Income Tax Severed Letters - 2003-07-11

Principal Issues:
When shares of a class of a mutual fund corporation are exchanged for shares of another class of the same mutual fund corporation, is there a disposition?

Position:
Generally, yes. However, the exchange is deemed not to be a disposition if all the requirements of section 51 are satisfied. In this case, there is insufficient information to make such a determination.

Reasons:
Pursuant to section 51, when a shareholder receives no consideration other than the new shares, the exchange is deemed not to be a disposition. It is a question of fact whether the shareholder receives consideration other than the new shares.

Principal Issues:
We are asked to comment on a specific completed transaction. Property was transferred to a qualified donee for consideration in year 1. Pursuant to a written agreement, the donee was to receive cash consideration for the transfer and a donation receipt. No receipt was issued due to consideration given. In year 11, a valuation was obtained suggesting property gifted could have been divided into sets with one set having a fair market value equal to the cash consideration for the transfer. We are asked whether the written agreement could be amended, on a retroactive basis, to reflect gift of one set, sale of other, then a donation receipt issued in year 12, and a tax credit claimed by the donor.

Position:
General comments given as to when a gift is completed, and the time limits for claiming a donation tax credit.

Reasons:
Question of fact to be determined by Audit having regard to all documentation.

Principale Question:

Comment déduire une contribution à un RPA pour des services passés rendus avant 1990.

Position Adoptée:
Application du paragraphe 147.2(4)

Principal Issues: Whether a testamentary trust is tainted under the proposed amended definition in 108 in the December 2002 package where a beneficiary pays taxes owed by a trust on income taxed as a result of a designation under 104(13.1) or (3.2).

Position: Normally, no.

Reasons: We would not expect the trust to become indebted to the beneficiary.

Principales Questions:
Situation où une garantie de maladies redoutées est incluse dans un contrat d'assurance collective d'un employeur.

Principal Issues: (1) How much interest should have been included in the income of an estate with respect to a bond on which a premium was paid. (2) How is the premium factored in the calculation of the capital gain that arose on the sale of the bond? (3) How is the income earned on the stripped bond taxed? (4) Issues related to the final period of the estate.

Position: (1 and 2) All the interest income has to be included in income, but a deduction may be claimed with respect to the accrued interest that was included in income by the transferor (par. 20(14)(b) of the Act). The accrued interest is a right or thing that has to be included in the terminal return. The estate may claim a deduction with respect to that interest (ss. 20(14) of the Act). The premium paid on the purchase of a bond is added to its ACB, and any amount deducted under ss. 20(14) of the Act reduces the ACB. (3) The owner of a strip bond is required to include the interest that accrued at the end of the anniversary day of the contract (ss. 12(4) of the Act) and that amount is included in the ACB of the bond (ss. 52(1) of the Act. (4) An estate may deduct the amounts payable to a beneficiary and the appropriate T3 or NR4 slips have to be issued. (5) Various considerations.

Reasons: Wording of the Act.

Principal Issues: Does a trust that retains income at the discretion of the spousal beneficiary lose its status as a spousal trust?

Position: No

Reasons: As stated in previous positions, the spousal beneficiary must have a legal right to enforce payment of all the income of the trust while the spouse is alive; thus a trust which gives the trustee the discretion to accumulate income is not a spousal trust but if the spouse has the discretion to direct the trustees to accumulate, it will not taint the trust.