Income Tax Severed Letters - 2001-03-30

Principales Questions: Les dispositions du paragraphe 70(5.3) de la Loi s'appliquent-elles pour déterminer, immédiatement avant le décès d'un actionnaire donné, la juste valeur marchande des actions d'assurance vie qu'il possédait à ce moment?

Position Adoptée: Si les modifications proposées au paragraphe 70(5.3) de la Loi sont adoptées telles que proposée par l'avis de motion de voies et moyens du 19 mars 2001, les dispositions du paragraphe 70(5.3) de la Loi pourraient s'appliquer pour calculer, immédiatement avant le décès de l'actionnaire donné, la juste valeur marchande des actions dont la JVM est fonction du produit d'assurance vie pourvu que l'assurance porte uniquement sur la vie de ce particulier ou sur la vie d'autres particuliers qui ont un lien de dépendance avec lui à ce moment ou au moment de l'établissement de la police.

Principal Issues: Whether the CCRA's position on the reasonableness of a manager's bonus applies where a manager does not directly own his or her own shares but holds shares through a holding company which is not 100% owned by the manager, but rather is owned by the manager and family members.

Position: Question of fact.

Reasons: In our view, one of the primary factors to be considered when determining the reasonableness of the amount of salary and/or bonus is the recipient's contribution to the business. Where a corporation pays a salary and/or bonus out of business profits to a manager who is actively engaged in the business of the corporation, it is unlikely that the reasonableness of the deduction will be questioned unless it results in an undue tax advantage. The CCRA does not and do not intend to develop criteria relative to the ownership and management structure of a Canadian-controlled private corporation in relation to the determination of whether the amount of salaries and bonuses will be considered reasonable.

Principal Issues:
Corporation is proposing to loan funds to the daughter and son-in-law of the company's shareholders. The daughter and son-in-law will use the proceeds to purchase a farm in another province. The loan would be secured by a mortgage against the property to be purchased, would have a competitive interest rate, and would require monthly payments.

Would subsection 15(2.3) apply so that subsection 15(2) would not apply to the loan?

Position TAKEN:
Insufficient information provided. Likely no. General comments provided.

Reasons:
Based on jurisprudence and position in IT-442R.

Principal Issues: Whether the taxpayer's employer is considered to be the "same employer" for purposes of ITA 54.1(1) after a change in name following an acquisition of another company

Position: No position taken. Referred to TSO

Reasons: Insufficient information

Principal Issues: Is a trust that is created as a consequence of death considered a testamentary trust if it receives property from an alter ego trust?

Position: no

Reasons: A trust that is created by the trustee of an inter vivos trust is excluded from the def'n of testamentary trust by reason of (a) of that def'n and a trust that receives property from an inter vivos trust created after Nov 12, 1981 is excluded from the def'n of testamentary trust by reason of (b) of that def'n.

Principal Issues: 1. Whether travel between an employee's home office and his or employer's place of business is personal in nature. 2. Whether an employee is entitled to deduct work space in the home expenses.

Position: 1. Generally, yes 2. No

Reasons: 1. If an employee, whose regular place of work is the home office, is required to regularly and habitually attend staff or other meetings at the main office, the main office generally remains one of two locations from which the employee regularly performs the duties of employment. As a result, travel between such locations is viewed as personal in nature. 2. The requirement in either subparagraph 8(13)(a)(i) or (ii) of the Act has not been satisfied.

Principal Issues: Whether a taxable employment benefit is received by virtue of the employer paying for internet service at home.

Position: In the situation outlined, it is unlikely that there is any significant taxable employment benefit as a result of having the internet service in the employee's home to assist him in carrying out his employment duties.

Reasons: Little or no personal benefit.

Principal Issues:

Taxpayer and his wife are partners in a farming operation with the wife having only a minimal interest in the partnership. Taxpayer wishes to dissolve the partnership and transfer the assets on a tax-deferred basis pursuant to subsection 98(3) of the Act and gift 50% of his farm property to his wife. They would then roll their farm property into a new partnership pursuant to subsection 97(2) of the Act with each spouse receiving a 50% interest in the partnership.

Do the attribution rules in sections 74.1 and 74.2 apply to the income earned by the new partnership?

Position TAKEN:

Unable to provide an answer in the context of a technical interpretation letter.

Reasons:

Principal Issues:
Whether real property qualifies as "property for which the property was substituted", as that expression is used in the definition of "qualified farm property" in subsection 110.6(1) of the Act, when the previous property was a leasehold interest in the same real property.

Position: Yes, provided the leasehold interest in real property is not described in the exclusions in subsection 248(4) of the Act.

Reasons: Subsection 248(4) of the Act provides that real property includes a leasehold interest in real property. The disposition of a leasehold interest in real property for the real property itself would therefore qualify as a substitution for the original property for purposes of the definition of "qualified farm property" in subsection 110.6(1) of the Act, unless the leasehold interest is specifically excluded pursuant to subsection 248(1) of the Act.

Principal Issues:
Is the subcontracting income earned by a status Indian, who does not reside on reserve but maintains a proprietorship business office on reserve, from plumbing services rendered on homes located on reserve in respect of subcontracts with a general contractor corporation, which is owned by non-Indians and is not resident on reserve, exempt from income tax?

Position: Yes

Reasons: The major connecting factor is the location of the revenue generating activities, which in this case are the plumbing services rendered on homes located on reserve.

Principal Issues: Does a part-time pastor qualify for the housing allowance and is he restricted other than by his earnings?

Position: If he qualifies, the only restrictions are those that also apply to full-time pastors.

Reasons: Provided the individual meets the status and the function test.

Principal Issues:
Whether an amount paid as a prepayment for orthodontic work is an amount that qualifies as a medical expense under paragraph 118.2(2)(a) of the Act in the year it is paid.

Position: Question of fact.

Reasons: Provided that the expense is incurred, paid for and receipted in the same "period of 12 months ending in the year", as permitted by subsection 118.2(1) of the Act, the payment will qualify as a medical expense under paragraph 118.2(2)(a) of the Act.

Principales Questions:
Demande d'agrément à la division 37(1)a)(ii)(E)

Position Adoptée:
Aucun agrément.

Principal Issues:
1. Whether our administrative position on when a corporation is wound-up applies for purposes of subsections 78(2) and 88(1.1).

Position:
1. It would apply to 78(2) but not to 88(1.1).

Reasons:
1. Since subsection 88(1.1) allows the parent corporation to claim the subsidiaries losses in any taxation year beginning after the commencement of the winding-up, a more liberal interpretation of the term "wound up" is not necessary, and therefore for purposes of subsection 88(1.1), we should apply a strict interpretation and not consider a corporation wound up until it had been formally dissolved.

Principal Issues: An individual owns shares of a corporation. As the shares apparently have no value, we have been asked whether the individual has sustained a business investment loss pursuant to paragraph 39(1)(c) of the Income Tax Act.

Position: We have provided general comments.

Reasons: The information provided was limited.

Principal Issues:

Taxpayer or taxpayer's wife purchased a new residential home and on behalf of a friend who could not arrange financing. The cost of the home was approximately $117,000. The friend contributed $10,000 towards the purchase price with the taxpayer or his wife paying the rest by way of a $100,000 mortgage and $7,000 of their own funds. The friend was to make all the mortgage payments and repay the $7,000.

Less than two years later, the friend "purchased" the home for consideration of the outstanding balance of the mortgage, $7,000 and the amount of a number of mortgage payments that were missed. At that time, the appraised value of the house was $155,000.

Would the "purchase" of the home by the friend result in a capital gain for the taxpayer?

Position TAKEN:

General comments provided.

Reasons:

Principal Issues: If section 84.1 "applies" but has no effect can subsection 85(2.1) be applied?

Position: No conclusive response.

Reasons: Need a thorough review of all the facts

Principales Questions: Quelles sont les conséquences fiscales, pour des actionnaires canadiens, de la cession des actions du capital-actions de XXXXXXXXXX ? / What are the tax consequences for canadian shareholders of the spin-off of XXXXXXXXXX ?

Position Adoptée: Commentaires généraux concernant l'article 86.1 proposé de la Loi. / General comments provided on proposed section 86.1 of the Act.

Principal Issues:
Divorce agreement effective XXXXXXXXXX , requires that the taxpayer pay spousal support to his former spouse $XXXXXXXXXX per month in spousal support plus: