Income Tax Severed Letters - 2004-10-22

Ruling

2004 Ruling 2002-0171521R3 - XXXXXXXXXX .-Transfer of rights to income

Unedited CRA Tags
56(4) 75(2) 107(4.1)

Principal Issues:
1. Whether the transfer of property to a trust will result in the application of 56(4) or 75(2)?
2. Whether distributions of income by the trust to the Representative will be subject to 104(6) and (13)?
3. Whether distributions of capital by the trust will be subject to 107(2.1)?

Position:
1. 75(2) where the underlying property is transferred, else 56(4).
2. Yes.
3. Yes; however, if the Beneficiary is the Representative, 107(2) will apply.

Reasons:
1. The property that will generate most of the anticipated revenue will be transferred, but some rights to income will be transferred without a transfer of the underlying property.
2. Except to the extent it is deemed by 75(2) to be the Representative's income.
3. The trust will be a personal trust, and the Representative will be the only contributor of property to the trust. Accordingly, 107(4.1) will apply.

2004 Ruling 2004-0060201R3 - XXXXXXXXXX First Nation Ruling

Unedited CRA Tags
75(2) 149(1)(c) 104(6)

Principal Issues: 1. Whether the First Nation will be exempt under 149(1)(c).
2. Whether the trust will qualify as a personal trust within the meaning of 248(1).
3. Will the Trust be liable for tax under Part XII.2 of the Act?
4. Whether income or loss from property acquired with monies settled in the trust or funds contributed in future years by the First Nation will be deemed to be income of the First Nation pursuant to 75(2).
5. 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).

Position: 1. Yes.
2. Yes.
3. No
4. Yes.
5. Yes.

Reasons: 1. 2002-015576 consultation; consistent with other rulings (2000-0033283; 1999-0005513).
2. 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.
3. Pursuant to subsection 210.3(1), no Part XII.2 tax is payable by a trust if the trustees certify in the trust's return that there are no "designated beneficiaries" thereof, as that term is defined in section 210. While the First Nation is exempt from tax pursuant to subsection 149(1), the First Nation will not acquire its interest in the Trust directly or indirectly from a beneficiary under the Trust. As a result, the Trust will have no designated beneficiaries.
4. 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.
5. The Trust Deed confirms that second generation income will be payable to the First Nation.
Another consideration is whether the issuance of promissory notes will constitute payment of income.

2004 Ruling 2004-0062881R3 F - Underground Exploration Program -- new mine & CEE

Unedited CRA Tags
66.1(6) 66.2(5) 248(1)

Principal Issues: A) Whether expenses relating to an underground exploration program to be carried out will be related to a mine that has come into production in reasonable commercial quantities or to be related to a potential or actual extension thereof.
B) Whether expenses relating to an underground exploration program to be carried out will qualify for inclusion under paragraph (f) of the definition of CEE.

Position: A) No.
B) Yes.

Reasons: Based upon the facts of the situation and a written opinion received from Natural Resources Canada and provided that any economic mineralization found pursuant to the underground exploration program is not exploited using the existing surface and the underground infrastructures.

Technical Interpretation - External

21 October 2004 External T.I. 2004-0081881E5 - Determination of Insurable Earnings

Unedited CRA Tags
5(1) 156.1(4)

Principal Issues: Whether the taxable benefit arising to an employee from meals provided free of charge by the restaurant employer to the employee during their work shift would constitute insurable earnings for purposes of Employment Insurance.

Position: Final determination to be made by the CPP/EI Eligibility Division of the Revenue Collections Branch at the relevant Tax Services Office, however, it is our understanding that such a benefit would generally not be found to constitute insurable earnings.

Reasons: The CPP/EI Eligibility Division is the area authorized to make such determinations in accordance with section 90 of the Employment Insurance Act. Informal discussion with personnel from the above Division.

20 October 2004 External T.I. 2004-0093911E5 - Definition of Multi-Employer Plan - 8500(1)

Unedited CRA Tags
8500(1) 251(2) 251(4)

Principal Issues: Will a pension plan where XXXXXXXXXX % of the active members are employed by a province and XXXXXXXXXX % are employed by a crown corporation controlled by the province, be considered a multi-employer pension plan as defined in subsection 8500(1) of the Income Tax Regulations?

Position: Question of fact. Based on the facts provided in this particular situation, no.

Reasons: A province is considered to be a person for purposes of the Act (149(1.2)(b)) and the province is the only person controlling the crown corporation in this particular situation. Therefore, the province and the crown corporation will be defined to be related persons and a related group in accordance with subsections 251(2) and 251(4) of the Act. As 100% of the active members of the pension plan are employed by a related group of participating employers, the definition of MEP in subsection 8500(1) of the Regulations would not be satisfied.

XXXXXXXXXX 2004-009391
G. Allen
October 20, 2004

19 October 2004 External T.I. 2004-0085561E5 F - Régime de droit à la plus-value des actions

Unedited CRA Tags
248(1) "entente d'échelonnement du traitement
right under phantom plan to receive the appreciation, on employment termination, as an annuity could engage the SDA rules

Principales Questions: Quelles sont les conséquences fiscales (pour l'employeur et les employés) d'un régime ou mécanisme que l'employeur veut mettre en place pour le bénéfice des employés?

Position Adoptée: Aucune

Raisons: Question qui nécessite un examen de tous les faits y compris les ententes pertinentes.

XXXXXXXXXX 2004-008556
A. St-Amour, CA
Le 19 octobre 2004

18 October 2004 External T.I. 2004-0063421E5 - Retroactive Lump-Sum Payment

Unedited CRA Tags
110.2(1) 56(1)(a)(ii); 6(1)(l.1)

Principal Issues: 1.Whether the amount received under the terms of a settlement agreement to terminate a class action lawsuit is a qualifying amount under subsection 110.2 of the Act.
2. If not, could the amount be included in income in the year of the settlement agreement instead of the year the payment is received?

Position: 1. Question of fact;
2. No, the amount is taxable in the year it is received.

Reasons: To benefit from the rules in new section 110.2 of the Act, an individual must have received a "qualifying amount" during a taxation year. In addition, a "specified portion" must relate to an "eligible taxation year" during which the individual's eligibility to receive the portion existed. The payment of a retiring allowance does not necessarily satisfy these requirements. To qualify, it must represent a payment on account of or in lieu of damages paid pursuant to an order or judgment of a competent tribunal, an arbitration award or a contract by which the payor and the individual terminate a legal proceeding (i.e. in settlement of a lawsuit).

18 October 2004 External T.I. 2004-0086351E5 - Self-Employed & Bus. Relationship Reporting

Unedited CRA Tags
153(1)(a) Reg 200(1)

Principal Issues: Determining whether an individual is employed or self-employed and determining the proper reporting requirements of the company.

Position: Question of Fact. General Information provided.

Reasons: CRA's guide RC4110, Employee or Self-Employed.

15 October 2004 External T.I. 2004-0097461E5 - Foreign Property - RRSPs

Unedited CRA Tags
205 206(2)

Principal Issues: Is the foreign content limit for RRSPs applied to the total property held in all RRSP trusts of an annuitant?

Position: No.

Reasons: Section 206 of the Act clearly provides that the foreign content limit is applied to each RRSP trust separately.

13 October 2004 External T.I. 2004-0096301E5 - Temporary Return to Canada; Residence

Unedited CRA Tags
2 115

Principal Issues: Does temporary return affect non-resident status?

Position: Probably not. Can't give definite answer without all the facts.

Reasons: Stated facts.

XXXXXXXXXX 2004-009630
Eliza Erskine
October 13, 2004

29 September 2004 External T.I. 2004-0092261E5 F - Acquisition of control

Unedited CRA Tags
249(4); 256(7) 256(6.1)
s. 256(7)(d) applied where two individuals transferred their equal shareholdings of Opco to a joint Holdco
no acquisition of control where the two equal shareholders of Opco transfer their respective shareholdings to respective holding companies

Principal Issues: Whether there is an acquisition of control of a particular corporation (OPCO) for the purposes of subsection 249(4) in the following two given fact situations:
Where shares of the capital stock of OPCO are disposed of to another corporation (HOLDCO) for consideration that includes shares of HOLDCO's capital stock and, immediately after that time, HOLDCO and OPCO are controlled by a group of persons who controlled OPCO immediately before that time, and did not, as part of the series of transactions or event that includes the disposition, cease to control HOLDCO.
Where shares of the capital stock of OPCO are acquired by a corporation from a person to whom the corporation is related.

Position: 1) No.
2) No.

Reasons: 1) The control of OCPO shall be deemed not to have been acquired by virtue of paragraph 256(7)d).
2) The control of OCPO shall be deemed not to have been acquired by virtue of clause 256(7)(a)(i)(A)

24 September 2004 External T.I. 2004-0091881E5 - Wrongful Dismissal

Unedited CRA Tags
56(1)(a)(ii) 12(1)(c)

Principal Issues: Taxation of a proposed settlement of a wrongful dismissal suit.

Position: Taxable retiring allowance except amounts paid as a reimbursement of legal expenses, which is taxable under paragraph 56(1)(l.1) to the extent that the underlying legal expenses are deductible under paragraph 60(o.1).

Reasons: Payment is in respect of damages for loss of employment. None of the exceptions in paragraph 12 of IT-337R4 apply. Even if pre-settlement interest had been identified in the proposed agreement, the interest would have been taxable, albeit under paragraph 12(1)(c) instead of as a retiring allowance.

23 September 2004 External T.I. 2004-0088801E5 F - Stop-Loss Provisions -- Grandfathering

Unedited CRA Tags
112(3.2)
s. 248(5)(b) did not deem stock dividend shares to be the same shares as those on which the dividend was paid for transitional relief purposes
s. 248(5)(b) does not deem the substituted shares to have been owned for so long as were the underlying shares

Principal Issues: Whether the transitional rule under subparagraph 131(11)(b) of the Income Tax Amendments Act, 1997 (Bill C-28/ Royal Assent June 18, 1998), as amended, (the "Transitional Rules") relating to application of subsections 112(3) to (3.2) of the ITA applies to preferred shares received by an individual as a stock dividend on grandfathered shares of the capital stock of a corporation?

Position: No.

Reasons: The preferred shares were not owned by the individual on April 26, 1995 and the criteria of paragraph 131(12) of the Transitional Rules are not met.

2004-008880
XXXXXXXXXX Guy Goulet, CA, M.Fisc,
(613) 957-9768
Le 23 septembre 2004

17 September 2004 External T.I. 2004-0083161E5 - ACB of shares under administration of an estate

Unedited CRA Tags
47(1) 70(9.2)

Principal Issues: Is the ACB of shares redeemed by an estate subject to 47(1) when the deceased taxpayer's proceeds of disposition of some of the shares were determined under 70(5) and the proceeds for other identical shares determined under 70(9.2) -(because some shares are to be distributed to a qualifying child as described in 70(9.2) and some are to be distributed to the taxpayer's other child who is not resident in Canada)?

Position: No.

Reasons: Section 47(1) doesn't apply to the shares transmitted to the estate on death because, despite the difference in ACB and identical nature of the shares, because the shares were acquired at the same moment in time such that the estate does not have an "previously-acquired property" that is identical to the shares acquired as a consequence of the death of the taxpayer which is required in order for 47(1) to apply. It is clear from the scheme of the Act that the shares that are acquired at a cost amount equal to the FMV are the shares to be distributed to the non-resident child and that the shares that are subject to subsection 70(9.2) are the shares to be distributed to the child resident in Canada who meets the conditions set out in that subsection.

XXXXXXXXXX 2004-008316
Annemarie Humenuk
Attention: XXXXXXXXXX

17 September 2004 External T.I. 2003-0048881E5 - Mutual Fund Trust - 132(7)

Unedited CRA Tags
132(7)

Principal Issues: How does the CRA interpret the rule in 132(7).

Position: A trust loses its MFT status once it is established or maintained (this concept involves a certain time span) primarily for the benefit of non-residents, unless the exceptions in 132(7)(a) or (b) applies.

Reasons: Interpretation of the provision.

17 September 2004 External T.I. 2004-0060161E5 - Nature of a capital dividend

Unedited CRA Tags
108(3) 70(9.3)

Principal Issues: (1) Filing requirements in respect of a capital dividend; (2) nature of a capital dividend (income or capital of a trust/estate); (3) impact of a distribution of the capital dividend to a beneficiary other than the surviving spouse on the applicability of 70(9.3).

Position: (1) Return has to be filed; (2) a cash capital dividend is income, unless the intention of the settlor/testator is to make it capital and only to the extent that it represents proceeds of disposition of the asset which was transferred to the trust/estate or of the underlying assets; (3) no effect on 70(9.3).

Reasons: (1) Wording of the act; (2) case law; (3) a capital dividend is not income for the purposes of 70(6).

30 August 2004 External T.I. 2004-0060851E5 - Debts guaranteed by a mutual fund trust

Unedited CRA Tags
132(6)

Principal Issues: Would the condition in 132(6)(b) be met where a MFT provides a guarantee to a wholly owned sub-trust or to a limited partnership, i.e. would the only undertaking of the MFT still be considered to be the investing of its funds.

Position: The only undertaking of the MFT could still be seen as being the investing of its funds where the circumstances indicate that the guarantee is part of that undertaking.

Reasons: The Supreme Court of Canada has opined that an undertaking can be made of an array of activities. Even though there is no case law dealing with the requirement that the only undertaking be the investing of funds, the courts have considered in several cases dealing with other issues that a guarantee can be part and parcel of an investment. The notes to the file contain the relevant excerpts from the different cases. However, the level of integration between the guarantees and the investing activities ought to be very high to make sure that the undertaking blends with the investing of funds because a guarantee is an undertaking by itself.

XXXXXXXXXX 2004-006085
Yves Moreno
August 30, 2004

Conference

8 October 2004 APFF Roundtable Q. 5, 2004-0089141C6 F - Compte de dividendes en capital

Unedited CRA Tags
89(1) Compte de dividendes en capital 148(9)

Principales Questions:
Au décès de l'assuré, il y a une avance sur police impayée qui est déduite de la prestation décès payée au bénéficiaire de la police d'assurance-vie. Aux fins du CDC :
1. Est-ce qu'il y a un remboursement de l'avance immédiatement avant le décès pour les fins de la définition du coût de base rajusté?
2. Quel est le montant reçu par le bénéficiaire de la police suite au décès pour les fins du CDC?

Position Adoptée: 1.Non.
2. Le montant net versé par l'assureur

Raisons: 1. Le calcul du CBR est effectué immédiatement avant le décès et à ce moment, l'avance sur police n'est pas remboursée.
2. Le montant qui peut être versé au bénéficiaire est le capital assuré moins les avances sur police.

Technical Interpretation - Internal

13 April 1995 Internal T.I. 94133770 - Reclamation and clean-up costs

Unedited CRA Tags
18(1)(a) 18(1)(b)

Principal Issues:
1. Are clean-up costs deductible as expense for year incurred.
2. Is some clean-up cost expense and other costs capital.
3. Is the capital part of clean-up cost added to cost of land.
4. Will capital cost of depreciable property for water pollution qualify for Class 24.
5. Are costs to XXXXXXXXXX capital or expense.
6. Are clean-up costs incurred after the business was sold treated different from costs incurred while business was still operated.

13 April 1995 Internal T.I. 9413377 - Reclamation and clean-up costs

Unedited CRA Tags
18(1)(a) 18(1)(b)

Principal Issues:
1. Are clean-up costs deductible as expense for year incurred.
2. Is some clean-up cost expense and other costs capital.
3. Is the capital part of clean-up cost added to cost of land.
4. Will capital cost of depreciable property for water pollution qualify for Class 24.
5. Are costs to XXXXXXXXXX capital or expense.
6. Are clean-up costs incurred after the business was sold treated different from costs incurred while business was still operated.