Income Tax Severed Letters - 2003-03-07

Ruling

2003 Ruling 2002-0169573 - Split Up Butterfly

Unedited CRA Tags
55(3)(b)

Principal Issues: Split up butterfly

Position: Rulings granted

Reasons: Standard butterfly

2003 Ruling 2002-0177993 - Safe Income Extraction

Unedited CRA Tags
88(1)(c)

Principal Issues: Whether Canco and Pco deal at arm's length with Holdco for purposes of the bump provisions in paragraph 88(1)(c)?

Position: Yes.

Reasons: The facts indicate that Canco and Pco are not acting as an accomodator in this arrangement.

2002 Ruling 2002-0167263 - CHANGES TO TERMS OF DEBT & CONSEQUENCES

Unedited CRA Tags
212(1)(b)(vii) 20(1)(f)

Position:
(a) Amendments to the terms of the Indenture and the Debentures do not result in a new obligation.
(b) Yes, deductible under 20(1)(f)(ii).

2002 Ruling 2002-0124893 - Split up Butterfly

Unedited CRA Tags
55(3)(b)

Principal Issues: Split up butterfly

Position: Rulings granted

Reasons: Standard butterfly

Technical Interpretation - External

6 March 2003 External T.I. 2002-0166855 F - CADEAU EN QUASI-SPECES

Unedited CRA Tags
6(1)
Summary Under
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a)
cash equivalent exclusion from accommodation of employee gifts and awards

Principales Questions:
Est-ce que la politique des cadeaux et récompenses énoncée dans les Nouvelles Techniques no 22 s'applique à des bons-cadeaux?
Est-ce que l'ADRC pourrait considérer que la politique des cadeaux et récompenses ne s'appliquent pas à l'égard de biens comme des massages ou des billets de spectacle?

Position Adoptée:
La politique ne s'applique pas à des cadeaux en espèces et en quasi-espèces. Un
bon-cadeau est un cadeau en quasi-espèces.
L'ADRC considère également que le remboursement par l'employeur d'un bien acheté par l'employé ou de services payés par l'employé est un cadeau ou une récompense en quasi-espèces. Ce sera également le cas d'un bien ou d'un service choisi par l'employé mais acheté par l'employeur (à moins que le nombre de biens ou de services qui peuvent être choisis ne soit très limité). De plus, la politique à l'égard des cadeaux ou récompenses ne s'appliquera pas aux biens et services qui peuvent être facilement convertis en argent. Si le massage et le billet de spectacle ne rentrent pas dans l'une des catégories mentionnées précédemment, nous sommes d'avis qu'ils ne seraient pas considérés comme étant des cadeaux ou des récompenses en quasi-espèces. Par conséquent, si tous les critères énoncés à la politique à l'égard des cadeaux et des récompenses étaient respectés, ces cadeaux ou récompenses ne seraient pas imposables.

5 March 2003 External T.I. 2002-0121385 - DEBT PARKING AND IT-315

Unedited CRA Tags
80.01(8) 80.01(3)

Principal Issues:
Purchaseco acquires the shares and non-trade commercial debt of Targetco for cash and a promissory note. (Purchase Note). Following the acquisition, Purchaseco and Targetco would amalgamate to form Amalco.

5 March 2003 External T.I. 2002-0142745 - Transaction Costs - Aborted Share Sale

Unedited CRA Tags
9(1) 18(1)(a) 18(1)(b)

Principal Issues: Tax treatment of transaction costs incurred by Target and shareholder in respect of aborted share sale

Position: Question of fact whether deductible by Target; not deductible by shareholder

Reasons: The law

4 March 2003 External T.I. 2002-0150985 F - TRANSFERT-RESIDENCE PRINCIPALE

Unedited CRA Tags
54 85(1)
Summary Under
Tax Topics - Income Tax Act - Section 40 - Subsection 40(2) - Paragraph 40(2)(b)
s. 40(2)(b) deduction available on transfer of residence to wholly-owned corporation

Principales Questions:
Est-ce qu'un actionnaire peut transférer un chalet à titre de résidence principale à la société dont il détient 100% des actions?

Position Adoptée:
Commentaires généraux

4 March 2003 External T.I. 2003-0182255 - OVERDRAFT IN RRSP

Unedited CRA Tags
146(4)(a) 146(10)

Principal Issues: What are the consequences when an RRSP goes into an overdraft position?

Position: Depending on the arrangements the overdraft may constitute the borrowing of money or the use of the plan property as security for a loan.

Reasons: Provisions of 146(4)(a) or 146(10) and previous opinion letters.

3 March 2003 External T.I. 2003-0181705 - TAX ON SPLIT INCOME

Unedited CRA Tags
120.4(1)(c)

Principal Issues: Whether an interest-bearing loan made to a trust constitutes the provision of "property or services" for the purpose of section 120.4 of the Act.

Position: Yes.

Reasons: The loan constitutes the provision of property and may also constitute the provision of a service.

3 March 2003 External T.I. 2001-0094085 - Redeemable Prefered Shares and 70(5)

Unedited CRA Tags
70(5)

Principal Issues: Whether we would apply GAAR to a series of transactions involving the use of shares which are automatically redeemed upon death of the shareholder for a nominal amount.

Position: We may apply GAAR. However, we do not accept that the FMV of the shares can be set at a nominal amount by such a condition in the Articles of Incorporation.

Reasons: In the case of Nussey Estate v. The Queen, 99 DTC, it was concluded that a shareholder's agreement was not binding on the Minister and did not negate the effect of subsection 70(5).

28 February 2003 External T.I. 2002-0180945 - HONORARIA & TRAVEL EXPENSE

Unedited CRA Tags
6(1)(c) 6(1)(b)(vii.1) 81(3)

Principal Issues: For appointed members of a municipal committee, whether any portion of the honoraria received is considered non-taxable. As well, whether a reimbursement of parking expenses and a per-kilometre allowance is taxable.

Position: The entire amount of honoraria is taxable. In this situation the parking is also taxable, but the per-kilometre allowance is exempt.

Reasons: Paragraph 6(1)(c) of the Act requires that the honoraria be included in income. Since the members are not elected officials, the exemption in subsection 81(3) of the Act does not apply. The parking is taxable under paragraph 6(1)(a) of the Act because it relates to parking at a regular place of employment and is therefore, considered personal. The per-kilometre allowance is exempt under subparagraph 6(1)(b)(vii.1) of the Act because it relates to travel between the members' homes and various points of call that are not considered regular places of employment.

28 February 2003 External T.I. 2002-0163425 F - LEGS PARTICULIER AVEC CHARGE ET REER

Unedited CRA Tags
146(1) 146(8.8)b) 146(8.9)
Summary Under
Tax Topics - Income Tax Act - Section 146 - Subsection 146(1) - Refund of Premiums
particular legacy paid out of RRSP of deceased annuitant can qualify as refund of premiums even if it is charged with another legacy

Principales Questions: Est-ce que le paiement versé en vertu d'un legs particulier avec charge est un remboursement de primes?

26 February 2003 External T.I. 2003-0000195 - RETIRING ALLOWANCE-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:

5 February 2003 External T.I. 2003-0183035 F - PARTIE 1.3 AIDE GOUVERNEMENTALE/SURPLUS

Unedited CRA Tags
181.1(3)

Principales Questions: Quelle est la position de l'ADRC face à un passif créé en vertu des règles énoncées dans le FASB 143? Y a-t-il lieu de l'inclure dans le calcul du capital aux fins de l'impôt de la partie I.3?

5 February 2003 External T.I. 2002-0178405 F - PARTIE 1.3 CHEQUE DEPOT EN CIRCULATION

Unedited CRA Tags
181.1 181.2(3)
Summary Under
Tax Topics - Income Tax Act - Section 181.2 - Subsection 181.2(3) - Paragraph 181.2(3)(c)
bank overdrafts adjust increase the bank deposit balance or reduce the bank overdraft/ outstanding cheques, although not amounts paid, are reflected to the extent in balance sheet

Principales Questions: Comment doit-on traiter un dépôt en circulation pour les fins de l'impôt des grandes sociétés? Quel est l'impact des chèques en circulation sur le capital imposable d'une société aux fins de l'impôt des grandes sociétés?

5 February 2003 External T.I. 2003-0183045 F - PARTIE 1.3 PASSIF SELON LE FASB 143

Unedited CRA Tags
181.1(3)

Principales Questions: Est-ce que l'ADRC considère que l'impôt reporté n'est pas une dette de la société, donc elle ne doit pas être soustraite en vertu de l'alinéa 181.4b) de la Loi?

5 February 2003 External T.I. 2002-0178415 F - PARTIE 1.3 AVANCES SUR CONTRAT

Unedited CRA Tags
181.1
Summary Under
Tax Topics - Income Tax Act - Section 181.2 - Subsection 181.2(3) - Paragraph 181.2(3)(c)
deferred revenue included in capital only to the extent of actual advances

Principales Questions: Que peut-on conclure des avances pour montants non gagnés comptabilisés aux états financiers, de la manière que le présentait PCL Construction Management, 2000 DTC 2624?

5 February 2003 External T.I. 2003-0183055 F - PARTIE 1.3 ACTIF UTILISE

Unedited CRA Tags
181.4(a)
Summary Under
Tax Topics - Income Tax Act - Section 181.4 - Paragraph 181.4(a)
future income tax asset is not an asset used or held by the corporation

Principales Questions: Est-ce qu'un actif d'impôt futur enregistré à l'actif d'une société sont des éléments d'actif utilisés et détenus par elle pendant l'année aux fins de l'article 181.4 de la Loi de l'impôt sur le revenu?

5 February 2003 External T.I. 2003-0183065 F - FASB 143 ET PARTIE 1.3

Unedited CRA Tags
181.4(a)
Summary Under
Tax Topics - Income Tax Act - Section 181.4 - Paragraph 181.4(a)
US accounting standards can potentially be taken into account

Principales Questions: Est-ce que le coût total de l'élément d'actif enregistré selon les normes américaines FASB 143 sera considéré comme étant la valeur comptable d'un élément d'actif utilisé ou détenu dans le cadre de l'exploitation d'une entreprise aux fins de l'alinéa 181.4 a) de la Loi?

5 February 2003 External T.I. 2002-0178395 F - PARTIE 1.3 AIDE GOUVERNEMENTAL/SURPLUS

Unedited CRA Tags
181.1(3)
Summary Under
Tax Topics - Income Tax Act - Section 181.2 - Subsection 181.2(3) - Paragraph 181.2(3)(a)
government assistance disclosed in the notes as being applied to reduce capital property cost, is not surplus

Principales Questions: L'aide gouvernementale présentée en réduction du coût des immobilisations est-elle un surplus aux fins de la définition de capital au paragraphe 1821.2(3) de la Loi?

Technical Interpretation - Internal

4 March 2003 Internal T.I. 2003-0181737 - DEBT BALANCE OR OVERDRAFT IN A RRSP

Unedited CRA Tags
146(4)(a) 146(10)

Principal Issues: Can an RRSP carry a debit balance (overdraft)?

Position: The Income Tax Act does not specifically prohibit it, however, depending on the particulars of the arrangements, may it constitute the borrowing of money or the use of trust property as security for a loan.

Reasons: Wording of paragraph 146(4)(a) and subsection 146(10).

28 February 2003 Internal T.I. 2003-0001697 - DEF'N AUTOMOBILE

Unedited CRA Tags
248(1)

Principal Issues: Whether an extended cab pick-up truck is excluded from the definition of automobile in subsection 248(1) by virtue of:
Paragraph (a) - if it is not considered a motor vehicle designed or adapted primarily to carry individuals on highways and streets; or
Subparagraph (e)(ii) - if it used all or substantially all for the transportation of goods, equipment or passengers in the course of gaining or producing income.

Position: Paragraph (a) - No. Subparagraph (e)(ii) - Yes.

Reasons: Paragraph (a) - Pick-up trucks in general have been designed primarily to carry individuals on highways and streets. Further, when the definition of automobile is read in total context, it is reasonable to conclude that motor vehicles specifically described in the provisions enumerated after the phrase "but does not include", are included under paragraph (a) of the definition.
Subparagraph (e)(ii) - in the taxation year in which it was acquired, the extended cab pick-up truck was used all or substantially all for the transportation of goods, equipment or passengers in the course of gaining or producing income.

25 February 2003 Internal T.I. 2003-0001677 - DEMUTUALIZATION CONVERSION BENEFIT

Unedited CRA Tags
139.1

Principal Issues:
Tax implications of demutualization proceeds received by an employer and partially passed through to employees where the deadline for filing an election under 139.1(16)(f)(iii) has passed.

Position:
General comments provided on application of section 139.1, to recipients of demutualization benefits.

Reasons:
Specific comments on the application of the provisions can only be provided where all the facts are known.

25 February 2003 Internal T.I. 2001-0108267 - RRSP

Unedited CRA Tags
146(1) 146(8)

Principal Issues: How is the benefit to a beneficiary of an RRSP calculated when the final distribution of assets held by the RRSP occurs before the time that the RRSP has become taxable and income has been earned in the RRSP continuously since the death of the last annuitant thereof?

Position: Assuming certain paragraphs in the definition of "benefit" in subsection 146(1) do not apply, the benefit which is usually taxable to the RRSP's beneficiary is the fair market value of the assets of the RRSP received by the beneficiary reduced by the fair market value of assets (or assets substituted therefore) which were held by the RRSP at the time of the death of the last annuitant. However, this reduction cannot exceed the amount taxed at the time of the death of the last annuitant of the RRSP.

Reasons: Subsection 146(8) and the definition of "benefit" in subsection 146(1).