Income Tax Severed Letters - 2003-10-31

Miscellaneous

2003 Miscellaneous 2003-002183A30 - Underground Exploration Program - CEE?

Unedited CRA Tags
66.1(6)

Principal Issues: Whether expenses relating to an underground exploration program will qualify for inclusion under paragraph (f) to the definition of CEE.

Position: Expenses incurred in respect of the proposed exploration programs may potentially qualify under paragraph (f) to the definition of CEE.

Reasons: Based upon the facts of the situation and a written opinion received from Natural Resources Canada. A representative of that Department visited the site and reached conclusions that supported the above position and opinion.

2003 Miscellaneous 2003-00346110 - Split-Up Butterfly

Unedited CRA Tags
55(3)(b)

Principal Issues: Amendments to Ruling 2002-015768

Position: The amendments are acceptable

Reasons: N/A

2003 Miscellaneous 2003-0034611 - Split-Up Butterfly

Unedited CRA Tags
55(3)(b)

Principal Issues: Amendments to Ruling 2002-015768

Position: The amendments are acceptable

Reasons: N/A

Ruling

2003 Ruling 2003-00116330 - SALARY DEFERRAL ARRANGEMENT

Unedited CRA Tags
248(1) 5(1)

Principal Issues:
Whether a salary deferral arrangement has been created by the proposed amendments to a unionized employment contract of an employer. The same amendment is being made with respect to management employees. The proposed amendments are expected to be agreed to in XXXXXXXXXX and are such that the accumulation of years for the calculation of severance payments will be capped as at XXXXXXXXXX . Severance payments will still be based on salary at the date of retirement but years of service after XXXXXXXXXX will no longer qualify. Upon XXXXXXXXXX , the employees will be able to elect to receive the amount in XXXXXXXXXX based on XXXXXXXXXX salary and years of service. Management employees can make similar elections in XXXXXXXXXX .

Position:
The ability to elect to receive the amount creates a right to receive salary and wages. However, even though a right to receive an amount has arisen, salary deferral arrangements have not been created because the main purpose test in the SDA definition has not been met.

Reasons:
There are special circumstances such that the purpose test is not met. For those who do not elect to receive the amount in XXXXXXXXXX , the main purpose for not making the one-time election to receive the one-time payment is not to postpone taxes payable. There is a pre-existing term of employment for managers, or in a contract for the unionized employees, to receive an amount at retirement that has not changed other than the accumulation of years in the calculation. For those who do elect to receive the amount, the fact that the employer needs time to make the calculations and cannot make a payment until XXXXXXXXXX should not result in an SDA as the main purpose is not to postpone the payment of tax. Anyone who elects to receive the payment will have employment income upon receipt in XXXXXXXXXX . The amendment to the plan should not affect the treatment of the amount upon retirement for those who do not elect.

2003 Ruling 2003-00223930 - Split Up Butterfly

Unedited CRA Tags
55(3)(b) 186(4)(b) 256(7)

Principal Issues: Split up butterfly transactions.

Position: Standard butterfly. Minor issues in relation to (i) acquisition of control of DC occurring upon permitted redemption of DC shares and (ii) whether transferee corporations connected to DC. Favourable rulings given.

Reasons:

2003 Ruling 2003-01817130 - XXXXXXXXXX

Unedited CRA Tags
84.1

Principal Issues: Application of 84.1 and GAAR to the creation of a special corporation that is set-up to acquire the shares of the employer corporation from its employee.

Position: Favourable rulings provided.

Reasons: The law.

2003 Ruling 2003-0011633 - SALARY DEFERRAL ARRANGEMENT

Unedited CRA Tags
248(1) 5(1)

Principal Issues:
Whether a salary deferral arrangement has been created by the proposed amendments to a unionized employment contract of an employer. The same amendment is being made with respect to management employees. The proposed amendments are expected to be agreed to in XXXXXXXXXX and are such that the accumulation of years for the calculation of severance payments will be capped as at XXXXXXXXXX . Severance payments will still be based on salary at the date of retirement but years of service after XXXXXXXXXX will no longer qualify. Upon XXXXXXXXXX , the employees will be able to elect to receive the amount in XXXXXXXXXX based on XXXXXXXXXX salary and years of service. Management employees can make similar elections in XXXXXXXXXX .

Position:
The ability to elect to receive the amount creates a right to receive salary and wages. However, even though a right to receive an amount has arisen, salary deferral arrangements have not been created because the main purpose test in the SDA definition has not been met.

Reasons:
There are special circumstances such that the purpose test is not met. For those who do not elect to receive the amount in XXXXXXXXXX , the main purpose for not making the one-time election to receive the one-time payment is not to postpone taxes payable. There is a pre-existing term of employment for managers, or in a contract for the unionized employees, to receive an amount at retirement that has not changed other than the accumulation of years in the calculation. For those who do elect to receive the amount, the fact that the employer needs time to make the calculations and cannot make a payment until XXXXXXXXXX should not result in an SDA as the main purpose is not to postpone the payment of tax. Anyone who elects to receive the payment will have employment income upon receipt in XXXXXXXXXX . The amendment to the plan should not affect the treatment of the amount upon retirement for those who do not elect.

2003 Ruling 2003-002183A - Underground Exploration Program - CEE?

Unedited CRA Tags
66.1(6)

Principal Issues: Whether expenses relating to an underground exploration program will qualify for inclusion under paragraph (f) to the definition of CEE.

Position: Expenses incurred in respect of the proposed exploration programs may potentially qualify under paragraph (f) to the definition of CEE.

Reasons: Based upon the facts of the situation and a written opinion received from Natural Resources Canada. A representative of that Department visited the site and reached conclusions that supported the above position and opinion.

2003 Ruling 2003-0022393 - Split Up Butterfly

Unedited CRA Tags
55(3)(b) 186(4)(b) 256(7)

Principal Issues: Split up butterfly transactions.

Position: Standard butterfly. Minor issues in relation to (i) acquisition of control of DC occurring upon permitted redemption of DC shares and (ii) whether transferee corporations connected to DC. Favourable rulings given.

Reasons:

2003 Ruling 2003-0181713 - XXXXXXXXXX

Unedited CRA Tags
84.1

Principal Issues: Application of 84.1 and GAAR to the creation of a special corporation that is set-up to acquire the shares of the employer corporation from its employee.

Position: Favourable rulings provided.

Reasons: The law.

Ministerial Correspondence

9 October 2003 Ministerial Correspondence 2003-00368140 - HARDSHIP ALLOWANCES

Unedited CRA Tags
6(1)(b)

Principal Issues: Whether hardship and danger allowances received by employees working for a company in XXXXXXXXXX under a contract with the military would be tax-free

Position: Probably not

Reasons: Unless the allowance can be considered to be in respect of travel expenses, or for board, lodging or transportation at a special worksite, it would be taxable.

9 October 2003 Ministerial Correspondence 2003-0036814 - HARDSHIP ALLOWANCES

Unedited CRA Tags
6(1)(b)

Principal Issues: Whether hardship and danger allowances received by employees working for a company in XXXXXXXXXX under a contract with the military would be tax-free

Position: Probably not

Reasons: Unless the allowance can be considered to be in respect of travel expenses, or for board, lodging or transportation at a special worksite, it would be taxable.

Technical Interpretation - External

29 October 2003 External T.I. 2003-0006505 F - REGIME D'ASSURANCE SALAIRE

Unedited CRA Tags
6(1)F)

Principales Questions:

1. Qu'est-ce qu'un régime d'assurance salaire versus un contrat d'assurance ?

2. Est-ce que, dans les scénarios présentés, les modifications apportées aux régimes décrits font en sorte qu'il s'agit d'un nouveau régime ?

Position Adoptée:

29 October 2003 External T.I. 2003-00334350 F - CREDIT POUR INTERET SUR PRETS ETUDIANTS

Unedited CRA Tags
118.62

Principales Questions:
1. L'article 118.62 de la Loi s'applique-t-il aux intérêts accumulés avant 1998 et payés dans une année d'imposition postérieure à 1997?
2. Lorsqu'un débiteur d'un prêt étudiant conclut une entente de remboursement de sa dette alors qu'une action en justice est introduite contre lui mais avant le prononcé du jugement, l'article 118.62 s'applique-t-il aux intérêts payés entre l'introduction de l'action en justice et le prononcé du jugement?

29 October 2003 External T.I. 2003-0036905 - LIFELONG LEARNING PLAN

Unedited CRA Tags
146.02(1)

Position: No in the both situations.
REASON :
Some conditions of the definition "eligible amount" in subsection 146.02(1) would not be met.

2003-003690
XXXXXXXXXX Michelle Desrosiers,
Notaire, M.Fisc.
October 29, 2003

29 October 2003 External T.I. 2003-0037435 F - REMBOURSEMENT DE PAIMENTS D'UN REEE

Unedited CRA Tags
146.1(1)

Position Adoptée: Oui, si le régime le permet.

29 October 2003 External T.I. 2003-00065050 F - REGIME D'ASSURANCE SALAIRE

Unedited CRA Tags
6(1)F)

Principales Questions:

1. Qu'est-ce qu'un régime d'assurance salaire versus un contrat d'assurance ?

2. Est-ce que, dans les scénarios présentés, les modifications apportées aux régimes décrits font en sorte qu'il s'agit d'un nouveau régime ?

Position Adoptée:

29 October 2003 External T.I. 2003-00369050 - LIFELONG LEARNING PLAN

Unedited CRA Tags
146.02(1)

Position: No in the both situations.
REASON :
Some conditions of the definition "eligible amount" in subsection 146.02(1) would not be met.

2003-003690
XXXXXXXXXX Michelle Desrosiers,
Notaire, M.Fisc.
October 29, 2003

29 October 2003 External T.I. 2003-00374350 F - REMBOURSEMENT DE PAIMENTS D'UN REEE

Unedited CRA Tags
146.1(1)

Position Adoptée: Oui, si le régime le permet.

29 October 2003 External T.I. 2003-0033435 F - CREDIT POUR INTERET SUR PRETS ETUDIANTS

Unedited CRA Tags
118.62

Principales Questions:
1. L'article 118.62 de la Loi s'applique-t-il aux intérêts accumulés avant 1998 et payés dans une année d'imposition postérieure à 1997?
2. Lorsqu'un débiteur d'un prêt étudiant conclut une entente de remboursement de sa dette alors qu'une action en justice est introduite contre lui mais avant le prononcé du jugement, l'article 118.62 s'applique-t-il aux intérêts payés entre l'introduction de l'action en justice et le prononcé du jugement?

23 October 2003 External T.I. 2003-00044150 - Arizona LLC

Unedited CRA Tags
248(1)

Principal Issues: whether an Arizona LLC is a corporation for Canadian tax purposes

Position: yes

Reasons: legislation indicated that the LLC is a separate entity and members have limited liability

23 October 2003 External T.I. 2003-0017935 F - BIEN AGRICOLE ADMISSIBLE

Unedited CRA Tags
110.6(1) 12(1)(x) 4(1)

Principales Questions:
1. Est-ce le revenu brut ou le revenu net qui est visé dans " le revenu de la personne provenant de toutes les autres sources pour l'année " dans la définition " bien agricole admissible " au paragraphe 110.6(1) de la Loi?
2. Un remboursement des taxes municipales et scolaires fait à un agriculteur par le Ministère de l'agriculture, des pêcheries et de l'alimentation du Québec entre-t-il dans le calcul du revenu brut de l'entreprise agricole, ou si ledit remboursement doit réduire la dépense de taxes municipales et scolaires?

Position Adoptée:
1. Revenu net.
2. L'application des principes commerciaux reconnus aux fins du calcul du bénéfice (ou la perte) à l'article 9 de la Loi requiert ordinairement que le coût de l'actif ou le montant de la dépense soit réduit du montant de remboursement auquel ce dernier se rapporte. Alternativement, si le remboursement reçu d'un gouvernement n'est pas rattaché à une dépense (ou à un actif), ces principes requièrent que le remboursement soit inclus dans le calcul du revenu de bien ou d'entreprise du contribuable. Si dans une situation particulière, les principes commerciaux ne s'appliquent pas de cette façon à un remboursement d'un gouvernement, le remboursement reçu par un contribuable d'un gouvernement doit être inclus dans le calcul du revenu d'entreprise ou de bien du contribuable, dans l'année où il l'a reçu, en vertu de l'alinéa 12(1)x) de la Loi.

23 October 2003 External T.I. 2003-00179350 F - BIEN AGRICOLE ADMISSIBLE

Unedited CRA Tags
110.6(1) 12(1)(x) 4(1)

Principales Questions:
1. Est-ce le revenu brut ou le revenu net qui est visé dans " le revenu de la personne provenant de toutes les autres sources pour l'année " dans la définition " bien agricole admissible " au paragraphe 110.6(1) de la Loi?
2. Un remboursement des taxes municipales et scolaires fait à un agriculteur par le Ministère de l'agriculture, des pêcheries et de l'alimentation du Québec entre-t-il dans le calcul du revenu brut de l'entreprise agricole, ou si ledit remboursement doit réduire la dépense de taxes municipales et scolaires?

Position Adoptée:
1. Revenu net.
2. L'application des principes commerciaux reconnus aux fins du calcul du bénéfice (ou la perte) à l'article 9 de la Loi requiert ordinairement que le coût de l'actif ou le montant de la dépense soit réduit du montant de remboursement auquel ce dernier se rapporte. Alternativement, si le remboursement reçu d'un gouvernement n'est pas rattaché à une dépense (ou à un actif), ces principes requièrent que le remboursement soit inclus dans le calcul du revenu de bien ou d'entreprise du contribuable. Si dans une situation particulière, les principes commerciaux ne s'appliquent pas de cette façon à un remboursement d'un gouvernement, le remboursement reçu par un contribuable d'un gouvernement doit être inclus dans le calcul du revenu d'entreprise ou de bien du contribuable, dans l'année où il l'a reçu, en vertu de l'alinéa 12(1)x) de la Loi.

23 October 2003 External T.I. 2003-0004415 - Arizona LLC

Unedited CRA Tags
248(1)

Principal Issues: whether an Arizona LLC is a corporation for Canadian tax purposes

Position: yes

Reasons: legislation indicated that the LLC is a separate entity and members have limited liability

22 October 2003 External T.I. 2003-0034845 - QUALIFIED FARM PROPERTY

Unedited CRA Tags
110.6(1)

Principal Issues: Whether the land owned by a taxpayer is considered to be "qualified farm property"?

Position: Question of fact, general comments provided.

Reasons: Question of fact, insufficient facts provided.

22 October 2003 External T.I. 2003-00348450 - QUALIFIED FARM PROPERTY

Unedited CRA Tags
110.6(1)

Principal Issues: Whether the land owned by a taxpayer is considered to be "qualified farm property"?

Position: Question of fact, general comments provided.

Reasons: Question of fact, insufficient facts provided.

20 October 2003 External T.I. 2002-01803350 - NON-PROFIT ORGANIZATION

Unedited CRA Tags
149(1)(l)

Principal Issues:
1. Will Newco be regarded as a charity for purposes of 149(1)(l)?
2. Will a provision in the letters patent of Newco that allows distribution of assets of Newco to its members on dissolution prevent Newco from qualifying as an NPO until such distribution occurs?
3. Will the accumulation of funds in Newco in order to carry out its non-profit objectives (and the earning of investment income on such funds) preclude Newco from qualifying as an NPO?

Position:
1. No.
2. No. But Newco will lose its NPO (exempt) status as soon as the Directors of the corporation authorize its dissolution.
3. No, as long as the funds (including the investment earnings on such funds) are all ultimately used in the not-for-profit objective (e.g. undue accumulation of surplus investment income will jeopardize NPO status).

Reasons:
1. Resources of Newco are not dedicated to charitable activities.
2. IT-409, 149(10).
3. Short term investment income ultimately used in the not-for-profit objectives of the corporation will not, in and by itself, taint the NPO status of the corporation.

20 October 2003 External T.I. 2002-0180335 - NON-PROFIT ORGANIZATION

Unedited CRA Tags
149(1)(l)

Principal Issues:
1. Will Newco be regarded as a charity for purposes of 149(1)(l)?
2. Will a provision in the letters patent of Newco that allows distribution of assets of Newco to its members on dissolution prevent Newco from qualifying as an NPO until such distribution occurs?
3. Will the accumulation of funds in Newco in order to carry out its non-profit objectives (and the earning of investment income on such funds) preclude Newco from qualifying as an NPO?

Position:
1. No.
2. No. But Newco will lose its NPO (exempt) status as soon as the Directors of the corporation authorize its dissolution.
3. No, as long as the funds (including the investment earnings on such funds) are all ultimately used in the not-for-profit objective (e.g. undue accumulation of surplus investment income will jeopardize NPO status).

Reasons:
1. Resources of Newco are not dedicated to charitable activities.
2. IT-409, 149(10).
3. Short term investment income ultimately used in the not-for-profit objectives of the corporation will not, in and by itself, taint the NPO status of the corporation.

17 October 2003 External T.I. 2003-0010025 - RCA ADMINISTRATION FEES RCA RETURN

Unedited CRA Tags
207.5(1)

Principal Issues:
Can an RCA deduct its administration costs (such as those associated with distributing pensions; financial statement preparation and collection of employer contributions) in calculating its refundable tax for the year?

Position: No

Reasons:
These costs are not an expense of earning income from business or property..

17 October 2003 External T.I. 2003-00100250 - RCA ADMINISTRATION FEES RCA RETURN

Unedited CRA Tags
207.5(1)

Principal Issues:
Can an RCA deduct its administration costs (such as those associated with distributing pensions; financial statement preparation and collection of employer contributions) in calculating its refundable tax for the year?

Position: No

Reasons:
These costs are not an expense of earning income from business or property..

15 October 2003 External T.I. 2003-0030905 F - Associated Corporations and 129(6)

Unedited CRA Tags
256(2) 129(6) 125

Principal Issues:
Whether two corporations associated through a third corporation under 256(2) continue to be so associated for the purposes of subsection 129(6) of the Act where the third corporation files the election provided under subsection 256(2) ?

Position:
Yes.

Reasons:
Pursuant to subsection 256(2) of the Act, the election is only relevant for the purposes of section 125 of the Act.

15 October 2003 External T.I. 2003-00309050 F - Associated Corporations and 129(6)

Unedited CRA Tags
256(2) 129(6) 125

Principal Issues:
Whether two corporations associated through a third corporation under 256(2) continue to be so associated for the purposes of subsection 129(6) of the Act where the third corporation files the election provided under subsection 256(2) ?

Position:
Yes.

Reasons:
Pursuant to subsection 256(2) of the Act, the election is only relevant for the purposes of section 125 of the Act.

20 October 2001 External T.I. 2003-0007015 F - RESSOURCE INTERMEDIAIRE

Unedited CRA Tags
81(1)(h) 45(1) 6(1)(a)

Principales Questions:
1. Est-ce que les paiements de rétribution du particulier sont des montants versés au profit des bénéficiaires au sens de l'alinéa 81(1)h) de la Loi et est-ce qu'ils sont exclus du revenu en vertu de cet alinéa?
2. Quel serait le traitement fiscal du gain réalisé à la vente de la résidence du particulier dans laquelle il a habité et dans laquelle il a hébergé des bénéficiaires?
3. Si l'établissement public fournit gratuitement la résidence à son employé pour qu'il y loge et qu'il y héberge les bénéficiaires, est-ce que le fait de fournir gratuitement la résidence constitue un avantage imposable pour l'employé en vertu de l'alinéa 6(1)a) de la Loi?

Position Adoptée:
1. Les montants reçus par le particulier en vertu de la LSSSS profitent aux bénéficiaires. Ces montants sont versés par l'établissement public dans le cadre d'un programme prévu par une loi provinciale, après examen des ressources, des besoins et du revenu. Si les autres conditions de l'alinéa 81(1)h) sont respectées, le particulier n'inclurait pas les montants de rétribution dans le calcul de son revenu.
2. Commentaires généraux.
3. Il y a un avantage conféré à l'employé par son employeur. Cependant, il faut réduire la valeur de l'avantage pour tenir compte du fait que la résidence est partagée avec les bénéficiaires et qu'elle ne sert pas uniquement aux fins personnelles de l'employé et de sa famille.

20 October 2001 External T.I. 2003-00070150 F - RESSOURCE INTERMEDIAIRE

Unedited CRA Tags
81(1)(h) 45(1) 6(1)(a)

Principales Questions:
1. Est-ce que les paiements de rétribution du particulier sont des montants versés au profit des bénéficiaires au sens de l'alinéa 81(1)h) de la Loi et est-ce qu'ils sont exclus du revenu en vertu de cet alinéa?
2. Quel serait le traitement fiscal du gain réalisé à la vente de la résidence du particulier dans laquelle il a habité et dans laquelle il a hébergé des bénéficiaires?
3. Si l'établissement public fournit gratuitement la résidence à son employé pour qu'il y loge et qu'il y héberge les bénéficiaires, est-ce que le fait de fournir gratuitement la résidence constitue un avantage imposable pour l'employé en vertu de l'alinéa 6(1)a) de la Loi?

Position Adoptée:
1. Les montants reçus par le particulier en vertu de la LSSSS profitent aux bénéficiaires. Ces montants sont versés par l'établissement public dans le cadre d'un programme prévu par une loi provinciale, après examen des ressources, des besoins et du revenu. Si les autres conditions de l'alinéa 81(1)h) sont respectées, le particulier n'inclurait pas les montants de rétribution dans le calcul de son revenu.
2. Commentaires généraux.
3. Il y a un avantage conféré à l'employé par son employeur. Cependant, il faut réduire la valeur de l'avantage pour tenir compte du fait que la résidence est partagée avec les bénéficiaires et qu'elle ne sert pas uniquement aux fins personnelles de l'employé et de sa famille.

Technical Interpretation - Internal

21 October 2003 Internal T.I. 2003-00315770 - BUSINESS AND EXPENDITURE LIMIT

Unedited CRA Tags
125(2)

Principal Issues: The determination of the business limit and expenditure limit under amended subsections 125(2) and 127(10.2), for a CCPC with multiple taxation years.

Position: General comments and examples provided.

Reasons: Wording of the relevant provisions.

21 October 2003 Internal T.I. 2003-0031577 - BUSINESS AND EXPENDITURE LIMIT

Unedited CRA Tags
125(2)

Principal Issues: The determination of the business limit and expenditure limit under amended subsections 125(2) and 127(10.2), for a CCPC with multiple taxation years.

Position: General comments and examples provided.

Reasons: Wording of the relevant provisions.