Income Tax Severed Letters - 2001-12-21

Principal Issues: (1) Whether shares must be held for a minimum period of time to be considered QSBCS under ss. 110.6(1). (2) Whether such period begins at the time the corporation is created or at the time an active business commences. (3) When is a corporation considered to be carrying on a business. (4) Where overburden is sold in order to access gravel deposits as part of preparing a site for production, would the proceeds be considered on account of income or capital. (5) If on account of capital, can the proceeds be applied to reduce the cost of the property.

Position: (1) Yes. (2) Period is throughout the 24 months immediately preceding the determination time. (3) Question of fact. (4) Question of fact (5) No.

Reasons: (1) The intention of par. (b) of the definition of QSBCS in ss. 110.6(1), in light of par. 110.6(14)(f), is to ensure that treasury shares issued for cash are held for a period of at least 24 months before being sold. (2) Par. (b) of the definition of QSBCS in ss. 110.6(1) requires only ownership throughout the 24 months immediately preceding the determination time, whether a business is carried on by the corporation is not relevant for those purposes. (3) IT-364 provides the CCRA's position based on relevant case law. (4) Whether sale on account of income or capital is a question of fact, as outlined in IT-423. (5) Subsection 43(1) of the Act would apply to the computation of the gain or loss, allowing a reasonable allocation of the ACB.

Principales Questions:

Est-ce que c'est la filiale ou la société mère qui devra inclure dans ses revenus les CII réclamés par la filiale dans l'année du commencement de la liquidation et de l'attribution des actifs et passifs à la société mère?

De plus, advenant une inclusion dans les revenus de la filiale, est-ce que la filiale pourrait utiliser ses CII restants afin de réduire les impôts résultant de cette inclusion dans l'année qui suit celle du commencement de la liquidation et de l'attribution de ses actifs et passifs à la société mère?

Position Adoptée:

Principal Issues: Whether a particular triangular amalgamation will be subject to the provisions of paragraph 256(7)(c) or subparagraph 256(7)(b)(i)?

Position: Paragraph 256(7)(c) will apply to deem an acquisition of control.

Reasons: Subparagraph 256(7)(b)(i) will not apply since it cannot be said that control was acquired solely because of the amalgamation.

Principal Issues:
Whether certain amendments to the articles of incorporation of a CCPC would cause the corporation to lose its status as a CCPC.
Whether these amendments would result in a disposition of the existing issued shares.

Position:
No.
It should not.

Reasons: Application of the relevant provisions of the Act.

Principale Question: Un contribuable peut-il conserver dans son REÉR un titre d'une société en faillite?

Position Adoptée: Oui, tant que la société continue d'exister.

Principal Issues: Does the cost of a hot tub qualify as an eligible medical expense?

Position: No - but the cost of the renovation to the t/p's dwelling required to install the hot tub may qualify as a medical expense under 118.2(2)(l.2) if certain conditions are met

Reasons: not described in regulation 5700 - allowed under 118.2(2) solely with respect to installation costs of a hot tub for persons having a severe and prolonged mobility impairment.

XXXXXXXXXX 2001-011175
Shaun Harkin, CMA
January 2, 2002

Principal Issues: (1) Tax consequences on a distribution of taxable Canadian property by a Canadian resident trust to a non-resident beneficiary where the trust makes an election under 107(2.11) and there are no other beneficiaries of the trust. Specifically, whether there will be tax payable under Parts XII.2 and Part XIII. (2) Postponement of payment of taxes owing by the trust.

Position: (1) There will be no tax payable under Parts XII.2 and Part XIII with respect to the taxable capital gain that is the subject of the election. (2) Taxes may be postponed.

Reasons: (1) If the taxable capital gain is included in the trust's income, there is no 104(6) deduction to the trust and no potential 104(13) inclusion to the beneficiary. (2) Postponement of taxes is provided for in subsection 220(4.6).

Principal Issues: Whether re-purchase of a Class 3 property is added to Class 3 or Class 1 of Schedule II of the Regulations.

Position: In this situation, Class 3.

Reasons: All condominium units in the same building are considered to be the same "rental property".

Principal Issues: Are the plans described, plans in the nature of insurance as set out under paragraph 3 of Interpretation Bulletin IT-339R2?

Position: generally yes

Reasons: elements under paragraph 3 of Interpretation Bulletin IT-339R2 satisfied

Principales Questions:
Est-ce que les frais encourus pour mettre au point une invention ainsi que pour l'obtention d'un brevet temporaire à l'égard de cette invention sont déductibles en vertu de la Loi de l'impôt sur le revenu (ci-après la " Loi ")?

Position Adoptée:
Sous réserve de la détermination de l'existence d'une entreprise, les frais pour l'obtention du brevet temporaire pourraient être déductibles en vertu de l'alinéa 20(1)cc) de la Loi à la condition qu'ils aient été encourus à un moment où on estimait que l'entreprise avait commencé son exploitation. Les frais de matériel pour la fabrication du prototype pourraient être déductibles à la condition qu'ils se qualifient à titre de frais de recherche scientifique et développement expérimental et si l'entreprise avait commencé son exploitation à ce moment-là.

Principal Issues: Whether 70(6) applies to shares transferred to a surviving spouse within 36 months of the death of the taxpayer if the estate receives dividends on the shares prior to the transfer and the dividends are distributed to beneficiaries other than the spouse.

Position: Question of fact as to whether the taxpayer has, under the terms of a particular will, made a specific bequest, residual bequest, charge, or personal obligation, the finding of which may be relevant in determining whether 70(6) applies to a particular situation.

Reasons: As stated in paragraph 26(c) of IT305R4, the fact that an estate uses or distributes income from property bequeathed to a spouse pursuant to a residual bequest does not preclude a rollover under 70(6); however, a specific bequest would normally vest with the spouse immediately after the taxpayer's death.

Principal Issues:
Is a capital gain realized on the disposition of property by a non-profit organization taxable.

Position: No

Reasons:
Subsection 149(5) of the Act is not applicable. No tax is payable on the taxable income of the NPO. Income of the NPO includes capital gains.

Principal Issues:
Discussion of the application of paragraph 7000(1)(c) of the Regulations to Guaranteed Investment Certificates (GICs).

Principales Questions: Application du paragraphe 91(5) de la Loi de l'impôt sur le revenu à l'égard d'une situation hypothétique.

Position Adoptée: Commentaires généraux.

Principales Questions: 1) L'actionnaire canadien d'une société étrangère peut-il effectuer lui-même les démarches prévues à l'alinéa 86.1(2)e) si la société ne les fait pas? 2) L'actionnaire canadien peut-il contacter l'ADRC pour savoir si la société étrangère effectue ces démarches?

Position Adoptée: 1) Non. 2) Non, il doit contacter la société étrangère ou consulter la liste des distributions admissibles approuvées par l'ADRC, laquelle liste est publiée sur le site internet de l'ADRC.