Income Tax Severed Letters - 2004-01-09

Principal Issues:
Should a reinsurer calculate its policy reserves using the pre-1996 or the post-1995 rules where pre-1996 life insurance policies are the subject of the reinsurance contract?

Position: Generally, the post-1995 rules should be used.

Reasons:
Based on the Agency's position that a reinsurance agreement is a "life insurance policy" and a "life insurance policy in Canada" where the underlying policies are "life insurance policies in Canada" and further to discussions with the Department of Finance, we have reconsidered our position as stated in E1999-001593 and we are now of the view that generally a reinsurer which has reinsured pre-1996 life insurance policies after 1995 should apply the post-1996 rules in computing its policy reserves in respect of those policies.

Principal Issues: The impact of the deeming provision in subsection 248(7) of the Act on the taxation of employment income. The taxpayer was entitled under a contract of employment to an annual residual payment for employment services that were performed under the contract. The employer mailed cheques to the taxpayer for the payments for a period of XXXXXXXXXX years. The taxpayer did not receive these cheques and later received a lump-sum amount from the employer in lieu of the cheques not received.

Position: Subsection 248(7) is not applicable in this situation. Subsection 5(1) of the Act applies to include the lump-sum payment in employment income in the taxation year in which it was received.

Reasons: In terms of determining a taxpayer's employment income under subsection 5(1) of the Act, paragraph 248(7)(a) would apply to include therein an amount that has been mailed in the taxation year but not received until the following taxation year. However, paragraph 248(7) of the Act would not apply to include an amount in a taxpayer's employment income where the facts clearly show that the taxpayer, or someone else for the taxpayer's benefit, never received the amount. In this situation, the taxpayer did not actually receive the cheques, nor did someone else receive them for the taxpayer's benefit.

Principales Questions:
1. Est-il possible de réduire l'avantage résultant de l'application de l'article 7 de la Loi et imposé dans l'année de la disposition des options, si le contribuable visé n'a pas reçu le solde dû suite au rachat par la société des options d'achat d'actions qui lui ont été préalablement accordées?
2. Dans l'affirmative, l'employeur doit-il émettre un feuillet T4 modifié?

Principal Issues: In a given fact situation, an individual would dispose of a home used primarily for her personal use or enjoyment in favour of a corporation ultimately controlled by her sister ("X"), for fair market value consideration. A right of use or habitation would be granted in favour of the individual with respect to the portion of the home she uses for residential purposes. The rent generated by the reminder of the home after the sale would be the property of the corporation. Whether, in such situation, the value of some sort of benefit should be included in the income of one of the taxpayers involved.

Position: Based on the particular facts and circumstances surrounding the given fact situation, we are of the view that no amount should be included in computing the income of X, although some arguments may be made in support of the opposite view. However, a benefit should probably be included in the income of the sister under subsection 105(2) in the given situation. Pursuant to paragraph 248(3)(b), a right of use or habitation shall be deemed to be a trust, and property subject to such a right shall be deemed to have been transferred to the trust and to be held in trust. Although it is the CCRA's position that the use of trust property by a beneficiary of the trust constitutes a benefit for the purposes of subsection 105(1), in the case of personal-use property owned by a trust, the CCRA will generally not assess a benefit for the use of that property under subsection 105(1). However, a benefit in respect of the upkeep, maintenance, or taxes for such property may arise pursuant to subsection 105(2). Under paragraph 104(6)(b), there may be deducted in computing the income of the trust any amount included under subsection 105(2). Any portion of the outlays or expenses, effectively incurred by the corporation in respect of the portion of the home used by the individual for residential purposes that would not give rise to a benefit under subsection 105(2), would not be deductible pursuant to paragraph 18(1)(a).

Reasons: Wording of the Act.

Le 17 décembre 2003

Principales Questions:
Ayant exercé ses fonctions à l'étranger, un employé mis à pied temporairement, en relation avec le SRAS, avant la fin d'une période de plus de six mois consécutifs est-il admissible au crédit d'impôt pour emploi à l'étranger?

Position Adoptée:
Non