Income Tax Severed Letters - 2002-10-11


2002 Ruling 2002-0124183 - HEALTH & WELFARE TRUSTS

Unedited CRA Tags
18(9) XXXXXXXXXX 104

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

Position: Yes.

The proposed health and welfare trust will satisfy all of the requirements in IT-85R2.


Unedited CRA Tags
260(1) 260(8)

Principal Issues: Securities Lending Arrangement. Taxpayer seeking certainty on:
1. whether repo security arrangement meets the definition of "securities lending arrangement" in subsection 260(1) of the Income Tax Act;
2. whether the exception in paragraph 260(8)(b) applies with respect to withholding tax paid on compensation payments; and
3. whether we will rule that it is reasonable that, in the context of the facts of the ruling, that a reasonable fee paid for the use of the securities is nil.

1. Favourable ruling given.
2. Favourable ruling given.
3. Whether a fee is reasonable is a question of fact and in accordance with IC-70-6R5, we cannot rule on a subjective matter that is a question of fact. However, we have provided the taxpayer with our opinion on this subject.

Reasons: See summary sheet.

2002 Ruling 2002-0154223 F - Post Mortem Planning

Unedited CRA Tags
84(2) 84.1 245(2)

Principal Issues: Post Mortem Planning.

Position: Favourable rulings provided.

Reasons: Meets the requirements of the law.

Ministerial Correspondence

23 October 2002 Ministerial Correspondence 2002-0162914 F - PLACEMENT ADMISSIBLE PARTS DE COOP

Unedited CRA Tags
REG 4900(12)

Position Adoptée:
Commentaires généraux.

21 October 2002 Ministerial Correspondence 2002-0150894 - XXXXXXXXXX ON INDIAN RESERVE

Unedited CRA Tags

Principal Issues:
What is the tax status of money earned in a XXXXXXXXXX from the operations.

Position: General Comments given

Reasons: Not enough information provided

21 October 2002 Ministerial Correspondence 2002-0155964 - DISABILITY TAX CREDIT

Unedited CRA Tags
118.3(1) 118.4(1)

Principal Issues: Can a medical doctor certify that an individual, who dies prior to having been disabled for a period of 12 months, qualifies for the disability tax credit after the individual has died?

Position: Certification will be accepted only if it is based on a prognosis made before the individual's death.

Reasons: Certification meets the requirements of paragraph 118.3(1)(a.2) if a qualified person made the prognosis before the individual dies and the impairment could reasonably be expected to last for a period of 12 months.

Technical Interpretation - External

5 November 2002 External T.I. 2002-0167685 - PAYMENT FROM A RRIF AFTER ANNUITANT DIES

Unedited CRA Tags
146.3(5)(a) 146.3(6)

Principal Issues: Are benefits paid out of a RRIF that is collapsed after the death of the last annuitant's death taxed in the hands of the deceased rather than in the hands of the recipient beneficiary?

Position: The fair market value of the RRIF property is included in income on the deceased annuitant's final return. The portion of the benefits subsequently paid from the RRIF that were previously included on the deceased annuitant's final return are excluded from inclusion in the income of the recipient.

Reasons: Subsection 146.3(6) and paragraph 146.3(5)(a) respectively.

4 November 2002 External T.I. 2002-0158885 F - Alloc. of Safe Inc. & Disc. Div. Shares

Unedited CRA Tags
55(2) 55(3)(a) 55(1)

Principal Issues: Whether, in a particular situation, subsection 55(2) of the Act would apply to the dividends received by corporations and paid on "discretionary dividend shares."

Position: Subsection 55(2) of the Act could apply to such dividends, depending on the facts and circumstances surrounding the particular situation.

Reasons: The allocation of safe income on hand between different classes of shares cannot be made without knowing all the facts and circumstances surrounding a particular situation, especially when "discretionary dividend shares" are issued and outstanding. For example, such allocation would require, among other things, the consideration of all of the terms and conditions attached to the various classes of shares, an analysis of the terms of a unanimous shareholder agreement, if any, and an analysis of the applicable corporate law. In general, safe income on hand of a corporation is attributable to a particular share of a corporation in accordance with the "holding period" of the share and its entitlement to participate in the income of the corporation. Consequently, the "discretionary dividend shares" should not participate in the safe income on hand generated by OPCO prior to the issuance of the said "discretionary dividend shares." Furthermore and having regard only to the terms and conditions attached to the "discretionary dividend shares" (i.e. the right of such shares to dividends being subject to the discretion of the board of directors and such shares not being entitled to share in the distribution of the property or assets of OPCO in the event of the winding-up or dissolution), it is possible that all of the safe income on hand generated by OPCO for the period commencing on the issuance of the "discretionary dividend shares" and before the safe income determination time for the series would be allocated to the common shares. It is also possible that the payment of dividends on the said "discretionary dividend shares" would not result in a significant reduction in the portion of the capital gain that, but for the dividends, would have been realized on a disposition at fair market value of the "discretionary dividend shares." However, such dividends would reduce the capital gain that could be realized on the common shares and would reduce the safe income on hand attributable to the said common shares. Finally, the CCRA would consider, among other things, the possible application of subsection 15(1), 69(1) or 245(2) in such a scenario.

4 November 2002 External T.I. 2002-0143485 - POST-MIX DISPENSING EQUIPMENT

Unedited CRA Tags
127(9) 125.1

Principal Issues: Whether a particular asset acquired to mix certain ingredients to
produce a carbonated beverage ready for consumption meets the definition of "qualified property" in subsection 127(9) of
the Act.

Position: Likely yes.

Reasons: On the basis of the limited facts provided, the particular asset appears to
be qualified property as defined in subsection 127(9).

1 November 2002 External T.I. 2002-0146775 - Share Sale by Employees Yields Cap. Gain

Unedited CRA Tags
sale of stock option shares to affiliate of employer

Principal Issues: (1) Whether 84.1 or 84(3) would apply to arm's length employees who sell their shares to a purchaser corporation incorporated for the purpose of the purchase? (2) Would such employees be denied the capital gain exemption in respect of the sale of their shares? (3) Would the GAAR apply?

Position: (1) No (2) No (3) No

Reasons: Provided that the purchaser corporation is not acting as an agent for the corporation whose shares are the shares being sold and provided the employee deals at arm's length with the corporations, the employee should be entitled to a capital gain on the sale of the shares to the purchaser corporation.
XXXXXXXXXX 2002-014677

1 November 2002 External T.I. 2001-0104355 - Dispn. of Shares - Vertical SF Amalg.

Unedited CRA Tags

Principal Issues: Whether shareholders of parent corporation dispose of such shares on a vertical short-form amalgamation under subsection 177(1) of the OBCA

Position: Yes

Reasons: Subparagraph (b)(iii) of the definition of "disposition"

1 November 2002 External T.I. 2002-0150105 - MOVING EXPENSES-FACTUAL RESIDENTS

Unedited CRA Tags
62(1) 248(1)

Principal Issues: Whether the relocation outside Canada for work-related purposes of taxpayers who remain factual residents of Canada can be considered an eligible relocation in light of the requirements in par. (b) of the definition in ss. 248(1) to "ordinarily reside" at the new location outside Canada.

Position: Yes.

Reasons: A taxpayer may have more than one residence for tax purposes. A taxpayer may ordinarily reside in a residence outside Canada without having severed all his or her residential ties with Canada.

1 November 2002 External T.I. 2002-0168295 - MEDICAL EXPENSE-BACKUP GENERATOR

Unedited CRA Tags

Principal Issues: Does the cost of an emergency backup generator to assist in the
operation of a power-operated hydraulic lift qualify as a
medical expense?

Position: The cost does not qualify as a medical expense.

Reasons: The cost of a generator does not fall under any of the categories of qualifying medical expenses and, in particular, is not included in the list of prescribed devices described in Regulation 5700.

31 October 2002 External T.I. 2002-0141265 F - NATURE D'UN BIEN APRES ROULEMENT

Unedited CRA Tags
54 69(11) 245(2)

Principales Questions:
Des particuliers qui contrôlent une société transfèrent des immobilisations en faveur de la société. La société revend ces biens immédiatement après leur acquisition. Est-ce que les biens demeurent des immobilisations pour la société?

Position Adoptée:
Le transfert des biens, qui sont des immobilisations pour les particuliers qui contrôlent la société à laquelle ils les transfèrent, suivi de leur vente rapide n'aurait pas, en lui-même, comme résultat de modifier la nature des biens pour la société. Ces biens demeureraient des immobilisations pour cette société et le gain réalisé par la société, lors de la vente de ces biens, serait un gain en capital.

30 October 2002 External T.I. 2002-0154615 - DEFERRED SALARY LEAVE PLAN

Unedited CRA Tags
REG 6801(a)

Principal Issues:
What is CCRA's position concerning an employee participating in a DSLP who becomes disabled and cannot return to work after the employees' leave of absence?

At the time it is definitely determined that an employee will not be returning to work, due to a disability, any deferred amounts not previously paid out of the plan, e.g., during the leave of absence, must be paid to the employee and included in the employee's income at that time.

Reasons: Our position, reflected in previous documents.

30 October 2002 External T.I. 2002-0132745 F - RENOVATION A UN IMMEUBLE

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

Principales Questions:
Est-ce que le coût des travaux de revêtement d'un immeuble est une dépense de nature courante ou une dépense imputable au capital?

Position Adoptée:
Commentaires généraux.

30 October 2002 External T.I. 2002-0147545 - Royalty-Reproduction Distribution

Unedited CRA Tags
212(1)(d)(iv) 212(1)(d)(iv) 247(2)

Principal Issues: Whether royalty payment based on the number of copies of software distributed or the income earned therefrom is a "royalty or similar payment on or in respect of a copyright in respect of the production or reproduction of any literary, dramatic, musical or artistic work" within the meaning of subparagraph 212(1)(d)(vi) of the Act and is therefore exempt from Part XIII withholding tax otherwise payable under paragraph 212(1)(d) of the Income Tax Act.

Position: Yes, depending on facts of each case.

Reasons: Wording of subparagraph 212(1)(d)(vi);
facts on hand.

30 October 2002 External T.I. 2002-0126045 F - TRANSFERT A UN MINEUR

Unedited CRA Tags
120.4 74.1(2) 118(1)(b)

Principales Questions: Décès d'un parent : application des règles d'attribution, application de l'article 120.4 de la Loi et effet d'un revenu d'un enfant sur le crédit d'impôt pour personne entièrement à charge.

Position Adoptée: Commentaires généraux

29 October 2002 External T.I. 2002-0146335 - ACR OF PARTNERSHIP INTEREST

Unedited CRA Tags
53 98.1

Principal Issues:
whether addition to ACB of partnership interest may be accelerated to avoid capital gain


Administrative relief per ITTN # 5 & 9 is only contemplated in the context of a ruling request----in this case the taxpayer has a timing problem & not a double tax problem therefore even if taxpayer sought an ATR we would not give the relief requested

29 October 2002 External T.I. 2002-0135815 F - BONI CADEAUX RECOMPENSES

Unedited CRA Tags
5 6(1)

Principales Questions:
Un boni versé à un employé peut-il être visé par la politique des cadeaux ou récompenses énoncée dans la publication Nouvelles Techniques no 22?

Position Adoptée:

29 October 2002 External T.I. 2002-0151305 - ASSISTANCE AS A GIFT

Unedited CRA Tags
9(1) 5(1)

Principal Issues:
1. Whether payments to retired or incapacitated ministers are employment income, pension income, social assistance or a tax-free receipt.
2. Whether payments to the widow or other dependants of a deceased minister are pension income, social assistance or a tax-free receipt.
3. Whether payments to the spouse or other dependants of an incapacitated minister are social assistance or a tax-free receipt.

Position: 1. 2. and 3. are a question of fact, but in this case, the better view is that they are a tax free receipt.

Reasons: Amounts received are not pension income, not a social assistance payment and are not from a "source", therefore received as a "gift".

29 October 2002 External T.I. 2002-0161185 - MEANING OF COMMON-LAW

Unedited CRA Tags

Principal Issues: Can two individuals who maintain separate residences be considered to be in a "conjugal relationship" for purposes of the Act.

Position: Question of Fact.

Reasons: There are many different components of a relationship which can be reviewed when determining whether two individuals are in a "conjugal relationship". Not all components must be present. The fact that two individuals maintain separate residences would not, in and by itself, preclude a finding that they are in a conjugal relationship for purposes of the Act.

28 October 2002 External T.I. 2002-0134785 F - Partitioning of Shares

Unedited CRA Tags
98(3) 248(20) 248(21)
partition of securities' holdings

Principal Issues: Whether, in a particular situation where corporations would own undivided interests in shares of public corporations and in an interest in a mutual fund trust following the dissolution of a partnership, it would be possible to partition such properties without attracting adverse tax consequences.

Position: Subsection 98(3) would require each partner to receive an undivided interest in each property distributed on the dissolution of the partnership, and would not permit a partner to receive a whole investment or a divided interest in such property on the distribution. If the particular situation would involve exchanges or transfers of rights or interests in the investments between the corporations, such exchanges or transfers would constitute a disposition for tax purposes.

The application of subsections 248(20) and (21) with respect to the shares would depend, among other things, on whether it would be legally possible to effect a partition of each share because each such share constitutes a separate property. If a corporation can legally issue fractional shares and if the partition of a share gives rise to the issuance of fractional shares, all of such fractional shares would be considered to represent the same property as the share being partitioned and each person would be considered to have a new interest in such a share. Consequently, subsection 248(21) may apply to the partition of a share in such circumstances. If subsection 248(21) does not apply, the partition of the share may not necessarily attract adverse tax consequences pursuant to subsection 248(20). In the circumstances, the Directorate is not prepared to provide an opinion on the possibility of partitioning a share without issuing fractional shares, but would be prepared to consider this question in the context of an Advance Income Tax Ruling.

With respect to the application of subsections 248(20) and (21), an interest in a trust constitutes one property, even if described by reference to units. Consequently, if it is legally possible to effect a partition of an interest in a trust owned by two or more persons and if each person's respective undivided interest in such an interest becomes a divided interest in the said interest, the Rulings Directorate would generally consider that subsection 248(21) may apply to such partition if the fair market value test in subsection 248(21) is met. If subsection 248(21) does not apply, the partition of an interest in a trust may not necessarily attract adverse tax consequences pursuant to subsection 248(20).

Potential application of GAAR would have to be considered depending on the situation.

Reasons: Wording of subsections 98(3), 248(20) and 248(21) of the Act. Past positions.

28 October 2002 External T.I. 2002-0117595 F - REVENU EXPERT-COMPTABLE

Unedited CRA Tags
9(1) 18(1)a) 67

Principales Questions:
Une Association sans but lucratif offre, entre autres, à ses membres des services de comptabilité et de fiscalité. L'Association emploie des experts-comptables et facture ses membres pour les services rendus.

Les ordres comptables ont récemment indiqué à l'Association et aux experts-comptables que les états financiers produits doivent être signés directement par les experts-comptables et que ces derniers doivent facturer directement les membres de l'Association pour les services rendus. L'Association n'a pas le droit de facturer pour des services réservés exclusivement à des comptables selon les lois provinciales.

L'Association envisage donc de modifier son fonctionnement en demandant aux experts-comptables de facturer les membres de l'Association, puis l'Association facturera les experts-comptables d'un montant équivalent pour services rendus par l'Association.

Est-ce que les experts-comptables doivent s'imposer sur les revenus facturés aux membres de l'Association ? Est-ce que le montant payé par les experts-comptables à l'Association serait une dépense déductible ?

Position Adoptée:
Oui, le montant facturé est un revenu d'entreprise pour les experts-comptables.

28 October 2002 External T.I. 2002-0117975 - Treaty Fresh Start; Distribute Withholding

Unedited CRA Tags
Canada-US Treaty Articles VI, XIII 159 116 ITA

Principal Issues: (1) Does the Canada-US Income Tax Convention "fresh start" rule for gains apply to the disposition of real estate inventory? (2) Are non-resident executors of an estate required to obtain a 159(2) certificate when they propose to distribute real estate in Canada to the estate beneficiaries?

Position: (1) No (2) Yes

Reasons: (1) Real property to which Article XIII, paragraph 9 applies is limited to real property that represents a capital asset of the taxpayer. (2) Subsection 159(2) applies to all legal representatives, whether or not resident in Canada.

28 October 2002 External T.I. 2002-0161525 - EMPLOYER-PROVIDED CHILD CARE

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

Principal Issues:
Whether the provision of emergency child care by an employer constitutes a taxable benefit.

Position TAKEN:

The provision of child care is the payment for a personal expense. The parameters of the program do not fall within the CCRA's administrative position regarding the provision of in-house childcare by an employer.

25 October 2002 External T.I. 2002-0157525 - NPO DIRECTORS CO SELLS SUPLIES TO NPO

Unedited CRA Tags

Principal Issues:
Whether a non-profit organization (NPO) whose directors are also the directors of a for-profit company from whom the NPO will purchase supplies will qualify for tax-exempt status.

Position: Question of Fact

Reasons: The association must satisfy the conditions in 149(1)(l).

25 October 2002 External T.I. 2002-0158345 - TUITION EDUCATION TAX CREDIT APPRENTICES

Unedited CRA Tags
118.5 118.6

Principal Issues: Availability of Tuition Tax Credit and Education Tax Credit for apprenticeship fees

Position: Question of Fact

Reasons: Eligibility for the tax credits depends on the institution, the course and the individual. Inquiry too general.

25 October 2002 External T.I. 2002-0137705 F - Butterfly

Unedited CRA Tags

Principal Issues: Whether our administrative position regarding the application of subparagraph 85(1)(e)(i) in butterfly reorganizations, would apply where there is a transfer of property to subsidiaries prior to the distribution.

Position: Generally yes.

Reasons: Administrative position.

25 October 2002 External T.I. 2002-0151645 - INSURANCE PREMIUM REBATES

Unedited CRA Tags

Principal Issues:
1) Would a "premium rebate" be included in the income of a policyholder?
2) Could income from a life insurance policy be considered income from property for the purposes of paragraph 12(1)(x) of the Act.

1) Unable to answer.
2) Yes.

1) Insufficient information to enable a determination of the legal relationships among the parties to the arrangement and the legal relationships must be known before the tax implications can be determined.
2) "Property" is very broadly defined to include rights of any kind whatever and an insurance policy is essentially a bundle of rights set out under the insurance contract. Income from certain life insurance policies is required to be included in income under section 12.2 of the Act, which is found in Subdivision b - Income or Loss From a Business or Property, in Division B of Part I of the Act. If the rebate is received in the course of earning that income, paragraph 12(1)(x) of the Act could apply.

23 October 2002 External T.I. 2002-0159475 - INDIAN BUSINESS INCOME FROM TELEHEALTH

Unedited CRA Tags

Principal Issues:
Whether business income from medical services provided by Indian off-reserve to reserve patients by video conferencing is taxable.

Position: Yes.

Reasons: Revenue-generating activity takes place off reserve.

23 October 2002 External T.I. 2002-0152995 - APPROVED ORGANIZATION-SR&ED

Unedited CRA Tags

Principal Issues: Whether a corporation affiliated and owned by a University and carrying on activities that include SR&ED qualifies as an approved association

Position: Unable to confirm. General comments provided with respect to criteria and information required.

Reasons: Insufficient information provided by client.

22 October 2002 External T.I. 2002-0162835 F - Recbles Recd. after Disp. of Farm. Bus.

Unedited CRA Tags
28(5) 28(1) 85(1)

Principal Issues: Whether farm support payments received by a taxpayer using the cash accounting method, after the disposition of his farming business to NEWCO under 85(1) of the Act, would be taxable in his hands.

Position: Yes

Reasons: In the particular situation, subsection 28(5) would apply.

11 October 2002 External T.I. 2002-0146325 - TIER 3 OF THE TSX VENTURE EXCHANGE

Unedited CRA Tags
146(1) 204 REG 3200

Principal Issues:
Is a share that is listed on Tier 3 of the TSX Venture Exchange a qualified investment for an RRSP?

It is not qualified by virtue of the listing on Tier 3, however, it may qualify under another provision of the Act or Regulations.

Tier 3 is not a prescribed exchange pursuant to section 3200 of the Regulations.

7 February 2002 External T.I. 2002-0117605 - DEMOLITION OF RENTAL BUILDING

Unedited CRA Tags

Principal Issues: Whether a terminal loss may be taken on a rental building demolished 3 yrs after acquisition where a new rental building is erected in its place and whether the costs of demolition may be deducted.

Position: Perhaps but only if the demolished building was acquired for the purposes of gaining or producing income. If the acquisition of the building does not meet this test, it is likely that we would consider the initial purchase price paid for both the land and building to be for the land. Further, the cost of demolishing the old building, less the amount of any salvage, would form part of the cost of land.

Reasons: By reason of paragraph 1102(1)(c) of the Income Tax Regulations, "depreciable property" does not include property that was not acquired for the purposes of gaining or producing income.

Technical Interpretation - Internal

5 November 2002 Internal T.I. 2002-0167887 - COMPENSAITON IN RESPECT OF RRSP

Unedited CRA Tags
7(3) 147.1(1)

Principal Issues:
Can benefits in respect of employee stock options be included in computing compensation in respect of an RPP?

Position: Yes.

Pursuant to paragraph (a) of definition of "compensation" in subsection 147.1(1) of the Act, compensation includes amounts in respect of an office or employment that are required by section 5 or 6 to be included in income. Benefits calculated pursuant to section 7 are included in income pursuant to paragraph 6(1)(a) of the Act.

4 November 2002 Internal T.I. 2002-0160697 F - REPARTITION DU PLAFOND

Unedited CRA Tags

Position Adoptée:
Non mais l'alinéa 125(5)b) est applicable.

31 October 2002 Internal T.I. 2002-0162787 - FILM TAX CREDIT-ASSISTANCE

Unedited CRA Tags
125.4 12(1)(x)

Principal Issues:
Are advances to a producer from Telefilm out of their Low Budget Independent Feature Film Assistance Program (part of Telefilm's Canadian Feature Film Fund) assistance to the producer for the purposes of the Canadian film or video production tax credit?

Question of fact. Likely assistance.

Reading of the definition of "assistance". The producer is only required to repay Telefilm out of profits from the production. If there are insufficient profits, the advance is not repaid.

30 October 2002 Internal T.I. 2002-0134077 F - ATTRIBUTION DES GAINS EN CAPITAL

Unedited CRA Tags

Principales Questions:
Est-ce que le paragraphe 74.2(1) de la Loi de l'impôt sur le revenu (ci-après la " Loi ") peut s'appliquer au gain en capital réalisé par les conjointes dans la situation où ce gain en capital se rapporte à des actions détenues à l'origine par des particuliers qui, par la suite, les ont transférées à leur société de gestion respective peu de temps avant que ces sociétés de gestion en transfèrent une partie aux conjointes respectives des particuliers ?

Position Adoptée: Le paragraphe 74.2(1) pourrait s'appliquer.

23 October 2002 Internal T.I. 2002-0135797 - FOREIGN EXCHANGE LOSSES

Unedited CRA Tags
20(1)(f) 39(2)

Principal Issues:
Can foreign exchange losses be deducted pursuant to paragraph 20(1)(f) of the Act?

Position: No.

Foreign exchange losses incurred on the settlement of debt denominated in a foreign currency should not be deductible under paragraph 20(1)(f).

11 October 2002 Internal T.I. 2002-0155337 - INTEREST DEDUCTIBILITY

Unedited CRA Tags

Principal Issues: Interest Deductibility - money borrowed to finance non-income producing assets

Position: General Comments

Reasons: Published position

2 October 2002 Internal T.I. 2002-0135807 F - Lumpsum Somme Forfaitaire Reg 102 / 103

Unedited CRA Tags
153(1) ITA 102(1) REG. 103(4) REG.

Principal Issues: Whether a resident of the province of Québec paying a retiring allowance of $ 30 000 in 30 equal weekly payments of $ 1 000 should compute the amount to withhold from each instalment according to the rules in ss. 102(1) of the Regulations, subparagraph 103(4)(a)(i) of the Regulations or subparagraph 103(4)(c)(i) of the Regulations ?

Position: Ss. 102(1) of the Regulations.

Reasons: Ss. 102(1) and 103(4) of the Regulation can apply to a retiring allowance. Ss. 103(4) does not apply in this situation because the payment of the retiring allowance is not made in a lump sum. Ss. 102(1) applies since the payment of the retiring allowance is made by periodic payments.