Income Tax Severed Letters - 2002-08-16

Ruling

2002 Ruling 2002-0145983 - EMPLOYEE STOCK OPTION PLAN

Unedited CRA Tags
7(1)

Principal Issues: Will a proposed amendment to the terms of an employee stock option plan result in the application of paragraph 7(1)(b) or subsection 7(1.4) of the Act?

Position: No.

Reasons: The amendment will not be so fundamental as to cause the rescission and replacement of the existing plan..

2002 Ruling 2002-0152593 - INCORPORATING A MEDICAL PARTNERSHIP

Unedited CRA Tags
125(7) 256(2.1)

Principal Issues: Whether the professional corporation that is the result of the incorporation of a medical partnership is a personal services business?

Position: No, if it is not reasonable to regard the Taxpayer that is carrying out services through a Contracting Company as providing those services to MedCo in his/her capacity as an employee or officer of MedCo, but for the existence of the Contracting Company.

Reasons: Reading of the definition in subsection 125(7) and similar rulings were given in files #2002-013306, 2001-010266 and 2001-008098.

2002 Ruling 2001-0110223 - UNFUNDED SUPPLEMENTAL PENSION PLAN

Unedited CRA Tags
248(1) 56(1)(a) 5(1) 6(1)

Principal Issues:
Is the Supplemental Retirement Arrangement (unfunded pension plan) an SDA or an RCA?

Position: No

Reasons:
It is an unfunded arrangement to provide pension benefits that are supplementary to the benefits under an RPP. There is no trust set up.

Technical Interpretation - External

12 September 2002 External T.I. 2002-0140935 - FOREIGN PROPERTY - SUBSTANTIAL CDN. PRESENCE

Unedited CRA Tags
206 (1.1)(d)(iii)

Principal Issues: Will a corporation that is a member of a limited partnership be considered to employ the employees of the limited partnership for purposes of the test in clause 206(1.1)(d)(iii)(A?

Position: Generally, yes.

Reasons: In the context of the definition of "specified investment business" we stated at the 1988 CTF Conference Roundtable that "with respect to the partner's income from the particular partnership only, each full-time employee of the particular partnership will be considered to be a full-time employee of each corporate partner, whether general or limited". For the purposes of section 7, we have taken the position that corporate partners may generally be treated as being the employer of the employees of the partnership (in the absence of facts to the contrary such as a separate employment contract between an employee and one of the partners of the partnership).

12 September 2002 External T.I. 2002-0161625 - QUAL. FARM PROPERTY

Unedited CRA Tags
110.6(1) 110.6(19)

Principal Issues: Does a capital gains election filed by a taxpayer pursuant to subsection 110.6(19) result in a deemed disposition and reacquisition of farm property?

Position: Yes.

Reasons: Pursuant to subparagraph 110.6(19)(a)(ii) the property is deemed to have been reacquired by the elector immediately after February 22, 1994. In determining whether such land would be considered "qualified farm property", the taxpayer would be required to meet the post June 1987 gross revenue and use tests outlined in subparagraph 110.6(1)(a)(vi) of the definition.

12 September 2002 External T.I. 2002-0150955 - TAXABLE EMPLOYMENT BENEFITS

Unedited CRA Tags
6(1)(a)

Principal Issues: Does the employer's reimbursement of membership fees in a recreational facility used for physical fitness give rise to a taxable benefit to the employee receiving the reimbursement?

Position: Yes.

Reasons: The primary beneficiary of the membership is the employee, notwithstanding that the employer may receive incidental benefits from overall employee fitness and well being.

11 September 2002 External T.I. 2002-0155045 - RELIGIOUS ORDER - STATUS

Unedited CRA Tags
8(1)(C)

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

Does outside employment by a member of a religious order jeopardize the status of the religious order that have no restrictions on outside employment or services members can engage in?

10 September 2002 External T.I. 2002-0150655 - QUALIFIED FARM PROPERTY-Cap. gains

Unedited CRA Tags
110.6(1) 110.6(19)

Principal Issues: Does a capital gains election filed by a taxpayer pursuant to subsection 110.6(19) result in a deemed disposition and reacquisition of farm property?

Position: Yes.

Reasons: Pursuant to subparagraph 110.6(19)(a)(ii) the property is deemed to have been reacquired by the elector immediately after February 22, 1994. In determining whether such land would be considered "qualified farm property", the taxpayer would be required to meet the post June 1987 gross revenue and use tests outlined in subparagraph 110.6(1)(a)(vi) of the definition.

10 September 2002 External T.I. 2002-0148955 - PERSONAL USE PROPERTY-ESTATE

Unedited CRA Tags
40(2)(g)(iii) 164(6)

Principal Issues: Whether subsection 164(6) of the Act will apply to a situation in which a personal-use property that is a principal residence is transferred to a testamentary trust (estate) upon the death of its owner and then disposed of by the estate at a loss.

Position: Question of Fact

Reasons: Pursuant to subparagraph (a)(iii) of the definition of "personal-use property" in the case of a trust includes property that is used primarily for the personal use or enjoyment of a beneficiary under the trust or any person related to the beneficiary. A residence owned by an estate which has not been used by any of the estate's beneficiaries or any person related to the beneficiaries, would, in our view, not meet subparagraph (a)(iii) of the definition of personal-use property as found in section 54 of the Act and therefore a deductible capital loss (to which subsection 164(6) may apply) can be created on its disposition.

10 September 2002 External T.I. 2002-0158405 - REIMBURSEMENT OF CHILD CARE EXPENSES

Unedited CRA Tags
6(1)(a)

Principal Issues: Whether the reimbursement of child care expenses would constitute a taxable employment benefit

Position: Yes, unless the reimbursement relates to additional child care costs incurred due to a requirement to travel on employment-related business.

Reasons: The reimbursement of child care expenses would normally be a taxable benefit. There is an exception where the employee is reimbursed for additional child care costs incurred as a result of a requirement to travel out of town on employment-related business.

9 September 2002 External T.I. 2002-0136985 - Interpretation of Thin Cap Terms

Unedited CRA Tags
18(4)

Principal Issues:
1. Should the calculation in subsection 18(4) be made using the average of the all of the calendar months that end in the year, even if there is no debt or equity outstanding in a particular month?
2. Does the term "beginning of a calendar month" in subparagraph 18(4)(a)(ii) mean the end of the previous month, or any time on the first day of the month?
3. If debt is repaid at the first instance in a month, will the debt be included in the computation of "outstanding debts to specified non-residents" in subparagraph 18(4)(a)(i)?
4. In determining the amount of PUC and contributed surplus at the beginning of a month for purposes of subsection 18(4), will we apply our position in paragraph 9 of IT-474R so that in the absence of a specified time, an amalgamation takes place at the earliest moment on a date?

Position:
1. Yes
2. Neither
3. No
4. Yes

Reasons:
1. The provision appears to contemplate that the averages be computed using all of the calendar months in the year.
2. The term "beginning of a calendar month" means the earliest moment on the first day of the month.
3. If the debt is extinguished at the earliest possible moment in a month, it can't be said to exist prior to that time in the month.
4. Section 87 intends to provide a rollover in an amalgamation that qualifies, and it would be reasonable to apply this position for the thin capitalization rules.

9 September 2002 External T.I. 2002-0141005 - Debt forgiveness and capital contribution

Unedited CRA Tags
80(2)

Principal Issues:
Does Section 80 apply in a situation where a parent company makes a contribution of capital consisting of cash to its subsidiary which is then used by the subsidiary to repay a debt to a non-resident sister corporation. The Taxpayer also asked for comments with respect to GAAR.

Position:
Section 80 not likely to apply. General comments were provided with respect to GAAR. Following a meeting with the Policy Review Committee, it was decided that any existing technical interpretations discussing GAAR will be withdrawn

Reasons:
The amount is repaid in full by cash.

9 September 2002 External T.I. 2002-0135785 - Netherlands AOW taxable in Canada

Unedited CRA Tags
56(1)(a) Canada-Netherlands Treaty

Principal Issues: Is AOW from the Netherlands exempt from tax in Canada by virtue of the Canada-Netherlands treaty?

Position: No

Reasons: The treaty was amended in 1993 so that social security paid by the Netherlands may be taxed in Canada.
2002-013578
XXXXXXXXXX S.E. Thomson
(613) 957-2122
September 9, 2002

9 September 2002 External T.I. 2002-0153315 - REAL ESTATE COMMISSIONS

Unedited CRA Tags
9

Principal Issues: Whether real estate commissions are received as income or reduce the cost of the property acquired.

Position: Commission income.

Reasons: The cost of the property is the amount actually paid therefore. The amount of commissions paid by the vendor is based on this selling price. The amount received by a real estate broker would therefore be received as commissions and therefore included in income.

9 September 2002 External T.I. 2002-0136125 - HEALTH & WELFARE TRUST

Unedited CRA Tags
18 104

Principal Issues: Whether administration costs incurred by a health and welfare trust are deductible in computing the income of the trust.

Position: Question of fact.

Reasons: Unless there is a specific provision in the Act which denies their deductibility, administration costs, as described in paragraph 12 of IT-85R2, incurred by a health and welfare trust would be deductible in computing the income of the trust.

6 September 2002 External T.I. 2002-0155055 - SUBSIDIZATION OF CHILD CARE COSTS

Unedited CRA Tags
6(1)(a)

Principal Issues: Whether subsidization of temporary child care services by an employer results in a taxable benefit to the employees

Position: Yes

Reasons: Consistent with prior opinions

6 September 2002 External T.I. 2002-0155175 - CLERGY

Unedited CRA Tags
8(1)(C)

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

Does a specialized minister for ministering to the youth within the XXXXXXXXXX Church qualify for the 8(1)(c) deduction?

6 September 2002 External T.I. 2002-0151435 - fairness - opinion

Unedited CRA Tags
20(1) (bb) 9(1)

Principal Issues : Is a fairness opinion deductible under 20(1)(bb)

Position: NO, but possibly under 9

Reasons: Wording of 20(1)(bb) and recent tax cases

6 September 2002 External T.I. 2001-0111675 - Gross Amount of Dividend

Unedited CRA Tags
93.1(2)(d)(i)

Principal Issues: Whether paragraph 93.1(2)(d)(i) of the Act permits the partner a deduction equal to his share of the gross amount of the dividends received by the partnership?

Position: Yes.

Reasons: Based on administrative practice of the CCRA (see paragraph 4 of IT-138R - even though that bulletin has been withdrawn, the position in paragraph 4 still stands) and the policy intent of that subparagraph.

6 September 2002 External T.I. 2002-0151905 - SHAREHOLDER LOANS

Unedited CRA Tags
15(2) 20(1)(j)

Principal Issues:
Several queries re subsection 15(2) and paragraph 20(1)(j) of the Act.

Position:
See below

Reasons:
See below.

5 September 2002 External T.I. 2000-0007425 - FAPI - Swedish Group contribution; Merger

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

Principal Issues:
(1) Whether clause 95(2)(a)(ii)(D) will apply on the given fact scenario where an income transfer payment as made by one Swedish foreign affiliate to another Swedish foreign affiliate in an amount that is equal to the amount of loss in the latter affiliate?
(2) Assuming there is no income transfer payment and the foreign affiliates merged part way through the year, whether (a) on the given fact scenario and with regard to Swedish income tax law, clause 95(2)(a)(ii)(D) could apply for the first half of the year; or (b) clause 95(2)(a)(ii)(B) could apply to the whole year?

Position: (1) No (2)(a) Yes; (b) No but to latter part of the year.

Reasons: (1) There is no "group" created in the case where there must be a tax deductible payment; (2)(a) under Swedish income tax law, a group exists from the beginning of the merger year so clause 95(2)(a)(ii)(D) can apply; (b) after the merger, clause 95(2)(a)(ii)(B) will apply to payments made by FA3.

5 September 2002 External T.I. 2002-0144845 - REIMBURSEMENT OF CHILD CARE COSTS

Unedited CRA Tags
6(1)(9)

Principal Issues: Whether the reimbursement of child care expenses would constitute a taxable employment benefit

Position: Yes, unless the reimbursement relates to additional child care costs incurred due to a requirement to travel on employment-related business.

Reasons: The reimbursement of child care expenses would normally be a taxable benefit. There is an exception where the employee is reimbursed for additional child care costs incurred as a result of a requirement to travel out of town on employment-related business.

5 September 2002 External T.I. 2002-0149995 - REDEMPTION - SHARES

Unedited CRA Tags
84(3) 82(1) (B) 54

Principal Issues: Shares redeemed- application of 84(3)

5 September 2002 External T.I. 2002-0147315 - PARTNERSHIP AS A PARTNER & 98 (3)

Unedited CRA Tags
98(3) 102(2)
lower-tier partnership wind-up

Principal Issues:
Whether subsection 98(3) of the Income Tax Act may be used when one of the partners in the particular partnership is itself a partnership or even if all of the partners are partnerships.

Position: Yes.

Reasons:
Subsection 102(2) of the Act provides that a reference to a person or a taxpayer who is a member of a particular partnership shall include a reference to another partnership that is a member of the particular partnership

30 August 2002 External T.I. 2002-0137745 - REIMBURSEMENT OF WORK PERMIT 2 VISA FEES

Unedited CRA Tags
6(1)(A)

Principal Issues: Whether reimbursement of work permit charges and visa fees for an employee and his family constitutes taxable employment benefits where the employee moves to Canada to commence work with the employer

Position: Not a taxable benefit

Reasons: Paragraph 35 of IT470R provides that the payment of reasonable removal expenses to move an employee and his family would not be a taxable benefit where the employee moves as a result of starting employment with a new employer. We have previously given opinions that this policy applies where an employee moves into Canada. Since the employee cannot work in Canada without obtaining the work permit, and his family cannot enter Canada without a visa, these costs can be considered as part of the reasonable removal expenses.

30 August 2002 External T.I. 2002-0155355 - INVESTMENT LOSS

Unedited CRA Tags
9 39

Principal Issues:
Can a loss on an investment in commodities that included unleaded gas, soybeans and heating oil be deducted as a farming loss.

Position:
No.

Reasons:
The activity does not constitute farming. It may be a capital loss, but we do not have sufficient information to form an opinion. Directed taxpayer to the TSO.

30 August 2002 External T.I. 2002-0147045 - Immigrantion; General tax issues

Unedited CRA Tags
2 3 114

Principal Issues: General questions on application of Singapore tax convention.

Position: Singapore convention applies in usual way to income taxes in year of immigration to Canada (the taxpayer will be a part-year resident).

Reasons: n/a

29 August 2002 External T.I. 2002-0150075 - SPECIFIED INVESTMENT BUSINESS - STORAGE

Unedited CRA Tags
125(7) 129(4)

Principal Issues: Whether income from a business which rents temporary storage space would be considered "income of the corporation from an active business" within the meaning of subsection 125(7).

Position: Question of Fact

Reasons: A business the principal purpose of which is to derive income from property (including income from rentals of real property), would be considered a "specified investment business" as defined in subsection 125(7) unless, inter alia, the corporation employs in the business throughout the year more than five full-time employees. Income from a source that is property, which includes income from a specified investment (subsection 129(4)), is not to be included in the computation of "income of the corporation for the year from an active business" by virtue of its definition in 125(7).

29 August 2002 External T.I. 2002-0148235 - TAXI BUSINESS

Principal Issues:
Treatment of legal costs and possibly losses resulting in sale and recovery of taxi business

Position:
General information provided.

Reasons:
Insufficient information.

29 August 2002 External T.I. 2002-0148785 - PRINCIPAL RESIDENCE - SINGLE PURPOSE CORP

Unedited CRA Tags
40(2)(b) 54 15(1)

Principal Issues: Various questions regarding the principal residence exemption and single purpose corporations.

Position: General comments provided.

Reasons: General comments provided.

29 August 2002 External T.I. 2002-0145465 - ELECTION UNDER 256 (2) AND EXPENDIT LIMIT

Unedited CRA Tags
127(10.2) 256(2)

Principal Issues: Whether amount A of the formula in subsection 127(10.2) of the Income Tax Act must include the taxable incomes of all associated corporations if an election under subsection 256(2) of the Act has been filed by one of the corporations.

Position: Yes.

Reasons: The wording in subsection 256(2) provides that an election applies only for purposes of section 125 of the Act

28 August 2002 External T.I. 2002-0146025 - IT 218R PARAGRAPH 19 EXAMPLE

Unedited CRA Tags
20(16)

Principal Issues:
Whether the example in paragraph 19 of IT-218R would change if the building that was converted to inventory were in a class with other properties (e.g. hotel properties), and at the time of conversion the fair market value was less than its proportionate share of undepreciated capital cost?

Position:
Yes.

Reasons:
See below.

27 August 2002 External T.I. 2002-0157745 - Reverse Stock Split

Unedited CRA Tags
248(1) 69(1)(b) 15(1)

Principal Issues: Does a pro rata cancellation of shares result in a reverse stock-split with no income tax consequences?

Position: No. The outright cancellation of some of the issued shares of a corporation results in a disposition of those shares and possibly a benefit. Based on IT-65 a reverse stock-split can be accomplished without income tax implications but the change to the number of shares under the applicable corporate law must not result in a disposition of those shares.

Reasons: See above.

15 August 2002 External T.I. 2002-0148995 - TAXATION OF PENSION INCOME-STATUS INDIAN

Unedited CRA Tags
8(1)(a)

Principal Issues:
Taxation of Registered Pension Plan income paid to status Indians.

Position: General Comments given.

Reasons: General Comments given.

14 August 2002 External T.I. 2002-0148925 - PUBLIC BODY PERFORMING A FUNCTION OF GOVT

Unedited CRA Tags
149(1)(c)

Principal Issues:
Is the First Nation a Public Body Performing a Function of Government?

Position: General Comments only

Reasons: Question pertains to proposed transaction.

13 August 2002 External T.I. 2002-0155655 - FORM TL 11A

Unedited CRA Tags
118.5(1)(a)

Principal Issues:
Correction in wording of Interpretation 2002-014072 re meaning of amount paid as used on form TL11A.

Position:
The amount paid does not refer to amounts actually paid during the period covered by the TL11A. It refers to amounts paid for tuition in respect of the year covered by the TL11A.

Reasons:
CCRA position and as per Department of Finance August 19, 1988 Technical Notes (Commons Finance Committee).

31 August 2001 External T.I. 2001-0092805 - TAX. BENEFITS-EMP. PROVIDED MED. EXAM.

Unedited CRA Tags
6(1)(a) 118.2(3)(a) 118.2(2)(a)

Principal Issues:
Does a medical examination provided by an employer's physician give rise to a taxable benefit where:
(a) It is provided only to executives over the age of 40 at the discretion of the employee.
(b) It is provided to new employees as a condition of their employment.

Position:
(a) Yes.
(b) No.

Reasons:
(a) The employee is the primary beneficiary of the expense incurred by the employer.
(b) The employer is the primary beneficiary.

24 February 1995 External T.I. 9501025 - ALLOWANCES FOR OUT OF COUNTRY EMPLOYEES

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

Principal Issues: taxation of benefits rec'd by employee in respect of XXXXXXXXXX secondment to XXXXXXXXXX

Technical Interpretation - Internal

13 September 2002 Internal T.I. 2002-0124467 - RRSP AMOUNTS PAYABLE AFTER ANNUITANT DIES

Unedited CRA Tags
146(1) 146(8.9)

Principal Issues: Can the estate claim a subsection 146(8.9) deduction on the final 146(1) return in respect of RRSP amounts still unclaimed by the beneficiary?

Position: No.

Reasons: Not a refund of premiums.

9 September 2002 Internal T.I. 2002-0143957 - Liechtenstein Establ.- whether corporation

Unedited CRA Tags
N/A

Principal Issues: What is a Liechtenstein "Establishment" considered to be for Canadian tax purposes?

Position: Likely a corporation.

Reasons: Barring subsequent legislative change in Liechtenstein, our position, as set out in IT-343R and 9203695, is that an Anstalt (or Establishment in english) is a corporation for purposes of the Income Tax Act (Canada).

9 September 2002 Internal T.I. 2002-0148937 - PEI DISABILITY SUPPORT PROGRAM

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

Principal Issues:
What is the tax treatment of various payments under the PEI Disability Support Program?

Position TAKEN:
"Social assistance payments" are taxable pursuant to paragraph 56(1)(u) unless exempt pursuant to paragraph 81(1)(h). "Financial assistance" payments are taxable pursuant to subparagraph 56(1)(r)(i).

Reasons:
Payments are social assistance made on the basis of a means, needs, or income test. If requirements of paragraph 81(1)(h) are met, the payments would be exempt. However, some of the payments may be earnings supplements, which would be taxable pursuant to subparagraph 56(1)(r)(i).

9 September 2002 Internal T.I. 2002-0149007 - BLENDED PAYMENT, INTEREST

Unedited CRA Tags
16(1)

Principal Issues: whether blended payment

Position: no

Reasons: company policy, not 16(1) applies

6 September 2002 Internal T.I. 2002-0155637 - JOINT VENTURE&SMALL BUSINESS DEDUCTION

Unedited CRA Tags
125(1) 125(7)

Principal Issues:
1. Do we have concerns about the incorporation of an operating company in a particular joint venture, with the resultant additional small business deduction on income from the project?

PositionS:
1. Question of fact. Numerous factors to be considered before it can be said that there is an additional small business deduction claim allowed as a result of the incorporation of the joint venture operating company.

Reasons:
1. Reading of the relevant legislation.

6 September 2002 Internal T.I. 2002-0153867 - Status Indian Telework

Unedited CRA Tags
81 (1) (a)

Principal Issues:
Is the employment income of a status Indian who participates in a telework arrangement exempt by virtue of section 87 of the Indian Act and paragraph 81(1)(a) of the Income Tax Act where the alternative work location is on a reserve?

Position: Generally, Yes

Reasons: The income is covered in the Guidelines.

5 September 2002 Internal T.I. 2002-0156257 - BUSINESS INCOME INDIAN

Unedited CRA Tags
81(1)(a)

Principal Issues:
Will amounts paid to a status Indian for medical services provided on a reserve be exempt from taxes?

Position: Yes.

Reasons: The services are provided on a reserve.

8 August 2002 Internal T.I. 2002-0149967 - DAMAGES RA HUMAN RIGHTS VIOLATION

Unedited CRA Tags
60(j.1)

Principal Issues:
Will any part of a taxpayer's settlement with her former employer in respect of her loss of office be excluded from being a retiring allowance because it represented general damages for a human right violation?

Position: No.

Reasons:
There is no evidence to support that there was any human right violations. It would appear that the amount is in respect of the taxpayer's loss of office.

15 July 2002 Internal T.I. 2002-0151247 - Stock Options Issued to Non-Employees

Unedited CRA Tags
9 115(1)(a) 15(1) 116
no benefit at time of grant of incentive option to independent contractor

Principal Issues: Tax treatment of stock options issued to non-employees

Position: See below

Reasons: See below