Income Tax Severed Letters - 2002-05-10

Principal Issues:
Can an individual withdraw an amount under the Home Buyers' Plan in a taxation year and, in that same taxation year, designate an amount as a repayment of an eligible amount under subsection 146.01(3) of the Act?

Position: Yes.

Reasons:
No provision in the Act that disallows a repayment in the same year as there is a withdrawal under the Home Buyers' Plan.

Principal Issues: The application of section 160, including subsection 160(4), where at the time of the transfer of property the common-law partner relationship has ceased and the property is transferred pursuant to a decree, order, judgment or written separation agreement.

Position: In this situation, it section 160 and subsection 160(4) would not apply unless the common-law partner relationship resumes.

Reasons: The application of the law based on the specific facts.

Principal Issues: Does there need to be a link or interconnection between the SR&ED expenditures and the taxpayer's business in order to meet the term "SR&ED related to a business"?

Position: yes

Reasons: 37(1)(a)(i) states, "related to the business of the taxpayer" - this link can be met if there is an interconnection between the SR&ED and the type of business of the t/p so that, if the results of the SR&ED lead to commercial exploitation, the direct use of these results will benefit or enhance the taxpayer's business, such that the requirement in paragraph 37(8)(b) of the Act could be met.

Principal Issues: Employer's obligation to complete forms T2200 and TL2

Position: General comments

Reasons: Inadequate information about expenses

XXXXXXXXXX 2002-012544
S. Parnanzone
May 31, 2002

Principal Issues:
1. Can 85(2) apply where a partnership transfers assets to more than one corporation
2. Can property be apportioned per 85(1)(e)(i) where a partnership rolls property to 2 corporations
3. Will 85(3) apply?

PositionS:
1. Yes
2. Generally no
3. No

Reasons:
1. Wording of 85(2)
2. Wording of 85(1)(e)(i), however it may be possible to demonstrate reasons for apportioning
3. 85(3)(c) will not apply

Principal Issues:
1. Would a lawyer's newly incorporated professional corporation be eligible for the small business deduction?
2. Would the lawyers' management corporation be eligible for the small business deduction?
3. Would any of the corporations be associated and have to share the "business limit" for ``the year?

Position:
1. Yes, as long as the corporation is not carrying on a "personal services business", as defined in subsection 125(7) of the Act.
2. Not enough information to comment.
3. Subject to the possible application of subsection 256(2.1), they do not appear to be associated and therefore would not have to share the business limit.

Reasons:
1. If it carried on a personal services business, income earned would not be from an active business. Consequently it would not have any "specified partnership income" and it would not have any income subject to the small business deduction in subsection 125(1) of the Act.
2. Insufficient information to provide comments, other than our comments with respect to issue 3.
3. Reading of sections 125 and 256 of the Act.

Principal Issues:
Whether paragraph 160(1) of the Act is applicable to a spousal RRSP contribution?

Position: Yes

Principal Issues: meaning of "immediately prior to appointment or employment" found in 250(1)(c)

Position: refers to hiring rather than actual commencement of employment

Reasons: previous position taken in files 9507485 and 2000-001328

Principal Issues: Whether a waiver is required for not withholding tax under Part XIII of the Act where the amount on which Part XIII tax is otherwise exigible can reasonably be attributed to a permanent establishment in Canada through which a non-resident person carries on business?

Position: Yes.

Reasons: Subsection 805(2) of the Income Tax Regulations is there for a purpose and the fact that the Minister may permit non-withholding where he is satisfied that the amount is not taxable under Part XIII of the Act implies that a waiver is required.

Principal Issues:
1. Are "XXXXXXXXXX prizes" given to students to reward superior performance taxable? If so, is there a minimum dollar amount with respect to the issuance of T4As?
2. XXXXXXXXXX . Is this an eligible tuition expense?
3. Can the university withhold the T2202A form from a student if the student owes a balance to the University?

Position TAKEN:
1. Yes. Subject to $500 minimum.
2. Question of fact.
3. Possibly. However, in our view, this would be an inappropriate use of Canada's income tax system.

Reasons:
1. Included in paragraph 56(1)(n).
2. It depends on whether the expense is included in the students' tuition (eligible) or whether it is an ancillary fee (not eligible).
3. There is no requirement in the Act or Regulations to issue the T2202A. However, in our view, withholding a prescribed form from a taxpayer thereby preventing the taxpayer from claiming all the deductions to which he or she is entitled is not an appropriate use of Canada's income tax system.

Principal Issues:
Even though the CCRA has concluded that the "cost amount" of a Canadian resource property is nil, could we ignore this position in the determination of whether units of a mutual fund trust would constitute foreign property?

Position: No.

Reasons:
The determination of whether the units of a mutual fund trust would constitute foreign property depends on whether the cost amount of its foreign property exceeds 30% of the cost amount of all of its property. Without a legislative change, we can not justify using a cost amount of nil for several provisions of the Act and using another cost amount for the purposes of subsection 5000(1) of the Regulations. Our response will be copied to Finance for its consideration from a policy perspective.

Principal Issues:
Whether or not shares qualify as debts owing to a corporation as described in subparagraph 130.1(6)(f)(i)

Position: No

Reasons: A share is not a debt

Principal Issues: 1. Whether the interest on a loan made to a partnership by a partner is deductible under 20(1)(c)?
2. Whether the interest on the loan is business or property income for the lender?

Position: 1. Yes, if conditions in 20(1)(c) are satisfied.
2. Question of fact. Based on the lending activities of the lender.

Reasons: 1. 20(1)(c), 96(1) and previous positions.
2. Previous positions.

Principal Issues: Deductions available on optional returns under 70(2), 104(23)(d) & 150(4)
1. Based on comments in T4011 which permit carrying charges, contributions to RRSP, RPP, union dues and other employment expenses on the return to which the income relates, why are ABIL, exploration & development, moving expenses not similarly permitted to be claimed on any of the optional returns?
2. Why is the caregiver tax credit under 118(1)(c.1) not allowed on optional returns when it is provided for in the legislation?

Position: 1. An RRSP deduction, like deductions for an ABIL, exploration & development, moving expenses, can only be claimed on the final return. While certain deductions in computing net income, such as carrying charges, contributions to an RPP, union dues and other employment expenses, are deductible on the optional return which includes the income to which the deduction can reasonably be considered to be wholly applicable, such deductions would normally be wholly applicable to the income reported on the final return.
2. 118(1)(c.1) credit is allowed on both final and optional returns.

Reasons: 1. As stated in 4(1), the deductions in computing net income, such as carrying charges, contributions to RPP, union dues and other employment expenses, are deductible in computing the income to which the amounts can reasonably be considered as wholly applicable to that source subject to subsection 4(2). Moving expenses and contributions to RRSPs are not deductible on the optional return because of 4(2). An ABIL, as a type of capital loss, cannot be claimed on the optional return. Exploration and development expenses are added to a taxpayer's pools and there is no provision to transfer the pools to the optional returns.
2. Position was likely added to 1989 version of T4011 before the legislation on 118(1)(c.1) was finalized

Principal Issues: Is a French société en nom collectif ("SNC") that has made an irrevocable election to be taxed as a corporation in France considered a resident of France for the purposes of the Canada-France Income Tax Convention ?

Position: We are now reconsidering this issue.

Reasons: N/A

Principal Issues:
Is the reference to "income" in paragraph 149(1)(d.5) a reference to "net income"?

Position: Yes

Reasons: Previous position which is supported at law

Principales Questions: Application de la présomption prévue au sous-alinéa 110.6(15)a)(i) de la Loi de l'impôt sur le revenu à l'égard d'une disposition présumée en vertu du sous-alinéa 104(4)a)(i).

Position Adoptée: La présomption prévue au sous-alinéa 110.6(15)a)(i) ne s'applique pas à l'égard d'une disposition visée au sous-alinéa 104(4)a)(i).