Income Tax Severed Letters - 2002-12-06

Principal Issues: Where subsections 73(3) or (4) are first used to transfer (on a rollover basis) farm property to an adult child and the farm property is then sold within a three year period, does subsection 69(11) apply?

Position: Question of Fact

Reasons: Where the "one of the main purposes" test has been met, subsection 69(11) will apply because parents and children are not affiliated under subsection 251.1 of the Act. Where subsection 69(11) applies, the child's adjusted cost based computed under paragraph 73(3)(d) will reflect the parent's deemed proceeds of disposition as computed under subsection 69(11).

Principales Questions:
Est-ce que l'ADRC exige le versement par un employeur des retenues à la source lorsque la seule rémunération reçue par un employé est une rémunération non monétaire?

Position Adoptée:
Non. L'ADRC n'exige pas les retenues à la source dans une telle situation.

Principal Issues: Whether proposed subparagraph 94.2(11)(c)(ii) applies to a ordinary term insurance policy such that proposed paragraph 94.2(11)(a) would not apply?

Position: Yes if it is a pure term insurance policy with no savings element.

Reasons: Interpretation of the proposed law.

Principal Issues:
1. Does a company have to be incorporated in Canada to be a Canadian corporation?
2. Does a company have to establish a "substantial Canadian presence" ? If so, how?
3. Does a company have to have directors in Canada?
4. Does a company have to satisfy all of the above?

Position:
1. Yes
2. Yes, if it is a Canadian corporation that derives its value primarily from foreign property. The tests are set out in the legislation
3. Not expressly
4. Not necessarily - question of fact

Reasons:
General information provided based on legislation.

Principal Issues: Whether the cost of a wheelchair lift & the expenses related to the installation thereof qualify for the medical expense credit.

Position: The cost of the lift would qualify provided that it is prescribed by a medical practitioner. The cost relating to the renovations to the dwelling to install the lift would qualify as a medical expense.

Reasons: Expenses appear to meet the requirements set out in paragraphs 118.2(2)(l.2) & 118.2(2)(m) of the Act & regulation 5700.

Principal Issues: Can a particular property, acquired prior to June 18, 1987, which has not previously met the requirements of "qualified farmed property" qualify in the year of disposition if more than 50% of the property is used in the business of farming?

Position: Question of fact, but unlikely based on the limited information provided.

Reasons: "Qualified farm property" within the meaning of subsection 110.6(1) of the Act, is property that has been used in the course of carrying on the business of farming in Canada. Under clause (a)(vii)(A) of the definition, property must have been used by, among others, the taxpayer or a spouse, child or parent of the taxpayer principally in carrying on the business of farming in Canada in the year the property is disposed of, in order to be considered to have been used in the course of carrying on the business of farming. While it is possible that a property acquired prior to June 18, 1987 may be considered "qualified farm property" if more than 50% of the property is used in the business of farming in the year of disposition, a review of all of the facts surrounding a situation would be required to conclusively resolve whether the parcel of land held by the taxpayer meets the requirements of "qualified farm property". Based on the information provided it is unclear whether more than 50% of the property would be used in the business of farming (it is a question of fact whether such a business would be carried on). One should also consider the implication of the subsection 45(1) change-in-use rules.

Principal Issues: Availability of 87(11) bump through successive amalgamations.

Position: Yes

Reasons: Continuation rule in subsection 88(4))

Principal Issues: Whether an option to acquire 5% of the shares of a corporation constitutes taxable Canadian property if the holder of the option already owns 20% of the shares of the corporation?

Position: No.

Principal Issues:
Whether research prize awarded to XXXXXXXXXX qualifies as a prescribed prize within the meaning of Regulation 7700.

Position: -question of fact; likely no.

Reasons:
While prize meets criteria of being are based on merit and are not compensation for services rendered, they do not appear to meet the "recognized by the general public criteria"

Principal Issues: How is the foreign tax credit calculated for dividends received from the United Kingdom?

Position: A foreign tax credit to the maximum of the treaty-specified rate is given by Canada and any excess amount of tax withheld should be refunded by the United Kingdom.

Reasons: Even though the United Kingdom has repealed the Advance Corporation Tax, Article X(3) of the Canada-U.K. Income Tax Convention (1978) continues to apply.

Principal Issues:
Inquiry with respect to the following two unrelated topics in ITTN 22 -
(a) Shareholder/Manager Remuneration: Does this position apply in the situation where a salary or bonus is paid to a family member that is not a shareholder, or in the case of a proprietor, when a salary or bonus is paid to his or her spouse?
(b) Employee Benefits - Question 9: Does a taxable benefit result when an employer provides an employee with a home computer, when the purpose for providing the computer is for the employer's benefit? Further, since the employee would own the computer, can a deduction be claimed for the entire cost of the computer?

Position: (a) No. (b) Question of Fact.

Reasons: (a) Policy only applies to shareholders of a CCPC. (b) Program must contain certain elements; see below.

Principal Issues:
Is a second mortgage a qualified investment for a trust governed by an RRSP?

Position: Yes

Reasons:
As long as the mortgage satisfies the requirements of paragraph 4900(1)(j) of the Regulations.

Principal Issues: The issue is whether the income distributed by a trust to a child will be subject to the kiddie tax under section 120.4 of the Act. The trust, in question will be created for the purpose of earning money to cover medical expenses of the child. The trust will be the sole proprietor of a retail business that will raise funds for the trust through the sale of XXXXXXXXXX and other items. The grandfather, as trustee, will provide operating services to the trust for no remuneration.

Position: Income earned by the trust will not be subject to the kiddie tax.

Reasons: The income earned by the trust will not be split income as defined in section 120.4 of the Act.

Principal Issues: Whether expenses in respect of exploring for helium could qualify for treatment similar to such expenses in an oil or natural gas context for flow-through share purposes.

Position: No.

Reasons: Review of the facts of the situation in light of the relevant legislative provisions. Helium is an inert, non-hydrocarbon gas and as such would neither be a mineral nor "an accumulation of petroleum or natural gas" for purposes of the legislation under consideration.

Principal Issues: We have been asked whether a corporation that provides services can be regarded as carrying on more than one business and whether it might be construed as carrying on a "personal services business" as defined in subsection 125(7) of the Act.

Position. We have only provided general comments in respect of the issue of whether two separate businesses are being carried on simultaneously (IT-206R discusses this issue) as well on the "incorporated employee" condition within the definition of "personal services business".

Reasons: We were only provided with limited information.