Income Tax Severed Letters - 2003-02-28

Miscellaneous

2002 2002-0179381 - WITHHOLDING EXEMPTION

Unedited CRA Tags
212(1)(h)(vii)

Principal Issues:
Change in Make Whole amount from US treasury securities to Government of Canada Bonds

Ruling

2003 Ruling 2002-0162973 - Split up Butterfly

Unedited CRA Tags
55(3)(b)

Principal Issues: This is a 55(3)(b) split-up butterfly of the assets of Holdco among the three adult children of the deceased. The major assets of Holdco consist of real estate and mortgages to the children.

Position: The split-up butterfly qualifies under paragraph 55(3)(b).

Reasons:

2002 Ruling 2002-0161163 - RRSP TRANSFER AFTER DIVORCE

Unedited CRA Tags
146(16)

Principal Issues:
In the circumstances of the case, will a transfer of an amount from an RRSP of a former spouse of an individual to the individual's RRSP in settlement of future support payments satisfy the requirements of 146(16) of the Act?

Position: Yes.

Reasons:
The payment will be made in accordance with an amendment of a separation agreement and/or a court order the effect of which is to vary the terms of the original agreement relating to the division of property between the former spouses in settlement of rights arising out of, or on the breakdown of their marriage.

2002 Ruling 2002-0167253 - PHANTOM STOCK PLAN

Unedited CRA Tags
REG 6801(d)

Principal Issues: Will the proposed DSU plan be excluded from the SDA rules?

Position: Yes

Reasons: Complies with 6801(d) provisions

2002 Ruling 2002-0170523 - PARTNERSHIP AT RISK

Unedited CRA Tags
96(2.2)

Principal Issues: none that impact on rulings

Position: n/a

Reasons: n/a

2002 Ruling 2002-0178983 - REFINANCING

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

Position:
Favorable ruling given.

Technical Interpretation - External

3 March 2003 External T.I. 2002-0180105 - RCA TRANSFER TO RRSP OR RPP

Unedited CRA Tags
146

Principal Issues:
Can amounts held in an RCA be transferred to an RRSP or RPP?

Position: No.

Reasons:
There is no provision allowing for the rollover of amounts from an RCA to an RRSP or RPP on a tax-deferred basis.

27 February 2003 External T.I. 2003-0182245 - RRSP-WRITE-OFF MORTGAGE

Unedited CRA Tags
146(1)

Principal Issues:
Can we provide an RRSP trust with a ruling or opinion allowing it to write-off a mortgage held by an RRSP?

Position: No.

Reasons:
Outlined possible tax consequences and noted that we do not provide opinions or rules on valuations.

27 February 2003 External T.I. 2002-0176655 - Loss Carryback and Fairness Provisions

Unedited CRA Tags
152(4.2)

Principal Issues: Loss carryback and fairness provisions

Position: Subsection 152(4.2) is not applicable in this situation

Reasons: Section 111 losses are carried back 3 years only.

27 February 2003 External T.I. 2003-0002065 - HBP, SUPPLEMENTAL ELIGIBLE AMOUNT

Unedited CRA Tags
146(1)

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.

26 February 2003 External T.I. 2003-0183665 - SUPPORT PAID BY AN ESTATE

Unedited CRA Tags
60(a) 56(1)(b)

Principal Issues: We have been asked whether or not payments made by an individual's estate to his ex-spouse for her support are required to be included in the ex-spouse's income under paragraph 56(1)(b) of the Income Tax Act (the "Act") and are deductible by the estate under paragraph 60(b) of the Act.

Position. The payments are not deductible under paragraph 60(b) of the Act and are not taxable under paragraph 56(1)(b) of the Act.

Reasons: The payments are not a "support amount" for the purposes of paragraphs 60(b) and 56(1)(b) of the Act as a result of the definition of this term in subsection 56.1(4) of the Act.

26 February 2003 External T.I. 2003-0000585 - TERMINATION ON RE-EMPLOYMENT

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

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:

26 February 2003 External T.I. 2003-0184575 - SUPPORT AMOUNTS PAID BY NON-RESIDENT

Unedited CRA Tags
56(1)(b) 56.1(4)

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.

26 February 2003 External T.I. 2003-0001435 - EMPLOYER-PROVIDED PARKING

Unedited CRA Tags
6(1)(a)

Principal Issues: Whether taxable employment benefit for employer-provided parking space should be reduced to account for times when the employee is unavailable to use the spot

Position: The benefit should not be reduced.

Reasons: The benefit arises from the spot being kept available for the employee's use.

26 February 2003 External T.I. 2002-0174585 - COUNCIL REMUNERATION DONATIONS

Unedited CRA Tags
6(1)(c) 56(2) 118.1

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.

26 February 2003 External T.I. 2002-0153385 - TRANSFER FOREIGN PENSION TO RPP

Unedited CRA Tags
60(j) Art. XVIII

Principal Issues:
A Canadian, resident originally in the U.K., has accrued pension benefits in the U.K. under his or her former U.K. employer's pension plan. Is it possible to transfer his U.K. pension benefits to his new Canadian employer's pension plan?

Position: Yes.

Reasons: Paragraph 60(j).

26 February 2003 External T.I. 2002-0178335 - PARTNERSHIP AS A TAXPAYER

Unedited CRA Tags
96(1.1)

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.

25 February 2003 External T.I. 2002-0138895 - LOAN TO TERMINALLY ILL POLICYHOLDER

Unedited CRA Tags
148(9)

Principal Issues:
Would a collateralized loan made by a life insurance company to a terminally ill policyholder, result in a taxable disposition of an interest in the policy?

Position: Generally No.

Reasons:
Provided the loan is made at the discretion of the life insurer and not pursuant to terms and conditions of the life insurance policy, and provided no amendments are made to the life insurance contract to address the collateralized loan, there would not be a disposition of an interest in the policy based on the definition of "disposition" in subsection 148(9).

25 February 2003 External T.I. 2003-0001745 - MOVING EXPENSES

Unedited CRA Tags
62(3)

Principal Issues: Eligibility as moving expenses of (a) deposit lost on the purchase of a residence; (b) deposit required by utilities service providers; (c) cost of connecting and disconnecting utilities.

Position: Deposits in (a) and (b) are not eligible moving expenses. The costs of connecting and disconnecting utilities in (c) qualify as moving expenses.

Reasons: Definition of "moving expense" in ITA 62(3).

25 February 2003 External T.I. 2002-0162845 - FOREIGN PENSION INCOME

Unedited CRA Tags
60(j) 56(1)(a)

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.

24 February 2003 External T.I. 2002-0149955 - Section 116 & Share Consolidation116

Unedited CRA Tags
248(1)

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.

21 February 2003 External T.I. 2003-0002885 - medical expenses

Unedited CRA Tags
118.2(2)

Principal Issues: Whether the cost of a blood pressure monitor qualifies for the medical expense tax credit.

Position: No

Reasons: A blood pressure monitor is not listed in paragraph 118.2(2)(i) or Regulation 5700.

20 February 2003 External T.I. 2002-0176735 - COMBINED EMPLOYEE MOTOR VEHICLE ALLOW.

Unedited CRA Tags
6(1)(b) 8(1)(h.1)

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.

20 February 2003 External T.I. 2002-0156675 - Affiliated Persons and Deemed FMV

Unedited CRA Tags
69(11) 69(14)

Principal Issues: Does the new entity referred to in 69(14) a reference only to the transferor in 69(11) or to the transferor and the persons referred to therein who have deductions available to them?

Position: It refers to the transferor and the persons who have deductions available to them.

Reasons: An appropriate interpretation and reading of 69(14).

14 February 2003 External T.I. 2002-0168815 - Deemed Capital Gain on Puc Reduction

Unedited CRA Tags
40(3) 52(2)(a)(ii)

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

12 February 2003 External T.I. 2002-0167545 - MFT - Units Issued in Series

Unedited CRA Tags
Reg. 4801 Reg. 4803 132(6)(c)

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.

12 February 2003 External T.I. 2002-0147025 - Trust-to-trust transfers

Unedited CRA Tags
248(25.1) 259(3)

Principal Issues: Does an election under 259(3) by a qualified trust continue to be valid after the qualifying trust has transferred the property to another trust such that paragraph (f) of the def'n of disposition and 248(25.2) apply?

Position: yes

Reasons: As a transferee trust is considered to be a continuation of the qualified trust, any elections by the former trustee, including an election under 259(3), would continue to be valid until such time as the election is either revoked or the conditions for the election are no longer met.

7 February 2003 External T.I. 2002-012676A - Attribution of NPI Royalty Income

Unedited CRA Tags
75(2)

Principal Issues: Whether subsection 75(2) would apply to attribute royalty income from an oil and gas property to the settlor of a discretionary trust and to the gain resulting from the disposition of the right to receive that income.

Position: Yes, 75(2) would apply.

Reasons: 75(2) will apply provided the income generated by the NPI is property income.

Technical Interpretation - Internal

27 February 2003 Internal T.I. 2001-0093047 - REGISTERED RETIREMENT SAVING PLAN

Unedited CRA Tags
146(1) 104(6)(a.2)

Principal Issues: In a situation where the last annuitant of an unmatured RRSP dies:

1. Can an allowable capital loss incurred in an RRSP be carried back to a prior taxation year and applied against a taxable capital gain?
2. Can a capital loss be carried forward to a subsequent taxation year to apply against a taxable capital gain when the RRSP is claiming a deduction under paragraph 104(6)(a.2) in the subsequent year?
3. Does the non-taxable portion of a capital loss reduce the benefit reported by a beneficiary under subsection 146(8) when the RRSP is wound-up?

Position: 1. Yes. 2. No. 3. No.