Income Tax Severed Letters - 2002-06-21

Ruling

2002 Ruling 2002-0140283 - RETIRING ALLOWANCE

Unedited CRA Tags
56(1) 60(j.1) 248(1)

Principal Issues: Are payments retiring allowances and can they be transferred to RRSPs?

Position: Yes.

Reasons: Complies with the applicable provisions

2002 Ruling 2002-0130983 - FILM TAX CREDIT-UK TREATY

Unedited CRA Tags
125.4

Principal Issues: (1) Whether there is a disposition of a film in a UK treaty co-production arrangement as a result of a particular licence arrangement. (2) Whether the investor rules in ss. 125.4(4) apply as a result of the involvement of the UK Co-Producer and UK Film Partnership.

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

Reasons: (1) Legal and beneficial ownership of master negative and rights (including copyright) retained. (2) Consistent with previous positions; investors will not claim a deduction in Canada.

2002 Ruling 2001-0112133 - Article XIII of Canada-XXXXXXXXXX Convention

Unedited CRA Tags
Art. XIII 248(1)("TCP") Reg. 1100(14)

Principal Issues: Whether a XXXXXXXXXX is a "property, other than rental property, in which the business of the company ... is carried on" for purposes of paragraph 3 of Article XIII of the Canada-XXXXXXXXXX Income Tax Convention.

Position: Yes.

Reasons: The XXXXXXXXXX property can be said to be property "in which the business is carried on": see our previous rulings and interpretations. The XXXXXXXXXX property is not a rental property.

2002 Ruling 2002-0143473 - STRUCTURED SETTLEMENT

Unedited CRA Tags
56(1)(d) 75(2) 248(25)

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 Issues

2002 Ruling 2002-0132163 - Characterization of Foreign Entity

Unedited CRA Tags
248(1)

Position:
1- yes
2- no
3- no
4- no

2002 Ruling 2001-0112913 - INTEREST DEDUCTIBILITY RETURN PUC

Unedited CRA Tags
20(1)(c) 80(1) 84(4) 20.2

Principal Issues: Interest deductibility - Current use of borrowed money.

Position: Opinion on the adjusted equity test in proposed section 20.2

Reasons: In this case, funds from a bank loan were used to make a loan to a corporate shareholder and a positive spread was earned. On the reduction of the paid-up capital, which will be paid by settling the shareholder loan, the source of income will disappear. However, it can reasonably be considered that the current use of the loan is to reduce capital, which falls within the proposed legislation in respect of using borrowed money to make corporate distributions and satisfies the adjusted equity test in proposed section 20.2.

2002 Ruling 2002-0132453 - Storage of XXXXXXXXXX - Carrying on business

Unedited CRA Tags
3 115 253

Principal Issues: Whether leasing an XXXXXXXXXX storage facility in Canada from an arm's length person can constitute "carrying on business in Canada".

Position: Generally, no, as long as company isn't in the business of storing XXXXXXXXXX itself.

Reasons: As long as there is no agency relationship, and no facts suggesting that the non-resident's true business is the storage of XXXXXXXXXX , the mere rental of a storage facility will generally not be sufficient to constitute carrying on business in Canada.

2002 Ruling 2001-0114863 - PARTNERSHIP LIFE INSURANCE

Unedited CRA Tags
53(1)(e)(iii) 89(1)(b) 103(1)

Principal Issues:

1) Where a partnership acquires life insurance on the lives of its principals, whether upon the death of a principal the insurance proceeds, net of the adjusted cost basis of the policy, received by the partnership and paid to the partner, which is a professional corporation wholly-owned by the principal, would be added to that corporation's CDA by virtue of subparagraph (d)(ii) of the definition in 89(1);
2) Whether the insurance proceeds, net of the adjusted cost basis of the policy, would be added to the adjusted cost base of the partnership interest owned by the deceased principal by virtue of 53(1)(e)(iii);
3) Whether 103(1) and 103(1.1) would apply to allocate a portion of the life insurance proceeds to each partner in these circumstances.

Position:
1) Yes;
2) Yes;
3) No

Reasons:
Legislation

2002 Ruling 2002-0135143 - REPLACEMENT PROPERTY DAMAGES PAYMENT

Unedited CRA Tags
44(1) 13(4)

Principal Issues:
(1) Whether damages received for the unlawful cancellation of a forest licence, the total of which includes cash already received and a new forest licence to be issued, is proceeds of disposition of the original licence that is receivable in the taxation year ended in which the new licence is issued.
(2) Whether in the taxation year ended in which the new licence is issued, subsection 44(1) of the Act will apply to calculate the gain from the disposition of the original licence and capital cost for the acquisition of the new licence, on the basis that the original licence is considered a former property of the company and the new licence is considered a replacement property for the original licence.

Position:
(1) Yes.
(2) Yes.

Reasons:
(1) The settlement agreement, and court order sanctioning the settlement agreement, both describe the damage payments as "compensation for property unlawfully taken". Paragraph (b) of the definition of proceeds of disposition in both section 54 and subsection 13(21), includes "compensation for property unlawfully taken". Section 44(2) of the Act deems the proceeds of disposition to be receivable in the taxation year that the taxpayer has agreed to an amount as full compensation, and therefore, the gain is included in income in the year the new licence is issued.
(2) Given the facts of this case, it is reasonable to consider the new licence a replacement property for the old licence.

2002 Ruling 2001-0116133 - XXXXXXXXXX Storage-Carrying on Business in Canada

Unedited CRA Tags
253 115 181.4

Principal Issues: Whether leasing an XXXXXXXXXX storage facility in Canada from an arm's length person can constitute "carrying on business in Canada".

Position: Generally, no, as long as company isn't in the business of storing XXXXXXXXXX itself.

Reasons: As long as there is no agency relationship, and no facts suggesting that the non-resident's true business is the storage of XXXXXXXXXX , the mere rental of a storage facility will generally not be sufficient to constitute carrying on business in Canada.

2002 Ruling 2002-0139683 F - DISPOSITION MANDANT

Unedited CRA Tags
248(1) 181.2(3)

Principales Questions:
Est-ce qu'il y aura disposition au sens de la définition du terme " disposition " au paragraphe 248(1) de la Loi suite à la vente d'un immeuble à une société au moyen d'un acte de vente (contrat apparent) bien qu'une convention (contre-lettre) existe entre les parties afin de rendre nulle la transaction de vente et de considérer ladite société seulement comme un mandataire des copropriétaires actuels ?

Est-ce que l'hypothèque contractée par la société à titre de mandataire des copropriétaires, dans le cadre de la convention, constitue une dette de la société et doit être considérée aux fins du calcul de l'impôt des grandes sociétés à la partie I.3 de la Loi ?

Position Adoptée:
Il n'y aura pas de disposition au sens du terme " disposition " au paragraphe 248(1) de la Loi dans la situation présentée. Par conséquent, en ce qui concerne les copropriétaires, il n'y aura pas de gain en capital ni de récupération d'allocation du coût en capital à inclure dans leur revenu lors de la transaction entre eux et la société. De plus, pour ce qui est de la société, il n'y aura pas d'impôt des grandes sociétés à la partie I.3 de la Loi.

2002 Ruling 2002-0118423 - damages settlement

Unedited CRA Tags
9(1)

Principal Issues: Whether an award of "damages" is a non-taxable receipt, business income or a combination of different amounts.

Position: In this particular case, a combination of both.

Reasons: The Corporation recovered an amount in respect of misappropriated business income, an amount as damages and punitive damages and a reimbursement of legal and professional fees

2002 Ruling 2002-0140273 F - DON DEDUCTIBLE DU REVENU D'ENTREPRISE

Unedited CRA Tags
9(1) 18(1)a) 18(1)b)

Principales Questions:
La partie d'une cotisation annuelle au conseil des médecins, dentistes et pharmaciens d'un hôpital, qui sera versée à la fondation de l'hôpital, peut-elle être déduite dans le calcul du revenu d'entreprise de profession du médecin?

Position Adoptée: Oui

2002 Ruling 2002-0120233 - HEALTH & WELFARE TRUST

Unedited CRA Tags
18(9)

Principal Issues:
Whether the proposed transactions will affect the status of the existing health and welfare trust as a "health and welfare trust" within the meaning thereof in IT-85R2.

Position:
No, provided the proposed transactions are completed as described.

Reasons:
The amended health and welfare trust will still meet the requirements in IT-85R2.

2001 Ruling 2001-0089903 - Wind-up of NRO Financing Structure

Unedited CRA Tags
133 84(1) 18(4)

Principal Issues:
Will certain transactions undertaken to unwind an NRO structure permit debts owed to the NRO to be transferred to a limited partnership and interest on those debts to continue to be deductible by Canco?

Position:
Yes. The transactions have the effect of winding up the NRO into the limited partnership and the interest on the debts involved will continue to be deductible to Canco (subject to the thin capitalization rules).

Reasons: See Issue Sheet.

Ministerial Correspondence

10 July 2002 Ministerial Correspondence 2002-0144944 - EMPLOYMENT INCOME GUIDE

Unedited CRA Tags
81(1)(a)

Principal Issues: Indian Act Exemption - Guidelines

Position: General Comments

Reasons: General Comments

8 July 2002 Ministerial Correspondence 2002-0122944 F - CDC HYPOTHEQUE MOBILIERE

Unedited CRA Tags
89(1)

Principales Questions: Est-ce que le produit d'une police d'assurance vie versé au créditeur en raison d'une hypothèque sur cette police peut être inclus dans le CDC du débiteur?

Position Adoptée: Oui

25 June 2002 Ministerial Correspondence 2002-0136714 - OPTION BENEFIT

Unedited CRA Tags
7(1)

Principal Issues: The writer wrote on behalf of constituents with respect to the timing and computation of benefits under paragraph 7(1)(a) of the Act where the value of the shares under the option decreases.

Position: Provided general information and noted that the issue is under review at Finance.

Reasons: Issue is still under review.

Technical Interpretation - External

5 August 2002 External T.I. 2001-0098375 - RETIRING ALLOWANCE-YEARS OF SERVICE

Unedited CRA Tags
60(j.1) 251

Principal Issues:
Are various employers, including DIAND, which provided education at a school on a reserve, related for purposes of determining amount of retiring allowance eligible for rollover?

Position: Question of fact.

Reasons:
Must first determine if the employers are related pursuant to section 251 of the Act. If not, then 60(j.1)(iv) and (v) must be considered.

18 July 2002 External T.I. 2002-0140985 - FARM CORPORATION AND LCT

Unedited CRA Tags
181(3) 28(1)

Principal Issues:
Whether a farm corporation that has elected to use the cash method of computing income for Part I purposes should use GAAP based financial statements in calculating its capital base for Part I.3 purposes.

Position:
Subsection 181(3) provides that a corporation's balance sheet prepared in accordance with GAAP is to be used in determining the carrying value of the corporation's assets or any other amount for Part I.3 purposes.

Reasons: Legislation.

16 July 2002 External T.I. 2002-0140785 - CLERGY RESIDENCE DEDUCTION

Unedited CRA Tags
8(1)(c)

Principal Issues:
Whether a clergyperson who rents out a few rooms to individuals should reduce his 8(1)(c) claim?

16 July 2002 External T.I. 2002-0143695 - ATTRIBUTION LOANS FOR VALUE

Unedited CRA Tags
74.5(2)

Principal Issues: Whether subsection 74.5(2) can apply to a demand note

Position: Yes

Reasons: A fixed term is not one of the criteria set out in 74.5(2)

16 July 2002 External T.I. 2002-0149015 - LOCATION AVEC OPTION D'ACHAT

Unedited CRA Tags
9(1)

Principales Questions: Quel est le traitement fiscal découlant d'un contrat?

Position Adoptée:
La question de savoir si un contrat est une convention de bail ou de crédit-bail ou un contrat d'achat doit être résolue sur la base des rapports juridiques créés par les termes d'une entente

16 July 2002 External T.I. 2002-0142475 - INTEREST DEDUCTIBILITY INCOME TRUST

Unedited CRA Tags
20(1)(c)

Principal Issues:
Individual borrows money to invest in an income trust. Trust makes a distribution to individual which includes a return of capital. The return of capital is used for personal use. Is the interest related to the return of capital still deductible under paragraph 20(1)(c)?

15 July 2002 External T.I. 2002-0149635 - CHARITABLE GIFT ANNUITY

Unedited CRA Tags
118.1

Principal Issues:
Taxpayer requested an advance income tax ruling that the administrative positions in IT-111R2 would apply to a proposed transaction involving a charitable gift annuity.

Position: Unable to rule.

Reasons:
Advance income tax rulings are given on our interpretation of how Canadian income tax laws apply to specific proposed transactions. We do not rule on the application of administrative practices.

12 July 2002 External T.I. 2002-0137665 - SPECIAL WORK SITE REMOTE

Unedited CRA Tags
6(6)

Principal Issues:
Whether a specific location is a special work site or remote work location.

Position TAKEN:
May be either. General information provided.

Reasons:
Question of fact.

12 July 2002 External T.I. 2002-0151035 - Article 21 of Poland Treaty

Unedited CRA Tags
Article 21 Article 23

Principal Issues: Whether paragraph 2 of Article 23 of Poland Treaty is taken into account in determining whether or not income is taxable in Poland for the purposes of the reduced rate in paragraph 2 of Article 21.

Position: No.

Reasons: Law

11 July 2002 External T.I. 2001-0114045 - 75(2) and an Alter Ego Trust

Unedited CRA Tags
75(2)

Principal Issues: 1. Does 75(2) apply to all alter ego trusts?
2. Who reports the deemed gain or loss on the death of the settlor of an alter ego trust to which 75(2) applies?
3. When 75(2) applies to an alter ego trust, what are the trusts reporting requirements?

Position: 1. No 2. The trust. 3. The conditions for filing a T3 are set out on page 10 of the T3 Guide. An affirmative answer to question 1 on schedule 9 will identify a T3 information slip which includes an amount that is attributed to the settlor-beneficiary.

Reasons: 1. 72(2) will only apply where the settlor is a capital beneficiary or the trustee has a power of capital encroachment; however, 104(13) will normally require all amounts not attributed under 75(2) to be included in the settlor's income.
2. The deemed disposition occurs after the death of the settlor such that 75(2) doesn't apply and there is no practical reason to make the gain payable to the residual beneficiary since 104(6) denies the trust a deduction in respect of any such amount that is payable to the residual beneficiary.
3. A T3 will normally be required even if the income is attributed to the settlor. The instructions to schedule 9 require a note identifying the amounts attributed to the settlor.

11 July 2002 External T.I. 2002-0126795 F - RESSOURCES INTERMEDIAIRES REVENU EX

Unedited CRA Tags
8(1)(h)

Position Adoptée:
Certains montants reçus par une ressource intermédiaire pourraient être exclus du revenu en vertu de l'alinéa 81(1)h) de la Loi.
RAISON POUR POSITION ADOPTÉE:

11 July 2002 External T.I. 2002-0141785 - CHILD CARE EXP. BENEFITS

Unedited CRA Tags
6(1)(a)

Principal Issues: Whether the reimbursement of child care expenses for a director of a union or other non-profit organization is considered a taxable employment benefit under paragraph 6(1)(a) of the Income Tax Act.

Position: Yes.

Reasons: Based on previous interpretations for other types of employees.

11 July 2002 External T.I. 2002-0131085 F - ASSURANCE INVALIDITE

Unedited CRA Tags
6(1)(f)

Position Adoptée: Aucune
RAISON POUR POSITION ADOPTÉE: Question de fait.

10 July 2002 External T.I. 2002-0147015 - CRCE - Easements

Unedited CRA Tags
1219(1)

Principal Issues: Whether the cost of acquiring easements would be included in CRCE under 1219(1)(c).

Position: Possibly.

Reasons: Easements are not precluded from inclusion in CRCE. It will depend on the terms of the easement agreement.

10 July 2002 External T.I. 2002-0147055 - Application of GAAR - Clarification

Unedited CRA Tags
245

Principal Issues: Potential application of GAAR - Situation similar to 1995 APFF Question 22.

Position: Question of fact and law.

Reasons: Need all facts.

10 July 2002 External T.I. 2002-0142545 - MORTGAGE INTEREST DEDUCTIBILITY

Unedited CRA Tags
54 20(1)(c)

Principal Issues:
Interest deductibility on money borrowed to acquire a rental property and a principal residence

9 July 2002 External T.I. 2002-0147985 F - ACTIONS PRIVILEGIEES CONVERTIBLES

Unedited CRA Tags
7(1.5) 7(1.1)

Position Adoptée: Non.
RAISON POUR POSITION ADOPTÉE:
Il y a acquisition pour les fins de l'alinéa 7(1)a) de la Loi au moment de la conversion et le paragraphe 7(1.1) de la Loi pourra s'appliquer pour reporter l'inclusion de l'avantage jusqu'au moment où l'employé disposera des actions ordinaires. Pour les fins du paragraphe 7(1.5) de la Loi, les actions ordinaires n'ont pas été disposées.

XXXXXXXXXX 2002-014798
L. J. Roy, CGA
Le 9 juillet 2002

9 July 2002 External T.I. 2002-0138865 - RELIGIOUS ORDER

Unedited CRA Tags
8(1)(c)

Principal Issues:
Whether an organization is a religious order?
POSITION TAKEN:
Relevant documentation should be submitted to the TSO for their determination.
REASONS FOR POSITION TAKEN:
Completed and ongoing transactions are the responsibility of the TSO..

9 July 2002 External T.I. 2002-0147935 - Deemed Disposition on Immigration

Unedited CRA Tags
128.1(1)

Position: The shares were deemed to have been disposed of, and reacquired, at fair market value at the time the taxpayer became a resident of Canada. When the shares are subsequently disposed of the taxable capital gain is the proceeds of disposition less the f.m.v. of the shares at the time the taxpayer became a resident of Canada.

8 July 2002 External T.I. 2000-0052275 - INTEREST DEDUCTIBILITY

Unedited CRA Tags
20(1)(c) 75(2)

Principal Issues: Does interest on borrowed money used to purchase securities continue to be deductible if securities are later settled on an inter vivos discretionary trust.

Position: Yes

Reasons: Subsection 75(2) flows the property income source to the settlor.

8 July 2002 External T.I. 2002-0127135 - Proof: Vested Indefeasibly

Unedited CRA Tags
70(6)

Principal Issues: Proof that property has vested indefeasibly as per 70(6)

Position: All evidence available including: a copy of the death certificate, a copy of the will, a copy of the trust agreement and the documentation evidencing the actual legal transfers of the property.

Reasons: 70(6)

8 July 2002 External T.I. 2002-0136615 F - Par. 250(5) - Déclaration de revenus

Unedited CRA Tags
150(1.1) 2(3) 250(5) 115

Principales Questions: Est-ce qu'un particulier réputé non-résident du Canada en vertu du paragraphe 250(5) doit déclarer ses revenus de toutes provenances dans sa déclaration de revenus.

Position Adoptée: Non.

8 July 2002 External T.I. 2002-0131835 F - Investissements détenus à l'étranger

Unedited CRA Tags
12 (1)(c), 12 (4) 12 (11), 12.2 (1) 138 (12), 148

Principales Questions: Traitement fiscal applicable à des investissements détenus à l'étranger.

Position Adoptée: Commentaires généraux.

5 July 2002 External T.I. 2002-0135725 - Provincial Residence Determination

Unedited CRA Tags
REG 2607

Principal Issues: Determination of provincial residence.

Position: Not enough information to make determination. Also, this deals with past taxation years and should be handled by the TSO.

Reasons: n/a
XXXXXXXXXX 2002-013572
Eliza Erskine
July 5, 2002

5 July 2002 External T.I. 2002-0121115 F - CREDIT-BAIL

Unedited CRA Tags
9(1) 13(21)

Principales Questions: Traitement fiscal des contrats de crédit-bail

Position Adoptée:
Le contribuable qui a acquis le bien peut réclamer la déduction pour amortissement si toutes les conditions sont rencontrées. Les paiements que le crédit-bailleur reçoit constituent un revenu provenant de son entreprise de crédit-bail.

5 July 2002 External T.I. 2002-0142095 - SALE OF LAND

Unedited CRA Tags
38

Principal Issues: Sale of Land

Position: None

Reasons: Insufficient information provided.

5 July 2002 External T.I. 2002-0140755 - ANNUITY CONTRACTS

Unedited CRA Tags
9 148

Principal Issues:
Whether or not the disposition of an interest in an annuity contract could be subject to section 9

Position: No.

Reasons:
The scheme of the Act and section 148 in particular does not provide for a loss on the disposition of an annuity contract

4 July 2002 External T.I. 2002-0141345 - 95 (2)(a)(ii)

Unedited CRA Tags
95(2)(a)(ii)

Principal Issues: Whether subparagraph 95(2)(a)(ii) would apply where the interest paid or payable by a foreign affiliate to another foreign affiliate is not deductible under the income tax law of country of the first-mentioned affiliate as a result of the thin capitalization rules therein?

Position: Yes.

Reasons: Subsection 5907(2)(j) would apply such that the interest paid or payable would be considered to be deductible in computing the earnings or loss of the payer affiliate from an active business income carried on by it.

4 July 2002 External T.I. 2001-0096955 - INTEREST DEDUCTIBILITY RENTAL PROPERTY

Unedited CRA Tags
20(1)(c)

Principal Issues:
Interest deductibility on money borrowed to acquire a rental property

3 July 2002 External T.I. 2002-0135315 - INTEREST INCOME PRESCRIBED DEBT OBLIGATIONS

Unedited CRA Tags
12(4) 12(9) REG 7000(2)

Principal Issues: Why there is no capital gain at maturity on a strip bond

Position: The difference between the amount received on redemption and the amount that was paid on its acquisition will have been included in income as interest and therefore included in the cost of the strip bonds. In this particular case, since the proceeds of disposition are equal to the adjusted cost base no capital gain will result.

Reasons: The strip bond is considered to be a prescribed debt obligation and for the purposes of subsection 12(9), an amount determined under Regulation 7000(2) is deemed to accrue to the taxpayer as interest in each taxation year. The amounts included in income as interest would then be added to the cost of the strip bond under subsection 52(1) such that on its redemption at maturity the proceeds will be equal to the adjusted cost base and there would be no capital gain under subsection 39(1).

3 July 2002 External T.I. 2001-0084615 - ACCEPTABLE EVENTS OF DEFAULT

Unedited CRA Tags
212(1)(b)(vii)

Principal Issues:
Whether the acquisition of a significant interest in a widely held corporation by a person or group of persons, which represents less than de jure control would constitute an acceptable event of a failure or default under the terms or agreement for purposes of clause 212(1)(b)(vii)(C) of the Act

3 July 2002 External T.I. 2002-0122185 - TWO TIERED PARTNERSHIP

Unedited CRA Tags
212(1)(b)(vii)

Principal Issues:
Whether interest paid to a non-resident under an obligation that otherwise satisfies the requirements of subparagraph 212(1)(b)(vii) is not, by virtue of the CCRA's administrative position set out in paragraph 19 of IT-361R3, disqualified from the exemption where the borrower is a partnership and all the members of which deal at arm's length with the lender and all the members are, with one exception, corporations resident in Canada. The sole exception is a limited partnership organized under the laws of a province all the partners of which are corporations resident in Canada.

3 July 2002 External T.I. 2001-0112325 - PREMIUMS RECEIVED BY ISSUES OF DEBT

Unedited CRA Tags
9(1) 39(1)

Principal Issues:
Whether a premium received by the issuer of a debt obligation where the issuer is not in the business of lending money would be characterized as a payment on account of the capital of the issuer and as such would be considered a non-taxable receipt.

2 July 2002 External T.I. 2002-0129345 - CONSTRUCTION HOLDBACKS NETTING

Unedited CRA Tags
181(3) 181.2(3)

Principal Issues:
Whether a contractor's holdbacks receivable may be netted against its holdbacks payable for the purposes of Part I.3.

Position: No.

Reasons:
Items may only be netted for LCT purposes if permitted by GAAP. Since no such legal right of offset exists in circumstances where a contractor has both holdbacks receivable and holdbacks payable on its balance sheet because the customer from whom the holdbacks are receivable and subcontractor to whom the holdbacks are payable are entirely different parties, netting in these circumstances is not permitted by GAAP.

2 July 2002 External T.I. 2002-0122935 - INTEREST DEDUCTIBILITY LAND DEVELOPER

Unedited CRA Tags
20(1)(c) 18(2)

Principal Issues:
Whether interest is deductible on borrowed funds used to
1)acquire land to construct principal residence;
2) borrowed funds used to acquire land to subdivide and resell; and
3) a combination of 1) & 2)

Position:
1. Not deductible
2. Likely not deductible - added to cost of land
3. Not deductible - a portion can be added to cost of land

Reasons:
1. Direct use of funds for ineligible purpose;
2) & 3) 18(2) limitation.

2 July 2002 External T.I. 2002-0124195 - DEDUCTIBILITY OF MORTGAGE INTEREST

Unedited CRA Tags
20(1)(c)

Principal Issues: Mortgage interest deductibility - general comments

Position:
The direct use of borrowed funds is the test that predominates in determining the deductibility of the interest

Reasons: The Queen v. Bronfman Trust (87 DTC 5059),

28 June 2002 External T.I. 2002-0143085 - PRINCIPAL RESIDENCE

Unedited CRA Tags
54 13(7) 45(1)

Principal Issues: We have been provided with an actual fact situation where, inter alia, an owner of a duplex occupied one unit and rented the other unit for many years before it became vacant for a number of years. We have been asked whether the individual can claim the principal residence exemption with respect to the previously rented unit during taxation years that it was vacant.

Position: General comments were provided to the effect that this would not be the case.

Reasons: Each unit is "a housing unit" and the rented unit was never "ordinarily inhabited" by the individual for the purposes of the definition of "principal residence" in section 54 of the Income Tax Act.

26 June 2002 External T.I. 2002-0148015 - RESEARCH ACCOUNTS

Unedited CRA Tags
5(1)

Principal Issues:
Follow-up inquiry re research accounts in lieu of honoraria - whether entitled to a deduction under section 8.

Position:
Requirements of the provision must be met.

Reasons:
Section 8.

25 June 2002 External T.I. 2002-0145055 F - ACCORD DE SEPARATION TRANSFERT D'UN REER

Unedited CRA Tags
146(1)

Principales Questions:
L'alinéa 146(16)b) s'applique-t-il à un second accord écrit de séparation?

Position Adoptée: Aucune

24 June 2002 External T.I. 2001-0096635 - Alternative Investment Market

Unedited CRA Tags
Reg. 3201

Principal Issues: whether alternative investment market ("AIM") of London Stock Exchange ("LSE") is a prescribed stock exchange

Position: no

Reasons: documentation provided indicated that AIM is a market for unlisted securities and that shares sold on AIM are not considered listed since the shares do not go through the 2-stage admission process required for listing on the LSE.

21 June 2002 External T.I. 2001-0107705 F - Partie XIII et logiciels d'ordinateurs

Unedited CRA Tags
212(1)(d)

Position Adoptée : Le téléchargement d'un logiciel accompagné une licence est soumis à l'impôt de la Partie XIII lorsque le paiement est fait à un non-résident.

12 June 2002 External T.I. 2002-0124965 - Tax Status, Embassy Staff Immigrating

Unedited CRA Tags
149(1)(a)

Principal Issues: Whether a member of the XXXXXXXXXX staff of the XXXXXXXXXX Embassy will be taxed in Canada on his salary if he immigrates to Canada

Position: Depends on specific facts

Reasons: Article XIX of the Canada XXXXXXXXXX Tax Convention provides that a person who becomes resident in Canada "solely" to provide services to XXXXXXXXXX is not taxable in Canada on the related remuneration

10 June 2002 External T.I. 2002-0118255 - Application of 75(2)

Unedited CRA Tags
75(2) 107(4.1) 105(2) 112.82(2)

Principal Issues: Whether subsection 75(2) of the Income Tax Act applies in three different scenarios.

Position: General comments

Reasons: Question of fact

4 June 2002 External T.I. 2002-0127515 F - Règles de réalisation de 21 ans

Unedited CRA Tags
104(4)(b)(ii) 245

Principales Questions:
La date de création d'une fiducie [dont les termes, les bénéficiaires et les biens sont ceux d'une autre fiducie] devrait-elle tenir compte de celle de l'autre fiducie pour les fins du sous-alinéa 104(4)b)(ii) de la Loi?

Position Adoptée: Oui.

7 May 2002 External T.I. 2002-0127475 - LIFE INSURANCE COLLATERAL ASSIGNMENT

Unedited CRA Tags
89(1)

Principal Issues: a) Would the CCRA please confirm that the position stated in Technical News No. 10 still reflects the CCRA's position? b)Please comment on when a revised version of IT-430R3 will be issued?

Position: a) The view expressed in Technical News No. 10 remains CCRA's position on life insurance policies assigned as collateral for securing indebtedness where the debtor remains the beneficiary under the policy. b) A consolidation of IT-430R3 to include the position expressed in Technical News No. 10 should be issued before the end of the year.

Reasons: None

7 May 2002 External T.I. 2002-0127495 - LIFE ANNUITY CONTRACT

Unedited CRA Tags
Reg. 301 12.2

Principal Issues: Whether or not a particular annuity contract is a life annuity contract as defined in section 301 of the Income Tax Regulations

Position: No

Reasons: Wording of section 301 of the Income Tax Regulations

7 May 2002 External T.I. 2002-0127505 - SUBSTITUTE LIFE POLICIES

Unedited CRA Tags
148

Principal Issues: What changes in the terms and conditions of an insurance policy would not result in a disposition of the insurance contract for tax purposes?

Position: Will depend upon whether the changes are so fundamental as to result in the creation of a new policy.

Reasons: Question of fact.

7 May 2002 External T.I. 2002-0127445 - INTEREST STUDY UPDATE

Unedited CRA Tags
20(1)(c)

Principal Issues: Update on CCRA interest review study.

Position: General information provided.

Reasons: This is our current status.

7 May 2002 External T.I. 2002-0127455 - non-arm's length disposition

Unedited CRA Tags
15(1) 148(7) 148(9)

Principal Issues:
1.A shareholder will transfer a life insurance policy to a corporation it controls for consideration equal to the fair market value of the policy. The policy has no cash surrender value at the time of the transfer. What will be the proceeds of the disposition to the policyholder pursuant to 148(7)?
2.Will there be a shareholder benefit pursuant to 15(1)?

Position:
1. The proceeds of the disposition will be equal to the "value" of the policy.
2.No

Reasons:
1. Pursuant to 148(7)
2. The shareholder is receiving consideration equal to the fair market value of the policy

7 May 2002 External T.I. 2002-0127465 - GROUP SEGREGATED FUND CONTRACTS

Unedited CRA Tags
138.1

Principal Issues:
Whether section 107.4 of the Act would apply when a group having an interest in a segregated fund contract is divided into two groups, each having an interest in a segregated fund contract, where the original contract and the two new contracts represent interests in the same underlying segregated fund.

Position: It would depend upon how the transaction is structured.

Reasons:
A qualifying disposition may occur in circumstances when the segregated fund is divided as a consequence of a group's division and the requirements of section 107.4 are otherwise satisfied.

Technical Interpretation - Internal

17 July 2002 Internal T.I. 2002-0145427 - LIMITED PARTNERSHIP

Unedited CRA Tags
96(1)

Principal Issues: Are the units of a limited partnership considered units of a
partnership?

Position: Yes

Reasons: Common Law requires that a partnership must exist before a limited
partnership can be registered.

11 July 2002 Internal T.I. 2002-0148267 - ART 29 OF THE CANADA-GERMANY TREATY

Unedited CRA Tags
248(1) REG 8308.1(1) REG 6802(g)

Principal Issues:
1. Must pension adjustments be reported in respect of contributions to a German pension plan that meets the requirements of paragraph 29(4) of the Canada-Germany Tax Treaty?
2. Would the deduction claimed for these contributions reduce the individual's RRSP contribution room?

Position:
1. Question of fact.
2. Question of fact.

Reasons:
1. Depends on whether the German pension plan is a foreign plan.
2. Depends on whether the German pension plan is a foreign plan. Foreign plan PA would reduce RRSP deduction room for the following year.

10 July 2002 Internal T.I. 2001-0115657 - FINANCING LEASE

Unedited CRA Tags
18(1)(b)

Principal Issues:
Whether a particular agreement would be considered a lease such that the payments made under the terms of the said agreement would be deductible in computing income for purposes of both the Income Tax Act and the Excise Tax Act.

Position: Yes

Reasons:
A sale at law has not incurred and the legal relationship created by the agreement is that of a lessor/lessee.

10 July 2002 Internal T.I. 2002-0145447 - RELIGIOUS ORDERS-XXXXXXXXXX

Unedited CRA Tags
110(2) 143

Principal Issues:
Whether members of XXXXXXXXXX can take a vow of poverty that would qualify for the purposes of subsection 110(2) of the Income Tax Act, paragraph 6(2)(e) of the Canada Pension Plan and paragraph 7(b) of the Employment Insurance Regulations.

Position:
No.

Reasons:
All these Acts require that the individual be a member of a "religious order" who has taken a "vow of poverty". Regardless of whether the individual has taken a vow of poverty, XXXXXXXXXX are not considered "religious orders".
July 10, 2002

9 July 2002 Internal T.I. 2002-0139607 - Special Credit Deducted From Part I Tax

Unedited CRA Tags
217(6)

Principal Issues: Where in the computation of Part I tax does the special credit in subsection 217(6) come in?

Position: After all of the additions to and deductions from Part I tax provided in Division E and E.1 of the Act.

Reasons: The credit in subsection 217(6) is computed using the amount of tax under Part I that would, but for subsection 217(6), be payable.

8 July 2002 Internal T.I. 2002-0141647 - SALE OF PROPERTY TO MORTGAGEE

Unedited CRA Tags
79

Principal Issues: The TSO requested our review of certain documents an
determination whether Former Section 79 (Pre-1994) would
apply in the situation 79 (Pre-1994)described.

Position: Former Section 79 would not apply

Reasons: In the case at hand, there was no evidence to indicate that there was a
failure to pay, foreclosure proceedings, repossession, or a quitclaim.

5 July 2002 Internal T.I. 2001-0112757 - Income from Custom Processing

Unedited CRA Tags
Reg 1104(5) 1104(5.1) 1100(1)(y)

Principal Issues: Whether income from custom processing is included in income from a mine under Reg 1104(5).

Position: Only if it comprises less than 10% of all the ore processed by the taxpayer.

Reasons: The ordinary meaning of 'income from a mine' does not include custom processing. The term 'all or substantially all' used in 1104(5) allows incidental income from custom processing to be included in income from a mine under that paragraph, as long as at least 90% of the ore processed by the taxpayer is ore from the taxpayer's own mineral resource.
The revocation of 1104(6.1) does not alter our interpretation of the meaning of income from a mine.

5 July 2002 Internal T.I. 2002-0149177 - LCT-MEANING OF RESERVES

Unedited CRA Tags
181(3) 181(1)

Principal Issues: Meaning of various terms for Part I.3 purposes.

Position:
Where a term in Part I.3 derives its meaning primarily from accounting, the accounting meaning will prevail (reserves, provisions, allowances, other surpluses, retained earnings and deferred tax). Regarding other items such as loans, advances, debentures and leases we will continue to look to the legal meaning of these terms to determine if an amount should be included.

Reasons: Jurisprudence

5 July 2002 Internal T.I. 2002-0144257 - 20(12) Deduction & Accrual Basis Income

Unedited CRA Tags
126 (1) 126 (7) 20 (12)

Principal Issues:
Can an individual who pays Canadian tax on interest income over the course of 3 years (on an accrual basis) and foreign withholding tax on the total amount of the income in one year (when the income is actually paid) make use of the 20(12) deduction to offset any of the foreign tax not absorbed by a FTC?

Position: Generally, yes, however, in some cases the 20(12) deduction will not be sufficient to account for all of the foreign tax.

Reasons: Although in practice a subsection 20(12) deduction is only taken after all possible FTCs have been claimed, technically FTCs are calculated after taking into account any subsection 20(12) deduction (subsection 126(1) and the definition of "non-business-income tax" in subsection 126(7)). Therefore, it is possible to take the maximum 20(12) deduction (which is limited to the foreign tax paid that relates to the amount of foreign income actually included in income in the particular year) and then claim the FTC for whatever "non-business-income tax" was not deducted under 20(12). See the example in the memo.

4 July 2002 Internal T.I. 2002-0148217 - Foreign Tax Credit, U.S. Partnership

Unedited CRA Tags
S. 20(11); 20(12) s. 126; s. 96(1)(f) s. 96(1.6)

Principal Issues: Is US tax paid by a Canadian-resident individual with respect to his limited partnership interest in a US limited partnership that carries on business in the US considered non-business-income tax and deductible under s.20(12) of the Income Tax Act ("ITA")?

Position: No

Reasons: Assuming that the US limited partnership is considered to be a partnership for Canadian tax purposes, all partners, including the limited partner, is considered to carry on the business of the partnership. S.96(1)(f) of the ITA applies such that the Canadian-resident partner's share of the partnership's business income is also business income in the partner's hands. Thus, US tax paid by the partner in respect of his share of the partnership's business income is business-income tax and not non-business-income tax.

3 July 2002 Internal T.I. 2002-0143097 - QUALIFIED FARM PROPERTY

Unedited CRA Tags
110.6(1)

Principal Issues: Whether the land owned by a taxpayer is considered to be "qualified farm property"?

Position: Perhaps

Reasons: Question of fact.

25 June 2002 Internal T.I. 2002-0130177 F - DEBENTURE CONVERTIBLE

Unedited CRA Tags
20(1)(f)

Principales Questions:
Lorsqu'un émetteur convertit des débentures convertibles en actions ordinaires, l'alinéa 20(1)f) de la Loi s'applique-t-il pour permettre de déduire le montant de la JVM des actions ordinaires émises qui excède la somme pour laquelle le titre a été émis?

Position Adoptée: Non.

24 June 2002 Internal T.I. 2002-0140707 - RPP FUNDING

Unedited CRA Tags
147.2(2) REG 8502

Principal Issues:
1. Can an RPP have two fully independent defined benefit provisions and funding accounts (or trusts), where surplus funds in one account are not available to fund the other account?
2. Can certain "start-up" and training costs be treated as distributions out of an RPP?

Position:
1. No.
2. Registered Plans Directorate has the ability to allow the costs and it would seem reasonable to do so.

Reasons:
Application of 147.2(2) will prevent the segregation of the funds in the manner desired.
RPPs are permitted by regulation 8502(d) to make certain permissible distributions. However, distributions to pay administrative expenses are not specifically listed. Nevertheless, the technical notes to paragraph 8502(d) provides that in addition to the distributions that are listed, a plan may provide for the payment of all reasonable administrative, investment and similar expenses incurred in connection with the plan. Accordingly Registered Plans Directorate has the ability to permit or deny the proposed distributions based on its determination of whether or not the distributions do in fact represent such expenses. Rulings has not previously attempted to define such costs. However, fairly inclusive opinions have been given. Our general concern has been to prevent the distribution of pension benefits as tax-free distributions.

21 June 2002 Internal T.I. 2002-0144787 - CAPITAL DEDUCTION

Unedited CRA Tags
181.5

Principal Issues:
Whether or not subsection 181.5(5) must be applied first before subsection 181.5(2)

Position: Yes

Reasons:
Subsection 181.5(5) is a very specific provision which must be taken into account when applying subsection 181.5(2 ) which is a general provision

19 June 2002 Internal T.I. 2002-0137687 - Part XIII Withholding, Reg. 805(2)

Unedited CRA Tags
215(1) 215(3) Reg. 805

Principal Issues: Does a payer require a waiver under Regulation 805(2) in order to not deduct Part XIII withholding where the non-resident payee is carrying on business in Canada through a permanent establishment?

Position: Yes

Reasons: Previous opinions

19 June 2002 Internal T.I. 2002-0139357 - CAPITAL COST ALLOWANCE

Unedited CRA Tags
Class 8

Principal Issues:
Whether certain tangible property attached to a building is acquired solely for the purpose of supporting machinery and equipment and therefore included in paragraph (b) of Class 8 for CCA purposes.

Position: Question of fact.

Reasons: The property that is an integral part of the building does not meet the requirements in paragraph (b) of Class 8. Costs incurred solely for the purpose of supporting machinery and equipment may qualify for inclusion in Class 8.

13 June 2002 Internal T.I. 2002-0145187 - Representation Allowance; Factual Residents

Unedited CRA Tags
6(1)(b)(iii) 250(1)(c)

Principal Issues: Does an individual who would otherwise qualify for a tax-exempt representation allowance under subparagraph 6(1)(b)(iii) of the Act as a person "described in paragraph 250(1)(c)" of the Act fail to qualify for such an allowance if he or she is an factual resident of Canada rather than a deemed resident of Canada?

Position: No.

Reasons: FITAC # E 74302.
The ordinary meaning of the words "described in" used in 6(1)(b)(iii) is a reference to the categories of persons set out in 250(1)(b), (c), (d) and (d.1) and not a reference to actually being a deemed resident under those paragraphs. In these circumstances, there does not appear to be any policy reason to give deemed residents (i.e., those with no significant ties to Canada but with employment closely connected to matters of national or provincial importance) and not factual residents this type of tax benefit. The general policy behind the representation allowance benefit appears to be to benefit certain government funded operations (whether military, diplomatic, or charitable/developmental). Also, our past letters on 6(1)(b)(iii) appear to (rightly) assume that it is the categories, rather than the deeming, portion of 250(1) that is important.

24 May 2002 Internal T.I. 2002-0136407 - Excess funds foreign Insurance Company

Unedited CRA Tags
95(1)

Principal Issues: 2002 National Banking Meeting Question 6 "How do you determine if earnings are from excess funds to the needs of a business in a foreign insurance company?" - CCRA's comments.

Position: See below.

Reasons: See below.