Income Tax Severed Letters - 2003-10-24

Miscellaneous

2003 Income Tax Severed Letter 2003-0031790 - Amalgamation of Mutual Insurers

Unedited CRA Tags
87(4)

Principal Issues: Whether the disposition of Membership rights of a mutual corporation will be subject to the provisions of subsection 87(4)?

Position: Yes.

Reasons: The Membership Rights have the attributes of shares.

Technical Interpretation - External

23 October 2003 External T.I. 2003-0028165 - EMPLOYER PAID TRAVEL

Unedited CRA Tags
6(1)

Principal Issues: Taxable status of employer-paid travel in a situation where the employee delays relocation.

Position: Did not provide an opinion.

Reasons: Did not have sufficient information.

22 October 2003 External T.I. 2003-0031855 - NON-ARM'S LENGTH ACQUISITION

Unedited CRA Tags
13(7)(e) 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 subsection 1102(3) of the Regulations applies to the property the Canadian company acquires from the US company.

Position: 1. Question of fact.
2. Yes.

Reasons:
1. Paragraph 13(7)(e) of the Act only applies where the property acquired by the Canadian company is "capital property of the transferor".
2. The property is not "depreciable property" of the transferor by virtue of subsection 1102(3) of the Regulations.

20 October 2003 External T.I. 2003-0029655 - PARTNERSHIP TO SOLE PROPRIETORSHIP

Unedited CRA Tags
98(5) 70(5) 70(6.2)

Principal Issues:
1) Do the total of the amounts described under subparagraph 98(5)(a)(i) and the excess amount described under paragraph 98(5)(c) of the Act include the cost of a partnership interest acquired from the sole proprietor's deceased spouse?
2) Is the unused exempt capital gains balance of a proprietor added to the proprietor's ACB (per paragraph 53(1)(r)) for the purpose of determining the proprietor's proceeds of disposition under subsection 98(5)?

Position:
1) Yes, provided the deceased (or, where applicable, the deceased's estate) was a member of the partnership immediately before the disposition.
2) Yes.

Reasons: 1) & 2) Wording of the Act

20 October 2003 External T.I. 2003-0014615 F - allocation non-imposable

Unedited CRA Tags
6(16)a)
per-kilometre rates published by Finance could be used for reasonableness purposes

Principales Questions:
1. Critères d'admissibilité d'une personne à une allocation non imposable en vertu de l'alinéa 6(16)a) de la Loi relativement aux frais engagés pour le transport entre son lieu de résidence et son lieu d'emploi (incluant le stationnement situé près du lieu d'emploi)
2. Est-ce que le montant de l'allocation non-imposable en vertu de l'alinéa 6(16)a) de la Loi accordée à l'employé est déductible dans le calcul du revenu de l'employeur?
3. Pouvez-vous confirmer qu'un montant accordé pour les frais de transport ne dépasse pas un montant raisonnable?
4. Au lieu de verser une allocation pour le transport, est-il possible d'allouer une portion de la rémunération globale de l'employé équivalente à un montant raisonnable et ainsi considérer cette portion comme un avantage non imposable?

Position Adoptée:
1. Conformément au libellé de l'alinéa 6(16)a) de la Loi, l'employé doit être aveugle ou avoir un handicap moteur et doit avoir droit au montant prévu à l'article 118.3, compte non tenu de l'alinéa 118.3(1)c) de la Loi.
2. Oui.
3. Un montant sera jugé raisonnable s'il vise à couvrir les frais de transport engagés par l'employé. La détermination du caractère raisonnable d'un montant doit tenir compte de l'ensemble des faits d'une situation donnée. Nous pouvons toutefois confirmer que l'utilisation d'un taux par kilomètre pour calculer le montant de l'allocation semble acceptable sans être en mesure de nous prononcer sur le caractère raisonnable du taux par kilomètre utilisé car il s'agit d'une question de fait. Par contre, les taux par kilomètre (publiés par le ministère des Finances) servant aux fins de l'alinéa 18(1)r) de la Loi pourraient servir pour déterminer le caractère raisonnable du montant au paragraphe 6(16) de la Loi.
4. Non. Le libellé du paragraphe 6(16) de la Loi mentionne spécifiquement que le montant non imposable est la valeur d'un avantage conféré ou une allocation raisonnable se rapportant aux frais que l'employé a engagés.

20 October 2003 External T.I. 2003-0034785 - SOCIAL INSURANCE NUMBER

Unedited CRA Tags
153(1)(g) Reg. 200

Principal Issues:
Is a self-employed individual required to provide their social insurance number to a slip preparer? Is a T4A required to be issued?

Position TAKEN:
General information provided.

Reasons:
Inquiries regarding T4A reporting should be directed to the Trust Accounts Division at the local TSO.

17 October 2003 External T.I. 2003-0035455 - EMPLOYER PAID GYM MEMBERSHIPS

Unedited CRA Tags
6(1)(a)

Principal Issues: Taxable status of employer-paid subsidy for gym memberships.

Position: Taxable.

Reasons: Employee is the primary beneficiary of the payment.

17 October 2003 External T.I. 2003-0042825 - MORTGAGES WRITE-OFF RRSP

Unedited CRA Tags
146 207.1

Principal Issues: Clarification of issues in a letter sent previously to the taxpayer

Position: Explained different options available to the taxpayer

Reasons:

17 October 2003 External T.I. 2003-0032735 - PROFESSIONAL CORPORATION

Unedited CRA Tags
9(1)

Principal Issues: Whether income from medical practice could be reported by professional corporation, where the corporation enters into contracts with self-employed physicians, and other professional corporations, who are not necessarily shareholders of the professional corporation.

Position: Question of Fact

Reasons: Where there is no legal preclusion against the professional corporation carrying out the business of providing the medical services, then the income should be reported by the person carrying on the business.

17 October 2003 External T.I. 2003-0033555 - PRINCIPAL RESIDENCE

Unedited CRA Tags
45(1)(c) 54

Principal Issues: What is CCRA's interpretation of the words "relatively small" as used in the sentence "...you are not considered to have changed its use if: your rental or business use of the property is relatively small in relation to its use as your principal residence"?

Position: No specific percentage provided, taxpayer referred to comments provided in paragraph 30 - 32 of IT-120R6

Reasons: Question of fact.

16 October 2003 External T.I. 2003-0038315 F - CONVENTION DE RETRAITE

Unedited CRA Tags
207.5(1) 20(1)(C)
reasonableness of interest rate determined re market interest rates

Principal Issues:

Mise en place d'une convention de retraite pour un actionnaire dirigeant. Les fonds contribués par l'employeur sont utilisés pour effectuer un prêt portant intérêt à l'employeur.

Position Adoptée: Aucune.
RAISON POUR POSITION ADOPTÉE: Question de fait.

16 October 2003 External T.I. 2003-0014105 - TAX-FREE HUMAN RIGHTS AWARDS

Unedited CRA Tags
60(j.1)

Principal Issues:
Can a portion of the amount to be received on settlement of a wrongful dismissal action, be treated as tax-free damages received as a consequence of a Human rights violation?

Position: Question of fact.

Reasons:
The information provided to us indicates that the agreed settlement was reached by the parties to settle the taxpayer's claim that, as a result of the employer's discriminatory treatment of the employee, the employer had violated subsection 13(1) of the Human rights Code 1996 RSBC Chapter 210. The particulars of the claims submitted to us provided significant details of the alleged actions of the employer that preceded the employee's apparent termination. Based on this information it was not clear to us that a violation of the above noted section of the Act had occurred. However, it seemed clear that a personal injury did occur and that it was related to the employee's treatment while employed such that a strong case could likely be established that the damage payment would be to settle a human rights violation. Accordingly, we concluded that we could likely accept that a portion of the amount could be treated as tax free damages. We noted that we understood that the awards generally provided by the B.C. Human Rights Tribunal fell between $2,500 and $4,000 and that the largest award for general damages ever provided was $7,500.

15 October 2003 External T.I. 2003-0014535 F - FRAIS DE GARDE D'ENFANTS

Unedited CRA Tags
63(3) 63(2)
Words and Phrases
day camp

Principales Questions:
Que signifient les expressions " camp de jour " et " école de sport de jour " utilisées au paragraphe 2 du Bulletin d'interprétation IT-495R2 Frais de garde d'enfants, publié le 13 janvier 1997?

Position Adoptée:
Expressions non définies dans la Loi et les dictionnaires. Le but premier des services offerts par un camp de jour et une école de sport de jour doit être la garde de l'enfant en offrant des services de garde appropriés dans un contexte récréatif.

14 October 2003 External T.I. 2003-0029435 - UNIVERSAL LIFE POLICIES

Unedited CRA Tags
148

Principal Issues:
Writer seeking "the interpretation bulletin on UL policies".

Position:
There is no bulletin on UL insurance. Writer referred to bulletins pertaining to life insurance products in general.

Reasons:
Tax treatment of universal life products depends upon the terms and conditions of the particular contracts, which vary tremendously between policyholders.

2 October 2003 External T.I. 2003-0027185 - US Life Insurance Policy

Unedited CRA Tags
128.1(1)(b) 12.2(1), 138(12)

Principal Issues: Tax implications for Canadian citizen non-resident acquiring a U.S. life insurance policy and then returning to Canada.

Position: General comments given.

Reasons: n/a

Conference

10 October 2003 Roundtable, 2003-0035685 F - DEDUCTION INTERETS MONTANT RAISON

Unedited CRA Tags
20(1)(c)
reasonableness of interest rate assessed in light of comparable market rates and issue premiums

Position Adoptée :
La déduction des intérêts aux termes de l'alinéa 20(1)c) L.I.R. est la moins élevée de la somme payée ou payable et d'une somme raisonnable. Tel qu'il est énoncé dans l'arrêt Shell, " lorsqu'un taux d'intérêt est fixé sur un marché de prêteurs et d'emprunteurs sans lien de dépendance, il s'agit généralement d'un taux raisonnable. " Quand il est question d'évaluer si un taux d'intérêt est raisonnable ou pas, on doit prendre en compte les taux comparables fixés sur le marché pour des risques liés au marché qui sont semblables ainsi que prendre en compte l'existence de primes d'émission.
RAISON POUR POSITION ADOPTÉE: L'arrêt Shell

10 October 2003 Roundtable, 2003-0036865 F - TRANSFER DE POLICE D'ASSURANCE

Unedited CRA Tags
15(1)
benefit to shareholder on gratuitous transfer to it of critical illness policy entitled to refund of premiums on maturity
s. 148(7) inapplicable to critical illness policy
FMV of critical illness policy takes refundable premium amount into account

Position Adoptée:
Oui pour un montant égal à la JVM de la police.
RAISON POUR POSITION ADOPTÉE:
Le transfert est sujet au paragraphe 15(1) de la Loi.

10 October 2003 Roundtable, 2003-0035385 F - POLICE D'ASSURANCE CONTRE MALADIE GRAVE

Unedited CRA Tags
18(1)(a) 15(1)
premiums on critical illness policy are non-deductible to the corporate policyholder even if it is the beneficiary
corporate payment of premiums on critical illness policy for its sole shareholder generated taxable benefit

Principales Questions:

10 October 2003 Roundtable, 2003-0037125 F - AVANCE SUR POLICE

Unedited CRA Tags
148(9)
withdrawal can qualify as policy loan even if not named as such under the policy

Position Adoptée:
Même si la police d'assurance vie est silencieuse sur la possibilité d'effectuer une " avance sur police ", cela ne signifie pas en soi que le retrait ne constitue pas une " avance sur police ".

10 October 2003 Roundtable, 2003-0035645 F - DEDUCTIBILITE DES INTERETS

Unedited CRA Tags
20(1)(c)
Ludco and Singleton accepted/ description of how and why cash damming works
Words and Phrases
income
interest imputed on a non-interest-bearing note issued at a discount consists of simple interest (annually deductible) and compound interest (deductible only at maturity)

Position Adoptée: Commentaires généraux.

10 October 2003 Roundtable, 2003-0037135 F - CONTRATS DE RENTE VIAGERE

Unedited CRA Tags
REG 301
annuity did not qualify as a "life annuity" where payments made to a corporation

Position Adoptée: Non
RAISON POUR POSITION ADOPTÉE :
Le texte de cette disposition ne permet pas cette interprétation.

10 October 2003 Roundtable, 2003-0035655 F - CBR D'UNE POLICE D'ASSURANCE TRANSFEREE

Unedited CRA Tags
148(7) 15(1) 148(9)
ACB addition, for gratuitous transfer of corporation’s life insurance policy under s. 148(7) to the insured shareholder/employee, equals excess of policy ACB over its CSV
consequences of gratuitous transfer of corporation’s life insurance policy under s. 148(7) to the insured shareholder/employee

Position Adoptée : Non.
RAISON POUR POSITION ADOPTÉE: Analyse législative.

10 October 2003 Roundtable, 2003-0037145 F - CONVENTION DE RETRAITE

Unedited CRA Tags
207.6(1) 207.6(2) 207.5(1)
deemed withdrawals from RCA through payment of insurance benefits not subject to tax under para. (d)

Position Adoptée: Non
RAISON POUR POSITION ADOPTÉE : Les dispositions du paragraphe 207.6(2) de la Loi s'appliquent à une fiducie présumée de convention de retraite qui acquiert un intérêt dans une police d'assurance-vie.

10 October 2003 Roundtable, 2003-0035665 F - TRANSFER D'UNE POLICE D'ASSURANCE-VIE

Unedited CRA Tags
148(7)
transfer to shareholder at policy’s FMV is not a “distribution”
Words and Phrases
distribution

Position Adoptée : Non
RAISON POUR POSITION ADOPTÉE:
Le paragraphe 148(7) de la Loi s'applique aux transferts en faveur d'une personne avec laquelle le titulaire a un lien de dépendance et aux transferts par voie de don, par une distribution par une société ou par le seul effet de la loi en faveur d'une personne. Lorsqu'un actionnaire ou un employé et la société transigent sans lien de dépendance et paient une contrepartie égale à la JVM pour acquérir la police, nous sommes d'avis qu'un tel transfert n'est pas considéré faire l'objet d'une disposition par voie de don, par une distribution par une société ou par le seul effet de la loi.

10 October 2003 Roundtable, 2003-0035675 F - EVALUATION D'UNE POLICE D'ASSURANCE-VIE

Unedited CRA Tags
70(5) 70(5.3) 148(9)
unpaid policy loan to corporation is to be deducted in determining shares’ FMV if the accords with valuation principles

Position Adoptée : Question d'évaluation.
RAISON POUR POSITION ADOPTÉE:
Application des principes habituels d'évaluation.

Technical Interpretation - Internal

7 October 2003 Internal T.I. 2003-0037947 - SOFTWARE MAINTENANCE AGREEMENT

Unedited CRA Tags
12(1)(a) 9(1) 20(1)(m)

Principal Issues: (a) Whether subsection 9(1) or paragraph 12(1)(a) includes in income a prepayment in respect of a software maintenance agreement. (b) If paragraph 12(1)(a) applies, whether subsection 20(7) of the Act will apply to deny a paragraph 20(1)(m) reserve because of the indemnity nature of the agreement.

Position: (a) Paragraph 12(1)(a) applies. (b) Yes, but the prepayment may have to be allocated amongst the elements of the maintenance plan that indemnify the customers.

Reasons: (a) As a general rule, paragraph 12(1)(a) should apply; the circumstances in this case are such that subsection 9(1) is not appropriate. (b) There are elements of the software maintenance agreement that are in the nature of an indemnity. However, there are also elements where services will likely have to be rendered by the taxpayer.

30 September 2003 Internal T.I. 2003-0023137 - DETERMINING THE PENALTY AMOUNT

Unedited CRA Tags
18(9.1) 20(1)(e)
current and cumulative test

Principal Issues:
(i) Does subsection 18(9.1) apply to a penalty or bonus payment made on the early redemption of an outstanding debt obligation?
(ii) If yes in (i) above, how should the penalty or bonus payable be deducted (i.e. in the year paid or in future taxation years)?

30 September 2003 Internal T.I. 2003-0033397 - Part IV Tax and Subsection 55(2)

Unedited CRA Tags
55(2) 186

Principal Issues: Application of subsection 55(2). Is the particular dividend subject to tax under Part IV.

Position: No.

Reasons: The law.