Income Tax Severed Letters - 2003-05-16

Miscellaneous

2003 Income Tax Severed Letter 2003-0006741 - Loss Carryforward Under 111(5)

Unedited CRA Tags
111(5)

Principal Issues: Amendments to Ruling 2002-015134

Position: The amendments are acceptable

Reasons: N/A

2003 Income Tax Severed Letter 2003-0014421 - Winding up of a NRO

Unedited CRA Tags
20(1)(c) 69(5) 84(2)

Principal Issues: Unwinding an NRO: Will interest on debt which was transferred by NRO to the partnership continue to be deductible?

Position: Yes

Reasons: Changes in information do not jeopardize the rulings given before.

Ruling

2003 Ruling 2003-0000463 - INDIAN BAND AS A PUBLIC BODY

Unedited CRA Tags
149(1)(c) 248(1)

Principal Issues:
1. Whether an Indian band can be considered to be a public body performing a function of government in Canada within the meaning of paragraph 149(1)(c)?
2. Is the Indian band a "municipality" for purposes of subparagraph 110.1(a)(iv) and paragraph (d) of the definition of "total charitable gifts" contained in subsection 118.1(1)

Position:
1. Yes.
2. No.

Reasons:
1. The band is and performs the functions of a local government.
2. XXXXXXXXXX - see Statement of Principal Issues

2003 Ruling 2003-0005273 - Unwinding NRO Structure

Unedited CRA Tags
69(5) 84(2)

Principal Issues: Will certain transactions undertaken to unwind an NRO structure permit debts owed to the NRO to be transferred to a limited partnership and interest on those debts to continue to be deductible by Canco?

Position: Yes. The transactions have the effect of winding up the NRO into the limited partnership and, subject to the thin capitalization rule, the interest on the debts involved will continue to be deductible to Canco.

Reasons: See issue sheets of files #2001-0114583 and #2001-0089903.

Ministerial Correspondence

15 April 2003 Ministerial Correspondence 2003-0011264 - RECEIPTS FOR POLITICAL CONTRIBUTIONS

Unedited CRA Tags
127(3) 230.1(2)

Principal Issues: Does the Act impose a timing requirement on the issuance of receipts for political contributions?

Position: No

Reasons: No legislative provision imposing a timing requirement.

Technical Interpretation - External

16 May 2003 External T.I. 2002-0178685 F - CALCUL DU COUT D'UN TITRE DE CREANCE

Unedited CRA Tags
53(2)(l) 20(14)(b) 54
Summary Under
Tax Topics - Income Tax Act - Section 53 - Subsection 53(2) - Paragraph 53(2)(l)
accrued interest initially included in ACB
Summary Under
Tax Topics - Income Tax Act - Section 20 - Subsection 20(14)
overview of s. 20(14) and s. 53(2)(l)

Principales Questions:
1. Est-ce que les intérêts payés lors de l'acquisition d'un titre de créance sont inclus dans le calcul du coût de la créance? Considérer les cas où les détenteurs sont des régimes enregistrés et les cas où ils sont des individus.
2. Est-ce que l'alinéa 53(2)l) s'applique pour réduire le coût des titres de créances? Considérer les cas où les détenteurs sont des régimes enregistrés et les cas où ils sont des individus.

Position Adoptée:
1. Oui dans les deux cas, si les titres sont des biens en immobilisation.
2. Oui dans les deux cas, si les dispositions de l'alinéa 20(14)b) sont rencontrées?

15 May 2003 External T.I. 2002-0179825 - SPECIFIED INVEST. BUSINESS

Unedited CRA Tags
125(7)

Principal Issues: (1) Whether a particular corporation meets the "more than 5 full-time employees" requirement in the definition of "specified investment business" in ss. 125(7) of the Act. (2) Whether the shares of the corporation may be considered "qualified small business corporation shares" under ss. 110.6(1) of the Act.

Position: (1) Question of fact, but likely no. (2) Question of fact, but likely no.

Reasons: (1) The corporation must employ in the business more than 5 full-time employees to avoid being considered a specified investment business. Although the corporation has more than 5 full-time employees on its payroll, it appears that the corporation is carrying on separate businesses, and in each business it does not employ more than 5 full-time employees throughout the year. (2) If the corporation does not carry on an active business, it cannot be considered a small business corporation.

15 May 2003 External T.I. 2003-0003295 - WAGE LOSS REPLACEMENT PLANS

Unedited CRA Tags
6(1)(a) 6(1)(f) 18(9)

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

PRINCIPAL ISSUE:

1. Can an employee, who is not a shareholder, be the sole trustee for a wage loss replacement plan?

13 May 2003 External T.I. 2003-0013655 - 18(9.1)

Unedited CRA Tags
20(1)(e)

Principal Issues:
Whether, a payment (the "Fee") made in the course of a borrowing of money, as consideration for a lender agreeing to charge a borrower a lower interest rate than the borrower could otherwise negotiate with another lender, is a payment made by the borrower in respect of borrowed money as consideration for a reduction in the rate of interest payable such that the Fee would be deductible under subsection 18(9.1).

13 May 2003 External T.I. 2002-0176525 F - CHANTIER DE CONSTRUCTION

Unedited CRA Tags
6(6)
Summary Under
Tax Topics - Income Tax Act - Section 6 - Subsection 6(6)
W2 amounts likely not an appropriate basis for establishing proper s. 6(6) allowance amounts

Principale Question:

Un résident canadien occupe un emploi de nature temporaire sur un chantier de construction situé aux Etats-Unis auprès d'un employeur américain. L'employeur américain lui verse une rémunération qui inclut un montant pour couvrir ses frais de déplacements, de logement et de subsistance.

Le montant raisonnable payé par un employeur américain et inclus dans la rémunération figurant sur le feuillet W-2 d'un travailleur canadien pour défrayer ses frais de transport et de pension lors de son séjour aux États-Unis entre-il dans le cadre de l'exception prévue au paragraphe 6(6) de la Loi de l'impôt sur le revenu?

Position Adoptée:
Aucune. Cependant, peu probable selon les faits fournis.

13 May 2003 External T.I. 2002-0179805 - Stock Option Benefit Reimbursement

Unedited CRA Tags
15(1)

Principal Issues: A Canadian company ("Canco") and its foreign subsidiary enter into a Funding Agreement whereunder the foreign subsidiary agrees to make a payment to Canco equal to the stock option benefit ("price differential") enjoyed by the foreign subsidiary's employees on the exercise of options to acquire shares of Canco. The issue is the tax consequences of a payment which is in respect of a price differential which accrues for the period before the Funding Agreement is entered into.

Position: The payment would be included in the income of Canco.

Reasons: XXXXXXXXXX .N/A

12 May 2003 External T.I. 2003-0016775 - REASONABLE ALLOWANCE

Unedited CRA Tags
6(b)

Principal Issues: Whether an allowance is reasonable for purposes of the special work site exclusion subsection 6(6) of the Income Tax Act (the Act).

Position: Question of fact

Reasons: When determining the taxable status under the Act of an allowance received by an employee, the amount is considered reasonable if it is designed to cover the out-of-pocket costs that the employee will incur for the particular purpose for which the allowance is given. This would generally hold true for subsection 6(6) allowances as well.

6 May 2003 External T.I. 2003-0013475 - TAXATION OF PART II EI BENEFIT TO INDIAN

Unedited CRA Tags
56(1)(c)(ii) 81(1)(a) 110(1)(g)

Principal Issues:
Are benefits payable to a status Indian under Part II of the EI Act taxable?

Position:
Generally, yes. However, a deduction from income under paragraph 110(1)(g) may be available for assistance related to the payment of certain tuition fees.

Reasons:
Because Part II EI benefits are not related to the Indian's prior exempt employment income, they are not situated on reserve. The connecting factors test is not normally satisfied. The Part II EI benefits are therefore taxable under subparagraph 56(1)(r)(ii).

1 May 2003 External T.I. 2002-0174245 - TUITION FEE DISCOUNT SCHOLARSHIP OPTION

Unedited CRA Tags
6(1)(a) 56(1)(n)

Principal Issues:
Can a "tuition fee discount" for spouses and children of employees of a university be received as a "tuition fee scholarship" by the student at the employees' option?

Position: No.

Reasons:
A tuition fees discount which is available to spouses and dependent children of all eligible employees is a taxable benefit to the employee and is not a scholarship or bursary that would be taxable in the hands of the student. Benefit is dependent upon the recipient's employment and is available to all employees in a specific group

Technical Interpretation - Internal

2 May 2003 Internal T.I. 2003-0009597 - TUITION TAX CREDIT REIMBURSED FEES

Unedited CRA Tags
118.5

Principal Issues:
Is a student/employee entitled to claim the tuition tax credit under section 118.5 where the employer pays the tuition fees but the student/employee subsequently reimburses the employer for these fees?

Position: Yes.

Reasons: The student has in effect paid the tuition fees.

28 April 2003 Internal T.I. 2003-0007347 - Barbados SRL

Unedited CRA Tags
Regulation, s. 5907(1), 5907(11.2) Canada Convention Treaty

Principal Issues: (1) Is a Barbados Society with Restricted Liability ("SRL") a corporation for purposes of the Act? (2) Are SRLs entitled to benefits under the Canada-Barbados Tax Agreement (the "Barbados Convention")? (3) Does Article XXVII(3) of the Barbados Convention apply to a transaction between the Canadian taxpayer and a Barbados SRL with whom the taxpayer does not deal at arm's length? (4) Are SRLs resident in a designated treaty country for purposes of Part LIX of the Income Tax Regulations (Canada) (the "ITR")?

Position: (1) Yes. (2) No for an International/Exempt SRL; but yes for a Non-Exempt SRL. (3) No. (4) Yes for both International/Exempt SRLs and Non-Exempt SRLs, assuming that they are resident in Barbados under the Canadian common law principles.

Reasons: (1) It has characteristics that more closely resemble a corporation under Canadian common law. (2) Article XXX(3) of the Barbados Convention applies to an International/Exempt SRL but does not apply to a Non-Exempt SRL. (3) The income arising for Canadian tax purposes to the Canadian taxpayer as a result of the transaction is not charged to tax in Barbados. (4) Assuming that they are resident in Barbados under Canadian common law principles, an International/Exempt SRL would satisfy the condition in paragraph 5907(11.2)(c) of the Income Tax Regulations (the "ITR") and a Non-Exempt SRL would satisfy the condition in paragraph 5907(11.2)(a).

25 April 2003 Internal T.I. 2002-0153267 - Timber Resource Property

Unedited CRA Tags
13(21) Reg 1102(14)

Principal Issues:
1) Does subsection 1102(14) of the Regulations apply in this situation?

Position: YES
SECTIONS: ITA Subsection 13(21), Regulation 1102(14), Part XI and Schedules II and VI of the Regulations

Reasons:
1) An interest in land was acquired by the taxpayer from a person with whom the taxpayer was not dealing at arm's length and the property was property of a separate prescribed class of the person.

14 May 2002 Internal T.I. 2003-0015707 - SCHOLARSHIP PAID TO STATUS INDIAN T4A

Unedited CRA Tags
REG 2000(2)(a)

Principal Issues:
Should a T4A be issued for educational assistance amounts paid to a status Indian even if the amount is tax exempt?

Position: Yes

Reasons:
Paragraph 200(2)(a) of the Regulations requires the issuance of an Information Return when a person confers a scholarship or bursary. There is no exception for the situation in which the amount is tax exempt.