Income Tax Severed Letters - 2001-05-11

Miscellaneous

2001 Miscellaneous 2001-0063621 - butterfly

Unedited CRA Tags
55(3)(b)

Principal Issues: Minor amendments

Position: No effect on the rulings given

Reasons: Typographical corrections

2001 Miscellaneous 2001-0071831 - Foreign Property, Trust Debts

Unedited CRA Tags
206(2)

Principal Issues:
Amend the proposed transactions presented in ruling 2001-006488 and in supplemental 2001-007039.

Position: N/A

Reasons: Amendment is not material and it will not affect the rulings given.

Ruling

2001 Ruling 2001-0072233 - QUALIFIED INVESTMENT CCPC SHARES

Unedited CRA Tags
REG 4900(12)(a)

Principal Issues: Will the shares of a corporation that is financing its XXXXXXXXXX % interest in a CCPC that will build and operate a XXXXXXXXXX be qualified investments for an RRSP under 4900(12)(a) of the Regulations?

Position: Yes.

Reasons: The shares are being offered by a company that has and will only invest in shares and debts of a connected small business corporation which is currently building a plant to operate its business. The shares will satisfy 4900(12) because the business operations of the connected small business corporation have commenced.

XXXXXXXXXX 2001-007223

2001 Ruling 2000-0058523 - PARTNERSHIPS-WIND-UP

Unedited CRA Tags
98(3) 248(20) 96(1)

Principal Issues:
Dissolution of a general partnership under subsection 98(3) of the Act and thereafter partitioning the undivided interest in the distributed assets to the former partners.

Position:
Rulings given regarding the application of subsections 98(3) and 248(20), subject to caveats that fair market value of the respective proportions of the partners’ interests before and after the partitioning of the particular property be met, as provided in subsection 248(20).

Reasons:
The particular provisions will permit the dissolution and partitioning, respectively,

2001 Ruling 2000-0047413 - DONATION TO FOREIGN CHARITY

Unedited CRA Tags
214(3) 56(2)

Principal Issues:
Whether a gift made to a foreign charity by a corporation wholly owned by a foreign trust, would result in the application of subsections 56(2) and 214(3).

Position:
Based on the facts in this case, No.

Reasons:
The foreign charity is prescribed by section 3503 of the regulations for the purposes of subparagraph (a)(vi) of the definition of "charitable gifts in subsection 110.1(1). The donation by the corporation to the foreign charity is, based on the facts, a "gift" for the purposes of the Act as there are no obligations by any person to make a contribution to the foreign charity which will be considered to have been satisfied as a consequence of the corporation making the gift.

2001 Ruling 2001-0072903 - Butterfly

Unedited CRA Tags
55(3)(b)

Principal Issues: Standard Butterfly Ruling.

Position: Favourable rulings provided.

Reasons: Complies with rules in section 55.

2001 Ruling 2000-0062853 - structured settlement

Unedited CRA Tags
56(1)(d)

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

2001 Ruling 2000-0047623 - PAYMENT TO FORMER DONOR TO CHARITY

Unedited CRA Tags
149.1(2) 168

Principal Issues:

1. Can a registered charity exclude the amount of previously receipted donations from the calculation of the disbursement quota as defined in subsection 149.1(1), for the years pertaining to the Donations where a payment, determined with reference to the donations, is subsequently made by the Charity to the donor?
2. Will a registered charity lose its registered status as a consequence of making the payment referred to in 1?
3. Would a charity be considered to have conferred a personal or taxable benefit on a donor if the payment referred to 1. is made?

Position:

1. No. The charity may not revise the computation of the disbursement quota for the years in which the donations were originally received.
2. Unable to Rule.
3. Unable to Rule.

Reasons:
1. There is nothing within the definition of disbursement quota in subsection 149.1(1) which would permit the exclusion therefrom of donations for which a receipt has been issued.
2. The revocation provisions (subsections 149.1(2) and 168(1)) are ministerial discretion provisions (i.e. "The Minister may") and it is within the mandate of the Charities Directorate whether the registered status of a charity will, in fact, be revoked in any particular situation. Confirmation as to whether a proposed transaction will result in a revocation of a charity's registration, must be obtained from the Charities Directorate.
3. Question of fact requiring a full review (audit) of the surrounding circumstances.

2001 Ruling 2001-0064883 - Debts of a trust, foreign property, GAAR

Unedited CRA Tags
245(2)

Principal Issues:
1) Will debts of a trust be foreign property for purposes of Part XI?
2) Will GAAR apply to this scenario?

Position: 1) No. 2) No.

Reasons:
1) Nothing in the Act to include debts of a trust as foreign property.
2) The GAAR Committee ruled that there is no misuse or abuse of the Act.

2001 Ruling 2001-0064973 - WIND-UP UNUSED SURTAX CREDITS

Unedited CRA Tags
87(2)(j.91) 88(1)(e.2)

Principal Issues: May a parent corporation carry back the unused surtax credits of its wholly owned subsidiaries, following a windup of those subsidiaries.

Position: The unused surtax credits accrued in the subsidiaries prior to the winding-ups may be carried back to offset Part I.3 tax payable in prior years by the parent. The GAAR would not be applied to prevent this outcome.

Reasons: Paragraph 87(2)(j.91) provides that, on amalgamation, the new corporation is a continuation of and the same corporation as its predecessors for the purposes of computing unused surtax credits except that the paragraph does not apply in respect of the taxes payable by any predecessor corporation. Paragraph 88(1)(e.2) provides that paragraph 87(2)(j.91) also applies on a winding-up with “new corporation” read as the parent and “predecessors” read as the subsidiaries. Therefore, on a winding-up, paragraph 87(2)(j.91) cannot affect the taxes payable by the subsidiaries, but does not preclude any effect on the taxes payable by the parent. The GAAR would not be applied simply because the more favourable of two methods of consolidating the parent with its subsidiaries is selected.

2001 Ruling 2001-0067553 F - Papillon

Unedited CRA Tags
55(3)(b)

Principal Issues:
Est-ce que les dettes engagées XXXXXXXXXX peuvent être évaluées à leur JVM pour les fins de la détermination de la JVM nette des placements acquis dans le cadre des arrangements avec les prêteurs?

Position:
Oui

Reasons:
Cette méthode est acceptable compte tenu des circonstances.

2001 Ruling 2000-0051273 F - ALLOCATION/CONVENTION DE RETRAITE

Unedited CRA Tags
56(1)a)ii) 56(1)x) 20(1)r) 60(j.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.

Principales Questions

1. L'allocation de retraite peut-elle être payée en versements inégaux sur une période maximale de 10 ans?

2. Un employé peut-il renoncer à l'indemnité de départ et l'employeur peut-il verser un montant équivalent dans une convention de retraite?

2001 Ruling 2001-0068223 - Adjusted cost base-shares acquired on merger

Unedited CRA Tags
54

Principal Issues: Cost of shares acquired as a result of a foreign merger

Position: Cost of shares includes an amount equal to the fair market value of the consideration given to acquire such shares.

Reasons: Cost of property acquired is equal to what was given up to acquire the property

2001 Ruling 2000-0058363 - QSBC shares - 55(3)(a)

Unedited CRA Tags
110.6(1) 55(3)(a)

Principal Issues:
1) Whether cash and near cash investments would be considered assets used principally in an active business.
2) Application of subsection 55(2).

Position:
1. Yes
2. Dividends not subject to subsection 55(2) by virtue of paragraph 55(3)(a).

Reasons:
1. Cash and near cash are held due to contractual obligations with insurance companies as securities for bonds.
2. Paragraph 55(3)(a) satisfied.

2000 Ruling 1999-0009493 F - TRANSFERT IMMEUBLE-DROITS D'OCCUPATION

Unedited CRA Tags
69(5) 84(2) 88(2)

Principales Questions:

Quelles sont les conséquences pour une société et pour les actionnaires du transfert d'un immeuble de la société dans le cadre de sa liquidation aux actionnaires qui détenaient déjà des droits d'occupation dans cet immeuble ?

Position Adoptée:

2000 Ruling 1999-0010583 - IMMOVABLE PROPERTY ARTICLE 13 OECD

Unedited CRA Tags
art 13 115(1) 248

Principal Issues: German Foreign Sub-LP and Foreign Sub-Holdco will be "merged" under German law with Foreign LP such that Foreign LP becomes the surviving entity. As a consequence of the merger, all of the assets and liabilities of Foreign Sub-LP and Foreign Sub-Holdco will be transferred to, or assumed by, Foreign LP. As a result of the merger, there will be dispositions of taxable Canadian property (TCP). The issue is whether the taxable capital gain on these dispositions of TCP will be exempt from tax by virtue of paragraph 5 of Article 13 of the Canada-German Income Tax Agreement (the "German Convention").

Position: Yes. The taxable capital gain on the dispositions of TCP will be exempt from tax by virtue of paragraph 5 of Article 13 of the German Convention.

Reasons: Paragraph 4 of Article 13 of the German Convention allows Canada to tax gains derived by a resident of Germany from the alienation of an interest in a partnership the value of which is derived principally from "immovable property" situated in Canada. For the purposes of paragraph 4, the term "immovable property" includes an interest in a partnership the value of which is derived principally from immovable property situated in Canada. (Thus, a partnership "look-through" rule is provided for.) However, the term "immovable property" does not include property (other than rental property) in which the business of the partnership was carried on.

2000 Ruling 1999-0012763 - Class 43-1 System & Heat Rate Requirements

Unedited CRA Tags
class 43-1 1104(14)

Principal Issues: (a) Whether Plant XXXXXXXXXX for the purpose of subparagraph (c)(i) of Class 43.1 in Schedule II of the Regulations. (b) Whether the heat rate requirement under clause (c)(i)(B) of Class 43.1 in Schedule II of the Regulations for Plant XXXXXXXXXX would be met.

Position: (a) XXXXXXXXXX (b) Yes. However, this heat rate requirement must also be met in each and every year of the operation of Plant XXXXXXXXXX by A Co. pursuant to this subparagraph, unless subsection 1104(14) of the Regulations would apply.

Reasons: (a) Based upon the opinion of Natural Resources Canada dated XXXXXXXXXX , Plant XXXXXXXXXX for the purpose of subparagraph (c)(i) of Class 43.1 in Schedule II of the Regulations. (b) Based upon the opinion of Natural Resources Canada dated XXXXXXXXXX , the heat rate of the system of Plant XXXXXXXXXX would be about XXXXXXXXXX and therefore, the heat rate requirement under clause (c)(i)(B) of Class 43.1 in Schedule II of the Regulations would be considered as being met.

2000 Ruling 2000-0048083 - butterfly reorganization

Unedited CRA Tags
55(3)(b)

Principal Issues: Whether a spin-off of a public company followed by a split-up butterfly of the controlling private company qualifies for the exemption under paragraph 55(3)(b)?

Position: Yes.

Reasons: See statement of principal issues for details.

2000 Ruling 2000-0022523 - article 13 Germany Immovable Property

Unedited CRA Tags
art 13 115 116

Principal Issues: Amendments to the advance income tax ruling dated XXXXXXXXXX, 2000, our file number 1999-001058. Foreign Sub-Holdco will resign as the general partner of Foreign Sub-LP and dispose of its XXXXXXXXXX % interest in Foreign Sub-LP. As a result of the resignation of Foreign Sub-Holdco, Foreign Sub-LP will have only one partner and consequently under German partnership law, all of the assets, liabilities and business of Foreign Sub-LP will be assumed by Foreign LP immediately after the resignation. As a result of this, there will be dispositions of taxable Canadian property (TCP). The issue is whether the taxable capital gain on these dispositions of TCP will be exempt from tax by virtue of paragraph 5 of Article 13 of the Canada-German Income Tax Agreement (the "German Convention").

Position: The taxable capital gain on the dispositions of TCP will be exempt from tax by virtue of paragraph 5 of Article 13 of the German Convention.

Reasons: Paragraph 4 of Article 13 of the German Convention allows Canada to tax gains derived by a resident of Germany from the alienation of an interest in a partnership the value of which is derived principally from "immovable property" situated in Canada. For the purposes of paragraph 4, the term "immovable property" includes an interest in a partnership the value of which is derived principally from immovable property situated in Canada. (Thus, a partnership "look-through" rule is provided for.) However, the term "immovable property" does not include property (other than rental property) in which the business of the partnership was carried on.

2000 Ruling 2000-0049053 - 55(3)(a) - significant increase in interest?

Unedited CRA Tags
55(2) 55(3)(a)

Principal Issues: Application of subsection 55(2).

Position: Not applicable.

Reasons: No significant increase in interest as part of the series of transactions that includes the dividends.

2000 Ruling 2000-0025713 - XXXXXXXXXX CERTIFICATES

Unedited CRA Tags
76(2) 214(4)

Principal Issues: The corporation was a financing subsidiary of a XXXXXXXXXX company. Both XXXXXXXXXX and the corporation are insolvent. The XXXXXXXXXX is subject to a winding-up order; the corporation is bankrupt. XXXXXXXXXX To facilitate the wind-up of the corporation's affairs, the trustees of the corporation and XXXXXXXXXX agreed to a two-step distribution process. First, a sufficient amount would be set aside to meet the claims of XXXXXXXXXX . Any excess known at that time (the "initial distribution") would be available for distribution to the arm's length creditors of the companies (the "ALCs"). Each ALC would receive certificates ("XXXXXXXXXX Certificate") at that time acknowledging their right to a pro rata share in any subsequent surplus that should become available for distribution once the XXXXXXXXXX claims had been satisfied. It was expected, at the time the certificates were issued (XXXXXXXXXX ), that little to no such subsequent distribution would be made. The certificates were issued pursuant to a trust indenture and qualify as securities XXXXXXXXXX . The liabilities of the XXXXXXXXXX have now been satisfied and the amount expected to be distributed to the ALCs in satisfaction of their entitlements under the XXXXXXXXXX Certificates will result in full payment of the claims proven in the bankruptcy together with deemed interest. The representatives of the corporation are seeking a ruling that the payments made to those non-residents in satisfaction of their interests under the XXXXXXXXXX Certificates will not be subject to withholding tax.

Position: To the extent that the Act deems a payment to be made in satisfaction of the accrued interest component of a Proven Claim or in respect of interest deemed to be payable under the BIA, withholding tax must be remitted by the Indenture Trustee, except where the debt in respect of which a creditor has proven its claim was exempt from withholding tax under paragraph 212(1)(b).

Reasons: In consideration for receiving the initial distribution and the XXXXXXXXXX Certificates, each of the ALCs settled their proven claims. Had the proven claims been satisfied directly from the bankrupt estate, rather than through the XXXXXXXXXX Certificate mechanism, a component of each proven claim would have been income subject to tax. Section 76 applies where a security or other right is received by a person in satisfaction of a debt to include in income the value of the security or right, to the extent that there would have been an income inclusion had the debt been paid. Subsection 214(4) provides that, where section 76 would have applied had the person been resident, the issuer of the right or security is deemed to have made a payment to the non-resident in the amount that would have been the income inclusion under section 76. Subsection 76(2) provides that, if the debt was not payable at the time of issuance of the security or right, the income inclusion would take place in the year that the debt would have been payable. On the facts, the proven claims would have been payable at the time that they were enforceable, which is, in our view, when the trustee in bankruptcy had funds available for distribution. Therefore, the Indenture Trustee is deemed to have made a payment subject to withholding tax in the year that the funds become available for distribution. Subsection 214(4) further provides that the deemed payment is deemed to have been made in respect of the original debts of the ALCs; therefore, if the claim proven by a creditor was exempt from withholding tax, there is no withholding obligation to the Indenture Trustee in respect of any payment deemed to have been made to that creditor.

2000 Ruling 2000-0030163 - Underground Exploration Program - CEE

Unedited CRA Tags
66.1(6)

Principal Issues: Whether expenses relating to an underground exploration program, to be carried out in three parts, will qualify for inclusion under paragraph (f) of the definition of CEE.

Position: Only expenses incurred in respect of Part B of the proposed underground exploration program may potentially so qualify.

Reasons: Based upon the facts of the situation and a written opinion received from Natural Resources Canada. A representative of that Department visited the site and concluded that expenses to be incurred in respect of Parts A and C of the proposed underground exploration program could reasonably be considered to relate to a potential extension of a mine that has come into production in reasonable commercial quantities. However, such conclusion was not reached with regard to expenses to be incurred in respect of Part B of the exploration program.

2000 Ruling 2000-0040623 - EXCHANGEABLE PHANTOM STOCK UNITS

Unedited CRA Tags
REG 6801(d) 245(2)

Principal Issues: 1) Will the payment of part or all of an employee's bonuses in the form of phantom shares of a subsidiary corporation result in an SDA? XXXXXXXXXX 4) Will GAAR be applied to the proposed transactions?

Position: 1) No. XXXXXXXXXX 4) No.

Reasons: 1) The plan satisfies 6801(d) of the Regulations. XXXXXXXXXX 4) The provisions may not have contemplated this type of arrangement but it is clearly within the wording of the law.

Technical Interpretation - External

15 May 2001 External T.I. 2001-0072935 - DEFERRED SALARY LEAVE PLAN

Unedited CRA Tags
REG 6801(a)

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

Position: Yes.

Reasons: Assumes suggested amendments adopted.

14 May 2001 External T.I. 2001-0077745 - TRAVEL EXPENSES - PLACE OF BUSINESS

Unedited CRA Tags
8(1)(h) 8(1)(h.1) 8(10) 8(4)

Principal Issues:
Should the company issue a T2200 when their employees travel from their residence to a job site?

Position: Travel expenses incurred in connection with travel from home to a job site and back home from a job site at the end of the day would not qualify for the deduction under paragraph 8(1)(h.1). Travel expenses incurred in connection with travel between job sites during the course of a workday would qualify for the deduction.

Reasons:
IT-522R and previous opinions

14 May 2001 External T.I. 2001-0069185 - Flow-through shares

Unedited CRA Tags
66(12.71)

Principal Issues: Whether subsection 66(12.71) of the Act prohibits the renunciation of Canadian exploration expenses (CEE) in a year in which a non-resident principal-business corporation will not have taxable income earned in Canada as computed under subsection 115(1) of the Act.

Position: No.

Reasons: Previous opinions.

10 May 2001 External T.I. 2000-0051505 - PRIVATE HEALTH SERVICES PLAN

Unedited CRA Tags
20.01 (2) 20.01 (1)

Principal Issues:
(1) For the purposes of subsection 20.01(1) of the Act, what percentage of employees/partners must be covered under a private health services plan ("PHSP") to enable an individual to deduct the premiums in respect of the individual, the individual's spouse or any person that is a member of the individual's household.

(2) Does "extend coverage" under a PHSP mean that coverage is offered to employees or does there also have to be acceptance by the employees.

Position: (1)50% of the person employed on a full-time basis
(2)Coverage has to be offered.

Reasons: (1)Subparagraph 20.01(2)(b)(ii) has a "not less than 50%" test.
(2) Extending coverage is not dependent upon the response.

10 May 2001 External T.I. 2001-0073995 - Application of paragraphs 85(1)(e) & 85(1)(d)

Unedited CRA Tags
85(1)(e) 85(1)(d)

Principal Issues:
1. Does our administrative position regarding the interpretation of subparagraph 85(1)(e)(i) extend to subparagraph 85(1)(d)(i)?
2. Does this administrative position apply to transactions carried out pursuant to paragraphs 55(3)(a) and 55(3)(b)?

Position:
1. Yes
2. Yes

Reasons:

10 May 2001 External T.I. 2001-0079595 - PUC Shift

Unedited CRA Tags
245(2)

Principal Issues:
Whether a PUC shift to non-resident shareholders would be subject to GAAR

Position:
No, provided the shift reflects the original capital contribution made by the non-resident.

Reasons:
Does not appear to be a misuse or abuse of the Act.

10 May 2001 External T.I. 2001-0075155 - ELIGIBILITY UNDER HOME BUYERS PLAN

Unedited CRA Tags
146.01

Principal Issues:
1. Is a taxpayer eligible under the HBP if he owned and occupied a home in the restricted period, but will not designate it as his "principal residence"?
2. Does residence for provincial health tax purposes have any bearing on eligibility under the HBP?

Position:
1. No
2. No

Reasons:
1. The principal residence designation in paragraph 40(2)(b) of the Act is not relevant to the requirements in paragraph (e) of the definition of "regular eligible amount" in subsection 146.01(1) of the Act.
2. The taxpayer will not qualify under the HBP if he owned a home and inhabited it as his principal place of residence in the restricted period.

10 May 2001 External T.I. 2001-0075685 - EMPLOYEE STOCK OPTION IN A RRSP

Unedited CRA Tags
REG 4900(1)(e) 7(1)(c) 146(5)

Principal Issues: Can an employee stock option be contributed to an RRSP?

Position: Possibly

Reasons: The stock option must be a qualified investment.

9 May 2001 External T.I. 2001-0081335 - WAGE LOSS REPLACEMENT PLAN

Unedited CRA Tags
6(1)(f)

Principal Issues: whether conversion from 100% employee pay all to 100% employer pays all results in a new plan (and precludes deductions in 6(1)(f)(v))

Position: yes

Reasons: "the plan" in 6(1)(f)(iv) refers to the same plan described in 6(1)(f)(iv)

9 May 2001 External T.I. 2000-0033775 - UK TAX CONVENTION DIVIDENDS

Unedited CRA Tags
ARTICLE 10 90(1)

Principal Issues: Tax treatment of income derived from U.K. personal equity plans (PEP), individual savings accounts (ISA), and endowment.

Position: None

Reasons: Unable to provide position in the absence of detailed facts only general information.

9 May 2001 External T.I. 2001-0079215 - RESEARCH GRANT

Unedited CRA Tags
56(1)(a)

Principal Issues:
Confirmation of the application of paragraph 56(1)(o) of the Act and that expenses for research are deductible while personal day-to-day living expenses are not.

9 May 2001 External T.I. 2001-0067255 - LEGAL FEES - CHILD SUPPORT

Unedited CRA Tags
56(1)(b) 60(b)

Principal Issues: Are legal fees, which are described in paragraph 18 of IT-99R5, deductible on a cash or accrual basis?

Position: They may be deducted on an accrual basis.

Reasons: Paragraph 18 refers to legal fees “incurred”.

9 May 2001 External T.I. 2001-0080245 - LONG-TERM DISABILITY BENEFITS

Unedited CRA Tags
6(1)(f)

Principal Issues: Are long-term disability benefits being received taxable? Would a lump-sum payment to cash out the policy from which the disability benefits are being received be taxable?

Position: Current benefits and lump-sum payment seem to be taxable.

Reasons: From information submitted, it seems that the policy premiums for the insurance in respect of the disability plan were paid by the recipient’s former employer.

9 May 2001 External T.I. 2001-0070695 - PARTNERSHIP ; ACB

Unedited CRA Tags
53 (1) (e) 96

Principal Issues: Whether double taxation incurred due to timing of 53(1)(e)(i) bump can be avoided by obtaining technical opinion.

Position: no

Reasons: The law is clear re timing in 53(1)(e)(i). We would consider administrative relief only via advance ruling, where all facts are provided and it is clear that it would be appropriate.

8 May 2001 External T.I. 2001-0077445 - CAPITAL GAINS DEDUCTION-QUAL. FARM PROPERTY

Unedited CRA Tags
110.6(2) 110.6(1) 74.2(1) 74.2(2)

Principal Issues: Is property transferred from husband to wife qualified farm property in the wife's hands for purposes of the capital gains deduction.

Position: Attribution rules would apply to wife's capital gain and would be attributed back to the husband. Question of fact whether land is qualified farm property.

Reasons: As per 74.2 and 106.1(1) of the Income Tax Act.

8 May 2001 External T.I. 2001-0072325 - CAPITAL LOSSES

Unedited CRA Tags
40(2)(g) 54

Principal Issues: An individual has asked whether a disposition of a debt gives rise to a capital loss.

Position: General comments were provided

Reasons: The available information was limited.

8 May 2001 External T.I. 2000-0057405 - Exempt RPP Payments

Unedited CRA Tags
212(1)(h) 115(2)(c)

Principal Issues: Are RPP payments made to taxpayer exempt from tax under paragraph 212(1)(h) of the Act?

Position: yes

Reasons: In the t/p's particular situation, the t/p was a non-resident of Canada throughout period t/p was employed at Canadian Consulate in XXXXXXXXXX in respect of RPP benefits. Since the t/p satisfied both of the conditions in subparagraph 212(1)(h)(v) and (vi), the RPP payments are exempt from tax under paragraph 212(1)(h) of the Act.

8 May 2001 External T.I. 2001-0074115 - SALARIES-REASONABLENESS

Unedited CRA Tags
67 125(6.2)

Principal Issues:
Does the administrative policy of the Agency regarding reasonableness of salaries and bonuses to shareholder-managers as stated in response to Q42 of the 1981 CTF apply in a situation where two corporate limited partners are in partnership with a public corporation and the limited partners wish to pay all their allocated income to the individual shareholder-manager because they cannot avail themselves of the small business deduction?

7 May 2001 External T.I. 2000-0036535 - CDN-CONTROLLED PRIVATE CORP.

Unedited CRA Tags
125(5.1) 256(2)

Principal Issues: Whether an election under subsection 256(2) of the Act allows an otherwise associated corporation to use the full $10 million capital deduction when calculating its LCT for purposes of the business limit reduction under subsection 125(5.1).

Position: No.

Reasons: Since an election filed under subsection 256(2) applies for purposes of section 125 only, it is our view that there is no basis for giving effect to an election under this provision when determining a corporation’s LCT under section 181.1.

7 May 2001 External T.I. 2001-0076805 - SECURITIES TRANSACTIONS

Unedited CRA Tags
9(1) 40

Principal Issues: Whether an individual who buys and sells securities is carrying on a business with respect to those activities.

Position: General comments consistent with those in IT-479R were provided.

Reasons: Only limited information was provided and the issue involves a question of fact.

7 May 2001 External T.I. 2000-0057105 - SMALL BUSINESS CORPORATION

Unedited CRA Tags
48.1

Principal Issues: In a situation where a small business corporation raises funds in an IPO to expand its business operations, the funds raised unconditionally belong to the corporation during a period of a few days (3 to 10 days) between the date of closing of the prospectus and the day the shares are approved for unqualified listing on the stock exchange, and such funds account for more than 10% of the assets of the corporation, is the ITA 48.1(1) election still available, considering that such election requires ownership of the shares of a SBC immediately before the SBC ceases to be such by virtue of its shares being listed on the exchange?

Position: General comments only.

Reasons: Resolution depends on the facts.

7 May 2001 External T.I. 2001-0078485 - PROCEEDS FROM EASEMENT ON LAND

Unedited CRA Tags
43

Principal Issues: The income tax treatment of a $XXXXXXXXXX payment received by a taxpayer from XXXXXXXXXX for an easement on the taxpayer's land for a XXXXXXXXXX

Position: Generally, the granting of an easement is considered a disposition of property, and a reasonable portion of the adjusted cost base of the whole property attributable to the part disposed of is required to be allocated to the disposition pursuant to section 43 of the Income Tax Act. However, the CCRA will accept an amount equal to the proceeds from such a disposition as being the reasonable portion of the adjusted cost base of the whole property attributable to the part disposed of provided that (a) the area or the portion of the property that was expropriated or in respect of which an easement was granted is not more than 20% of the area of the total property, and (b) the amount of the compensation received is not more than 20% of the amount of the adjusted cost base of the property.

Reasons: IT-264R

4 May 2001 External T.I. 2001-0081875 - DEDUCTION OF FINES & PENALTIES

Unedited CRA Tags
9(1)

Principal Issues: The prevalence of the deduction of fines and penalties.

Position: Referred to the Audit Dirctorate.

Reasons: Audit Directorate are the only ones who will have that sort of information.

3 May 2001 External T.I. 2001-0069115 - ELECTION BY JOINT VENTURERERS AS LESSEES

Unedited CRA Tags
16.1

Principal Issues: Section 16.1 election by joint venturers as lessees

Position: Joint venturers can make an election as a lessee under section 16.1 with a lessor independently of the other joint venturers.

Reasons: Because of their legal status, each joint venturer, as a lessee, would be able to make an election under section 16.1 independently of the co-joint venturers on their respective proportional interest in the assets leased through the joint venture.

2 May 2001 External T.I. 2001-0077705 - Non-resident Trusts

Unedited CRA Tags
94(1)

Principal Issues: 1. Is a trust that is factually not resident in Canada subject to tax in Canada as a resident of Canada if the contributor(s) have never been and never will be resident in Canada where the trust has a contingent beneficiary who is resident in Canada?
2. What are the information reporting requirements in respect of such a non-resident trust?

Position: 1. No. 2. T1142 must be filed by the Canadian resident beneficiary in any year in which s/he becomes entitled to receive a distribution or becomes indebted to the trust. T1141 and T1135 would not be required based on the facts described in the letter.

Reasons: 1. Under current law, the trust would not be deemed to be resident in Canada because the condition in 94(1)(b) is not met based on the facts presented. Under the proposed legislation, the trust would have neither a resident contributor nor a resident beneficiary.
2. 233.2, 233.3 & 233.6

2 May 2001 External T.I. 2001-0077795 - CLERGY RESIDENCE DEDUCTION

Unedited CRA Tags
8(1)(c)

Principal Issues:
Who is responsible for the deduction format for $1000/mo for a 10 month maximum for the clergy deduction when an individual ministers 12 months of the year?

30 April 2001 External T.I. 2000-0042505 - Transfers to Trusts

Unedited CRA Tags
75(2)

Principal Issues:
Whether subpararagraph 75(2)(a)(i) would apply because the settlor loaned money to the trust.
Whether subparagraph 75(2)(a)(ii) would apply to the particular situation.
Whether paragraph 75(2)(b) would apply to the particular situation.

Position:
Our position is that a genuine loan to a trust would not in and by itself be considered to result in the application of subsection 75(2) of the Act if the loan is outside and independent of the terms of the trust. Paragraph 3 of IT-260R provides comments on "genuine loan".

General comments. No position on the particular fact situation.

According to the facts given in the incoming letter, paragraph 75(2)(b) would not apply.

Reasons:
Subparagrah 75(2)(a)(ii) - Determination of the beneficiaries

27 April 2001 External T.I. 2000-0057055 F - INTERETS/OBLIGATIONS A COUPONS DETACHES

Unedited CRA Tags
20(14) 12(4) 12(9) REG 7000(1)(b)

Principales Questions: Comment imposer les revenus et les gains en capital sur des obligations à coupons détachés.

Position Adoptée: Explication des règles

25 April 2001 External T.I. 2001-0076585 - EXPENSES OF ISSUING MUTUAL FUND UNITS

Unedited CRA Tags
20(1)(e)

Principal Issues: Whether the undeducted balance of unit issuance costs, which is greater than 20% of total fees, is deductible in the year of windup of a unit trust under paragraph 20(1)(e)?

Position: No

Reasons: Deduction is limited to a maximum of 20% in each year.

19 April 2001 External T.I. 2001-0076675 - LCT INSTALMENT RECEIPTS/SPLITSHARES

Unedited CRA Tags
181.2(4)(a)

Principal Issues:
1. Whether instalment receipts are shares eligible for the investment allowance.
2. Whether splitshares are shares eligible for the investment allowance.

Position:
Factual determination. Provided general comments.

Reasons:
1. Where outstanding shares have been sold on an instalment basis, if the purchaser of the instalment receipts has all the incidents of ownership of the shares, including dividend rights and voting rights, it would be reasonable to consider the acquisition of the instalment receipts as resulting in the ownership of the shares. If it can be established that the holder of the instalment receipt is in fact the owner of the shares, the holder would be entitled to claim an investment allowance for the shares to the extent permitted by paragraph 181.2(4)(a).
2. A splitshare is described as a common share split into a dividend part and a strictly capital appreciating part. While we not have previously considered the characterization of the dividend part and the capital appreciating part for Part I.3 purposes, we would look to the legal nature of the two parts to determine their treatment for Part I.3 purposes.

18 April 2001 External T.I. 2001-0074995 F - Indemnité journalière de grossesse de France

Unedited CRA Tags
3(a) 56(1)(a)(iv)

Principales Questions: Les indemnités journalières de grossesse payées par le gouvernement français sont-elles imposables pour les fins de l’impôt canadien?

Position Adoptée: oui

18 April 2001 External T.I. 2001-0074505 - RESEARCH GRANT

Unedited CRA Tags
56(1)(o)

Principal Issues: whether award is research grant

Position: question of fact, but is likely, provided true "research" is carried on

Reasons: not employment income; for research to be conducted

17 April 2001 External T.I. 2000-0046155 - NISA INCOME & STATUS INDIAN

Unedited CRA Tags
81(1)(a) 12(10.2)

Principal Issues:
Are NISA withdrawals from Fund 2 by a status Indian taxable

Position:
Generally, no

Reasons:
The interest income earned on NISA Funds 1 and 2 by a status Indian is generally not personal property situated on a reserve since the interest is earned in the economic mainstream. The government’s contributions can be considered to be personal property situated on a reserve where a status Indian is a full time farmer who earns all his farming income on reserve.

Technical Interpretation - Internal

4 May 2001 Internal T.I. 2001-0074287 - LCT AND PARTNERSHIP EARNINGS

Unedited CRA Tags
181

Principal Issues: Should undistributed earnings of a partnership, earned in the period between the fiscal year end of the partnership ended in the corporate partner’s taxation year and the fiscal year end of the corporate partner be included in the capital of the corporate partner for the purposes of Part I.3?

Position: Generally, undistributed earnings for this stub period would not be included in the computation of the corporate partner’s capital for the purposes of Part I.3.

Reasons: Generally the capital of a corporate partner is determined with reference to the fiscal year end of the partnership.

18 April 2001 Internal T.I. 2001-0068047 - MOVING & AUTO EXPENSES

Unedited CRA Tags
62(1) 8(1)(h.1)

Principal Issues:
1. Deductibility of moving expenses?
2. Deductibility of automobile expenses?

Position:
1. Not deductible.
2. Some portion may be deductible.

Reasons:
1. Personal in nature. The purpose of the move was not to enable the client to work at the new work location, as required by subsection 62(1) of the Act.
2 More details needed to determine if expenses are deductible.

17 April 2001 Internal T.I. 2001-0077357 - US PENSION CANADIAN BENEFICIARY

Unedited CRA Tags
56(1)(a)(i)

Principal Issues: Are amounts received from a deceased sister’s U.S. pension plans taxable in the hands of the Canadian beneficiary

Position: Yes.

Reasons: Amounts received out of a pension plan are taxable in the hands of the recipient.