Income Tax Severed Letters - 2003-03-21

Principal Issues:
Is Interest deductible when borrowing to loan to the corporation by way of shareholder loan?

Principal Issues: Income tax consequences of certain transactions including the application of subparagraph 84.1(2)(a.1)(ii).

Position: Limited comments.

Reasons: This request should be re-submitted as a ruling request or directed to the TSO.

Principales Questions:
Une voiture de location à court terme classée dans la catégorie 16 lors de son acquisition, peut-elle faire l'objet d'une reclassification (catégorie 10, par exemple) en vertu du paragraphe 13(5) de la Loi si elle est dorénavant louée pour une période à long terme?

Position Adoptée:
Oui.

Principal Issues:
Can air travel reward points be the subject of a gift to a registered charity?

Position:
Reward points are property that may be the subject of a gift to a registered charity. If reward points are transferred to the charity, it is the fair market value of the reward points themselves, at the time the points are transferred to the charity, that must be used in determining the amount of the donation tax credit. If the points are redeemed to acquire property and the acquired property is transferred to the charity, the property that is the subject of the gift will be the acquired property and it is the fair market value of the acquired property at the time it is transferred to the charity that is relevant to the determination of the donation tax credit. Taxpayer also referred to new draft guidelines on split receipting as they may or may not be relevant depending on the taxpayer's specific situation.

Reasons:
A gift for purposes of the donation tax credit requires there to be a voluntary transfer of property. Property is broadly defined for purposes of the Act and would include reward points such as Airmiles points, and therefore, if voluntarily transferred to a charity could be the subject of a gift. The donation tax credit must be based on the fair market value of the property donated, at the time the property is gifted to the charity.

Principal Issues: Are past service RPP contributions for pre-1990 service deductible by the taxpayer?

Position: Yes, within the parameters of subsection 147.2(4).

Reasons: General information provided.

Principal Issues: Additional questions with respect to technical interpretation no. 2001-010944. In the given fact situation, a taxpayer acquired, pursuant to a will, bare owner rights ("droits de nue-propriété") with respect to a rental property situated in France (the usufruct being established under French law) for the purposes of the Act. The rental income generated by the rental property belongs to the mother of the taxpayer, being the usufructuary. 1) Whether the costs of major repairs incurred by the taxpayer with respect to the rental property can be added to the cost to the said taxpayer of such property. 2) Whether paragraph 45(1)(a) of the Act could apply at the time of the death of the mother of the taxpayer.

Position: 1) Yes.
2) Yes. If, at the time of the death of her mother, the taxpayer commences to use the rental property for the purpose of gaining or producing income, paragraph 45(1)(a) would apply. A capital gain may then arise, depending on the circumstances. However, the taxpayer could make an election under subsection 45(2) of the Act in her return of income for the year of the change in use in order to avoid the deemed disposition that would otherwise result under paragraph 45(1)(a). However, capital cost allowance with respect to the rental property may not be claimed while a subsection 45(2) election is in force because the taxpayer would be deemed under such provision not to have begun to use the rental property for the purpose of gaining or producing income.

Reasons: Wording of the Act.

Principal Issues:
What is the result if an employee does not return to work following a period of leave under a DSLP?

Position:
Deferred amounts must be included in income at the point where all conditions of 6801(a) are not met.

Reasons: General discussion.

Principal Issues: Whether, in a particular situation where "discretionary dividend shares" would be issued for nominal consideration, subsection 15(1), 69(1) or 56(2) would apply.

Position: Subsection 15(1) or paragraph 69(1)(b) could apply, depending on the facts and circumstances surrounding the particular situation.

Reasons: Subsection 15(1) may apply where shares are issued by a corporation for consideration that is less than the fair market value of the said shares. Subsection 15(1) may apply as a result of a transaction even though the overall economic position of a taxpayer or his or her net wealth has not changed. The issuance of shares for consideration that is less than their fair market value could also result in a disposition of property by a taxpayer and such taxpayer could be deemed to have received a consideration equal to the fair market value of the property under paragraph 69(1)(b). Absent a sham, subterfuge or an artificial transaction and provided that proper consideration was given for the shares when issued, subsection 56(2) does not generally apply to dividend income since, until a dividend is declared, the profits belong to the corporation as retained earnings. PORTCO would be subject to Part IV tax under subparagraph 186(4)(a) in respect of the dividends received from OPCO, unless it would be established that OPCO is connected with PORTCO. Finally, the potential application of subsections 55(2) and 245(2) should be considered in any particular situation.

Principal Issues:
Are conservation interests made pursuant to the Manitoba Conservation Agreements Act (MCCA) ecological gifts within the meaning "total ecological gifts" in subsection 118.1(1) and paragraph 110.1(1)(d)?

Position:
General comments. Whether or not the creation of a conservation interest pursuant to the MCCA results in an ecological gift will depend upon the terms and conditions of the agreement.

Reasons:
The MCCA permits conservation interests to be created either in perpetuity or for a specified term. In our view, a conservation interest would not be a gift of land unless the interest is perpetual. However, the potential for the interest to be extinguished in future will not negate a gift if the extinguishment will not be within the grantor's control.

Principal Issues: Whether taxpayer qualifies for the overseas employment tax credit if advised to return to Canada by the Canadian embassy before the more than six consecutive month requirement is satisfied XXXXXXXXXX .

Position: No. However, a remission request could be considered.

Reasons: Extraordinary circumstances prevented the satisfaction of the requirements of the overseas employment tax credit.