Income Tax Severed Letters - 2004-04-02

Principal Issues: Whether an automobile lease cancellation penalty or fee is deductible under paragraph 8(1)(h.1) of the Act.

Position: Question of fact.

Reasons: Such a determination can only be made after a review of the lease agreement and an examination of the underlying purpose for the payment. The underlying purpose of the payment will determine its deductibility. For example, where the cancellation penalty or fee is merely a way of determining what the leasing costs would have been under a shortened lease, the payment otherwise qualifies for deductibility. Where a lease cancellation penalty or fee otherwise qualifies for deductibility under paragraph 8(1)(h.1) of the Act, it will be subject to the application of subsection 67.3 of the Act. The amount of the payment must be included with the other lease costs incurred by the employee in the year to determine the total lease costs that are eligible for deduction under section 67.3 of the Act. The proportion of the employee's personal use of the vehicle would further reduce the total eligible lease costs that are deductible under paragraph 8(1)(h.1) of the Act.

Principal Issues: Whether certain shares would constitute shares of the capital stock of a family farm corporation as defined in subsections 70(10) and 110.6(1) of the Act?

Position: Yes for purposes of subsection 70(10), no for purposes of subsection 110.6(1).

Reasons: The definition contained in subsection 110.6(1) of the Act does not permit the property of a corporation to be used by another corporation a share of the capital stock of which is a share of the capital stock of a family farm corporation

Principal Issues:
Is a mortgage acquired by an RRSP a qualified investment under 4900(1)(j) of the Regulations where the mortgage is insured by a life insurance policy?
Where an RRSP acquires a life insurance policy to insure a mortgage, granted to the annuitant, in case of the death of the annuitant, is there an advantage prohibited by paragraph 146(2)(c.4) of the Act?
Is an interest in a life insurance policy a qualified investment?

Position:
Question of fact. No definitive answer.
Probably.
No, unless the conditions stipulated in subsection 198(6) of the Act are met.

Reasons:
Subparagraph 4900(1)(j)(i) of the Regulations deals with insurance against risks in the event of default of the borrowers (see section 8 of the National Housing Act). Subparagraph 4900(1)(j)(ii) of the Regulations requires that the mortgage be insured by a corporation offering its services as insurer of mortgages. Whether or not a mortgage insured by a life insurance policy meets these conditions is a question of fact, which requires a review of the life insurance policy, the mortgage, and the surrounding facts.
Subparagraph 146(2)(c.4)(iii) of the Act excludes only an advantage under a life insurance policy in effect on December 31, 1981. But, it is a question of fact, which requires an examination of the life insurance policy, the mortgage and surrounding facts.
Wording of subsection 198(6) of the Act.

Principal Issues: What is the definition of blindness for purposes of the
disability tax credit?

Position: Comments provided.

Principal Issues: Whether an employee's previous employer would be considered a "person related to the employer" by reason of subparagraph 60(j.1)(v).

Position: Question of fact. Depends on whether the employee is entitled to benefits under the current employer's plan which relate to all or a portion of the years of service with the former employer.

Reasons: Pursuant to subparagraph 60(j.1)(v), an employee's previous employer would be considered a "person related to the employer" if the employee's prior service with the former employer is "recognized" in determining the employee's pension benefits.

Principal Issues: Whether a child was financially dependent on a deceased annuitant at the time of the annuitant's death.

Position: General comments only.

Reasons: Question of fact.