Income Tax Severed Letters - 2003-11-07

Miscellaneous

2003 Income Tax Severed Letter 2003-0035701 - Supp. Ruling - Minor Changes

Unedited CRA Tags
55(3)(b)

Principal Issues: Minor changes to ruling

Position: Supplemental ruling provided

Reasons: Ruling position remains unchanged

Ruling

2003 Ruling 2003-0033993 - Safe Income Extraction

Unedited CRA Tags
55(2) 88(1)

Principal Issues: Extraction of safe income prior to a sale.

Position: Acceptable

Reasons: Meets the requirements of the law.

Technical Interpretation - External

4 November 2003 External T.I. 2003-0042295 F - CONVENTION DE RETRAITE REVENU D'INTERET

Unedited CRA Tags
207.5(1) 12(1)(c) 12(3)
Summary Under
Tax Topics - Income Tax Act - Section 207.5 - Subsection 207.5(1) - Refundable Tax - Paragraph (b)
requirement to include interest income under s. 12 in computing refundable tax at end of year

Principales Questions:
Les revenus d'intérêts sont-ils inclus dans le calcul de l'impôt remboursable d'une convention de retraite au moment où ils sont versés?

4 November 2003 External T.I. 2003-0036505 - NON-ARM'S LENGTH SALE OF VEHICLE

Unedited CRA Tags
CLASS 10.1 20(16)

Principal Issues:
Can a non-arm's length sale of class 10.1 vehicle and subsequent arm's length disposition result in recaptured depreciation for the non-arm's length that acquired the vehicle as a used vehicle even though no CCA was claimed by that taxpayer?

Position TAKEN:
No.

Reasons:
Subsection 1102(14) of the Regulations deems the vehicle to be a class 10.1 asset. Subsection 13(2) of the Act prevents the amount of recapture from being included in income.

3 November 2003 External T.I. 2003-0038545 - CPP CONTRIBUTION EARNINGS

Unedited CRA Tags
14(1)

Principal Issues:
Determination of whether certain partnership allocations are Contributory self-employed earnings for CPP purposes if the partner is inactive in the business of the partnership and has borrowed to finance the purchase of partnership units.

Position:
Business income allocated to a partner must be included in Contributory self-employed earnings. Interest expense incurred to earn partnership business income would be deductible from that income in computing contributory self-employed earnings.

Reasons:
The Canada Pension Plan requires the inclusion of income from business in computing contributory self-employed earnings; as the courts have held that each member of a partnership carries on business regardless of the particular partner's risk or involvement - partnership allocations, other than those earned from non-business, sources would be contributory self-employed earnings. Interest expense is deductible from business income generated from partnership interest acquired with the borrowings per s. 20(1)(c).

31 October 2003 External T.I. 2003-0035615 - FRATERNAL BENEFIT SOCIETY

Unedited CRA Tags
149(1)(k) 108(1)

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 will be taxed as an inter vivos trust.

31 October 2003 External T.I. 2003-0045795 F - DEDOMMAGEMENT POUR PERTE DE REVENU

Unedited CRA Tags
56(1)(a)(i)
Summary Under
Tax Topics - Income Tax Act - Section 56 - Subsection 56(1) - Paragraph 56(1)(a) - Subparagraph 56(1)(a)(i)
Quebec government compensation to pension plan members for cessation of employer contributions was not itself pension or other income
Summary Under
Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a)
lump sum government compensation for loss of employer pension plan contributions was not income from a source

Position Adoptée: Non.

30 October 2003 External T.I. 2003-0037465 F - Subsections 40(3.3) & 40(3.4)

Unedited CRA Tags
40(3.3) 40(3.4) 47(1)
Summary Under
Tax Topics - Income Tax Act - Section 40 - Subsection 40(3.4)
non-application of s. 40(3.4) where taxpayer acquires then immediately disposes of an additional block/ application of formula where it partially dips into existing block

Principal Issues: Whether subsections 40(3.3) and 40(3.4) would apply to deem the transferor's loss to be nil in three given fact situations.

Position: Subsections 40(3.3) and 40(3.4) would not apply to deem the transferor's loss to be nil in the first given fact situation. Based on CCRA's administrative position, subsections 40(3.3) and 40(3.4) would be considered to apply to deem a portion only of the transferor's loss to be nil in the second given fact situation. Finally, subsections 40(3.3) and 40(3.4) would apply to deem the transferor's loss to be nil in the third given fact situation.

Reasons: Wording of the Act and current positions.

30 October 2003 External T.I. 2003-0020545 - DEATH OF A PARTNER

Unedited CRA Tags
96(1) 70(6)(d.1) 70(5)

Principal Issues: 1) What is a deceased partner's share of partnership income in circumstances where the partnership continues after the death of the partner and the partnership had income at the time of the partner's death and nil income at its fiscal year-end? 2) Could the disposition of a partnership interest by a deceased partner to his spouse be done at cost?

Position:1) Assuming that the partnership continues to exist after the death of the deceased partner and, assuming that the partnership agreement provides for an allocation of income to a deceased partner in the year of death, the deceased partner's share of the partnership income should be nil. 2) Yes, provided all the conditions in subsection 70(6) are satisfied.

Reasons:
1) Allocation is in accordance with subsection 96(1). 2) Subparagraph 70(6)(d.1)(ii) of the Act.

30 October 2003 External T.I. 2003-0028025 - RETIRING ALLOWANCE DELAYED

Unedited CRA Tags
248(1)

Principal Issues:
Can a retiring allowance be paid to a former employee 8 years after the individual left employment?

Position: Yes

Reasons:
Definition of "retiring allowance" would not preclude this delay in payment.

30 October 2003 External T.I. 2003-0031775 - DAMAGES

Unedited CRA Tags
18(1)(a) 18(1)(b) 18(1)(h)

Principal Issues: Whether a payment in respect of "damages" is deductible in computing income from the business of the taxpayer.

Position: Question of fact.

Reasons: In light of 65302 BC Ltd. v. HMQ, a review of each specific situation would determine whether the amount is deductible in computing income from a business.

29 October 2003 External T.I. 2003-0026355 F - ECHANGE D'ACTIONS

Unedited CRA Tags
110.6(14)f)
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)(i)
s. 110.6(14)(f)(i) applies to shares issued as part consideration for shares of a different class transferred to the corporation on a dirty s. 85 exchange

Principales Questions: Est-ce que l'exception au sous-alinéa 110.6(14)f)(i) de la Loi s'applique dans le cas où des actions privilégiées et un billet sont émis par une société en faveur d'un particulier en contrepartie d'actions privilégiées d'une autre catégorie afin de ne pas réputer les actions reçues en échange avoir été la propriété immédiatement avant leur émission d'une personne qui n'était pas liée au particulier ?

Est-ce que l'exception prévue au même sous-alinéa s'applique si les actions sont reçues dans le cadre d'un choix selon l'article 85 de la Loi en utilisant une somme convenue égale au prix de base rajusté des actions privilégiées transférées ?

Position Adoptée: Oui aux deux questions.

29 October 2003 External T.I. 2003-0039035 - REPAIRS OR CAPITAL EXPENDITURE

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

Principal Issues: We have been asked about the basis for considering whether expenditures incurred in respect of the replacement of a roof are on account of capital or a current expense (repairs).

Position. General comments were provided

Reasons: The determination of the issue involves a question of fact.

27 October 2003 External T.I. 2003-0008195 - CHARITABLE GIFT ANNUITIES

Unedited CRA Tags
12.2(1) 248(30)-(33) ITR 304(1)

Principal Issues:
Tax implications of charitable gift annuities issued after December 20, 2002.

Position:
Provided general comments on the taxation of annuity contracts and the application of the draft gifting legislation in determining the eligible amount of the gift.

Reasons: Legislation and draft legislation.

24 October 2003 External T.I. 2003-0040325 - Affiliated Related and Associated

Unedited CRA Tags
251(2) 251.1(1) 256(1)

Principal Issues: Whether certain corporations are affiliated, related or associated.

Position: Depends on the facts of each situation.

Reasons: See specific fact situations.

29 July 1994 External T.I. 94092450 - COMMISSIONS

Unedited CRA Tags
8(1)(f)(iii)

Principal Issues:
Whether or not certain types of bonus payments may be considered commission for the purposes of subparagraph 8(1)(f)(iii).

29 July 1994 External T.I. 9409245 - COMMISSIONS

Unedited CRA Tags
8(1)(f)(iii)

Principal Issues:
Whether or not certain types of bonus payments may be considered commission for the purposes of subparagraph 8(1)(f)(iii).

Technical Interpretation - Internal

5 November 2003 Internal T.I. 2003-0037977 F - FRAIS POUR ANNULER UNE OFFRE D'ACHAT

Unedited CRA Tags
18(1)(b) 40(1)
Summary Under
Tax Topics - Income Tax Act - Section 40 - Subsection 40(1) - Paragraph 40(1)(a) - Subparagraph 40(1)(a)(i)
legal fees incurred to defend a repudiation of a purchase contract might be a disposition expense (of the rights to purchase)

Principales Questions:
Quel est le traitement fiscal des frais juridiques encourus par un particulier pour annuler une offre d'achat d'un immeuble locatif?

Position Adoptée:
Il s'agirait d'une dépense de nature capitale. Il pourrait y avoir des arguments pour conclure qu'il s'agit de dépenses engagées ou effectuées par le particulier en vue de réaliser la disposition du droit d'acheter l'immeuble que contient l'offre d'achat. Cependant, la réponse pourrait être différente si, suite à la vérification de tous les faits et documents pertinents dans une situation particulière, nous constations que le particulier n'a jamais acquis le droit d'acheter l'immeuble.

31 October 2003 Internal T.I. 2003-0040997 F - CHANTIER PARTICULIER REPAS CONJOINT

Unedited CRA Tags
6(6)a) 6(1)a) 6(1)b)
Summary Under
Tax Topics - Income Tax Act - Section 6 - Subsection 6(6) - Paragraph 6(6)(a)
s. 6(6)(a) does not extend to covering meal expenses of visiting spouses

Principales Questions:
Les dispositions de l'alinéa 6(6)a) de la Loi s'appliquent-elles au remboursement reçu par l'employé pour les frais de repas encourus par son conjoint lors de ses visites sur le chantier particulier?

Position Adoptée:
Non.

31 October 2003 Internal T.I. 2003-0027217 - INCLUSION OF PROVISION - PART 1.3

Unedited CRA Tags
181.2(3)

Principal Issues:
Are the accrued estimated restructuring costs at the taxpayer's year end, and amount that must be included in computing the taxpayer's capital under subsection 181.2(3)?

Position:
If the credit is a provision for accounting purposes then it is a "reserve" as defined in subsection 181(1) and included in capital under paragraph 181.2(3)(b).

Reasons:
The legislation and the facts provided. GAAP expert input needed to determine whether financial statement treatment of provision is GAAP.

31 October 2003 Internal T.I. 2003-0037997 - INTER VIVOS TRUST

Unedited CRA Tags
149(1)(k) 108(1)

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 will be taxed as an inter vivos trust.

31 October 2003 Internal T.I. 2003-0038897 - GIFT OF SHARES

Unedited CRA Tags
6(1)(a)

Principal Issues:
1. Whether shares of company given by director of company to employee for doing a good job well done is a taxable benefit.
2. What is the ACB of the shares to the employee?
3. What are the proceeds of disposition of the shares for the director?

30 October 2003 Internal T.I. 2003-0035267 - PRE-JUDGMENT INTEREST

Unedited CRA Tags
12(1)(c)

Principal Issues:
A Divorce Order from the Family Court provides that pre-judgment interest will be paid to the taxpayer. The calculation is based on a capital amount that consists mostly of the equalization payment owed to the taxpayer. Is the pre-judgment interest taxable to the taxpayer?

Position: Yes.

Reasons: The payment has the quality of interest and is designated as such in the Divorce Order. Furthermore, it is not part of the exceptions administratively allowed by CCRA.

28 October 2003 Internal T.I. 2003-0025797 - PENSION CORPORATIONS

Unedited CRA Tags
149(1)(O.2)

Principal Issues:
Does the wording of subparagraph 149(1)(o.2)(i) of the Act restrict the activities of a corporation that was incorporated before Nov. 17, 1978 solely in connection with, or for the administration of, a registered pension plan?

Position: No.

Reasons:
Based on the actual wording of subparagraph 149(1)(o.2)(i) and the purpose of the amendments to paragraphs 149(1)(o) and 149(1)(o.2) as reflected in David Sherman's Department of Finance Technical Notes.

27 October 2003 Internal T.I. 2003-0022887 F - CII-PECHEURS

Unedited CRA Tags
127(9)
Summary Under
Tax Topics - Income Tax Act - Section 127 - Subsection 127(9) - Specified Percentage - Paragraph (a) - Subparagraph (a)(iii)
Gaspé Peninsula includes St. Lawrence

Principales Questions:
Est-ce qu'un pêcheur de Matane qui acquiert un bien pour l'utiliser dans son entreprise de pêche, pêche qu'il effectue dans le fleuve St-Laurent, a droit au CII, tel que défini au paragraphe 127(9) de la Loi?

Position Adoptée:
Oui.