Income Tax Severed Letters - 2001-11-09

Miscellaneous

2001 Miscellaneous 2001-0101301 - PHANTOM STOCK PLAN

Unedited CRA Tags
6801(d)

Principal Issues:

Will certain amendments to a 6801(d) plan cause the plans to no longer qualify under 6801(d) of the Regulations? In particular, the calculation of DSUs to be granted will use a 30 day average rather than a 5 day average of the closing price of the shares of the corporation on the stock exchange.

Position:

No.

Reasons:

Ruling

2001 Ruling 2001-0069213 - limited partnership; call option

Unedited CRA Tags
96(2.2) 18.1 120.4(2)

Principal Issues:
1. whether LP Units are tax shelters
2. whether existence of call option causes no REOP
3. whether existence of call option is 96(2.2)(d) benefit
4. whether gaar applies
5. whether, where a trust receives mixed income (split and nonsplit), trust may designate payments to beneficiaries

Position:
1. no
2. not in and of itself
3. not in and of itself
4. maybe, if call option is exercised and 24 month period in 110.6(2.1) avoided
5. yes, as long as nonsplit income allocated to beneficiaries does not exceed non-split income of trust

Reasons:
1. limited partners cannot receive cumulative losses that are greater than XXXXXXXXXX % of their capital contribution
2. must consider all facts re REOP
3. call option is at discretion of general partner, not limited partners/ option price is fmv
4. 110.6
5. law does not prohibit streaming or require equal payouts of split and nonsplit income

2001 Ruling 2001-0082983 - reimbursement of stock option benefit

Unedited CRA Tags
9 15(1) 12(1)(x) 9v

Principal Issues: Where PARENT enters into an agreement with its subsidiary, UKSub, whereunder UKSub pays PARENT am amount equal to the stock option benefit enjoyed by the employees of UKSub, is the payment included in the income of PARENT under section9 or 90, subsection 15(1) or 56(2) or paragraph 12(1)(x)?9

Position: Amounts received in respect of stock options granted after the Agreement is entered into and increase in benefits that may reasonably be considered to have arisen after the Agreement is in place in respect of stokc options granted prior to the date that the Agreement is entered into will not be included in income of PARENT.

Reasons: It would not be unreasonable for USSub to reimburse PARENT for that portion of the employment benefit that has effectively been borne by PARENT on USSub's behalf.

2001 Ruling 2001-0088163 - Mutual Fund Trust Mimic Foreign Investment

Unedited CRA Tags
206(1)

Principal Issues: Will the proposed forward contract used by a mutual fund trust (MFT) to mimic the return of the underlying fund be "foreign property" as defined in subsection 206(1)? Will subsection 245(2) apply to the proposed transactions?

Position: No. GAAR is not applicable.

Reasons: The forward contract will be executed in Canada, governed by the laws of Canada and will not be convertible into, or exchangeable for, foreign property, nor will the MFT be entitled to acquire any foreign property under the terms of the contract. The counterparty to the forward contract will not be acting as agent for the MFT nor will it be obliged in any way to hedge its exposure under the contract. The application of subsection 245(2) to similar transactions was previously considered by the GAAR Committee and it was their view that GAAR was not applicable to the proposed transactions.

2001 Ruling 2001-0092673 - LOSS CONSOLIDATION

Unedited CRA Tags
20(1)(c) 112(1) 245(2)

Principal Issues: Request for an amendment to an advance income tax ruling.

Position: Requested amendment was incorporated into the Ruling by way of a Supplemental Ruling document.

Reasons: Amendment required reflecting a change in the proposed transactions.

2001 Ruling 2001-0097223 - REWARD POINTS

Unedited CRA Tags
12(1)(a) 20(1)(m) 18(1)(e)

Principal Issues:Whether 12(1)(a) and 20(1)(m) apply re amounts paid:
(a) to Partnership by ParentCo for future services to be provided by Partnership
(b) to ParentCo by Partnership for future services to be provided by ParentCo

Position: yes. yes.

Reasons: payments are for services to be provided in future/ - obligations are present obligations to perform services when requested/ are not contingent

Ministerial Correspondence

21 November 2001 Ministerial Correspondence 2001-0105964 - STATUS INDIAN FISHERS-EMPLOYMENT INCOME

Unedited CRA Tags
81(1)(a)

Principal Issues: Is the income of a status Indian who lives on a reserve and who is employed on a fishing vessel owned by the Band or a Band member tax exempt?

Position: 1.) Maybe

Reasons: 1.) Question of Fact, depends on whether the individual is employed and whether the employer is resident on reserve

16 November 2001 Ministerial Correspondence 2001-0108204 - Taxation of Property Leaving Canada

Unedited CRA Tags
248(1)

Position:
Referred to changes in the law enacted by Bill C-22 which ensure that all persons who leave Canada or transfer property from Canada will generally realize a deemed disposition.

6 November 2001 Ministerial Correspondence 2001-0095044 - TRANSFER OF PROPERTY BETWEEN RRSPS

Unedited CRA Tags
248(1) 146(16)

Principal Issues: Can property be transferred between RRSPs at their cost amount?

Position: Yes

Reasons: The Act provides for transfers of property at cost amount in the definition of "disposition".

Technical Interpretation - External

26 November 2001 External T.I. 2001-0111195 - RETIRING ALLOWANCE AND RELATED EMPLOYERS

Unedited CRA Tags
60(j.1)(v)

Principal Issues: Are two employers considered related for the purposes of paragraph 60(j.1) of the Act, where a taxpayer's service with the two employers is recognized in determining his or her pension benefits under an RPP?

Position: Yes

Reasons: The employers are related under subparagraph 60(j.1)(v) of the Act.

23 November 2001 External T.I. 2001-0103535 - ELIGIBLE CAPITAL PROPERTY

Unedited CRA Tags
14(3) 110.6

Principal Issues: Application of subsection 14(3) of the Act in the case of a partial disposition of eligible capital property.

Position: Apply subsection 14(3) of the Act on a pro-rata basis where there is a partial disposition of eligible capital property.

Reasons: The Act does not specify how to apply subsection 14(3) of the Act in those situations where there is a partial disposition of eligible capital property. The pro-rata approach provides a common sense result.

23 November 2001 External T.I. 2001-0111795 - MENTAL DISTRESS/RETIRING ALLOW.

Unedited CRA Tags
56(1)(a)(ii) 248(1)

Principal Issues: whether damages are retiring allowance

Position: question of fact and law, but probably yes

Reasons: 248(1) definition of retiring allowance

23 November 2001 External T.I. 2001-0107135 - NUTRITIONAL SUBSTANCES AS MEDICAL EXP.

Unedited CRA Tags
118.2(2) 118.4(2)

Principal Issues: whether certain nutritional substances and botanical medicines recommended by a nutritionist and a naturopath qualify as medical expenses under 118.2(2).

Position: Unless included under 118.2(2)(a), must be prescribed by medical practitioner and dispensed and recorded by a pharmacist

Reasons: requirements of 118.2(2)(n).

23 November 2001 External T.I. 2001-0108225 - TREATMENT OF NASDAQ OVER THE COUNTER SHARES

Unedited CRA Tags
207.1 REG 4900(1)(s)

Principal Issues:

1. Will a non-qualified investment to which paragraph 4900(1)(s) of the Regulations applies, be considered to be acquired by a deferred plan on January 1, 2002 if held by the plan trust past December 31, 2001.

2. If the plan trust holds the property past December 31, 2001 will Part XI.1 tax apply?

Position:

1. No

2. Yes, Part XI.1 tax applies and the tax is based on the fair market value of the property at the time the property was acquired.

Reasons:

23 November 2001 External T.I. 2001-0108635 - TREATMENT OF NASDAQ OVER THE COUNTER SHARES

Unedited CRA Tags
207.1 REG 4900(1)(s)

Principal Issues:

1. Will a non-qualified investment to which paragraph 4900(1)(s) of the Regulations applies, be considered to be acquired by a deferred plan on January 1, 2002 if held by the plan past December 31, 2001.

2. If the plan trust holds the property past December 31, 2001 will Part XI.1 apply?

Position:

1. No

2. Yes, Part XI.1 tax applies and the tax is based on the fair market value of the property at the time the property was acquired.

Reasons:

23 November 2001 External T.I. 2001-0109985 - TREATMENT OF NASDAQ OVER THE COUNTER SHARES

Unedited CRA Tags
207.1 REG 4900(1)(s)

Principal Issues:

1. Will a non-qualified investment to which paragraph 4900(1)(s) of the Regulations applies, be considered to be acquired by a deferred plan on January 1, 2002 if held by the plan trust past December 31, 2001

2. If the plan trust holds property past December 31, 2001 will Part XI.1 tax apply?

Position:

1. No

2. Yes, Part XI.1 tax applies and the tax is based on the fair market value of the property at the time the property was acquired.

Reasons:

22 November 2001 External T.I. 2001-0080385 - IDENTICAL PROPERTIES-INDEX BASED INVESTOR

Unedited CRA Tags
54

Principal Issues: Would the superficial loss rules deny capital loss treatment for an index-based investor who realizes a loss on a mutual fund and immediately reinvests in an unrelated exchange traded fund that reflects the same market.

Position: Question of fact whether properties are identical - general comments given.

Reasons: Question of fact

XXXXXXXXXX 2001-008038
Cornelis Rystenbil, CGA
November 22, 2001

21 November 2001 External T.I. 2001-0067455 - Multi-class Mutual Fund Trust - Disposition

Unedited CRA Tags
248(1)

Principal Issues:
If units of a class of a multi-class mutual fund trust are changed (exchanged, converted, reclassified or redesignated) to another class or series of the same mutual fund trust, is there a disposition? The trust agreement establishing the particular mutual fund trust provides that each class of the trust will have different underlying assets and also provides for changes between classes.

21 November 2001 External T.I. 2001-0104785 F - CONTRIBUTION A UN RPA SERVICES PASSES

Unedited CRA Tags
147.2(4)(b) 147.2(4)(c)

Principales Questions: Une contribution à un RPA est-elle déductible selon l'alinéa 147.2(4)b) ou c) de la Loi.

Position Adoptée: La contribution sera déductible en partie selon chacun des deux alinéas

21 November 2001 External T.I. 2001-0095285 - NON-RESIDENT NON-PROFIT ORGANIZATION

Unedited CRA Tags
149(1)(l) 219(2) REG 105

Principal Issues:
Whether paragraph 149(1)(l) applies equally to a non-resident NPO and a resident NPO.

Position:
The conditions set out in paragraph 149(1)(l) apply equally to resident and non-resident NPO's.

Reasons:
No reference distinguishing between residents and non-residents in paragraph 149(1)(l).

21 November 2001 External T.I. 2000-0062895 F - BOURSE D'ETUDES OU REVENU D'EMPLOI

Unedited CRA Tags
6(1)a) 56(1)n) 6(3)

Principales Questions:
Un cabinet de services professionnels recrute des étudiants universitaires et leur offre une somme d'argent pour défrayer le coût de leurs études. Les étudiants peuvent selon les circonstances travailler pour le Cabinet avant la fin des études ou seulement après. La somme peut prendre la forme d'un montant forfaitaire ou d'un remboursement sur présentation de pièces justificatives. Dans tous les cas l'étudiant devra rembourser les sommes reçues s'il ne travaille pas pour le cabinet à la fin de ses études.
Est-ce que ces sommes versées aux étudiants sont des bourses d'études ou du revenu d'emploi ?
S'il s'agit de revenu d'emploi, est-ce que la position émise au paragraphe 18 du IT-470R (consolidé) s'applique ?

Position Adoptée:
Question de fait dans les deux cas.

20 November 2001 External T.I. 2001-0088115 - DEFINITION-SHARE FAMILY FARM CORP.

Unedited CRA Tags
70(10) 110.6

Principal Issues:
1. In different scenarios, would certain shares be "shares of the capital stock of a family farm corporation"? Do we look at the use of assets over a time period or the use of the assets at a particular time?

Position:
1. Comments provided.

Reasons:
1. Reading of the particular legislation in sections 70, 73 and 110.6 of the Act.

19 November 2001 External T.I. 2001-0100085 - LUMP SUM PAYMENTS

Unedited CRA Tags
110.2(1) 110.2(2)

Principal Issues:
Whether the following amounts are "qualifying amounts" for the purposes of the section 110.2 deduction for lump-sum amounts:
(a) Lump-Sum Pay Equity Payments - paid in accordance with the Pay Equity Act of Ontario, using a proportional value comparison method.
(b) Lump-Sum Retroactive Salary Payments - due to a retroactive conversion to a gender-neutral classification system, resulting in increased salaries.
(c) Lump-Sum Retroactive Salary Payments - due to a retroactive negotiated annual economic increases of a new collective agreement.

Position:
(a) General comments provided.
(b) General comments provided.
(c) No

Reasons:
Subsection 110.2(1) definition of qualifying amount requires that the amount be received pursuant to:
(1) an order or judgment of a competent tribunal,
(2) an arbitration award or
(3) a contract by which the payor and the individual terminate a legal proceeding.

19 November 2001 External T.I. 2001-0100105 - NISA-CORRECTION OF ERRORS

Unedited CRA Tags
12(10.2)

Principal Issues:
Whether NISA deemed deposits or withdrawals made in error can be reversed.

Position TAKEN:
General comments provided.

Reasons:
Question of fact.

15 November 2001 External T.I. 2001-0092225 - JOINT CUSTODY & CHILD CARE

Unedited CRA Tags
63

Principal Issues: Two individuals ("Individual A" and "Individual B"), who have separated from each other, share the custody of their child. In XXXXXXXXXX , a court order (the "Order") was issued which provided that, with respect to child care expenses, Individual A was to pay 60% and Individual B was to pay 40%. When one of these individuals paid 100% of the expenses to the caregiver, the other party would make the appropriate reimbursement. Can Individual A, who reimbursed Individual B, claim his 60% share of the expenses under subsection 63(1) of the Income Tax Act (the "Act")? Individual B refuses to provide any receipt with respect to the child care expenses.

Position: File referred to the TSO for action. Individual A is entitled to claim child care expenses; but only to the extent that they were, inter alia, incurred with respect to a period of time that the Child resided with him and enabled Individual A to engage in the activities listed in paragraph (a) of the definition of "child care expense" in subsection 63(3) of the Act. By virtue of paragraph 63(1)(d) of the Act, Individual B cannot claim a deduction in respect of the expenses for which she was entitled to a reimbursement from Individual A.

Reasons: Since each parent resides with the child where there is shared custody and assuming that neither is residing with a "supporting person" during the year, each parent could claim child care expenses incurred in a taxation year for an eligible child if, inter alia, the expenses were incurred at the time the parent resided with the child and only to the extent that they were paid by that parent to enable the parent to engage in the activities noted above. However, each parent must substantiate his or her claim with a receipt from the "payee" as required by subsection 63(1) of the Act. Given the circumstances, the TSO may wish to consider an alternate arrangement for Individual A to substantiate his claim.

14 November 2001 External T.I. 2000-0052935 - Date Testamentary Trust is Created

Unedited CRA Tags
108(1)

Principal Issues: When is a trust created under the terms of a will considered to have been created?

Position: Generally, on the death of the person who created the trust.

Reasons: A testamentary trust is defined in 108(1) to be a trust that, among other things, arose on the death of an individual. As a result, the general presumption is that such a trust is created upon the death of that individual.

14 November 2001 External T.I. 2001-0092175 - filing deadline

Unedited CRA Tags
150(1)

Principal Issues: Whether T3 returns whose final due date is on a Saturday can be filed on the first working day following the Saturday.

Position: Yes.

Reasons: It is the policy of the CCRA to allow T3 returns that are due on a Saturday, to be filed on the next working day following the Saturday. Although the versions of the T3 Guides from 1998 to 2000 did not refer to this extension, which had been stated in the Guide in years prior to 1998, the policy of allowing the extension to the next working day was still applied after 1997. The T3 Guide will be revised to include a reference to Saturday.

9 November 2001 External T.I. 2001-0101685 F - APPLICATION DE 16.1 ET DE 85(1)

Unedited CRA Tags
16.1 85(1)

Principales Questions: Un bien qui fait l'objet d'un choix en vertu de l'article 16.1 de la Loi peut-il aussi faire l'objet d'un roulement en vertu du paragraphe 85(1) de la Loi?

Position Adoptée: Non

7 November 2001 External T.I. 2000-0038195 - Indefeasible Vesting of Interest in Trust

Unedited CRA Tags
104(4) 108(1)
indefeasible vesting but no disposition where sole beneficiary

Principal Issues:
Whether upon the vesting of all interests in a trust, the 21-year rule of 104(4) will not apply?

Position:
Correct.

Reasons:
As noted previously in E9427445, the definition of "trust" in subsection 108(1) excludes, for purposes of 104(4) inter alia, a trust all interests in which, at that time, have vested indefeasibly - other than those trusts described in (g)(i) to (vi).

1 November 2001 External T.I. 2001-0070595 - Transportation of Goods

Unedited CRA Tags
95(3)

Principal Issues: Whether electronic signals along transmission systems, e.g. fiber optic cable or coaxial cable constitute "transportation of goods" under paragraph 95(3)(a)

Position: No

Reasons: Signals are not "goods"

1 November 2001 External T.I. 2000-0056475 - Withholding on Payments to Non-residents

Unedited CRA Tags
153 Reg 102 Reg 104

Principal Issues: Withholding requirements for amounts paid by Canadian employer to US employee

Position: Depends on whether services are rendered in Canada or in the US

Reasons: If all services are rendered in the US, no withholdings are required. If services are rendered in Canada, withholdings are required, but may be waived by the TSO if treaty exempt.

26 October 2001 External T.I. 2000-0056125 - Carrying on Business in Canada

Unedited CRA Tags
115(1)

Principal Issues: Carrying on separate businesses in Canada

Position: Question of fact

Reasons: Depends on whether one business or separate businesses

24 October 2001 External T.I. 2001-0085455 - PHSP-COST PLUS PLANS

Unedited CRA Tags
20.01(1) 20.07(2) 118.2

Principal Issues: Does a plan that covers both the proprietor and his employees and is administered by a third party who agrees to reimburse for actual medical expenses , plus an administration fee, a PHSP

Position: YES

Reasons: The required elements of insurance exists however whether the plan qualifies as a PHSP is a question of fact.

24 October 2001 External T.I. 2001-0101165 - DEFINITION OF CAPITAL

Unedited CRA Tags
181.2(3)

Principal Issues: We are asked for comments on the application of Part I.3 to a CCPC that has invested in a REIT in Canada and in a similar entity in the United States.

Position: The application of Part I.3 would depend upon the nature of the interest held by the CCPC. In general, a corporation that has a beneficial interest in a trust would not include in its own capital any amount in respect of the trust's assets and liabilities. Where the entity that issued the interest to the corporation was created in another jurisdiction, the nature of the interest would generally be determined having regard to the law of the applicable jurisdiction under the circumstances.

Reasons: Subsection 181.2(3).

23 October 2001 External T.I. 2000-0054455 - Non-resident Corp Managed From Canada

Unedited CRA Tags
115(1)(a) 150(1) Art VII(4)

Principal Issues: Must a US corporation file a corporate tax return simply because its mind and management is in Canada?

Position: Yes

Reasons: If a non-resident corporation carries on business in Canada, the legislation requires a corporate tax return even if no tax is payable by reason of a tax convention.

23 October 2001 External T.I. 2000-0060475 - Loan to Non-resident Interest Free

Unedited CRA Tags
17(1) 17(8)

Principal Issues: Loan to non-resident to fund return of capital, whether exception in clause 17(8)(a)(i)(A) applies.

Position: No.

Reasons: Loan used to fund return of capital, not used in active business income.

Technical Interpretation - Internal

16 November 2001 Internal T.I. 2001-0096087 - CHILD SUPPORT

Unedited CRA Tags
56.1(4) 56(1)(b) 60(b)

Principal Issues: Individual A and Individual B (married on XXXXXXXXXX and have 2 children) entered into a separation agreement (the "Agreement") in XXXXXXXXXX . Under the Agreement Individual A was to provide child support ($XXXXXXXXXX of each month) to Individual B. During part of XXXXXXXXXX , Individual A was unable to pay the monthly support of $XXXXXXXXXX as a result of a change in his financial circumstances (inter alia, he was unemployed for a period of time). On XXXXXXXXXX , a court order was rendered (the "Order") under which Individual A was required to pay child support to Individual B in the amount of $XXXXXXXXXX (extraordinary expenses) a month ($XXXXXXXXXX for the year). The issue is whether the amount of $XXXXXXXXXX is deductible by Individual A under paragraph 60(b) of the Income Tax Act (the "Act") and required to be included in Individual B's income.

Position: Not deductible and not required to be included in income.

Reasons: Amounts payable on or after XXXXXXXXXX , for the period beginning on or after that date, are not deductible as there is a commencement day (paragraph a of the definition of "commencement day" in subsection 56.1(4) of the Act). The amount for the months of XXXXXXXXXX is non-deductible as indicated in paragraph 22 of IT-530.

5 November 2001 Internal T.I. 2001-0102467 - standby charges

Unedited CRA Tags
6(1)(e) 6(2)

Principal Issues: For purposes of the standby charge calculation, is the distance between an employee's home and an employer's retail store and the distance between one of the employer's retail stores and the employee's home, considered personal or "in connection with or in the course of the taxpayer's office or employment"?

Position: It is a question of fact.

Reasons: It will depend on whether the stores in question can be viewed as "the employer's place of business to which the employee reports regularly". It is well established by the courts that an employee can have more than one work location where he normally worked.

November 5, 2001

23 October 2001 Internal T.I. 2001-0083897 - WORKERS COMPENSATION PREMIUMS

Unedited CRA Tags
56(1)(u) 110(1)(f)(ii) 6(1)(a) 15(1)

Principal Issues: