Income Tax Severed Letters - 2004-04-02

Miscellaneous

1 April 2004 Miscellaneous 2004-0060451E5 - Taxation of NPO's income from property

Unedited CRA Tags
149(1)(l) 149(5)

Principal Issues: Is a particular NPO subject to tax on its property income?

Position: Question of Fact.

Reasons: General information provided

31 March 2004 Miscellaneous 2004-0060021E5 - Automobile Lease Cancellation Payments

Unedited CRA Tags
8(1)(h.1) 67.3 6(2)

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.

30 March 2004 Miscellaneous 2004-0062711I7 F - tenure à bail

Unedited CRA Tags
annexe III

Principales Questions: Est-il possible d'amortir des améliorations locatives sur une durée supérieure à la durée du bail lorsque le bailleur et le locataire ont entre eux un lien de dépendance?

Position Adoptée: Aucune disposition dans la Loi de l'impôt sur le revenu ni dans ses règlements ne prévoit la possibilité pour un contribuable de prolonger la période d'amortissement d'une tenure à bail au-delà de la période prescrite.

Raisons: Texte de la Loi et de ses règlements.

30 March 2004 Miscellaneous 2003-0052991E5 - Shares of the Capital Stock of a Family Farm Corp.

Unedited CRA Tags
70(10) 110.6(1)

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

30 March 2004 Miscellaneous 2003-0027811E5 - Life insurance on mortgage held in RRSP

Unedited CRA Tags
4900(1)(j) 198(6) 146(2)(c.4)

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.

30 March 2004 Miscellaneous 2003-0054021E5 - Payment of Permanent Resident Authorizations

Unedited CRA Tags
6(1)(a)

Principal Issues: Whether the payment of permanent resident authorization fees by the employer would constitute a taxable employment benefit.

Position: yes

Reasons: Reimbursement of a taxable expense is a taxable benefit. Unlike work permits and work visas, permanent residence authorization fees are not a reasonable relocation expense. Acquisition of permanent residence status in Canada provides an enduring benefit to the employee, and the employee is the primary beneficiary of any benefit.

30 March 2004 Miscellaneous 2004-0060591I7 - Taxation of relocation benefit of Indian employee

Unedited CRA Tags
81(1)(a) 5(1) 6(1)

Principal Issues: A job relocation package offers a benefit whereby the relocating employee who chooses not to sell his home will receive a lump sum payment of 80% of the real estate commission that would otherwise have been payable. If a status Indian employee changes job location and as a result, his employment income will be 100% tax-exempt rather than partially exempt (prorated), will the aforementioned employment benefit be subject to the prorated exemption or the 100% exemption?

Position: The benefit is taxed in the year of receipt under paragraph 6(1)(a) of the Act. It should be taxed in the same proportion as the subsequent / resulting employment income.

Reasons: The amount is payable because of the change in job location. It should be taxed in accordance with the treatment of his employment income received for the new employment. This is also supportable by the wording of subsection 6(1)(a) of the Act, which provides that an individual's income from employment includes "benefits of any kind whatever received or enjoyed by the taxpayer in the year in respect of.... employment".

30 March 2004 Miscellaneous 2004-0057021E5 - interest deductibility; preferred shares; CICA

Unedited CRA Tags
20(1)(c)

Principal Issues: whether CICA Handbook governs classification of preferred shares and dividends paid on those shares for income tax purposes

Position: no

Reasons: the legal form determines the classification for income tax purposes, unless there is a contrary provision in the ITA

XXXXXXXXXX 2004-005702
Denise Dalphy, LL.B.
March 30, 2004 (613) 941-1722

26 March 2004 Miscellaneous 2004-0060361I7 F - Date d'exécution

Unedited CRA Tags
56.1(4)

Principales Questions: Est-ce que la pension alimentaire pour enfants est versée aux termes d'une ordonnance à la date d'exécution ou postérieurement?

Position Adoptée: Oui. L'ordonnance a comme date d'exécution le XXXXXXXXXX .

Raisons: Le XXXXXXXXXX est la date d'établissement d'une nouvelle ordonnance qui remplace celle de XXXXXXXXXX .
Le 26 mars 2004

25 March 2004 Miscellaneous 2003-0043431E5 - Refundable fees in the event of death

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

Principal Issues: Are refundable fees payable in the event of death a contingent liability or a genuine liability.

Position: Contingent. Death is certain but when is not.

Reasons: as above

XXXXXXXXXX 2003-004343
C. Tremblay, CMA
March 25, 2004 (613) 957-2139

24 March 2004 Miscellaneous 2004-0066181E5 - Disability tax credit - blindness

Unedited CRA Tags
118.3

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

Position: Comments provided.

24 March 2004 Miscellaneous 2003-0044351E5 - Non-Compete Payments to Non-Residents

Unedited CRA Tags
212(1)(d(iv)

Principal Issues: Whether non-compete payments made to non-resident are subject to 212(1)(d)(iv)?

Position: Yes

Reasons: The payments are made pursuant to an agreement between a person resident in Canada and a non-resident person not to use any other thing whatever.

22 March 2004 Miscellaneous 2003-0054211E5 - Retiring Allowance - related employers

Unedited CRA Tags
60(j.1)(v)

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.

22 March 2004 Miscellaneous 2004-0054671E5 - Prohibited advantages in an RRSP

Unedited CRA Tags
146(2)(c.4)

Principal Issues: Whether the requirement in paragraph 146(2)(c.4) of the Income Tax Act (the "Act") prohibiting RRSPs from offering certain advantages to annuitants would be met in a number of different scenarios involving bonus interest rates on GICs.

Position: General comments.

Reasons: Question of fact.

19 March 2004 Miscellaneous 2003-0051081E5 - Refund of premiums - financial dependent child

Unedited CRA Tags
146(1.1)

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.

18 March 2004 Miscellaneous 2004-0055311I7 - SAR Amendment to Stock Option Plan

Unedited CRA Tags
7(1)(b) 7(3)(b)

Principal Issues: Will paragraph 7(3)(b) of the Act deny an employer a deduction where, under a stock option plan, an employee elects to be paid cash in lieu of exercising the right to acquire shares under the stock option; the employee is paid and receives cash and the employee uses the cash proceeds to acquire shares of the employer that are different from the shares that could have been acquired under the stock option?

Position: No.

Reasons: The shares that result in a "benefit being conferred on the employee" for purposes of 7(3)(b) must be the same shares that result in the "benefit under or because of the agreement" in 7(3)(a). Paragraph 7(3)(b) only applies to the shares that can be acquired under the stock option.
March 18, 2004

17 March 2004 Miscellaneous 2003-0048931E5 - Taxation of employment benefits of status Indians

Unedited CRA Tags
6(1)(a) 81(1)(a)

Principal Issues: With respect to a status Indian employee whose employment income is tax exempt, how should the following employer-paid amounts be taxed: 1) education assistance 2) maternity/parental leave top-ups to EI benefits

Position: 1) education assistance: some such amounts are not included in income at all. To the extent that such an amount would otherwise be included in income under paragraph 6(1)(a), the amount is taxed in the same manner as the individual's employment income. 2) maternity/parental EI top ups: the amount is taxed in the same manner as the individual's employment income.

Reasons: Consistent with the Indian Act Exemption for Employment Income Guidelines

2003-004893
XXXXXXXXXX Renée Shields
(613) 948-5273
March 17, 2004

9 March 2004 Miscellaneous 2004-0062171E5 - Debt forgiveness rules and foreign affiliates

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

Principal Issues: Whether debt forgiveness rules apply on settlement of loans in foreign affiliate context?

Position: Yes

Reasons: Paragraph 95(2)(g.1)

Suzanie Chua
XXXXXXXXXX (613) 957 2115
2004-006217
March 9, 2004

2004 Miscellaneous 2004-0060191R3 - ATR-Deduct. of Shareholder/Manager Remuneration.

Unedited CRA Tags
67 18(1)(a)

Principal Issues: The deductibility of shareholder/manager remuneration that is paid out of income triggered from the proceeds of a sale of business assets

Position: Remuneration is deductible.

Reasons: Amount is reasonable and incurred for the purpose of earning business income.

2004 Miscellaneous 2004-0056501 - Transfer of Business

Unedited CRA Tags
256(7) 245(2)

Principal Issues: Whether certain amendments to the facts and proposed transactions affect the rulings given in the Ruling.

Position: No.

2004 Miscellaneous 2004-00565010 - Transfer of Business

Unedited CRA Tags
256(7) 245(2)

Principal Issues: Whether certain amendments to the facts and proposed transactions affect the rulings given in the Ruling.

Position: No.

2003 Miscellaneous 2003-0047111 - Corrections - Supplemental

Unedited CRA Tags
XXXXXXXXXX

Principal Issues: Changes requested to ruling letter for errors of a typographical nature

Position: Changes made as requested.

Reasons: Amendments were not material and will not affect the rulings given.

2003 Miscellaneous 2003-00471110 - Corrections - Supplemental

Unedited CRA Tags
XXXXXXXXXX

Principal Issues: Changes requested to ruling letter for errors of a typographical nature

Position: Changes made as requested.

Reasons: Amendments were not material and will not affect the rulings given.

Ruling

2003 Ruling 2003-00347730 - Test Wind Turbine-XXXXXXXXXX

Unedited CRA Tags
XXXXXXXXXX XXXXXXXXXX 1219(3)

Principal Issues:(i) Whether two wind turbines will constitute "test wind turbines" such that costs in respect thereto may potentially be included in XXXXXXXXXX .
(ii) Whether certain shares will be "XXXXXXXXXX ".

Position: (i) Yes, provide certain amendments to the Regulations come into force as proposed and a testing program is conducted as proposed.
(ii) Unable to so rule, however, ruling provide that certain specified factors would not cause the shares to be prescribed shares.

Reasons: (i) Based upon the facts of the situation, the relevant proposed amendments and a written opinion received from Natural Resources Canada.
(ii)Based upon the facts of the situation and the relevant provisions of the Regulations.

2003 Ruling 2003-00372830 - Guarantee Fee 20(i)(e) Treaty Exim Bank

Unedited CRA Tags
18(9.1), 20(i)(e) 214(15)

Principal Issues:

1. Whether a guarantee fee is deductible as a capital expense under 20(1)(e)(ii).
2. Whether the reimbursement of that guarantee fee is a capital receipt to be included under 12(1)(x), subject to an election under subsection 12(2.2).
3. Whether the assumption of the liability to pay a guarantee fee on behalf of someone else under the terms of a conditional sale agreement is deductible under subparagraph 20(1)(e)(ii.1).
4. Whether the guarantee fee paid to the non-resident is deemed to be interest under subsection 214(15).
5. Whether the guarantee fee paid to the Export-Import Bank of the United State is exempt from tax in Canada under paragraph 3(a) of Article XI of the Canada-US Convention.
6. Whether interest paid to a US bank on a loan guaranteed by the Export-Import Bank of the United State is exempt from tax in Canada under paragraph 3(b) of Article XI of the Canada-US Convention

Position:

1. Yes.
2. Yes.
3. Yes.
4. Yes.
5. Yes.
6. Yes

Reasons:

2003 Ruling 2003-0034773 - Test Wind Turbine-XXXXXXXXXX

Unedited CRA Tags
XXXXXXXXXX XXXXXXXXXX 1219(3)

Principal Issues:(i) Whether two wind turbines will constitute "test wind turbines" such that costs in respect thereto may potentially be included in XXXXXXXXXX .
(ii) Whether certain shares will be "XXXXXXXXXX ".

Position: (i) Yes, provide certain amendments to the Regulations come into force as proposed and a testing program is conducted as proposed.
(ii) Unable to so rule, however, ruling provide that certain specified factors would not cause the shares to be prescribed shares.

Reasons: (i) Based upon the facts of the situation, the relevant proposed amendments and a written opinion received from Natural Resources Canada.
(ii)Based upon the facts of the situation and the relevant provisions of the Regulations.

2003 Ruling 2003-0037283 - Guarantee Fee 20(i)(e) Treaty Exim Bank

Unedited CRA Tags
18(9.1), 20(i)(e) 214(15)

Principal Issues:

1. Whether a guarantee fee is deductible as a capital expense under 20(1)(e)(ii).
2. Whether the reimbursement of that guarantee fee is a capital receipt to be included under 12(1)(x), subject to an election under subsection 12(2.2).
3. Whether the assumption of the liability to pay a guarantee fee on behalf of someone else under the terms of a conditional sale agreement is deductible under subparagraph 20(1)(e)(ii.1).
4. Whether the guarantee fee paid to the non-resident is deemed to be interest under subsection 214(15).
5. Whether the guarantee fee paid to the Export-Import Bank of the United State is exempt from tax in Canada under paragraph 3(a) of Article XI of the Canada-US Convention.
6. Whether interest paid to a US bank on a loan guaranteed by the Export-Import Bank of the United State is exempt from tax in Canada under paragraph 3(b) of Article XI of the Canada-US Convention

Position:

1. Yes.
2. Yes.
3. Yes.
4. Yes.
5. Yes.
6. Yes

Reasons: