Income Tax Severed Letters - 2002-08-30

Ruling

2002 Ruling 2002-0133083 - In-House Loss Utilization

Unedited CRA Tags
20(1)(c) 85(1) 245

Principal Issues: In-house loss consolidation

Position: Interest deductible; similar to 9924123

Reasons:

2002 Ruling 2002-0156593 - STRUCTURED SETTLEMENT

Unedited CRA Tags
56(1)(d)

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 2002-0136163 - 1103(2d) Election on 1102(14) Property

Unedited CRA Tags
Reg 1103(2d) Reg 1102(14) 55(3)(a)

Principal Issues: Whether a taxpayer was entitled to make an election under subsection 1103(2d) of the Regulations in respect of certain assets included in the former class that were acquired in a transaction to which subsection 1102(14) of the Regulations causing the assets to be assets of the former class instead of assets a new class.

Position: Favourable ruling given. The position taken in Technical Interpretation No. 5-9595 was reconsidered in giving this ruling.

2002 Ruling 2002-0159233 - RETIRING ALLOWANCE

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

Principal Issues:
Will amendments to file 2001-014028 affect the rulings given?

Position: No.

Reasons:
The amendments do not affect the application of the law.

2002 Ruling 2002-0138413 - INTEREST DEDUCTIBILITY FINANCING FEES

Unedited CRA Tags
20(1)(c) 20(1)(e)

Principal Issues: 1. Deductibility of Interest by Partnership on borrowed money
to:
a) earn income from a business
b) to loan to partners at commercial rate
c) to return partner capital
2. The deductibility of Financing fees related to the borrowing.

Position: 1. a) & b) - interest is deductible

1 c) - Opinion provided based on proposed legislation pursuant to 20.2.

2. The financing fees are deductible pursuant to and in the manner
described in paragraph 20(1)(e) for the expenses incurred in borrowing funds used to earn income from business or property. An opinion is provided on the deductibility of financing fees incurred in borrowing funds to return partner capital as the link to deductibility is through proposed section 20.2.

Reasons: For Issues 1a), 1b), the purpose test is met with respect the borrowed
funds. For Issue 1c) the conditions in IT-80 are not met. However the draft legislation is relevant. The borrowed money is replacing the initial capital and satisfies the adjusted equity test. Therefore opinion provided that the deeming provision of proposed section 20.2 applies. In addition, the financing fees with respect to the borrowing is deductible to the extent that the purpose test is met. Ruling issued with respect to financing costs incurred with respect to positions 1a) and b). Opinion provided with respect to 1c).

2002 Ruling 2002-0139163 - PARTNERSHIP; MUTUAL FUND

Unedited CRA Tags
53(1)(c)(i) 131(8)(c)(i) Reg. 4800(1)

Principal Issues:
1. acb bump/grind before winding-up
2. 4 1/2 months before shares redeemed
3. whether New mutual Fund shares are a continuation of (old) mutual fund shares for Reg 4800(1)
4. whether conversion of mutual fund shares for other mutual fund shares in the same corporation is an issue

Position:
1. within admin position
2. does not offend 131(8)(c)(i)
3. cannot rule
4. no ruling was requested

Reasons:
1. admin position
2. on several occasions we have ruled that 6 months was permissible (to permit liquidation of XXXXXXXXXX in an orderly manner to obtain funds to satisfy initial requests for redemptions
3. issue is not related to a proposed transaction
4. unlike where units in a mutual fund trust are converted/exchanged for units in the same trust, section 51 may apply where shares are converted

2002 Ruling 2002-0140793 - NON-PROFIT ORGANIZATION XXXXXXXXXX

Unedited CRA Tags
149(1)(l)

Principal Issues: Whether the gain from the sale of a portion of flatland by a non-profit XXXXXXXXXX would be taxable.

Position: No

Reasons: The XXXXXXXXXX qualifies as a non-profit organization under paragraph 149(1)(l) and the flatlands have been used by the XXXXXXXXXX directly and exclusively in the course of providing dining, recreational or sporting facilities to its members and therefore the gain would be exempt by virtue of subparagraph 149(5)(e)(ii) of the Act.

XXXXXXXXXX 2002-014079

2002 Ruling 2002-0142603 - INTEREST DEDUCTIBILITY XXXXXXXXXX

Unedited CRA Tags
20(1)(c) XXXXXXXXXX 104(7.1)

Principal Issues:
1. XXXXXXXXXX .
2. XXXXXXXXXX .
3. XXXXXXXXXX

Position:
1. XXXXXXXXXX
2. XXXXXXXXXX
3. XXXXXXXXXX

Reasons:
XXXXXXXXXX

2002 Ruling 2002-0150623 F - Buttterfly

Unedited CRA Tags
55

Principal Issues: Split-up butterfly reorganization.

Position: Favourable rulings given.

Reasons: Complies with the rules in section 55(3)(b)

Technical Interpretation - External

20 September 2002 External T.I. 2002-0143945 - Subsection 83(2) Meaning of Shareholder83(2)

Principal Issues: Whether a person entitled to receive a dividend, but who no longer owns shares at the time the dividend is received, is a "shareholder" for the purposes of subsection 83(2)

Position: Yes

Reasons: Definition of "shareholder" in subsection 248(1) includes a person entitled to receive payment of a dividend

18 September 2002 External T.I. 2002-0153395 - Foreign Tax Credit - Art. 21 China Treaty

Unedited CRA Tags
Art. 21, China

Principal Issues: Whether, for Canadian foreign tax credit purposes, the amount of Chinese tax in respect of royalty payments received by a Canadian resident corporation is deemed to be 15% of the gross amount of the payments regardless of whether the Chinese tax may have been exempt or reduced under certain Chinese legislation described in subparagraph 2(a), 2(b), 2(c) and 2(d) of Article 21 of the Canada-China Income Tax Agreement?

Position: Yes.

Reasons: Interpretation of the law.

17 September 2002 External T.I. 2002-0155915 - HOME BUYERS PLAN REPAYMENT

Unedited CRA Tags
146.01

Principal Issues: Can an ex-spouse repay the other spouse's HBP and this payment be designated as a HBP repayment.

Position: No you cannot transfer the repayment requirements.

Reasons: Legislation states repayment has to be made by individual who withdrew amount and that the individual has to be the annuitant of the RRSP.

13 September 2002 External T.I. 2002-0159525 F - Non-Arm's Length Sale of Shares

Unedited CRA Tags
84.1 251(1)(c) 251(1)(a)

Principal Issues: Whether, in a particular situation where an individual would sell his or her shares of a corporation to the holding company created by his or her niece or nephew and where the said individual would not be deemed by paragraph 84.1(2)(b) not to be dealing at arm's length with the holding company, section 84.1 would apply.

Position: Paragraph 251(1)(c) provides that, at a particular time, it is a question of fact whether unrelated persons are dealing with each other at arm's length. Such determination can only be made following the review of all facts relating to a particular situation. The fact that there would only be one tax specialist involved in this type of transaction would not, in and by itself, be conclusive as to the existence of non-arm's length transactions. However, this element, when combined with others, may contribute to the existence of a non-arm's length relationship. The fact that there would be steps undertaken to facilitate the financing may, depending on the facts and circumstances, contribute to the existence of a non-arm's length relationship. This may be the case, for example, where steps undertaken to facilitate the financing would result in one person having control in fact over another person. CCRA would generally not presume that there is a non-arm's length relationship between an uncle or aunt and his or her niece or nephew. However, family ties may be more likely to give rise to non-arm's length relationships, depending on the facts and circumstances. If the children of brothers would systematically acquire, through their wholly-owned corporation, shares owned by their uncle or aunt instead of shares owned by their parents, this would have a significant impact on the determination of whether non-arm's length relationships exist, and thus whether section 84.1 would be applicable. In such circumstances, the application of subsection 245(2) would also have to be considered.

Reasons: Wording of the Act and previous positions.

13 September 2002 External T.I. 2002-0146705 - REIMBURSEMENT OF TUITION

Unedited CRA Tags
6(1)(A) 118.5

Principal Issues: Whether reimbursement of tuition fees would fall within the guidelines set out in ITTN 13 when the fees are XXXXXXXXXX % reimbursed after the employee has been with the employer for XXXXXXXXXX years following the course, and fully reimbursed after XXXXXXXXXX years. .

Position: Does not fall within guidelines, and would therefore be taxable

Reasons: In order to fall within guidelines, the reimbursement must be made within a reasonably short period of time after the fees are paid. Otherwise, employees would be able to claim the tuition fee tax credit in respect of the tuition fees, and receive the reimbursement tax-free in the future. One of the purposes of the guidelines was to enable employees to be reimbursed on a tax-free basis for tuition fees paid to take employment-related courses, instead of claiming the tuition fee tax credit in respect of those fees.

12 September 2002 External T.I. 2002-0155715 - DONATIONS TO FUND MANAGED BY CROWN

Unedited CRA Tags
110.1(1) 118.1(3)

Principal Issues: Comments on proposed donations to a fund managed by a Ministry of the Crown in right of a province.

Position: General Comments

Reasons: Proposed Transaction

11 September 2002 External T.I. 2002-0161005 F - REÇU POUR DON - MUNICIPALITÉ

Unedited CRA Tags
118.1 110.1

Position Adoptée:
Oui
RAISON POUR POSITION ADOPTÉE:
Analyse législative

11 September 2002 External T.I. 2002-0161385 - Income earned in Canada by N/R

Unedited CRA Tags
115

Principal Issues:
Request from non-resident taxpayer for cancellation of our demand for payment of taxes and penalties.

Position: Amount related to income earned in Canada. Taxpayer's advisor should be aware that amount probably is taxable in Canada with a FTC to be issued by New Zealand in respect of Canadian tax paid (mechanism will depend on how NZ tax system works).

Reasons: This file is being transferred to ITSO with a brief explanatory note.

20 August 2002 External T.I. 2002-0145225 F - Contigent Right to Acquire Shares

Unedited CRA Tags
251(5)(b)

Principal Issues: Whether 251(5)(b) would be applicable in a particular situation where a contingent purchase and sale right with respect to theft, fraud or breach by a shareholder is included in a shareholders' agreement?

Position: Yes

Reasons: Consistent with existing administrative positions.

13 August 2002 External T.I. 2002-0143255 F - Par. 70(6)(b)

Unedited CRA Tags
70(6)(b)

Principales Questions: Précisions concernant l'application de l'alinéa 70(6)b) de la Loi de l'impôt sur le revenu.

Position Adoptée: Commentaires généraux.

25 July 2002 External T.I. 2002-0135745 - Par. 105 (1) Remise de dette ou d'intérêt

Unedited CRA Tags
105 (1) 107

Principales Questions: Est-ce qu'une remise de dette et d'intérêts consentie par une fiducie à l'un de ses bénéficiaires constitue un avantage au sens du paragraphe 105(1)?

Position Adoptée: Généralement oui.

22 July 2002 External T.I. 2002-0139205 - 75 (2) Arising as Consequences of A Will

Unedited CRA Tags
75 (2)

Principal Issues: 75(2) arising as a consequence of the transferor's spouse's will

Position: Generally, 75(2) will not apply

Reasons: Wording of 75(2)

Technical Interpretation - Internal

20 September 2002 Internal T.I. 2002-0146627 - Statute barred limits, Section 216S. 216; S. 152(8)

Unedited CRA Tags
S. 152(2); S. 152(3.1); S. 152(4)
216 and normal Part I returns give rise to separate statute-barring periods

Principal Issues:
Does a statute-barred assessment under Part I of the Income Tax Act (the "Act") resulting from a return filed under subsection 216(1) of the Act for a taxation year prevent the assessment under Part I of the Act of other sources of income for the same taxation year not previously assessed?

Position: No

Reasons:
The Part I return for amounts assessable under subsection 216(1) of the Act is separate and distinct from any Part I return for other sources of income taxable under Part I. The assessment of the subsection 216(1) return is also separate and distinct from the any assessment of such other income. Thus, the normal reassessment period in respect of the subsection 216(1) assessment should not apply to an assessment of such other income.

20 September 2002 Internal T.I. 2002-0139837 F - RECOMPENSES VISEES PAR REGLEMENT

Unedited CRA Tags
56(1)n) 60(1)a) 7700

Principales Questions:
Est-ce que les prix d'excellence en XXXXXXXXXX peuvent être considérés comme des récompenses visées par l'article 7700 du Règlement et ainsi être exclus de l'application de l'alinéa 56(1)n) de la Loi si l'un des prix est versé par XXXXXXXXXX et l'autre par XXXXXXXXXX ?

Position Adoptée: Non

19 September 2002 Internal T.I. 2002-0151337 - APPLICATION OF THE ACT

Unedited CRA Tags
40(2)(g)(ii) 50(1)

Principal Issues: Whether subparagraph 40(2)(g)(ii) would deny a capital loss, where a shareholder has loaned funds to a corporation interest free?

Position: Likely no.

Reasons: Based on the Byram decision, where a clear nexus between the shareholder and the corporation's dividend income can be demonstrated, subparagraph 40(2)(g)(ii) should not be applied to deny the capital loss.

17 September 2002 Internal T.I. 2002-0149147 F - SERVICES MEDICAUX-TEMOIGNAGE

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

Position Adoptée:
Non.

11 September 2002 Internal T.I. 2002-0160977 - INDIAN BAND, XXXXXXXXXX

Unedited CRA Tags
81(1)(A) 149(A)(C)

Principal Issues: Various questions concerning payments to Indian bands.

Position: General responses provided to the questions.

Reasons: Cannot deal with specific questions because they involve a specific taxpayer and there is no approval from the taxpayer to discuss tax related information.

21 August 2002 Internal T.I. 2002-0138617 - LIFE INSURANCE FOREIGN CURRENCY SWAPS

Unedited CRA Tags
138(2) 138(9) 18(1)(c)

Principal Issues:
Whether swap losses are deductible in determining taxable income of a resident multinational life insurance company if the underlying investments (foreign currency bonds) are non-designated investment property.

Position:
Will depend upon the particular facts and whether the swap or forward contracts are used or held in carrying on the insurance business in Canada.

Reasons:
A derivative agreement such as a swap or forward contract is a contractual arrangement separate from any associated asset or liability for which it may be designed to hedge. In this instance, the foreign currency bonds and related swap or forward contracts are two distinct groups of assets each with their own different characteristics and related tax consequences. It is a question of fact whether the swap and forward contracts will be considered to the used or held in the course of carrying on an insurance business in Canada and that the fact that the contracts have been used to hedge against potential losses arising from non-designated property is an important fact which in our view supports the view that the related swap losses are not deductible. This does not mean that the contracts are not being treated as transactions separate from the underlying bonds, merely that the nature of the underlying asset is an important factor in the determination of whether the contracts were used or held in the insurance business in Canada.

22 July 2002 Internal T.I. 2002-0152647 - Foreign Investments

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

Principal Issues: Translation of Technical Interpretation 2002-013183.

Position: N/A

Reasons: N/A