Income Tax Severed Letters - 2004-09-10

Ruling

2004 Ruling 2004-0081511R3 - Reclassification of units

Unedited CRA Tags
248 "disposition"

Principal Issues: Does the creation of new classes of Units having substantially the same rights and the reclassification of existing units into units of one of the newly created classes or the reclassification of units of one class into units of another class result in a disposition? The various classes differ as far as (i) management fees and other costs (ii) votes on special issues concerning a specific class (iii) NAV is determined by class (iv) the expenses are allocated by class (v) the various classes have different minimum investment requirements.

Position: The changes to the indenture does not result in a resettlement of the trust, the reclassification of units into units of a class and the subsequent reclassification of units of a class into units of a different class does not result in a disposition, 104(7.1) does not apply, nor does 245.

Reasons: Consistent with numerous previous statements.

2004 Ruling 2004-0081691R3 - Forgive debt; AL transfer of debtor/lossco Canco

Unedited CRA Tags
40(2)(e.1) 53(1)(f.1) 80.01(4) 245(2)

Principal Issues: Whether ATR-66 applies

Position: Yes - Parentco creditor, Targetco debtor (which has tax losses), and Acquisition Co are all taxable Canadian corporations

Reasons: Reasons in ATR-66

2004 Ruling 2004-0081931R3 - XXXXXXXXXX

Principal Issues: Is the investor acquiring the mortgages in a XXXXXXXXXX held security? Does withholding apply?

Position: 1. The investor is acquiring the mortgage. 2. Exemption under 212(1)(b)(ii)(C)(i).

Reasons: 1/ Facts indicate that legally investors are acquiring ownership of the mortgages. 2/ wording of the Act

2004 Ruling 2003-0035821R3 - Taxation of Indian Trust

Unedited CRA Tags
149(1)(c) 104(24) 107(2) 75(2)

Principal Issues: (A) Whether the Band is a public body performing a function of government (B) Whether the receipt of the Settlement Capital is taxable. (C) Are per capita distributions income from a source within the meaning of paragraph 3(a) of the Act. (D) Whether subsection 75(2) will apply to the Trusts' income. (E) Whether any income of the trust that is not subject to 75(2) will be considered payable to the First Nation and thus deductible pursuant to 104(6). (F) Whether any distribution by the trust to the First Nation will be governed by 107(2)..

Position: (A) Yes (B) No. (C) No. (D) Yes. (E) Yes. (F) Yes, subject to subsections 107(2.001), (2.002) and (4) to (5).

Reasons: (A) The First Nation is actively involved in the community and provides extensive services and programs (B) Compensation is being paid in respect of the interest of a Band in surrendered lands and should therefore be exempt from taxation by virtue of paragraph 81(1)(a) of the Act and 87(1)(a) of the Indian Act. (C) The amounts would not be considered income from a source within the meaning of paragraph 3(a) of the Act. (D) The First Nation will be the settlor of the Trust, directing Canada to make payments to the Trust on behalf of the First Nation. The First Nation is the sole beneficiary and on the termination of the Trust, all of the Trust's property will be transferred to the First Nation. (E) Section XXXXXXXXXX provides that if income earned exceeds income realized the excess shall become payable to the First Nation and will be evidenced by a demand promissory note. (F) The trust will qualify as a personal trust since the First Nation will be the settlor of the trust and the interest will not be acquired for consideration..

2004 Ruling 2004-0069751R3 - Buy, Bump and Sell Transactions

Unedited CRA Tags
88(1)

Principal Issues: Bump on farm land owned by a farm corporation when the shares of the farm corporation are acquired by a land developer and the farm corporation is wound-up.

Position: Yes.

Reasons: The law.

2004 Ruling 2004-0070051R3 - Suppl Ruling for XXXXXXXXXX

Unedited CRA Tags
107(4.1)

Principal Issues: Are distributions of capital by the trust to the Beneficiary subject to 107(2)?

Position: Yes, provided that the trust holds no property that is attributed to any other person under ss 75(2).

Reasons: If the property contributed by the Beneficiary (or substituted property for it) were distributed to any other beneficiary, including a trust for the Beneficiary, 107(4.1) and 107(2.1) would apply, and not 107(2). However, assuming that the trust holds no property which would be attributed to any other person under 75(2), the distribution to the Beneficiary would not be subject to 107(4.1).

Technical Interpretation - External

8 September 2004 External T.I. 2004-0078771E5 - Tenants in common to joint tenants

Unedited CRA Tags
248(1) disposition 110.6
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Disposition

Principal Issues: Would there be a disposition for capital gains purposes when equal tenants in common change their ownership to joint tenancy?

Position: Based on the facts provided, our view is that changing ownership from being equal tenants in common to joint tenancy would not, in and of itself, result in a disposition of the property for the purposes of the Act.

Reasons: Consistent with position in file #5-971957.

8 September 2004 External T.I. 2004-0068501E5 - Farming business - custom working v. sharecropping

Unedited CRA Tags
73(3) 70(9)

Principal Issues: (1) Whether land used in a custom working arrangement is considered to be used in a farming business. (2) Whether land used in a sharecropping arrangement is considered to be used in a farming business. (3) Whether land is "qualified farm property" under ss. 110.6(1) of the Act.

Position: Question of fact in all cases.

Reasons: (1) and (2) Depends on the nature of the arrangements. In (1), the fact that another person may be engaged for a negotiated sum of money to undertake all or part of the work associated with the farming activity would not, in and of itself, mean that a property cannot be considered as being used in a business of farming in which the owner is actively engaged on a regular and continuous basis per IT-268R4. In (2), our position is generally that crop share received by a landlord in a sharecropping arrangement is rental income and not income from farming per IT-433R. There may however be other sharecropping arrangements where the owner of the land could be considered in the business of farming. (3) We do not have sufficient information to make that determination (not clear if farming business carried on, not clear if actively engaged on a regular and continuous basis, no information on gross income from farming and other sources, etc).

7 September 2004 External T.I. 2004-0073081E5 - Retroactive Lump Sum Payment of OAS

Unedited CRA Tags
110.2(1) 56(1)(a)(i); 180.2

Principal Issues: 1. Is there any legislative relief from the application of the Part I.2 tax in the case of a retroactive lump sum payment of benefits under the OAS?
2. If not, is there any administrative relief available?

Position: 1. There is no legislative relief available for the Part I.2 tax, however section 110.2 of the Act provides relief from the Part I tax under certain circumstances.
2. The CRA may waive the withholding on the Part I.2 tax in cases of "undue hardship" provided certain conditions are met.

Reasons: 1. Wording of the Act.
2. CRA policy.

7 September 2004 External T.I. 2004-0067871E5 - Cessation of an RCA

Unedited CRA Tags
248(1) 207.5(1) 56(1)(x)

Principal Issues: How will CRA assess the distributions from and refundable tax in respect of a plan or arrangement that purports to be an RCA but ceases to exist before retirement, loss of employment or a substantial change in employment services rendered by the employee?

Position: Question of fact.

Reasons: The wording of the definition of a RCA in subsection 248(1) of the Act requires that the plan or arrangement be funded in connection with benefits that are to be, or may be, received or enjoyed on, after or in contemplation of a substantial change in services rendered, retirement or loss of employment.

XXXXXXXXXX 2004-006787
P. Kohnen
September 7, 2004

31 August 2004 External T.I. 2004-0071741E5 - RRSP deduction limit

Unedited CRA Tags
146(1) 146(5)

Principal Issues: If a taxpayer ceases to be a member of an employer sponsored pension plan in a particular year such that their pension adjustment amount is reduced for that year, will the taxpayer's RRSP deduction limit be affected for that same year?

Position: No

Reasons: It is clear in the legislation, a taxpayer's RRSP deduction limit is reduced by the taxpayer's pension adjustment for the preceding taxation year - not the current year.

19 August 2004 External T.I. 2003-0042371E5 - V-Day shares and 93(1) election

Unedited CRA Tags
93(1) 93(2), Reg 5902, ITAR 26(8), Interpretation Act 33(2), IT-78, par 3

Principal Issues: Pre-1972 and post-1971 shares of a foreign affiliate are sold, and a 93(1) election made. The post-1971 shares result in a loss which is denied under 93(2), although there is no loss overall. Is there any relief from this anomaly?

Position: No

Reasons: Wording of the legislation.

Technical Interpretation - Internal

28 March 2000 Internal T.I. 1999-0011511I7 - CEE; Feasibility Study; Environmental Assess

Unedited CRA Tags
66.1(6)(g) 66.2(5)(e)

Principal Issues: classification of feasibility study and environmental assessment expenses

Position: may be CEE, CDE, ECE

Reasons: question of fact

3 April 1996 Internal T.I. 9522931I7 - RELEASE SURRENDER DISCLAIMER - INCOME INTEREST

Unedited CRA Tags
248(8) 106(2) 107(4) 70(5)
Summary Under
Tax Topics - General Concepts - Illegality

April 3, 1996

	Regina Tax Services Office	    		 Trusts Section
J. Flett		              			 L. Holloway
	Chief of Audit	              			 (613) 957-2104

Attention: Brenda McEachern
Business Audit

			             				 952293

Disposition of an Income Interest in a Trust