Income Tax Severed Letters - 2004-06-04

Miscellaneous

4 June 2004 Miscellaneous 2004-0071951I7 - Capital vs. income

Unedited CRA Tags
9(1)

Principal Issues: Request to review the taxpayer's representations and to advise the TSO if such representations affect our view expressed in 2003-001100 that the receipt of the contract termination payment is on account of income.

Position: The receipt of the contract termination payment is on account of income.

Reasons: The payment did not destroy or material cripple the taxpayer's business and the payment was calculated based on lost future profits.

3 June 2004 Miscellaneous 2004-0070031E5 - Retiring Allowance - re-employment

Unedited CRA Tags
248(1) 60(j.1)

Principal Issues: Can a person who retires and is rehired subsequently by the previous employer, receive a retiring allowance upon retirement?

Position: No, if the person knew that he would be working for the previous employer at the time of retirement.

Reasons: Interpretation of "loss of an office or employment" in the definition of "Retiring Allowance".

3 June 2004 Miscellaneous 2004-0068081E5 F - Allocation de retraite - Employeurs liés

Unedited CRA Tags
60j.1)

Principales Questions: Un employeur est-il lié à un autre employeur aux fins de l'alinéa 60j.1) de la Loi?

Position Adoptée: Oui, si le temps passé au service de l'ancien employeur est reconnu par l'employeur actuel pour établir les prestations de retraite de l'employé.

Raisons: Le sous-alinéa 60j.1)(v) de la Loi.

2 June 2004 Miscellaneous 2004-0070021E5 - Special Work Site Exemption

Unedited CRA Tags
6(6)

Principal Issues: Whether subsection 6(6) of the Act would apply if the taxpayer decided to rent either the top or bottom portion of his house. In the situation presented the bottom portion of the house was previously rented, however, the taxpayer currently uses a portion of it as an office. The taxpayer has lived in the top portion of the house since it was acquired.

Position: No.

Reasons: For the special work site exclusion to apply, one of the requirements is that, throughout the period the duties of the office or employment are performed at the work location, the taxpayer maintains at another location a self-contained domestic establishment as the taxpayer's principal place of residence. In addition, the self-contained domestic establishment must be available for the taxpayer's occupancy and not rented by the taxpayer to any other person. In determining the application of subsection 6(6) of the Act in the context of this situation, consideration must be given to the availability of the taxpayer's principal place of residence both prior to and subsequent to the temporary work assignment at the special work site. It is apparent that the taxpayer currently maintains the entire house as the principal place of residence. It would seem that the taxpayer merely wants to temporarily rent a portion of the house during his assignment at the special works site and also obtain the beneficial tax treatment under subsection 6(6) of the Act. Such an arrangement will not qualify for the exemption under subsection 6(6) of the Act.

1 June 2004 Miscellaneous 2004-0077171I7 - Shareholder Loans

Unedited CRA Tags
15(2) 15(2.4)

Principal Issues: Does the issuance of a new promissory note constitute a novation of the original promissory note such that subsection 15(2) of the Act will apply to the new loan/indebtedness?

Position: Yes.

Reasons: The issuance of a new promissory note, which replaces an existing promissory note, results in a new loan. The application of subsection 15(2) of the Act is determined whenever a shareholder receives a loan or becomes indebted to a corporation.

1 June 2004 Miscellaneous 2004-0065161E5 - Rollover of 401(k) or IRA to RRSP

Unedited CRA Tags
56(1)(a) 60(j)

Principal Issues: 1) Can a taxpayer transfer her benefit from a U.S. 401(k) plan to her RRSP on a tax-deferred basis? 2) Can a taxpayer transfer a 401(k) benefit to a U.S. IRA and then transfer the IRA benefit to her RRSP on a tax-deferred basis?

Position: Question of fact, but subject to meeting the conditions in the Act, yes. General comments provided.

Reasons: 1) A 401(k) plan is accepted by the Agency as a US retirement or pension plan. As such, it can qualify for the roll-over treatment available under subparagraph 60(j)(i) provided the conditions described therein are met. 2) An IRA is a "prescribed plan" under section 6803 of the Regulations. As such, subject to satisfying the conditions described in the definition of "eligible amount" in section 60.01 it can qualify for the roll-over treatment available under subparagraph 60(j)(ii).

2004-006516
XXXXXXXXXX Renée Shields
(613) 948-5273
June 1, 2004

1 June 2004 Miscellaneous 2004-0069811E5 - Free Tuition For An Employee's Dependant

Unedited CRA Tags
6(1)(a)

Principal Issues: In a factual situation, whether the FCA decision in Guay would apply to exclude from employment income free tuition for an employee's child.

Position: No.

Reasons: The outcome of the FCA decision in Guay will only be applied in situations that are identical. As a general rule such benefits are included in an employee's income under paragraph 6(1)(a) of the Act.

1 June 2004 Miscellaneous 2004-0073441E5 F - Transfert d'un REÉR au décès

Unedited CRA Tags
146(16) 248(23.1) 146(1) 60(l)

Principales Questions: 1) Les dispositions du paragraphe 146(16) de la Loi s'appliquent-elles pour permettre un transfert après le décès du rentier d'un REÉR en faveur du conjoint survivant en règlement des droits à la prestation compensatoire qui ont été déterminés avant le décès du contribuable? 2) Sinon, peut-on considérer ce montant comme un remboursement de primes?

Position Adoptée: 1) Non; 2) Seulement si toutes les conditions prévues aux dispositions pertinentes sont rencontrées.

Raisons: 1) Cette disposition ne s'applique pas dans le cadre d'un décès. 2)Le REÉR doit être versé directement au conjoint survivant ou le choix au paragraphe 146(8.1) doit être produit selon le cas.

1 June 2004 Miscellaneous 2004-0074161I7 - Hong Kong pension plan

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

Principal Issues:
Whether a lump sum payment from an Hong Kong pension plan can be transferred to an RRSP?

Position:
Based on the facts, the lump sum seems to be a superrannuation or pension benefit and the amount could have been transferred to an RRSP subject to the limits of paragraph 60(j).

Reasons:
Previous positions

1 June 2004 Miscellaneous 2004-0076151E5 - Section 80.4 Interest Benefit

Unedited CRA Tags
80.4 9

Principal Issues: 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?

Position: Generally yes, if employee remuneration is otherwise deductible.

Reasons: Question of fact.

31 May 2004 Miscellaneous 2004-0077341I7 F - Déduction de 110(1)d) de la Loi

Unedited CRA Tags
110(1)d)

Principales Questions: Quels sont les critères applicables à la déduction prévue à l'alinéa 110(1)d) de la Loi?

Position Adoptée: Voir texte de Loi.

Raisons: Texte de la Loi.

31 May 2004 Miscellaneous 2004-0066611E5 - Medical Travel expenses

Unedited CRA Tags
118.2

Principal Issues: 1. Are expenses incurred by individual for medical treatment at a XXXXXXXXXX clinic valid medical expenses?

Position: 1. Amounts paid for actual health care- while question of fact, appear to be deductible; amounts paid for medical travel are also valid if preconditions are met--once again it is a question of fact.

Reasons: 1. Amounts paid for medical services appear to meet conditions of 118.2(2)(a); amounts paid for medical travel--also appear to meet preconditions of 118.2(2)(g)--however client may be required to validate with certificate from local doctor that alternative treatment was required by the patient and was not available locally.

31 May 2004 Miscellaneous 2003-0051971E5 F - Notion de capital aux fins de 20(1)c) de la Loi

Unedited CRA Tags
20(1)c)

Principales Questions: Quelle est la mesure du capital aux fins de 20(1)c): 1) lorsque des actions émises en contrepartie d'autres actions ont, en raison du paragraphe 85(2.1) de la Loi, un capital versé supérieur au capital déclaré des actions transférées? 2) lorsque le capital légal est augmenté d'un montant égal au revenu protégé consolidé?

Position Adoptée: 1) et 2) Question de fait.

Raisons: 1) et 2) Le capital déclaré est généralement la mesure lorsque le capital a été employé pour gagner du revenu d'entreprise comme dans l'arrêt Trans-Prairie Pipelines Ltd.

31 May 2004 Miscellaneous 2004-0074381E5 F - Créance: calcul des intérêts

Unedited CRA Tags
12(9) 20(21) 7000(1) 16(3)

Principales Questions: Comment calculer les intérêts sur des obligations?

Position Adoptée: Explications des règles

Raisons: Texte de la Loi et du Règlement.

31 May 2004 Miscellaneous 2004-0055141E5 F - Vente de bien à un actionnaire

Unedited CRA Tags
15(1)

Principales Questions: À quel prix une société doit-elle vendre un immeuble qu'elle a construit à son actionnaire?

Position Adoptée: Si la société ne veut pas conférer un avantage à son actionnaire qui serait imposable selon le paragraphe 15(1) de la Loi, la société doit vendre l'immeuble à la juste valeur marchande. Nous ne pouvons pas indiquer quelle est la juste valeur marchande dans la situation présentée.

Raisons: La détermination de la juste valeur marchande est une question de fait sur laquelle notre Direction ne se prononce pas.

28 May 2004 Miscellaneous 2004-0066251E5 - Replacement Property Rules

Unedited CRA Tags
13(4.1) 44(5) 13(4) 44(1)

Principal Issues: (a) Whether a particular property acquired by the taxpayer would be a replacement property if the disposition of the former business property occurred three to five years after the acquisition of the particular property, (b) Whether a particular property acquired by the taxpayer would be a replacement property if it was acquired from a related party, and (c) Whether a particular property acquired by the taxpayer would be a replacement property if it was acquired by virtue of a subsection 85(1) rollover.

Position: Question of fact.

Reasons: Paragraphs 13(4.1)(a) and 44(5)(a) of the Act require that it must be reasonable to conclude that the property was acquired by the taxpayer to replace the former property. To satisfy this requirement, there must be some correlation or direct substitution, that is, a causal relationship between the disposition of a former property and the acquisition of the new property or properties. On this basis, it would be difficult to conclude that a property acquired several years prior to the disposition of the former property is in fact a replacement property. Therefore, in (a) the particular property will not likely be considered a replacement property. With respect to (b), a taxpayer is not precluded from benefiting from the application of the replacement property rules because the property acquired as a replacement was acquired from a non-arm's length person, but other provisions of the Act, such as section 69, must be considered. With respect to (c) we do not have a general position on the application of the replacement property rules where the property acquired as a replacement was acquired by way of a subsection 85(1) rollover; a determination of whether the replacement property rules apply in such a situation can only be made after a complete review of all the facts and documentation surrounding the particular situation.

28 May 2004 Miscellaneous 2004-0064291I7 F - Paiement de dépenses

Unedited CRA Tags
60b), 60.1(1), 60.1(2), 56(12)

Principales Questions: Les paiements faits par Monsieur pour des dépenses afférentes au domicile conjugal se qualifient-ils à titre de pension alimentaire pour les années XXXXXXXXXX et XXXXXXXXXX ?

Position Adoptée: Non

Raisons: Les paiements faits par Monsieur à des tiers pour des dépenses afférentes au domicile conjugal n'ont pas tous les attributs d'une pension alimentaire, i.e. un montant que Madame peut utiliser à sa discrétion. De plus, le texte de l'entente ne prévoit pas l'application des paragraphes 56.1(2) et 60.1(2) de la Loi auxdits paiements.

27 May 2004 Miscellaneous 2003-0031231E5 F - Actions visées par règlement-gel successoral

Unedited CRA Tags
110.6(8) 6205(2) du Règlement

Principales Questions: Est-ce que les actions privilégiées émises à des frères lors d'un gel successoral en faveur de fiducies sont des actions visées par règlement pour l'application des paragraphes 110.6(8) et(9) de la Loi?

Position Adoptée: En prenant comme hypothèse que les actions ordinaires émises aux fiducies sont des actions visées par règlement selon le paragraphe 6205(1) du Règlement et que l'arrangement n'a qu'un but soit l'accroissement de la valeur des biens de la société en faveur de ces actions ordinaires, les actions privilégiées émises aux frères seraient des actions visées par règlement dans la situation particulière.

Raisons: Dans cette situation particulière, chacune des fiducies a un lien de dépendance avec tous les frères, détenteurs des actions privilégiées, selon l'alinéa 251(5)b) de la Loi, en raison des personnes qui ont un droit de bénéficiaire dans chacune des fiducies. Par conséquent, les autres actions sont détenues par des personnes (les fiducies) qui ont un lien de dépendance avec les premiers actionnaires (les frères) tel que prévu à la subdivision 6205(2)a)(ii)(A)(II) du Règlement.

27 May 2004 Miscellaneous 2004-0069771I7 - Personal-use Property-land vs building

Unedited CRA Tags
54 40(2)(g)(iii)

Principal Issues: Whether land and a building (or other structure) thereon should considered two (2) separate properties where they are used for personal purposes.

Position: No.

Reasons: Under property law, any property attached to land becomes part of the land. Nothing in the Act provides that land and buildings (or other structures) thereon that are used for personal purposes should be considered two (2) separate properties. Subsection 1102(2) of the Regulations does not apply to a property that is not "depreciable property".

26 May 2004 Miscellaneous 2004-0072661E5 - Structured settlement - direction

Unedited CRA Tags
56(1)(d)

Principal Issues: Can a claimant direct another person from time to time to receive the structured settlement annuity payments after the claimant's death?

Position: Yes, provided document states this and issuer is informed

Reasons: Naming a new person during the claimant's lifetime in a structured settlement arrangement is similar to changing a beneficiary within a regular annuity during the lifetime of the claimant.

26 May 2004 Miscellaneous 2004-0067081E5 - Board & Lodging Allowance-Special Work Site

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

Principal Issues: Whether a board and lodging allowance can be excluded as a taxable benefit if the employee owns two self-contained domestic establishments, one of which is in the vicinity of the special work site.

Position: Question of fact.

Reasons: Where an employee maintains another self-contained domestic establishment in the vicinity of the special work site, the exclusion in paragraph 6(6)(a) in respect of an allowance paid for board and lodging may still apply, provided that particular self-contained domestic establishment is not the employee's principal place of residence. The determination of which self-contained domestic establishment is the employee's principal place of residence will always be a question of fact. However, an employee may only have one principal place of residence. Where the employee's family resides is a persuasive, although not a conclusive factor in determining which self-contained domestic establishment is the employee's principal place of residence. Provided all of the above requirements are met, a reasonable allowance is respect of board and lodging expenses incurred by an employee who is away from his or her principal place of residence is exempt from inclusion in the employee's income by virtue of paragraph 6(6)(a).

25 May 2004 Miscellaneous 2004-0073241M4 - Scholarships income

Unedited CRA Tags
56(1)(n)

Principal Issues: The taxpayer requests the Minister rescind the tax liability relating to scholarship income received by a student.

Position: The CRA is unable to rescind the tax liability.

Reasons: The income and related tax are properly determined within the provisions of the Act.

25 May 2004 Miscellaneous 2003-0050451E5 - Retiring Allowance or Employment Income

Unedited CRA Tags
248(1) 56(1)(a)

Principal Issues: Will a payment made pursuant to a settlement agreement be taxed as a retiring allowance or employment income when the settlement amount is pensionable income?

Position: Employment income

Reasons: The CRA's view is that the accrual of pension benefits indicates that an employment relationship continues to exist, such that the amount would be taxed as employment income.

25 May 2004 Miscellaneous 2003-0053761E5 - Dance costumes provided to students - NPO

Unedited CRA Tags
149(1)(l)

Principal Issues: Whether the provision of dance costumes to members or persons related to members of an association would result in the association ceasing to meet the provisions of paragraph 149(1)(l) of the Act.

Position: Question of fact

Reasons: Paragraph 149(1)(l) does not allow any part of an NPO's income to be distributed for the personal benefits of the NPO's members. In our view, the provision of dance costumes to students through fundraising initiatives, would not, in and of itself, jeopardize the status of the association as an NPO, as long as the costumes are provided in accordance with the association's mandate.

2003-005376
XXXXXXXXXX Kimberly Duval
(613) 957-8982
May 25, 2004

25 May 2004 Miscellaneous 2004-0068451M4 - Fishing income earned by status Indian

Unedited CRA Tags
81(1)(a0

Principal Issues: Whether a status Indian's income from commercial fishing is exempt from income tax.

Position: Question of fact.

Reasons: The fishing income will be exempt only if the waters in which the fishing occurs is on reserve, by virtue of the exemption in the Indian Act for "the personal property of an Indian or bank situated on a reserve".

20 May 2004 Miscellaneous 2004-0069841M4 F - Zone intermédiaire - 110.7

Unedited CRA Tags
110.7 7303.1(2) du Règlement

Principales Questions: Est-ce que la réserve d'Obedjiwan fait partie de la zone intermédiaire visée par règlement aux fins de l'article 110.7 de la Loi?

Position Adoptée: La réserve d'Obedjiwan ne fait pas partie de la zone intérmédiaire visée par règlement.

Raisons: Elle n'est pas comprise dans les zones mentionnées au paragraphe 7303.1(2) du Règlement car elle n'est pas située suffisamment au nord.

13 May 2004 Miscellaneous 2003-0047991I7 - Refundable ITC

Unedited CRA Tags
127.1(2) 125(5.1)

Principal Issues: Whether a corporation is a qualifying corporation where both its taxable income and business limit are nil for the preceding year.

Position: No.

Reasons: Business limit is eliminated because its taxable capital employed in Canada exceeds $15 million

2004 Miscellaneous 2004-0075221R3 - 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.

Administrative Letter

1 June 2004 Administrative Letter 2004-0076152E5 - Section 80.4 Interest Benefit

Unedited CRA Tags
80.4 6

Principal Issues: Is the method of calculating the section 80.4 benefit used by the correspondent correct?

Position: No.

Reasons: The method used does not follow the provision.

2004 Administrative Letter 2003-0027252R3 - Distributions to NPO Members

Unedited CRA Tags
149(1)(l)

Principal Issues: Will proposed amendments to the bylaws of a non-profit organization (NPO) allowing for the distribution of profits to its members affect its NPO status under paragraph 149(1)(l) of the Act?

Position: Yes

Reasons: The CRA does not object to the proposed amendment to the bylaws; however, the NPO will no longer meet the requirements of paragraph 149(1)(l) and will become subject to tax under Part I of the Income Tax Act.

Ruling

2004 Ruling 2003-0027251R3 - Distributions to NPO Members

Unedited CRA Tags
149(1)(l)

Principal Issues: Will proposed amendments to the bylaws of a non-profit organization (NPO) allowing for the distribution of profits to its members affect its NPO status under paragraph 149(1)(l) of the Act?

Position: Yes

Reasons: The CRA does not object to the proposed amendment to the bylaws; however, the NPO will no longer meet the requirements of paragraph 149(1)(l) and will become subject to tax under Part I of the Income Tax Act.

2003 Ruling 2003-00418330 - Loss Utilization in a Related Group

Unedited CRA Tags
88(1) 55(3)(a)

Principal Issues: Loss utilization in a related group of companies.

Position: The loss utilization is acceptable.

Reasons: The loss utilization involves a reorganization of related companies such that various loss companies become partners in a partnership thus enabling them to set off gains and losses within the group of companies.

2003 Ruling 2003-0041833 - Loss Utilization in a Related Group

Unedited CRA Tags
88(1) 55(3)(a)

Principal Issues: Loss utilization in a related group of companies.

Position: The loss utilization is acceptable.

Reasons: The loss utilization involves a reorganization of related companies such that various loss companies become partners in a partnership thus enabling them to set off gains and losses within the group of companies.