Income Tax Severed Letters - 2004-10-01

Principal Issues: What are the possible tax consequences of amending an EBP to provide for the payment of amounts to an employee who is the only beneficiary of the EBP?

Position: Question of fact.

Reasons: The possible tax consequences will depend upon the facts in a particular fact situation.

Principal Issues: A taxpayer who owns 60 shares of a corporation disposes of 50 shares at a loss. Of the 60 shares owned at the time of the disposition, 10 shares were acquired during a period of 30 days before the disposition. Moreover, another 10 shares were acquired during a period of 30 days after the disposition such that the taxpayer owns 20 shares of that corporation at the end of that period. To what extent will the loss realised on the disposition of the 50 shares be considered a "superficial loss" ?

Position: The loss on the disposition of 20 shares will be considered a "superficial loss".

Reasons: The taxpayer has acquired 20 identical shares during the 61-day period described in the definition of "superficial loss" in s.54 of the Act (the "substituted property") and the taxpayer still owns the 20 identical shares at the end of the 30-day period following the disposition.

Principal Issues: Whether an election under subsection 1103(1) of the Regulations can be made where subsection 13(21.1) is applicable.

Position: Yes, provided required conditions are met.

Reasons: Complies with legislative requirements.

Principal Issues: Whether free tuition for an employee's dependant, where the employee is working overseas by virtue of his or her employment, is a taxable benefit.

Position: No.

Reasons: There is no economic advantage conferred on the employee.

Principal Issues: Whether the discretionary power of the Canada Revenue Agency ("CRA") to assess or reassess a taxpayer can be limited when a taxpayer duly files a waiver with the Minister. Whether the legislation, jurisprudence or the CRA's administrative position allows a taxpayer to be reassessed in accordance with the outcome of a test case raising identical factual and legal issues by filing a waiver with the Minister.

Position: Where there is a change in a previous interpretation or position, including a change resulting from a court decision, and the change is beneficial to taxpayers, the CRA's published position is that it is usually effective for all future assessments and reassessments. The only prior years that can be reassessed, as the result of the change in position, are those years for which a notice of objection had been filed and is still outstanding, and those years for which a notice of objection can still be filed. Under subsection 152(4), the Minister has the discretionary authority to reassess tax, interest or penalties within the "normal reassessment period," and also outside the normal reassessment period provided the conditions described in paragraph 152(4)(a) or (b) have been met. However, in some situations, the CRA may agree with a particular taxpayer that he or she will be assessed or reassessed in accordance with the outcome of a test case based on similar facts and issues of law. In such a situation, the taxpayer would normally file waivers in prescribed form in respect of the relevant years to ensure that the Minister is not precluded from assessing or reassessing because of the time limit contained in subsection 152(3.1). The Minister would be required to assess or reassess by reason of the agreement entered into between the taxpayer and the CRA, and not by reason of the waiver filed with the Minister. If there is no such agreement, the Minister may refuse to exercise his discretionary authority under subsection 152(4) to assess or reassess, in accordance with the position stated above.

Reasons: Wording of the Act and previous positions.

Principal Issues: The taxpayer terminated employment in 2003 and assumed his pension adjustment reversal ("PAR") would be calculated in 2003. He accordingly estimated the PAR and made a contribution to his RRSP. The PAR was actually reported in 2004 and the Taxpayer's claim for RRSP contributions 2003 was disallowed. He has asked that the contribution be allowed as there was undue delay by the pension in reporting the PAR.

Position: The deduction cannot be allowed

Reasons: This is a common error. The PAR is calculated when the employee's participation in the pension is terminated, not when the employee's employment is terminated. Participation in an RPP is terminated when all benefits are calculated and distributed. In this case this occurred in 2004. Hence, the employee did not have the amount of unused room in 2003 that he thought he had. There is no relief available under the Act that specifically addresses this situation. However, it should be noted that the contributions disallowed in 2003 are fully deductible in 2004 so the tax consequences should be minimal.

Principal Issues: Whether a permanent establishment would not exist in Canada because of the Canada-U.S. Convention, Article V, paragraph 7?

Position: No position taken.

Reasons: The determination would be made only after a thorough review of all of the relevant facts and agreements.

Principal Issues: Whether a benefit would be considered to have been conferred where a loan receivable of a wholly-owned foreign subsidiary from its foreign parent is settled without payment upon the winding-up of the wholly-owned foreign subsidiary into the foreign parent?

Position: It depends on the fact of the situation.

Reasons: The exception in paragraph 15(1)(a) of the Income Tax Act may not apply depending on the fact of the situation.

Principal Issues: Whether an Investment Undertaking company is entitled to treaty benefits

Position: No, under the new treaty

Reasons: See below