Income Tax Severed Letters - 2004-04-30


21 April 2004 Ruling 2004-0062961R3 - Partnership At-Risk Amount

Unedited CRA Tags
96(2.2)(c) 96(2.2)(d)

Principal Issues: 1) Whether Put Option (Liquidity Rights) is a 96(2.2)(d) benefit.

Position: Not ruling at this time

Reasons: We are currently studying the Ruling process

2004 Ruling 2004-0067151R3 - ruling-change of facts

Unedited CRA Tags
7 110 6204

Principal Issues: Will the amendment to the facts have any implication on the rulings provided?

Position: No.

Reasons: The changes are not material to the rulings provided.

Technical Interpretation - External

29 April 2004 External T.I. 2004-0066291E5 - Beneficial Ownership of Property

Unedited CRA Tags

Principal Issues: Whether an agreement of purchase and sale results in a change in beneficial ownership of real property at the time the agreement is entered into.

Position: Question of fact.

Reasons: Where an agreement contains a "condition precedent" that remains outstanding, there can be no change in beneficial ownership of a property until such condition precedent is satisfied.

29 April 2004 External T.I. 2004-0059521E5 - Employment at a Special Work Site

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

Principal Issues: The employee is reimbursed by the employer for the cost of a rental car to travel between the employee's temporary boarding location and the employer's office that is located at a special work site. Whether there is any other provision of the Act or administrative policy of the Canada Revenue Agency which would allow for the rental car reimbursement to be excluded from the employee's income as a taxable benefit.

Position: No

Reasons: The rental car is used to travel daily between the employee's temporary boarding location and a special work site of the employer and, therefore, the reimbursement is not exempt from inclusion in employment income as a taxable benefit by virtue of subparagraph 6(6)(b)(i). The reimbursement is not exempt under any other provision of the Act.

29 April 2004 External T.I. 2003-0043571E5 - development charges

Unedited CRA Tags

Principal Issues: whether transfer of land by a developer to a municipality in order that the former may obtain a development permit must be recognized at that time as a barter transaction

Position: not usually

Reasons: caselaw

XXXXXXXXXX Denise Dalphy, LL.B.
(613) 941-1722
April 29, 2004

29 April 2004 External T.I. 2004-0071441E5 - Terminal Charge - Leased Automobile

Unedited CRA Tags

Principal Issues: Whether a terminal charge on a leased automobile should be included in the calculation of a standby charge.

Position: Yes.

Reasons: The amount is part of the employer's cost of leasing the automobile.

29 April 2004 External T.I. 2004-0072191E5 - Automobile "Over-Mileage" Lease Penalty

Unedited CRA Tags
18(1)(a) 67.3

Principal Issues: Whether an automobile over-mileage lease penalty incurred by a business on the return of a leased vehicle to the lessor is deductible in computing business income.

Position: Question of fact.

Reasons: A taxpayer is entitled to deduct the reasonable cost of leasing an automobile to the extent that it is used for the purpose of gaining or producing income from a business. As such, an over-mileage lease payment incurred by a taxpayer in respect of that same automobile is deductible. The over-mileage lease penalty must be included with the other lease costs incurred by the taxpayer in the year to determine the total lease costs that are eligible for a deduction as a result of application of section 67.3 of the Act. Section 67.3 of the Act restricts the amount that may be deducted in respect of leasing costs of an automobile. The total lease costs eligible for a deduction following the application of section 67.3 of the Act is further reduced by the taxpayer's personal use of the automobile, to arrive at the actual lease costs deductible in the year by the taxpayer in computing income from the business.

28 April 2004 External T.I. 2004-0066501E5 - Investment Clubs

Unedited CRA Tags

Principal Issues: 1. Whether modified partnership method extends to Investment Clubs whose members are not all individuals.

Position: 1. No

Reasons: 1. Administrative position only extended to consortium of individual investors per IC73-13; Intention was not to extend beyond those thought to have needed a concession for ease of reporting. Also legal form - re ownership of undivided interest in investments should not be ignored for all investment clubs.

28 April 2004 External T.I. 2004-0061181E5 - Rental partnership Income earned by a non-resident

Unedited CRA Tags
9(1); 115; 212;216

Principal Issues: Whether income earned by partnership is business or property income.

Position: Based on brief description appears to be property income.

Reasons: Question of fact

27 April 2004 External T.I. 2004-0062091E5 F - 55(3)(a)

Unedited CRA Tags
55(2) (55(3)(a) 55(3.01)(a)

Principal Issues: In the given situation, where two sister corporations (S1 and S2) are controlled by the parents of the other shareholders (their children) when (1) the children transfer on a rollover basis part of their S1 shares to S2 (2) S1 transfers assets to S2 for shares of S2 (3) the shares S1 owns in S2 and S2 in S1 are cross-redeemed for notes of equal amounts (4) the notes are set-off and (5) some of S1's children shareholders acquire the S1 shares owned by the other S1 children shareholders, whether 55(3)(a) would apply to exempt the deemed dividends from the application of 55(2), assuming that 55(4) does not apply?

Position: Yes.

Reasons: None of the situations described in 55(3)(a)(i) to (v) seem to occur since S1, S2 and each of the children are not "unrelated persons", as described under 55(3.01)(a)

27 April 2004 External T.I. 2004-0062941E5 - 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 successor expenses are available to offset the proceeds of disposition of the property that are allocated to the partner.

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

26 April 2004 External T.I. 2003-0040151E5 - Bursaries paid to children of deceased veterans

Unedited CRA Tags
56(1)(n) 81(1)(d)

Principal Issues: Would scholarships/bursaries paid under the Children of Deceased Veterans Education Assistance Act be taxable?

Position: No.

Reasons: Paragraph 81(1)(d) of the Income Tax Act exempts from tax an allowance that is subject to (inter alia) the Pension Act. A scholarship or bursary paid under the Children of Deceased Veterans Education Assistance Act fits within this exemption.

26 April 2004 External T.I. 2004-0064471E5 - Attribution Rules

Unedited CRA Tags
74.3(1) 74.1

Principal Issues: How is the allocation made to the individual who has transferred property to a trust in which his spouse is beneficially interested. The trust also has other income and other beneficiaries who are not designated persons.

Position: Rules of 74.3 - income retains its character and is attributed to the transferor only up to the extent the designated person receives income from the transferred property.

Reasons: 74.3

26 April 2004 External T.I. 2004-0058061E5 - Section 80.4 Interest Benefit

Unedited CRA Tags

Principal Issues: 1. Are amounts paid by an employer for interest included in the calculation of a taxable benefit pursuant to section 80.4 deductible for the employer?
2. Is the method of calculating the section 80.4 benefit used by the correspondent correct?

Position: 1. Generally yes, if employee remuneration is otherwise deductible.
2. No.

Reasons: 1. Question of fact.
2. The method used in the spreadsheet does not follow the provision.

23 April 2004 External T.I. 2004-0057231E5 - Premium Deductible under 146(5)

Unedited CRA Tags
146(1) 146(5)

Principal Issues: Are mortgage payments made by the annuitant to the RRSP on a mortgage held by the RRSP considered to be premiums and therefore deductible under 146(5) of the Act.

Position: NO they are not premiums and therefore not deductible.

Reasons: They would be considered mortgage payments and not premiums. Based on the definition of premium in 146(1) of the Act.

23 April 2004 External T.I. 2003-0012351E5 - PHSP's

Unedited CRA Tags
248(1) 20.01

Principal Issues: general discussion of attributes of PHSP

Position: general responses given

Reasons: more specific responses are question of fact

22 April 2004 External T.I. 2004-0056251E5 - The writing of a covered call option by an RRSP.

Unedited CRA Tags

Principal Issues: Whether an RRSP trust can write a covered call option.

Position: Generally yes.

Reasons: The writing of a covered call option by a plan trust results only in cash being received by the trust which, if it is legal tender in Canada, is a qualified investment under the definition of this term in subsection 146(1) of the Income Tax Act

22 April 2004 External T.I. 2004-0056461E5 - Proration rule for employment income on reserve.

Unedited CRA Tags

Principal Issues: Whether a status Indian residing full-time on a reserve is entitled to a partial exemption on employment income if, as a community consultant for aboriginal relations, some of her employment duties take place on reserve

Position: Question of fact.

Reasons: When less than 90% of the duties are performed on a reserve and none of the other Guidelines apply, the portion that is performed on a reserve is exempt from tax under the "proration rule".

21 April 2004 External T.I. 2004-0061651E5 - Interest deductibility; inventory

Unedited CRA Tags
20(1)(c); 18(2) 10(1.1)

Principal Issues: whether land developers can add interest to the cost of the land

Position: yes

Reasons: longstanding position

XXXXXXXXXX Denise Dalphy, LL.B.
(613) 941-1722
April 21, 2004

Technical Interpretation - Internal

28 April 2004 Internal T.I. 2004-0067561I7 F - Impôt de la partie I.3

Unedited CRA Tags

Principales Questions: Peut-on annuler l'impôt de la partie I.3 de la Loi en s'appuyant sur le paragraphe 10 du bulletin d'interprétation IT-474?

Position Adoptée: Non

Raisons: Il ne s'agit pas d'une conséquence non désirée de l'alinéa 87(2)a) de la Loi.

28 April 2004 Internal T.I. 2004-0071331I7 F - Régime d'investissement coopératif du Québec

Unedited CRA Tags
12(1)x) 53(2)k)

Principales Questions: Les alinéas 12(1)x) et 53(2)k) de la Loi s'appliquent-t-ils à une déduction dans le calcul du revenu imposable déterminé en vertu de la Loi sur les impôts (Québec)?

Position Adoptée: Non

Raisons: L'énumération qui est faite aux alinéas 12(1)x) et 53(2)k) de la Loi n'englobe pas une déduction lors du calcul du revenu imposable d'un contribuable.

28 April 2004 Internal T.I. 2004-0072621I7 - Paragraph 67.1(2)(f).

Unedited CRA Tags
67.1(1) 67.2(2)(f) 8(1)(f) 8(4)

Principal Issues: Whether paragraph 67.1(2)(f) of the Act applies is respect of an event held for individuals who are not employees of the particular person.

Position: No.

Reasons: Paragraph 67.1(2)(f) of the Act requires that the individuals consuming the food or beverages or enjoying entertainment be employed by the person.

15 April 2004 Internal T.I. 2003-0052311I7 - Business Income Earned by a Status Indian

Unedited CRA Tags

Principal Issues: Will business income earned from the hauling of material both on and off reserve, be exempt from income tax where it is earned by a status Indian living on reserve?

Position: In this particular case, yes

Reasons: Based on the relevant connecting factors, the business income earned by the taxpayer is determined to be strongly connected to the reserve because all of the customers are located on reserve and the majority of the hauling activities are performed either to the reserve or from the reserve such that the business income would be considered tax-exempt for purposes of paragraph 81(1)(a) of the Income Tax Act.