Income Tax Severed Letters - 2003-02-21

Ruling

2003 Ruling 2003-0183113 - 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

2003 Ruling 2002-0175363 - Canada - Austria Treaty

Unedited CRA Tags
212 214

Principal Issues: 1. whether interest is exempt under 7(c) of Art. 11 of Austrian treaty. 2. whether guarantee fee is interest under 214(15)(a). 3. whether commitment fee is interest under 214(15(b). 4. whether interest is exempt under 212(1)(b)(vii). 5. whether expenses relating to financing are exempt under 212(4)(b).

Position: A. Yes to 1,2,4 and 5. B. No to 3.

Reasons: A. rulings were previously provided to this taxpayer for similar financing arrangements. B. 214(15)(b) requires that the actual interest on the obligation be subject to tax under Part XIII, in this case it is exempted by 212(1)(b)(vii) so the commitment fee cannot be deemed interest.

2003 Ruling 2002-0175753 - Butterfly

Unedited CRA Tags
55(3)(b)

Principal Issues: Split-up butterfly reorganization

Position: Acceptable

Reasons: Meets the requirements under paragraph 55(3)(b).

2002 Ruling 2002-0163903 - Reorganization of Capital

Unedited CRA Tags
86

Principal Issues:
Whether subsection 86(1) applies to the proposed transactions?
Whether the proposed transactions result in the application of subsection 15(1)?

Position:
Yes.
No.

Reasons:
The proposed transactions result in a reorganization of capital.
Paragraph 15(1)(a) precludes the applicability of subsection 15(1).

2002 Ruling 2002-0167273 - WITHHOLDING EXCEPTION ASSET SALE

Unedited CRA Tags
212(1)(b)(vii)
Summary Under
Tax Topics - Income Tax Act - Section 212 - Subsection 212(1) - Subparagraph 212(1)(b)(vii)

Principal Issues:
Is a failure to make an offer if there is an Asset Sale over $XXXXXXXXXX an acceptable event of default?

2002 Ruling 2002-016729A - Exploration/Sink Shaft-CEE

Unedited CRA Tags
66.1(6)
Summary Under
Tax Topics - Income Tax Act - Section 66.1 - Subsection 66.1(6) - Canadian exploration expense - Paragraph (f)

Principal Issues: Whether expenses relating to certain exploration programs will qualify for inclusion under paragraph (f) to the definition of CEE. Whether a mine which may be established would be a "new mine" for purposes of paragraph (g) to the definition of CEE.

Position: Expenses incurred in respect of the proposed exploration programs may potentially qualify under paragraph (f) to the definition of CEE. A mine established utilizing a new shaft in accordance with the mine plan described herein would be a "new mine" for purposes of paragraph (g) to the definition of CEE.

Reasons: Based upon the facts of the situation and a written opinion received from Natural Resources Canada. A representative of that Department visited the site and reached conclusions that supported the above positions.

2002 Ruling 2002-0177133 - LOSS UTILIZATION

Unedited CRA Tags
20(1)(c) 112(1) 245(2)

Principal Issues:
Loss Utilization among related Canadian related corporations

2002 Ruling 2002-0156163 - PARTNERSHIP AT-RISK AMOUNT

Unedited CRA Tags
96(2.2)(c) 96(2.2)(d) 237.1
Summary Under
Tax Topics - Income Tax Act - Section 96 - Subsection 96(2.2) - Paragraph 96(2.2)(c)

Principal Issues:

1. Whether the principal amount of the promissory notes issued by limited partners to a partnership as part of purchase price of their partnership interests (in circumstances where the notes are immediately assigned to a third party in payment of an obligation of the partnership to the third party), will reduce the partners' at-risk amount under 96(2.2)(c).
2. Whether call option will reduce the at-risk amount of the limited partners under 96(2.2)(d).
3. Whether a right of the limited partners to a partnership to liquidate its assets so as to realize on the value of their underlying investment will reduce the at-risk amount of limited partners under 96(2.2)(d).
4. Whether limited partnership interests will be tax shelters.

Position:

1. On issuance of notes by partners to the partnership, at risk-amount will be reduced by the principal amount of the notes per 96(2.2)(c) but upon assignment to third party, at-risk amount will be restored by the amount of the notes.
2. No.
3. No.
4. No.

Reasons:

Technical Interpretation - External

20 February 2003 External T.I. 2003-0002315 - QUALIFIED MEDICAL DEVICE

Unedited CRA Tags
118.2(2)

Principal Issues: Does the cost of a TENS machine for home use qualify as a medical expense?

Position: No.

Reasons: The device is not included in the list of prescribed medical equipment and devices.

20 February 2003 External T.I. 2003-0182535 - TAXATION OF EMPLOYEE STOCK OPTIONS

Unedited CRA Tags
7(1) 110(1)(d)

Principal Issues: Taxation of employee non-CCPC stock options.

Position: This is a completed transaction and not a ruling request. General information provided.

Reasons: Reference to the legislation and Information Bulletins.

20 February 2003 External T.I. 2003-0002325 - PRESCRIBED MEDICAL DEVICES

Unedited CRA Tags
118.2(2)

Principal Issues: Does the cost of XXXXXXXXXX Massage Therapy System for home use qualify as a medical expense?

Position: No.

Reasons: The device is not included in the list of prescribed medical equipment and devices.

19 February 2003 External T.I. 2003-0000215 - NON-PROFIT ORGANIZATION BENEFIT

Unedited CRA Tags
149(1)(l)

Principal Issues: Will the reimbursement of a portion of an insurance deductible to a member result in the non-profit organization losing its tax exempt status.

Position TAKEN: No

Reasons: Expense was incurred while on organizational business.

19 February 2003 External T.I. 2002-0168355 - FOREIGN PENSION RECEIPTS

Unedited CRA Tags
56(1)

Principal Issues:
Request for comments on the taxability of specific types of pensions sourced in the UK.

Position:
Provided general commentary.

Reasons:
It is a question of fact whether the payments are pension payments.

19 February 2003 External T.I. 2003-0002555 - TUITION TAX CREDIT DISTANCE LEARNING

Unedited CRA Tags
118.5

Principal Issues: Are tuition fees paid to a U.K. university for a distance learning program eligible for the tuition tax credit.

Position TAKEN: No

Reasons: Not in full-time attendance.

19 February 2003 External T.I. 2003-0000645 - CHILD CARE EXPENSES

Unedited CRA Tags
63

Principal Issues: In whose name should child care expense receipts be issued in situations where the fees are paid by a third party, such as the child's grandparents or a corporation, or by both parents who are living separate and apart from each other?

Position: To the payer of the fees.

Reasons: Normal business practice. Also, the rules in ITA 63 provide that in certain cases only the taxpayer that paid the fees is entitled to claim the deduction for child care expenses and in other cases the deduction can be claimed by the taxpayer or the supporting person regardless of which of the two paid for the fees.

19 February 2003 External T.I. 2003-0181425 - Penalties - Partnership Info Returns

Unedited CRA Tags
162(7) 162(7.1)
Summary Under
Tax Topics - Income Tax Act - Section 162 - Subsection 162(7.1)

Principal Issues: Description of penalties relating to partnership information returns

Position: N/A

Reasons: The law

18 February 2003 External T.I. 2002-0180915 - CAPITAL LOSS

Unedited CRA Tags
54 40(3.4) 50(1)

Principal Issues: Can a corporation claim a capital loss with respect to shares which have decreased in value?

Position: Question of fact.

Reasons: General discussion of subsections 50(1), 40(3.3), 40(3.4) and the definition of a "superficial loss".

18 February 2003 External T.I. 2003-0182325 F - RAP LIEN PRINCIPAL DE RESIDENCE

Unedited CRA Tags
146.01(1) 146.01(2)a.1)
Summary Under
Tax Topics - Income Tax Act - Section 146.01 - Subsection 146.01(2) - Paragraph 146.01(2)(a.1)
individual co-owning a residence that was leased to her and spouse was disqualified if it was used as her principal place of residence, i.e., it had exclusive kitchen, bathroom and bedroom
Words and Phrases
principal place of residence

Principales Questions:
Une personne peut-elle participer au RAP si elle est propriétaire d'une partie indivise d'un immeuble qu'elle occupe à titre de locataire?
POSITION ADOPTÉE:
Non, puisque le contribuable possède et habite le logement comme lieu principal de résidence à ce moment.

18 February 2003 External T.I. 2003-0183935 - CCA FOR COMMUNICATION CABLE

Unedited CRA Tags
20(1)(a)

Principal Issues: Whether communication cable, including "riser cable" is included in Class 8 of Schedule II of the Regulations by virtue of subparagraph (b)(i) thereof.

Position: Question of fact.

Reasons: A review of each specific situation would determine which class is most appropriate for the cable.

17 February 2003 External T.I. 2003-0000605 - CHARITABLE GIFT ANNUITIES

Unedited CRA Tags
248(30) 248(31) Reg. 304

Principal Issues:
Tax implications of charitable gift annuities issued after December 20, 2002

Position:
Provided general comments on the taxation of annuity contracts and the application of the draft gifting legislation in determining the eligible amount of a gift.

Reasons: Legislation and draft legislation.

17 February 2003 External T.I. 2003-0182825 - EMPLOYER-PAID BENEFITS

Unedited CRA Tags
6(1)(a) 56(1)(v) 110(1)(f)

Principal Issues:
An employee is injured at work. The employer, which is not insured under the WSIB of Ontario, makes periodic payments to the employee equal to the amount that would have been paid by the WSIB had the employer been insured. What is the income tax treatment of the payments?

Position TAKEN:
The payments are taxable under paragraph 6(1)(a).

Reasons:
The payments are not "compensation received under an employees' or workers' compensation law of Canada or a province in respect of an injury, a disability or death".

17 February 2003 External T.I. 2002-0176345 - EMPLOYEE BENEFIT DONATIONS

Unedited CRA Tags
5(1) 6(1)(a) 56(2)

Principal Issues: (a) Whether a payment by a company to an athletic program for the specific use of the child of an employee is a taxable benefit to the employee. (b) Whether the company's entitlement to a deduction is adversely affected.

Position: (a) Yes (b) No

Reasons: (a) Subsection 5(1), paragraph 6(1)(a) and subsection 56(2) are sufficiently broad in their wording that the amount would be regarded as taxable to the employee. (b) Where such an amount is regarded as a taxable employment income, it would generally be considered incurred for the purpose of gaining or producing income. As such, the deductibility would not be adversely affected. However, because the amount is specifically designated for the benefit of a certain individual, it could not be regarded as a gift or donation for the purpose of sections 110.1 or 118.1.

17 February 2003 External T.I. 2002-0176455 - Amount Added to Paid-up Capital of Shares

Unedited CRA Tags
84, 84.1, 245
Summary Under
Tax Topics - Income Tax Act - Section 84 - Subsection 84(1)
no 84(1) application on tuck under
Summary Under
Tax Topics - Income Tax Act - Section 85.1 - Subsection 85.1(2.1)

Principal Issues: Whether s. 84(1) deems the payment of a dividend in a particular reorganization scenario.

Position: Not likely.

Reasons: The increase to the value of the corporation's assets could offset the increase to its paid-up capital and therefore the exception in s. 84(1)(b)(i) would apply. However, s. 84(2), s. 84.1 and s. 245(2) could be applicable in such circumstances.

17 February 2003 External T.I. 2003-0000725 - Meaning of Similar Properties

Unedited CRA Tags
111(5)(a)(ii) 88(1.1)(e)
Summary Under
Tax Topics - Income Tax Act - Section 111 - Subsection 111(5) - Paragraph 111(5)(a)
flour (or hay) not similar product to end product (bread or milk)

Principal Issues: Meaning of similar properties.

Position: Question of fact but in this case it would appear that the properties would not be similar.

Reasons: The law.

14 February 2003 External T.I. 2003-0000335 - TRANSFER INCOME TO PROFESSIONAL CORP

Unedited CRA Tags
9(1)

Principal Issues:
Will the income from the fees for medical services provided by a doctor's professional medical corporation be taxed in the hands of the individual doctor, rather than in the corporation, simply because the individual medical doctor's billing number must be used to obtain the remuneration from OHIP?

13 February 2003 External T.I. 2003-0001495 - MEDICAL EXPENSES COCHLEAR IMPLANT

Unedited CRA Tags
118.2(2)(i)

Principal Issues: Whether the cost of a maintenance service contract for a cochlear implant qualifies for the medical expense tax credit

Position: Yes.

Reasons: The cost of the service contract for the cochlear implant in the circumstances described may be considered an amount in respect of an aid to hearing and thus would qualify under paragraph 118.2(2)(i).

13 February 2003 External T.I. 2002-0167445 - EXCLUDED INTEREST

Unedited CRA Tags
40(3.15)

Principal Issues: Application of grandfathering rules to subsection 40(3.15); Can an interest in a partnership be an excluded interest if property is not owned by the partnership on February 22, 1994 but is acquired in circumstances described in subsection 40(3.16)(a), (b) or (c)?

Position: Yes

Reasons: Subsection 40(3.17) allows for this result

XXXXXXXXXX 2002-016744
Lena Holloway, C.A.
February 13, 2003

13 February 2003 External T.I. 2002-0167555 - SECTION OF THE ACT259(1)

Unedited CRA Tags
259(3)

Principal Issues:
Can a trust elect, at a time that it is not a qualified trust, to have the provisions of subsection 259(1) apply to it?

Position TAKEN: No

Reasons: The trust must be a qualified trust at the time of the election.

13 February 2003 External T.I. 2002-0179505 - MEDICAL EXPENSE

Unedited CRA Tags
110.2(2) Reg. 5700

Principal Issues: Whether the cost of a computer used by a student, on the recommendation of a psychologist, qualifies as medical expense.

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

Reasons: Not a medical expense as defined in section 118.2 of the Act.

13 February 2003 External T.I. 2003-0181585 - INTEREST DEDUCTIBILITY COMMON SHARES

Unedited CRA Tags
20(1)(c)

Principal Issues:
Interest deductibility on borrowed money used to acquire common shares

12 February 2003 External T.I. 2003-0181855 - Adjusted cost based - Spin-Off Shares

Unedited CRA Tags
86.1(3)

Principal Issues: Clarification on the calculation of ACB of a spin-off share for the purposes of subsection 86.1(3) of the Income Tax Act.

Position: Confirming the calculation shown in file #2002-0134537.

Reasons: As explained in file #2002-0134537.

12 February 2003 External T.I. 2003-0001645 - Canadian Citizen Working in US

Unedited CRA Tags
2 128.1 114

Principal Issues: General question from Canadian citizen working in United States.

Position: Question of fact. Contact ITSO.

Reasons: n/a

12 February 2003 External T.I. 2002-0141425 - TIERED PARTNERSHIPS

Unedited CRA Tags
39(4) 39(4.1) 39(5)
Summary Under
Tax Topics - Income Tax Act - Section 39 - Subsection 39(4.1)

Principal Issues: Is a subsection 39(4) election by a member of a partnership, that is a member of a second partnership, applicable to Canadian securities disposed of by the second partnership?

Position: No.

Reasons: Subsection 39(4.1) does not deem property owned and disposed of by the second partnership to be owned and disposed of by the members of the upper-tier partnership.

Technical Interpretation - Internal

19 February 2003 Internal T.I. 2002-0169967 F - ARREARAGES-PENSION ALIMENTAIRE

Unedited CRA Tags
56(1)b) 60(b) 56.1(4)
Summary Under
Tax Topics - Income Tax Act - Section 56.1 - Subsection 56.1(4) - Support Amount
settlement payment of past and future support payments was not a support amount

Principales Questions:
Est-ce qu'un montant payé en règlement complet des obligations passées et futures relatives à la pension alimentaire pour ses enfants (" in full satisfaction of past and future child support obligations ") est déductible pour Monsieur en vertu de l'alinéa 60b) de la Loi et est-ce que ce montant doit être inclus dans le revenu de Madame conformément à l'alinéa 56(1)b) de la Loi?

Position Adoptée:
Non.

19 February 2003 Internal T.I. 2003-0000617 - TUITION TAX CREDIT PILOT LICENCE

Unedited CRA Tags
118.5

Principal Issues: Eligibility of cost of private pilot's licence for the Tuition Tax Credit.

Position: The student must provide proof of enrolment in a commercial pilot licence program in order for the tuition for private pilot licence training to be eligible for the Tuition Tax Credit.

Reasons: Information obtained from Individual Returns and Payments Processing Directorate.

19 February 2003 Internal T.I. 2002-0125767 - STRONG CURRENCY BORROWINGS

Unedited CRA Tags
20(1)(c)
Summary Under
Tax Topics - Income Tax Act - Section 212 - Subsection 212(1) - Paragraph 212(1)(b)

Principal Issues:
Did a plain vanilla swap agreement include the acquisition of a right?

Position: No

Reasons: Insufficient evidence to support this conclusion.

17 February 2003 Internal T.I. 2002-0180857 - MEDICAL PRACTITIONER

Unedited CRA Tags
118.4(2)

Principal Issues: Does an acupuncturist providing services in Ontario qualify as a medical practitioner for the purpose of the medical expense tax credit?

Position: No.

Reasons: An acupuncturist is not authorized to practice as a medical practitioner under the Regulated Health Practitioners Act or the Drugless Practitioners' Act which are the relevant statutes governing medical practitioners in Ontario.

12 February 2003 Internal T.I. 2002-0176917 - partnerships&income allocation

Unedited CRA Tags
96(1)
Summary Under
Tax Topics - Income Tax Act - Section 96 - Subsection 96(1) - Paragraph 96(1)(g)
partner cannot be allocated income or loss greater than the partnership income or loss

Principal Issues: Can a partner be allocated a larger loss than that incurred by a partnership? In this case, the loss incurred by the partnership was augmented by "salary" paid to one of the partners.

Position: No. However, if the taxpayers relied, to their detriment, on the position stated in IT-138R (cancelled) the TSO has the discretion to accept the taxpayers' partnership allocation for the taxation year in question.

Reasons: Modifications to IT-Bulletins that are not favourable to taxpayers are normally effective for the year the modification was made and subsequent taxation years. The allocation is not clearly inconsistent with the example in IT-138R, paragraph 11.

7 February 2003 Internal T.I. 2002-0172287 - Interest arrears on emigration disposition

Unedited CRA Tags
220(4.5) 221.1
Summary Under
Tax Topics - Income Tax Act - Section 221.1
interest due to retroactive amendment

Principal Issues: a) Do any provisions relieve arrears interest when a taxpayer fails to make an election under subsection 220(4.5) of the Income Tax Act (the "Act")?
b) Where a taxpayer has posted security, but disposed of part of the property, does arrears interest run from the balance due date for that tax year?

Position: a) Yes where is it just and equitable to allow a late election.
b) Yes.

Reasons: a) Subsection 220(4.54) of the Act.
b) Subsection 220(4.5) provides that security is no longer valid once the property secured has been disposed of.

5 February 2003 Internal T.I. 2002-0177827 - PENSION DIVISION LEGAL FEES & TAXABILITY

Unedited CRA Tags
56(1)(a) 60(o.1)

Principal Issues: 1. Are legal fees to obtain a Pension Division Order deductible?
2. Are payments pursuant to a Pension Division Order taxable to the recipient and deductible by the RPP member?

Position: 1. No, legal fees to obtain a Pension Division Order are not deductible.
2. Yes, payments pursuant to the Pension Division Order are taxable as pension income to the recipient former spouse. No, the payments are not deductible by the former spouse who is the RPP member.

Reasons: 1. Legal expenses relating to a division or settlement of property arising out of, or on breakdown of marriage are not an eligible legal expense under subsection 60(o.1).
2. An order under the Pension Benefits Division Act results in a severance of the pension and each party is taxable on their portion, to be reported annually as income under paragraph 56(1)(a) of the Act. Payment in satisfaction of one's property rights arising from the marriage is a payment of a capital nature and thus not deductible.