Income Tax Severed Letters - 2003-06-13

Miscellaneous

2003 Income Tax Severed Letter 2003-0014291 - Loss Utilization in a Related Group

Unedited CRA Tags
20(1)(c) 112(1) 245(2)

Principal Issues: Amendments to Ruling 2002-012381

Position: The amendments are acceptable

Reasons: N/A

2003 Income Tax Severed Letter 2003-0014301 - Loss Utilization in a Related Group

Unedited CRA Tags
20(1)(c) 112(1) 56(2)

Principal Issues: Amendments to Ruling 2002-015852

Position: The amendments are acceptable

Reasons: N/A

Ruling

2003 Ruling 2003-0012293 - Loss Utilization in a Related Group

Unedited CRA Tags
20(1)(c) 112(1) 56(2)

Principal Issues: Loss utilization in a related group of companies.

Position: The loss utilization is acceptable.

Reasons: This ruling contemplates only an acceleration of the loss utilization favourably ruled on in Ruling 2002-015852. The rulings are virtually identical except that in this ruling the dividend rate on the preferred shares exceeds the interest rate on the loan by XXXXXXXXXX % whereas in the prior ruling the dividend rate on the preferred shares is equal to the interest rate on the loan.

2003 Ruling 2003-0013723 - XXXXXXXXXX

Unedited CRA Tags
20(1)(c) 55(3)(a)

Principal Issues: In-house loss utilization.

Position: Favourable Rulings provided.

Reasons: The law. Fairly standard issues.

2003 Ruling 2002-0146833 F - ENTITE IMPOSABLE DEVIENT OSBL

Unedited CRA Tags
149(1)(l)

Principales Questions:
1. Suite aux modifications proposées, la société est-elle constituée uniquement pour exercer des activités non lucratives dont aucun revenu n'est payable ou ne peut par ailleurs être disponible à ses actionnaires ou ses membres?
2. Le paragraphe 149(10) s'applique-t-il au droit cédé par les XXXXXXXXXX ?

2003 Ruling 2002-0168083 - CAPITAL OF NON-SHARE CORPORATION

Unedited CRA Tags
149(1)(d.3)
Summary Under
Tax Topics - Income Tax Act - Section 149 - Subsection 149(1) - Paragraph 149(1)(d.3)

Principal Issues: Does a corporation's capital include its indebtedness for purposes of paragraph 149(1)(d.3) of the Act?

Position: Generally no, subject to terms and conditions of particular debt obligations.

Reasons: Consistent with scheme of provision.

2003 Ruling 2003-0005253 F - ALLOCATION DE RETRAITE

Unedited CRA Tags
60(j.1) 248(1) 9(1)

Position Adoptée : Oui.

Ministerial Correspondence

9 June 2003 Ministerial Correspondence 2003-0016464 - EXCESS RRSP CONTRIBUTIONS

Unedited CRA Tags
204.1

Principal Issues:
Basis for the 1% tax on excess RRSP contributions

Position:
Provided comments on the basis for tax assisted saving for retirement.

Reasons:
Outlines the policy for the imposition for the tax.

Signed on June 9, 2003

5 June 2003 Ministerial Correspondence 2003-0016994 F - REVENUS SUR PLACEMENT INDIENS INSCRITS

Unedited CRA Tags
81(1)(a)

Principales Questions: Question de l'imposition général des revenues sur les placements des Indiens inscrits?

Position Adoptée: Question de fait mais généralement sujet a l'imposition.

Technical Interpretation - External

13 June 2003 External T.I. 2003-0020315 - DIRECTOR FEES OF PARTNERSHIP

Unedited CRA Tags
6(1)(c)

Principal Issues: In a situation described in paragraph 4 of IT-377R, i.e., "where an individual is acting on behalf of or representing a corporation (or partnership) as a director and the fees in respect of such services are paid directly, or are turned over by the individual, to the corporation (or partnership), those fees are considered to be income of the corporation (or partnership) and not of the individual", is withholding required.

Position: No.

Reasons: The position outlined in paragraph 4 of IT-377R is based on the fact that the fees are not actually earned by the individual "in the course of, or by virtue of an office or employment", but by the corporation (or partnership) in the course of carrying on its business. As such, the fees do not represent income that is "salary, wages or other remuneration" or "director's or other fees", which are required to be included in the individual's employment income by virtue of subsection 5(1) and paragraph 6(1)(c) of the Act, respectively. Since the fees are not employment income, subsection 153(1) of the Act and Part I of the Regulations do not require the payor to make withholding on behalf of the individual.

13 June 2003 External T.I. 2002-0177045 F - BOISSONS OFFERTES AUX EMPLOYES

Unedited CRA Tags
6(1)(a) 67.1(2)(d)
Summary Under
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a)
FMV of free beverages marketed by employer and provided to its employees included in their income
Summary Under
Tax Topics - Income Tax Act - Section 67.1 - Subsection 67.1(2) - Paragraph 67.1(2)(d)
FMV of free beverages provided to employees included in their income, so that cost of beverages to employer deductible from its income

Principales Questions:
1. Est-ce que les employés seront présumés avoir reçu un avantage imposable à l'égard des boissons qu'ils auront reçues gratuitement de l'employeur dans le but de se familiariser avec les produits commercialisés par l'employeur et de formuler des commentaires utiles pour ce dernier ?

2. Est-ce que l'employeur pourra déduire entièrement le coût des boissons qu'il aura données gratuitement à ses employés en se prévalant de l'exception prévue à l'alinéa 67.1(2)a) de la Loi ?

Position Adoptée:
1. Oui.

12 June 2003 External T.I. 2002-0159505 - PAYMENT OF RRSP EXPENSES AND TAXES

Unedited CRA Tags
146(5) 204.1(1) 204.2(1)

Principal Issues:
Is the payment of RRSP expenses and taxes by the annuitant or other parties considered to be a premium or gift

Position:
Yes, if paid by annuitant it would be a premium and if paid by another party it would be a gift. However ATR-24 could apply in some case but it would be a question of fact in which cases.

Reasons: Provision of law

12 June 2003 External T.I. 2003-0021205 - RRSP FORECLOSURE PROPERTY SALE

Unedited CRA Tags
146(1)

Principal Issues:
1. Can an RRSP sell property acquired under mortgage foreclosure?
2. Can the RRSP invest in another mortgage on the re-sold property?

Position:
1. Yes.
2. If conditions satisfied, yes.

Reasons:
1. This is covered in paragraph 12 of IT-320R3.
2. Nothing preventing a mortgage that meets all of the required conditions from being a qualified investment.

11 June 2003 External T.I. 2002-0175975 F - TRANSFERT-ENT. EXPLOITEE ACTIVEMENT

Unedited CRA Tags
110.6(14)(f)(ii)(A) 110.6(2.1) 79.1(6)(b)
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 110.6 - Subsection 110.6(14) - Paragraph 110.6(14)(f) - Subparagraph 110.6(14)(f)(ii)
application of 24-month test where assets of business transferred to partnership of individuals, transferred to corporation under s. 95(2), partnership wound-up under s. 98(3) and shares sold
Summary Under
Tax Topics - Income Tax Act - Section 79.1 - Subsection 79.1(6) - Paragraph 79.1(6)(b)
meaning of expenses incurred to protect creditor's rights

Principales Questions:
Questions relatives à l'application des alinéas 110.6(14)f) et 79.1(6)b) de la Loi

Position Adoptée:
Commentaires généraux

10 June 2003 External T.I. 2003-0018235 - SALARY AND WAGES

Unedited CRA Tags
5

Principal Issues: Year of reporting retroactive wage settlement under an arbitration award

Position: Year of receipt

Reasons: Section 5 requires that all wages and salary be reported in year of receipt

9 June 2003 External T.I. 2003-0004835 - WHETHER A PARTNERSHIP IS A PERSON

Unedited CRA Tags
96(1)(a) 96(1)(c) 251(2)
Summary Under
Tax Topics - Income Tax Act - Section 85 - Subsection 85(1) - Paragraph 85(1)(e.2)
Summary Under
Tax Topics - Income Tax Act - Section 97 - Subsection 97(2)

Principal Issues: In a 97(2) roll by a taxpayer who is a majority interest partner (but is not a corporation controlled by the partnership) and where no benefit is intended to be conferred on any related partners, whether 85(1)(e.2) would apply to excess on the basis that the partnership is a person related to the taxpayer.

Position: No.

Reasons: The partnership is not considered a person related to the taxpayer solely because the taxpayer is a majority interest partner.

5 June 2003 External T.I. 2003-0010855 - RRSP ASSET SOLD AT DISCOUNT

Unedited CRA Tags
146(9)

Principal Issues:
What are the consequences if a mortgage held by an RRSP is sold for less than FMV?

Position:
The difference between the consideration received and FMV is considered a benefit to the RRSP annuitant. T4RSP should be issued.

Reasons: Wording of 146(9).

2 June 2003 External T.I. 2003-0013315 - Foreign merger, fractional shares

Unedited CRA Tags
87(8)
Summary Under
Tax Topics - Income Tax Act - Section 87 - Subsection 87(8.1)

Principal Issues: whether position on receipt of cash for fractional shares established for section 87 applies to a foreign merger under 87(8)

Position: yes

Reasons: consistent with intent of provision and reasoning in file 983060A

Technical Interpretation - Internal

9 June 2003 Internal T.I. 2003-0013307 - LEGAL FEES

Unedited CRA Tags
40(1) 18(1)(a)

Principal Issues: Are certain legal fees incurred as a result of a dispute regarding the payment of proceeds of disposition deductible?

Position: No.

Reasons: The legal fees where not incurred to the earn income from a business or property. Furthermore, the legal fees were not directly incurred for the purpose of making the disposition of the Property but rather were incurred as a result of a dispute regarding the payment of proceeds of disposition with respect to the sale and consequently may not be considered in calculating the amount of a taxpayer's loss under subparagraph 40(1)(b)(i) of the Act.

9 June 2003 Internal T.I. 2003-0011137 - SR & ED ARM'S LENGTH & CCPC STATUS

Unedited CRA Tags
125(7) 256(7) 87(2)(ii)

Principal Issues:
1) Whether a corporation and a partnership are dealing with each other at arm's length.
2) Whether a subsidiary corporation would maintain its CCPC status after its parent amalgamates with a public corporation.

Position:
1) Question of fact. In the circumstances described in the opinion request, a rebuttable presumption exists that the corporation and the partnership are not dealing at arm's length.
2) No.

Reasons:
1) Mr A and Mr. B are the sole shareholders of the corporation and, through their respective holding corporations, equal partners in the partnership. In these circumstances, it is reasonable to assume that Mr. A and Mr. B act in concert to control both entities such that the corporation and the partnership would not be dealing at arm's length.
2) After the amalgamation the subsidiary would be controlled directly by a public corporation.

6 June 2003 Internal T.I. 2003-0011507 - Phase-out of NRO 134.1

Unedited CRA Tags
134.1

Principal Issues: Several related issues regarding the phase-out of NROs

Position: See Memo

Reasons: See Memo

5 June 2003 Internal T.I. 2003-0017957 - PREDECESSOR EMPLOYER FOR RPP PURPOSES

Unedited CRA Tags
REG 8500(1)

Principal Issues:
Does a particular corporation satisfy the definition of "predecessor employer" in subsection 8500(1) of the Regulations?

Position:
This is a question of fact, but from the information provided, it appears that the corporation does qualify as a predecessor employer.

Reasons: Wording of the definition.

3 June 2003 Internal T.I. 2003-0181487 F - DEDUCTIBILITE DES INTERETS GARANTIE

Unedited CRA Tags
20(1)(c) 20.1
Summary Under
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c) - Subparagraph 20(1)(c)(i)
guarantee of wholly-owned corporation’s debt given for income-producing purpose is satisfied with borrowed money on which interest may be deductible
Summary Under
Tax Topics - Income Tax Act - Section 20.1 - Subsection 20.1(1)
s. 20.1(1)(b)(iv) deductibility where guarantee of wholly-owned corporation’s debt given for income-producing purpose is satisfied with borrowed money and subrogated claim is worthless

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.

Principale Question:

Un contribuable peut-il continuer à déduire les intérêts sur de l'argent emprunté utilisé pour faire un paiement en vertu d'une garantie à l'égard d'un prêt d'une société dont il est l'unique actionnaire si la société a cessé d'exploiter son entreprise?

27 May 2003 Internal T.I. 2003-0005357 F - TRANSFERT DE PROPRIETE EFFECTIVE

Unedited CRA Tags
248(1) 248(3)(f)
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Disposition - Paragraph (e)
whether a preliminary transfer of shares of the target to spouse represented a disposition to her turned on whether there was a transfer of ownership under the Civil Code

Principales Questions:
Est-ce qu'il y a eu disposition des actions?

Position Adoptée:
S'il y a transfert du droit de propriété aux fins du Code civil du Québec, la propriété effective sera transférée. Il y aura donc disposition des actions.

15 May 2003 Internal T.I. 2003-0014507 F - DEDUCTIBILITE DES INTERETS

Unedited CRA Tags
20(1)(c)
Summary Under
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c) - Subparagraph 20(1)(c)(i)
interest deductible on money borrowed to acquire non-dividend-paying common shares

Principale Question:

L'intérêt sur de l'argent emprunté pour acquérir des actions ordinaires est-il déductible en vertu de l'alinéa 20(1)c) de la Loi lorsqu'une note aux états financiers indique XXXXXXXXXX ?

Position Adoptée:: Oui

RAISON POUR POSITION ADOPTÉE:
Dans cette situation, la politique de verser des dividendes ou non est révisée périodiquement. Il y a donc une expectative raisonnable de recevoir des dividendes.

Le 15 mai 2003