Income Tax Severed Letters - 2003-03-14

Principal Issues: 1. Is the surviving spouse still related to her deceased spouse's brothers after the death? 2. Is a surviving spouse dealing at arm's length with the deceased spouse's brothers after that time?

Position: 1. Based on facts, they cease to be related. 2. Question of fact.

Reasons: The law.

Principal Issues: Is the process described a Canadian Renewable and Energy Conservation project?

Position: No. Depreciable assets described do not meet the criteria for Class 43.1 - Energy Conservation property.

Reasons: Methane from the processing of hog effluent in a digester is not a digester gas as defined in Regulation 1104(13).

Principal Issues: Whether gifts of food (e.g. a restaurant gift certificate), beverages (e.g. a private labelled bottle of wine) or entertainment (e.g. a book) are subject to the 50% rule in subsection 67.1(1) of the Act.

Position: Yes

Reasons: Subsection 67.1(1) applies for all purposes of the Act. Subsection 67.1(1) of the Act applies to an amount regardless of the taxpayer's classification of it as "advertising and promotion" or the fact that a taxpayer has not personally consumed the food and beverages or enjoyed the entertainment. In this respect, subsection 67.1(1) of the Act only requires that the amount in question be paid or payable in respect of the human consumption of food or beverages or enjoyment of entertainment.

Principal Issues: Tax treatment of transaction costs incurred by Purchaser in various acquisition scenarios

Position: Generally, if the acquisition is successful, the transaction costs incurred by Purchaser would be regarded as capital expenditures and added to the cost amounts of the shares or assets acquired; in the case of an aborted share or asset acquisition, it will be a question of fact whether these expenses will constitute eligible capital expenditures

Reasons: The law

Principal Issues: Tax treatment of transaction costs incurred by Purchaser in respect of aborted share or asset acquisition

Position: Generally, the transaction costs incurred by Purchaser would be regarded as capital expenditures; it would be a question of fact whether these expenses would constitute eligible capital expenditures

Reasons: The law

Principal Issues: Whether break-up fee paid to terminate a merger agreement is: (1) deductible in computing business income, or (2) an eligible capital expenditure

Position: Question of fact, but generally no

Reasons: A break-up fee paid will normally be a capital expenditure and will not likely be made or incurred for the purpose of earning income

Principal Issues:
Are expenses paid by Targetco to an investment banker incurred in the course of the issuance of the shares?

Position: Generally no .

Reasons: Preamble to Sec. 20 and wording of 20(1)(e) and IT- 341R3. However we would consider section 9 where the statutes require Targetco to incur costs to advise its shareholders.

Principal Issues:
Can a Guarantee fee be deductible under 20(1)(e)?

Principal Issues:
Will a corporation XXXXXXXXXX be an agent of the Crown for purposes of receiving gifts and issuing receipts? The enabling statute indicates the corporation is an agent of the government for all purposes.

Position:
General comments only. A corporation will be viewed as an agent if it is acting within its authority.

Reasons: See decision of Federal Court of Appeal in Nova Scotia Power Inc.

Principal Issues: Is a certificate of compliance required in respect of a distribution of capital to a non-resident beneficiary from a trust resident in Canada?

Position: Yes

Reasons: A capital interest in a trust resident in Canada is TCP (except an interest in a MFT not described in (j) of the def'n of TCP). Any payment out of a trust after 1999 (other than the distribution of income or a capital dividend or a payment from a unit trust where the number of units held by the beneficiary is not reduced as a result of such payment) that can reasonably be considered to have been made because of the capital interest will result in a disposition of all or part of the beneficiary's capital interest in that trust. Thus, a distribution of capital to a non-resident beneficiary will normally result in the disposition of TCP by that non-resident beneficiary.