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:
CCPC stock options exercised by employee after CCPC purchased by US publicly traded firm & CCPC options were exchanged for options in US co; Employee now wishing to dispose of US co shares and wants to know if section 44.1 capital gains deferral is available

Position: No

Reasons: US co shares are not eligible small business corporation shares and ss.44.1 (6) & ss.44.1 (7) are only available for shares not options.

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.

Principales Questions:
Comment fonctionne, de manière générale, le paragraphe 6(16) de la Loi ?

Position Adoptée:
Aucune

Principal Issues:
1. For purposes of subsection 7(11), is the specified value based on the market value of the shares on a subsequent date when the option is re-priced?

Position:
No

Reasons:
The provision is clear that the fair market value at the date of granting the option must be used.

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:
Will the attribution rules in subsection 146(8.3) apply to withdrawals from a spousal RRSP?

Position: Yes.

Reasons:
Where amounts are withdrawn from a spousal RRSP, the attribution rules will apply if the annuitant's spouse contributed to a spousal RRSP in the year of withdrawal or in the previous two years.

Principal Issues:
Can amounts withdrawn from an RRSP to help the annuitant's mother be re-contributed back into the RRSP on compassionate grounds?

Position: No.

Reasons:
Other than the Home Buyers' Plan or the Lifelong Learning Plan, there is no provision in the Act that would allow for the re-contribution of amounts previously withdrawn from an RRSP.

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: Discussion of current issues on new section 86.1 (foreign spin-offs).

Position: See below.

Reasons: N/A

Principal Issues: Why did we revise IT-221R2?

Position: Several reasons, including removing the "2-year presumption", adding comments on subsection 250(5), and reporting our change in position on the "permanent home" test in the tax treaty residence tie-breaker rules.

Reasons: N/A

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).