Income Tax Severed Letters - 2002-01-18

Ruling

13 February 2002 Ruling 2001-0116363 - WHETHER FLEX CREDITS PART OF SALARY

Unedited CRA Tags
6(1)(a)

Principal Issues: Whether flex credits allocated to employees upon the establishment of a flex plan would be considered salary, where the employee's salary was reduced

Position: Question of fact.

Reasons: It must be determined whether the revised salary is set under a new contract of employment, or whether an existing contract is re-negotiated. If a new employment contract is put in place, then the flex credits will not likely be considered salary. It must also be determined whether the employee's salary is reduced by amounts withheld by the employer as the employee's benefit premiums, or whether the employer is funding the entire benefit programs.

12 February 2002 Ruling 2001-0105323 - DAMAGES-RETIRING ALLOWANCE

Unedited CRA Tags
6(1)(A) 5 248(1)

Principal Issues:
Ruling request with respect to damage payment for personal injury.

Position:
No ruling provided. Cannot support that the payments are tax-free.

Reasons:
Representative was asked to provide further substantiation that the damage payment is not taxable. In our view the payment is as a result of a loss of employment and that a retiring allowance is the appropriate result in the circumstances. The individual involved did not submit further information.

2001 Ruling 2000-0032813 - attribution rules sections 74.1 to 74.474.1 to 74.4

Principal Issues: Application of the attribution rules in sections 74.1 to 74.4

Position: Subsection 74.4(2) may apply if certain conditions exist

Reasons:

2001 Ruling 2001-0109363 - HEALTH & WELFARE TRUST

Unedited CRA Tags
248(1) 6(1)(a)(i)

Principal Issues:
(1) Whether the transfer of employees, from a corporation to a partnership, would affect the status of the health and welfare trust that provides certain benefits to these employees.
(2) Whether the Partnership's assumption of the funding liability for these employees would affect the status of the health and welfare trust.

Position: (1) No. (2) No.

Reasons:
(1) There is no change in the benefits being provided to the employees pursuant to the health and welfare trust.
(2) The change in responsibility for funding the obligations under the health and welfare trust does not change the status of the health and welfare trust.

2001 Ruling 2001-0103913 - Residence of corporation into Canada

Unedited CRA Tags
250(5.1) XXXXXXXXXX

Principal Issues: Bco was incorporated in XXXXXXXXXX , and was subsequently continued into Canada. Is Bco a resident of Canada for purposes of the Act and the Canada-XXXXXXXXXX Treaty?

Position: Yes

Reasons: Article XXXXXXXXXX of the Treaty states that a corporation shall be deemed to be resident of the State in which it is continued.

2001 Ruling 2001-0077753 - DIRECTORS FEES & STOCK OPTIONS

Unedited CRA Tags
6(1)(c) 7 9(1)

Principal Issues: Whether employees who sit on the board of directors of corporations on behalf of their employer are required to report directors' fees and stock options paid to them as directors of the company.

Position: No. The director's fees and stock options would be business income of the entity for which the services were ultimately provided. In this case the services were provided ultimately for the partnership for which the employer provided management services. With respect to the stock option, the amount to be reported by the partnership at the time the option is granted would be nil since the options have no trading value and the fair market value of the shares is less than the exercise price when the option is issued. At the time the option is exercised, the partnership must report the excess of the FMV of the underlying security over the exercise price of the option.

Reasons: The employees are not entitled to benefit from the directors fees of stock options. They receive these as agents of the partnership.

2001 Ruling 2001-0104223 - DIRECTORS FEES

Unedited CRA Tags
REG 6801(d)

Principal Issues: Will the payment of Director's fees in the form of deferred share units (DSUs) constitute an SDA for purposes of the Act? At the option of the employer, the DSUs may be redeemed on termination of employment in the form of shares purchased on the open market or in cash.

Position: No.

Reasons: The provisions of Regulation 6801(d) are satisfied.

2001 Ruling 2001-0086683 - Withholding Tax

Unedited CRA Tags
212(1)(d)(iii)

Principal Issues: whether payment from Canco to non-resident is subject to withholding tax under subparagraph 212(1)(d)(iii)

Position: no

Reasons: determined that, based on the documentation provided, payments were made on behalf of the customer such that the payments would not be dependent in whole or in part of any of the criteria listed in clauses 212(1)(d)(iii)(A) to (C)

2001 Ruling 2001-0087753 - split-up butterfly

Unedited CRA Tags
55(3)(b)

Principal Issues: Split-up butterfly of a investment holding company

Position: Meets the butterfly exemption except that we do not confirm that a disposition by the transferee corporations would be in the ordinary course of business for purposes of paragraph 55(3.1)(c) or would not be part of the series of transactions that includes the reorganization.

Reasons: The transferee corporations are not in the business of trading investments.

2001 Ruling 2001-0106633 - PUBLIC BODY PERFORMING FUNCTION OF GOVT

Unedited CRA Tags
149(1)(c) 75(2)

Principal Issues: (1) Whether the Band is a public body performing a function of government; (2) Whether the receipt of the Settlement Funds is taxable; (3) Whether subsection 75(2) will apply to the Trusts' income; (4) Whether subsection 105(1) or subsection 107(4.1) will apply to certain distributions made by the Trust to the Band's members; (5) Whether paragraph (a) of the definition of "cost amount" in subsection 108(1) would apply to determine the adjusted cost base of the capital interest disposed of on such distribution; (6) Whether subsection 107(2) will apply to any distribution of property by the Trust to the Band; (7) Whether income on income from property of the Trust will be taxable to the Trust.

Position: (1) Yes; (2) No; (3) Yes; (4) Subsection 105(1) will not apply; Subsection 107(4.1) will however apply; (5) Yes; (6) Yes, subject to subsections 107(2.001), (2.002) and (4) to (5); (7) Yes, but may be deducted under 104(6).

Reasons: (1) The Band is involved in negotiating a treaty settlement with Canada and will continue to be involved in its implementation and administration. The Band is actively involved in the community and provides extensive services and programs such as public works, social services (health and education), capital infrastructure (water distribution, sanitation), etc; (2) Compensation paid to the Band is in respect of the loss of livelihood of the community or loss of their interest in traditional lands. Could be considered as non-taxable damages or, arguably, Indian property pursuant to paragraph 90(1)(b) of Indian Act as it appears to be paid in lieu of treaty rights. Alternatively, may be considered income to the Band, which is exempt under par.149(1)(c); (3) The Band may be considered to have indirectly or constructively received the Settlement Funds and contributed them in the Trust. The property of the Trust may revert to the Band and may be distributed in accordance with the Bands direction on consent; (4) Where subsection 107(2) or (2.1) applies to a distribution, their is no benefit for the purposes of subsection 105(1). Subsection 107(4.1) applies in respect of the distribution to the Elders and per capita to all Members as made in satisfaction of their capital interests in the Trust and all other conditions of 107(4.1) are met; (5) The reference in 107(1)(a)(ii)(A) to the cost amount immediately before the disposition of the capital interest refers to the amount determined under paragraph (a) of the definition of "cost amount" in subsection 108(1) as there has been a distribution of property by the trust; (6) The trust is a personal trust and the distributions are made to beneficiaries of the Trust; (7) Income on income from property held by the Trust is not subject to subsection 75(2). However, provisions of the Trust Agreement provide that all the income derived on Trust Property is payable to the Band and therefore a deduction may be claimed by the Trust under 104(6).

2001 Ruling 2001-0087923 - Internal Reorganization

Unedited CRA Tags
55(3)(1)

Principal Issues: Whether an internal reorganization is subject to the exemption under paragraph 55(3)(a)?

Position: Yes.

Reasons: See SPI for analysis.

2001 Ruling 2001-0107473 - Split-up Butterfly

Unedited CRA Tags
55(2)

Principal Issues: Standard Split-Up Butterfly Ruling.

Position: Favourable rulings provided.

Reasons: Complies with rules in section 55.

2001 Ruling 2001-0089153 - Rights offering, paragraph 15(1)(c)

Unedited CRA Tags
15(1)(c)

Principal Issues: Rights offering - application of paragraph 15(1)(c).

Position: Paragraph 15(1)(c) precludes inclusion of the amount of any benefit, received by virtue of the rights offering, in income.

Reasons: All common shareholders have identical rights.

2001 Ruling 2001-0108473 - XXXXXXXXXX INTEREST DEDUCTIBILITY

Unedited CRA Tags
XXXXXXXXXX 20(1)(C) 104(7.1)

Principal Issues:
1. Whether the debentures constitute borrowed money for the purpose of paragraph 20(1)(c).
2. Whether subsection 104(7.1) will apply to deny a deduction to the Trust recipient under paragraph 104(6)(b) of amounts payable to its unitholders.

Position:
1. Yes.
2. No.

Reasons:
1. Facts support that there is borrowed money and the funds are to be used for purpose set forth in XXXXXXXXXX
2. Generally, multi-class structured trusts may be permissible so long as the units aren't structured with the objective of giving an interest in the capital of the trust that exceeds the income entitlement of the class. The difference in dividend rates between the two classes of capital units is to compensate for the fact that one class is redeemable after XXXXXXXXXX years where the other is only redeemable on maturity. XXXXXXXXXX .

2001 Ruling 2001-0090743 - INCOME EARNED BY MEDICAL CORP.

Unedited CRA Tags
9(1) 248(1) 56(2) 56(4)

Principal Issues: Whether physicians who are faculty members of university can report revenue earned from clinical practice through their own professional corporations; whether business income would be treated as income from a personal services business; whether income would be subject to CPP or EI deductions; whether income would be attributed to physician under 56(2) or 56(4).

Position: Business income could be reported through a corporation. The corporation would not be considered a personal services business. Subsections 56(2) and 56(4) would not apply to include the business income in the physician's income. The income would not be subject to deductions for CPP or EI.

Reasons: The physician is permitted to earn income from clinical practice which is distinct from his salary as a professor. While the university requires that the physician enter into a XXXXXXXXXX agreement with the university, and appoint the university as his agent to bill and collect the medical fees, it does not control how many patients he sees, or when he sees them. The physician also assumes all the risks associated with his clinical practice. Since there is no legal prohibition against the physician practicing his profession through a corporation, the corporation can carry on the medical business. The facts indicate that the corporation, in this case, will be carrying on the business. Payments made to a corporation are not subject to CPP or EI. Since the income is not considered to be employment income, there would be no personal services business.

Ministerial Correspondence

4 February 2002 Ministerial Correspondence 2002-0116934 - AIRLINE PASSES

Unedited CRA Tags
6(1)(a)

Principal Issues:
Employee Benefits for Airline Employees

Position:
General comments provided

Reasons:
Paragraph 6(1)(a), paragraph 42 IT-470R

18 January 2002 Ministerial Correspondence 2001-0114384 - Trust assessment-court challenge

Unedited CRA Tags
248(1)

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.

XXXXXXXXXX

Dear XXXXXXXXXX:

16 January 2002 Ministerial Correspondence 2001-0113974 - Trust assessment-court challenge

Unedited CRA Tags
248(1)

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.

XXXXXXXXXX

Dear XXXXXXXXXX:

18 December 2001 Ministerial Correspondence 2001-0111924 - Foreign Spin-Offs-Latefiled Election

Unedited CRA Tags
86.1

Principal Issues: Whether we can extend the September 11, 2001 deadline for shareholder elections filed under new s.86.1.

Position: No. However, the timing problems are being reviewed by Wayne Adams with Finance and A&C Branch is also looking into this.

Reasons: There is no provision for extending the filing deadline in this case.

Technical Interpretation - External

13 February 2002 External T.I. 2002-0121285 - PAYMENTS TO CAREGIVERS

Unedited CRA Tags
81(1)(h)

Principal Issues:
Tax treatment of amounts received to care for individual with developmental disability in the caregivers' home.

Position TAKEN:
Question of fact. General information provided.

Reasons:
Insufficient information provided.

11 February 2002 External T.I. 2001-0092975 F - MOMENT DE L'INCLUSION DANS LE REVENU

Unedited CRA Tags
9(1)

Principales Questions:
Quand doit-on inclure dans le revenu les augmentations rétroactives des honoraires de services d'un pharmacien propriétaire prévues par le Décret 503-2001 approuvé par le gouvernement du Québec?

Position Adoptée:
Dans l'exercice financier comprenant le 1er juin 2001.

8 February 2002 External T.I. 2001-0108605 - Canadian Exploration Expense

Unedited CRA Tags
66.1(6)(g)

Principal Issues:
Costs of employee salaries, consultants and travel and accommodation related to obtaining necessary permits and studies to bring a new mine into production can be included in the expenses referred to in paragraph 66.1(6)(g) of the Act.

Position:
Whether any expenditure qualifies for treatment as Canadian exploration expense ("CEE") is a question of fact to be determined from all of the relevant facts and circumstances.

Reasons:
Paragraph 66.1(6)(g) contains both a purpose test (i.e. incurred for the purpose of bringing a new mine in a mineral resource in Canada into production in reasonable commercial quantities) and a timing test (incurred before the coming into production of the new mine).

8 February 2002 External T.I. 2001-0092375 - FORMER SPOUSE & VOID MARRIAGE

Unedited CRA Tags
73(1) 73(1.01)(b) 252(3)

Principal Issues:
1. Will subsection 73(1) of the Act apply to a transfer of capital property between a man and a woman in settlement of their rights based on their judicially declared null and void marriage?

Position:
1. The application of subsection 73(1) is not necessarily denied simply because of the void marriage.

Reasons:
1. Using the extended meaning of former spouse in subsection 252(3) of the Act, there could be a qualifying transfer under 73(1.01)(b). Consistent with the last paragraph of ¶7 of Interpretation Bulletin IT- 325R2 and the reasoning in Her Majesty The Queen v. Cecilia Dianne Taylor, Executrix of the Estate of Irving A. Taylor [84 DTC 6234].

7 February 2002 External T.I. 2001-0109875 - US MEDICARE PLAN B

Unedited CRA Tags
118.2(2)(q)

Principal Issues: whether payments for US Medicare Part B are PHSP payments

Position: information does not establish that expenses are limited to "medical expenses" per ITA

Reasons: 118.2; 248(1)

7 February 2002 External T.I. 2002-0119865 - RETIRING ALLO. AND WITHHOLDING

Unedited CRA Tags
56(1)(l.1) 153(1) 100(3)(c)

Principal Issues:
1. Withholding requirements and reporting of the reimbursement of legal fees paid to collect or establish a right to a retiring allowance.
2. Authorization or forms required for an employer to transfer an amount to an employee's RRSP without withholding tax.

Position TAKEN:
1. None.
2. None.

Reasons:
1. Amounts are taxable pursuant to paragraph 56(1)(l.1), but are not included in amounts described in subsection 153(1) or regulation 100.
2. No requirement in Act or Regulations.

7 February 2002 External T.I. 2001-0113305 - FUNDING FOR CARE OF ADULT CHILD

Unedited CRA Tags
81(1)(h) 56(1)(u)

Principal Issues:
Tax treatment of funds received to care for disabled adult child.

Position TAKEN:
Question of fact. General information provided. Will re-examine upon submission of additional information.

Reasons:
Insufficient information provided.

7 February 2002 External T.I. 2002-0118205 - WHETHER TP ENTITLE. TO DEDUCT. FOR REVENUE

Unedited CRA Tags
18(1)(a)

Principal Issues: Whether a farmer may deduct the value of fruit crop attributable to the land and plant material which the farmer provides to an organization for purposes of horticultural research oriented to the development of production guidelines for commercial producers of native fruit crops.

Position: No.

Reasons: Paragraph 18(1)(a) denies a deduction where no outlay has been made nor expense incurred.

6 February 2002 External T.I. 2001-0112145 - INCORPORATE PROFESSIONAL PARTNERSHIP

Unedited CRA Tags
125(1) 125(7) 256(2.1)

Principal Issues:
1. Will the incorporation of a professional partnership to form "Newco", where the individual partners also incorporate and provide services to Newco through their corporations ("ServiceCos"), result in disallowance of the small business deduction?
2. Will the incorporation of a professional partnership, where the individual partners also incorporate, result in the application of 256(2.1)?

Position:
1. Generally, not in and of itself, as long the ServiceCos are not personal services businesses. This involves determining whether or not the incorporated professional would reasonably be regarded as carrying out services to Newco in his/her capacity as an officer or employee of Newco, but for the existence of their ServiceCo.
2. Generally, not in and of itself, as long as reducing tax is not one of the main reasons for incorporating.

Reasons:
1. & 2. Reading of 125(1) & (7) and 256(2.1). However, these issues do involve certain question of fact that must be addressed before a conclusive answer can be given.

6 February 2002 External T.I. 2001-0099765 - MINIMUM TAX

Unedited CRA Tags
127.52

Principal Issues: how subclause 127.52(1)(i)(i)(B)(II) works

Position: as described in the law

Reasons: 127.52(1)(i)(i)(B)(I)

6 February 2002 External T.I. 2001-0100565 F - CHANGEMENT D'USUAGE ET PERTE FINALE

Unedited CRA Tags
13(7)a) 20(16)

Principales Questions: Lors de la cessation d'une entreprise non constituée en société, y a-t-il disposition présumée des actifs conservés par le particulier et peut-il en découler une perte finale ?

Position Adoptée: Une perte finale peut découler d'une disposition présumée suite à un changement d'usage d'un bien.

6 February 2002 External T.I. 2002-0119875 - MEDICAL EXPENSES

Unedited CRA Tags
118.2

Principal Issues: whether expenses are medical expenses

Position: -insufficient facts to determine whether a particular expense is deductible since we have no information on the expenses, but the cost of a new vehicle every 2 years is not a medical expense

Reasons: must be described in ITA or Reg 5700not listed in ITA

6 February 2002 External T.I. 2001-0118735 - WITHDR. FROM SPOUSAL RRSP BY STATUS INDIAN

Unedited CRA Tags
81(1)(a) 146(8) 146(1)

Principal Issues: Whether withdrawals from a spousal RRSP by a status Indian would be taxable when they relate to contributions made by an individual who is not a status Indian.

Position: Withdrawals will be taxable.

Reasons: Since the withdrawals from the spousal RRSP relate to contributions made by an individual who is not status Indian, the withdrawals would not be connected to a reserve and would be taxable.

6 February 2002 External T.I. 2001-0105605 - Tax Treatment of Transaction Costs

Unedited CRA Tags
9(1) 15(1)

Principal Issues: Tax treatment of transaction costs: deductibility and shareholder benefits

Position: Question of fact

Reasons: The law

6 February 2002 External T.I. 2002-0119885 - ADVANCES REC. BY CASH-BASIS FARMER

Unedited CRA Tags
28

Principal Issues:
Treatment of advances by farmers using cash method.

Position TAKEN:
Question of fact. General comments provided.

Reasons:
Insufficient information provided.

5 February 2002 External T.I. 2001-0115475 - LOAN TO PURCHASE SHARES

Unedited CRA Tags
15(2) 15(2.4)(c)

Principal Issues: Does a loan previously exempted from the application of 15(2) because of paragraphs 15(2.4)(c), (e) and (f) have to continue to meet these exceptions on an assignment of the loan by the creditor to a third party, even though a novation does not occur as a result of the assignment?

Position:
No.

Reasons: The exceptions in subsection 15(2.4) have to be met at the time of issuance of the loan. Therefore, where there is a subsequent assignment of a loan that met the exceptions at the time of issuance and a novation has not occurred, the loan will continue to be exempt from the application of subsection 15(2).

5 February 2002 External T.I. 2001-0109775 - RRSP-NON-QUALIFIED INVESTMENTS

Unedited CRA Tags
REG 4900(1)s) 146(10.1) 207.1

Principal Issues:
What are the tax consequences for an RRSP trust of acquiring shares traded on the Nasdaq over-the-counter bulletin board?

Position:
Where shares were acquired by an RRSP trust prior to September 2000, they are a qualified investment until Dec. 31, 2001. After Dec. 31, 2001 the shares are a non-qualified investment and subject to the provisions of section 207.1 and subsection 146(10.1) of the Act.

Reasons: Applicable sections of the Income Tax Act.

4 February 2002 External T.I. 2002-0119375 - CONTRIB. TO EMPLOYEE PROFIT SHARING

Unedited CRA Tags
20(1)(w) 28(1) 144(5)

Principal Issues: Whether a payment made into an employee profit sharing plan in the first 120 days after a particular taxation year is deductible in the particular taxation year if the payer is a corporation that has elected pursuant to subsection 28(1) of the Act to use the "cash method" described therein.

Position: No

Reasons: The corporation's income from its farming or fishing income is deemed to be the amounts described in paragraphs 28(1)(a) to (d) less the amounts described in paragraphs 28(1)(e) to (g) of the Act. The amounts described in paragraph 28(1)(e) to (g) of the Act do not include a payment made to an employee profit sharing plan in the first 120 days after the taxation year.

XXXXXXXXXX 2002-011937
J. E. Grisé
February 4, 2002

4 February 2002 External T.I. 2001-0110035 - QSB-HOLDING PERIOD TEST

Unedited CRA Tags
110.6(1) 110.6(14)(c) 248(1)

Principal Issues: 1. Does the holding period requirement in the definition of qualified small business corporation shares include time that the individual holds shares in his self directed RRSP?

Position: 1. Yes

Reasons: 1. Holding period includes time held by person related and para. 110.6(14)(c) deems a personal trust to be related to its beneficiary for purposes of the QSBC definition. A self directed RRSP is a personal trust per the definition in 248(1).

4 February 2002 External T.I. 2000-0053595 - Limited Liability Company

Unedited CRA Tags
248(1) Corporation

Principal Issues: whether Oregon LLC is a corporation for Canadian tax purposes

Position: yes

Reasons: provisions of Oregon legislation under which LLC was created were similar to those of states for which we have already provided this position

1 February 2002 External T.I. 2001-0078205 - Article II, Canada-Argentina Tax Convention

Principal Issues: whether exclusion in subparagraph 3(b) of Article 11 of the Canada - Argentine Tax Convention is applicable where the payer of the interest is not the final user of the purchased machinery

Position: Yes

Reasons: wording of subparagraph does not require this condition

29 January 2002 External T.I. 2001-0083545 - Limited liability company

Unedited CRA Tags
248(1) Corporation

Principal Issues: whether Ohio LLC is a corporation for Canadian tax purposes

Position: yes

Reasons: provisions of section 1705 of Ohio Revised Code are similar to LLC law of states for which we have already provided this position

29 January 2002 External T.I. 2001-0084805 - Limited Liability Corporation

Unedited CRA Tags
248(1) Corporation

Principal Issues: whether New Hampshire LLC is a corporation for Canadian tax purposes

Position: yes

Reasons: provisions of New Hampshire legislation under which LLC is created was similar to those of states for which we have already provided this position

29 January 2002 External T.I. 2001-0085845 - Limited Liability Company

Unedited CRA Tags
248(1) Corporation

Principal Issues: XXXXXXXXXX asked for an updated list of states for which we have provided an opinion that a limited liability company formed under the laws of that state was a corporation for Canadian tax purposes.

Position: provided

Reasons:

29 January 2002 External T.I. 2000-0053605 F - REVENU DES PECHEURS

Unedited CRA Tags
9(1)

Principales Questions:

Un particulier est titulaire d'un permis de pêche. Il reçoit un petit pourcentage des prises alors que sa société vend le restant des prises. Est-ce que chacun sera imposé sur les montants reçus de l'acheteur?

Position Adoptée:

29 January 2002 External T.I. 2001-0067735 - Limited liability company

Unedited CRA Tags
248(1) Corporation

Principal Issues: whether New Hampshire LLC is a corporation for Canadian tax purposes

Position: yes

Reasons: provisions of incorporating act similar to those of states for which we have already provided this position

28 January 2002 External T.I. 2002-0116635 F - REEE-REGLE D'ATTRIB. ET PERT NULLE

Unedited CRA Tags
74.1(g) 74.3(1)(a) 146.1(7) 146.1(6)

Principales Questions:
Le paragraphe 74.1(2) et l'alinéa 40(2)g) de la Loi s'appliquent-t-ils dans le cas où un contribuable transfère un bien à un REÉÉ ?

Position Adoptée: Non

25 January 2002 External T.I. 2001-0114615 F - CONTRAT DE RENTE PRESCRITE ET FIDUCIE

Unedited CRA Tags
304(1) 304(3)

Principales Questions:
Comment s'appliquent les paragraphes 304(1) et (3) du Règlement de l'impôt sur le revenu dans des situations décrites par le contribuable ?

Position Adoptée: aucune

24 January 2002 External T.I. 2001-0111745 - UK PENSION PLAN TRANSFER RRSP

Unedited CRA Tags
60(j)

Position:
Question of fact.
REASON:
Subject to Article XVII of UK treaty and paragraph 56(1)(a).

14 January 2002 External T.I. 2001-0116225 F - DOMMAGE SUBI PAR UN REER ET INDEMNITE

Unedited CRA Tags
146(1) 146(8)

Principales Questions: Comment doit-on traiter des dommages-intérêts à l'égard d'un REÉR ?

Position Adoptée: Ce n'est pas une prestation si le montant est versé directement au REÉR qui a subi le préjudice.

14 January 2002 External T.I. 2001-0114035 F - ECHANGE D'ACTIONS ET PARAGRAPHE 9001(2)

Unedited CRA Tags
9001(2) 142.2(1)

Principales Questions: Si un contribuable échange des actions visées au paragraphe 9001(2) du Règlement en faveur d'une société autre que l'émetteur des actions, les actions qu'il obtient en échange de ses actions seront-elles un bien visé au paragraphe 9001(2) en raison de l'alinéa 9001(2)b) du Règlement?

Position Adoptée: Non

11 January 2002 External T.I. 2001-0112605 F - Section 159 - Payments on behalf of others159(2)

Unedited CRA Tags
159(3) 248(1)

Principal Issues: Whether, in two particular situations involving the disposition by a taxpayer of assets in favour of an arm's length purchaser, such a purchaser would be required under subsection 159(2) of the Act to apply for and obtain a certificate from the Minister.

Position: No.

Reasons: In the particular situations, an arm's length purchaser should not be considered to be a "legal representative" as those terms are defined in subsection 248(1) of the Act.

10 January 2002 External T.I. 2001-0112885 F - ASSURANCE-VIE ET PRET REMBOURSE AU DECES

Unedited CRA Tags
15(1) 245(2) 207.6(2) 148(9)

Principales Questions:
Conséquences fiscales d'une police d'assurance-vie dans le cas où elle est utilisée pour garantir un prêt qui ne sera remboursé qu'après le décès de l'emprunteur

Position Adoptée:
Question qui ne peut être déterminée qu'après un examen des termes du contrat d'assurance, des ententes pertinentes et des liens entre les diverses parties. Il peut y avoir aussi un avantage accordé à un actionnaire et les dispositions des paragraphes 207.6(2) ou 245(2) de la Loi pourraient être applicables.

9 January 2002 External T.I. 2001-0110465 - LETTRE DE CREDIT - CV

Unedited CRA Tags
207.5(2)

Position Adoptée: Oui.
RAISON POUR POSITION ADOPTÉE:
Analyse législative et les dossiers E9705065, F9522340 et E9502955.

XXXXXXXXXX 2001-011046
L. J. Roy, CGA
Le 9 janvier 2002

2 January 2002 External T.I. 2001-0113485 - MUTUAL FUND CORPORATION

Unedited CRA Tags
131(1) 38(a)

Principal Issues: Reporting of capital gains dividends from a mutual fund corporation.

Position: An individual to whom a capital gains dividend was payable and was paid in 2001 by a mutual fund corporation will include the dividend in income in 2001 in accordance with the capital gains inclusion rates applicable in the period in which the disposition of property giving rise to the capital gains dividend occurred.

Reasons: Legislation

18 December 2001 External T.I. 2001-0073925 - Paragraph 88(1)(e.2) & Subsection 186(5)186(5)

Unedited CRA Tags
88(1)(e.2) 87(2)(aa)

Principal Issues: Whether subsection 186(5) applies where a wholly-owned subsidiary with an RDTOH balance is wound-up into its parent under subsection 88(1).

Position: Yes it can apply.

Reasons: The law - A specific reference to paragraph 88(1)(e.2) in subsection 186(5) is not required since paragraph 87(2)(aa) applies, as modified by paragraph 88(1)(e.2).

4 December 2001 External T.I. 2001-0111155 - TEI 2001 QUESTION 16

Unedited CRA Tags
N/A

Principal Issues:
TEI Question #16. Does CCRA consult with Finance prior to adopting its interpretations? What is the role of the Department of Justice?

Position:
The CCRA consults with the Department of Finance when the intent of the legislation is not apparent. The CCRA consults with the Department of Justice for advice whether its proposed positions are sustainable and the better view of the law.

Reasons:
The author of the question raised the issue with regard to the Crown's position in Royal Trust 2001 DTC 52, which was viewed as contrary to tax policy principles. The response confirms that CCRA officials did consult with the Department of Finance to ascertain the intent of the legislation before adopting its position in that case.

26 November 2001 External T.I. 2001-0110975 - Residence under an income tax convention

Unedited CRA Tags
5907(1)

Principal Issues: Whether person was "liable to tax" for the purposes of the residence article of an income tax convention.

Position: Position is under review

Reasons:

1 November 2001 External T.I. 2001-0110945 - Deemed active business income

Unedited CRA Tags
95(2)(a)

Principal Issues: Application of clause 95(2)(a)(ii)(A) to a specific fact pattern

Position: see detailed response

Reasons: see detailed response

26 September 2001 External T.I. 2001-0091965 - MANULIFE GAAP AND LCT

Unedited CRA Tags
181(3)

Principal Issues: In light of the Manulife decision and the CCRA's decision to not seek leave to the Supreme Court, will the CCRA accept that GAAP determines both the amount as well as the characterization of items for LCT purposes?

Position: We will assess the implications of the Manulife decision with respect to cases under appeal and our position in IT-532 but a final determination will not be made until the Supreme Court hands down its decision in the Autobus Thomas case.

Reasons: Jurisprudence

25 September 2001 External T.I. 2001-0099865 - class 43.1 wind turbines

Unedited CRA Tags
class 43.1 Reg. 1219

Principal Issues:
1. Will the CCRA be bound by the test wind turbine opinion letters issued by NRCan?
2. When do test wind turbines get added to Class 43.1 and CRCE?

Position:
1. Yes
2. When the turbine is used primarily to generate electrical energy.

Reasons:
1. CRCE definition states that the Technical Guide shall apply conclusively with respect to engineering matters.
2. Wording of class 43.1 clause (v)(A)

25 July 2001 External T.I. 2001-0094135 - ORPHELINS (NES) DE DUPLESSIS

Unedited CRA Tags
3

Principales Questions: Est-ce que les montants reçus en vertu du Programme national de réconciliation avec les orphelins et orphelines de Duplessis du gouvernement du Québec sont imposables?

Position Adoptée: Non.

26 March 1998 External T.I. 1998-9801995 - principal residence

Unedited CRA Tags
54

Principal Issues:
The taxpayer's cottage was occupied by her daughter who bears the cost of carrying the property. The amount paid by the daughter for rent was far below the FMV of the rent that could be earned. Will the Department accept a principal residence designation in respect of the cottage while it was rented to the daughter?

Position: Yes. The cottage qualifies.

Reasons:
The cottage meets the "ordinarily inhabited' test by virtue of the child of the taxpayer residing therein on a year-round basis. Whether the cottage was an "income producing property" or a "personal-use property" is not relevant with respect to the issue of whether it is eligible to be designated as a principal residence in circumstances where the tenant was the child of the taxpayer.

29 November 2001 External T.I. 2001-0110985 - TEI, Question 21

Unedited CRA Tags
85(1.11)

Principal Issues: substitution of administrative position for purpose test in subsection 85(1.11)

Position: no comment will be provided

Reasons: no experience with administering subsection, will consider ruling if necessary facts etc are provided

Technical Interpretation - Internal

11 February 2002 Internal T.I. 2001-0102747 F - FABRICATION ET TRANSFORMATION

Unedited CRA Tags
125.1(1) 125.1(3) R. 5200

Principales Questions:
1. Est-ce que Société A est engagée dans une entreprise de fabrication ou de transformation ou une entreprise de construction?
2. Société A a-t-elle droit au crédit au titre des bénéfices de fabrication et de transformation à l'article 125.1 de la Loi?
3. Est-ce que Société A a droit à la méthode d'achèvement des travaux, paragraphe 12 du IT-92R2, pour les revenus de construction (fourniture et installation)?

Position Adoptée:
1. Question de fait. Il s'agit probablement d'une entreprise de fabrication.
2. Oui. Cependant, les activités reliées aux contrats de construction ne seront pas considérées comme des activités admissibles.
3. Oui. Dans la présente situation il a été déterminé qu'une partie des contrats de l'entreprise sont des contrats de construction qui donnent droit à la méthode de comptabilisation de l'achèvement des travaux.

11 February 2002 Internal T.I. 2002-0121787 - CHILD CARE EXPENSES-STRIKE

Unedited CRA Tags
63(3)

Principal Issues: Whether child care expenses incurred during a strike period can be deducted.

Position: Generally yes, if related to a temporary strike.

Reasons: The expenses must be incurred to enable the taxpayer or the supporting person of the child to perform the duties of the office or employment. Extenuating factors may cause a supporting person not to be physically present at the work place for a limited period of time.

8 February 2002 Internal T.I. 2001-0106197 F - PRIME D'ASSURANCE-VIE

Unedited CRA Tags
6(1)a) 6(4) 6(1)f)

Principales Questions:
Est-ce que la part d'une prime d'assurance payée par un employeur constitue un avantage imposable pour un employé lorsque la prime est payée 50/50 (employeur/employé) à un assureur dans le cadre d'une police d'assurance-vie et que celle-ci inclut également une protection contre la maladie et l'invalidité de longue durée?

Position Adoptée:
Une répartition entre les trois composantes doit être faite par l'employeur en conformité avec le contrat d'assurance ou le contrat d'emploi et un avantage imposable, s'il y a lieu, sera calculé en fonction de cette répartition.

6 February 2002 Internal T.I. 2002-0119397 - AUTOMOBILE ALLOWANCES

Unedited CRA Tags
18(1)(r) 6(1)(b)

Principal Issues:
Questions related to paragraph 18(1)(r) concerning an employer's deduction for automobile allowances provided to employees

Position:
General comments provided.

Reasons:
Paragraph 18(1)(r), related provisions in paragraph 6(1)(b).

6 February 2002 Internal T.I. 2002-0120827 - INDIAN FISHING INCOME

Unedited CRA Tags
81(1)(a)

Principal Issues: Is the fishing business income earned on a river which forms part of a reserve exempt from tax?

Position: Yes

Reasons: Where INAC has confirmed that a particular body of water forms part of a reserve, any fishing business income earned by a status Indian from that particular body of water will be connected to a location on reserve and would be exempt from taxation.

5 February 2002 Internal T.I. 2000-0058637 - Interest Paid to Non-Resident

Unedited CRA Tags
212(1)(b) 95(2)(a.3) Art 11

Principal Issues: Various issues regarding sourcing of interest under Canada's tax treaties.

Position: see attached memo

Reasons: see attached memo

5 February 2002 Internal T.I. 2002-0120147 - DEATH BENEFIT - PSSA

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

Principal Issues: Are "Supplementary Death Benefits" paid under the public service pension plan taxable under subparagraph 56(1)(a)(iii)?

Position: No.

Reasons: That plan is established separate from the Superannuation Plan, and is in substance a group term life insurance plan, therefore death benefits paid to beneficiaries are not taxable.

30 January 2002 Internal T.I. 2001-0105237 - PENSION PLAN ESOP/401(K) PLAN

Unedited CRA Tags
REG 8308.2

Principal Issues:
Will a certain ESOP/401(k) Plan be considered a pension plan for purposes of section 8308.2 of the Regulations?

Position: No.

Reasons:
The Plan has two segments with the employer only contributing to the ESOP. Under the ESOP portion of the Plan, employees can cash out as soon as the rights vest.

29 January 2002 Internal T.I. 2001-0107777 - LICENSE TO USE TECHNOLOGY

Unedited CRA Tags
20(1)(a) SCH II CKASS 14 SCH II CLASS 44

Principal Issues:
A company develops technology and applies for a patent. Prior to the patent being granted, the company grants a license to a related company for a period of XXXXXXXXXX years with the taxpayer having the option to renew for an additional XXXXXXXXXX years. The taxpayer incurs further costs to develop the technology, capitalizes the costs as class 14 and claims CCA. Can the taxpayer claim CCA on the development costs?

Position:
Royalties are current expenses. If there were any capital costs, they would be included in Class 14

Reasons:
The taxpayer has acquired a license for XXXXXXXXXX years. Even though the licensor has not received a patent, the taxpayer has incurred costs in respect of an XXXXXXXXXX -year license.

28 January 2002 Internal T.I. 2001-0113087 - TUITION; FLYING LESSONS

Unedited CRA Tags
118.5

Principal Issues: whether tuition for flying school is deductible as tuition

Position: yes, based on the particular facts

Reasons: 118.5(1)(a)(ii2)(B)

22 January 2002 Internal T.I. 2001-0111947 - AWARD RECEIVED ON TERMINATION RE-INSTATEMENT

Unedited CRA Tags
248(1)

Principal Issues: Can certain amounts received in a specific fact situation qualify as a receipt of a retiring allowance?

Position: The questions were referred to the TSO.

Reasons: This is a question of fact which must be addressed by the TSO. Furthermore, the fact situation was complex and inadequate information was provided in the submission.
January 22, 2002

22 January 2002 Internal T.I. 2001-0105567 - FTC & SBD - PATRONAGE DIVIDEND

Unedited CRA Tags
125(1) 135(7) 126(1)

Principal Issues: 1. Can taxpayer characterize an amount of tax withheld from a foreign source patronage dividend as being part of cost of goods purchased so as not to reduce the Small Business Deduction claimed?

Position: 1. Question of fact

Reasons: 1. The Act provides two alternatives for dealing with the amount of foreign tax withheld, either a deduction can be claimed under ss. 20(12) or the FTC under s. 126 can be claimed. If the deduction is chosen, it must be against the business or property income to which the foreign source income relates; provided the foreign source income (patronage dividend) is active business income it may either: (i) reduce the price of goods purchased (if it represents a discount in the price of the product purchased) and the effect of 20(12) would be to increase cost of goods; or (ii) the amount received, net of taxes, would be added to income thereby also reducing the amount eligible for the small business deduction.
January 22, 2002

22 January 2002 Internal T.I. 2001-0100537 F - ENTENTE TEMPORAIRE PENSION ALIMENTAIRE

Unedited CRA Tags
56.1(3) 56.1(4)A)

Principales Questions:
Est-ce qu'une entente temporaire signée en XXXXXXXXXX et indiquant une modification au montant de pension alimentaire et à la garde d'un des enfants peut avoir une date d'exécution ou si l'entente antérieure est toujours en vigueur?

Position Adoptée:
L'entente temporaire a une date d'exécution

21 January 2002 Internal T.I. 2001-0113757 - PArt X11.6 Tax and Resource Allowance

Unedited CRA Tags
211.91

Principal Issues: Whether Part XII.6 tax deductible in computing resource profits.

Position: Yes.

Reasons: Part XII.6 tax would be considered to be an expense described in paragraph 1204(1.1)(a).

18 January 2002 Internal T.I. 2001-0114117 - MEANING OF SPOUSE-SEPARATION

Unedited CRA Tags
252(4)(a) 118(1)(a)

Principal Issues:
Prior to 2001, if a couple in a common-law relationship suffers a breakdown in their relationship for a period of less than 90 days, does the supporting "spouse" have to include the other "spouse's" net income earned during the period of separation when calculating the spousal amount pursuant to paragraph 118(1)(a)?

Position:
No.

Reasons:
The postamble to paragraph 252(4)(a) is only applicable in interpreting that paragraph. In other words, it is only used to determine if, for purposes of the Act, two people are deemed to be married. Once an individual's status as a "married" or "single person" has been established, then their entitlement to personal tax credits, child tax benefits, etc. can be determined.

9 January 2002 Internal T.I. 2001-0114917 - STATUS INDIAN

Unedited CRA Tags
60(e) 3 4(2) 111(8)

Principal Issues: Whether a status Indian can claim a paragraph 60(e) deduction against other sources of taxable income, and, if so, whether it can increase a non-capital loss.

Position: No

Reasons: As per sections 3, 4 and 118.7 of the Act.

8 January 2002 Internal T.I. 2001-0114767 - INDIAN BANDS AS MUN. AUTHORITIES

Unedited CRA Tags
149(1)(c)

Principal Issues: Summary of CCRA's position regarding whether an Indian band may be considered a municipality in Canada for purposes of section 149 of the Act.149(1)(c)

Position:

Reasons:

8 January 2002 Internal T.I. 2001-0097357 - Cost of property acquired from a NAL person

Unedited CRA Tags
53(1) 53(2) 69(1)(c)

Principal Issues: Computation of cost and ACB of certain shares acquired in a non-arm's length transaction where a promissory note issued as full consideration had a fair market value less than its principal amount.

Position: Cost is based on the amount paid by the taxpayer to acquire the shares. In this case it is the fair market value of the promissory note.

Reasons: The law.

3 January 2002 Internal T.I. 2001-0109287 - GST DEDUCTIBILITY

Unedited CRA Tags
9

Principal Issues: whether GST paid by employer when it supplies taxable benefits to employees is deductible

Position: yes

Reasons: general rules of section 9

21 December 2001 Internal T.I. 2001-0107837 - COMMISSIONS ASSIGNED TO CORPS.

Unedited CRA Tags
9(1)

Principal Issues: Whether commissions earned by mutual fund salespersons and managers can be transferred to their corporations given the decision of the Tax Court in the Wallsten and Lakeside Properties case.

Position: If salesperson or manager is legally, either contractually or legislatively, precluded from transferring or assigning commissions to corporation, then commissions must be reported by the individual. If there is no legal prohibition against such an assignment, then income can be reported by corporation if corporation is carrying on the business.

Reasons: Consistent with prior opinions, IT-189R2, and our comments at the 2001 CTF.

20 December 2001 Internal T.I. 2001-0114007 - EX GRATIA PAYMENT

Unedited CRA Tags
5

Principal Issues: Is the amount labelled "ex gratia payment" received by an employee from an employer a taxable amount.

Position: Question of fact.

Reasons: A payment from an employer is likely to be taxable in the hands of the employee recipient. However, there may be situation where the payment is non-taxable.

December 20, 2001

19 December 2001 Internal T.I. 2001-0097907 - SOLE PROPRIETORSHIP V. PARTNERSHIP

Unedited CRA Tags
103(1.1) 18(1)(h)

Principal Issues:
(1) Whether Taxpayer an employee, self-employed or carrying on business as a partnership.
(2) Whether certain expenses are deductible in computing income.

Position:
(1) Question of fact
(2) Yes, if not personal expenses.

Reasons:
(1) The facts of each specific situation will determine whether employee/employer relationship exists and whether there is a partnership.
(2) Expenses incurred to earn business income are deductible, net of any personal use.

19 December 2001 Internal T.I. 2001-0095517 - TRAINING ALLOWANCE - INDIAN ACT

Unedited CRA Tags
56(1)(n) 81(1)(a)

Principal Issues: Would training allowances received by a member of a First Nation from the First Nation and his trainer during his off-reserve on-the-job training be exempt from tax under paragraph 81(1)(a) of the Act?

Position: No.

Reasons: Unless the training is on the reserve or the training allowance is paid under a treaty or an agreement between a band and Her Majesty, training allowances are included in the recipient's income under paragraph 56(1)(n) of the Act. It would not qualify for exemption under paragraph 81(1)(a) of the Act.
December 19, 2001

14 December 2001 Internal T.I. 2001-0114320 F - CADEAUX ON RECOMPENSES

Unedited CRA Tags
6(1)a)

Principales Questions:
Clarifications concernant les nouvelles règles régissant les cadeaux ou récompenses accordés par les employeurs à leurs employés.
ARTICLE DE LA LOI: 6(1)a)
PUBLICATIONS DE RCI:
Retenues sur la paie: Cadeaux ou récompenses accordés par les employeurs à leurs employés

13 December 2001 Internal T.I. 2001-0092337 - STOCK BONUS PLAN AS AN EPB

Unedited CRA Tags
248(1) 7(1)

Principal Issues: Is the arrangement an EBP?

Position: Yes.

Reasons: The Plan is structured as an EBP. In particular, the shares provided to the employees under the plan are always acquired on the open market by the trustee

11 December 2001 Internal T.I. 2001-0114067 - NEW POLICY ON GIFTS & AWARDS

Unedited CRA Tags
6(1)(a)

Principal Issues: 1. Whether new policy on gifts and awards applies to gifts and awards given by closely held corporations to their shareholders. 2. Whether there are any other considerations with respect to the application of the new policy.

Position: 1. Policy does not apply to gifts and awards given to shareholders of closely held corporations.
2. Policy does not apply where gifts or awards are given as a form of extra remuneration, or given in lieu of taxable remuneration or benefits.

Reasons: 1. Only applies in employment situations, and not individuals receiving items in their capacity as shareholders.
2. Overall policy on nontaxable privileges in paragraph 2 of IT-470R.

5 December 2001 Internal T.I. 2001-0089247 F - CDC - Immobilisation Admissible

Unedited CRA Tags
14(1)(b) 89(1)

Principales Questions:
Est-ce que la méthode de calcul du CDC a été changée en ce qui concerne la disposition d'une immobilisation admissible pour les années d'imposition se terminant après le 27 février 2000? /Whether the method for computing the capital dividend account of a corporation with respect to the disposition of an eligible capital property has been changed in respect of taxation years that end after February 27, 2000.

Position Adoptée:
Oui. Seulement un montant inclus dans le revenu d'une société en vertu de l'alinéa 14(1)b) à la fin d'une année d'imposition qui se termine après le 27 février 2000 peut être pris en compte dans le calcul du CDC. / Yes. Only an amount included in a corporation's income pursuant to paragraph 14(1)b) at the end of a taxation year that ends after February 27, 2000 is taken into account in the computation of the corporation's capital dividend account.

4 December 2001 Internal T.I. 2001-0101757 - WHEN IS AGREEMENT ENTERED

Unedited CRA Tags
7(1) 110(1)(d)

Principal Issues: What date was an agreement established for the purposes of an assessment under subsections 7(1) and 110(1)?

Position: We provided comments of a general nature to the TSO.

Reasons: The application of Section 7 and subsection 110(1) is a question of fact which must be addressed by the TSO.

3 December 2001 Internal T.I. 2001-0104677 F - VERSEMENT POUR REMBOURSER L'IMPOT

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

Principales Questions:
Est-ce que les montants versés annuellement, selon les accords écrits soumis avec la demande, au conjoint ou à l'ex-conjoint pour rembourser l'impôt sur le revenu que le conjoint ou l'ex-conjoint doit payer à l'égard de la pension alimentaire reçue et imposable sont imposables pour ce conjoint ou ex-conjoint en vertu de l'alinéa 56(1)b) de la Loi et déductibles pour le payeur en vertu de l'alinéa 60b) de la Loi?

Position Adoptée:
Oui

21 November 2001 Internal T.I. 2001-0106087 - MOTOR VEHICLE ALLOWANCES

Unedited CRA Tags
18(1)(r) 6(1)(b)

Principal Issues: An employer is contemplating the payment of an allowance to its employees based on the number of kilometres driven in respect of the use of pick-up trucks owned by the employees. The allowance will exceed the rate per kilometre set out in section 7306 of the Income Tax Regulations. Will paragraph 18(1)(r) of the Act apply to restrict the employer's deduction in respect of the allowance?

Position: Question of fact.

Reasons: A pick-up truck may or may not be an automobile.

November 21, 2001

10 July 2001 Internal T.I. 2000-0034987 - Class. of Pipelines and Appendage Equip.

Unedited CRA Tags
11.04 (2) class 1 class 8 class 41

Principal Issues: (a) Which Classes in Schedule II of the Regulations pipelines should be included into? (b) Which Classes in Schedule II of the Regulations pipeline appendage equipment should be included into?

Position: (a) Pipelines could be included in Class 1, 2, 8, 10 or 41 in Schedule II of the Regulations, depending on the facts of the circumstance. (b) Pipeline appendage equipment could be included in Class 1, 2, 8, 10 or 41 in Schedule II of the Regulations, depending on the facts of the circumstance. In case of linefill, it would be excluded from property in any Class of Schedule II of the Regulations.

Reasons:
(a) The reference to pipelines in the Act may refer to the pipelines of general use (e.g., see paragraph (l) in Class 1 of Schedule II under the Regulations) and the reference to gas or oil pipelines may includes flow lines, gathering lines, main or trunk lines, and transmission lines. Therefore, a pipeline could be included as asset of Class 1, 2, 8, 10 or 41, depending on the facts of the circumstance. If a pipeline is considered as "gas or oil well equipment", it would be included in Class 10(j) or Class 41(b), as the case may be. If a pipeline is considered as primarily used in "Canadian field processing" (i.e., assuming it would otherwise be included in Class 8), it would be included in Class 41(c) or (d). A pipeline which is not considered as "gas or oil well equipment" nor primarily used in "Canadian field processing", would be included in Class 1(l) or Class 2(b), as the case may be, provided the main source of supply for the pipeline would not be exhausted within 15 years. Otherwise, such pipeline would be included in Class 8(i).

14 November 2000 Internal T.I. 2000-005117 - INVESTMENT ALLOWANCE COMBINED SURPLUS

Unedited CRA Tags
181.2(4)

Principal Issues: A corporation invests $50 million in a foreign subsidiary. The subsidiary records the contribution from the corporation as contributed surplus in the shareholder equity section of its balance sheet. The corporation records the amount on its balance sheet as an investment in subsidiary for the full amount. May the corporation claim an investment allowance for the full amount of the investment in the subsidiary?

Position: It may claim an investment allowance for the full amount of the investment.

Reasons: Subsection 181.2(4) provides for an investment allowance for shares held in another corporation. No investment allowance is expressed in respect of contributed surplus. Subsection 181(3) provides that the relevant amounts to be used in assessing investment allowance is the carrying value of that amount on the balance sheet. In this case, it must be determined whether the balance sheet amount "investment in subsidiary" represents a pooled account, being the aggregate of the value of shares with the value of contributed surplus, or whether it represents only the value of shares, with the parent's contributed surplus being a factor attributed to the share value under GAAP. In the former case, the CCRA's position would have been that the underlying balances would have to be examined, with only the value of shares included in the investment allowance. However, our understanding is that, under GAAP, the full amount of the investment account reflects the value attributed to the shares. Although it is a fine distinction, we view this as a different situation from that where GAAP characterizes an amount as something different than what it is law for e.g., where GAAP characterizes earned income as unearned income or where GAAP characterizes an asset that is leased as an asset that is owned. In this case, GAAP is not, as we understand it, recharacterizing contributed surplus as shares; rather, it attributes the value of the parent's investment to its shares.