Income Tax Severed Letters - 2004-02-06

Ruling

2003 Ruling 2003-0029633 - Arm's Length Sale of Shares

Unedited CRA Tags
84.1(1)

Principal Issues: Whether a husband and wife are dealing at arm's length with a purchaser corporation that buys the shares of their wholly-owned corporation.

Position: Yes.

Reasons: Finding is dependent on the specific facts.

2003 Ruling 2003-0039873 - MANAGEMENT FEES AND BONUSES

Unedited CRA Tags
18(1)(a) 67 6(1)(a)

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 ISSUE:

Whether management fees and bonuses paid out of the proceeds of disposition of the assets of a business are reasonable.

Position TAKEN:

Reasonable.

Reasons FOR POSITION TAKEN:

2003 Ruling 2003-0042493 - RRSP ACB OF FOREIGN PROPERTIES

Unedited CRA Tags
245(2) 40(3.4) 248(1)

Principal Issues:
Will the loss, which may be realized from the disposition of a foreign property of a RRSP, subject to subsection 40(3.3) of the Act and consequently not a superficial loss due to paragraph (h) of the definition of superficial loss in section 54 of the Act result in a misuse or abuse of the provisions of the Act for the purposes of subsection 245(2) of the Act?

Position: No,

Reasons: No abuse or misuse.

2003 Ruling 2003-0044293 - LOSS CONSOLIDATION INTEREST DEDUCTIBILITY

Unedited CRA Tags
20(1)(c) 112(2.3) 245(2)

Principal Issues: Loss consolidation

Position: Similar to previous loss consolidations

Reasons: ITA

Technical Interpretation - External

5 February 2004 External T.I. 2003-0053271E5 - Bartering Network

Unedited CRA Tags
3 9

Principal Issues: Whether a taxpayer who is personally a member of a bartering network, is bartering as a "regular habit" and therefore, the value of the barter transactions is taxable.

Position: Question of fact.

Reasons: The fact that a taxpayer who is not earning income from a business or property is personally a member of a bartering network does not mean, in and by itself, that the taxpayer is bartering as a regular habit and therefore, has a source of income that is taxable under the Act.

3 February 2004 External T.I. 2003-0032285 - MEDICAL EXPENSE TAX CREDIT

Unedited CRA Tags
118.2(2) 248(1)

Principal Issues:
Whether the costs of speech therapy performed in XXXXXXXXXX and related travel expenses qualify as medical expenses under subsection 118.2(2) of the Act.

Position:
The expenses would qualify if paid to a medical practitioner or to a public or licensed private hospital. Alternatively if certified as necessary by a medical practitioner, amounts paid to the XXXXXXXXXX facility would qualify. Also certain travel expenses may qualify if the conditions in paragraphs 118.2(2)(g) or (h) are met

Reasons:
Definition of medical expense in ss. 118.2(2)

3 February 2004 External T.I. 2003-0053241E5 - Medical expenses

Unedited CRA Tags
118.2(2)

Principal Issues: Do the following qualify as medical expenses: 1) fees
paid to a medical practitioner for the completion of
health and disability forms; and 2) amounts paid for
theraband, tubing, and support socks prescribed by and
paid to a physiotherapist?

Position: 1) Yes; 2) No

Reasons: 1) The completion of forms is considered ancillary to
the medical service provided by the practitioner; and 2)
Theraband, tubing, and support socks are not listed as
prescribed medical devices under regulation 5700.

2 February 2004 External T.I. 2003-0050241E5 F - Déductibilité des intérêts

Unedited CRA Tags
20(1)c)
Summary Under
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c) - Subparagraph 20(1)(c)(i)
effective prohibition on receiving dividends on common shares for 24 months does not preclude interest deductibility

Principales Questions: Un contribuable qui emprunte un montant d'argent pour acquérir des actions ordinaires d'une SPEQ peut-il déduire les intérêts sur l'argent emprunté?

Position Adoptée: Il doit y avoir une expectative raisonnable au moment de l'acquisition des actions ordinaires que le détenteur recevra un dividende.

Raisons: Libellé de Loi et IT-533

2 February 2004 External T.I. 2003-0052611E5 F - Montant de l'avantage au titre d'un don

Unedited CRA Tags
248(31) 248(30)
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(32)
where possible, advantage must be determined on a property-by-property basis

Principales Questions: Comment détermine-t-on le montant de l'avantage au titre d'un don pour un contribuable lorsque celui-ci donne et vend plusieurs biens à un organisme de bienfaisance?

Position Adoptée: Le montant de l'avantage se détermine généralement pour chaque don d'un bien.

Raisons: Libellé de la Loi.

29 January 2004 External T.I. 2003-0049111E5 F - Retenue d'impôt - Régime visé à l'alinéa 6801d) d

Unedited CRA Tags
6801d) règlement 153(1)
Summary Under
Tax Topics - Income Tax Act - Section 153 - Subsection 153(1) - Paragraph 153(1)(a)
no source deductions while amounts are deferred under a Reg. 6801(d) plan

Principales Questions: À quel moment les retenues d'impôt à la source doivent-t-elles être effectuées à l'égard des montants différés dans le cadre d'un régime visé à l'alinéa 6801d) du Règlement?

Position Adoptée: Au moment du versement des montants différés.

Raisons: Libellé du paragraphe 153(1) de la Loi.

29 January 2004 External T.I. 2003-0050131E5 - Deferred Salary Leave Plan

Unedited CRA Tags
6801(a)

Principal Issues: Does a proposed Deferred Salary Leave Plan comply with paragraph 6801(a) of the Regulations?

Position: This submission was not made as an Advance Income Tax Ruling request. Compliance with paragraph 6801(a) would be a question of fact, based upon a review of all substantiating documentation.

Reasons: General information and commentary provided.

29 January 2004 External T.I. 2003-0046151E5 F - RPE - Dissolution d'une société en commandite

Unedited CRA Tags
32.1 96(1)
Summary Under
Tax Topics - Income Tax Act - Section 32.1 - Subsection 32.1(1) - Paragraph 32.1(1)(a)
no s. 32.1(1)(a) deduction for remaining EBP contributions that are assumed by the partners on partnership dissolution and then paid by them
Summary Under
Tax Topics - Income Tax Act - Section 96 - Subsection 96(1) - Paragraph 96(1)(a)
application of s. 96(1)(a) presumption means that future deductions that would have been available to the partnership are lost on its dissolution

Principales Questions:
Suite à la dissolution d'une société en commandite, les associés peuvent-ils déduire en vertu du paragraphe 32.1(1) de la Loi les cotisations effectuées par la société en commandite?

Position Adoptée: Non.

Raisons: Application de la Loi.

28 January 2004 External T.I. 2003-0048321E5 - certification of gravel as a mineral resource

Unedited CRA Tags
248(1)

Principal Issues: whether gravel that is to be used in the construction of roads and highways can be certified as a mineral resource as per that definition in 248(1)

Position: No

Reasons: As per Natural Resources Canada

27 January 2004 External T.I. 2003-0047381E5 F

Unedited CRA Tags
146(1) Règlement 4900(1)j)
Summary Under
Tax Topics - Income Tax Act - Section 146 - Subsection 146(1) - Premium
interest received by lender to an RRSP in excess of market rate is not a “premium”
Summary Under
Tax Topics - Income Tax Regulations - Regulation 4900 - Subsection 4900(1) - Paragraph 4900(1)(j)
mortgage interest rate must reflect normal commercial practice

Principales Questions: Les intérêts versés à un REÉR sur un prêt hypothécaire constituent-t-ils une prime pour la partie de ces intérêts qui excède un montant établi au taux du marché?

Position Adoptée: Non

Raisons: Définition de "prime" au paragraphe 146(1) de la Loi

27 January 2004 External T.I. 2003-0048891E5 F

Unedited CRA Tags
20(1)c)(i)
Summary Under
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c) - Subparagraph 20(1)(c)(i)
indirect-use test not applied where income-producing property used as security for a personal-use loan, notwithstanding that the loan equalled the net capital invested in that property

Principales Questions: Un contribuable peut-il déduire les intérêts sur un emprunt utilisé à des fins personnelles lorsque le principal de l'emprunt correspond à une mise de fonds déjà effectuée sur un immeuble locatif?

Position Adoptée: Non

Raisons: L'argent emprunté est utilisé à des fins personnelles et non pas pour rembourser du capital. L'utilisation directe de l'argent emprunté n'est pas pour une fin admissible.

26 January 2004 External T.I. 2003-0039051E5 - Application of treaty rates to Alberta partnership

Unedited CRA Tags
2(3)

Principal Issues: 1. Does the treaty rate on interest flow through to the US partners of an Alberta limited partnership? 2. Does the use of a Canadian bank account to receive interest payments and re-loan money mean that the partnership is carrying on business in Canada through a PE in Canada?

Position: 1. Yes, but position under review as contrary to OECD Commentary on partnerships. 2. Probably not.

Reasons: 1. Previous positions taken in NRO wind-up rulings. 2. Use of bank account in Canada will not in and by itself constitute carrying on business in Canada through a PE. Question of fact.

Technical Interpretation - Internal

30 January 2004 Internal T.I. 2003-0051211I7 - Capital Dividend Account - Excess Dividends

Unedited CRA Tags
184(3) 184(4)(b)(ii) 152(1.2)

Principal Issues: Where 184(3) election made and the relevant income tax returns of the payor corporation are statute barred: i) Can the recipient corporation be assessed Part IV tax?; and ii) Can the payor corporation be reassessed with regard to dividend refund?

Position: i) Yes; ii) Generally not.

Reasons: i) As provided in subparagraph 184(4)(b)(ii). ii) Per subsection152(1.2), the ability to determine or redetermine a dividend refund is subject to the subsection 152(4) limitation with regard to the normal reassessment period.

28 January 2004 Internal T.I. 2004-0054881I7 - Deductibility of Penalties and Interest under the CPP Act and EI Act

Unedited CRA Tags
18(1)(t) 20(1)(c)

Principal Issues: Whether penalties and interest on un-remitted source deductions are deductible in computing income for tax purposes.

Position: Generally, yes.

Reasons: IT-104R3 and 65302 British Columbia Ltd.

27 January 2004 Internal T.I. 2004-0055367 - RECAPTURE OF CCA - EARNED

Unedited CRA Tags
13(1) 13(11) 146(1)

Principal Issues: Whether a taxpayer's income which is derived from the recapture of CCA on a property that was used to earn income from an office or employment, is included in the calculation of the taxpayer's "earned income" for the taxation year.

Position: Yes.

Reasons: Subsection 13(1) of the Act provides for the inclusion in income of the recapture of CCA where the proceeds of disposition of a depreciable property exceed the undepreciated capital cost of the prescribed class of the property. Subsection 13(11) of the Act provides the authority for the recapture of CCA on a property that was previously deducted by a taxpayer in computing income from an office or employment. An amount included in income under subsection 13(1) of the Act is considered to be income from the same source from which CCA on the property was deducted. Therefore, the recapture of CCA on a property that was previously deducted by a taxpayer in computing income from an office or employment, is considered income from "an office or employment" which is included in "earned income" pursuant to subparagraph (a)(i) of definition in subsection 146(1) of the Act.

21 January 2004 Internal T.I. 2003-0047807 - 150(1)(d) "Legal Representative"

Unedited CRA Tags
150(1)(d)

Principal Issues:
Where an Ontario adult resident ("Disabled Person") is mentally incapable of managing his property and receives income support ("Income Support") under the Ontario Disability Support Program Act ("Support Program Act"), and where the Disabled Person's next-of-kin ("Next-of-Kin") is appointed by the Director of the Support Program Act to act for the Disabled Person, whether the Next-of Kin would qualify as a "legal representative" of the Disabled Person under subparagraph 150(1)(d)(i) of the Income Tax Act with respect to the Income Support.

Position:
Yes

Reasons:
The Next-of-Kin appears to have the power to administer, wind up, control or otherwise deal in a representative or fiduciary capacity with the Income Support.

10 December 2003 Internal T.I. 2003-0035777 - PURCHASER DEPOSIT COMPLETED CONTRACT

Unedited CRA Tags
187.2(3)

Principal Issues:
Amounts received as purchaser's deposits under residential construction contract and recorded on balance sheet as "purchaser's deposits" under contract completion method. Are they advances for Part I.3 purposes?

Position: Yes.

Reasons:
The amounts reflected as "purchaser's deposits" were paid in advance of the related work pursuant to the construction contract. Under the completed contract method of accounting, GAAP permits the recognition of income in the year the contract is completed. Amounts billed which are not considered to be earned under this method are advances for Part I.3 purposes to the extent that they have been received in cash, pursuant to the principles set out in PCL Construction Management Inc..