Income Tax Severed Letters - 2002-03-29

Principal Issues: Whether payments made by "Persons with Developmental Disabilities Regional Board" (PDD") of Alberta will be disqualified from the exemption in paragraph 81(1)(h) of the Income Tax Act if: (i) the criteria for qualifying for PDD payments do not include an explicit economic test or (ii) amounts are received by the individual under the Assured Income for Severely Handicapped ("AISH") program in Alberta.

Position: Questions of fact. However, based on the information provided, the PDD payments likely qualify for the paragraph 81(1)(h) exemption.

Reasons: (i) It appears that eligibility for PDD payments includes an income test.
(ii) Based on the test used to determine eligibility for AISH, i.e., whether an individual is unemployable, we are of the view that AISH payments would not be considered similar to a family allowance payment under the former Family Allowance Act.

Principal Issues: Whether a certain portion of medical expenses incurred within January 1, 2001 to May 31, 2002 may be deducted by a taxpayer in the 2001 and 2002 taxation years.

Position: Yes, provided that the medical expenses being claimed consist of those that are paid within a period of 12 months ending in the particular year and that have not been deducted in a previous year.

Reasons: The words of B in the formula described in subsection 118.2(1).

Principal Issues: Determine tax consequences to employees when they transfer, under their collective agreement, one week of vacation to a reserve fund, to be drawn on prior to retirement.

Position: Question of Fact

Reasons: More information is required on the manner in which the reserve fund will be set up and operated.

Principal Issues: In a situation where shares that are capital property are bought with US funds and are sold for US proceeds of disposition, is the capital gain from the shares computed by applying the average rate of exchange prevailing in the year of disposition to the gain computed in US dollars?

Position: No

Reasons: In Gaynor (91 DTC 5288) the FCA indicated that the capital gain is computed using the cost of the securities expressed in Canadian currency at the exchange rate prevailing at the time of their acquisition and the proceeds of disposition of the same securities expressed in Canadian currency at the rate of exchange prevailing at the time of the disposition.

Principal Issues: Whether financial planners can transfer mutual fund commissions to their corporations

Position: Question of fact. If corporation is carrying on mutual fund sales business, and it is not precluded, either by statute or contractually, from doing so, then commissions could be reported by corporation.

Reasons: Consistent with prior opinions

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.

PRINCIPAL ISSUE:

Tax implication of withdrawing pension from UNJSPF and to invest the amount in an RRSP?

PositionS:

Principales Questions:
Les alinéas 146(4)a) ou 146(10)b) de la Loi de l'impôt sur le revenu (la "Loi") peuvent-ils s'appliquer lorsque des frais d'administration sont chargés à une fiducie régie par un régime enregistré d'épargne-retraite (REÉR), que ces frais ne sont pas payés et que, de ce fait, la fiducie encourt un découvert de banque?

Position Adoptée: Oui

Principal Issues: Whether upon becoming non-resident, there is a deemed disposition of real property held by an individual (other than a trust) who has been resident in Canada for less than 60 months

Position: No deemed disposition

Reasons: Application of 128.1(4)(b)(iv)

Principales Questions:

Est-ce que la déduction en vertu de 146(7) est limitée au revenu déterminé selon les alinéas 3 a) et b) de la Loi? Est-ce qu'un montant non déduit peut être reporté à une autre année?

Position Adoptée: Oui. Non.

Principal Issues: The appropriate treatment under the Act of certain amounts which may be forwarded by a municipal natural gas utility to its customers.

Position: Unable to provide the technical interpretation requested.

Reasons: Confirmation as to income tax consequences of proposed transactions can only be provided in the context of a request for an advance income tax ruling.

Principal Issues: Whether there is any provision in the Canada-United States Income Tax Convention to deal with a situation where U.S. estate tax is imposed upon a distribution of property by a qualified domestic trust to the spouse?

Position: Yes.

Reasons: See subparagraph 3(g) of Article XXVI of the Convention.

Principal Issues: Whether Canadian parent corporation performing "executive, managerial or administrative" services for U.S. subsidiary corporation that is the general partner of a US partnership in respect of U.S. subsidiary's management responsibilities would fall within paragraph 4, Article VII of the Canada-U.S. Tax Convention?

Position: Question of fact, likely no.

Reasons: Decision must be made on a case by case basis.

Principal Issues:

(1) Whether a private corporation can elect to pay a dividend as a tax free capital dividend, in the year the corporation has disposed of goodwill in respect of a business, equal to the amount included to the corporation's capital dividend account (CDA) related to the disposition in that year ?

(2) Whether the CCRA intends to apply Part III of the Act to 83(2) elections made based on a CDA computed erroneously in accordance with the rules existing prior to the introduction of (c.1)(i) and (c.2)(i) of the definition of CDA under 89(1) (the old rules), in taxations years ending between February 27, 2000 and December 21, 2000 ?

Position:
(1) No

(2) Relief will be determined on a case by case basis by the Technical Applications and Valuations Division of the Audit Directorate of the CCRA with respect to capital dividends paid on the basis of the old rules during taxation years ending after February 27, 2000.

Reasons:
(1) The interaction of 83(2) and (c.1)(i) and (c.2)(i) of the definition of CDA under 89(1) is such that the amount included to the CDA in a particular year related to the disposition of goodwill in respect of a business can be paid out as a capital dividend only in a taxation year subsequent to the taxation year of the disposition.

(2) The decision is this administrative division's responsibility.