Income Tax Severed Letters - 2003-07-04

Miscellaneous

2003 Income Tax Severed Letter 2003-0019611 - Supplementary Ruling - Minor Changes

Unedited CRA Tags
245(2) 84(3)

Principal Issues: Minor changes to proposed transactions

Position: Confirmed rulings granted in ruling 2001-010726

Reasons: The law

Ruling

2003 Ruling 2002-0169973 - INCORPORATING A PARTNERSHIP

Unedited CRA Tags
125(9) 85(2)

Principal Issues: Whether a professional corporation, which provides XXXXXXXXXX services to another corporation, will be carrying on a personal services business.

Position: No - specified shareholder of the professional corporation would not, but for the existence of the company, be considered to be an employee.

Reasons: Same as - 2002-0133063; 2001-0102663; see also 2002-0152593, 2001-0080983 & E9915403

2003 Ruling 2003-0006993 - REPLACEMENT PROPERTY

Unedited CRA Tags
44(1) 44(5) 248(1)

Principal Issues: Request for an advance income tax ruling where taxpayer replaces former property with a significantly larger replacement property that results in an expansion of the business.

Position: The fact that a property is purchased under a business expansion would not, in and by itself, mean that the property could not be considered a replacement property.

Reasons: As stated at the 2002 Canadian Tax Foundation Conference, the statement in paragraph 15 of IT-259R3, that the replacement property rules are not intended to encompass business expansions, was made in the situation where it could not be readily determined whether one particular property is actually being replaced by another. The comments were made in the context of a taxpayer who was in the process of expanding a retail operation by opening and closing a number of locations. The new properties acquired during this type of "business expansion" were not considered replacement properties because there was no correlation or causal relationship between their acquisition and the disposition of the existing properties. Further, IT-259R3 will be changed to clarify the comments on business expansion. In this situation, after considering all the facts, it can readily be determined that there is a correlation between the acquisition of the replacement property and the disposition of the former property.

2003 Ruling 2003-0014843 - DEBT OF PARTNERSHIP FOREIGN PROPERTY

Unedited CRA Tags
206(1) 206(1.1) 206(1.2)
Summary Under
Tax Topics - Income Tax Act - Section 206 - Paragraph 206(1.1)(d)

Principal Issues:
Will debt issued by a limited partnership, where the only assets held by the corporate partners are units of a limited partnership whose assets are 100% Canadian, be considered foreign property for purposes of section 206 of the Income Tax Act? Will the substantial Canadian presence test in clause 206(1.1)(d)(iii)(C) apply?

Position: Question of fact.

Reasons:
The debt issued by the limited partnership is by common law considered to be issued by the partners. The debt will not be considered foreign property for purposes of section 206 of the Act, where each corporate partner's proportional share of "employment expenses" for purposes of clause 206(1.1)(d)(iii)(C) exceeds the $250,000 threshold. Given the fact that the assets of the limited partnership are 100% Canadian and the terms of the limited partnership arrangement, i.e., the corporate general partner has no substantive economic interest in the partnership, 01%, the corporate general partner's nominal interest need not be considered when determining whether this test is met.

Technical Interpretation - External

3 July 2003 External T.I. 2003-0019555 - PERSONAL - USE PROPERTY

Unedited CRA Tags
54

Principal Issues: Whether a particular property would be considered a "personal-use property" as that term is defined in section 54 of the Act.

Position: Question of fact.

Reasons: Where a taxpayer disposes of a particular property, the question that must be answered is whether the property was used primarily for the personal use or enjoyment of the taxpayer or persons related to the taxpayer during the period of ownership before the sale.

3 July 2003 External T.I. 2003-0025555 - MEDICAL EXPENSES - ATTENDANT CARE

Unedited CRA Tags
118.2(2)

Principal Issues: Do home care expenses of seniors qualify for the medical expense tax credit?

Position: Yes, if all of the requirements set out in paragraph 118.2(2)(b.1) are met.

Reasons: To qualify for the medical expense tax credit, an expense must be described in subsection 118.2(2). The relevant provision in this case is paragraph 118.2(2)(b.1).

30 June 2003 External T.I. 2003-0014995 - UNDEPRECIATED CAPITAL LOST

Unedited CRA Tags
13(7)(E) REG 1100(2.2)

Principal Issues:
1. Whether paragraph 13(7)(e) of the Act applies to a disposition of property from a US sister company to a Canadian sister company.

2. Whether the half-year rule exception in subsection 1100(2.2) of the Regulations applies to the Canadian company when they acquire the property from the US company.

Position: 1. Yes.
2. No.

Reasons:
1. The property acquired by the Canadian company is considered to be a "capital property of the transferor" such that all of the requirements in paragraph 13(7)(e) of the Act are satisfied.

27 June 2003 External T.I. 2003-0019025 - SHIPPING OF A BODY OUT OF REMOTE PLACE

Unedited CRA Tags
6(1)(A)

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:

Is the transporting of a body out of a remote place a taxable benefit?

Position TAKEN:

No.

Reasons FOR POSITION TAKEN:

Position taken in paragraph 36 of IT-470R.

27 June 2003 External T.I. 2003-0024075 - ADULT CARE HOME

Unedited CRA Tags
81(1)(H)

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:

Whether paragraph 81(1)(h) applies to amounts received for care of seniors.

Position TAKEN:

General information provided.

Reasons:

Question of fact.

XXXXXXXXXX T. Young, CA
2003-002407
June 27, 2003

27 June 2003 External T.I. 2003-0009055 - FRATERNAL BENEFIT SOCIETY

Unedited CRA Tags
149(1)(K)

Principal Issues: Is the trust exempt from tax pursuant to paragraph 149(1)(k) of the Act as a "benevolent or fraternal benefit society or order"?

Position: No.

Reasons: The trust is likely a retirement compensation arrangement.

26 June 2003 External T.I. 2003-0016735 - STATUS INDIAN RRSP FISHING INCOME

Unedited CRA Tags
81(1)(a)

Principal Issues:
1. Will fishing income earned by a status Indian in a specific situation be subject to income taxes?
2. Can exempt income be used to contribute to an RRSP?

Position:
1. Handled in another file.
2. No.

Reasons:
1. Memo 2003-001209 to TSO deals specifically with the taxpayer's situation.
2. No earned income to create RRSP room.

26 June 2003 External T.I. 2003-0004715 - PERMANENT RESIDENT AUTHORIZATION FEES

Unedited CRA Tags
6(1)(A)

Principal Issues: Whether payment of permanent residence authorization fees by employer would constitute a taxable employment benefit

Position: Yes

Reasons: Reimbursement of a personal expense is a taxable benefit. Unlike work permit and visa fees, permanent residence authorization fees is not a reasonable relocation expense. Acquisition of permanent residence status in Canada provides an enduring benefit to the employee, and the employee is the primary beneficiary of any benefit.

26 June 2003 External T.I. 2003-0007255 - ABIL-SPECIFIED INVESTMENT BUSINESS

Unedited CRA Tags
39(1)(C)

Principal Issues: Whether a corporation carried on an active business for the purposes of claiming an ABIL pursuant to clause 39(1)(c)(iv)(A).

Position: Question of fact, but likely not.

Reasons: The corporation's income earning activities has consisted solely in renting the properties it owned during the relevant taxation years. It did not meet the exceptions in par.(a) or (b) of the definition of Specified Investment Business in ss. 125(7). It was therefore not carrying on an active business.

24 June 2003 External T.I. 2002-0177145 F - AVANTAGE IMPOSABLE - REPAS

Unedited CRA Tags
6(1)(2)
Summary Under
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a)
requirement to watch the children did not detract from taxability of free lunch

Principales Questions:
Un Centre sert des repas à son personnel éducateur et administratif. Le Centre demande à son personnel éducateur de prendre ses repas avec les enfants et à son personnel administratif d'effectuer diverses tâches durant leurs 30 minutes pour dîner. Est-ce que les repas dont bénéficie le personnel éducateur et administratif du Centre constituent un avantage imposable relié à leur emploi ?

Position Adoptée:
Oui.

24 June 2003 External T.I. 2002-0169405 F - Projet d'ingénierie

Unedited CRA Tags
122.3
Summary Under
Tax Topics - Income Tax Act - Section 122.3 - Subsection 122.3(1) - Paragraph 122.3(1)(b) - Subparagraph 122.3(1)(b)(i) - Clause 122.3(1)(b)(i)(B)
training activity was not an “engineering activity”
Words and Phrases
engineering activity

Principales Questions : Un projet de gestion et de formation se qualifie-t-il de " projet d'ingénierie " au sens de la division122.3(1)b)(i)(B) de la Loi?
Whether a managerial and training activity is an "engineering activity" as per clause 122.3(1)(b)(i)(B)?

Position Adoptée : Non/No

20 June 2003 External T.I. 2003-0018905 - Foreign Tax Credits Income/Profits Tax

Unedited CRA Tags
126(2) 126(7) 18(1)(a)

Principal Issues: Whether the State of New Jersey Corporate Business Tax (NJCBT) paid by XXXXXXXXXX is an "income or profits tax" that is eligible for a foreign tax credit in Canada?

Position: Yes

Reasons: The payments are based on net income

20 June 2003 External T.I. 2003-0007365 - RRSP/RRIF and Testamentary Trusts

Unedited CRA Tags
108(1) 248(8)

Principal Issues: Whether a trust funded from the proceeds of an RRSP or RRIF available on the death of an individual would qualify as a "testamentary trust" within the meaning of subsection 108(1) of the Act, assuming that the RRSP or RRIF designation amounts to a testamentary instrument.

Position: Yes.

Reasons: Assuming that the RRSP or RRIF designation amounts to a testamentary instrument, then the transfer of the RRSP or RRIF proceeds to the trust would be considered, pursuant to subsection 248(8), as occurring as a consequence of the death of the taxpayer, thereby meeting the condition in paragraph (b) of the definition of "testamentary trust" in subsection 108(1).

3 June 2003 External T.I. 2002-0155735 - Cost of property inherited

Unedited CRA Tags
69(1)(c) 107(2)

Principal Issues: Follow-up to our letter 2000-004416.

Position: The cost of a property acquired by a non-resident estate, as a consequence of the death of a non-resident individual would be determined in accordance with paragraph 70(5)(b), and not paragraph 69(1)(c) of the Act.

Reasons: In accordance with our position.

29 May 2003 External T.I. 2002-0160795 F - Crédit d'impôt étranger et pertes

Unedited CRA Tags
152(4) 20(12) 126(1)
Summary Under
Tax Topics - Income Tax Act - Section 20 - Subsection 20(12)
whether to amend a return to permit a s. 20(12) deduction where a loss carryback to that year has eliminated the s. 126(1) credit is in the CRA’s discretion

Principales Questions : Suite à un report de pertes réduisant totalement le revenu d'une société, la société qui avait réclamé le crédit d'impôt étranger peut-elle modifier sa déclaration de revenu afin de se prévaloir de la déduction du paragraphe 20(12) de la Loi.
Whether, following a loss carry back for a year reducing the income of a corporation to nil, the corporation can amend its return seeking the deduction provided under subsection 20(12) of the Income Tax Act (the "Act") rather than relying on its initial choice of subsection 126(1) of the Act.

Position Adoptée : Le ministre du Revenu national a la discrétion d'établir une nouvelle cotisation.
It is the Minister of National Revenue's discretion to reassess the taxpayer.

Technical Interpretation - Internal

19 June 2003 Internal T.I. 2002-0180847 - Refund Interest and Resource Profits

Unedited CRA Tags
20(1)(v.1) 1204(1)

Principal Issues: Can refund interest on an overpayment of income taxes be included in gross resource profits under Regulation 1204(1)(b)(ii) or (iii).

Position: Question of fact. In this case refund interest should not be included in gross resource profits.

Reasons: Whether refund interest be included in gross resource profits is a question of fact. In this case, the connection between the interest earned and income earned from production and processing described in Regulation 1204(1)(b)(ii) is too remote to include the interest in resource profits. Gulf Canada Limited and Gulf Canada Resources Limited cases dealt with former sections 124.1 and 124.2 of the Act however the words of those sections are identical to the relevant words in Regulation 1204(1). The resource profits regulations operate as a separate scheme within the Act. Gulf Canada Limited stated that when the Act refers to production as a source, it must be understood to mean the business of production rather than the narrow activity of physical extraction from the ground.
Gunnar Mining dealt with the meaning of the term 'income derived from the operation of a mine' and concluded that the words 'derived from' gave wider a meaning to the type of income that can be included in income derived from the operation of a mine. However, even with that wider interpretation, interest income on short term deposits was not closely connected enough to be included in income derived from the operation of a mine. In Echo Bay, the court found that activities reasonably interconnected with marketing the product, undertaken to assure its sale at a satisfactory price, are activities that form an integral part of production and resource profits, within the meaning of subsection 1204(1) of the Regulations. Cominco supports the view that the income in question must be directly related to actual production to be included in income under paragraph 1204(1)(b) of the Regulations. Cominco also supports the view that amounts received as economic replacement of lost income from production cannot be characterized as income from production.
Irving Oil and Munich Reinsurance dealt with the distinction between income from active business and income from property and are of limited help regarding whether refund interest that is found to be income from an active business would also be included in gross resource profits. XXXXXXXXXX , unlike Irving Oil, is a diversified company with many sources of income other than mining, and it is not possible to conclude that had XXXXXXXXXX not made an overpayment of taxes, the amount of the overpayment would have been used in the business of production for purposes of subsection 1204(1) of the Regulations.

12 June 2003 Internal T.I. 2003-0021807 - Cross-Border Stock Options

Unedited CRA Tags
7(1)(a) 126(1)(a)

Principal Issues: The taxpayer paid tax on an employee stock option to Treatyland in the year the options were granted. The taxpayer also paid tax to Canada in the year the options were exercised. Is he entitled to claim a foreign tax credit in Canada for the taxes paid to Treatyland?

Position: No, although the taxpayer is welcome to apply to Competent Authority to see if any relief is available.

Reasons: Paragraph 126(1)(a) allows a credit for non-business-income tax paid "for the year". We have interpreted that phrase to mean the year the tax is exigible in the foreign country.

4 June 2003 Internal T.I. 2003-0006967 F - Province de résidence d'une fiducie

Unedited CRA Tags
120(2), 75(2) 245, 104(13) 104(13.1)
Summary Under
Tax Topics - Income Tax Act - Section 2 - Subsection 2(1)
Thibodeau applied to find that trust with Quebec trustee therefore was resident in Quebec
Summary Under
Tax Topics - Income Tax Act - Section 120 - Subsection 120(2)
Quebec abatement available even where no Quebec tax was payable on the income (due to abuse of s. 104(13.1) election)
Summary Under
Tax Topics - Income Tax Act - Section 245 - Subsection 245(1) - Tax Benefit
scheme generating Quebec abatement without payment of any Quebec tax did not result in a “tax benefit”
Summary Under
Tax Topics - Income Tax Act - Section 75 - Subsection 75(2)
s. 75(2)(a)(i) inapplicable re settlor being beneficiary of trust beneficiary’s estate/ s. 75(2)(b) inapplicable re power of settlor to replace trustees

Principales Questions: 1) Détermination de la résidence d'une fiducie; 2) Est-ce que l'abattement du Québec peut être accordé même si aucun impôt n'est effectivement payé à la province de Québec; 3) Peut-on imposer le revenu de la fiducie entre les mains du bénéficiaire même si pour fins d'impôt fédéral aucun revenu ne lui est attribué par la fiducie; 4) Est-ce que dans les circonstances le paragraphe 75(2) peut s'appliquer à l'égard de l'auteur de la fiducie; et 5) Est-ce que la règle générale anti-évitement peut s'appliquer.

Position Adoptée: 1) La résidence d'une fiducie est généralement déterminée selon la résidence du ou des fiduciaires; 2) Oui; 3) Non; 4) Selon les faits soumis, non; 5) Non.