Income Tax Severed Letters - 2001-11-23

Principal Issues:
Several issues related to subparagraph (a.1)(i) of class 17, contained in Schedule II of the Income Tax Regulations:

(1) What does acquired mean?
(2) If the asset is acquired before February 28, 2000, but is not available for use until February 28, 2000 or some time thereafter, will it be included in class 1 or class 17?
(3) If capital additions were made after February 27, 2000 to eligible electrical generating equipment acquired before February 28, 2000, would the addition be included in class 1 or class 17?
(4) How will the disposition of an electrical generating unit after February 27, 2000 have to be reported for CCA purposes where part of the cost is included in Class 1 and another part is included Class 17?

Position:
(1) The date on which legal title to it is obtained, or the date on which the taxpayer has all the incidents of ownership, if legal title remains with the owner.
(2) Class 17.
(3) Class 17.
(4) Reasonable allocation of proceeds of disposition.

Reasons:
(1) IT-285R2.
(2) Subsection 13(26).
(3) Regulation 1102(19)
(4) IT-220R2 and section 68.

Principal Issues:
1.Can a policyholder claim a capital loss upon the disposition of a life insurance policy?
2. Can section 9 apply with respect to a life insurance policy which has been acquired from the terminally ill?

Position:
1. No
2. Yes

Reasons:
1.A capital loss is not permitted by virtue of subparagraph 39(1)(b)(ii) nor is there any provision in the Income Tax Act permitting a deduction of a loss incurred upon such a disposition by a policyholder of a life insurance policy to which section 148 applies.
2. There is an argument that section 9 and not section 148 applies where a life insurance policy is acquired for the purpose of earning a profit on the disposition thereof.

Principal Issues:
Whether or not the substitution of the life insured under a life insurance policy would result in a disposition of the life insurance policy

Position:
A change in the life insured under a policy would likely be a sufficiently material change to result in a surrender of the original policy.

Reasons:
Whether or not there is an actual disposition of a life insurance policy remains a question of fact.

Principal Issues:
What is the relevant date FMV has to be determined for purposes of the Income Tax Act in a situation where there is a sale of property to a non-arm's length person and the transaction date is contingent on a future event?

Position:
The date this contingency is met and both parties enter into an irrevocable contract of sale.

Reasons:
Paragraphs 18 and 19 of IT-285R2.

Principale Question:

Conséquence fiscale du versement d'une prestation consécutive au décès.

Position Adoptée:
Application de la Loi

Principal Issues:
Tax treatment of amounts received to care for seniors with mental and/or physical handicap in taxpayer's home.

Position TAKEN:
Question of fact. General information provided.

Reasons:
Insufficient information provided.

Principal Issues: Is the excess, described in subparagraph 98(5)(b)(ii) lost if there is no capital property to bump (per 98(5)(c))?

Position: yes

Reasons: 98(5)(c) applies only to "non-depreciable capital property" after December 4, 1985

XXXXXXXXXX 2001-010413
Shaun Harkin, CMA
November 23, 2001

Principal Issues: Current position on single purpose corporations.

Position: Administrative practice still valid as long as seven outlined conditions are met.

Reasons: Administrative practice will not be expanded to cover situations that it was not intended to cover

Principal Issues: Whether, subsections 13(4) and 44(1) of the Act would apply in a particular situation where the taxpayer would only owned the "replacement property" for a short period of time, would dispose of such "replacement property" in favour of its parent corporation and the parent corporation would lease the "replacement property" back to the taxpayer.

Position: Depends on the facts and circumstances in each case.

Reasons: Application of subsections 13(4) and 44(1) of the Act conditional to various conditions being met. Replacement property acquired must be capital property to the taxpayer. Replacement property must not be disposed of by the taxpayer before the time the taxpayer is deemed to dispose of the former property by virtue of subsection 44(2). Conditions in paragraphs 13(4.1)(a) to (b) and 44(5)(a) to (b) must also be met. Considering the short holding period, one would have to determine, among other things, if is reasonable to conclude that the property was acquired by the taxpayer to replace the former property (paragraph 44(5)a) of the Act).

Principales Questions: Quelle est l'incidence des arrêts Ludco et Singleton sur les politiques et pratiques administratives de l'ADRC en matière de déductibilité des intérêts?

Position Adoptée: Nous maintenons les pratiques actuelles quant à la déductibilité des intérêts en attendant les résultats d'une étude interne sur ce sujet.

Principales Questions:
De quelle façon l'Agence appliquera l'alinéa 110(1)d) de la Loi compte tenu de son effet rétroactif?

Position Adoptée:
On accepte de procéder à des nouvelles cotisations à la demande des contribuables.

RAISON POUR POSITION ADOPTÉE: S/O

Principales Questions: Pour les fins de 20(1)e.2) de la Loi, pour que les primes d'assurance soient déductibles en totalité ou en partie, un intérêt dans la police doit être " cédé " à l'institution financière. Quelle interprétation doit-on donner au terme " cédé "?

Position Adoptée: Question de fait. Le créancier doit avoir un droit de recevoir une partie ou la totalité du produit de la police d'assurance advenant un événement futur.

Principales Questions: Comment devront être traités les contrats de bail et les contrats de crédit-bail par les contribuables qui ont suivi les directives du Bulletin d'interprétation IT-233R avant son annulation? Il y aura-t-il des règles transitoires?

Position Adoptée: Cette détermination dépendra des faits particuliers d'une situation donnée. On encourage les contribuables à contacter le bureau des services fiscaux de leur localité.

Principales Questions:
On nous demande d'élaborer sur l'abus des dispositions de la Loi dans une série d'opérations impliquant une société mère non-résidente et une filiale canadienne (lettre E9518785) afin d'éviter l'application de l'article 80.

Position Adoptée: Commentaires généraux