Income Tax Severed Letters - 2003-02-28

Principal Issues:
Where all of the other conditions are satisfied, is a taxpayer that has a spouse and a son that are disabled for purposes of the Act eligible to withdraw amounts under the Home Buyers' Plan in respect to a move to another home?

Position: Yes.

Reasons:
Where all of the conditions under the Home Buyers' Plan are satisfied, the individual would qualify to withdraw a supplemental eligible amount for the benefit of ensuring that accessibility to the new home is adequate for the disabled wife and son.

Principal Issues: Is a resident of Canada subject to tax in respect of spousal support received from a payer that is resident in Hong Kong?

Position: Yes

Reasons: Spousal support is included in income under ITA 56(1)(b) and such inclusion is not dependent on the tax treatment of the spousal support in the hands of the payer under the Hong Kong tax regime.

Principal Issues: (a) Whether an honorarium received by a councillor for representing a municipality on an external board, is employment income when the amount is voluntarily turned over to the municipality. (b) Whether the councillor is entitled to a deduction from employment income for the amount. (c) Whether the councillor is entitled to a non-refundable tax credit for a donation made to a Canadian municipality.

Position: (a) Yes. (b) No. (c) Yes.

Reasons: (a) Subsection 5(1), paragraph 6(1)(c) and subsection 56(2). (b) Subsection 8(2). (c) Subsection 118.1.

Principal Issues: Whether subsection 96(1.1) of the Income Tax Act applies to a member of a partnership which is itself a partnership.

Position: Yes.

Reasons: Subsection 102(2) of the Act provides that, in subdivision j, a reference to a person or a taxpayer who is a member of a particular partnership includes a reference to another partnership that is a member of the particular partnership.

Principal Issues:
Is the payment of an amount to an employee to compensate the employee for their loss of employment, where the employee is re-employed with the employer in another position prior to being terminated from the employees' current position, a retiring allowance for purposes of the Act.

Position:
The payment would not be a retiring allowance that is eligible for transfer to the employees' RRSP and a deduction in accordance with paragraph 60(j.1) of the Act.

Reasons:

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.

Principal Issues:
1. Where, in a share consolidation of a public corporation ("Pubco1"), the shareholders of Pubco1 receive cash (not exceeding $200) in lieu of their post-consolidation fractional Pubco1 shares, whether such cash receipt by the shareholders would cause the share consolidation to fall outside the circumstances described in IT-65?
2. Whether we would extend our administrative practice in IT-474, where we administratively waive the requirement to obtain a section 116 clearance certificate for the non-resident shareholders of a corporation on an amalgamation to which subsection 87(4) would apply, to a wind-up of a public corporation ("Pubco2") to which subsection 88(2) would apply?

Position:
1. No.
2. No.

Reasons:
1. As long as the share consolidation complies with the circumstances described in IT-65, the dispositions, by the shareholders of Pubco1, of their post-consolidation fractional Pubco1 shares, will not, in and by themselves, cause the share consolidation to fall outside the circumstances described in IT-65.
2. There is no basis for extending our administrative practice in IT-474 to the wind-up of Pubco2 situation.

Principal Issues: Whether a combined per-kilometre and flat rate allowance are deemed unreasonable by virtue of subparagraph 6(1)(b)(x) or (xi).

Position: Subsection 6(1)(b)(x) will not apply, but 6(1)(b)(xi) will apply to some employees.

Reasons: The flat rate allowance does not cover any of the same use on which the per-kilometre allowance is based, so 6(1)(b)(x) does not apply. 6(1)(b)(xi) applies because some employees also receive a reimbursement for expenses that are in whole or in part in respect of the same use on which the per-kilometre and flat rate allowances are based.

Principal Issues: Does a payment in reduction of paid-up capital that results in a negative adjusted cost base give rise to a capital gain?

Position: Yes

Reasons: The law

Principal Issues:
Where a class of units of a unit trust is issued in two series:
1. in Reg. 4801(a)(i), is it sufficient if only one of the series of the class is qualified for distribution to the public?
2. in Reg. 4801(b), does the requirement that there be at least 150 unitholders pertain to a class rather than to each series in the class?
3. in Reg. 4803(1), in determining the number of units that constitutes a block, is it possible to have different block sizes depending on the value of each series of units? E.g. if the FMV of the first series is $10 per unit and the FMV of the second series is $40, is it appropriate to consider a block of units to consist of 100 units of the first series or 25 units of the second series?

Position:
1. Yes.
2. Yes.
3. Generally no.

Reasons:
1. If there are units of one series of a class that are qualified for distribution to the public, then there are units of that class that are so qualified per Reg. 4803(2)(a). This is consistent with the other two positions adopted herein since they do not make any distinction based on series.
2. There is no rule for trusts that is similar to the rule for corporations in subsection 248(6) that treats each series of a class of shares as a class itself. Accordingly, where units of a class are issued in more than one series, there must be at least 150 unitholders each of whom owns a block of units of any series of the class. In the hypothetical example, if there are 100 unitholders of one series, there must be at least 50 unitholders of the other series.
3. Since 248(6) does not treat a reference to a class of units of a trust as a reference to a series within the class, it is not generally appropriate to determine different block sizes for different series. If only units of the second class were issued, the block size would be 25 since the fair market value of the units would be at least $25 but less than $100. If there were also units of the first series issued but there were 150 unitholders each holding 25 units of the second series, the trust should still be able to qualify on the basis of having a sufficient number of unitholders of the second series. That is, the fact that two series are issued should not detract from the ability of the trust to qualify if it were to have not issued any units of the first series. However, where the number of unitholders of both series must be considered, it is our view that the block size for the class should be based on the value of the cheaper series.