Income Tax Severed Letters - 2004-08-20


2004 Ruling 2003-0043361R3 - SAR replacement with an agreement to issue shares

Unedited CRA Tags
7 248(1)"S "

Principal Issues:
1. Will the termination of a SAR and its replacement with an agreement to issue shares result in any immediate taxation?
2. Will the new options be treated as SDAs?

1. No.
2. No.

1. The transaction is in accordance with our established position on the application of section 7(3)(a).
2. Since the number of shares that will be provided may not be determined until the option is exercised there was a concern that the arrangement was in effect an SDA and not a true stock option plan as contemplated by section 7 of the Act. However the proposal provides for the exercise of the options as soon as practical after their grant. Hence it was concluded that the SDA provisions would not be applicable in the circumstances.

2004 Ruling 2003-0050931R3 - Deferred self funded leave plan

Unedited CRA Tags
6801(a) 248(1)

Principal Issues: Whether the plan satisfies the requirements of a prescribed plan under 6801(a) so as not to be considered a salary deferral arrangement under 248(1).

Position: Yes.

Reasons: As per our review of the plan, all of the conditions of 6801(a) are met.

2004 Ruling 2004-0073561R3 - Foreign property - interest in a trust

Unedited CRA Tags
Reg. 5000(1)(c.2)

Principal Issues:
Whether the units of the trust will retain their status as not being foreign property pursuant to subsection 5000(1) of the Regulations after the trust acquires units of a pooled fund?

Yes, provided that the limit in paragraph 5000(1)(e) of the Regulations is not exceeded.

Based on a previous position, the trust is a trust described in paragraph 5000(1)(c.2) of the Regulations.

XXXXXXXXXX 2004-007356

2004 Ruling 2004-0076801R3 - Loss utilization

Unedited CRA Tags
20(1)(c); 112(1); 56(2)

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

Position: The loss utilization is acceptable.

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

2004 Ruling 2004-0077691R3 - Supplemental Ruling to 2003-003357

Unedited CRA Tags
6801(d); 248(1)(k)

Principal Issues: Will changes to a plan with DSUs and 3-year bonus deferral RSUs affect the rulings previously provided?

Position: No

Reasons: The Plan continues to meet the requirements of paragraph 6801(d) of the Regulations and exception (k) of the definition of salary deferral arrangement.

Ministerial Correspondence

29 July 2004 Ministerial Correspondence 2004-0078841M4 - Training Trust Funds

Unedited CRA Tags
6(1)(a) 149(1)(l)

Principal Issues: The determination of a training trust fund's non-profit status, and the income tax status of benefits received by an employee from such funds

Position: General comments.

Reasons: Questions of fact.

22 July 2004 Ministerial Correspondence 2004-0070641M4 - Status Indians and post secondary education

Unedited CRA Tags

Principal Issues: Are post secondary education assistance payments taxable to status Indian recipients?

Position: The CRA's position on the taxation of PSE scholarships paid to or for the benefit of status Indians is currently under review. The results of the review and the resulting policy will be announced prior to December 31, 2005. Until that time, PSE scholarships will continue to be treated as tax-exempt.

Reasons: A PSE scholarship may be tax-exempt in two ways:
if it is paid pursuant to a treaty, then it is deemed to be located on a reserve by section 90 of the Indian Act, in which case it is exempt by operation of section 87 of the Indian Act and paragraph 81(1)(a) of the Income Tax Act.
in the absence of a treaty right, section 87 may exempt the PSE scholarship if a connecting factors test can situate the scholarship on a reserve. This determination will be a question of fact.

19 July 2004 Ministerial Correspondence 2004-0078601M4 F - Revenu de placement sur une réserve

Unedited CRA Tags

Principales Questions: Est-ce que les revenus de placement d'Indiens inscrits résidant sur une réserve résultant de dépôts auprès d'une succursale d'une institution financière située sur la réserve sont exonérés d'impôt?

Position Adoptée: Pour que le revenu de placement d'un Indien inscrit résidant sur la réserve soit suffisamment rattaché à la réserve, l'institution financière doit investir les fonds directement dans des biens situés sur la réserve.

Raisons: Conforme à la position prise dans Lewin, Recalma, Sero et Fraser

Technical Interpretation - External

18 August 2004 External T.I. 2004-0070361E5 - "cashless exercise" of employee stock options.

Unedited CRA Tags
7(1)(b) 7(1.4)
acquisition under cashless exercise on settlement of short sale

Principal Issues: Determination of time securities are acquired and section 7 is applicable when the cashless method of exercising an option is used.

Position: General comments provided. A recent court case on this topic has raised some concerns and has resulted in commentary that may not be precise. This letter clarifies our position on the matter.

Reasons: The published position on the application of section 7 is that a share is acquired when the share has been paid for and has been received by the employee. However, this is a general position that may not be correct in all situations.

16 August 2004 External T.I. 2004-0082901E5 - Independent Agent Commissions

Unedited CRA Tags

Principal Issues: What are the information reporting requirements for payments of commisssions to an independently contracted mutual fund salesperson or to the salesperson's corporation?

Position: T4A Supplementary and Summary Form

Reasons: Where an independently contracted mutual fund salesperson is legally precluded from assigning his/her commissions to a corporation then the commission income must be reported by the individual. Where there is no legal restriction on the transfer of commissions to a corporation and the corporation is actively carrying on the business, the income must be reported by the corporation.

16 August 2004 External T.I. 2004-0090461E5 - Computation of Balance in Capital Dividend Account

Unedited CRA Tags
40(1)(a)(iii) 40(1)(a)(ii) 83(2) 89(1)(b)

Principal Issues: When is a capital gains reserve that is claimed pursuant to subparagraph 40(1)(a)(iii) included in the calculation of the capital dividend account balance for the subsequent taxation year.

Position: On the first day of the subsequent taxation year.

Reasons: Subject to any capital gains reserve that may ultimately be claimed in the subsequent taxation year, a capital gains reserve taken in a taxation year is included in the calculation of the capital dividend account balance on the first day of the subsequent taxation year.

13 August 2004 External T.I. 2004-0072771E5 - Stock Option Agreement - Treasury Shares

Unedited CRA Tags
7(1) 110(1)(d)

Principal Issues: General questions regarding the T4 reporting requirements for subsection 7(1) taxable benefit.

Position: General comments given

Reasons: Reporting requirements as set out in the T4130 Guide entitled Employers' Guide - Taxable Benefits 2003 -2004

12 August 2004 External T.I. 2004-0080701E5 - Transfer of Commission Income to a Corporation

Unedited CRA Tags

Principal Issues: Has there been a change to the CRA's administrative position with respect to the transfer of commission income by a mutual fund salesperson to his/her corporation?

Position: No.

Reasons: If a mutual fund salesperson is legally, whether contractually or by statute, precluded from assigning commissions to his/her corporation, then the commission income must be reported by the individual. If there is no such legal preclusion, the income must be reported by the corporation provided the corporation is actively carrying on the business. The salesperson should consult with the provincial governing body to which they are a member to determine whether the corporation is legally permitted to carry on the business.

10 August 2004 External T.I. 2004-0066871E5 - principal residence held in alter ego trust

Unedited CRA Tags
73(1) 54

Principal Issues: 1. Can the principal residence exemption be used to eliminate any gain realized on the transfer of an individual's plr to another ego trust?
2. Whether a gain realized by the trust on the deemed or actual disposition of the property will qualify for the principal residence exemption.
3. Whether the alter ego trust (or its trustee) can be the beneficiary of an RRIF or LIF.

Position: 1. Normally the property would be transferred at cost (not fmv), but if a gain is recognized, the principal residence exemption could be used.
New 1.
2. Yes.
3. Yes.

Reasons: 1. 73(1) and (1.01)(c)(ii) enable property to be rolled to an alter ego trust. However, 73(1) permits the transferor to elect out.
2. The definition of "principal residence" in section 54 of the Act provides in paragraphs (a.1) and (c.1) that a personal trust may generally claim a property as a principal residence
3. No provision in the Income Tax Act prohibits such a designation.

5 August 2004 External T.I. 2004-0066821E5 - Workspace in Home Expenses

Unedited CRA Tags

Principal Issues: Whether a salesperson can deduct home office expenses if she uses the home office to arrange appointments with customers.

Position: Question of fact. General comments provided.

Reasons: Home office must be the place where the employee "principally performs the duties of employment". Determination should be made by TSO after complete review of all facts.

5 August 2004 External T.I. 2004-0073111E5 - Parking Expenses for Employees

Unedited CRA Tags

Principal Issues: Whether employees can deduct expenses incurred for parking at the employer's place of business where they regularly report for work.

Position: No.

Reasons: No provision of section 8 of the Act allows for such a deduction. Expenses not incurred for travelling in the performance of the duties of employment. Travel from home to the employer's place of business is a personal expense.

28 July 2004 External T.I. 2004-0069021E5 - 248(1) - Def'n Common-law partner

Unedited CRA Tags

Principal Issues: Does the reference to a period of at least 90 days mean a continuous period of 90 days?

Position: Yes

Reasons: Position taken in former definition of "spouse" - see ITTN #2

23 July 2004 External T.I. 2004-0077351E5 - Indian limited partnership income

Unedited CRA Tags

Principal Issues: Would a status Indian limited partner be taxable on partnership income derived exclusively from mortgages held by the limited partnership on property located on an Indian reserve?

Position: Question of fact.

Reasons: Although the existence of a partnership is a question of fact outside of the scope of this reply, the existence of a partnership requires the carrying on of business. As held in R. v. Robinson, a limited partner in a limited partnership is considered to be carrying on business. Southwind v. the Queen stands for the principle that the 2 most significant connecting factors to situate business income on a reserve are: the location where the income-generating business activities take place and the location of the customers. In this fact situation, the business is arguably one of investment, so we should also consider Recalma v. the Queen. In Recalma, the courts determined that in the case of investment income, the connecting factor of the most significance is the location of the income generating activity of the investment. Other factors would be relevant, but their weight would depend on the facts of any particular situation. We generally take the position that in addition to generating income/earnings on a reserve, other factors would have to be present, such as: the investment is used to benefit Indians on reserve, the residency of the status Indian investor and the capital invested came from an exempt source.

XXXXXXXXXX Renée Shields
(613) 948-5273
July 23, 2004

15 July 2004 External T.I. 2004-0070371E5 - Status Indian employment income- work from home

Unedited CRA Tags

Principal Issues: Would employment income be exempt if a status Indian works for an off-reserve employer but moves back to a reserve and works from home?

Position: Question of Fact

Reasons: Guideline 1, Guideline 3 or the Proration Rule may apply, but it would have to be demonstrated that it is a requirement of the individual's employment that she work from home. Merely doing so for her own convenience will not be a sufficient connection. Further, it would have to be demonstrated that the reason for working on the reserve is not merely to establish a connecting factor.

Technical Interpretation - Internal

3 August 2004 Internal T.I. 2004-0077991I7 F - Allocations d'aide à domicile reçues de la SAAQ

Unedited CRA Tags

Principales Questions: 1. Est-ce que l'ARC doit tenir compte des changements entraînés par l'affaire Johanne Maurice lorsqu'elle examine le traitement fiscal des montants reçus, par la mère d'une victime d'accident, à titre d'allocations d'aide personnelle à domicile pour la victime?
2. Est-ce que la somme reçue de la SAAQ dans la présente situation est imposable?

Position Adoptée: 1. Oui
2. Non

Raisons: 1. La somme n'aurait pas pu entrer dans le calcul du revenu de la mère avant 2001 car elle n'avait pas la qualité de revenu. La décision dans l'affaire Maurice a été rendue le 19 mars 2001. Les changements entraînés par cette décision s'appliquent à la mère pour son année d'imposition 2001 conformément à notre politique quant à la portée des jugements rendus en matières fiscales.
2. La mère s'occupait d'un enfant mineur ou inapte mentalement. Par conséquent, la situation est similaire à celle que l'on retrouvait dans l'affaire Maurice où le juge a conclu que les montants reçus de la SAAQ n'étaient pas imposables.

3 August 2004 Internal T.I. 2004-0080181I7 - Non-Qualifying Security Donation

Unedited CRA Tags
118.1(18) 149.1(4) 149.1(12)

Principal Issues: 1. What is the "time" that is referred to in paragraph 118.1(18)(b) of the Act?
2. Where 100% of the shares of a corporation are donated to a private foundation for no consideration, will the foundation be subject to revocation of its charitable registration pursuant to paragraph 149.1(4)(c) of the Act?
3. Where the former shareholder of the corporation continues to manage the affairs of the corporation and continues to be a director of the private foundation that received the shares of the corporation, what would be the tax implications?
4. Will the donation of property with a significant value, to a private foundation by an existing and continuing director of the private foundation, change the registered status of the private foundation or the designation of the charity as a private foundation?

Position: 1. The relevant "time" is the time that the gift is made such that the relationship between the donor and the property gifted is assessed immediately after the time that the gift is made to the charity.
2. Paragraph 149.1(4)(c) will not apply provided not more than 5% of the shares of the corporation have been acquired by the foundation for consideration.
3. None.
4. No

1. Previous positions.
2. Paragraph 149.1(12)(a).
3. Question of fact.
4. Could result in a re-designation of the charity from a charitable organization or a public foundation to a private foundation, depending upon the particular facts, however in this case the charity is already a private foundation.

29 July 2004 Internal T.I. 2003-0023761I7 F - Contrat de SWAP d'équité

excerpted in 2009-0323991I7 F
Unedited CRA Tags

Principales Questions: Quel est le traitement fiscal applicable à une somme payée par un contribuable relativement à une opération d'échange financier (SWAP) conclue pour protéger la valeur du crédit accordé au contribuable?

Position Adoptée: La transaction est une opération de couverture. La somme payée est une dépense de capital.

Raisons: Dans la situation analysée, la somme devait être payée en vue de permettre l'abandon du contrat de SWAP.

29 July 2004 Internal T.I. 2004-0065971I7 F - Frais d'intégration de sociétés

Unedited CRA Tags

Principales Questions: Est-ce que les frais d'intégration payés par Société A pour le compte des nouvelles filiales de Société A sont des dépenses courantes ou des dépenses de capital?

Position Adoptée: Nous sommes d'avis que Société A était justifiée de considérer les frais comme étant des dépenses courantes.

Raisons: Dépenses encourues en vue de tirer un revenu d'honoraires de gestion selon la pratique de Société A d'encourir des dépenses pour ses filiales et de facturer ces frais à ses filiales. Au moment où les premiers frais ont été engagés, il était probable que les sociétés pour lesquelles ces frais ont été engagés deviendraient des filiales de Société A et qu'elle pourrait facturer le montant.

12 July 2004 Internal T.I. 2003-0001891I7 - Taxation of U.S. Annuity Contract

Unedited CRA Tags
148(2) ), 104(13) 108(5)

Principal Issues: Taxation of U.S. Annuity Contract proceeds received by Canadian resident from U.S. estate

Position: Gave some general guidelines on taxation of annuity contracts on death.

Reasons: Unable to give definitive reply since we do not have all the necessary details