Income Tax Severed Letters - 2003-05-30

Principales Questions: Une société verse les primes à l'égard d'un régime d'assurance-salaire pour un employé/actionnaire en sa qualité d'actionnaire.
1- Est-ce qu'on peut considérer un tel régime comme un "régime financé en totalité par les employés" tel que décrit au IT-428?
2- Quel serait le traitement fiscal d'un tel régime?
3- Est-ce qu'on peut réduire l'avantage à l'actionnaire s'il rembourse la valeur de l'avantage qui lui est conféré?

Position Adoptée:
1- Non.
2- Les contributions versées par la société représentent un avantage accordé à l'actionnaire en vertu du paragraphe 15(1). De plus, les prestations que l'actionnaire recevrait ne seraient pas imposables en vertu de 6(1)f) de la Loi.
3- On ne peut pas réduire l'effet du paragraphe 15(1) même si l'actionnaire rembourse la valeur de l'avantage à la société.

Principal Issues:
An individual takes out a loan that is secured by a mortgage on his principal residence. The loan proceeds are invested in mutual funds. The individual sells his principal residence and is required by the lender to repay the loan out of the proceeds of the sale of the home. The individual purchases another principal residence, using the funds from two new loans to fund the purchase. The first new loan is equal in amount to the loan repaid by the sale. The second new loan covers the balance of the purchase price of the new home. Both loans are secured by mortgage on the new home. The issue is whether the interest paid on the first new replacement loan is deductible under paragraph 20(1)(c) of the Act.

Principal Issues:
Is interest deductible on borrowed money used to acquire investments where the rate of return on the investments is lower that the interest rate on the borrowed money?

Principales Questions: Est-ce que le montant qu'un vendeur d'arrangements de services funéraires n'est pas tenu de verser en fidéicommis ou de rembourser au client en vertu de la Loi sur les arrangements préalables de services funéraires et de sépulture du Québec est admissible à la provision prévue à l'alinéa 20(1)m) de la Loi de l'impôt sur le revenu?

Position Adoptée: Non.

Principal Issues: What are the consequences of a beneficiary assuming a debt as a condition of receiving property from the trust?

Position: The amount of debt assumed will generally be an eligible offset used in calculating the beneficiary's proceeds of disposition of a part (or all) of the capital interest. The amount of the debt is an amount payable for property acquired for the purpose of 20(1)(c) and the assumption of debt will not taint the trust's status as a personal trust.

Reasons: The definition of eligible offset is found in 108(1). While it is a question of fact as to whether the interest payable by the beneficiary is deductible under 20(1)(c), the debt is assumed as a condition of acquiring the property. With respect to the personal trust issue, a beneficiary generally acquires no additional interest in the trust as a result of a capital distribution.

Principal Issues: Whether subsection 75(2) of the Act applies, with respect to a person who transferred property to a trust, where a trust indenture confers a power of appointment that gives the donee of the power, the right to appoint any person as a capital beneficiary of the trust?

Position: Yes.

Reasons: There is a possibility that the transferor be appointed as a capital beneficiary.

Principal Issues: 1. Does the payment of trust expenses by the (spousal) beneficiary taint the trust's status as a testamentary trust?
2. If the terms of trust provide that the property can be distributed to the children of the deceased if the spouse doesn't pay the required expenses, will the trust still qualify as a spousal trust?

Position: 1. Normally, no. 2. No.

Reasons: 1. Where the spouse pays operating expenses only in lieu of rent, such payments will not be viewed as a contribution to a testamentary trust but a capital expenditure in respect of trust property would.
2. Where the terms of the trust provide for a potential distribution to anyone other than the spouse while the spouse is alive, the trust will not be a spousal trust.