Income Tax Severed Letters - 2003-12-12

Ruling

2003 Ruling 2003-00168530 - Transfer of Assets of Partnership

Unedited CRA Tags
85(2) 55(3)

Principal Issues: Whether subsection 55(2) applies to dividends paid by Newco 55(2) to the partnership ?

Position: No.

Reasons: With respect to the partners with whom Newco is connected, they will pay Part IV tax on the dividends. The dividends will therefore be exempt from the application of subsection 55(2).

2003 Ruling 2003-00370130 - PUC Reduction Spin-Off & Sale

Unedited CRA Tags
84(4.1) 84(2)

Principal Issues: Spin-off of shares of a subsidiary owned by a public corporation. Whether subsection 84(4.1) applies or subsection 84(2).

Position: Favourable rulings issued.

Reasons: In compliance with the law.

2003 Ruling 2003-00440630 - Residency, France

Unedited CRA Tags
250(5) All Canada-France Tax Convention

Principal Issues: dual residency

Position: resident of France under the Canada-France Tax Convention

Reasons: liable to tax on worldwide income in France, permanent home in France, home in Canada rented to arm's length third party at arm's length terms and conditions, taxpayers do not have the Canadian home available to them while they are in France, family will live in France, consistent with position in 2003-0035407

2003 Ruling 2003-0016853 - Transfer of Assets of Partnership

Unedited CRA Tags
85(2) 55(3)

Principal Issues: Whether subsection 55(2) applies to dividends paid by Newco 55(2) to the partnership ?

Position: No.

Reasons: With respect to the partners with whom Newco is connected, they will pay Part IV tax on the dividends. The dividends will therefore be exempt from the application of subsection 55(2).

2003 Ruling 2003-0037013 - PUC Reduction Spin-Off & Sale

Unedited CRA Tags
84(4.1) 84(2)

Principal Issues: Spin-off of shares of a subsidiary owned by a public corporation. Whether subsection 84(4.1) applies or subsection 84(2).

Position: Favourable rulings issued.

Reasons: In compliance with the law.

2003 Ruling 2003-0044063 - Residency, France

Unedited CRA Tags
250(5) All Canada-France Tax Convention

Principal Issues: dual residency

Position: resident of France under the Canada-France Tax Convention

Reasons: liable to tax on worldwide income in France, permanent home in France, home in Canada rented to arm's length third party at arm's length terms and conditions, taxpayers do not have the Canadian home available to them while they are in France, family will live in France, consistent with position in 2003-0035407

Technical Interpretation - External

10 December 2003 External T.I. 2003-00416250 - GIFT OF PROPERTY TO A CHILD

Unedited CRA Tags
69(1)

Principal Issues: What are tax consequences of a taxpayer gifting a particular property to his adult stepson (not a farm property).

Position: A capital gain would arise upon the transfer of the property if the proceeds of disposition exceed the adjusted cost base and outlays and expenses for the purpose of making the disposition.

Reasons: Paragraph 69(1)(b) of the Act deems the taxpayer to have received proceeds of disposition equal to the fair market value.

10 December 2003 External T.I. 2003-0041625 - GIFT OF PROPERTY TO A CHILD

Unedited CRA Tags
69(1)

Principal Issues: What are tax consequences of a taxpayer gifting a particular property to his adult stepson (not a farm property).

Position: A capital gain would arise upon the transfer of the property if the proceeds of disposition exceed the adjusted cost base and outlays and expenses for the purpose of making the disposition.

Reasons: Paragraph 69(1)(b) of the Act deems the taxpayer to have received proceeds of disposition equal to the fair market value.

9 December 2003 External T.I. 2002-0163535 - PAYMENTS FROM RPP, DPSP OR SUBP

Unedited CRA Tags
153(1) REG 102 REG 103(4)

Principal Issues:
Requested confirmation of reporting and withholding requirements of various payments from RPPs, SUBPs and DPSPs.

Position: Comments provided as applicable.

Reasons: See commentary in the memorandum.

9 December 2003 External T.I. 2002-01635350 - PAYMENTS FROM RPP, DPSP OR SUBP

Unedited CRA Tags
153(1) REG 102 REG 103(4)

Principal Issues:
Requested confirmation of reporting and withholding requirements of various payments from RPPs, SUBPs and DPSPs.

Position: Comments provided as applicable.

Reasons: See commentary in the memorandum.

5 December 2003 External T.I. 2002-01651950 - Debt Forgiveness in Foreign Affiliates

Unedited CRA Tags
95(2)(g.1) 95(2)(i) 95(2)(f)(i)

Position: (1) Yes; (2) Yes.

5 December 2003 External T.I. 2003-00417150 - MEDICAL EXPENSES-RENOVATIONS

Unedited CRA Tags
118.2(2)

Principal Issues:
Would the cost of modifying a bathroom by installing a new bathtub to allow a person who is permanently disabled unassisted access to the bathtub qualify as a medical expense?

Position:
Reasonable costs relating to renovations of the bathroom to allow a disabled individual access to independent bathing within a dwelling to qualify as medical expenses.

Reasons: 118.2(2)(l.2)

5 December 2003 External T.I. 2003-0041715 - MEDICAL EXPENSES-RENOVATIONS

Unedited CRA Tags
118.2(2)

Principal Issues:
Would the cost of modifying a bathroom by installing a new bathtub to allow a person who is permanently disabled unassisted access to the bathtub qualify as a medical expense?

Position:
Reasonable costs relating to renovations of the bathroom to allow a disabled individual access to independent bathing within a dwelling to qualify as medical expenses.

Reasons: 118.2(2)(l.2)

4 December 2003 External T.I. 2003-00385950 - CAPITAL DIVIDEND ACCOUNT

Unedited CRA Tags
89(1)

Principal Issues: Is a private corporation entitled, as a member of a partnership, to include, in computing its capital dividend account ("CDA"), its share of a capital dividend received by a partnership of which it is a member?
POSITION: We allow a corporate partner to include, in computing its CDA, its share of a capital dividend received by the partnership at the time the partner becomes entitled to a share of that dividend.

Reasons: A capital dividend is only included in the partner's CDA if the partner receives the dividend. In the case of a capital dividend received by a partnership, our practice is to allow each eligible corporate partner to include in its CDA, its share of that dividend at the time the partner becomes entitled to receive that share.

4 December 2003 External T.I. 2003-0038595 - CAPITAL DIVIDEND ACCOUNT

Unedited CRA Tags
89(1)

Principal Issues: Is a private corporation entitled, as a member of a partnership, to include, in computing its capital dividend account ("CDA"), its share of a capital dividend received by a partnership of which it is a member?
POSITION: We allow a corporate partner to include, in computing its CDA, its share of a capital dividend received by the partnership at the time the partner becomes entitled to a share of that dividend.

Reasons: A capital dividend is only included in the partner's CDA if the partner receives the dividend. In the case of a capital dividend received by a partnership, our practice is to allow each eligible corporate partner to include in its CDA, its share of that dividend at the time the partner becomes entitled to receive that share.

4 December 2003 External T.I. 2001-0111775 - Cross-border share apprication rights plans

Unedited CRA Tags
115(1)(a)(i)

Principal Issues: If rights under a share appreciation rights (SAR) plan are granted while an employee is resident in Canada, but redeemed when the employee is a non-resident, will any of the SAR benefit be taxable in Canada?

Position: Yes. The portion attributable to services rendered in Canada (or outside Canada if the employee was resident in Canada at the time) is "taxable income earned in Canada" to the non-resident under subparagraph 115(1)(a)(i), subject to possible treaty relief

Reasons: Our previous position on SAR's and services rendered in Canada.

XXXXXXXXXX 2001-011177
S. E. Thomson
December 4, 2003

4 December 2003 External T.I. 2001-01117750 - Cross-border share apprication rights plans

Unedited CRA Tags
115(1)(a)(i)

Principal Issues: If rights under a share appreciation rights (SAR) plan are granted while an employee is resident in Canada, but redeemed when the employee is a non-resident, will any of the SAR benefit be taxable in Canada?

Position: Yes. The portion attributable to services rendered in Canada (or outside Canada if the employee was resident in Canada at the time) is "taxable income earned in Canada" to the non-resident under subparagraph 115(1)(a)(i), subject to possible treaty relief

Reasons: Our previous position on SAR's and services rendered in Canada.

XXXXXXXXXX 2001-011177
S. E. Thomson
December 4, 2003

3 December 2003 External T.I. 2003-00399850 - TAX ON SPLIT INCOME-KIDDIE TAX

Unedited CRA Tags
120.4(1)

Principal Issues: Whether income earned by individual through a partnership would be considered split income as defined in subsection 120.4(1) of the Act.

Position: It is possible.

Reasons: Question of fact.

3 December 2003 External T.I. 2003-0039985 - TAX ON SPLIT INCOME-KIDDIE TAX

Unedited CRA Tags
120.4(1)

Principal Issues: Whether income earned by individual through a partnership would be considered split income as defined in subsection 120.4(1) of the Act.

Position: It is possible.

Reasons: Question of fact.

3 December 2003 External T.I. 2003-0018595 - DONATION OF OFFICE SPACE, SOFTWARE

Unedited CRA Tags
REG 3501

Principal Issues:
1. Can a charity issue a receipt when a landlord allows the charity to occupy office space rent free?
2. Can a charity issue a receipt to a programmer who creates software for the charity in recognition of the programmer's time?

Position:
1. No.
2. Question of fact whether a property has been transferred. If so, then amount of receipt would be fair market value of property transferred.

Reasons:
1. A gift for tax purposes requires that there be a transfer of the donor's property to the charity. Granting the right to use the donor's property is not a gift.
2. Similarly, a donation of services is not a gift. If a property is transferred such that there is a gift, the amount of the receipt is the fair market value of the property at the time of the gift.

3 December 2003 External T.I. 2003-00185950 - DONATION OF OFFICE SPACE, SOFTWARE

Unedited CRA Tags
REG 3501

Principal Issues:
1. Can a charity issue a receipt when a landlord allows the charity to occupy office space rent free?
2. Can a charity issue a receipt to a programmer who creates software for the charity in recognition of the programmer's time?

Position:
1. No.
2. Question of fact whether a property has been transferred. If so, then amount of receipt would be fair market value of property transferred.

Reasons:
1. A gift for tax purposes requires that there be a transfer of the donor's property to the charity. Granting the right to use the donor's property is not a gift.
2. Similarly, a donation of services is not a gift. If a property is transferred such that there is a gift, the amount of the receipt is the fair market value of the property at the time of the gift.

3 December 2003 External T.I. 2003-00460150 - Amalgamation and Sub. 97(2) Election

Unedited CRA Tags
87(2)(a) 97(2)

Principal Issues:
Where Aco and Bco are amalgamated ("amalgamation") to form Amalco pursuant to the provisions of the Canada Business Corporations Act ("CBCA") and Bco was involved in a subsection 97(2) transfer ("Transfer") prior to the amalgamation, whether a valid subsection 97(2) election can be filed by Amalco on behalf of Bco with respect to the Transfer.

Position:
Yes

Reasons:
Amalco would be treated as a continuation of Bco with respect to that subsection 97(2) election under the CBCA and paragraph 87(2)(a) of the Income Tax Act.

3 December 2003 External T.I. 2003-0046015 - Amalgamation and Sub. 97(2) Election

Unedited CRA Tags
87(2)(a) 97(2)

Principal Issues:
Where Aco and Bco are amalgamated ("amalgamation") to form Amalco pursuant to the provisions of the Canada Business Corporations Act ("CBCA") and Bco was involved in a subsection 97(2) transfer ("Transfer") prior to the amalgamation, whether a valid subsection 97(2) election can be filed by Amalco on behalf of Bco with respect to the Transfer.

Position:
Yes

Reasons:
Amalco would be treated as a continuation of Bco with respect to that subsection 97(2) election under the CBCA and paragraph 87(2)(a) of the Income Tax Act.

3 December 2003 External T.I. 2003-00512050 - Determination of FAPI Repayment of debt

Unedited CRA Tags
39(2) 95(2)(f)(i)

Principal Issues: Determination of FAPI on repayment of debt.

Position: Foreign exchange gain or loss will arise on repayment.

Reasons: Operation of subsection 39(2) and subparagraph 95(2)(f)(i).

3 December 2003 External T.I. 2003-0051205 - Determination of FAPI Repayment of debt

Unedited CRA Tags
39(2) 95(2)(f)(i)

Principal Issues: Determination of FAPI on repayment of debt.

Position: Foreign exchange gain or loss will arise on repayment.

Reasons: Operation of subsection 39(2) and subparagraph 95(2)(f)(i).

3 December 2003 External T.I. 2003-00311350 - MEDICAL EXPENSES

Unedited CRA Tags
118.2(1.2)

Principal Issues: Whether travel expenses in specific circumstances qualify for the medical expense tax credit

Position: Question of fact.

Reasons:

3 December 2003 External T.I. 2003-0031135 - MEDICAL EXPENSES

Unedited CRA Tags
118.2(1.2)

Principal Issues: Whether travel expenses in specific circumstances qualify for the medical expense tax credit

Position: Question of fact.

Reasons:

1 December 2003 External T.I. 2003-0020445 - BC Forest Amendments 2003

Unedited CRA Tags
13(21) 44(2)

Principal Issues: Questions concerning statutory taking of timber resource properties and timber limits pursuant to 2003 B.C. forestry amending legislation.

Position: Legislation gives rise to a statutory taking. Other issues also addressed.

Reasons: Law.

1 December 2003 External T.I. 2003-00204450 - BC Forest Amendments 2003

Unedited CRA Tags
13(21) 44(2)

Principal Issues: Questions concerning statutory taking of timber resource properties and timber limits pursuant to 2003 B.C. forestry amending legislation.

Position: Legislation gives rise to a statutory taking. Other issues also addressed.

Reasons: Law.

28 November 2003 External T.I. 2003-00309750 - INCOME TRUSTS AS QUALIFIED INVESTMENTS

Unedited CRA Tags
132 REG 4900

Principal Issues:
Can an income or royalty trust held in a registered plan become a non-qualified investment for a registered plan if 50+ percent of its units are held by non-residents?

Position: They may.

Reasons:
It depends on what kind of trust the fund is. If the fund is a mutual fund trust, quasi mutual fund trust or some other fund that subsection 132(7) applies to, it might cease to satisfy the requirements for mutual fund trusts. If the trust is a registered investment there may be a time delay on the investment going offside.

28 November 2003 External T.I. 2003-0030975 - INCOME TRUSTS AS QUALIFIED INVESTMENTS

Unedited CRA Tags
132 REG 4900

Principal Issues:
Can an income or royalty trust held in a registered plan become a non-qualified investment for a registered plan if 50+ percent of its units are held by non-residents?

Position: They may.

Reasons:
It depends on what kind of trust the fund is. If the fund is a mutual fund trust, quasi mutual fund trust or some other fund that subsection 132(7) applies to, it might cease to satisfy the requirements for mutual fund trusts. If the trust is a registered investment there may be a time delay on the investment going offside.

10 October 2003 External T.I. 2003-00300050 F - $500,000 Deduction - Application of GAAR

Unedited CRA Tags
245(2) 110.6 84(3)

Principal Issues: See below.

Position: See below.

Reasons: See below

10 October 2003 External T.I. 2003-00300250 F - RETRIBUTION VERSEE AUX GESTIONNAIRE

Unedited CRA Tags
67

Principales Questions:
Est-ce que la politique administrative énoncée à la question 7 du numéro 22 des Nouvelles techniques concernant la rétribution des gestionnaires/actionnaires s'applique aux traitements et primes versés à même les revenus de biens d'une société.

Position Adoptée:
Non

10 October 2003 External T.I. 2003-00300450 F - AAPE-LIQUIDITE DETENUE MOMENTANCEMENT

Unedited CRA Tags
110.6(1)

Principales Questions:
Est-ce que des avances faites par un acheteur à une société pour lui permettre de rembourser des prêts dus aux actionnaires et qui sont suffisamment élevées pour faire en sorte que le montant d'encaisse non utilisé dans l'entreprise corresponde momentanément à plus de 50% de la valeur totale des actifs de la société feront perdre aux actions leur statut d'actions admissibles de petite entreprise ?

Position Adoptée:
Oui.

10 October 2003 External T.I. 2003-00300950 F - Inter. Between Sub. 13(21.2) & 88(1) of ITA

Unedited CRA Tags
13(21.2) 88(1)

Principal Issues: See below.

Position: See below.

Reasons: See below

10 October 2003 External T.I. 2003-0030095 F - Inter. Between Sub. 13(21.2) & 88(1) of ITA

Unedited CRA Tags
13(21.2) 88(1)

Principal Issues: See below.

Position: See below.

Reasons: See below

10 October 2003 External T.I. 2003-00299550 F - Surplus Stripping Post-Geransky

Unedited CRA Tags
84(2) 84.1 245(2)

Principal Issues: Shareholders of an operating corporation ("Opco") would sell their shares in Opco after it transfers all of its assets to a newly created subsidiary ("Subco"). Whether subsection 84(2) or sections 84.1 or 245 would apply in the given fact situation.

Position: General comments provided. Where none of Opco's funds or property are distributed or otherwise appropriated in any manner whatever to or for the benefit of the selling shareholders of Opco in the Given Situation, subsection 84(2) of the ITA would not be applicable. This could be the case where the selling shareholders and the purchaser are dealing at arm's length, the selling shareholders would receive a cash amount from the purchaser's own funds in return for their Opco shares, and Opco's assets would continue to be used in an active business by Opco or by another entity within the purchaser's corporate group. In such a situation, subsection 245(2) would not normally apply to the selling shareholders to redetermine the tax consequences arising from the sale of their shares. Where the proposed transaction is a business transaction and is supported by bona fide business purposes (other than obtaining a tax benefit), where a purchaser is interested in the assets of an unrelated person (the "Target Corporation"), and where the purchaser and the shareholders of the Target Corporation are unrelated persons with distinct and different interests, the sole fact that the parties have finally agreed that the purchaser would acquire the Target Corporation's assets by purchasing shares of its capital stock would not be sufficient, in and by itself, to consider that the purchaser and the vendors are not dealing at arm's length, with respect to the disposition of the shares of the capital stock of the Target Corporation.

Reasons: Wording of the Act.

10 October 2003 External T.I. 2003-00299950 F - Amount of Stock Dividend

Unedited CRA Tags
89(1) 248(1)

Principal Issues: See below

Position: See below

Reasons: See below

10 October 2003 External T.I. 2003-0029955 F - Surplus Stripping Post-Geransky

Unedited CRA Tags
84(2) 84.1 245(2)
hybrid sale: internal step-up followed by share sale

Principal Issues: Shareholders of an operating corporation ("Opco") would sell their shares in Opco after it transfers all of its assets to a newly created subsidiary ("Subco"). Whether subsection 84(2) or sections 84.1 or 245 would apply in the given fact situation.

Position: General comments provided. Where none of Opco's funds or property are distributed or otherwise appropriated in any manner whatever to or for the benefit of the selling shareholders of Opco in the Given Situation, subsection 84(2) of the ITA would not be applicable. This could be the case where the selling shareholders and the purchaser are dealing at arm's length, the selling shareholders would receive a cash amount from the purchaser's own funds in return for their Opco shares, and Opco's assets would continue to be used in an active business by Opco or by another entity within the purchaser's corporate group. In such a situation, subsection 245(2) would not normally apply to the selling shareholders to redetermine the tax consequences arising from the sale of their shares. Where the proposed transaction is a business transaction and is supported by bona fide business purposes (other than obtaining a tax benefit), where a purchaser is interested in the assets of an unrelated person (the "Target Corporation"), and where the purchaser and the shareholders of the Target Corporation are unrelated persons with distinct and different interests, the sole fact that the parties have finally agreed that the purchaser would acquire the Target Corporation's assets by purchasing shares of its capital stock would not be sufficient, in and by itself, to consider that the purchaser and the vendors are not dealing at arm's length, with respect to the disposition of the shares of the capital stock of the Target Corporation.

Reasons: Wording of the Act.

10 October 2003 External T.I. 2003-0029995 F - Amount of Stock Dividend

Unedited CRA Tags
89(1) 248(1)

Principal Issues: See below

Position: See below

Reasons: See below

10 October 2003 External T.I. 2003-0030025 F - RETRIBUTION VERSEE AUX GESTIONNAIRE

Unedited CRA Tags
67

Principales Questions:
Est-ce que la politique administrative énoncée à la question 7 du numéro 22 des Nouvelles techniques concernant la rétribution des gestionnaires/actionnaires s'applique aux traitements et primes versés à même les revenus de biens d'une société.

Position Adoptée:
Non

10 October 2003 External T.I. 2003-0030005 F - $500,000 Deduction - Application of GAAR

Unedited CRA Tags
245(2) 110.6 84(3)
no deemed dividend on wind-up following tuck under

Principal Issues: See below.

Position: See below.

Reasons: See below

10 October 2003 External T.I. 2003-0030045 F - AAPE-LIQUIDITE DETENUE MOMENTANCEMENT

Unedited CRA Tags
110.6(1)

Principales Questions:
Est-ce que des avances faites par un acheteur à une société pour lui permettre de rembourser des prêts dus aux actionnaires et qui sont suffisamment élevées pour faire en sorte que le montant d'encaisse non utilisé dans l'entreprise corresponde momentanément à plus de 50% de la valeur totale des actifs de la société feront perdre aux actions leur statut d'actions admissibles de petite entreprise ?

Position Adoptée:
Oui.