Income Tax Severed Letters - 2001-12-07

Principale Question:

Le paragraphe148(1) de la Loi s'applique-t-il au montant reçu à l'échéance d'une police d'assurance-vie acquise avant 1982?

Position Adoptée: Oui.

Principal Issues:
We have been asked to be of assistance with respect to the commutation of an annuity contract issued in connection with a structured settlement arrangement and the payment of the related lump sum to the claimant. Apparently, the individual's mother and legal guardian is in financial difficulty.

Position:
We are unable to be of assistance.

Reasons:
One of the requirements of a structured settlement arrangement is that the related annuity contract be non-commutable.

Principal Issues: Whether the condition stated in 1) d) of the Interpretation Bulletin IT-426 (i.e. that the duration of the sale agreement does not exceed 5 years) is met in particular situations.

Position: No.

Reasons: In each situation submitted, the duration of the sale agreement does or may exceed 5 years. Various comments made, including one to the effect that the 5-year period begins at the time the sale agreement is formed (the determination of such time being a question of law). Such time may coincide with the date appearing on a contract or the date of its signature, depending on the applicable law and the facts related to a particular situation.

Principale Question:

Est-ce que des actions d'une SPCC sont des placements admissibles?

Position Adoptée:
Commentaires généraux

RAISON POUR POSITION ADOPTÉE: S/O

Principal Issues:
(1) Whether the purchase of water rights years ago should have been capitalized to the cost of land or an eligible capital property.
(2) If so, and the amount was capitalized to land, should it now be capitalized as an eligible capital property and form part of the calculation of cumulative eligible capital?
(3) What are the implications on the sale of the water rights - is it qualified farm property? Is it an eligible capital amount or proceeds for the sale of land?

Position:
Insufficient information to provide comments given changes to the Act, ITAR's and ITR. Suggested that critical information be presented to the relevant Tax Services Office.

Reasons:
The request did not contain sufficient information to enable us to provide any comments with respect to the questions raised in the letter. To begin answering the inquiry, information, such as dates of transactions, relevant agreements and whether the owner of the property is a corporation or an individual, is necessary.

Principal Issues: Whether a trust is related to a corporation in three different situations and whether the sale of the shares of the corporation by its sole shareholder to a trust would result in an acquisition of control.

Position: Question of fact.

Reasons: Wording of the Act and case law.

Principal Issues: Is a partnership an "unrelated person" with respect to a subsidiary corporation controlled by the partnership, where each member of the partnership is related to the subsidiary corporation.

Position: No

Reasons: Each member of the partnership is related to the subsidiary corporation.

Principal Issues: grandfathering if expenditures not paid before Sept 18, 2001

Position: yes, if other conditions met

Reasons: "made" is broader than "paid"

Principales Questions: Est-ce que le test d'objet serait rencontré dans les situations présentées?

Position Adoptée: Habituellement non.

Principales Questions: Procédure pour obtenir le remboursement de l'impôt de la partie XIII payé en trop.

Position Adoptée: Commentaires généraux. La procédure est expliquée aux paragraphes 68 à 77 de la Circulaire d'information IC 77-16R4.

Principal Issues:

Taxpayer requested: 1. Confirmation that subparagraph (a)(xiv) of section 6700 of the Regulations is a proposed addition to the Regulations. 2. A brief explanation of the process followed to make a "proposed amendment" to the Regulations law. 3. Confirmation that (a) shares of Community Economic Development Funds ("CEDIFs") would be qualified investments for RRSPs (b) the adjusted cost base of CEDIF shares would not be reduced by the amount of the Nova Scotia Equity Tax Credit (c) CEDIF shares would be considered small business investment amounts if held in an RRSP.

Position: Confirmed requests. Subparagraph 6700(a)(xiv) is now law.

Reasons: Law.

Principal Issues: Is a public corporation (not a mortgage investment corporation) that is no longer listed on a prescribed stock exchange in Canada still a qualified investment for an RRSP?

Position: Yes.

Reasons: Since the company is still a public corporation it will continue to be a qualified investment (Paragraph 4900(1)(b))(paragraph (c) of the definition of "public corporation" in subsection 89(1))

Principal Issues:
An employee is entitled to exercise a stock option. Rather than pay the exercise price, the employee asks instead to be paid the value of a stock option benefit in shares. Will that prevent the shares from qualifying as "prescribed shares" as set out in section 6204 of the Regulations?

Position: Possibly

Reasons: We cannot say with certainty without examining the relevant documents.

Principal Issues: How should a corporation with a June 30, 2001 year-end that owns units in a mutual fund trust with a December 31, 2000 year-end report its share of capital gains realized by the trust during period 1?

Position: Application of paragraph 104(21.6)(c) of the Act.

Reasons: Wording of the disposition.

Principal Issues: Non-resident executors of an estate comprising real property situated in Quebec and subject to life rights (usufruct or rights of use) held by the deceased's common-law spouse. Tax consequences resulting from the sale of the real property or its transfer to the deceased's common-law spouse.

Position: General comments.

Reasons: Insufficient facts.

Principal Issues: Whether it is possible for a trust, which provides that the amount which is payable to the income beneficiary in any year during the beneficiary's lifetime is defined as a percentage of the total value of the trust property at the commencement of that year, to qualify as a spousal trust, an alter ego trust or a joint spousal or common-law partner trust.

Position: No.

Reasons: In order for a trust created by a taxpayer to qualify as a spousal trust, an alter ego trust or a joint spousal or common-law partner trust, the taxpayer's spouse or common-law partner in the case of a spousal trust, the taxpayer in the case of an alter ego trust, and the taxpayer in combination with the taxpayer's spouse or common-law partner in the case of a joint spousal or common-law partner trust, must be entitled to receive all of the income of the trust. For the purposes of this requirement, the income of a trust, as provided under subsection 108(3) of the Income Tax Act, is the income of the trust computed for trust accounting purposes minus certain specified dividends.

Principal Issues: confirmed position in Decision summary 55-066 still valid

Position:

Reasons:

Principal Issues: Whether a trust created under a will, if varied, is still regarded as a "testamentary trust" within the meaning of subsection 108(1) of the Income Tax Act.

Position: General comments.

Reasons: Insufficient facts to reach a conclusion.

Principal Issues: Application of foreign property limits to more than one RRSP trust and application of fairness provisions to waive the tax.

Position: Explained provisions

Reasons: The tax is assessed to individual trusts. The fairness provisions do not allow us to waive the tax.

Principales Questions: Voir ci-dessous

Position Adoptée: Voir ci-dessous

Principal Issues: In a situation where there may be a certain number of taxation years between the time of the commencement of the wind-up and the formal dissolution of a wholly-owned subsidiary:

(1) Would CCRA reassess the parent corporation if it claimed a subsidiary's loss in its first taxation year commencing after the commencement of the winding-up, pursuant to s.s. 88(1.1), even though the subsidiary is not formally dissolved ?

(2) If the parent waited until the subsidiary is formally dissolved to claim a subsidiary's loss, would CCRA pay interest on a refund from the day the original return to which the loss is being applied was filed to the day of the reassessment ?

(3) Can the CCRA reassess the parent's first taxation year commencing after the commencement of the winding-up to allow the subsidiary's loss if the normal reassesssment period for that taxation year expired before the subsidiary is officially dissolved ?

(4) Can the parent corporation protect its right to claim the subsidiary's loss in its first taxation year commencing after the commencement of the winding-up by filing a waiver of the normal reassesssment period for that year under s.p. 152(4)(a)(ii) ?

Position: (1) It could. (2) No. (3) No.
(4) Technically no. Final decision made on a case by case basis.

Reasons:

Principales Questions: Énoncé de la nouvelle politique sur les cadeaux et les récompenses.

Position Adoptée: Deux cadeaux non monétaires par année pour des occasions spéciales et deux récompenses non monétaires par année en reconnaissance de certains accomplissements relatifs à l'emploi. Dépenses déductibles par l'employeur.

Principales Questions: Application du pouvoir discrétionnaire prévu au paragraphe 220(4.7).

Position Adoptée: Question de faits.