Income Tax Severed Letters - 2003-11-28

Miscellaneous

5 November 2003 2003-001803A50 - Whether New Mine of Extension

Unedited CRA Tags
66.1(6)

Principal Issues: Reconsideration of whether a particular mine has come into production "in reasonable commercial quantities". Also whether expenses to bring a new ore zone into production will qualify as CEE as related to a "new mine" or be precluded as related to an extension of a mine that has come into production in reasonable commercial quantities.

Position: The mine in question previously came into production "in reasonable commercial quantities" and has not lost the characteristics of a mine since it was last shutdown. In addition, a proposed development program to access and mine a particular ore zone would constitute an extension of the existing mine rather than a "new" mine.

Reasons: Based upon the facts of the situation and a written opinion received from Natural Resources Canada.

Ruling

2003 Ruling 2003-0034983 F - DOMMAGES DE NATURE CAPITALE

Unedited CRA Tags
13(21)

Principales Questions:

1. Est-ce que les dommages à titre de compensation de la perte de capital subie sont imposables?
2. Est-ce que les dommages moraux sont imposables?
3. Est-ce que les intérêts pré-jugement accompagnant les dommages moraux sont imposables?

Position Adoptée:

2003 Ruling 2003-0044523 - STRUCTURED SETTLEMENT

Unedited CRA Tags
56(1)(d)

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 Issues

Technical Interpretation - External

25 November 2003 External T.I. 2003-0043695 - EMPLOYEE LOAN FORGIVEN

Unedited CRA Tags
6(15)

Principal Issues: Taxable status of a loan to an employee to pay an income tax liability in a situation where it is anticipated that the loan will be forgiven.

Position: The forgiven amount will result in a taxable benefit.

Reasons: Where a loan to an employee is partially or fully forgiven after February 17, 1987, the forgiven amount is income in the hands of the employee in accordance with subsection 6(15) of the Act.

25 November 2003 External T.I. 2003-0045785 - MEDICAL EXPENSE TAX CREDIT

Unedited CRA Tags
248(28)

Principal Issues:
Can amounts paid to a nursing home for which an Ontario Property tax credit is obtained also be eligible for the federal/medical expense tax credit?

Position:
Yes

Reasons:
The Income Tax Act does not prohibit or reduce a claim for the medical expense tax credit in these circumstances.

25 November 2003 External T.I. 2003-0049345 - RETIRING ALLOWANCE

Unedited CRA Tags
60(j.1)

Principal Issues:
Is a taxpayer who works part-time and is a member of a registered pension plan (RPP), entitled to the additional $1,500 per year for purposes of paragraph 60(j.1), where the member is vested under the RPP after 5 years of employment with the employer, the taxpayer is 100% vested, but the taxpayer's pensionable service is less than 5 years.

Position: No.

Reasons:
If a taxpayer is 100% vested and entitled to a pension benefit, that includes employer contributions, of any amount, the taxpayer is not entitled to the additional $1,500 per year under paragraph 60(j.1)

25 November 2003 External T.I. 2003-0039225 - SPECIAL WORK SITE

Unedited CRA Tags
6(b) 81(3.1)

Principal Issues:
Are payments made to employees in respect of hotels, meals and travel exempt from employment income virtue of subsection 6(6) of the Act?

Position TAKEN:
Maybe.

Reasons:
Question of fact.

24 November 2003 External T.I. 2003-0032565 - COST OF LEASING A PASSENGER VEHICLE

Unedited CRA Tags
67.3

Principal Issues:
Whether the short-term rental of a passenger vehicle is considered to be an indirect payment of "all or part of the actual lease charges in respect of a passenger vehicle" for the purposes of section 67.3 of the Act.

Position: Question of fact but, generally, no.

Reasons: A daily rental of a passenger vehicle is generally not an indirect payment of the "actual lease charges" of a taxpayer that leased a passenger vehicle for use in the ordinary course of carrying on a business of car rentals.

24 November 2003 External T.I. 2003-0036065 - RETIRING ALLOWANCE

Unedited CRA Tags
56(1)(a)(ii)

Principal Issues: Whether a lump sum amount received by an employee upon retirement is income from employment, a retiring allowance or non-taxable.

Position: Question of fact.

Reasons: A review of each specific situation would determine whether an amount would be subject to tax when it is received, and if so, the appropriate tax treatment thereof.

21 November 2003 External T.I. 2003-0023835 - CHARITABLE DONATIONS

Unedited CRA Tags
118.1(1) 118.1(2) 118.1(3)

Principal Issues:
1. Will a gift to charity result in deemed proceeds of disposition pursuant to subparagraph 69(1)(b)(ii) of the Act? Will the donor realize a capital gain?
2. If a registered charity or charitable organization outside of Canada issues a receipt, will the donation qualify as a charitable gift for purposes of section 118.1 of the Act?
3. Will a tax credit be available pursuant to subsection 118.1(3) of the Act in respect of the donation?
4. Must a tax shelter registration number be obtained in respect of the arrangement?

Position:
1. Yes. Question of fact whether there is a capital gain.
2. Issuance of receipt does not determine whether gift was made.
3. Factual determination.
4. Impossible to determine based on hypothetical facts.

Reasons:
1. Legislation.
2. Gift may not be claimed for tax purposes unless receipt is filed; whether not a gift was made depends upon factual circumstances.
3. Charitable organization outside of Canada may or may not be qualified donee and other criteria of subsection must be satisfied.
4. Facts and Legislation.

20 November 2003 External T.I. 2003-0033545 - partnership dissolution

Unedited CRA Tags
98(5) 20(1)(m) 20(1)(n)
Summary Under
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(m)
continuity under s. 98(5)
Summary Under
Tax Topics - Income Tax Act - Section 20 - Subsection 20(24)
partnership is taxpayer/application to s. 98(5) wind-up

Principal Issues: Where partnership, which was claiming reserves under 20(1)(m) and (n), dissolves and 98(5) applies, can sole proprietor continue to claim these reserves.

Position: Yes

Reasons: Per final 12(1)(e) inclusion of partnership, proprietor's share of the relevant amounts have been included in proprietor's income. May also elect under 20(24) for purposes of 20(1)(m).

18 November 2003 External T.I. 2003-0181195 F - REGLEMENT STRUCTURE

Unedited CRA Tags
81(1)(g.1) 81(1)(g.2)
Summary Under
Tax Topics - Income Tax Act - Section 56 - Subsection 56(1) - Paragraph 56(1)(d)
CCRA position on exemption of structured settlements (as described) extends to court-ordered personal injury payments
Summary Under
Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a)
summary of CCRA position on structured settlements

Position Adoptée:
La position de l'Agence à l'égard des règlements structurés est élargie pour permettre que les rentes assujetties aux dispositions du second alinéa de l'article 1616 du Code civil du Québec mais qui se qualifieraient autrement de règlements structurés tels que décrits dans le bulletin IT-365R2, ne soient pas imposables lorsque le créancier mineur peut choisir de recevoir un montant global dans les trois mois suivant sa majorité.

14 November 2003 External T.I. 2003-0034145 - MOTOR VEHICLE EXPENSE

Unedited CRA Tags
8(1)(h.1)

Principal Issues: Whether employees can deduct their travel expenses when they travel from home to a particular work place.

Position: No.

Reasons: Travel from home to a regular place of work is personal.

14 November 2003 External T.I. 2003-0035435 - Surplus Strip - Capital Gains v. Dividend

Unedited CRA Tags
245 84.1

Principal Issues: Whether certain transactions which are designed to convert dividends to capital gains on the disposition of shares by an individual are subject to section 84.1 or GAAR?

Position: Yes.

Reasons: Depending on the circumstances the individual could be considered to transfer the beneficial interest in the shares directly to the sons' holding companies.
Alternatively, GAAR may apply to recharacterize the capital gain as a dividend.

5 November 2003 External T.I. 2003-001803A - Whether New Mine of Extension

Unedited CRA Tags
66.1(6)
Summary Under
Tax Topics - Income Tax Act - Section 66.1 - Subsection 66.1(6) - Canadian exploration expense - Paragraph (f)

Principal Issues: Reconsideration of whether a particular mine has come into production "in reasonable commercial quantities". Also whether expenses to bring a new ore zone into production will qualify as CEE as related to a "new mine" or be precluded as related to an extension of a mine that has come into production in reasonable commercial quantities.

Position: The mine in question previously came into production "in reasonable commercial quantities" and has not lost the characteristics of a mine since it was last shutdown. In addition, a proposed development program to access and mine a particular ore zone would constitute an extension of the existing mine rather than a "new" mine.

Reasons: Based upon the facts of the situation and a written opinion received from Natural Resources Canada.

Conference

14 November 2003 Roundtable, 2003-0030075 F - Fiducie pour soi-meme - Deces de l'auteur

Unedited CRA Tags
104(4)

Principales Questions: Un roulement en faveur du conjoint est-il possible advenant le décès du constituant d'une fiducie en faveur de soi-même?

Position Adoptée: Le décès du constituant d'une fiducie en faveur de soi-même entraîne une disposition réputée en vertu du paragraphe 104(4) de la L.I.R.

10 October 2003 Roundtable, 2003-0030105 - Transfer d'actions en fiducie

Unedited CRA Tags
73(1) 70(5), 74.1, 75(2) 74.2

Principales Questions:
Voir ci-dessous

Position Adoptée:
Voir ci-dessous

10 October 2003 Roundtable, 2003-0030215 F - DEDUCTIBILITE DES INTERETS

Unedited CRA Tags
20(1)(c)

Position Adoptée: Commentaires généraux.

Technical Interpretation - Internal

24 November 2003 Internal T.I. 2003-0032047 - COST OF LEASING A PASSENGER VEHICLES

Unedited CRA Tags
67.3

Principal Issues:
Whether the short-term rental of a passenger vehicle, leased by an arm's length person, is considered to be an indirect payment of "all or part of the actual lease charges in respect of a passenger vehicle" for the purposes of section 67.3 of the Act.

Position: Question of fact but, generally, no.

Reasons: Section 67.3 of the Act limits the amount that a taxpayer can claim in respect of the lease cost of a passenger vehicle. Section 67.2 limits the amount that a taxpayer can claim in respect of interest on money borrowed to purchase a passenger vehicle. Section 67.3 does not apply to a vehicle "rented" or "leased" for a short period of time. It is difficult to argue that a short term "rent" or "lease" of a passenger vehicle is an indirect payment of the "actual lease charges" of a taxpayer that has leased a passenger vehicle for use in the ordinary course of carrying on their business of "renting/leasing" passenger vehicles.

20 November 2003 Internal T.I. 2003-0029377 - LIFE INSURANCE COLLATERAL ASSIGNMENT

Unedited CRA Tags
39(1) 50(1) 70(5)

Principal Issues:
1. Whether the assignment of a corporation's life insurance policy to a bank as partial security on a debt was a collateral or absolute assignment.
2. Whether life insurance proceeds received by the estate of the guarantor of the debt are taxable.

Position:
1. Question of law. In this case, the documentation provided suggests that the assignment of the life insurance policy was intended to be a collateral assignment.
2. If the guarantor had not died, the proceeds would have been taxed as a capital gain.

Reasons:
1. Documentation provided to us by the TSO.
2. Based on the premise that the original assignment to the bank was a collateral assignment, the bank transferred all its rights and interest in the policy to the guarantor when the guarantor paid the corporation's debt to the bank. The guarantor had claimed allowable business investment losses in respect of the amounts paid. Therefore, the life insurance proceeds would be considered a recovery of a bad debt and subject to tax as a capital gain. However, in this case, the guarantor died prior to receiving the proceeds with the result that paragraph 70(5)(a) would apply to deem the capital debt to have been disposed of for proceeds equal to fair market value.

20 November 2003 Internal T.I. 2003-0034027 - EXEMPT CONSTRUCTIVE TRUST

Unedited CRA Tags
20(1)(c) 149

Principal Issues:
Whether policy holder/Exempt Entity is constructive trustee for employees of long-term disability insurance surplus

Position: if and when Court makes such an Order

Reasons: 1988 CTF Q.31

20 November 2003 Internal T.I. 2003-0035837 - XXXXXXXXXX BANKING ARRANGEMENT

Unedited CRA Tags
181.2(3) 181(3)

Principal Issues:
The taxpayer has a XXXXXXXXXX banking arrangement in place with its bank and its subsidiaries. Its financial statements reported a net overdraft for the year. Must the overdraft be disaggregated with gross account balances used for Part I.3 purposes?

Position:
The company's asset and liability accounts subject to the XXXXXXXXXX appear to satisfy criteria for offset presentation under GAAP. Therefore, the accounts subject to the XXXXXXXXXX would reflect a single net balance for Part I.3 purposes. Accounts not subject to the XXXXXXXXXX must be disaggregated and gross balances used for Part I.3 purposes.

Reasons:
In general, the aggregate balance of a taxpayer's bank accounts must be disaggregated for Part I.3 purposes. Particular accounts may be reported on a net basis, however, where there is authority to offset asset and liability amounts under GAAP.

20 November 2003 Internal T.I. 2003-0039147 - PET RELATED EXPENSES

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

Principal Issues:
Are expenses in respect of the taxpayer's dog deductible?

19 November 2003 Internal T.I. 2003-0047687 F - Interest Calculation T/P Adjustment RQST

Unedited CRA Tags
161(1) 161(7)
Summary Under
Tax Topics - Income Tax Act - Section 161 - Subsection 161(7) - Paragraph 161(7)(a) - Subparagraph 161(7)(a)(iv)
substitution of NCL carrybacks with CCA claims for nil assessment taxation years does not generate s. 161(1) interest
Summary Under
Tax Topics - Income Tax Act - Section 161 - Subsection 161(1)
substitution of NCL carrybacks with CCA claims for nil assessment taxation years does not generate s. 161(1) interest

Principal Issues: In a situation where a taxpayer request the substitution of the amount of depreciation deducted in a particular taxation year by the carry-back of an equal amount of a non-capital loss of a subsequent taxation year, pursuant to 111(1)(a), whether the taxpayer must pay interest pursuant to ss. 161(1) because of paragraph 161(7)(a) ?

Position: No.

Reasons: The substitution made does not alter the previous nil assessment.

18 November 2003 Internal T.I. 2003-0038517 - CHARITABLE ANNUITIES

Unedited CRA Tags
56(1)(d) 60(a) REG 300

Principal Issues:
Sometimes a donor/annuitant of a charitable annuity lives beyond the number of years they were expected to live at the time they acquired the annuity (based on the 1971 Individual Mortality Tables). How will annuity payments received by the annuitant after they have exceeded their life expectancy be taxed?

Position:
Charitable annuities issued after December 20, 2002, will be taxed in the same manner as all other annuity contracts are taxed under the Income Tax Act. Assuming the annuity is a "prescribed annuity contract", annuity payments are included in income in the year the payments are received and the taxpayer may claim a deduction in respect of the capital element of the payments.

Reasons: The legislation regarding the taxation of "prescribed annuity contracts".

17 November 2003 Internal T.I. 2003-0044367 - DEMUTUALIZATION EXPENSES

Unedited CRA Tags
20(1)(c) 138(2)

Principal Issues: Deductibility of expenses incurred in the course of demutualization.

Position:
Some expenses deductible as share issue expenses - paragraph 20(1)(e) of the Act; some as eligible capital expenditures - paragraph 20(1)(b) of the Act. Expenses are deductible only to extent they were incurred with respect to business carried on in Canada - subsections 20(1) and 138(2).

Reasons:
Expenses incurred for purpose of obtaining authority to issue shares not deductible under paragraph 20(1)(e). Demutualization is reorganization of worldwide capital; hence some expenses must reasonably be attributed to insurance businesses carried on outside of Canada i.e. are not deductible.