Income Tax Severed Letters - 2004-01-30

Miscellaneous

28 January 2004 Miscellaneous 2003-0047701I7 F - Télétravail et indien inscrit

Unedited CRA Tags
81(1)(a)

Principales Questions: Le revenu d'emploi d'un indien inscrit employé du gouvernement fédéral qui réside sur une réserve et y travaille en vertu d'une entente de télétravail peut il être exonéré en vertu de l'alinéa 81(1)(a)?

Position Adoptée: Les tâches de l'emploi accomplies par l'employé à son lieu de travail situé sur la réserve sur laquelle il habite, seront considérées comme des tâches de l'emploi accomplies sur une réserve pour les fins des lignes directrices

Raisons: ligne directrice #1

27 January 2004 Miscellaneous 2003-0044761I7 - Deductibility of Contract Termination Payments

Unedited CRA Tags
9(1) 18(1)(b)

Principal Issues: Whether amounts paid to terminate a business arrangement are deductible as current expenses notwithstanding that the payments were considered capital receipts to the recipient.

Position: Based on the information presented, and assuming the parties were dealing at arm's length, the portion of the payment relating to the elimination of future obligations under the terminated agreement would probably be deductible where those future payments would have been deductible.

Reasons: Consistent with paragraph 16 of IT-467R2 and existing case law.

27 January 2004 Miscellaneous 2003-0053261E5 - Replacement Property Rules

Unedited CRA Tags
44(5)

Principal Issues: Whether a retirement home that is acquired to replace a motel, could be considered a replacement property for purposes of the replacement property rules.

Position: No.

Reasons: For a property to be considered a replacement property, among other things, it must be acquired for a use that is the same as or similar to the use to which the former property was put [paragraph 44(5)(a.1)]. It must also be acquired for use in a business that is the same as or similar to the business in which the former property was used [paragraph 44(5)(b)]. A retirement home is not a property that can be put to a use that is the same as or similar to the use of a motel, nor is the business of operating a retirement home the same as or similar to the business of operating a motel.

26 January 2004 Miscellaneous 2003 - 0047961E5 F - Part IV Circularity

Unedited CRA Tags
129(1) 186(1)(b)

Principal Issues: Whether the CCRA is willing to accept the waiving of a dividend refund (DR) by a corporation as a means to avoid the circularity problem involving the computation of Part IV tax in situations similar to the one in question 13 of the APFF 2003 Conference, where shares of connected corporations are cross-redeemed, in light of the Department of Finance's answer to question 13?

Position: No

Reasons: The circular calculation is not detrimental to either corporation. Moreover, technically, a corporation that has received an assessable dividend must pay part IV tax whether or not the payer corporation receives the DR.

26 January 2004 Miscellaneous 2003-0046941E5 - Deductibility of a down payment on an equipment le

Unedited CRA Tags
28(1)(e) 28(1)(e.1)

Principal Issues: Whether or not paragraph 28(1)(e) limits the deductibility of an initial non-refundable lease down payment for a cash-basis farmer.

Position: Yes

Reasons: Farmers who use the cash method of reporting income for tax purposes cannot deduct a prepaid expense (other than for inventory) relating to a taxation year that is two or more years after the year the expense is paid.
RCT PUBLICATIONS: E9126795, E9324587, E9633615, E9720815, F2001-0110477, F2002-01184611, F2002-0118461A, ITTN 16, T4003.

23 January 2004 Miscellaneous 2004-0057561I7 - classification of Pipeline Appendage Equipment

Unedited CRA Tags
Class 1(n)) lass 8(i)) lass 8(i))

Principal Issues: whether natural gas transmission pipeline appendage equipment should be classified as Class 1 or Class 8

Position: Class 1(n),

Reasons: review of relevant case law

23 January 2004 Miscellaneous 2003-0051931I7 - Damages Paid to RPP and RRSP

Unedited CRA Tags
147.2(4) 146(5)

Principal Issues: What are the tax consequences where damages suffered by an RPP and RRSP are to be paid into the plans as a result of a class action lawsuit?

Position: 1) No employment income inclusion to employees (members of the RPP). 2) Damages are not considered a contribution to the RPP or RRSPs.

Reasons: Damages paid in respect of a bad investment suffered by RPP members are not paid by virtue of employment and should not be subject to contribution limits.

23 January 2004 Miscellaneous 2003-0027231E5 - Disposition of Resource Property by Partnership

Unedited CRA Tags
66.4 66.5 66.7

Principal Issues: What is the effect on the resource pools of a member of a partnership where the partnership disposes of a Canadian Resource property in circumstances where the partner has successor expenses related to the property

Position: The net proceeds from the disposition first reduce the successored cumulative Canadian oil and gas property expense relating to the property. Any excess proceeds reduce the cumulative Canadian oil and gas property expense of the taxpayer unless the taxpayer makes a designation under subparagraph 66.7(4)(a)(iii). In the event the taxpayer makes a subparagraph 66.7(4)(a)(iii) designation, the excess proceeds reduce the successored cumulative Canadian development expenses relating to the property before reducing the cumulative Canadian oil and gas property expense of the taxpayer.

Reasons: Application of expenses determined mechanically under the above-noted provisions

22 January 2004 Miscellaneous 2003-0054781I7 F - Reçu de don pour une partie de la valeur

Unedited CRA Tags
248(30) 248(31) 248(32)

Principales Questions:
Quel est le montant admissible d'un don si un contribuable verse un montant à un organisme de bienfaisance pour un bazar incluant un repas?

Position Adoptée:
Fourni des commentaires généraux.

Raisons:
Analyse de la législation et des modifications proposées.

22 January 2004 Miscellaneous 2003-0006191E5 F - Frais et montant reçus lors de poursuite

Unedited CRA Tags
15(1) 18(1) 40 54

Principales Questions: 1. Est-ce que les frais légaux et les frais d'expertise encourus lors de la poursuite d'un courtier pour réclamer un dédommagement de la perte encourue sur des placements sont déductibles?
2. Si la poursuite vise une société, son actionnaire principal et le REER de son actionnaire principal, est-ce que les frais légaux et d'expertise devraient être répartis entre les trois poursuivants plutôt que payés uniquement par la société?
3. Quel est le traitement fiscal des sommes reçues directement par chacun des poursuivants pour compenser pour les pertes réalisées lors de la disposition des placements ou de leur diminution de valeur?
4. Quel est le traitement fiscal des sommes reçues pour compenser pour les honoraires encourus?

Position Adoptée: 1. Selon les hypothèses indiquées dans la lettre, les frais légaux et d'expertise ne sont pas déductibles.
2. Pour éviter l'application du paragraphe 15(1) et possiblement du paragraphe 246(1) de la Loi et ainsi augmenter le revenu de l'actionnaire principal, les honoraires devraient être répartis entre les trois poursuivants de façon raisonnable.
3. Selon les hypothèses indiquées dans la lettre, la compensation reçue pour la perte réalisée serait une somme reçue à titre de capital et pourrait représenter le produit de disposition d'une immobilisation.
4. Dans la présente situation, la compensation reçue pour les honoraires encourus ne ferait pas partie du revenu du récipiendaire puisqu'elle sert à rembourser les honoraires et taxes que le récipiendaire a encourus et qui sont non déductibles de son revenu.

Raisons: 1. Selon les hypothèses indiquées, les frais ne sont pas engagés pour tirer du revenu d'entreprise ou de bien.
2. Les frais payés par la société et liés à la réclamation de l'actionnaire principal représente un avantage conféré à un actionnaire par sa société. Il faudrait également examiner si un avantage a été conféré indirectement, de quelque manière que ce soit, à l'actionnaire principal du fait du paiement par la société des frais liés à la réclamation du REER de l'actionnaire principal.
3. Selon les hypothèses indiquées dans la lettre, la perte subie par chacun des poursuivants est une perte de capital.
4. Il s'agit de remboursement de dépenses non déductibles.

22 January 2004 Miscellaneous 2003-0052121I7 F - Régime d'éducation permanente - période de rembour

Unedited CRA Tags
146.02 118.6(2)

Principales Questions: La période de remboursement d'un REP commence-t-elle au moment où le contribuable effectue un remboursement?

Position Adoptée: Non

Raisons: La définition de "période de remboursement" fait référence à une déduction en vertu du paragraphe 118.6(2) de la Loi et ne tient pas compte de la date d'un remboursement.

22 January 2004 Miscellaneous 2003-0047561I7 F - Effet de la délégation puis de la subrogation

Unedited CRA Tags
20(4) 42 18(1)b) 40(2)g)

Principales Questions: (1) Un contribuable peut-il déduire un montant qu'il a payé en tant que débiteur délégant? (2) Le paragraphe 20(4) de la Loi s'applique-t-il à un solde de prix de vente à recevoir sur un immeuble locatif?

Position Adoptée: (1) Non (2) oui

Raisons: (1) Le montant versé est un paiement sur la créance et constitue une dépense en capital. (2) Le libellé du paragraphe 20(4) de la Loi.

21 January 2004 Miscellaneous 2003-0045201E5 - Underground exploration program - CEE?

Unedited CRA Tags
66.1(6)

Principal Issues: Whether costs related to an underground exploration program would constitute CEE.

Position: No. 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, if the exploration program is successful, the ore would be mined by way of an extension of the existing underground mine rather than by way of a "new" mine

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

20 January 2004 Miscellaneous 2003-0030291E5 F - Bien agricole admissible

Unedited CRA Tags
110.6(1) 110.6(19) 69(1)b)

Principales Questions: Est-ce qu'un terrain situé dans une zone agricole reçu en héritage par les enfants, de leur père, est un "bien agricole admissible" dans la situation où un choix en vertu du paragraphe 110.6(19) a été exercé en 1994 soit après qu'il ait été reçu en héritage? Quelles sont les dispositions pertinentes de la Loi à l'égard de la détermination du prix de vente d'un bien dans le cadre d'une transaction entre personnes ayant un lien de dépendance?

Position Adoptée: Impossible de faire une détermination. Commentaires généraux seulement.

Raisons: Commentaires généraux sur la définition de "bien agricole admissible" car pas assez d'information pour émettre une opinion. Le choix en vertu du paragraphe 110.6(19) de la Loi répute qu'il y a une acquisition du bien immédiatement après le choix et, par conséquent, ne permet pas d'appliquer le sous-alinéa a)(vii) de la définition de "bien agricole admissible" puisque le bien n'est pas acquis pour la dernière fois avant le 18 juin 1987. Commentaires concernant le sous-alinéa 69(1)b)(i) de la Loi.

19 January 2004 Miscellaneous 2003-0053541M4 - Taxation of Indian EI training allowance

Unedited CRA Tags
81(1)(a)

Principal Issues: Are training allowance amounts paid to a status Indian under an EI program taxable?

Position: Probably not in this case.

Reasons: It appears that the training in this case is done on reserve, which would create a sufficient connection to the reserve to make the amount tax-exempt.

19 January 2004 Miscellaneous 2003-0045911I7 F - Camionnette et définition de automobile

Unedited CRA Tags
6(1) 13(5) 13(21) 248(1)

Principales Questions: 1. Est-ce que, dans la présente situation, la camionnette décrite fait partie de la catégorie 10.1 pour une année d'imposition commençant en 2002 et est-ce que son coût en capital est limité par l'alinéa 13(7)g) de la Loi?
In the particular situation, is the pick-up truck described herein included in class 10.1 in a taxation year beginning before 2002 and is the capital cost of that pick-up truck limited pursuant to paragraph 13(7)(g) of the Act?

2. Est-ce qu'une camionnette acquise dans une année d'imposition commençant en 2002 ou avant qui était un bien de la catégorie 10.1 et dont le coût en capital était limité conformément à l'alinéa 13(7)g) de la Loi peut être reclassifiée pour faire partie de la catégorie 10 à la fin des années d'imposition commençant après 2002 en raison du changement à la définition du terme automobile? Dans une telle situation est-ce que le coût en capital du bien de la catégorie 10 serait limité en vertu de l'alinéa 13(7)g) dans les années d'imposition commençant après 2002?
Would a pick-up truck acquired in a taxation year beginning in 2002 or before that was included in class 10.1 and the capital cost of which was limited pursuant to paragraph 13(7)(g) be reclassified to be included in class 10 in a taxation year that begins after 2002 because of the legislative amendment to the definition of automobile? In such a case, would the capital cost of the class 10 property be limited by paragraph 13(7)(g) in a taxation year beginning after 2002?

3. Y a-t-il un avantage imposable pour un employé si une camionnette est mise à sa disposition pour des fins personnelles et que cette camionnette n'est pas une automobile, telle que définie au paragraphe 248(1) de la Loi?
Is there a taxable benefit for an employee where a pick-up truck which is not an automobile is provided by his employer and is available for his personal use?

Position Adoptée: 1. Dans la présente situation, oui.
In the particular situation, yes.

2. Même si une camionnette faisait partie de la catégorie 10.1 pour les années d'imposition commençant avant 2003, elle fera partie de la catégorie 10 pour les années d'imposition commençant après 2002 si la nouvelle exception indiquée au sous-alinéa d)(iii) de la définition du terme automobile au paragraphe 248(1) de la Loi s'applique à cette camionnette. Dans une telle situation, l'alinéa 13(7)g) ne s'appliquera pas pour limiter le coût en capital du bien qui fait partie de la catégorie 10.
Notwithstanding that a pick-up truck was included in class 10.1 in the taxation years beginning before 2003, it will be included in class 10 in the taxation years beginning after 2002 if the pick-up truck falls within the exception set out in subparagraph (e)(iii) of the definition of automobile in subsection 248(1) of the Act. In such a case, paragraph 13(7)(g) will not apply to limit the capital cost of the class 10 property.

3. Il faudrait inclure au revenu de l'employé la valeur de l'avantage conféré en vertu de l'alinéa 6(1)a) de la Loi.
The value of the employee benefit in respect of such a pick-up truck would be included in income under the general provisions of paragraph 6(1)(a) of the Act.

Raisons: 1. Le sous-alinéa d)(iii) de la définition du terme automobile inscrite au paragraphe 248(1) de la Loi entre en vigueur pour les années d'imposition commençant après 2002. Les autres exclusions prévues à cette définition ne s'appliquent pas à la camionnette. Par conséquent, pour l'année d'imposition commençant en 2002, la camionnette serait une automobile, elle ferait partie de la catégorie 10.1 et son coût en capital serait limité en vertu de l'alinéa 13(7)g) de la Loi.
Subparagraph (e)(iii) of the definition of automobile in subsection 248(1) of the Act is applicable to taxation years that begin after 2002. The pick-up truck does not fall within the other exceptions set out in paragraph (b) through (e) of that definition. Therefore, in the taxation year that begins in 2002, the pick-up truck is an automobile, its capital cost is included in class 10.1 and its capital cost is limited pursuant to paragraph 13(7)(g) of the Act.

7 January 2004 Miscellaneous 2003-0032501E5 F - Transitional Rules/Allègement transitoire

Unedited CRA Tags
112(3.2)

Principal Issues: (1) Whether the transitional rule under paragraph 131(11)(b) of the Income Tax Amendments Act, 1997 (Bill C-28/Royal Assent June 18, 1998) relating to the application of 112(3) to (3.2) of the ITA apply in a given fact situation? (2) Whether the shareholder can choose to dispose, among a number of shares of the same class, the shares to which the transitional rule under paragraph 131(11)(b) of the Income Tax Amendments Act, 1997 could apply?

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

Reasons: (1) The criteria for the transitional rule to apply could be met provided the estate that will dispose of the shares meets the last condition under 131(11)(b)(iv), as the other conditions under 131(11)(b)(i), (ii) and (iii) of the Income Tax Amendments Act, 1997 are already met. (2) Previous position taken.

2 January 2004 Miscellaneous 2003-0051771M4 - Indian Employment Income Exemption

Principal Issues: Will a status Indian's employment income be tax exempt?

Position: Question of fact, but it would appear that Guideline 2 would be applicable

Reasons: General information provided

2004 Miscellaneous 2003-0033571R3 - Plan with DSUs and 3-year bonus deferral RSUs

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

Principal Issues: Will a combination deferred share unit/ 3-year bonus deferral restricted share unit plan be considered a salary deferral arrangement?

Position: No

Reasons: The DSU portion of the plan satisfies paragraph 6801(d). The RSU portion of the plan satisfies exception (k) of the definition of SDA.

2003 Miscellaneous 2003-0025681 - AMENDMENT TO INVESTING IN PSU PLAN

Unedited CRA Tags
REG 6801(d)

Principal Issues:
Will a phantom stock unit plan continue to be a prescribed plan or arrangement pursuant to paragraph 6801(d) of the Regulations, where the plan is amended to revise the vesting requirements?

Position: Yes.

Reasons:
The amendment to the plan does not offend the requirements of paragraph 6801(d).

2003 Miscellaneous 2003-00256810 - AMENDMENT TO INVESTING IN PSU PLAN

Unedited CRA Tags
REG 6801(d)

Principal Issues:
Will a phantom stock unit plan continue to be a prescribed plan or arrangement pursuant to paragraph 6801(d) of the Regulations, where the plan is amended to revise the vesting requirements?

Position: Yes.

Reasons:
The amendment to the plan does not offend the requirements of paragraph 6801(d).

2003 Miscellaneous 2003-0030761 - CONVERSION ELECITON IN PSU PLAN

Unedited CRA Tags
REG 6801(d)

Principal Issues:
Will a phantom stock unit plan continue to be a prescribed plan or arrangement pursuant to paragraph 6801(d) of the Regulations, where the plan is amended to revise the timing of a participant's elections to convert PSUs to coincide with a revised PSU vesting schedule?

Position: Yes.

Reasons:
The amendment to the plan does not offend the requirements of paragraph 6801(d).

2003 Miscellaneous 2003-00469910 - LEASING PROPERTY

Unedited CRA Tags
9 49(1)

Principal Issues: Minor changes to facts

Position: Still binding as per the Ruling 2003-002803

Reasons:

2003 Miscellaneous 2003-0046991 - LEASING PROPERTY

Unedited CRA Tags
9 49(1)

Principal Issues: Minor changes to facts

Position: Still binding as per the Ruling 2003-002803

Reasons:

2003 Miscellaneous 2003-00307610 - CONVERSION ELECITON IN PSU PLAN

Unedited CRA Tags
REG 6801(d)

Principal Issues:
Will a phantom stock unit plan continue to be a prescribed plan or arrangement pursuant to paragraph 6801(d) of the Regulations, where the plan is amended to revise the timing of a participant's elections to convert PSUs to coincide with a revised PSU vesting schedule?

Position: Yes.

Reasons:
The amendment to the plan does not offend the requirements of paragraph 6801(d).

Ruling

2004 Ruling 2003-0049423 - Split-Up Butterfly

Unedited CRA Tags
55(3)(b)

Principal Issues: This is a split-up butterfly ruling that is almost identical to previous ruling 2001-007736 given to the same taxpayers which had expired due to estate reasons.

Position: Ruling given.

Reasons: Complies with the law.

2004 Ruling 2003-00494230 - Split-Up Butterfly

Unedited CRA Tags
55(3)(b)

Principal Issues: This is a split-up butterfly ruling that is almost identical to previous ruling 2001-007736 given to the same taxpayers which had expired due to estate reasons.

Position: Ruling given.

Reasons: Complies with the law.

2003 Ruling 2002-01691030 - PHANTOM STOCK UNITS

Unedited CRA Tags
REG 6801(d)

Principal Issues:
1. Will the proposed payment of some or all of a participant's annual bonus in the form of phantom shares result in an SDA?
2. Will the fact that the unit values are tied to the value of a special redeemable preferred share of the subsidiary XXXXXXXXXX violate 6801(d)?

Position:
1. No.
2. No.

Reasons:
1. The conditions in paragraph 6801(d) are satisfied.
2. Meets the condition that the value of units be based on the FMV of shares of the corporation or of a related corporation.

2003 Ruling 2003-0042843 - UNFUNDED SUPPLEMNTAL PENSION PLAN

Unedited CRA Tags
248(1)

Principal Issues: Is the supplemental pension plan an SDA or an RCA?

Position: No

Reasons:
The plan is an unfunded arrangement to provide pension benefits that are supplementary to the benefits provided under the employer's RPP. While funds may be set aside and invested to pay for benefits under the plan, the funds will remain available to the general creditors of the employer.

2003 Ruling 2003-00498930 - INCORPORATING A PARTNERSHIP

Unedited CRA Tags
85(3) 125(7)

Principal Issues:
Whether a professional corporation, providing medical services to another corporation, will be carrying on a "personal services business" within the meaning of subsection 125(7) of the Act.

Position: No.

Reasons: The former partners are providing services through a "Contracting Corporation". They do not provide services to Newco in his/her capacity as an employee or officer of Newco.

2003 Ruling 2002-01747030 - Foreign Affiliate Reorganization

Unedited CRA Tags
15(1) 56(2) 246(1)

Principal Issues: 1. Does the assignment of assets, capital and retained earnings on a foreign divisive reorganization where there is inadequate consideration result in benefits under 15(1), 56(2) or 246(1)? 2. What is the adjusted cost base of shares received on a reduction of paid-up capital? 3. What is the cost of assigned to property for which shares were issued? 4. Does 53(2)(b)(ii) apply where the shareholder receives property from a corporation that does not undergo the paid-up capital reduction?

Position: 1. No. 2. Cost equals amount of paid-up capital reduction. 3. Cost equals proportion of paid-up capital of shares issued that the fair market value of the assigned property is of the aggregate fair market value of all property assigned. 4. Yes.

Reasons: 1. Position in 2002-016667, case law re: benefits (see below), reorganization exclusion in 15(1)(a), failure to meet conditions in 56(2) and 246(1).
2. and 3. Rationale in Tuxedo Holding and Teleglobe. 4. XXXXXXXXXX

2003 Ruling 2002-0169103 - PHANTOM STOCK UNITS

Unedited CRA Tags
REG 6801(d)

Principal Issues:
1. Will the proposed payment of some or all of a participant's annual bonus in the form of phantom shares result in an SDA?
2. Will the fact that the unit values are tied to the value of a special redeemable preferred share of the subsidiary XXXXXXXXXX violate 6801(d)?

Position:
1. No.
2. No.

Reasons:
1. The conditions in paragraph 6801(d) are satisfied.
2. Meets the condition that the value of units be based on the FMV of shares of the corporation or of a related corporation.

2003 Ruling 2003-00280330 - LEASE-BARGAIN PURCHASE OPTION

Unedited CRA Tags
9(1) 49(1) 49(5)

Principal Issues:
Where a lease is amended to add an option to purchase and to increase the annual lease payments to reflect such option, are the increased payments deductible under section 9 to the lessee?

Position:
No, the increased annual payments are considered to be made in respect of the option.

Reasons: FMV of the lease payments.

2003 Ruling 2003-0049893 - INCORPORATING A PARTNERSHIP

Unedited CRA Tags
85(3) 125(7)

Principal Issues:
Whether a professional corporation, providing medical services to another corporation, will be carrying on a "personal services business" within the meaning of subsection 125(7) of the Act.

Position: No.

Reasons: The former partners are providing services through a "Contracting Corporation". They do not provide services to Newco in his/her capacity as an employee or officer of Newco.

2003 Ruling 2002-0174703 - Foreign Affiliate Reorganization

Unedited CRA Tags
15(1) 56(2) 246(1)

Principal Issues: 1. Does the assignment of assets, capital and retained earnings on a foreign divisive reorganization where there is inadequate consideration result in benefits under 15(1), 56(2) or 246(1)? 2. What is the adjusted cost base of shares received on a reduction of paid-up capital? 3. What is the cost of assigned to property for which shares were issued? 4. Does 53(2)(b)(ii) apply where the shareholder receives property from a corporation that does not undergo the paid-up capital reduction?

Position: 1. No. 2. Cost equals amount of paid-up capital reduction. 3. Cost equals proportion of paid-up capital of shares issued that the fair market value of the assigned property is of the aggregate fair market value of all property assigned. 4. Yes.

Reasons: 1. Position in 2002-016667, case law re: benefits (see below), reorganization exclusion in 15(1)(a), failure to meet conditions in 56(2) and 246(1).
2. and 3. Rationale in Tuxedo Holding and Teleglobe. 4. XXXXXXXXXX

2003 Ruling 2003-00329930 - AMALGAMATION INTEREST EXPENSE

Unedited CRA Tags
20(1)(c)

Principal Issues:
Whether interest remains deductible after an amalgamation

Position: Yes

Reasons: Interest deductibility rules

2003 Ruling 2003-0028033 - LEASE-BARGAIN PURCHASE OPTION

Unedited CRA Tags
9(1) 49(1) 49(5)

Principal Issues:
Where a lease is amended to add an option to purchase and to increase the annual lease payments to reflect such option, are the increased payments deductible under section 9 to the lessee?

Position:
No, the increased annual payments are considered to be made in respect of the option.

Reasons: FMV of the lease payments.

2003 Ruling 2003-00354430 - TAXATION OF INDIAN TRUST

Unedited CRA Tags
81(1)(a) 149(1)(c) 104(6)

Principal Issues:

(A) Whether the Band is a public body performing a function of government.
(B) Whether the receipt of the Settlement Capital is taxable.
(C) Are per capita distributions income from a source within the meaning of paragraph 3(a) of the Act.
(D) Whether subsection 75(2) will apply to the Trusts' income.
(E) Whether any income of the trust that is not subject to 75(2) will be considered payable to the First Nation and thus deductible pursuant to 104(6).
(F) Whether any distribution by the trust to the First Nation will be governed by 107(2). (G) Whether subsections 104(4), 104(5) and 104(5.2) will apply to Trust Property.

Position:

(A) Yes. (B) No. (C) No. (D) Yes. (E) Yes. (F) Yes, subject to subsections 107(2.001), (2.002) and (4) to (5). (G) No.

Reasons:

(A) The First Nation is actively involved in the community and provides extensive services and programs.
(B) Compensation is being paid in respect of the interest of a Band in surrendered lands and should therefore be exempt from taxation by virtue of paragraph 81(1)(a) of the Act and 87(1)(a) of the Indian Act.
(C) The amounts would not be considered income from a source within the meaning of paragraph 3(a) of the Act.
(D) The First Nation will be the settlor of the Trust, directing Canada to make payments to the Trust on behalf of the First Nation. The First Nation is the sole beneficiary and on the termination of the Trust, all of the Trust's property will be transferred to the First Nation.
(E) Section XXXXXXXXXX provides that if income earned exceeds income realized the excess shall become payable to the First Nation and will be evidenced by a demand promissory note.
(F) The trust will qualify as a personal trust since the First Nation will be the settlor of the trust and the interest will not be acquired for consideration.
(G) All interests in the trust have vested indefeasibly. No provisions in the Trust Agreement which would divest the First Nation of its interest in the income and capital of the trust. Consequently the provisions of subsection 104(4), 104(5) and (104(5.2) by virtue of paragraph (g) of the definition of "trust" in subsection 108(1) of the Act.

2003 Ruling 2003-0032993 - AMALGAMATION INTEREST EXPENSE

Unedited CRA Tags
20(1)(c)

Principal Issues:
Whether interest remains deductible after an amalgamation

Position: Yes

Reasons: Interest deductibility rules

2003 Ruling 2003-00428430 - UNFUNDED SUPPLEMNTAL PENSION PLAN

Unedited CRA Tags
248(1)

Principal Issues: Is the supplemental pension plan an SDA or an RCA?

Position: No

Reasons:
The plan is an unfunded arrangement to provide pension benefits that are supplementary to the benefits provided under the employer's RPP. While funds may be set aside and invested to pay for benefits under the plan, the funds will remain available to the general creditors of the employer.

2003 Ruling 2003-0035443 - TAXATION OF INDIAN TRUST

Unedited CRA Tags
81(1)(a) 149(1)(c) 104(6)

Principal Issues:

(A) Whether the Band is a public body performing a function of government.
(B) Whether the receipt of the Settlement Capital is taxable.
(C) Are per capita distributions income from a source within the meaning of paragraph 3(a) of the Act.
(D) Whether subsection 75(2) will apply to the Trusts' income.
(E) Whether any income of the trust that is not subject to 75(2) will be considered payable to the First Nation and thus deductible pursuant to 104(6).
(F) Whether any distribution by the trust to the First Nation will be governed by 107(2). (G) Whether subsections 104(4), 104(5) and 104(5.2) will apply to Trust Property.

Position:

(A) Yes. (B) No. (C) No. (D) Yes. (E) Yes. (F) Yes, subject to subsections 107(2.001), (2.002) and (4) to (5). (G) No.

Reasons:

(A) The First Nation is actively involved in the community and provides extensive services and programs.
(B) Compensation is being paid in respect of the interest of a Band in surrendered lands and should therefore be exempt from taxation by virtue of paragraph 81(1)(a) of the Act and 87(1)(a) of the Indian Act.
(C) The amounts would not be considered income from a source within the meaning of paragraph 3(a) of the Act.
(D) The First Nation will be the settlor of the Trust, directing Canada to make payments to the Trust on behalf of the First Nation. The First Nation is the sole beneficiary and on the termination of the Trust, all of the Trust's property will be transferred to the First Nation.
(E) Section XXXXXXXXXX provides that if income earned exceeds income realized the excess shall become payable to the First Nation and will be evidenced by a demand promissory note.
(F) The trust will qualify as a personal trust since the First Nation will be the settlor of the trust and the interest will not be acquired for consideration.
(G) All interests in the trust have vested indefeasibly. No provisions in the Trust Agreement which would divest the First Nation of its interest in the income and capital of the trust. Consequently the provisions of subsection 104(4), 104(5) and (104(5.2) by virtue of paragraph (g) of the definition of "trust" in subsection 108(1) of the Act.