Income Tax Severed Letters - 2001-03-02

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.

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

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.

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?

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:

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

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:

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).

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.

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.

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

Position: Yes

Reasons: see attached interpretation

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.

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

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.

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.

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.

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.

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.

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.