Income Tax Severed Letters - 2004-07-09

Administrative Letter

7 July 2004 Administrative Letter 2004-0078272E5 F - Déduction REER - Juges

Unedited CRA Tags
146(1) 146(5) 8309 Reg. 8300(1) Reg.

Principales Questions: Déduction REER - Juges

Position Adoptée: Application de la Loi et du Règlement.

Ruling

2004 Ruling 2003-0051471R3 - Retiring Allowance

Unedited CRA Tags
56(1)(a)(ii) 60(j.1) 248(1) 67

Principal Issues: (A) Does an amount to be paid qualify as a retiring allowance as defined in subsection 248(1) of the Act? (B) Will the recipient be entitled to a deduction under paragraph 60(j.1) of the Act? (C) Is the amount of the retiring allowance a reasonable expense under section 67 of the Act?

Position: Yes, for all three issues listed (A, B and C)

Reasons: In accordance with the guideline provided in Question 10 at the 1992 Prairie Tax Conference Round Table and prior rulings given in similar circumstances.

XXXXXXXXXX 2003-005147

XXXXXXXXXX , 2004

2004 Ruling 2003-0020241R3 - Patronage Dividends

Unedited CRA Tags
135(2) 135(1)

Principal Issues:
Whether a subsidiary is entitled to claim a deduction for patronage dividends paid to its sole shareholder/customer under subsection 135(1).
Whether subsection 135(2) will apply to limit the deductibility of patronage dividends under subsection 135(1) where the sole shareholder is the only customer to receive an allocation in proportion to patronage.

Position:
Yes, subject to the limitation in subsection 135(2) and provided the requirements of section 135 are otherwise met.
Probably, it appears that a zero allocation of patronage dividends to non-member customers is not appropriate in the circumstances.

Reasons:
Based on the information provided.
The value of business done with non-member customers would appear to warrant an allocation of patronage greater than zero.

Ministerial Correspondence

30 June 2004 Ministerial Correspondence 2004-0080921M4 - Motor Vehicle Allowance

Unedited CRA Tags
6(1)(b)

Principal Issues: Request to increase the maximum per-kilometre rate at which employers can pay employees a non-taxable motor vehicle allowance to reflect the current cost of gasoline.

Position: A request to increase the rate for the motor vehicle allowance would have to be considered by Finance, whose officials are aware of the views expressed on this matter by the correspondent.

Reasons: The CRA is responsible for administering the legislation as enacted by Parliament. Changes to the Act and Regulations are a matter of tax policy, which is the responsibility of Finance.
ITA REFERENCE: 6(1)(b)
HAA: 4903-1
SECURITY: For distribution

Technical Interpretation - External

7 July 2004 External T.I. 2004-0078271E5 - RRSP Deduction - Judges

Unedited CRA Tags
146(1) 146(5) 8309 Reg. 8300(1) Reg.

Principal Issues: RRSP Deduction - Judges

Position: Application of the Act and the Regulations.

7 July 2004 External T.I. 2004-0069781E5 - Executor Fees

Unedited CRA Tags
6(1)(c) 9(1)

Principal Issues: A lawyer in public practice is engaged to perform executor services for the estate of a family member. Whether the executor fees would be considered income earned for services performed in the course of the business or are income from an office and whether the time spent, the complexity or the size of the estate would factor into the determination.

Position: Question of fact.

Reasons: The fees earned for the administration of an estate by an executor will be treated either as income from a business or income from an office. Fees earned by a taxpayer for acting in the capacity of an executor in the course of a business are included in the business income of the taxpayer under subsection 9(1). Where the taxpayer does not act in the course of carrying on a business, the executor fees are included in income under paragraph 6(1)(c). Where the lawyer's practice includes providing executor services, such services are performed in the course of earning income from the business and therefore, the executor fees are business income.

6 July 2004 External T.I. 2004-0076301E5 - Commission or Bonus

Unedited CRA Tags
5 6 8

Principal Issues: Is the amount paid by an employer to its employee a commission or a bonus?

Position: General comments provided. Question of Fact.

Reasons: No definition of commission or bonus in the Act.

6 July 2004 External T.I. 2004-0067371E5 - Proration of status Indian pension income

Unedited CRA Tags
81(1)(a)

Principal Issues: Can a portion of pension income be tax-exempt if the status Indian individual worked on a reserve during a part of their employment?

Position: Yes, provided the period of employment with on-reserve service is not merely incidental to the calculation of the pension benefit.

Reasons: In determining whether a portion of pension income will be exempt, reference must be made to the taxability of employment income in each year of employment during which pension contributions were made or pension benefits accrued. Having completed such a calculation, generally anything less than 10% will not be considered to be a meaningful connecting factor to locate the pension income on a reserve and proration would not be appropriate.

5 July 2004 External T.I. 2004-0077851E5 - Religious Order

Unedited CRA Tags
8(1)(c)

Principal Issues: Is XXXXXXXXXX l a religious Order?

Position: No

Reasons: Nothing indicates that the school is anything but an educational institution.

5 July 2004 External T.I. 2004-0079711E5 - Fees paid to earn higher interest rate

Unedited CRA Tags
53 9

Principal Issues: Whether fees paid to earn a higher rate of interest are deductible

Position: Must determine whether fee is paid on account of income or capital; if the investment is for several years, will generally be on capital account

Reasons: Question of fact whether enduring benefit; 20(1)(bb) does not apply

30 June 2004 External T.I. 2004-0073351E5 - 97(2) and Retired partners

Unedited CRA Tags
97(2) 96(3)

Principal Issues: Are retired partners considered members of a partnership for purposes of 97(2)?

Position: No.

Reasons: A retired partner ceases to be a partner except in certain circumstances as described in subsection 96(1.1) and 98.1(1) of the Act.

29 June 2004 External T.I. 2004-0065941E5 F - Revenu de bien ou d'entreprise exploitée active

Unedited CRA Tags
129(6)
Summary Under
Tax Topics - Income Tax Act - Section 129 - Subsection 129(6)
double application of s. 129(6) where active business sub pays interest to its Holdco parent which, in turn, pays interest to its parent

Principales Questions: Société A prête une somme d'argent à Société B, sa filiale à 100% qui utilise les sommes empruntées auprès de Société A pour consentir à son tour un prêt à Société C, sa filiale à 100%. Société C utilise le montant du prêt dans le cadre de l'exploitation d'une entreprise active. Est-ce que le montant d'intérêts versé par Société B à Société A constitue pour Société A du revenu tiré d'une entreprise qu'elle exploite activement au Canada aux fins du paragraphe 129(6) de la Loi?

Position Adoptée:
Oui.

Raisons:
Les conditions du paragraphe 129(6) de la Loi sont rencontrées en ce qui a trait au paiement d'intérêts entre Société C et Société B. Compte tenu que les deux présomptions prévues aux sous-alinéas 129(6)b)(i) et (ii) de la Loi s'appliquent aux fins du paragraphe 129(6) de la Loi, le montant d'intérêts payé par Société B à Société A est une dépense déductible dans le calcul de son revenu provenant d'une entreprise exploitée activement par elle au Canada et la somme payée ou payable par Société B à titre d'intérêts est réputée constituer un revenu de Société A tiré d'une entreprise qu'elle exploite activement au Canada.

29 June 2004 External T.I. 2004-0078951E5 F - Non Arm's Length Sale of Shares, Surplus Stripping

Unedited CRA Tags
84.1 84(2) 245(2)
Summary Under
Tax Topics - Income Tax Act - Section 84.1 - Subsection 84.1(1)
s. 84.1 could apply if unrelated purchaser is an accommodation party

Principal Issues: An individual ("A") holds shares in a holding corporation ("HOLDCO") with a high adjusted cost base due to a capital gains deduction crystallization undertaken in the past. HOLDCO owns investment property and shares in an operating corporation ("OPCO"). A third party is interested in the OPCO shares. A would first dispose of his HOLDCO shares in favour of OPCO, in consideration for shares of OPCO with the same tax attributes. HOLDCO would then redeem its shares owned by OPCO. Finally, A and HOLDCO would dispose of their OPCO shares in favour of the third party. Whether section 84.1 or 245 would apply in the given fact situation.

Position: General comments provided. Section 84.1 would apply if it is established that A and the third party do not deal with each other at arm's length with respect to the disposition of the OPCO shares. This may be the case where the third party is party to a transaction which lacks commercial reality, for the only purpose of accommodating A. Subsection 84(2) or 245(2) may also be applicable if the given fact situation involves surplus stripping.

Reasons: Wording of the Act.

29 June 2004 External T.I. 2004-0057181E5 F - Allocation automobile

Unedited CRA Tags
6(1)b)

Principales Questions: Est-ce qu'une allocation mensuelle de 200 $ versée par un employeur afin de compenser les frais d'automobile encourus par ses employés dans le cadre de leurs déplacements pour affaires est imposable ?

Position Adoptée: Oui.

Raisons: L'allocation n'étant pas uniquement versée en fonction du nombre de kilomètres parcourus, elle est visée par le sous-alinéa 6(1)b)(x) de la Loi ce qui fait en sorte que cette allocation est réputée être non raisonnable et doit être incluse au revenu à titre de revenu d'emploi.

25 June 2004 External T.I. 2004-0065501E5 - QFP - Attribution (property last acquired)

Unedited CRA Tags
110.6(1) 74.2(1) 74.2(2)

Principal Issues: Whether a property deemed to be disposed of by a taxpayer pursuant to subsection 74.2(2) is considered to be "qualified farm property"?

Position: Question of fact, general comments provided.

Reasons: Where subsections 74.2(1) and (2) attribute a taxable capital gain on the disposition of a property to an individual, in determining whether the property may be considered qualified farm property of the individual under subsection 110.6(1) of the Act, we would look to when the individual last acquired the property.

25 June 2004 External T.I. 2004-0071261E5 - Professional Development Account

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

Principal Issues: The status of benefits derived by employees from a professional development account.

Position: Question of fact.

Reasons: Subsection 5(1) and paragraph 6(1)(a).

22 June 2004 External T.I. 2004-0065811E5 - Proration of Indian employment related income

Unedited CRA Tags
81(1)(a)

Principal Issues: How should proration be determined for employment related benefits if the individual's related employment income has been subject to different percentages of proration?

Position: Question of fact

Reasons: If the benefit is determined by reference to a period of service then the taxation of the employment income during the relevant period of service should be taken into consideration in determining the proration applicable to the employment related benefit. If the benefit is determined without reference to a period of service, then it is reasonable to mirror the tax treatment of the employment income being received immediately prior to commencement of the employment related benefit.

Conference

27 April 2004 IFA Roundtable Q. 2, 2004-0072851C6 - IFA Round Table Conference

Unedited CRA Tags
5907(6)

Principal Issues: Conversion of a foreign affiliate's surplus accounts to functional currency for tax return purposes.

Position: Not a taxable event, maintain surplus accounts in functional currency.

Reasons: Similar to adoption of euro from national currency.

28 June 2004 STEP Roundtable Q. 1, 2004-0070001C6 - Estate freeze and partnerships

Unedited CRA Tags
103(1) 103(1.1)

Principal Issues: Whether a partnership can be used in an estate freeze.

Position: Question of fact but generally "no".

Reasons: Subsections 103(1) or (1.1) generally apply.

Technical Interpretation - Internal

30 June 2004 Internal T.I. 2004-0078631I7 - Tuition&Education Tax Credit of Status Indian

Unedited CRA Tags
118.6 118.5 81(1)(a) 56(1)(n)

Principal Issues: Whether 81(1)(a) exemption of post-secondary education assistance amounts prevents the student from claiming the tuition and education tax credits. Discussion of taxability and T4A reporting requirement for post-secondary education assistance for status Indians.

Position: General discussion of sections 118.5 and 118.6.

Reasons: Receiving post-secondary education assistance that is exempt from tax under paragraph 81(1)(a), does not prevent the tuition fees from qualifying for the tuition or education tax credits. However, it is a question of fact as to whether the tuition fees are described in 118.5(1)(a)(ii) to (v) and excluded from eligible tuition fees. It is also a question of fact as to whether the assistance qualifies under paragraph (a)(i) of the definition of "qualifying educational program" in subsection 118.6(1) as "an amount received [...] as a scholarship, fellowship or bursary or a prize for achievement in a field of endeavour ordinarily carried on by the student" so as not to be excluded under paragraph (a) of that definition.

29 June 2004 Internal T.I. 2004-0078231I7 - Medical Expenses - Cosmetic procedures

Unedited CRA Tags
118.2(2)(a)

Principal Issues: Could a medical plan qualify as a PHSP if it included coverage for cosmetic medical expenses (botox & artecoll injections, eyelid surgery)?

Position: Yes

Reasons: It is our position that an amount paid to a medical practitioner for surgery of any kind whether cosmetic or elective generally qualifies as a medical expense.

29 June 2004 Internal T.I. 2004-0081901I7 F - Taxable Benefit - Life Insurance Premiums

Unedited CRA Tags
15(1) 148(9) 148(1) 152(4)
Summary Under
Tax Topics - Income Tax Act - Section 15 - Subsection 15(1)
benefit from payment by corporation of life insurance premiums on policy of which shareholder’s spouse is the beneficiary is based on the premiums so paid

Principal Issues: In a given fact situation, a corporation ("OPCO") would be the owner of a life insurance policy on the life of its shareholder ("A"). The beneficiary of the policy would be the spouse of A ("B"). The life insurance premiums were paid by OPCO. This situation would result in a taxable benefit to A pursuant to subsection 15(1). Whether the amount or value of such benefit should be based on the life insurance premiums and/or the death benefit received by B and paid under the life insurance policy in consequence of the death of A.

Position: The amount or value of the shareholder benefit should be based on the life insurance premiums paid by OPCO, and not on the death benefit paid under the life insurance policy. The application of subparagraph 152(4)(a)(i), which allows the Minister to assess or reassess tax, interest or penalties for a taxation year after the taxpayer's normal reassessment period if the taxpayer or the person filing the return has made any misrepresentation attributable to neglect, carelessness or wilful default, should be considered in the circumstances.

Reasons: Wording of the Act and previous positions.

28 June 2004 Internal T.I. 2004-0073761I7 F - Dommages-intérêts-perte d'emploi

Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Retiring Allowance
damages for failure to reinstate the taxpayer were a retiring allowance
Summary Under
Tax Topics - Income Tax Act - Section 56 - Subsection 56(1) - Paragraph 56(1)(l.1)
reimbursement of legal costs incurred to recover damages for failure to reinstate were includible under s. 56(1)(l.1)
Summary Under
Tax Topics - Income Tax Act - Section 60 - Paragraph 60(o.1)
deduction for legal fees incurred to recover damages that were retiring allowance
Summary Under
Tax Topics - Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(c)
change regarding pre-judgment interest judicially ordered after 2003

Principales Questions: Est-ce que les sommes accordées par un tribunal suite à un refus injustifié de réintégrer un employé sont imposables et à quel titre? Les sommes accordées comprennent une indemnité compensatrice, des intérêts et un remboursement d'une partie des frais légaux.

Position Adoptée: L'indemnité compensatrice constitue une allocation de retraite imposable en vertu du sous-alinéa 56(1)a)(ii) de la Loi. La somme accordée ou remboursée pour les frais judiciaires ou extrajudiciaires encourus pour recouvrer ou établir un droit à une allocation de retraite doit être ajoutée au revenu en vertu de l'alinéa 56(1)l.1) de la Loi.

Pour ce qui est des intérêts pré-jugement accordés par une ordonnance antérieure à 2004, ils ne sont pas imposables. Par contre, les intérêts post-jugement constituent un revenu d'intérêts imposable selon l'alinéa 12(1)c) de la Loi.

Raisons: L'indemnité compensatrice est une somme reçue à l'égard de la perte par le contribuable d'un emploi.
Le remboursement des frais légaux respecte le libellé de l'alinéa 56(1)l.1).
La position administrative (qui a été changée pour les ordonnances ou les règlements hors-cour datés le ou après le 1er janvier 2004) prévoyait que les intérêts pré-jugement se rapportant aux indemnités pour congédiement injustifié n'étaient pas imposables. Pour les ordonnances ou les règlements hors-cour datés le ou après le 1er janvier 2004, ils seront imposables.

24 June 2004 Internal T.I. 2004-0068381I7 F - Date d'exécution

Unedited CRA Tags
56.1(4)
Summary Under
Tax Topics - Income Tax Act - Section 56.1 - Subsection 56.1(4) - Commencement Day - Paragraph (b) - Subparagraph (b)(ii)
change in required support amount triggers commencement day regardless of the number of children covered by the changed support

Principales Questions:
L'accord de XXXXXXXXXX a-t-il une " date d'exécution " compte tenu des modifications faites par l'accord de XXXXXXXXXX , entre autres, que la pension alimentaire pour enfants payable à compter XXXXXXXXXX est de XXXXXXXXXX $ par mois?

Position Adoptée:
Oui

Raisons:
L'accord écrit de XXXXXXXXXX a eu pour effet de changer le montant de la pension alimentaire pour enfants de XXXXXXXXXX $ à XXXXXXXXXX $ par mois payable antérieurement selon l'accord de XXXXXXXXXX . Dans ces circonstances, une " date d'exécution " est attribuable à l'accord de XXXXXXXXXX , en vertu du sous-alinéa b)(ii) de la définition " date d'exécution " au paragraphe 56.1(4) de la Loi, et correspond au XXXXXXXXXX , date où le montant de XXXXXXXXXX $ est à verser pour la première fois.

23 June 2004 Internal T.I. 2004-0070541I7 - Fellowship Income

Unedited CRA Tags
56(1)(n) 5

Principal Issues: Is income received by a postdoctoral fellow taxable under 5(1) or 56(1)(n)

Position: 5(1)

Reasons: Based on the facts, the individual was an employee.