Income Tax Severed Letters - 2001-07-06

Principales Questions: Est-ce que les dispositions de roulement au par. 98(5) sont applicables à tous les biens reçus par l'ancien associé qui continue à exploiter l'entreprise de la société si un bien de la société est utilisé par l'ancien associé dans l'entreprise?

Position Adoptée: Oui

Principal Issues: An adult brother ("Individual A") and his adult sister ("Individual B") live in the same residence along with some other relatives. Individual B is the natural mother of a child (the "Child"). Clarification has been requested with respect to the requirements of paragraphs 252(1)(b) and (d), and whether the Child can be considered the "child" of Individual A for purposes of the Act.

Position: General comments provided on paragraphs 252(1)(b) and (d), and it does not appear that the Child can be the "child" of Individual A pursuant to these provisions.

Reasons: Limited facts provided; however, given that the Child lives with her natural mother (Individual B), and given the mother's financial situation, it is unlikely that the Child can be said to be a child of Individual A under the above note provisions. In our view, the fact that Individual A expends funds in respect of the maintenance of the residence and takes the Child to school, is not sufficient to fall within these provisions. We also note that there appears to be other relatives in the household and it is unclear as to what their role is in the above situation.

Principal Issues: Questions on disposition of CCPC shares acquired on the exercise of a stock option and the exchange of shares under subsection 7(1.5).

Position: Explained operation of the law.

Reasons: Explanation of law requested.

Principal Issues:
Whether 74.4(2) applies when the regular attribution rules in 74.1(2) already apply.

Position:
Question of fact whether one of the main purpose test is met.

Reasons:
The reduction of capital gains tax on a disposition may constitute a reduction of income for the purposes of the main purpose test in subsection 74.4(2) of the Act

Principal Issues: Are financial institutions required to obtain written documentation where a common-law relationship breaks down before proceeding with the various tax-deferred transfers that are permitted under the Income Tax Act (e.g. transfer of an RRSP under 146(16)(b))?

Position: Positions expressed in CCRA publications such as paragraph 5 of IT-528 (dated February 21, 1997) will be now extended to common-law partners unless that position has been changed by a later CCRA publication.

Reasons: Effective for the 2001 taxation year, common-law partners will generally have the same status under the Income Tax Act as spouses (i.e. married individuals).

Principal Issues: Can a stock dividend be a "taxable dividend" for the purposes of subsection 130.1(1) and hence, be deducted in computing a MIC's income? If a MIC increases its paid-up capital resulting in a deemed dividend under subsection 84(1), is the deemed dividend a dividend for the purposes of subsection 130.1(1) and deductible in computing the MIC's income?

Position: Yes to both questions.

Reasons: A stock dividend is a taxable dividend for the purposes of subsection 130.1(1) where it satisfies the definition "taxable dividend" in subsection 89(1) of the Act. MICs are subject to subsection 84(1). Therefore, a dividend deemed to be paid under that subsection is a dividend for the purposes of subsection 130.1(1) and deductible if the provisions of subsection 130.1(1) are otherwise satisfied.

Principales Questions:
Est-ce que les frais de souscription à des services internet ainsi que les frais de location d'un modem, encourus pour avoir accès à des données d'information financières sur l'évolution des marchés pour aider un contribuable à gérer ses placements, sont déductibles en vertu de l'alinéa 20(1)bb)?

Position Adoptée:
Non.

Principale Question:
Les frais d'hébergement et de repas d'un athlète amateur peuvent-ils être déduits de ses revenus d'entreprise?

Position Adoptée:
Question de fait. Commentaires généraux

Principal Issues: How are costs incurred for clearing, leveling and/or draining land for a golf course treated for tax purposes.

Position: Question of fact, generally qualify for inclusion in Class 17 of Schedule II of the Regulations.

Reasons:
The test laid out in the Mont-Sutton case will determine the appropriate tax treatment. Where the criteria in Mont-Sutton are satisfied, the costs incurred for greens, tees and fairways will qualify as "surface construction" within paragraph (c) of Class 17 in Schedule II of the Regulations.

Principal Issues: Restrictions applicable to a transfer of severance pay under paragraph 60(j.1) of the Income Tax Act.

Position: 1) As per the limits under paragraph 60(j.1).

Reasons: 1) Limits provided under paragraph 60(j.1).

Principal Issues:
Why must the total amount earned and received upon maturity of a 3 year equity-indexed GIC be reported in full in the taxation year in which the GIC matured and not apportioned over the three year term of the GIC?

Principal Issues: Whether a foreign exchange gain realised upon maturity of Ontario strip bonds denominated in US currency can be deferred until the funds are converted into Canadian dollars.

Position: The foreign exchange gain cannot be deferred until the funds are converted into Canadian dollars. It must be calculated upon maturity of the bonds.

Reasons: Subsection 39(2) of the Income Tax Act and paragraph 13 of Interpretation Bulletin IT-95R.

Principal Issues: Do the corporate attribution rules in subsection 74.4(2) apply in a situation where subsections 74.1(1) and 74.3(1) apply?

Position: Perhaps.

Reasons: Question of fact whether one of the main purposes test is met. Given that there is already attribution, generally it would not appear that a purpose would be to

Principale Question:

Un contribuable qui utilise à chaque année la date de négociation comme date de disposition d'actions transigées en bourse, peut-il déduire une perte en capital établie selon la date de négociation alors que la date de liquidation est dans l'année d'imposition subséquente?

Position Adoptée:

Non. Doit utiliser la date de liquidation.

Principal Issues: Is there a ITA 48.1(1)(c) deemed disposition in a situation where a SBC raises funds in an IPO and, after the election referred to in ITA 48.1(1)(b) is filed, it is determined that the SBC ceased to be such not because its shares (or those of another corporation) were listed on a prescribed stock exchange, as required by ITA 48.1(1)(a)(ii), but rather it ceased to be such prior to the listing of the shares (e.g., it ceased to be a CCPC due to an acquisition of control)?

Position: No.

Reasons: The ITA 48.1(1)(c) deemed disposition occurs if both preconditions in ITA 48.1(1)(a) and (b) are met and they are not met in the situation under consideration.

Principal Issues: How are payments made out of a U.S. 403(b) pension plan to a Canadian resident beneficiary (not the employee who is deceased) taxed?

Position: The entire amount is included in income pursuant to 56(1)(a)(i)

Reasons: The entire amount is excluded pursuant to 6(1)(g)(iii) because the benefits are attributable to a non-resident rendering services in the U.S. Therefore, the exception in clause 56(1)(a)(i)(D) will not apply.

Position Adoptée:
Le paragraphe 144(9) de la Loi n'est pas applicable avant que l'employé cesse d'être bénéficiaire.

RAISON POUR POSITION ADOPTÉE:
Analyse législative. E9424115 et E9413065

Principal Issues: Can a mortgage held by an RRSP which is a qualified investment pursuant to paragraph 4900(1)(j) of the regulations (annuitant of RRSP is the mortgagor) be increased without a tax consequence?

Position: Yes

Reasons: As long as the increased mortgage continues to satisfy the requirements of paragraph 4900(1)(j) of the regulation, it will continue to be a qualified investment for the RRSP.

Principales Questions: Un actionnaire a cautionné un emprunt d'une société auprès d'un tiers. Il emprunte un montant pour payer la dette de la société et rembourse son emprunt pendant quelques années. Est-ce-qu'il peut déduire les intérêts versés en vertu du paragraphe 20.1(1) de la Loi?

Position Adoptée: Non

Principales Questions: L'employé peut-il prendre son congé plus tôt que prévu et être rémunéré par son employeur pour les fins de l'application de l'alinéa 6801a) du Règlement.

Principal Issues: What are tax consequences if an employee does not return to work after a period of leave under a 6801(a) plan?

Position: Deferred amounts are taxable at the point where all the conditions of 6801(a) are not met.

Reasons: The deferred amounts are no longer part of a prescribed plan.

Principal Issues: Should an RRSP issuer prepare a T4RSP for the value of property that was "swapped" with property held by the annuitant?

Position: Referred the issuer to the TSO.

Reasons: This is a completed transaction.

Principales Questions: Les règles de roulement prévues aux articles 85, 85.1, 86 et 87 s'appliquent-elles à un RÉER?

Position Adoptée: Oui

Principales Questions: Interprétation de "personne liée à l'employeur" dans 60j.1) dans plusieurs circonstances.

Position Adoptée: S/O

Principal Issues: Consequences of failure to file T2 Schedule 91 if claiming a treaty-based exemption

Position: Penalty imposed pursuant to 162(2.1)

Reasons: Statutory provision

Principal Issues:
1. whether plan is PHSP if expenses of persons not listed in 118.292)(q)?
2. whether medical expense of person if person is entitled to be reimbursed by a health plan

Position:
1. no
2. no

Reasons:
1. 118.2(2)(q)
2. 118.2(3)(b)

Principal Issues: Whether a component of the calculation of deferred taxes under new CICA Handbook section 3465 can be excluded from the computation of capital under subsection 181.2(3).

Position: No. It is the entire amount of both the Future Income Tax Liability and the Future Income Tax Asset as shown on the balance sheet that are to be included in the computation of capital under paragraphs 181.2(3)(b) and (h). It is also the carrying value of all assets and other amounts including amounts added to the carrying value of the asset in relation to adjustments under the CICA Handbook section 3465 that should be used for computing amounts for capital tax purposes, including the investment allowance.

Reasons: The wording of the Act.

Principal Issues:
The writer made representations with respect to the timing and computation of benefits under paragraph 7(1)(a) of the Act where the value of the shares under the option decreases.

Position:
Provided general information and included commentary related to concerns on valuation declines experienced in 2000.

Reasons:
The benefit is calculated at the time of the shares acquisition and the time of the acquisition is a question of fact.

Principales Questions: Un employé peut-il adhérer à un régime visé à l'alinéa 6801a) du Règlement et prendre sa retraite sans revenir à ses fonctions habituelles chez son employeur pour une période au moins égale à la durée de son congé?

Position Adoptée: Non, sauf dans des situations exceptionnelles

Principal Issues: Whether our position that, where the legislation precludes a corporation from being registered as a mutual fund salesperson, we will not accept the reporting of income from the sale of mutual funds by a corporation (even if there is a bona fide employment contract between the corporation and the individual under which this income is assigned to the corporation) should be reconsidered in light of Dr. H. Hoyle Campbell (80 DTC 6239), Jerome Wallsten (1999-5116(IT)I) and Lakeside Properties Ltd. (1999-5117(IT)I).

Position: We are awaiting formal legal advice.

Reasons: In our view, the facts in Campbell are distinguishable from those in the case of mutual fund salespersons. For example, in Campbell, it was found that a corporation was operating a hospital, which was permitted under provincial laws, rather than practicing medicine, which was not permitted under such laws. In so far as the impact of Jerome Wallsten and Lakeside Properties Ltd., we are consulting with our legal advisors to determine the impact, if any, that the decisions may have on our current position.

Questions :

1. Précisez la portée du paragraphe 248(3) dans le cadre de la décision de la Cour d'appel fédérale dans la cause Construction Bérou Inc.

2. Quelle est la portée de ce jugement?

3. Comment doit-on faire pour savoir à quel moment le droit civil québécois à préséance sur la Loi et vice versa?

Position Adoptée :

1. La Cour a indiqué que le paragraphe 248(3), dans son ancienne formulation, permet d'appliquer les notions de propriétés effective aux contrats de crédit-bail en cause. Nous sommes d'avis que cette position est contraire à l'intention du législateur qui voulait considérer certaines situations en droit civil équivalentes au " beneficial ownership ". Nous sommes d'avis que le présent libellé de ce paragraphe ne peut s'interpréter comme dans la cause Construction Bérou.

2. La Cour a conclu que la position au bulletin d'interprétation IT-233R, telle qu'elle existait à l'époque (en 1982) s'appliquait à tous les contribuables à ce moment et n'a pas fait de commentaires sur la position actuelle de l'Agence.

3. Lorsque l'application de la Loi comporte des aspects de droit privé, on doit recourir au droit provincial applicable (soit la common law ou le droit civil) pour déterminer les relations juridiques.

Principal Issues: Will subsection 207.6(2) of the Act apply where an RCA trust acquires an interest in a life insurance policy?

Position TAKEN: No.

Reasons: Subsection 207.6(2) does not apply where an RCA trust acquires the interest in a life insurance policy. The rules in 207.6(2) only apply if the plan or arrangement is not otherwise an RCA for purposes of the Act.

CALU - Conference for Advanced Life Underwriting (2001)

Principal Issues: The appropriate treatment under the Act of certain credit amounts arising to customers of XXXXXXXXXX .

Position: Unable to provide the technical interpretation requested.

Reasons: Confirmation as to income tax consequences of proposed transactions can only be provided in the context of a request for an advance income tax ruling.