Income Tax Severed Letters - 2004-06-11

Miscellaneous

8 June 2004 Miscellaneous 2004-0070891E5 - Transfer from a RRIF to a RRSP

Unedited CRA Tags
146.3(5) 60(1)(v) 56(1)(t)

Principal Issues: 1.Whether funds may be transferred from a RRIF to a RRSP.
2. Are RRSP contributions deductible in arriving at the "adjusted taxable income" under the AMT rules?

Position: 1. The amount in excess of the "minimum amount" may be transferred from a RRIF to a RRSP.
2. Yes.

Reasons: 1. As per RRIFs rules in subsection 146.3(2) of the Act.
2. As per paragraph 127.52(1)(a).

XXXXXXXXXX 2004-007089
C. Lalonde
June 8, 2004

7 June 2004 Miscellaneous 2004-0074171I7 - employment income of Indian employee/shareholder

Unedited CRA Tags
81(1)(a)

Principal Issues: Is the employment income of a status Indian shareholder/employee performing all employment duties on a reserve taxable?

Position: No

Reasons: Application of the Guidelines

7 June 2004 Miscellaneous 2004-0066031E5 - Employer Reimbursed Tuition - Taxable Benefit

Unedited CRA Tags
6(1)(a)

Principal Issues: Whether the employer reimbursement of tuition fees is a taxable employment benefit pursuant to paragraph 6(1)(a) when a current employee agrees to remain with the employer who reimbursed the tuition fees for a certain period of time after the completion of the training or degree, or when a new employee obtains employment after the completion of a degree.

Position: Question of fact.

Reasons: Generally, employer paid or reimbursed tuition for courses that primarily benefit the employer will not result in a taxable employment benefit when the employee agrees to continue employment for a reasonable period of time after the completion of the training. However, where an individual commences new employment and is reimbursed for such tuition costs incurred prior to commencing employment, the reimbursement by the new employer is a taxable employment benefit. Such courses are not taken for the maintenance or upgrading of employer-related skills, which is an essential requirement in determining whether the employer is the primary beneficiary of the training.

4 June 2004 Miscellaneous 2004-0068651I7 - Prescribed medical devices

Unedited CRA Tags
118.2(2)(m)

Principal Issues: Does the cost of a television set that contains a closed captioning chip qualify as a medical expense?

Position: Only the cost equivalent of the caption decoder chip will qualify as a medical expense provided all other conditions of paragraph 118.2(2)(m) are met.

Reasons: A television set is not included in the list of prescribed medical devices in regulation 5700.

4 June 2004 Miscellaneous 2004-0070121E5 - Management Fees Paid To A Personal Serv. Business

Unedited CRA Tags
67 9(1)

Principal Issues: Whether management fees paid by an operating company to a personal services business are reasonable by reason of the CRA's policy on when shareholder/manager remuneration will be considered reasonable for purposes of section 67 of the Income Tax Act.

Position: No.

Reasons: The determination of the reasonableness of an amount for purposes of section 67 of the Act will always be a question of fact. The CRA's administrative policy of not challenging the reasonableness of shareholder/manager remuneration under section 67 of the Act is outlined in Income Tax Technical News No. 22. As noted in our response to Question 6 under the topic "Shareholder/Manager Remuneration", the policy is "limited to salaries and bonuses paid directly to individuals resident in Canada who are active shareholder/managers of a CCPC. We therefore reserve the right to challenge the reasonableness of any inter-corporate management fees." As a result, this situation would not fall within the scope of the policy.

4 June 2004 Miscellaneous 2004-0075021E5 - Home Buyers' Plan and Lifelong Learning Plan

Unedited CRA Tags
146.02(3) 146(1)

Principal Issues: Can a taxpayer repay a portion of the amount already withdrawn under the Lifelong Learning Plan and withdraw this amount under the Home Buyers' Plan without having to wait 90 days after the repayment?

Position: Yes

Reasons: The 89-day period applies only to determine if an amount that is a premium paid to an RRSP can be deductible in computing a taxpayer's income for a taxation year.

4 June 2004 Miscellaneous 2004-0075241E5 - Home Buyers' Plan

Unedited CRA Tags
146.01(1)

Principal Issues: Whether an individual is a first-time homebuyer if the individual's spouse has an owner-occupied home?

Position: No, if the individual's spouse owned a home that was the spouse's principal place of residence and that was inhabited during the marriage at any time in the 4-year period.

Reasons: Paragraphs e) and f) of the definition of "regular eligible amount" in subsection 146.01(1).

4 June 2004 Miscellaneous 2004-0067581E5 - Pecentage deferred under 6801(a)

Unedited CRA Tags
R. 6801(a)

Principal Issues: What is the maximum amount of salary that may be deferred under 6801(a).

Position: Subparagraph 6801(a)(ii) of the Regulations provides that the amount of salary or wages that may be deferred under all arrangements by an employee for the services rendered by the employee to the employer in a year cannot exceed 33 1/3% per cent of the amount of the salary or wages that the employee would normally be expected to receive in the year in respect of those services.

Reasons: Clear words of legislation.

XXXXXXXXXX 2004-006758
J. Gibbons, CGA
June 4, 2004

3 June 2004 Miscellaneous 2004-0074801E5 - Contributions to U.K. Pension Plan

Unedited CRA Tags
147.2(4)

Principal Issues: A Canadian resident originally from the U.K. is allowed to make additional contributions to the U.K. Pension Department in order to increase the pension he will receive from the U.K. when he reaches 65 years of age. Can he deduct these additional contributions in computing his Canadian income taxes?

Position: No.

Reasons: There is no provision under the Act that provides for a deduction. Furthermore, there is no relief provided under the Canada-U.K. Convention currently in effect.

3 June 2004 Miscellaneous 2004-0056851E5 - Principal Residence Exemption - section 54.1

Unedited CRA Tags
54 54.1 45(2)

Principal Issues: Whether section 54.1 applies to extend the principal residence exemption beyond the 4-year period if the taxpayer does not resume to ordinarily inhabit the original residence?

Position: No.

Reasons: Section 54.1 requires that the taxpayer resume ordinary habitation of the housing unit during the term of employment by that same employer or before the end of the taxation year immediately following the taxation year in which such employment terminates.

3 June 2004 Miscellaneous 2004-0072971I7 F - Taxable Benefit - Life Insurance Premiums

Unedited CRA Tags
15(1) 148(9) 148(1)

Principal Issues: Whether, in a given fact situation, the payment by a corporation of the premiums for a life insurance policy on the life of a shareholder constitute a taxable benefit to the shareholder pursuant to subsection 15(1), where the corporation is the policyholder and also the beneficiary. In the given fact situation, the insurance policy would not be used, directly or indirectly, to allow the shareholder or members of his family to obtain cash, by way of borrowings or otherwise.

Position: No.

Reasons: Wording of the Act and previous position.

3 June 2004 Miscellaneous 2004-0076501E5 - Contributions to U.K. Pension Plan

Unedited CRA Tags
147.2(4)

Principal Issues: A Canadian resident originally from the U.K. is allowed to make additional contributions to the U.K. Pension Department in order to increase the pension he will receive from the U.K. when he reaches 65 years of age. Can he deduct these additional contributions in computing his Canadian income taxes?

Position: No.

Reasons: There is no provision under the Act that provides for a deduction. Furthermore, there is no relief provided under the Canada-U.K. Convention currently in effect.

3 June 2004 Miscellaneous 2004-0061221E5 - Meaning of "activities" in paragraph 149(1)(d.5)

Unedited CRA Tags
149(1)(d.5)

Principal Issues: Is rental income from a property located off-reserve income from "activities carried on outside the geographical boundaries" for purposes of paragraph 149(1)(d.5) of the Act?

Position: Question of Fact, but generally yes.

Reasons: Income from an activity includes passive income.

3 June 2004 Miscellaneous 2004-0073021I7 - Commissions and paragraph 4 of IT-238R2

Unedited CRA Tags
20(1)(bb)

Principal Issues: Are commissions paid to an Investment Banker for the acquisitions of targetco deductible under 20(1)(bb)?

Position: no

Reasons: Commissions are not deductible under 20(1)(bb) - Position of Paragraph 4 of IT-238R2 only applies for the purposes of 20(1)(bb)(ii)

2 June 2004 Miscellaneous 2004-0054761E5 - Tuition - ancillary fees and charges

Unedited CRA Tags
118.5(3)

Principal Issues: Whether a "placement fee" charged by a university to cover the cost of staffing and other resources required to identify placement opportunities for a student's required fieldwork can be considered ancillary fees and charges.

Position: Question of fact.

Reasons: Ancillary fees and charges do not include any fee or charge to the extent that it is levied for services not ordinarily provided at educational institutions in Canada that offer courses at a post-secondary school level.

XXXXXXXXXX 2004-005476
J. Gibbons, CGA
June 2, 2004

1 June 2004 Miscellaneous 2004-0078161I7 F - ITCs - Winding-up

Unedited CRA Tags
88(1)(e.3) 127(5) 127(9)

Principal Issues: Whether, in a given fact situation where a subsidiary is wound up into its parent, the parent can claim unused investment tax credits ("ITCs") of the subsidiary against the tax otherwise payable by the parent under Part I for a taxation preceding the year in which the subsidiary was wound up.

Position: No.

Reasons: Wording of the Act. Under subparagraph 127(5)(a)(ii), there may be deducted from the tax otherwise payable by a taxpayer under Part I for a taxation year an amount equal to the taxpayer's ITC at the end of the year in respect of the taxpayer's SR & ED qualified expenditure pool at the end of a subsequent taxation year, to the extent that an ITC was not deductible under subsection 127(5) for the subsequent year. Under paragraph (c) of the definition of ITC in subsection 127(9), the ITC of a taxpayer at the end of a taxation year means the total of all amounts each of which is an amount determined under any of paragraphs (a) to (b) in respect of the taxpayer for any of the 10 taxation years immediately preceding or the 3 taxation years immediately following the year. However, the deeming provisions under paragraph 88(1)(e.3) are only applicable for the purpose of computing the parent's ITC at the end of any taxation year ending after the subsidiary was wound up. General comments provided with respect to the meaning of "winding-up" for the purposes of subsection 88(1).

1 June 2004 Miscellaneous 2004-0063341E5 - Employee savings plan

Unedited CRA Tags
81(1)(a) 248(1)

Principal Issues: Is a particular employee savings plan a retirement compensation arrangement?

Position: Question of fact.

Reasons: General comments provided.

31 May 2004 Miscellaneous 2004-0069681E5 F - Adjusted Cost Base of Real Property

Unedited CRA Tags
54 70(5) 107(2) 248(3)

Principal Issues: Whether, in a particular fact situation, legal fees and payments incurred or made by a taxpayer can be added to the cost of property inherited by such taxpayer.

Position: General comments provided.

Reasons: The situation described appears to involve specific taxpayers and completed transactions. Consequently, it was suggested to submit all relevant facts and documentation to the appropriate tax services office for their views. First, it should be determined whether a usufruct, right of use or habitation was established, pursuant to a will or otherwise. In such a case, the impact of subsection 248(3) should be considered. Secondly, it should be determined whether or not, for legal purposes, the taxpayer was truly the legatee by particular title of the property. The answer to this question would in turn determine whether subsections 70(5) and 107(2) would have applied to establish a cost, to the taxpayer, of the property. Finally, a portion of the expenses incurred and the payment made by the taxpayer could be part of the cost of the property if such expenses and payment were directly incurred or made to acquire the property. However, not enough information given in the particular situation to be able to make a final determination. The portion of the legal expenses that would simply be part of the cost of administering or settling the estate would neither be deductible nor added to the adjusted cost base of the property. Finally, none of the outlays or expenses would be deductible under paragraph 40(1)(a) (not incurred for the purpose of disposing of the property).

28 May 2004 Miscellaneous 2004-0065101I7 F - Tenures à bail - Catégorie 13 et loyers

Unedited CRA Tags
18(1)a) 20(1)a) Catégorie 13

Principales Questions: Un contribuable exploite son entreprise dans un local loué et y a effectué des améliorations locatives. Il décide de relocaliser son entreprise dans un nouveau local également loué mais pour lequel il n'effectue aucune amélioration locative. Le contribuable ne réussi pas à briser le bail du premier local et doit payer le loyer jusqu'à l'expiration du bail. Qu'arrive-t-il à la dépense de loyer et aux améliorations locatives une fois que le contribuable cesse de les utiliser dans son entreprise ?

Position Adoptée: Les loyers continuent à être déductibles et l'allocation du coût en capital de la catégorie 13 pourra continuer à être déduit en autant que le local vacant et les améliorations locatives ne commencent pas à être utilisés à une autre fin.

Raisons: La dépense de loyers a été engagée ou effectuée dans le but de tirer un revenu d'entreprise conformément à l'alinéa 18(1)a) de la Loi. Puisque les améliorations locatives n'ont pas commencé à être utilisées à une autre fin, il n'y a pas de disposition de ce bien. Comme l'entreprise continue à être exploitée après la relocalisation, l'allocation du coût en capital pourra continuer à être déduite par la société conformément à l'alinéa 20(1)a) de la Loi.

28 May 2004 Miscellaneous 2004-0065291E5 F - Corp. associated through a third corp.: 256(2)

Unedited CRA Tags
256(2) 256(1)(c) 125(5.1)

Principal Issues: In a factual situation involving 4 corporations:
Whether subsection 256(2) may apply in a taxation year where corporations are already associated under 256(1)(c)?
Where a third corporation elects under 256(2) not to be associated with one of the other two corporations, whether the third corporation continues to be associated with the other corporation?
Where a third corporation elects under 256(2) not to be associated with either of the other two corporations, whether the other two corporations should take into account the tax payable under Part I.3 of the third corporation for the preceding taxation year in the calculation of their business limit reduction under subsection 125(5.1)?

Position:
No.
No.
No..

Reasons:
The condition provided under paragraph 256(2)(a) is not met.
Previous position. In the context of subsection 256(2), the phrase "either of the two corporations" refers to both corporations.
The Law.

18 May 2004 Miscellaneous 2004-0063351I7 F - Double déduction des intérêts et paragraphe 18(6)

Unedited CRA Tags
18(6) 20(1)c) 245(2)

Principales Questions: (1) Acceptons-nous la déduction des intérêts lors du calcul du revenu d'une société résidant au Canada lorsque sa société mère peut obtenir une déduction aux États-Unis pour le même emprunt? (2) La série de transactions entraîne-t-elle un abus des dispositions de la Loi sur la capitalisation restreinte?

Position Adoptée: Aucune

Raisons: Les questions portent sur l'application possible de la disposition générale anti-évitement, ce qui relève de la Division de l'évitement fiscal et des vérifications spéciales à la Direction générale des programmes d'observation.

2004 Miscellaneous 2003-0020431R3 F - Reorganization of capital

Unedited CRA Tags
248(6) 8(1); 86(1)

Principal Issues: 1. Whether changes in the terms of the shares result in a disposition. 2. Whether shares issued in series are separate series of shares

Position: 1. No 2. Yes

Reasons: 1. IT-448 2. Shares of Series 1 and 2 have different rights.

2004 Miscellaneous 2004-0074331R3 - Structured settlement

Unedited CRA Tags
56(1)(d)

Principal Issues: Are the payments to be received from a structured settlement tax free?

Position: YES, in accordance with IT-365R2

Reasons: Personal injury award - auto accident

2004 Miscellaneous 2003-0050081R3 - interest deductibility

Unedited CRA Tags
20(1)(c) 245(2)

Principal Issues: is interest on Canco loan used to return contributed surplus to its parent deductible in these particular circumstances

Position: yes

Reasons: particular fact situation

2004 Miscellaneous 2004-0063781R3 - Reorganization of a Business

Unedited CRA Tags
84(4.1) 84(2)

Principal Issues: Does the deemed dividend that arises on a PUC reduction by a public company under subsection 84(4.1) qualify for the "reorganization of its business" exemption under subsection 84(2).

Position: Yes.

Reasons: Consistent with our position in previous rulings and with Department of Finance policy.

2004 Miscellaneous 2003-0054531R3 - Qualified Farm Property

Unedited CRA Tags
110.6(1)

Principal Issues: Whether the fact that children of a deceased parent have not owned or used a property, transferred to them as a consequence of the parent's death, in a business of farming for at least 24 months would prevent the property from being considered "qualifed farm property" of the children if it was otherwise considered "qualified farm property" to the parent.

Position: No.

Reasons: Pursuant to the definition of "qualified farm property" in ss. 110.6(1) of the Act, the person meeting the ownership and use tests need not be the individual who owns the property and may be the spouse, child or parent of such an individual. In this case, a parent of the individual appears to have met those requirements prior to his death. As a result, the individual does not need to own the property inherited, nor use it principally in a business of farming, for at least 24 months to consider the property as "qualified farm property" for the purposes of s. 110.6 of the Act.

Ruling

2003 Ruling 2003-00346630 - COMMUNITY SMALL BUSINESS

Unedited CRA Tags
12(1)(x) 18.1(17) 89(1)

Principal Issues: Whether provincial credits earned under the Ontario Community Small Business Investments Program would be subject to paragraph 12(1)(x) of the Act?

Position: No, to the extent the provincial credits are used to reduce provincial capital tax that would have otherwise been deductible in computing income for federal income tax purposes.

Reasons: Our reading of paragraph 12(1)(x).

2003 Ruling 2003-0034663 - COMMUNITY SMALL BUSINESS

Unedited CRA Tags
12(1)(x) 18.1(17) 89(1)

Principal Issues: Whether provincial credits earned under the Ontario Community Small Business Investments Program would be subject to paragraph 12(1)(x) of the Act?

Position: No, to the extent the provincial credits are used to reduce provincial capital tax that would have otherwise been deductible in computing income for federal income tax purposes.

Reasons: Our reading of paragraph 12(1)(x).