Income Tax Severed Letters - 2004-10-01

Ruling

2004 Ruling 2003-0016811R3 - XXXXXXXXXX profit transfer agreement

Unedited CRA Tags
95(2) 5907 proposed 95(2)(n)

Principal Issues: Whether: (1) designated treaty country residence requirement in paragraph (d) of the definition of "exempt earnings" in Regulation 5907(1) can be satisfied in respect of the taxation year of the affiliate where central control and management is situated in XXXXXXXXXX on the last day of the taxation year and the affiliate is a resident of XXXXXXXXXX on that day; (2) foreign accrual property income ("FAPI") arises in relation to a foreign affiliate of PUBCO from an amount paid or payable to HOLDCO 5 by OPCO 5, OPCO 2, OPCO 4 and OPCO 3 of earnings from an active business to the extent the payment is deductible in computing exempt earnings of OPCO 5, OPCO 2, OPCO 4 and OPCO 3; (3) FAPI arises as a result of an amount paid or payable by HOLDCO 5 to OPCO 5, OPCO 2, OPCO 4 or OPCO 3 by HOLDCO 5 under the OPCO 5 PTA, OPCO 4 PTA and OPCO 3 PTA respectively; (4) OPCO 5, OPCO 2, OPCO 4 or OPCO 3 will have any earnings or loss after payments made under the relevant PTA's to HOLDCO 5; (5) subsection 245(2) will apply to the transactions; (6) income derived by FINCO from interest paid or payable by HOLDCO 5 under the HOLDCO 5 Loan will be included in computing the income from an active business of FINCO and the "exempt earnings" of FINCO, on the assumption proposed paragraph 95(2)(n) and subparagraph 95(2)(a)(ii)(B)

Position: (1) Yes; (2) No; (3) No; (4) No; (5) No; (6) Yes.

Reasons: (1) the foreign affiliates that own and control OPCO 5 pursuant to the OPCO 5 Acquisition are resident in XXXXXXXXXX under the Canada-XXXXXXXXXX Income Tax Convention and mind, management and control of OPCO 5 is exercised in XXXXXXXXXX ; (2) clause 95(2)(a)(ii)(B) would apply to re-characterize this income from property; (3) to the extent the downstream payment pertains to loss from an active business of the recipient; (4) definition of "earnings" or "loss" in Regulation 5907(1); (5) no avoidance transactions; (6) back-to-back operation of subparagraph 95(2)(a)(ii)(B) to re-characterize such income and loss.

2004 Ruling 2004-0073821R3 - Stock Option Plan Amendment - SAR

Unedited CRA Tags
7(1)(b)
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 110 - Subsection 110(1) - Paragraph 110(1)(d)

Principal Issues: Will an amendment to add a share appreciation right to a stock option plan result in the application of 7(1)(b) of the act?

Position: no

Reasons: The proposed amendment does not constitute a change so fundamental as to constitute a new agreement.

2004 Ruling 2004-0075461R3 F - Amendement de conventions de fiducie

Unedited CRA Tags
104(7.1) 108(2) 245(2) 248(1)

Principales Questions: Est-ce que les modifications proposées aux conventions de fiducie et leur regroupement sous une convention de fiducie principale auront pour effet: (1) d'entraîner la disposition des unités existantes des fiducies; (2) de remplacer, substituer ou recréer les fiducies; (3) d'entraîner l'inclusion aux fins de la Loi d'un montant dans le calcul du revenu des fiducies ou de leurs bénéficiaires; (4) d'entraîner l'application de 104(7.1); (5) de modifier le statut des fiducies à titre de fiducies d'investissement à participation unitaire; et (6) d'entraîner l'application de 245(2).

Position Adoptée: (1) Non; (2) Non; (3) Non; (4) Non (l'application de 104(7.1) advenant la création de nouvelles séries d'unités n'est cependant pas considérée); (5) Non (la décision ne tient compte que de la possibilité de suspension du droit de rachat des détenteurs prévue à la convention de fiducie); (6) Non.

Raisons: Positions antérieures (voir énoncé des principales questions).

XXXXXXXXXX 2004-007546

2004 Ruling 2004-0078331R3 - spin-off butterfly

Unedited CRA Tags
55(3)(b)

Principal Issues: Standard spin-off butterfly

2003 Ruling 2003-0050303 - AT-RISK BENEFIT AND ENVIRONMENTAL TRUST

Unedited CRA Tags
20(1)(ss) 96(2.2)(d)
Summary Under
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(ss)
investor-funded LP will enter into a JV with a mining co pursuant to which it will fund a QET respecting a mine to be reopened
Summary Under
Tax Topics - Income Tax Act - Section 211.6 - Subsection 211.6(1) - Qualifying Environmental Trust
reclamation trust for re-opened mine partly funded by investor partnership

Principal Issues: A limited partnership has been formed to secure funds to assist in the reopening of a XXXXXXXXXX mine in XXXXXXXXXX . The partnership will enter into a joint venture agreement with the mine operator whereby the partnership will receive a share of the net gross revenue derived from the production of the mine. Under the terms of the joint venture, the partnership will make a contribution to a reclamation trust for which it is a co-beneficiary with the mine operator and the Province of XXXXXXXXXX. A put/call agreement will be entered into between the partnership and the parent company (a public company) of the mine operator, to allow the units of the partnership to be acquired by the parent company for cash or common shares of the parent. The main issues relating to the ruling are:

1) Will the partnership be entitled to deduct, from income, the amount contributed to the reclamation trust?
2) Does the existence of the call right, in and of itself, result in a reduction of the at-risk amount under paragraph 96(2.2)(d) of the Act?
3) Does the existence of the put right, in and of itself, result in a reduction of the at-risk amount under paragraph 96(2.2)(d) of the Act?

Position: 1) yes, provided that the reclamation trust is a qualified environmental trust; 2) and 3) the existence of put and call rights will not, in and of themselves, result in a reduction of the at-risk amount of the limited partners.

Reasons: 1) meets the conditions under paragraph 20(1)(ss); 2) call right is at the discretion of the parent company and the exercise price does not exceed the fair market value of the units of the partnership; and 3) the maximum price of the put right does not exceed the fair market value of the units of the partnership.

Technical Interpretation - External

29 September 2004 External T.I. 2002-0095381E5 - Interest deductibility; repay loan

Unedited CRA Tags
20(3) 20(1)(c)

Principal Issues: Whether interest on new loan used to repay old loan is deductible

Position: 20(3) deemed new loan to be used for same purpose of repaid loan

Reasons: 20(3)

27 September 2004 External T.I. 2003-0048241E5 - site reclamation costs

Unedited CRA Tags
18(1)(e) 20(1)(m) 12(1)(a)
Summary Under
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(m)
no reserve if s. 9 inclusion

Principal Issues: A) whether anticipated future site reclamation costs may be deducted currently; B) whether a reserve under 20(1)(m) may be deducted

Position: A) generally site reclamation costs can be deducted only when incurred or when contributions are made to a qualifying environmental trust; B) a reserve may be claimed only where an identifiable amount has been included in income under 12(1)(a) and there is an obligation to restore the site.

Reasons: review of case law

23 September 2004 External T.I. 2003-0039011E5 - Amending an Employee Benefit Plan

Unedited CRA Tags
248(1) 6(1)(g)

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.

22 September 2004 External T.I. 2004-0086611E5 - Employer-Paid Meal Allow. To Truck Drivers

Unedited CRA Tags
6(1)(b) 67.1(1) 67.1(2)

Principal Issues: Whether a daily allowance paid to an employed truck driver for meal and incidental expenses incurred while travelling away from home for seven-day periods is a taxable employment benefit, and whether the employer is entitled to deduct the entire amount it computing business income.

Position: Allowance would not likely be a taxable benefit, but the employer is restricted to a deduction for 50% of the portion of the allowance representing meals.

Reasons: Subparagraph 6(1)(b)(vii) would likely exclude the allowance from the employee's income. Subsection 67.1(1) would restrict the deduction for the meal portion of the allowance since none of the exceptions in 67.1(2) apply in respect of the allowance that is excluded from an employee's income under subparagraph 6(1)(b)(vii).

22 September 2004 External T.I. 2004-0073011E5 - Superficial Loss

Unedited CRA Tags
54 47
Summary Under
Tax Topics - Income Tax Act - Section 54 - Superficial Loss

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.

21 September 2004 External T.I. 2004-0067881E5 F - MCIA- lien de dépendance

Unedited CRA Tags
14(5)
Summary Under
Tax Topics - Income Tax Act - Section 14 - Subsection 14(5) - Cumulative Eligible Capital - Variable A - Variable A.1
transferor must not be dealing at arm's length with the taxpayer at the time the eligible capital property is acquired

Principales Questions: À quel moment un lien de dépendance doit-il être établi afin qu'un contribuable soit visé par l'élément A.1 de la définition de MCIA énoncée au paragraphe 14(5) de la Loi dans le cadre des propositions législatives du 20 décembre 2002 (reprises le 27 février 2004 ?

Position Adoptée: Le cédant doit avoir un lien de dépendance avec le contribuable au moment de l'acquisition de l'immobilisation admissible.

Raisons: Application de la Loi.

20 September 2004 External T.I. 2004-0072411E5 - Terminal loss on building

Unedited CRA Tags
13(21.1) Reg. 1103(1)

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.

17 September 2004 External T.I. 2004-0088561E5 - Tax. Benefit Tuition For An Employee's Dependant

Unedited CRA Tags
6(1)(a)

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.

17 September 2004 External T.I. 2004-0078551E5 - Moving Expense-Teacher Exchange

Unedited CRA Tags
62 248(1)

Principal Issues: Would cost of airplane tickets and trip cancellation insurance be deductible as moving expenses in a situation involving an international teacher exchange program?

Position: Question of fact. Based on limited information provided appears to be deductible as moving expenses in the relevant years.

Reasons: Reading of the law and positions previously adopted.

15 September 2004 External T.I. 2004-0078001E5 - Legal fees in securing discharge from bankruptcy

Unedited CRA Tags
18(1)(h) 60(o.1)

Principal Issues: Whether the legal expenses incurred in the administration of the taxpayer's personal bankruptcy or the securing of his discharge from the personal bankruptcy are deductible.

Position: No.

Reasons: The legal fees incurred under these circumstances are personal expenses which deduction is prohibited under paragraph 18(1)(h) of the Act.

14 September 2004 External T.I. 2004-0085251E5 - Change in Position Resulting from Court Decision

Unedited CRA Tags
152(4) 152(4.01) 152(3.1) 165(3)

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.

10 September 2004 External T.I. 2004-0077361E5 - Loans of Employees Between Corporations

Unedited CRA Tags
2(3) 115 Article 15 Article XV

Principal Issues: Who is the employer in a particular corporate employee loaning arrangement? When should an employee's salary be considered to be "borne by" a Canadian employer?

Position: Insufficient facts to resolve these issues. Should be dealt with by way of advance income tax ruling.

Reasons: Insufficient facts. Requires review of employment contracts and contracts between corporations.

XXXXXXXXXX 2004-007736
Eliza Erskine
September 10, 2004

9 September 2004 External T.I. 2004-0070351E5 - Permanent Establishment in Canada

Unedited CRA Tags
Canada-U.S. Convention Article V, paragraph 7

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.

9 September 2004 External T.I. 2004-0092601E5 - RRSP -PAR and contributions

Unedited CRA Tags
146 147.3 147.1

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.

9 September 2004 External T.I. 2004-0093091E5 - Approved Stock Exchange; Article 13

Unedited CRA Tags
Article 13
Summary Under
Tax Topics - Treaties - Income Tax Conventions - Article 13

Principal Issues: Does "approved stock exchange" in article 13 of a tax treaty mean a stock exchange prescribed for purposes of the Act?

Position: Yes.

Reasons: General object and spirit approach as confirmed by comments of the Department of Finance.

8 September 2004 External T.I. 2004-0092341E5 - RESP - Educational Assistance Payments

Unedited CRA Tags
146.1(1) 146.1(2)(g.1)

Principal Issues: When does an individual have to satisfy the requirement that before an educational assistance payment (EAP) may be paid out of an RESP, the individual must be enrolled in a qualifying educational program at a post-secondary educational institution?

Position: Every time an EAP is paid from an RESP, the requirements of paragraph 146.1(g.1) of the Income Tax Act must be satisfied, and in order for the payment to be an EAP, the payment must be made to assist the individual to further the individual's education at a post-secondary school level.

Reasons: The definition of EAP in subsection 146.1(1) of the Act and the wording of paragraph 146.1(2)(g.1) of the Act.

30 August 2004 External T.I. 2003-0001351E5 - Subsection 15(1) and section 80

Unedited CRA Tags
15(1)(a) 80 95(2)(g.1)

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.

6 August 2004 External T.I. 2004-0066621E5 - Irish Investment Undertakings

Unedited CRA Tags
212
Summary Under
Tax Topics - Treaties - Income Tax Conventions - Article 4
Irish investment undertakings not Treaty residents

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

Position: See below

Reasons: See below

3 August 2004 External T.I. 2003-0051251E5 - Irish Company - Investment Undertakings

Unedited CRA Tags
212

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

Position: No, under the new treaty

Reasons: See below

3 August 2004 External T.I. 2004-0057301E5 - Dual residency - provinces

Principal Issues: Whether the province of residence of an individual is affected when the individual has a spouse and another dwelling in a second province?

Position: Yes

Reasons: Question of facts

Technical Interpretation - Internal

21 September 2004 Internal T.I. 2004-0076591I7 - At-risk amount

Unedited CRA Tags
96(2.2) 96(2.1) 127(8.1) 66.8(1)

Principal Issues: Whether at-risk amount can be claimed as an income or capital loss by limited partner in final year of the partnership.

Position: Neither.

Reasons: No provision in the Act to allow such a deduction.
ITA REFERENCE: 96(2.2); 96(2.1); 127(8.1); 66.8(1)
HAA: 8074-5
SECURITY: For distribution

16 September 2004 Internal T.I. 2004-0083421I7 F - Clause de non-concurrence - employé

Unedited CRA Tags
6(3)
Summary Under
Tax Topics - Income Tax Act - Section 6 - Subsection 6(3) - Paragraph 6(3)(e)
amount received by employee for agreeing to non-compete was included under s. 6(3)(e)

Principales Questions: Est-ce que le montant reçu en considération et contrepartie d'une clause de non-concurrence prévue à une convention intervenue entre un employé et son employeur lors de la cessation d'emploi est imposable?

Position Adoptée: Le montant constitue du revenu d'emploi qui est imposable.

Raisons: Le paragraphe 6(3) s'applique à la présente situation (en particulier l'alinéa 6(3)e)) pour réputer le montant reçu comme étant de la rémunération pour des services rendus pendant la période d'emploi.

15 September 2004 Internal T.I. 2004-0075001I7 F - Transfert de bien lors du décès d'un conjoint

Unedited CRA Tags
70(6) 70(13) 248(1)
Summary Under
Tax Topics - Income Tax Act - Section 70 - Subsection 70(6) - Paragraph 70(6)(d)
application of s. 70(13) avoided recapture to deceased

Principales Questions: Est-ce que le produit de disposition d'un bien amortissable détenu par un contribuable décédé et le coût d'acquisition de ce bien pour son conjoint, calculés selon l'alinéa 70(6)d) de la Loi, tiennent compte du coût en capital et du coût indiqué obtenus après un ajustement prévu à l'alinéa 13(7)e) de la Loi?
Est-ce que le conjoint perd l'avantage fiscal relatif au choix effectué par un contribuable décédé en vertu du paragraphe 110.6(19) de la Loi lorsque le paragraphe 70(6) s'applique?

Position Adoptée: Le coût en capital et le coût indiqué utilisés pour les fins du paragraphe 70(6)d) de la Loi ne tiennent pas compte de l'ajustement prévu à l'alinéa 13(7)e) de la Loi.
Le conjoint ne perd pas l'avantage même si le paragraphe 70(6) s'applique.

Raisons: Le paragraphe 70(13) prévoit que, pour l'application de l'article 70 et pour l'application de l'article 13 et 20 (mais non des dispositions réglementaires prises en application de l'alinéa 20(1)a)) en cas d'application d'une disposition de l'article 70 (à l'exception du paragraphe 70(13)), le coût en capital du contribuable décédé ne tient pas compte de l'alinéa 13(7)e).
Interaction de 70(6), 70(13) et de la définition de coût indiqué au paragraphe 248(1).

13 August 2004 Internal T.I. 2004-0076861I7 F - Investissement à l'étranger

Unedited CRA Tags
12(4) 20(1) 75(2) 107
Summary Under
Tax Topics - Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(c)
return payable on maturity that was not expressed as a percentage or fraction qualified as interest
Words and Phrases
interest
Summary Under
Tax Topics - Income Tax Act - Section 75 - Subsection 75(2)
s. 75(2) would apply where loan proceeds would ultimately revert to the taxpayer
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 108 - Subsection 108(2) - Paragraph 108(2)(a)
suspension of redemption right for more than one year would disqualify as s. 108(2)(a) trust

Principales Questions: Traitement fiscal applicable à l'égard d'un placement à la Barbade détenu par un résident du Canada.

Position Adoptée: Commentaires généraux relativement à la situation soumise.

Raisons: Dispositions législatives applicables, positions antérieures de l'ARC et jurisprudence.

14 January 1999 Internal T.I. 9812531I7 - INSTALLATION PROJECT - ART.5(3) OF OECD

Unedited CRA Tags
Art.5(3)

Installation Project
Paragraph 3 of Article 5 of the OECD Model Convention

We are writing in reply to your memorandum of May 11, 1998 in which you requested our view as to whether the assembling of equipment carried out in Canada pursuant to the two specific contracts you provided to us (we have not been provided with the appendices to the contracts), can be considered to be installation project for the purposes of paragraph 3 of Article 5 of the Canada-Germany Income Tax Convention (the "German Convention") and the Canada-Netherlands Income Tax Convention (the "Netherlands Convention").