Income Tax Severed Letters - 2002-12-06

Miscellaneous

2002 2002-0176871 - Subsection 40(3.6) - Multiple Executors40(3.6)

Unedited CRA Tags
251.1

Principal Issues: Minor changes to proposed transactions

Position: Confirmed rulings granted in ruling 2002-015460

Reasons: The law

Ruling

2002 Ruling 2002-0129763 - XXXXXXXXXX

Unedited CRA Tags
88

Principal Issues: Wind-up and bump transaction. Deductibility of indebtedness issued in the course of acquiring all the issued and outstanding shares of the subsidiary.

Position: Favourable rulings provided subject to certain limitations.

Reasons: The law.

2002 Ruling 2002-0132913 - SAME BUSINESS

Unedited CRA Tags
1101(1) 14(1)

Principal Issues: whether 4 partnerships are the same business

Position: yes

Reasons: peculiar fact situation; all partnerships are owned in the same proportion (indirectly) by the same individuals; all sell and service XXXXXXXXXX which also required control by one individual; partnerships and their employees work together;

2002 Ruling 2002-0158543 - RETIRING ALLOWANCE FROM FARM OPERATIONS

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

Principal Issues:
Is an amount paid by a farmer to his spouse considered a reasonable retiring allowance given that the spouse worked for XXXXXXXXXX years but was only T4'D for XXXXXXXXXX years?

Position:
Yes, given the facts of this case, the amount not exceeding an amount eligible for rollover under paragraph 60(j.1) of the Act to an RRSP is accepted as reasonable.

Reasons:
In accordance with the guideline provided in Question 10 at the Prairie Tax Conference Round Table and prior rulings given in similar circumstances.

Ministerial Correspondence

12 December 2002 Ministerial Correspondence 2002-0174064 - OPTION REDUCTION IN VALUE

Unedited CRA Tags
7(1)(a)\

Principal Issues:
Follow-up letter on review of option value decrease issue.
See Ministerial Correspondence 2002-014424

Position: Indicated it is still under review by Finance.

Reasons: Issue is still under review.

Technical Interpretation - External

31 December 2002 External T.I. 2002-0159245 - MUTUAL FUND TRUST ELECTION

Unedited CRA Tags
132(6.1)

Principal Issues:
Does a subsection 132(6.1) election apply to make an investment in the trust during the period prior to the election a qualified investment?

Position: Yes

Reasons: Wording of the legislation and consistent with prior interpretations..

23 December 2002 External T.I. 2002-0143635 - FARM ROLLOVERS

Unedited CRA Tags
73(3) 73(5) 79(11)

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).

20 December 2002 External T.I. 2002-0176135 - PRIVATE HEALTH SERVICES PLAN

Unedited CRA Tags
248(1) 118.2(2)

Principal Issues: Whether a draft plan would qualify as a PHSP

Position: Proposed transactions must be subject of an ATR-must meet conditions as set out in IT 339R2- including in the case of employer sponsored plan-must be in nature of insurance

XXXXXXXXXX 2002-017613
Lena Holloway, CA
December 20, 2002

20 December 2002 External T.I. 2002-0177705 - Proposed FIE Rules

Unedited CRA Tags
94.2(11)

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.

20 December 2002 External T.I. 2002-0158495 - PRIVATE HEALTH SERVICES PLAN

Unedited CRA Tags
20.01

Principal Issues: (i) Is a sole proprietor's contribution to a cost-plus health plan deductible in calculating business income for income tax purposes if the sole proprietor has no employees? (ii) Are the costs of herbs and vitamins, as recommended and purchased from a Naturopath, reimbursable under a PHSP?

Position: (i) no. (ii) no.

Reasons: (i) Not a private health services plan. (ii) Not recorded by a pharmacist.

20 December 2002 External T.I. 2002-0159365 F - REMUNERATION NON MONETAIRE

Unedited CRA Tags
153(1)

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.

19 December 2002 External T.I. 2002-0176965 - MEDICAL EXPENSES-wheelchair

Unedited CRA Tags
118.2

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.

19 December 2002 External T.I. 2002-0151195 - FOREIGN PROPERTY FOR DIPS

Unedited CRA Tags
89(1) 206(1) 206(1.1)

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.

19 December 2002 External T.I. 2002-0171065 - Arm's Length Purchase & Sale of Shares

Unedited CRA Tags
39 80 12

Principal Issues: Acquisition of control - loss streaming rules and sale of shareholder loan receivable.

Position: General comments only.

Reasons: This is a completed or proposed transaction and we don't have all the facts.

19 December 2002 External T.I. 2002-0148705 - Interest Deduction by a Non-Res Partner

Unedited CRA Tags
216 20(1)(c)

Principal Issues: Whether a non-resident partner can deduct interest expense on money borrowed to acquire an interest in a partnership that earns rental income from a property located in Canada?

Position: If an election under section 216 of the Act is made, the non-resident partner can claim an interest expense deduction under paragraph 20(1)(c).

Reasons: Intent of section 216 and paragraph 20(1)(c).

18 December 2002 External T.I. 2002-0130715 - Availability of Bump After Amalgamation

Unedited CRA Tags
88(4) 88(1)(c.4)
bottom up and top down amalgamations re Target both work

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

Position: Yes

Reasons: Continuation rule in subsection 88(4))

18 December 2002 External T.I. 2002-0150335 - STATUS INDIAN EXEMPT EMPLOYMENT INCOME

Unedited CRA Tags
81(1)(a)

Principal Issues:
Status Indian living on reserve performs 25% of her employment duties on reserve. What portion of her salary is exempt and what does she file to claim the exemption?

Position:
25% of salary is exempt. She fills out a TD1-IN and the employer retains for our possible review.

Reasons: June 1994 Indian Exemption for employment income Guidelines.

18 December 2002 External T.I. 2002-0172465 - PRESCRIBED PRIZES

Unedited CRA Tags
56(1)(n)

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"

18 December 2002 External T.I. 2002-0166365 - PHSP'S FOR SOLE PROPRIETORS

Unedited CRA Tags
20.01

Principal Issues: Private health services plans for sole proprietors.

Position: General comments.

Reasons: General enquiry.

18 December 2002 External T.I. 2002-0172975 - QUALIFIED FARM PROPERTY

Unedited CRA Tags
110.6(1)

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.

18 December 2002 External T.I. 2002-0151795 - Options and Taxable Canadian Property

Unedited CRA Tags
248(1) TCP

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.

18 December 2002 External T.I. 2002-0153245 - APPLICATION OF THE ACT

Unedited CRA Tags
127(24)

Principal Issues: The application of subsection 127(24) of the Income Tax Act to a series of hypothetical transactions between a partnership and its members.

Position: No position given.

Reasons: Question of fact.

18 December 2002 External T.I. 2002-0150305 - TUITION CARRYOVER NON-RESIDENT

Unedited CRA Tags
118.61

Principal Issues:
Can unused tuition credits be carried over indefinitely by a Canadian living and attending school in the U.S.?

Position: Depends on the facts.

Reasons:
A non-resident with no income subject to Canadian tax will not be entitled to the tuition credit or the carry-over. If the student attending school in the U.S. is a resident of Canada for Canadian income tax purposes, the unused tuition fee credits are available for carry-forward indefinitely, even if the student subsequently ceases to be a resident of Canada.

17 December 2002 External T.I. 2002-0158165 F - REPAS DE FETE OFFERTS PAR L'EMPLOYEUR

Unedited CRA Tags
67.1(2)(f)

Principales Questions:
1. Est-ce que l'alinéa 67.1(2)f) de la Loi s'applique si un employeur offre des soupers mensuels à ses employés qui ont célébré leur anniversaire au cours de ce mois?

2. Est-ce que l'alinéa 67.1(2)f) de la Loi s'applique si un employeur offre un souper annuel à tous ses employés afin de célébrer leur anniversaire?

Position Adoptée:
1. Non.
2. Oui, si ce souper est l'un d'un maximum de six événements spéciaux tenus au cours d'une année civile qui respectent les dispositions de l'alinéa 67.1(2)f) de la Loi.

17 December 2002 External T.I. 2002-0155005 - FTC for U.K. Dividends

Unedited CRA Tags
Art. X(3) aRT. XXVII(4)

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.

16 December 2002 External T.I. 2002-0138195 F - ALLOCATION POUR FRAIS DE DEPLACEMENT

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

Principales Questions:
Différentes mises en situation dans lesquelles un employé d'une institution financière doit travailler deux jours par semaine à un point de service de son employeur lequel est situé à 85 kilomètres de l'institution financière. L'allocation raisonnable pour l'usage de son véhicule à moteur que lui verse son employeur pour ses déplacements entre sa résidence au point de service est-elle exclue de son revenu d'emploi en vertu du sous-alinéa 6(1)b)(vii.1) de la Loi?

Position Adoptée:
Commentaires généraux. La distance parcourue par l'employé entre sa résidence et son lieu de travail régulier n'est pas une distance qu'il a parcourue dans l'accomplissement des fonctions de sa charge ou de son emploi.

16 December 2002 External T.I. 2002-0167245 - MEDICAL EXPENSES

Unedited CRA Tags
118.2(2)(a)

Principal Issues: Whether the following expenses qualify as medical expenses:
1) Premium paid under a Health Insurance plan
(HAP-HMO) in the United States
2) Co-insurance amounts paid to a medical practitioner
for doctor appointments
3) The cost of medication
4) Travel costs to obtain injections for the treatment of
hepatitis "C"

Position: General comments provided

Reasons: Limited information provided therefore only general comments provided

16 December 2002 External T.I. 2002-0173335 - ITTN 22

Unedited CRA Tags
6(1)(a) 67

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.

13 December 2002 External T.I. 2002-0176025 - SELF-DIRECTED RRSP MORTGAGE

Unedited CRA Tags
REG 4900(1)(j)

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.

13 December 2002 External T.I. 2002-0171095 - TRANSFER PENSION FUNDS LOCKED IN

Unedited CRA Tags
147.3

Principal Issues:
Can locked-in and non-locked-in RPP funds be transferred to the same RRSP?

Position: Provide general information.

Reasons:
There is nothing in the Act that prevents the transfer of locked-in and non locked-in pension funds to the same RRSP. The PBSA and the applicable provincial pension authorities regulate locking-in requirements for pension funds.

12 December 2002 External T.I. 2002-0160965 - TAX ON SPLIT INCOME

Unedited CRA Tags
120.4

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.

11 December 2002 External T.I. 2002-0172305 - RESEARCH AWARD

Unedited CRA Tags
56(1)(n)

Principal Issues:
Whether prizes awarded to members of XXXXXXXXXX qualify as a prescribed prize within the meaning of Regulation 7700.

Position:
-question of fact; likely no.

Reasons:
While prizes meet criteria in that they are based on merit and are not compensation for services rendered, they do not appear to meet the "recognized by the general public criteria"

11 December 2002 External T.I. 2002-0141275 - CEE - Exploration for Helium

Unedited CRA Tags
66.1(6)

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.

11 December 2002 External T.I. 2002-0169595 - MEDICAL EXPENSE

Unedited CRA Tags
118.2(2)(a)

Principal Issues: Whether acne facial treatments by a paramedical aesthetician qualify as medical expenses.

Position: Likely, in view of the circumstances.

Reasons: The treatment is recommended by a dermatologist, the aesthetician is an employee, and works under the guidance, of the dermatologist, and payment is made to the dermatologist.

9 December 2002 External T.I. 2002-0165395 - PERSONAL SERVICES BUSINESS

Unedited CRA Tags
125(7)

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.

12 November 2002 External T.I. 2002-0173955 - Income From Services

Unedited CRA Tags
95(2)(b)

Principal Issues: Application of paragraph 95(2)(b) to a particular fact pattern

Position: Paragraph 95(2)(b) would apply

Reasons: Fact pattern clearly falls within the scope of the provision

11 October 2002 External T.I. 2002-0157085 F - FRAIS MEDICAUX-PERSONNE A CHARGE

Unedited CRA Tags
118(6) 118.2(1)

Position Adoptée:
Question de fait

11 October 2002 External T.I. 2002-0157065 F - date d'execution & change

Unedited CRA Tags
56.1(4)

Position Adoptée:
aucune

3 December 2002 External T.I. 2002-0173855 - Removal computer software OECD abservation

Unedited CRA Tags
Art. 13

Principal Issues: TEI Question - Withdrawal of observation on computer software in OECD Commentary on March 28, 2002 by Finance - timing.

Position: See response - no change in assessing for payments made before March 28, 2002.

Reasons: change in Finance Policy

Technical Interpretation - Internal

20 December 2002 Internal T.I. 2002-0152157 - INTEREST REDEEM SHARES NOTES

Unedited CRA Tags
20(1)(c)

Principal Issues:
Whether interest is deductible on promissory note issued to redeem shares

Position: yes, to the extent that it replaces capital withdrawn from the business

Reasons: Oct 1, 2002 Presentation to the CTF

18 December 2002 Internal T.I. 2002-0161747 - INTEREST EQUITY ACCOUNTING

Unedited CRA Tags
20(1)(c) 248(24)

Principal Issues:
Whether equity accounting may be used to determine accumulated profits for the purpose of interest deductibility to pay dividends/return capital

Position: no

Reasons: this measurement can reflect more than the capital of the borrowing corporation and is therefore not permitted.

18 December 2002 Internal T.I. 2002-0164817 F - HONORAIRES POUR SERVICES DE MANDATAIRE

Unedited CRA Tags
67 18(1)A)

Principales Questions:
Est-ce que l'ADRC pourrait appliquer l'alinéa 18(1)a) ou l'article 67 de la Loi pour refuser la déduction des frais de mandataire payés par le professionnel?

Position Adoptée:
Oui, si aucun service n'a été rendu ou si les frais ne représentent pas la juste valeur marchande des services rendus par le mandataire.

18 December 2002 Internal T.I. 2002-0178237 - CLINICAL TRIALS MATERIAL

Unedited CRA Tags
37(1)

Principal Issues: Whether the cost of clinical trials material is deductible under subsection 37(1) or (2) of the Act.

Position: Depends on the particular situation.

Reasons: Question of fact.

28 November 2002 Internal T.I. 2002-0164027 - CORPORATE LOAN FROM SHAREHOLDERS RRSP

Unedited CRA Tags
20(1)(c) 15(1) 204.2(1.2)(b)

Principal Issues:
1. Does a loan from the shareholders' RRSPs to the non-arm's length corporation constitute a qualified investment for the RRSPs?
2. Is it reasonable for a guaranteed loan from a shareholder's RRSP to the corporation to have an excessively high interest rate?

Position:
1. Question of Fact.
2. No.

Reasons:
1. The status of the investment could be challenged on these facts.
2. The loan is guaranteed. The interest rate should reflect this.

27 November 2002 Internal T.I. 2002-0158127 - SR&ED-JOINT VENTURE

Unedited CRA Tags
37(1)

Principal Issues: If a taxpayer is a participant in a joint venture, should SR&ED eligibility be determined at the joint venture level?

Position: No.

Reasons: Although a joint venture contains similar characteristics of a partnership, it is not a partnership. Thus eligibility is determined at the participant level.

25 November 2002 Internal T.I. 2002-0125907 - PENSIONS AND ANNUITIES

Unedited CRA Tags
56(1)(d) CAN/AUSTRALIA ART 18

Principal Issues:
How are annuity and superannuation payments arising in Australia taxed in the hands of a recipient Canadian resident?

Position: Based on the limited information available, the total amounts received are taxable.

Reasons:
Under Article 18 of the Canada-Australia Income Tax Convention, there is no relief for amounts that would not have been subject to Australian tax if the recipient were a resident of Australia. Also, the payment is not from a foreign retirement arrangement.