Income Tax Severed Letters - 2004-05-21

Miscellaneous

18 May 2004 Miscellaneous 2004-0069691E5 F - Incorporation des professionnels

Unedited CRA Tags
98(3), 34, 40(1), 40(2), 98(5), 249.1

Principales Questions: 1. Dans la situation où les associés reçoivent un droit indivis dans le travail en cours dans le cadre de l'application du paragraphe 98(3) de la Loi et que, par la suite ils transfèrent ce droit à une société en franchise d'impôt en vertu du paragraphe 85(1) de la Loi, qui des associés ou de la société devra s'imposer sur le travail en cours existant au moment du transfert sachant que le choix de l'article 34 de la Loi a été effectué par la SENC ?
2. Est-ce qu'une société appartenant à un ou des comptables peut se prévaloir du choix de l'article 34 de la Loi dans le cas où elle exploite une entreprise d'insolvabilité?
3. Est-ce que les associés, qui sont tous des particuliers, d'une SENC peuvent bénéficier d'une réserve pour le gain en capital en vertu du sous-alinéa 40(1)a)(iii) de la Loi dans la situation où ils vendent leur participation à une société et qu'une partie du produit de disposition ne leur est payable qu'après la fin de l'année où a eu lieu la disposition?
4. Est-ce qu'une société professionnelle devra adopter le 31 décembre comme date de fin d'exercice au moment où les associés d'une SENC lui transfèrent tour à tour leur participation dans cette dernière et que la SENC est par la suite liquidée selon les dispositions du paragraphe 98(5) de la Loi ?.

Position Adoptée: 1. La société
2. Non
3. Oui, à moins qu'un des associés soit un actionnaire qui contrôle la société immédiatement après la vente.
4. Oui

Raisons: 1. Le coût indiqué du travail en cours est nul pour la SENC immédiatement avant l'attribution aux associés et, par conséquent, le coût du droit indivis de chaque associé dans le travail en cours est égal à zéro en vertu de l'application du sous-alinéa 98(3)b)(i) de la Loi. Les associés peuvent donc transférer leur droit indivis dans le travail en cours au coût indiqué à la société en se prévalant des dispositions de roulement prévues au paragraphe 85(1) de la Loi. L'imposition du travail en cours se fera au moment de la facturation par la société.
2. En ce qui a trait aux comptables, nous sommes d'avis qu'une société qui exploite une entreprise d'insolvabilité, qui est une entreprise distincte et non une activité accessoire au sein d'une société exploitant également une entreprise qui consiste en l'exercice de la profession de comptable, n'est pas une entreprise consistant en l'exercice de la profession de comptable selon le sens général applicable au terme " comptable ". De plus, une entreprise d'insolvabilité peut être exploitée par des personnes qui ne sont pas des comptables. Il n'est pas nécessaire d'être comptable pour obtenir une licence de syndic selon les critères de qualification établis par l'Instruction sur la délivrance des licences de syndic (Instruction no. 13) émise par le Bureau du surintendant des faillites Canada.
3. Puisque le contribuable est un particulier, nous sommes d'avis que seule la division 40(2)a)(ii)(A) de la Loi pourrait trouver application si la société était contrôlée par un des anciens associés maintenant devenu actionnaire immédiatement après la vente.
La division 40(2)a)(ii)(B) de la Loi n'est pas applicable puisque le contribuable est un particulier et non la SENC et la division 40(2)a)(ii)(C) de la Loi ne peut s'appliquer puisque le contribuable est un particulier et non une société.
4. Puisque la société professionnelle aura été un associé de la SENC au cours de son exercice, le sous-alinéa 249.1(1)b)(iii) de la Loi s'appliquera à la société professionnelle dans la situation présentée.

17 May 2004 Miscellaneous 2004-0073811E5 - Deferred Salary Leave Plan - Postponement

Unedited CRA Tags
6801(a)(i)

Principal Issues:
Whether a participant in a DSLP can postpone his/her leave of absence?

Position:
Yes, if the deferral period does not exceed 6 years.

Reasons:
The Act and previous positions.

14 May 2004 Miscellaneous 2003-0054581E5 - Stock Option for Independent Contractors

Unedited CRA Tags
9(1)

Principal Issues: What is the tax treatment of stock options granted to a taxpayer who is engaged as an independent contractor?

Position: At the time the options are granted, the taxpayer may have to include an amount as business income pursuant to subsection 9(1) of the Act. At the time the options are exercised, it may have an other inclusion in the business income.

Reasons: Application of subsection 9(1). The determination of whether an amount is a business income is a question of fact.

14 May 2004 Miscellaneous 2004-0063131E5 - Self-Employed-Deduction of Specialized Clothing

Unedited CRA Tags
Reg. Schedule II Class 8(i) Reg. 1100(1)(a)(viii) 18(1)(h)

Principal Issues: Whether a self-employed personal trainer can deduct the cost of specialized gymnasium clothing as a business expense.

Position: Question of fact.

Reasons: Expenses incurred by an individual to purchase clothing are considered to be "personal and living expenses", which are not deductible in computing business income pursuant to paragraph 18(1)(h) of the Act. However, a self-employed individual earning business income may be permitted to claim capital cost allowance in respect of certain clothing and costumes, provided they are usable only for business purposes. For example, a wardrobe acquired by an artist specifically to earn self-employment income and which is used solely for that purpose, would be included in Class 8. Since gymnasium clothing is generally usable for personal purposes, the self-employed individual is not entitled to any deduction in respect of its cost in computing business income under the Act.

13 May 2004 Miscellaneous 2003-0051951E5 F - Course automobile amateur

Unedited CRA Tags
9(2) 3.1

Principales Questions: Est-ce qu'un contribuable peut déduire des pertes réalisées d'une activité de course automobile amateur dans le calcul de son revenu ?

Position Adoptée: Aucune

Raisons: Discussion générale, question de fait.

12 May 2004 Miscellaneous 2004-0072951E5 F - Ristournes versées dans un REÉR

Unedited CRA Tags
135(3)

Principales Questions: Un contribuable a-t-il à retenir ou déduire 15% du montant visé à l'article 135 de la Loi lorsqu'il effectue ledit paiement à une personne exonérée d'impôt en vertu de l'article 149 de la Loi?

Position Adoptée: Non.

Raisons: Texte de la Loi.

2004-007295
XXXXXXXXXX Michelle Desrosiers,
Notaire M.Fisc.
Le 12 mai 2004

12 May 2004 Miscellaneous 2004-0065281E5 - Subsection 20(8)

Unedited CRA Tags
20(8) 20(1)(n)

Principal Issues: Will the transitional relief discussed in the October 9, 2003, comfort letter from the Department of Finance apply to the proposed amendments to subsection 20(8) announced on December 20, 2002?

Position: No comments provided.

Reasons: No further amendments to the Act have been proposed to implement the transitional relief.

12 May 2004 Miscellaneous 2003-0052321E5 - Specified Partnership Income

Unedited CRA Tags
125(7) 125(6.1)

Principal Issues: Are we in agreement with the calculation of a particular corporation's specified partnership income, as defined in subsection 125(7) of the Act, for a hypothetical tiered partnership structure.

Position: We agree with the calculation.

Reasons: Subsection 125(6.1) provides that, for purposes of the provisions in section 125, a corporation that is a member (or deemed to be a member under subsection 125(6.1)) of a partnership which in turn is a member of another partnership shall be deemed to be a member of the other partnership and its share of income therefrom shall be deemed to be the amount to which it is directly or indirectly entitled through those partnerships of which it is a member.

7 May 2004 Miscellaneous 2003-0024401E5 - Intervivos transfer of farm property

Unedited CRA Tags
73(3)

Principal Issues: Whether subsection 73(3) of the Act would apply to a particular situation.

Position: Likely yes.

Reasons: Question of fact, but requirements of subsection 73(3) appear to have been met

7 May 2004 Miscellaneous 2004-0063401I7 - Info. Reporting Requirements for Commissions

Unedited CRA Tags
153(1)(a) 153(1)(g) Regulation 200(1)

Principal Issues: The information reporting requirements for commissions paid to insurance brokers and real estate salespersons.

Position: Question of fact.

Reasons: The information reporting requirements for a person paying commissions depends on whether the amount is paid to an employee in a "contract of service" or an independent contractor in a "contract for service". The payment of commissions under a "contract of service" is "remuneration" for purposes of paragraph 153(1)(a). The payment of commissions pursuant to a "contract for service" is included under paragraph 153(1)(g). Therefore, commissions paid to insurance brokers and real estate agents who are employees are reported on a T4 slip, and commissions paid to those who are independent contractors are reported on a T4A slip.

29 April 2004 Miscellaneous 2003-0025221E5 - Trusts under the Canada-US Convention

Principal Issues: The application of the Canada-US convention to grantor trusts.

Position: Various issues, see memo

28 April 2004 Miscellaneous 2004-0069661I7 - Replacement Property Rules

Unedited CRA Tags
13(4) 44(1)

Principal Issues: Whether the taxpayer could elect under the replacement property rules on a voluntary disposition.

Position: In this situation, no.

Reasons: For voluntary dispositions, a replacement property must be acquired before the end of the first taxation year following the year of disposition of the former property.

28 April 2004 Miscellaneous 2004-0072611E5 - Biogas system - CRCE?

Unedited CRA Tags
Reg 1219 Class 43.1 Reg 1104(13)

Principal Issues: Whether costs of feasibility study for a project involving co-generation of electricity, with methane gas produced in an anaerobic digester from dairy cow manure being one of the fuels utilized, may qualify as CRCE.

Position: Would not appear to qualify.

Reasons: Methane gas produced in the above manner would not be a fuel specified in clause (c)(i)(A) to Class 43.1 as it would not appear to qualify as "digester gas" as defined in subsection 1104(13) of the Regulations.

20 April 2004 Miscellaneous 2003-0049881E5 - Tuition and Education Tax Credit

Unedited CRA Tags
118.5(1)(a) 118.6(1)

Principal Issues: Whether a particular University in Canada can issue a T2202A for purposes of the tuition and education credit given the circumstances surrounding the particular situation.

Position: Likely not for the tuition credit, but a qualified yes for purposes of the education credit

Reasons: Education Credit: Provided the student meets the requirements of 118.6(1) and is a student enrolled in a qualifying or specified educational program at a designated educational institution - as it is our general opinion that this requirement can be met by a student taking the required courses at a designated educational institution or by correspondence, the fact that a student is trained in the program abroad should not, in and of itself, disqualify the program for purposes of the education credit; Tuition Credit: The tuition fees are paid by the students to a separate organization, the tuition fees are not paid to the University as required by 118.5(1)(a), but still a question of fact.

2003-004988
XXXXXXXXXX Kimberly Duval
(613) 957-8982
April 20, 2004

20 April 2004 Miscellaneous 2004-0064581M4 - Retiring Allowances

Unedited CRA Tags
60(j.1) 56(1)(a) 100(3)

Principal Issues: How is a payment of a retiring allowance treated for tax purposes.

Position: It is a question of fact whether a payment is a retiring allowance. Discussed the tax implications of a retiring allowance.

Reasons: Provisions of the ITA

6 April 2004 Miscellaneous 2004-0068221E5 - Debt Guaranteed by a Mutual Fund Trust

Unedited CRA Tags
132(6)

Principal Issues: Would a trust still meet the conditions of 132(6) and qualify as a MFT after having guaranteed a debt of a corporation held indirectly by a partnership (70% interest in the partnership)? The following facts were considered to be important in making that determination: (i) the only reason why the guarantee was provided was to enable the corporation to file a short form prospectus by being guaranteed by a public entity; (ii) the partnership commited to compensate the trust should it be requiered to honour the guarantee; (iii) the minority interests in the partnership can be converted in trust units issued by the MFT or be sold to the MFT.

Position: The trust will still meet the conditions of 132(6) after having provided the guarantee.

Reasons: In light of the facts described above, the guarantee ought to be viewed as incidental to, or part of, the Fund's investment.

2004 Miscellaneous 2003-0053041R3 - Employee Benefit Plan

Unedited CRA Tags
6(1)(g) 32.1

Principal Issues: Whether the proposed trust constitutes an EBP.

Position: Yes.

Reasons: The trust is structured as an EBP. In particular, the shares to be distributed to the employees under the trust will always be acquired on the open market by the trustee. The trust is established in connection with the specific employer's performance incentive plan ("the Program") for its employees as described herein. In order to reach this conclusion, it was necessary to determine that the Program is not a "salary deferral arrangement". As the terms of the Program would exclude it from being a salary deferral arrangement as defined in subsection 248(1) by virtue of paragraph (k) thereof, it was not necessary for us to make a determination as to whether the terms of the Program would result in it otherwise constituting a salary deferral arrangement.

XXXXXXXXXX 2003-005304

2004 Miscellaneous 2003-0047911R3 - XXXXXXXXXX - 55(3)(a)

Unedited CRA Tags
55(3)(a)

Principal Issues: Application of the exception from subsection 55(2) provided by paragraph 55(3)(a).

Position: Favourable Rulings given.

Reasons: The law.

2004 Miscellaneous 2004-0060711R3 - Public spin-off

Unedited CRA Tags
55(3)(b)

Principal Issues: Routine public butterfly.

Position: Favourable rulings given.

Reasons: Meets the requirements under paragraph 55(3)(b).

2004 Miscellaneous 2003-0052151R3 - Gross Asset Butterfly

Unedited CRA Tags
55(3)(b) 55(2)

Principal Issues: Standard Gross Asset Butterfly.

Position: Favourable Rulings Given.

Reasons: Meets the requirements of the law.

4 May 2004 Miscellaneous 2004-0065481C6 - Deductibility of interest to acquire common shares

Unedited CRA Tags
20(1)(c)

Principal Issues: Will the "reasonable expectation of profit" Department of Finance draft proposals apply to deny a loss that results from the deduction of interest on money borrowed to acquire common shares?

Position: CRA is not in a position to comment until the public consultation process is completed and the final amendments become law.

Reasons: Draft Legislation is the responsibility of the Department of Finance