Income Tax Severed Letters - 2004-01-23

Miscellaneous

23 January 2004 Miscellaneous 2003-0047891E5 - Application of subsection 15(2.3)

Unedited CRA Tags
15(2.3) 15(2)

Principal Issues: Whether the exemption in subsection 15(2.3) applies in the hypothetical situation described. Whether the corporation made a loan in the ordinary course of its ordinary business of lending money. Whether bona fide arrangements for repayment are made at the time the loan was made.

Position: Question of Fact. General comments provided.

Reasons: The issue of whether subsection 15(2.3) of the Act applies in any particular case is ultimately a question of fact.

22 January 2004 Miscellaneous 2003-0036531E5 - Patronage Dividends and Non-Profit Organizations

Principal Issues: Can a co-operative corporation that can pay patronage dividends qualify as a non-profit organization within the meaning of paragraph 149(1)(l) of the Act?

Position: No

Reasons: Our long-standing position is that the ability to make a payment of a patronage dividend would constitute a distribution of income for the personal benefit of a member of the co-operative, thereby disqualifying it as an NPO.

21 January 2004 Miscellaneous 2004-0055201E5 - Contract Termination Payments

Unedited CRA Tags
9(1) 14(1)

Principal Issues: The taxable status of an amount received in respect of the termination of a business contract.

Position: Question of fact. The general position of the Canada Revenue Agency regarding the taxable status of amounts received in respect of non-performance under business contracts, is outlined in Interpretation Bulletin IT-365R, Damages, Settlements and Similar Receipts. It must be determined whether the amount received by the taxpayer is considered on account of income or capital.

Reasons: Generally, where the amount is intended to compensate the taxpayer for lost profit, that amount will be considered on account of income and must be included in the taxpayer's business income pursuant to subsection 9(1) of the Income Tax Act (the "Act"). Where the amount relates to a particular asset that is sold, destroyed or abandoned as a consequence of the non-performance, that amount will be considered proceeds of disposition for purposes of determining the gain on the asset. Where the amount received does not relate to a particular asset and the effect of the non-performance is the destruction or material crippling of the whole structure of the profit-making apparatus of the taxpayer's business, that amount will be considered an "eligible capital amount" for purposes of determining the taxpayer's income inclusion under subsection 14(1) of the Act.

21 January 2004 Miscellaneous 2003-0033371E5 - Credit Unions and Retail Associations

Unedited CRA Tags
137(6)

Principal Issues: Whether a corporation that is continued as a retail association under the Cooperative Credit Associations Act will qualify as a credit union for the purposes of section 137.

Position: Factual determination

Reasons: A requirement in the credit union definition is that the particular corporation, association or federation be incorporated or organized as a credit union or cooperative credit society. While the term "cooperative credit society" is not defined in the Income Tax Act, it is defined in the Cooperative Credit Associations Act. If the retail association qualifies as a cooperative credit society under that Act, it would be regarded as a cooperative credit society for the purposes of the Income Tax Act.

16 January 2004 Miscellaneous 2003-0046491E5 F - Allocation de retraite

Unedited CRA Tags
248(1) 6(3) 5(1)

Principales Questions: (1) Est-ce que l'annulation dans un contrat d'emploi d'une indemnité de cessation d'emploi et le paiement d'une somme à cet égard peuvent -être considérés comme une allocation de retraite? (2) La réponse est-elle la même si le paiement est différé jusqu'à la retraite?

Position Adoptée: (1) Non, il s'agit d'un revenu d'emploi. (2) Question de fait

Raisons: Définition d'allocation de retraite et application du paragraphe 6(3) de la Loi.

16 January 2004 Miscellaneous 2003-0051761I7 - Return of Gift to Donor

Unedited CRA Tags
118.1(3)

Principal Issues: What are the income tax ramifications, if any, of a charity returning to a donor's estate property that it received pursuant to the donor's will?

Position: The tax implications depend upon the factual circumstances, including whether or not a gift was completed before the property is returned to the donor.

Reasons: If a gift was not completed and the property is returned to the donor, the Canada Revenue Agency (CRA) would be entitled to reassess any claim for a donation deduction or credit that was made in respect of the donation. If a gift was completed, the CRA would not reassess the donor's claim for a tax credit or deduction in respect of the donation. Where an amount refunded to a donor is limited to the amount donated, and the sole basis for the refund is that the charity cannot satisfy the charitable purposes for which the donation was made, the amount refunded generally would not constitute income to the donor at the time of the refund. However, the relevance of different or additional facts must be considered on a case-by-case basis.

15 January 2004 Miscellaneous 2003-0044941E5 - Crown Corporation

Unedited CRA Tags
149(1)(d) 149(1.3); 27(2)

Principal Issues: Is the taxpayer exempt under paragraph 149(1)(d) of the Act?

Position: On XXXXXXXXXX , all of the shares of the taxpayer were owned by Her Majesty in right of Canada.

Reasons: Facts and Legislation. Claude Englehart of Technical Applications agreed that Rulings would respond directly to the corporation.

14 January 2004 Miscellaneous 2003-0026011E5 F - Contrat à terme sur indice boursier

Unedited CRA Tags
206(1) 248(1)

Principales Questions: (1) Faut-il tenir compte de la plus ou moins value non réalisée sur des contrats à terme sur indice boursier pour établir le "coût indiqué" d'un bien pour les fins de la partie XI ? (2) Les comptes de "marge variable" en devises que des régimes enregistrés détiennent auprès de courtiers constituent-ils des "biens étrangers" aux fins du paragraphe 206(1) de la Loi?

Position Adoptée: (1) Non, si le bien est une immobilisation. (2) Oui, si le compte est situé à l'étranger.

Raisons: Texte de Loi

14 January 2004 Miscellaneous 2003-0029571E5 F - Attribution - société de personnes

Unedited CRA Tags
103 74.1(1) 74.2(1)

Principales Questions: 1. Est-ce que l'article 103 s'applique pour modifier le partage des revenus provenant d'une société de personnes?
2. Est-ce que les paragraphes 74.1(1) et 74.2(1) vont s'appliquer, si la société de personnes vend ses biens, pour réattribuer à Monsieur la part du revenu de la société de personnes de Madame qui provient du revenu calculé selon les paragraphes 13(1) et 14(1) de la Loi et du gain en capital réalisé par la société de personnes?

Position Adoptée: 1. Aucune position.
2. Dans la présente situation, les paragraphes 74.1(1) et 74.2(1) ne semblent pas s'appliquer. Il faudrait examiner si l'article 103 de la Loi s'applique dans une situation particulière.

Raisons: 1. Question de fait.
2. Si la participation de Madame provient uniquement de son investissement en argent et de sa part raisonnable dans les revenus de la société de personnes, Monsieur n'aurait pas transféré de participation dans la société de personnes à Madame suite à son transfert de biens à la société de personnes.

14 January 2004 Miscellaneous 2003-0049531I7 F - Valeur de rachat - police d'assurance

Unedited CRA Tags
181.2(4) 181(1) 181(3)

Principales Questions: La valeur de rachat d'une police d'assurance-vie doit-elle être comptabilisée au bilan et donne-elle lieu à une déduction pour placements?

Position Adoptée: (1) oui, si conforme aux PCGR (2) non

Raisons: (1) 181(3) (2) Ce n'est pas un titre secondaire d'une compagnie d'assurance.

14 January 2004 Miscellaneous 2003-0033581E5 - delisted shares as qualified investments

Unedited CRA Tags
reg 4900(1) 146 207.1

Principal Issues: What are the consequences if a share listed on a prescribed stock exchange, that is held in a registered investment, is delisted?

Position: Outlined the basic consequences.

Reasons: Application of the law.

14 January 2004 Miscellaneous 2004-0054711I7 F - Choix en vertu du paragraphe 12(2.2)

Unedited CRA Tags
12(2.2) 12(1)x)

Principales Questions:
Le montant doit-il être inclus dans l'année où il est reçu si le choix au paragraphe 12(2.2) de la Loi sera produit l'année suivante?

Position Adoptée: Oui

Raisons:
Dans l'année d'imposition où le montant est reçu aucun choix n'a encore été produit. Donc, l'exception au sous-alinéa 12(1)x)(vii) de la Loi ne s'applique pas.

14 January 2004 Miscellaneous 2003-0046131E5 F - Convention de retraite - dépositaire

Unedited CRA Tags
207.6(2) 248(1)

Principales Questions: Une société d'assurance-vie peut-elle être un dépositaire au sens de ce terme à la définition de " convention de retraite" ?

Position Adoptée: Oui

Raisons: Texte de loi.

2003 Miscellaneous 2003-0050031 - AMENDED DSU PLAN

Unedited CRA Tags
REG 6801(d)

Principal Issues:
Will certain amendments to a DSU Plan affect its status as a plan that complies with paragraph 6801(d)?

Position: No

Reasons:
The Plan continues to comply with the requirements of paragraph 6801(d) of the Regulations..

XXXXXXXXXX 2003-005003

XXXXXXXXXX , 2003

2003 Miscellaneous 2003-00500310 - AMENDED DSU PLAN

Unedited CRA Tags
REG 6801(d)

Principal Issues:
Will certain amendments to a DSU Plan affect its status as a plan that complies with paragraph 6801(d)?

Position: No

Reasons:
The Plan continues to comply with the requirements of paragraph 6801(d) of the Regulations..

XXXXXXXXXX 2003-005003

XXXXXXXXXX , 2003

Ruling

2003 Ruling 2003-00182430 F - OPTION ACHAT ACTIONS

Unedited CRA Tags
7(1) 110(1)(d.1)

Principales Questions:
Est-ce que les dispositions de l'article 7 sont applicables?

Position Adoptée: Oui.

2003 Ruling 2003-0048443 - Treaty Exemption

Unedited CRA Tags
88 245

Principal Issues: Whether GAAR will apply to the transfer of the Rco Shares to ACO?

Position: No.

Reasons: It is represented that there is no intention by GCO to sell the shares of ACO.

2003 Ruling 2003-0018243 F - OPTION ACHAT ACTIONS

Unedited CRA Tags
7(1) 110(1)(d.1)

Principales Questions:
Est-ce que les dispositions de l'article 7 sont applicables?

Position Adoptée: Oui.

2003 Ruling 2003-00283430 - INDIAN BAND AS PUBLIC BODY

Unedited CRA Tags
149(1)(c)

Principal Issues:
Does a particular First Nation qualify as a public body performing a function of government for purposes of paragraph 149(1)(c)?

Position: Yes

Reasons:
The First Nation has entered into a Health Services Transfer Agreement with the federal government. The First Nation provides primary schooling for its Members. The First Nation provides and administers a fairly extensive list of public works, social services and infrastructure programs.

2003 Ruling 2003-0028343 - INDIAN BAND AS PUBLIC BODY

Unedited CRA Tags
149(1)(c)

Principal Issues:
Does a particular First Nation qualify as a public body performing a function of government for purposes of paragraph 149(1)(c)?

Position: Yes

Reasons:
The First Nation has entered into a Health Services Transfer Agreement with the federal government. The First Nation provides primary schooling for its Members. The First Nation provides and administers a fairly extensive list of public works, social services and infrastructure programs.

2003 Ruling 2003-00337230 - EXCHANGEABLE DSU

Unedited CRA Tags
REG 6801(d)

Principal Issues:

1. Will the payment of part of an employee's remuneration in the form of deferred stock units ("DSU's") of a subsidiary corporation result in an SDA?
2. Will the fact that the FMV of each class of shares of a subsidiary corporation will be based on investments attributable to the particular shares affect the application of 6801(d)?
3. Will the entitlement to elect which class(es) of shares their DSUs will correspond to, or the entitlement to convert previously allocated DSUs to another class of DSUs violate 6801(d)?

Position:

1. No
2. No
3. No

Reasons:

2003 Ruling 2003-0033723 - EXCHANGEABLE DSU

Unedited CRA Tags
REG 6801(d)

Principal Issues:

1. Will the payment of part of an employee's remuneration in the form of deferred stock units ("DSU's") of a subsidiary corporation result in an SDA?
2. Will the fact that the FMV of each class of shares of a subsidiary corporation will be based on investments attributable to the particular shares affect the application of 6801(d)?
3. Will the entitlement to elect which class(es) of shares their DSUs will correspond to, or the entitlement to convert previously allocated DSUs to another class of DSUs violate 6801(d)?

Position:

1. No
2. No
3. No

Reasons:

2003 Ruling 2003-00340530 - DEFERRED SHARE UNIT TREASURY SHARES

Unedited CRA Tags
REG 6801(d) 7

Principal Issues:
1. Will a deferred share unit plan be considered a salary deferral arrangement?
2. Will the issuance of treasury shares in satisfaction of the DSU's result in the application of section 7 of the Act?

Position:
1. No
2. Yes

Reasons:
1. The plan satisfies the conditions of 6801(d).
2. Where treasury shares are issued, section 7 will apply

XXXXXXXXXX 2003-003405

XXXXXXXXXX , 2003

2003 Ruling 2003-0034053 - DEFERRED SHARE UNIT TREASURY SHARES

Unedited CRA Tags
REG 6801(d) 7

Principal Issues:
1. Will a deferred share unit plan be considered a salary deferral arrangement?
2. Will the issuance of treasury shares in satisfaction of the DSU's result in the application of section 7 of the Act?

Position:
1. No
2. Yes

Reasons:
1. The plan satisfies the conditions of 6801(d).
2. Where treasury shares are issued, section 7 will apply

XXXXXXXXXX 2003-003405

XXXXXXXXXX , 2003

2003 Ruling 2003-00444830 - SDA DEFERRED SHARE UNITS

Unedited CRA Tags
REG 6801(d) 248(1)(k)

Principal Issues:
1. Whether the issuance of phantom stock units under a portion of the plan are exempt under (k) of the SDA definition?
2. Whether the portion of the plan that provides for DSUs is excluded from the SDA rules pursuant to 6801(d) of the Regulations?

PositionS:
1. Yes
2. Yes

Reasons:
1. The portion of the plan that relates to phantom stock units meets subsection (k) of the SDA definition.
2. The DSU portion of the plan complies with 6801(d) provisions.

2003 Ruling 2003-0044483 - SDA DEFERRED SHARE UNITS

Unedited CRA Tags
REG 6801(d) 248(1)(k)

Principal Issues:
1. Whether the issuance of phantom stock units under a portion of the plan are exempt under (k) of the SDA definition?
2. Whether the portion of the plan that provides for DSUs is excluded from the SDA rules pursuant to 6801(d) of the Regulations?

PositionS:
1. Yes
2. Yes

Reasons:
1. The portion of the plan that relates to phantom stock units meets subsection (k) of the SDA definition.
2. The DSU portion of the plan complies with 6801(d) provisions.

2003 Ruling 2003-00468230 - Reverse Estate Freeze

Unedited CRA Tags
86 246 245

Principal Issues: Undoing an estate freeze due to the decline in the fair market value of the assets of the corporation. Is a benefit conferred?

Position: No.

Reasons: The law as applied to the specific facts in this case.

2003 Ruling 2003-0046823 - Reverse Estate Freeze

Unedited CRA Tags
86 246 245

Principal Issues: Undoing an estate freeze due to the decline in the fair market value of the assets of the corporation. Is a benefit conferred?

Position: No.

Reasons: The law as applied to the specific facts in this case.

2003 Ruling 2003-00484430 - Treaty Exemption

Unedited CRA Tags
88 245

Principal Issues: Whether GAAR will apply to the transfer of the Rco Shares to ACO?

Position: No.

Reasons: It is represented that there is no intention by GCO to sell the shares of ACO.

Ministerial Correspondence

18 December 2003 Ministerial Correspondence 2003-00492440 - Provincial Tax Rate

Unedited CRA Tags
Reg. 2601

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.

XXXXXXXXXX

Dear Colleague:

18 December 2003 Ministerial Correspondence 2003-0049244 - Provincial Tax Rate

Unedited CRA Tags
Reg. 2601

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.

XXXXXXXXXX

Dear Colleague:

Technical Interpretation - External

21 January 2004 External T.I. 2003-00441150 - ELIGIBLE DEPENDENT AND SUPPORT AMOUNTS

Unedited CRA Tags
118(5) 60(b)

Principal Issues: We have been provided with an example where a husband ("Individual A") and wife ("Individual B") have one child (the "Child"). Individual A and Individual B separate in June 2003 by reason of the breakdown of their marriage. Following the separation, Individual A had custody of the Child for two months and Individual B had custody of the Child for the remainder of the year. Individual A paid to Individual B monthly spousal support of $200 and monthly child support of $500. Individual A and Individual B agree that Individual A should claim the tax credit under paragraph 118(1)(b) of the Income Tax Act (the "Act") in respect of the Child for 2003.
Can Individual A claim both the spousal support (paragraph 60(b) of the Act) and the tax credit in respect of the Child in the year in which the marriage breakdown occurred?

Position: No

Reasons: By virtue of paragraph 118(5)(b) of the Act, as Individual A is required to pay a support amount to Individual B for the Child, Individual A cannot claim a credit under subsection 118(1) of the Act in respect of the Child if Individual A claims a deduction under section 60 of the Act in respect of a support amount paid to Individual B.

21 January 2004 External T.I. 2003-0044115 - ELIGIBLE DEPENDENT AND SUPPORT AMOUNTS

Unedited CRA Tags
118(5) 60(b)

Principal Issues: We have been provided with an example where a husband ("Individual A") and wife ("Individual B") have one child (the "Child"). Individual A and Individual B separate in June 2003 by reason of the breakdown of their marriage. Following the separation, Individual A had custody of the Child for two months and Individual B had custody of the Child for the remainder of the year. Individual A paid to Individual B monthly spousal support of $200 and monthly child support of $500. Individual A and Individual B agree that Individual A should claim the tax credit under paragraph 118(1)(b) of the Income Tax Act (the "Act") in respect of the Child for 2003.
Can Individual A claim both the spousal support (paragraph 60(b) of the Act) and the tax credit in respect of the Child in the year in which the marriage breakdown occurred?

Position: No

Reasons: By virtue of paragraph 118(5)(b) of the Act, as Individual A is required to pay a support amount to Individual B for the Child, Individual A cannot claim a credit under subsection 118(1) of the Act in respect of the Child if Individual A claims a deduction under section 60 of the Act in respect of a support amount paid to Individual B.

19 January 2004 External T.I. 2003-00410950 - MEDICAL EXPENSES-TRAVEL

Unedited CRA Tags
118.2(2)(g) 118.2(2)(h)

Principal Issues: Whether the travel expenses in question qualify as medical expenses?

Position: No

Reasons: Not covered by the legislation.

19 January 2004 External T.I. 2003-0041095 - MEDICAL EXPENSES-TRAVEL

Unedited CRA Tags
118.2(2)(g) 118.2(2)(h)

Principal Issues: Whether the travel expenses in question qualify as medical expenses?

Position: No

Reasons: Not covered by the legislation.

16 January 2004 External T.I. 2003-00262250 - SECTION 85 TRANSFER AND SUBSEQUENT SALE85(1)

Principal Issues:
Whether appreciated capital property held by a corporation and which is transferred on a tax deferred basis under subsection 85(1) to a sister corporation remains capital in nature if the transferred property is immediately disposed of by the sister corporation to an arm's length third party?

16 January 2004 External T.I. 2003-0026225 - SECTION 85 TRANSFER AND SUBSEQUENT SALE85(1)

Principal Issues:
Whether appreciated capital property held by a corporation and which is transferred on a tax deferred basis under subsection 85(1) to a sister corporation remains capital in nature if the transferred property is immediately disposed of by the sister corporation to an arm's length third party?

14 January 2004 External T.I. 2003-0048145 - T4A - Self-Employed Musicians Remuneration

Unedited CRA Tags
153(1)(g) Reg. 200(1)

Principal Issues: Whether a taxpayer must file an information return pursuant to subsection 200(1) of the Regulations for a payment described in paragraph 153(1)(g) of the Income Tax Act.

Position: Yes

Reasons: Notwithstanding the de minimus rule, which is an administrative position, amounts paid pursuant to paragraph 153(1)(g) of the Income Tax Act must be reported in prescribed form pursuant to subsection 200(1) of the Regulations.

14 January 2004 External T.I. 2003-00481450 - T4A - Self-Employed Musicians Remuneration

Unedited CRA Tags
153(1)(g) Reg. 200(1)

Principal Issues: Whether a taxpayer must file an information return pursuant to subsection 200(1) of the Regulations for a payment described in paragraph 153(1)(g) of the Income Tax Act.

Position: Yes

Reasons: Notwithstanding the de minimus rule, which is an administrative position, amounts paid pursuant to paragraph 153(1)(g) of the Income Tax Act must be reported in prescribed form pursuant to subsection 200(1) of the Regulations.