Income Tax Severed Letters - 2001-03-16

Principal Issues:
1. Could a status Indian who earns exempt income and has no RRSP contribution room for the year but nevertheless makes RRSP contributions be subject to the over-contribution RRSP tax in Part X.1?
2. If the status Indian withdraws the RRSP contributions and transfers the funds into a non-registered investment vehicle, such as a mutual fund or a GIC, which earns investment income that is taxable in the hands of the Indian, is the Indian entitled to claim the personal credits in ITA 118 as any other taxpayer?

Position:
1. Yes
2. Yes

Reasons:
1. See previous positions.
2. ITA 118 credits not based on whether taxpayer is or is not an Indian

Principales Questions:
1. Peut-on transférer une action ayant aucune valeur à une fiducie régie par une REER?
2. Un employé peut-il transférer une action de performance d'une société publique à une fiducie régie par un REER?

Principal Issues: Is vacation pay a "lump-sum, bonus or retroactive payment" as contemplated by subsection 100(3.2) of the Regulations?

Position: No

Reasons: Reversal of position in E9925045.

Principal Issues:
1. An individual, in his will, provides for a donation to be made to a private foundation to be established by the individual's estate. Would the donation qualify as a gift by will for the purposes of subsection 118.1(5)?
2. Where an individual's will stipulates that a specific amount is to be gifted to charity and provides a list of charities but the executor has discretion as to the allocation of funds to each named charity, would subsection 118.1(5) apply?

Position:
1. Yes, if the donation otherwise qualifies as a gift by will and the private foundation is a qualified donee at the time the gift is made.
2. Yes, if the executor acts reasonably and in accordance with the terms of the will and the donation is made to a charity that is a qualified donee.

Reasons: In our view, the wording of subsection 118.1(5) is broad enough to enable us to take this interpretation.

Principal Issues: Will the stratification of an apartment building in and of itself result in the conversion of the apartment building from capital property into inventory particularly where the intention of the taxpayer is not to sell the individual condominium units?

Position: Although the conversion of a capital property to inventory is always a question of fact it is likely that the mere act of stratifying an apartment building will not result in such a conversion.

Reasons: See letter referred to by the correspondent (i.e., E9302065) as well as paragraph 13 of Interpretation Bulletin 218R.

Principal Issues: 1. When is an amount considered payable by a mutual fund trust (and therefore income to its beneficiaries)?
2. When is a deduction available to an EBP for amounts payable to its beneficiaries?
3. When is an income distribution by an EBP taxable to its beneficiaries?

Position: 1. At the time that the amount is paid to the beneficiary or the beneficiary was entitled in the year to enforce payment of the amount.
2. Only when actually paid.
3. Only when actually received.

Reasons: 1. Subsection 104(24). 2. Paragraph 104(6)(a.1). 3. Paragraph 6(1)(g).

Principal Issues:
Whether "non-Christian healers who provide healing through prayer" qualifies as a "medical practitioners" under the Act.

Position:
Likely not.

Reasons:
Paragraph 118.4(2)(a) of the Act provides that, for the purposes of section 118.2 of the Act, a reference to a "medical practitioner,"etc. means, for a service rendered, a person who is authorized to practice as such according to the laws of the jurisdiction in which the service is rendered. Accordingly, one must look to provincial legislation to determine whether payments to a medical practitioner will qualify for the medical expense tax credit.

Principal Issues:
Can the legal representative of a deceased taxpayer make the election on behalf of the deceased taxpayer to have the common-law partner rules apply prior to 2001?

Position: Yes.

Reasons:
It was intended that the deceased taxpayer's legal representative be allowed to make the election. Refer to IRPPD E-Mail to deferred plan administrators.

Principal Issues:
Can we provide various opinions regarding the taxation of benefits under various incentive plans that will be offered by a U.S. corporation to employees of a related Canadian corporation?

Position: No.

Reasons:
The opinions would relate to proposed transactions and the terms of the various incentive plans are not available. The client should request a ruling.

Principal Issues:
Is an estate which has de facto control of a corporation an affiliated person for the purposes of subsection 40(3.6)?

Position: Yes.

Reasons: Affiliated by virtue of subparagraph 251.1(1)(b)(i).

Principal Issues:
Where the proposed conditions are satisfied, can we confirm that a taxpayer will be able to specifically identify the option shares that are being disposed of under proposed subsections 7(1.31) and 47(3)?

Position: Provided the amendments are enacted as proposed, yes.

Reasons:
The comments for proposed subsection 7(1.31) state that, where a taxpayer disposes of a security that is identical to other securities owned by the taxpayer and the security was acquired under a security option agreement, the taxpayer can designate which securities are being disposed of. In addition, proposed subsection 47(3) deems certain securities subjected to subsection 7(1.31) not to be identical to any other securities for the purposes of subsection 47(1) of the Act.

Principal Issues: Does a proposed deferred salary leave plan satisfy the requirements of Reg. 6801?

Position: Yes, if suggested amendments are adopted.

Reasons: Requirements of Reg. 6801 will be met.

Principal Issues:
Is the trust an affiliated person with a corporation controlled by another corporation which is personally controlled by the trustee where the trustee is the sole trustee of the trust for the purposes of subsection 40(3.6)?

Position: Yes.

Reasons: Affiliated by virtue of subparagraph 251.1(1)(b)(i) and paragraph 251.1(4)(a).

Principal Issues: Does taxpayer meet the function and status test such that he can avail himself of the 8(1)(c) deduction?

Position: It appears that he does.

Reasons: Provided the individual meets the status test, and provided he meets the function test as a result of 1) The individual is a minister and is engaged exclusively in full-time administrative service (paragraph 18 requires the function to be full-time) appointed by a religious organization (paragraph 20 of IT-141R) or
2) it is also arguable that the individual could be considered to be ministering to a congregation.(see Koop, Klassen & Rushton (Youth for Christ Employee)

Principal Issues:
1. In respect of an otherwise eligible relocation (ITA 248(1)) where the taxpayer moved for three months into a rental home at the new work location pending the sale of the old residence and then, after the sale, purchased a new residence, is a portion of the rental accommodation deductible in computing income under ITA 63(2)(c)?
2. Are the costs of weekend commuting back to the old residence, where the taxpayer's family resided while it was listed for sale, qualify as deductible expenses under ITA 63(2)(a)?

Position:
1. Yes
2. No

Reasons:
1. ITA 63(2)(c) permits the deduction of the cost of lodging near the old residence or the new residence for a period not exceeding 15 days.
2. ITA 63(2)(a) only permits the deduction of travel costs in the course of moving from the old residence at which the taxpayer ordinarily resided before the relocation to a new residence at which the taxpayer ordinarily resided after the relocation.

Principale Question:

Le don d'une quote-part indivise dans un bien culturel est-il considéré comme le don d'un objet selon la définition de " total des dons de biens culturels " lorsque l'établissement désigné devient l'unique propriétaire du bien avec tous les droits se rattachant à la propriété du bien?

Position Adoptée:
Serait généralement un don. Le paragraphe 245(2) pourrait être applicable selon les faits soumis.

Principal Issues:
Will stock option plan administration fees charged by a parent corporation to its subsidiary corporation be deductible by the subsidiary corporation?

Position: Question of fact.

Reasons:
Plan administration and implementation costs are deductible by Canadian corporations where they are reasonable. In this case, we have no information to make this determination.

Principal Issues: What measuring stick does the Agency use to apply the criteria "all or substantially all the assets" in clause 110.6(14)(f)(ii)(A) and "all or substantially all of the assets" in section 54.2 of the Act ?

Position: Generally, 90 % or more of the FMV. However, other measuring sticks may be used depending on the circumstances.

Reasons: These provisions do not specify a measuring stick. The Agency's position in the 1989 CTF-RTQ 13 [E89130].

Principal Issues: Where an EPSP distributes property, other than money, to a trust for the benefit of a vested EPSP beneficiary, will subsection 144(7.1) apply to deem the EPSP not to have disposed of the property?

Position: No.

Reasons: Subsection 144(7.1) applies to distributions by the EPSP trust to the beneficiary. Since the distribution is to a trust for the benefit of a beneficiary of the EPSP, we have to look at the new definition of disposition to make this determination.

Principal Issues:
Follow-up to our letter in file 992821, to clarify the time of application of the position explained in that letter.