Income Tax Severed Letters - 2004-03-19

Miscellaneous

18 March 2004 Miscellaneous 2004-0064741E5 - 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.

18 March 2004 Miscellaneous 2004-0066311E5 - Personal Use of an Employer's Automobile

Unedited CRA Tags
6(2)

Principal Issues: Whether an employee's use of an employer-provided automobile for travel between the employee's home and regular work place is personal when the employee is required by the employer to take the automobile home daily.

Position: Yes.

Reasons: The primary purpose for the travel is so that the employee can return home for personal reasons.

16 March 2004 Miscellaneous 2003-0050041E5 F - Fin de société de personnes et 98(5)

Unedited CRA Tags
98(5)

Principales Questions:
1. Est-ce que le paragraphe 98(5) de la Loi peut s'appliquer dans le cas où tous les associés d'une société de personnes transfèrent simultanément leur participation dans la société de personnes à une société (qui n'est pas un associé de la société de personnes) dont ils sont tous les actionnaires?
2. Est-ce que le paragraphe 98(5) de la Loi peut s'appliquer dans une situation semblable à la précédente à l'exception du fait que les associés transfèrent leur participation à une journée d'intervalle?

Position Adoptée:
1. Non.
2. Oui, si toutes les conditions du paragraphe 98(5) sont respectées.

Raisons:
1. La société n'était pas un associé de la société de personnes immédiatement avant la cessation de l'existence de la société de personnes.
2. La société était un associé de la société de personnes immédiatement avant la cessation de l'existence de la société de personnes.

15 March 2004 Miscellaneous 2003-0023931E5 - Transfer of a pension to an RRSP

Unedited CRA Tags
56(1) 60(j)

Principal Issues: The writer asked for certain certifications in respect of a group RRSP, that are required by a foreign pension authority in order for it to allow a transfer of pension benefits to the plan.

Position: Indicated that the certifications requested could not be provided.

Reasons: CRA applies the Oxford dictionary definition of a pension for domestic purposes as a consequence of a number of court decisions. A pension is an arrangement under which employer (or government) contributions are made in respect of employment. (See 2003-001345) RRSPs do not specifically prevent employer contributions but the tax imposed under Part X.1 of the Act, if they accept such contributions, is such that they are virtually never made. (Employer contributions would be treated as gifts in the calculation of undeducted RRSP premiums - see E9400765). Furthermore, the Income Tax Conventions Interpretation Act provides a deeming provision that provides that, for purposes of our tax treaties, a payment received out of an RRSP is a payment out of a pension. We therefore could not, as a point of fact, certify that an RRSP is a pension plan given the courts position and the absence of such a provision.

15 March 2004 Miscellaneous 2004-0061491E5 - foreign pension receipts

Unedited CRA Tags
56(1)

Principal Issues: Request for general information concerning the receipt of a foreign pension..

Position: Provided general commentary.

Reasons: Reply depends on nature of the plan which could not be determined from the information provided.

XXXXXXXXXX 2004-006149
W. C. Harding
March 15, 2004

12 March 2004 Miscellaneous 2004-0064411E5 - Qualified medical devices

Unedited CRA Tags
118.2(2)(m) Reg. 5700

Principal Issues: Does the cost of exercise equipment qualify as a medical
expense?

Position: No.

Reasons: Exercise equipment is not included in the list of prescribed
medical equipment and devices.

12 March 2004 Miscellaneous 2004-0064901I7 - Passenger Vehicles

Unedited CRA Tags
248(1)

Principal Issues: Whether a van, pick-up truck or similar vehicle that is used in a business activity that is not a "commercial activity" for purposes of the Excise Tax Act, may still be considered used in the course of gaining or producing income from the business for purposes of determining whether the vehicle is an automobile under the Income Tax Act.

Position: Yes.

Reasons: The fact that an activity is not considered a commercial activity under the ETA does not mean that the activity is not carried on in the course of gaining or producing income from a business for purposes of the definition of automobile in subsection 248(1) of the Income Tax Act. Therefore, the vehicle may be excluded from the definition of automobile depending on the amount of use in transporting goods, equipment or passengers in the course of gaining or producing income from the business.

11 March 2004 Miscellaneous 2004-0057061E5 - Qualified Farm Property

Unedited CRA Tags
110.6(1) 110.6(19)

Principal Issues: Does a capital gains election under subsection 110.6(19), in respect of a farm property, result in the property being last acquired after June 17, 1987 for purposes of paragraph (a) of the definition of "qualified farm property" in subsection 110.6(1).

Position: Yes

Reasons: Pursuant to subparagraph 110.6(19)(a)(ii), the property is deemed to have been reacquired by the elector immediately after February 22, 1994.

11 March 2004 Miscellaneous 2004-0062331E5 - Income or profits tax

Unedited CRA Tags
126 113

Principal Issues: Whether withholding taxes paid to Costa Rica in respect of dividend from foreign affiliate constitutes foreign taxes paid by resident of Canada?

Position: No

Reasons: Words in subsection 126(4)

10 March 2004 Miscellaneous 2003-0046481E5 - Deduction re Taxes on Mining Income

Unedited CRA Tags
20(1)(v) Reg. 3900

Principal Issues: Potential concerns re the availability of a deduction in respect of taxes on mining income.

Position: General comments provided re the interpretation of the regulation in question with certain concerns being referred to the Department of Finance.

Reasons: The nature of the determinations in question, as considered in prior jurisprudence, and that certain items pertained to income tax policy.

9 March 2004 Miscellaneous 2003-0025091E5 - Deductible loss of a foreign affiliate

Unedited CRA Tags
5903(3)(b)

Principal Issues: Whether draft paragraph 5903(3)(b) would permit a property loss incurred by a foreign affiliate of a successor of the taxpayer to be carried back and claimed as a deductible loss of a foreign affiliate of the taxpayer.

Position: No

Reasons: A successor of the taxpayer is not a person described in subparagraphs 95(2)(f)(iv)-(vii).

8 March 2004 Miscellaneous 2004-0064201E5 - Home Buyers' Plan - Divorce

Unedited CRA Tags
146.01

Principal Issues: Whether an individual who jointly owned a home with her ex-husband can participate in the HBP if she is divorced at the time of withdrawal.

Position: No as she is not a first-time homebuyer

Reasons: Application of the Act

2 March 2004 Miscellaneous 2004-0061041I7 F - Safe Income

Unedited CRA Tags
55

Principal Issues: Whether the answer to Q. 25 of the round table at 2003 APFF conference is still valid?

Position: No

Reasons: Kruco Inc. and position of Appeals

2 March 2004 Miscellaneous 2004-0061241I7 - definition of "sojourning"

Unedited CRA Tags
250(1)(a)

Principal Issues: Whether airline employee was "sojourning" in Canada or only commuting.

Position: He was sojourning.

Reasons: In order to be considered commuting we would expect that for each visit an airline employee's stay in Canada would be limited to a day or two (in rare cases three days). In this case the individual was coming to Canada for work purposes in the case of each visit for more than three days at a time.
March 2, 2004

27 February 2004 Miscellaneous 2003-0003841E5 - Withholding taxes, manufacturing or processing

Unedited CRA Tags
212(13.2) 125.1(3)

Principal Issues: Whether "manufactures or processes" in subparagraph 212(13.2)(b)(i) has same meaning as "manufacturing or processing" in subsection 125.1(3)?

Position: No

Reasons: Words in subsection 125.1(3), scheme of the Act

27 February 2004 Miscellaneous 2004-0061841E5 - Adjustment to the ACB under 107[1][a]

Unedited CRA Tags
107(1)(a)

Principal Issues: Clarification of the calculation of the computation of the capital gain on the deemed disposition of a capital interest in a non-resident inter vivos personal trust under paragraph 128.1(1)(b). See file 2003-001953.

Position: The capital gain on the deemed disposition under paragraph 128.1(4)(b) will generally equal to the beneficiary's share of any accrued gain on the trust's property as determined at the time of the disposition.

Reasons: A numerical example is provided.

XXXXXXXXXX 2004-006184
Annemarie Humenuk
Attention: XXXXXXXXXX

25 February 2004 Miscellaneous 2003-0031721E5 - Whether CNQ is a prescribed stock exchange in Cda

Unedited CRA Tags
R3200

Principal Issues: Whether CNQ is a prescribed stock exchange in Canada pursuant to section 3200 of the Income Tax Regulations.

Position: No.

Reasons: CNQ is not on the list in section 3200.

23 February 2004 Miscellaneous 2003-0051851E5 - S Corporations

Unedited CRA Tags
126 20(11) 20(12)

Principal Issues: Taxation of shareholder in US "S" Corporation.

Position: Unless the S-Corp is a controlled foreign affiliate, Canada taxes shareholder when shareholder receives dividends unless an election is made under Article XXIX(5) of the Canada-U.S. Treaty.

Reasons: Words in section 90.

2003-005185
XXXXXXXXXX Suzanie Chua
613 957-2115
February 23, 2004

17 February 2004 Miscellaneous 2003-0039821E5 - Taxation of annuity received from Netherlands

Unedited CRA Tags
12.2 56(1)(d) 128.1(1)

Principal Issues: Is taxpayer taxable on interest and capital amounts? Is interest on loan to purchase annuity deductible? Are annuity payments eligible for pension amount credit? Does the amount on deposit in the Netherlands "foreign property" for foreign property reporting?

Position: No, only interest. Yes, unless it is a prescribed annuity. Yes. This will be foreign property for 2003 years and following..

XXXXXXXXXX 2003-003982
Eliza Erskine
February 17, 2004

17 February 2004 Miscellaneous 2003-0043341E5 - Australian Limited Partnership

Unedited CRA Tags
96(1)

Principal Issues: Whether a limited partnership established and governed pursuant to Part 3 of the State of Victoria Partnership Act (Australia)(1958) is a partnership or a corporation for purposes of the Income Tax Act (Canada)(the "Act")?

Position: a partnership

Reasons: The Partnership more closely resembles a partnership than a corporation for purposes of the Act

7 January 2004 Miscellaneous 2003-0019531E5 - Deemed disposition of property on emigration

Unedited CRA Tags
128.1(10) 108(1)

Principal Issues: General questions on
-the meaning of "acquired for no consideration"
-deemed TCP as a result of an election under former 48(1)(c)
-subsequent disposition of property and the release of the posted security

2004 Miscellaneous 2003-0050071R3 - loss utilization within a corporate group

Unedited CRA Tags
20(1)(c) 12(1)(x) 112 245

Principal Issues: Are losses available within the group as proposed - using preferred shares and loans among the corporations

Position: yes acceptable

Reasons: meets the technical requirements of the Act, including 20(1)(c) and is not an abuse of the Act as per Finance's technical notes to section 245. Also see CTF 2002 position and IT 533 par 32

2004 Miscellaneous 2003-0052641R3 F - Régime de prestations aux employés

Unedited CRA Tags
6(1)g) 32.1 75(2) 248(1)

Principales Questions: 1) Le régime est-il un régime de prestations aux employés tel que défini au paragraphe 248(1) de la Loi? 2) Les dispositions du paragraphe 75(2) de la Loi s'appliqueront-elles dans l'éventualité où les titres non acquis aux anciens employés participants sont remis ou peuvent être remis à la société? 3) Dans l'éventualité de rupture du lien d'emploi d'un employé alors que les titres ne lui sont pas acquis, le fait que ces titres demeurent dans la fiducie pour combler les obligations futures de l'employeur entraîne-t-il par ce fait même des conséquences fiscales pour une des parties?

Position Adoptée: 1) Oui; 2) Non; 3) Non.

Raisons: 1) Dispositions de la Loi; 2) Exception au paragraphe 75(2) de la Loi; 3) Règles applicables au régime de prestations aux employés et position conforme à celles déjà prises par l'ARC

XXXXXXXXXX 2003-005264

Le XXXXXXXXXX 2004

2003 Miscellaneous 2003-00508710 - Section 115-2115.2

Principal Issues: Change in facts and proposed transactions regarding ruling 2003-000100.

Position: No change in the rulings given.

Reasons: N/A

2003 Miscellaneous 2003-0050871 - Section 115-2115.2

Principal Issues: Change in facts and proposed transactions regarding ruling 2003-000100.

Position: No change in the rulings given.

Reasons: N/A

Ruling

2004 Ruling 2003-00200530 - PAYMENTS FROM FUND SET UP BY EMPLOYER

Unedited CRA Tags
5(1) 6(1)(a)

Principal Issues: Whether payments from a Fund set up by, and fully funded by employees who are assigned to various countries, to help equalize the effect of the differing tax rates, would constitute a taxable employment benefit when paid to an employee working temporarily in Canada.

Position: No taxable benefit

Reasons: The employer does not contribute to the Fund, and is not involved in the management of the Fund. The Fund merely redistributes money among the International Employees who choose to participate, thereby reducing the effect of varying tax rates as these employees move from country to country.

2004 Ruling 2003-0020053 - PAYMENTS FROM FUND SET UP BY EMPLOYER

Unedited CRA Tags
5(1) 6(1)(a)

Principal Issues: Whether payments from a Fund set up by, and fully funded by employees who are assigned to various countries, to help equalize the effect of the differing tax rates, would constitute a taxable employment benefit when paid to an employee working temporarily in Canada.

Position: No taxable benefit

Reasons: The employer does not contribute to the Fund, and is not involved in the management of the Fund. The Fund merely redistributes money among the International Employees who choose to participate, thereby reducing the effect of varying tax rates as these employees move from country to country.

2003 Ruling 2003-00329230 - Article X(2)(a) US Convention & Drupa

Unedited CRA Tags
X(2)(A)

Principal Issues: Whether the 5% reduced withholding rate pursuant to A.X(2)(a) of the Canada-U.S. Convention applies to a dividend payment from a corporation resident in Canada (Canco) through a DRUPA general partnership (XXXXXXXXXX ) that is regarded as a flow through and that is the parent of Canco, to a DRULPA limited partnership (XXXXXXXXXX ) that is a XXXXXXXXXX % limited partner in XXXXXXXXXX , where Canco issues preferred voting shares to XXXXXXXXXX in order to comply with the formal requirement in A.X(2)(a) that XXXXXXXXXX be the beneficial owner of the dividends that owns at least 10% of the voting stock of Canco.

Position: The 5% reduced withholding rate applies.

Reasons: XXXXXXXXXX is a resident of the U.S. pursuant to A.IV(1) of the Convention. XXXXXXXXXX is also the beneficial owner of the dividend from Canco and the acquisition of the preferred shares is not an abuse of the Act pursuant to subsection 245(2) or an abuse of the Convention pursuant to A.XXIX-A(7).

2003 Ruling 2003-0032923 - Article X(2)(a) US Convention & Drupa

Unedited CRA Tags
X(2)(A)

Principal Issues: Whether the 5% reduced withholding rate pursuant to A.X(2)(a) of the Canada-U.S. Convention applies to a dividend payment from a corporation resident in Canada (Canco) through a DRUPA general partnership (XXXXXXXXXX ) that is regarded as a flow through and that is the parent of Canco, to a DRULPA limited partnership (XXXXXXXXXX ) that is a XXXXXXXXXX % limited partner in XXXXXXXXXX , where Canco issues preferred voting shares to XXXXXXXXXX in order to comply with the formal requirement in A.X(2)(a) that XXXXXXXXXX be the beneficial owner of the dividends that owns at least 10% of the voting stock of Canco.

Position: The 5% reduced withholding rate applies.

Reasons: XXXXXXXXXX is a resident of the U.S. pursuant to A.IV(1) of the Convention. XXXXXXXXXX is also the beneficial owner of the dividend from Canco and the acquisition of the preferred shares is not an abuse of the Act pursuant to subsection 245(2) or an abuse of the Convention pursuant to A.XXIX-A(7).

Technical Interpretation - External

10 March 2004 External T.I. 2003-00479050 - Debt Assumption by Partnership

Unedited CRA Tags
85(1)(b) 97(2)

Principal Issues: Whether the assumption of the excess mortgages by a general partnership represents consideration for the properties transferred under an election pursuant to subsection 97(2).

Position: Yes.

Reasons: Consistent with court decisions and with paragraph 17 of Interpretation Bulletin IT-291R3, it is our view that the assumption by the Partnership of the excess mortgages represents consideration for the purposes of paragraph 85(1)(b) and subsection 97(2).

10 March 2004 External T.I. 2003-0047905 - Debt Assumption by Partnership

Unedited CRA Tags
85(1)(b) 97(2)

Principal Issues: Whether the assumption of the excess mortgages by a general partnership represents consideration for the properties transferred under an election pursuant to subsection 97(2).

Position: Yes.

Reasons: Consistent with court decisions and with paragraph 17 of Interpretation Bulletin IT-291R3, it is our view that the assumption by the Partnership of the excess mortgages represents consideration for the purposes of paragraph 85(1)(b) and subsection 97(2).

10 February 2004 External T.I. 2004-00621750 - Foreign Affiliate Debt forgiveness

Unedited CRA Tags
95(2)(g.1) 80(2)(g.1)

Position: Yes.

10 February 2004 External T.I. 2004-0062175 - Foreign Affiliate Debt forgiveness

Unedited CRA Tags
95(2)(g.1) 80(2)(g.1)

Position: Yes.