be listed on the return referred to in paragraph (a) of the definition of "Canadian assets" in section 8600 of the Regulations?

Position:
1. The carrying value of the asset as reflected on the balance sheet is to be used.
2. The intercompany accounts are not to be eliminated.
3. The equity method of accounting is not to be used.
4. The intercompany accounts are not to be eliminated.
5. It would not be included.

Reasons:
1. The reference to the return in paragraph (a) of the definition of "Canadian assets" in section 8600 of the Regulations is only for purposes of identifying which assets are to be included in capital.
2. The relevant return is to be prepared on a non-consolidated basis.
3. Paragraph 181(3)(a) of the Income Tax Act provides that the equity method of accounting is not to be used.
4. The relevant return is to be prepared on a non-consolidated basis.
5. Confirmed by the OSFI.

5 February 2001 Internal T.I. 2000-0062927 F - Société civile française

Unedited CRA Tags
248(1)

Principales Questions: Déterminer si une société civile constituée en vertu du droit français constitue une société de personnes ou une corporation pour les fins de la Loi de l'impôt sur le revenu.

Position Adoptée: Une société civile française doit être considérée comme une société de personnes pour les fins de la Loi de l'impôt sur le revenu.

8 January 2001 Internal T.I. 2000-0053657 - RETIRING ALLOWANCE TERMINATION

Unedited CRA Tags
248(1)

Principal Issues:
Is a payment a retiring allowance

Position:
No.

Reasons:
The amount does not meet the terms of paragraph (a) of the definition of a retiring allowance under 248(1) and, in our opinion, does not satisfy the requirements of paragraph (b) following our general interpretation of that provision. In particular, it is our opinion, that the employee was assured of continued employment with the employer at all times so that it cannot be said he lost his job.
January 8, 2001

19 December 2000 Internal T.I. 2000-0053237 - LIQUIDATOR RETIRING ALLOWANCE

Unedited CRA Tags
60(j.1)

Principal Issues: 1) Can a liquidator appointed by the courts pay a retiring allowance to the former employees of the Company that is being liquidated? 2) Will an amount paid by the liquidator qualify for the 60(j.1) rollover?

Position: 1)Yes. 2) Yes

Reasons: 1)The definition refers to an amount received by an individual in respect of his or her loss of office or employment. 2) The liquidator is really paying an amount on behalf of the employer.

1 December 2000 Internal T.I. 2000-0053687 - Film Tax Credits; Investor Rules

Unedited CRA Tags
125.4

Principal Issues: Do investor rules apply?

Position: yes

Reasons: Disposition of beneficial interest in production
December 1, 2000

5 April 2000 Internal T.I. 1999-0015087 - CONSTRUCTION CONTRACTORS

Unedited CRA Tags
181(1)

Principal Issues: Whether amounts billed to a contractor by a subcontractor that are subject to holdback requirements should be included in the contractor's capital, either as a reserve, or as other indebtedness.

Position: Amounts billed by a subcontractor that have been deducted in computing accounting income and that are subject to a holdback requirement are included in the contractor's capital as reserves. Once the work that is the subject of a billing is certified, the amount owing by the contractor in respect of the certified work would constitute indebtedness of the contractor and would be included in the contractor's capital if the indebtedness has remained outstanding for more than 365 days at the end of the taxation year.

Reasons: Jurisprudence provides that an amount billed by a subcontractor that is subject to a holdback requirement is a contingent liability of the contractor. In our view, such liabilities are reserves for capital tax purposes. Once the work that is the subject of the billing is certified, the subcontractor has a legal right to payment. Thus, as of the date of that certification, the amounts billed constitute legal liabilities of the contractor and "indebtedness" of the contractor for capital tax purposes. They would therefore be included in the contractor's capital if, at year-end, more than 365 days have elapsed since certification.