Income Tax Severed Letters - 2002-01-04

Principal Issues:
Will a child that lives with one parent subsequent to a divorce be considered financially dependent on the other parent where the other parent pays monthly child support payments?

Position: Question of fact.

Reasons:
All of the facts pertaining to each particular case would have to be reviewed. However, we would generally consider the existence of financial dependence where a parent is making child support payments to the other parent that has custody of the child.

Principal Issues: Are certain payments received for providing care for a severely handicap child subject to tax?

Position: Insufficient information and completed or ongoing transaction.

Reasons: General information concerning the possible application of paragraph 81(1)(h) of the Act.

Principal Issues: Whether a proposed transaction is an adventure or concern in the nature of trade.

Position: Unable to provide a ruling.

Reasons: As stated in paragraph 15(e) of IC 70-6R4, we will not to issue a ruling when the major issue is whether a transaction should be viewed as being on account of income or capital.

Principal Issues: Is a share of a cooperative corporation ("co-op") a qualified investment for an RRSP?

Position: Question of fact. It could be if at the time of acquisition it is a qualifying share in respect of a specified cooperative corporation and other requirements are met.

Reasons: Provided for in paragraph 4900(12)(c).

Principal Issues: Request for changes to the new policy on employer-provided gifts and awards to allow employers to give more than 2 awards per year if they forego deducting the cost of the award.

Position: The policy will not be revised in this manner.

Reasons: The limit of two awards per year is reasonable since the awards must not be a form of disguised remuneration. New policy is consistent with reasonable positions taken on other privileges provided to employees. Policy is not meant to allow an employer to channel nontaxable remuneration to employees.

Principal Issues: Are amounts paid by a corporation to non-resident directors, in respect of deferred share units, for services rendered outside Canada, deductible in computing the corporation's income?

Position: Yes.

Reasons: Subject to paragraph 18(1)(a) and section 67 of the Act, the amounts paid, in respect of the deferred share units, are deductible by a corporation in accordance with section 9 of the Act.
XXXXXXXXXX 2001-011284

Principal Issues:
Will the acquisition of treasury shares by an employee benefit plan result in the application section 7 of the Act?

Position: Question of fact.

Reasons:
We have concluded that section 7 of the Act will override the general EBP provisions. To conclude in a specific case, we would have to review all of the facts.

Principal Issues: Is the taxable benefit for premiums on a group long term disability insurance policy paid for by the employer on behalf of an employee considered a non-cash taxable benefit and therefore not insurable for EI purposes?

Position: generally yes

Reasons: feedback from CPP\EI division

Principal Issues:
Tax treatment under paragraph 81(1)(h) of the Act of payments received for respite care.

Position TAKEN:
Generally taxable as business income.

Reasons:
The situations do not meet the requirement that the cared-for individual must live in the caregiver's principal place of residence; or the caregiver's principal place of residence must be maintained for use as the cared-for individual's residence during the period for which the payments are made.

Principal Issues: Whether it is possible for 2 spouses to settle a trust and comply with 73(1.01)?

Position: Yes.

Reasons: Provided that all of the conditions in 73(1), (1.01) and (1.02) are met.

Principal Issues:
Is an entity which enters into insurance contracts precluded from qualifying as a non-profit organization pursuant to paragraph 149(1)(l) by virtue of subsection 138(1)?

Position: It is a question of fact

Reasons:
An entity organized and operated exclusively for non-profit purposes which enters into insurance contracts on a cost recovery basis could qualify as a non-profit organization for purposes of paragraph 149(1)(l) if the other requirements of that provision are satisfied

Principal Issues: Can the receipt of a property that is not considered a "gift" to the transferor be a property acquired "by way of gift" to the transferee.

Position: No

Reasons: By definition (i.e., the voluntary transfer of property...) the term "gift" must be looked at from the point of view of the person transferring the property.

XXXXXXXXXX 2001-010331
J. E. Grisé
January 22, 2002

Principal Issues: Can certain costs incurred by a group RRSP sponsor be paid by the group RRSP trust?

Position: Question of fact.

Reasons: Only the costs that belong to the group RRSP may be paid from the funds held by the group RRSP. Without any information, we could not make this determination.

Principales Questions:
Quel traitement fiscal serait approprié à l'égard d'une somme payée à certains actionnaires d'une société publique donnée en raison du fait que la valeur en bourse des actions de la société publique donnée n'a pas atteint un certain niveau, un an après la vente d'actions d'une autre société par ces actionnaires en faveur de la société publique donnée?

Position Adoptée:

Principal Issues: 1. Does the asset test in the definition of "share of the capital stock of a family farm corporation" in 110.6(1) include assets used by a corporation related to the corporation under consideration?

Position: 1. No

Reasons: 1. Unlike the definition for the purposes of section 70 (see 70(10)) and section 73 (see 73(6)), the wording of the definition in 110.6 does not support the same meaning.
2001-010821
XXXXXXXXXX Lena Holloway, CA
613-957-2104
January 18, 2002

Principal Issues: Taxation of business income received by status Indians.

Position: Consulting business income should be allocated between exempt and non-exempt portions based primarily on the location of where the services are provided, whether on reserve or off-reserve and the location of the customers.

Reasons: The location where services are rendered is the major connecting factor because services are the revenue generating activities. The customers' location, as a factor, is reflected in the income allocation between exempt and non-exempt portions because of its influence over the location where the services are rendered.

Principal Issues:
Whether the CCRA's position on the application of 6(1)(a) of the Act with respect to employer-paid education costs, outlined in Income Tax Technical News No.13 would apply where an employee receives an amount from the employer to reimburse education costs incurred prior to commencing employment.

Position:
No

Reasons:
The employee was not in the employ of the company prior to incurring the education costs. Moreover, the facts of this case indicate that subsection 6(3) of the Act may apply to deem the amount to be remuneration under section 5.

Principal Issues:
Rulings opinion E2000-0032685 discussed the draft version of section 107.4 of the Act, as set out in the notice of ways and means motion of June 5, 2000, ("the motion") which introduced rules providing for tax-deferred "qualified dispositions" of property under certain circumstances. Section 107.4, as enacted, differs somewhat from the draft provisions set out in the motion. We are asked whether the comments in opinion E2000-0032685 would be equally applicable to the enacted legislation as it was to the draft version.

Position:
The comments in opinion E2000-0032685 are limited to the motion and do not apply to the enacted legislation.

Reasons:
The draft provisions set out in the motion limit qualifying dispositions to certain dispositions not resulting in a change in beneficial ownership of property, except in cases where trust beneficiaries retain their proportionate interest in "each particular property" of the trust. Section 107.4, as enacted, deems there to be no change in beneficial ownership where the value of a beneficiary's interest in a property, or in a group of two of more identical properties, is the same both before and after the disposition.

Principal Issues:

Follow-up to 2001-008352. A group of employees was transferred from one employer to another resulting in the employees no longer being members of the former employer's pension plan. The pension plan paid the surplus in the plan to the municipality on the condition that the municipality and the Police Association agreeing on the disposal of the excess funds. It is proposed that the surplus in the pension plan relating to these former employees be divided between the former employer and the former employees. Is the payment of the surplus as a lump sum to the former employees taxable?

Position TAKEN:

Yes.

Reasons:

Principal Issues: An individual has asked whether the principal residence exemption can be claimed in respect of gains on the sales of residences that were renovated by the individual and his son.

Position: No (the gains would presumably be on account of income). General comments were also provided since, in an actual situation, it is a question of fact whether a gain is on account of capital or income.

Reasons: See Position

Principal Issues:

Whether a gift has been made to a charity when additional property is transferred to an existing charitable remainder trust.

Position: No.

Reasons:

Principal Issues: How is a lump sum lease payment made at the beginning of a three-year lease treated for purposes of the limitation on the cost of leasing a passenger vehicle in section 67.3 of the Act?

Position: If the lump sum payment is made or incurred as consideration for rent in respect of a period after the end of the year, subsection 18(9) of the Act would apply to deduct a portion of the payment in the year or years subsequent to its payment. Section 67.3 of the Act would then apply to the monthly rental charges and the portion of the lump sum payment deductible in each of the years.

Reasons: This position is supported by the provisions indicated and is consistent with the treatment accorded to such lump sum payments made by employees who lease automobiles that are used to earn employment income. In this respect, please refer to paragraph 9 of IT-522.

XXXXXXXXXX 2001-011346
J. E. Grisé
January 14, 2002

Principal Issues: Can a class of units of a mutual fund trust that do not satisfy the conditions in section 4801 of the Regulations qualify as a qualified investment under paragraph 4900(1)(d) of the Regulations?

Position: Yes.

Reasons: The only requirement in 4900(1)(d) is that the investment be a unit of a mutual fund trust. There is no restriction on the class of units acquired.

Principal Issues:
Will paragraph 4901(2.2) of the Regulations apply in a particular scenario to deem a person to be a connected shareholder of a corporation?

Position: Question of fact.

Reasons:
We would need to review the rights to determine the number of shares that the person has a right to acquire and any restrictions on acquisition that may exist.

Principales Questions:

1. Est-ce que la distance parcourue par des employés municipaux entre leur domicile et leur lieu de travail peut être considérée comme un déplacement lié aux opérations courantes de la municipalité XYZ puisqu'ils sont tenus d'utiliser des véhicules que la municipalité met à leur disposition après les heures normales de travail pour être en mesure de faire face à certaines situations d'urgence?

2. Est-ce que notre réponse varie si ces véhicules sont munis d'équipements de première intervention tels que gyrophares amovibles, extincteur, radio en constante fonction, trousses de premiers soins...etc. ?

Position Adoptée:

Principal Issues:

(1) What is the meaning to be given to the expression "cost of the automobile" for purposes of element "C" of the formula in subsection 6(2) of the Act where an employee (or shareholder) reimburses a corporation for a portion of the capital cost of the automobile, since this will be the "cost" used to compute the automobile standby charge?

(2) Will this amount also be the capital cost of the automobile for purposes of determining the CCA classification of the vehicle?

Position:
(1) If all the facts indicate that an employee (or shareholder) and a corporation intend on jointly owning an automobile, whereby the amount paid by the employee (or shareholder) to the corporation does not represent a reimbursement for actual use of the automobile as described in subparagraph 6(1)(e)(ii) of the Act, the cost of the automobile to the corporation for purposes of calculating a standby charge will be the amount paid by the corporation less the amount reimbursed by the employee (or shareholder).

(2) This "net amount" will also be considered the capital cost of the automobile to the corporation in determining whether it will be classified as a passenger vehicle included in class 10.1.

Reasons:

Principal Issues:
1. Is interest income from GIC's and term deposits taxable income of a non-profit organization.
2. Is a capital gain realized on the disposition of vacant property by a non-profit organization taxable.

Position:
1. No
2. No

Reasons:
1. Non-profit organization is operated in accordance with its established not-for-profit purpose.
2. No tax payable on the taxable income of the NPO. Income of the NPO includes capital gains.

Principal Issues: Whether the processing of a slag bi-product (tailings) from a nickel mine could be considered manufacturing or processing as defined in subsection 125.1(3) of the Act?

Position: no

Reasons: The prime metal stage is the line of demarcation between the mining and manufacturing industries. The resource profits determined under subsection 1204 of the Regulations would be deducted in computing Canadian M&P profits under Part LII of the Regulations.

Principal Issues:
Clarification requested regarding the income tax consequences of a particular business transaction related to a derivative contract

Principal Issues:
1. How is a non-qualified investment removed from an RRSP or RRIF?
2. What steps are required to value an asset that has been de-listed?

Position:
1. Non-qualified investments do not have to be removed from an RRSP or RRIF.
2. CCRA does not provide valuation services or give rulings concerning the value of properties.

Reasons:
1. No section of the Act requires that a non-qualified investment be removed from an RRSP or RRIF, although the trust may be subject to Part XI.1 tax.
2. Refer to IC 89-3 and Valuations Section of the tax services office.

Principales Questions:
Est-ce que le paragraphe 6(6) de la Loi pourrait s'appliquer à un citoyen d'un autre pays qui est considéré par l'effet de la Loi et la convention fiscale, s'il y a lieu, comme étant un résident canadien et non pas un résident de cet autre pays?

Position Adoptée:
Si toutes les conditions mentionnées au paragraphe 6(6) de la Loi sont respectées, ce paragraphe pourrait s'appliquer. À cette fin, " lieu principal de résidence " est défini comme étant un endroit où l'employé tient un établissement domestique autonome. Si un employé tient deux établissements domestiques autonomes, il faudrait déterminer le lieu principal.

Principal Issues:
In a hypothetical situation:
(1) Whether a shareholder debt is a bad debt and qualifies for the election under subsection 50(1) of the Act?
(2) Whether a capital loss incurred by one corporation on a debt owed to it by another corporation would be deemed by subparagraph 40(2)(g)(ii) of the Act to be nil?
(3) Are there any further administrative positions to IT-239R2 with respect to the application of subparagraph 40(2)(g)(ii) of the Act?
(4) Whether a company would be a small business corporation within the meaning assigned by subsection 248(1) of the Act for the purposes of paragraph 39(1)(c) if the "only assets during the past 12 months were a reasonable amount of accounts receivable" that is being collected?

Position:
(1) No.
(2) Yes.
(3) No.
(4) No.

Reasons:
(1) The situation described does not meet the position outlined in paragraph 10 of IT-159R3. The amount of the debt owing to the shareholder would not be eligible for the election under subsection 50(1) of the Act.
(2) In the situation described, the corporation experiencing the loss is not the parent of the other corporation, therefore subparagraph 40(2)(g)(ii) applies since the administration position in paragraph 6 of Interpretation Bulletin IT-239R2 is not met.
(3) Interpretation Bulletin IT-239R2 contains the only exceptions to the application of subparagraph 40(2)(g)(ii). XXXXXXXXXX
(4) Trade account receivables, which are held to meet current cash flow or current working capital requirements, generally would be considered used in an active business. Although trade receivables are generated by the business, the test is whether they were used in the business. In the situation described, the trade receivables remained outstanding for an extended period of time, therefore they are not used in carrying on an active business. Unless the company was a SBC within any time in the preceding 12 months, this fact alone would exclude it from being eligible for a business investment loss under paragraph 39(1)(c) of the Act.

Principal Issues:
Whether a taxpayer can transfer unrealized capital losses to the taxpayer's spouse by way of a sale at fair market value.

Position TAKEN:
Yes, subject to application of superficial loss rules.

Reasons:
If the sale occurs at fair market value and the transferee still holds the capital property or substitute property at end of 30 days, the superficial loss rules deny the taxpayer's capital loss and the denied loss is added to adjusted cost base of the spouse's capital property. The subsection 73(1) of the Act election prevents the transfer at adjusted cost base and section 74.5 of the Act prevents the attribution of the future capital loss back to transferor.

Principal Issues:
Tax treatment of strip bonds

Principal Issues: Whether a financial assistance provided by a government in a particular situation and taking the form of a reimbursement of interest expenses paid by a taxpayer with respect to loans contracted for the purposes of a particular project should reduce the capital cost of depreciable property acquired in the course of the said project under subsection 13(7.1) of the Act.

Position: No.

Reasons: The financial assistance provided in the particular situation should be considered first and foremost as amounts received in respect of an outlay or expense (i.e. interest) and consequently should not be considered as an assistance received in respect of or for the acquisition of, depreciable property. Furthermore, the Department does not accept the conclusions reached by the Québec Court of Appeal in S.M.R.Q. v. Alex Couture Inc., 2001 DTC 5072 and considers that such decision is not binding upon the Department.

Principal Issues:
1) Where a bonus is paid early in the calendar year, will the deduction in paragraph 100(3)(c) of the Regulations, from the amount on which tax must be withheld, depend on the current year or previous year RRSP deduction limit?

2) What does CCRA define as "reasonable grounds" for the employer for purposes of applying paragraph 100(3)(c) of the Regulations?

Position:
1) Current year RRSP deduction limit.

2) Written confirmation from the employee that the amount will be deductible, or a copy of the employee's RRSP deduction limit statement.

Reasons:
1) The regulation is unambiguous. Paragraph 100(3)(c) of the Regulations specifically requires that the employer have reasonable grounds to believe that the premium will be deductible for the same taxation year in which the remuneration is paid.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

TEI Conference
December 4, 2001

Question 10 Reassessment Period

Principal Issues: CTF Round Table 2001 - Markevich

Position: General comments.

Reasons: Case under appeal.

Principal Issues: Whether a loan agreement between XXXXXXXXXX and an individual for the purchase of an automobile is considered a Lease Agreement?

Position: No

Reasons: Individual has legal and beneficial ownership of property.