Income Tax Severed Letters - 2004-11-05

Ruling

2004 Ruling 2004-0066881R3 - NPO Status

Unedited CRA Tags
149(1)(l)

Principal Issues: Will a particular entity be organized exclusively for non-profit purposes so that if the other requirements under paragraph 149(1)(l) of the Act are met, it will be exempt from Part I tax after its proposed restructuring? Will one of the new proposed companies also be organized for a non-profit purpose so that if the other requirements of paragraph 149(1)(l) are met, it will also be exempt from Part I tax?

Position: Yes to both

Reasons: Based on the legislation and other Rulings given in similar circumstances

2004 Ruling 2004-0089181R3 - Loss utilization

Unedited CRA Tags
20(1)(c) 112(1) 246(1) 84(3)

Principal Issues: Loss utilization within a corporate group

Position: Acceptable

Reasons: Meets the technical requirements of the provisions

2004 Ruling 2004-0094081R3 - Structured settlement

Unedited CRA Tags
56(1)(d)

Principal Issues: The Claimants (wife and daughters of deceased) request a structured settlement ruling relating to the wrongful death of the deceased in a XXXXXXXXXX . The US insurers will pay the funds in US dollars in accordance with the Settlement Agreement.

Position: The amounts received will not be taxable.

Reasons: The terms of the settlement are considered to be consistent with CRA' s position set out in paragraph 5 of IT-365R2.

Technical Interpretation - External

2 November 2004 External T.I. 2004-0092741E5 - Dependant Tax Credit

Unedited CRA Tags
118 (1)B(d) 118(6)

Principal Issues: Can an individual make a claim for the dependant tax credit under 118(1)B(d) of the Income Tax Act for a child of the individual where the child is married, but otherwise meets the criteria?

Position: Question of Fact.

Reasons: Paragraph 118(1)(d) of the Act requires that the dependant have attained the age of 18 years before the end of the year and was dependent on the individual because of mental or physical infirmity. Subsection 118(6) of the Act defines a dependant to be a person who at any time in the year is dependent on the individual for support and includes a child of the individual.

2 November 2004 External T.I. 2004-0100861E5 - Determination of Insurable Earnings

Unedited CRA Tags
5(1)

Principal Issues: Follow-up question to file 2004-008188 regarding insurability of a taxable benefit, arising to an employee from meals provided free of charge by a restaurant employer, for purposes of Employment Insurance.

Position: Final determination remains to be made by the CPP/EI Eligibility Division of the Revenue Collections Branch at the relevant Tax Services Office, however, the ordinary meaning of the word "board" would appear to connotate something more than the provision of a meal to an employee by a restaurant employer during the employee's work shift.

Reasons: The CPP/EI Eligibility Division is the area authorized to make such determinations in accordance with section 90 of the Employment Insurance Act. General consideration of the ordinary meaning of the word "board" in the absence of an express definition thereof in the relevant regulations and legislation.

1 November 2004 External T.I. 2004-0064951E5 - Application of subsection 88(1.1)

Unedited CRA Tags
88(1.1)

Principal Issues: Proper application of subsection 88(1.1) - no acquisition of control.

Position: See response.

Reasons: The law.

28 October 2004 External T.I. 2003-0048901E5 - Benevolent or Fraternal Benefit Society or Order

Unedited CRA Tags
149(1)(k)

Principal Issues: Does the "fund" qualify as a "benevolent or fraternal benefit society or order" such that it is exempt from paying tax under Part I pursuant to paragraph 149(1)(k) of the Act.

Position: No.

Reasons: The "fund" does not meet the requirements of paragraph 149(1)(k) of the Act.

27 October 2004 External T.I. 2004-0084201E5 - Employee Reimbursement-Cost of a Rental Car

Unedited CRA Tags
6(1)(a) 6(6) 6(1)(b)

Principal Issues: The employee is reimbursed by the employer for the cost of a rental car used to travel between the employee's temporary office and hotel. Whether or not this is a taxable benefit to the employee.

Position: No.

Reasons: The employee would not have to rely on the provisions of subsection 6(6) since the employee is simply travelling in the course of carrying out his or her employment duties. The reimbursement of the cost for the rental car for travel between the employee's temporary office and hotel is not included in employment income under paragraph 6(1)(a) because the employee is required to travel away from the employer's place of business at which the employee ordinarily works. A reimbursement for travel expenses is generally not income for the employee receiving it unless it represents payment of the employee's personal expenses. Subparagraph 6(1)(b)(vii) or (vii.1) exempts reasonable allowances for travel expenses or for the use of a motor vehicle.

27 October 2004 External T.I. 2004-0098941E5 - Wrongful Dismissal

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

Principal Issues: Taxation of a proposed settlement of a wrongful dismissal suit. Follow-up to 2004-009188.

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.

25 October 2004 External T.I. 2004-0077031E5 F - Application de la division 20(1)e.2)(i)(B)

Unedited CRA Tags
20(1)e.2) 20(1)c)(iv) 12.2
Summary Under
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(e.2) - Subparagraph 20(1)(e.2)(i) - Clause 20(1)(e.2)(i)(B)
condition in s. 20(1)(e.2)(i)(B) is satisfied for a year if only a portion of the interest is deductible in that year pursuant to s. 20(1)(c)(iv)

Principales Questions: La condition énoncée à la division 20(1)e.2)(i)(B) est-elle satisfaite lorsqu'une partie seulement des intérêts est déductible en vertu du sous-alinéa 20(1)c)(iv) ?

Position Adoptée: Oui

Raisons: Libellé de la Loi. Rien n'oblige que la totalité des intérêts soit déductible.

21 October 2004 External T.I. 2004-0089071E5 - Northern Residents Deduction-Travel Benefit

Unedited CRA Tags
110.7(1)

Principal Issues: Is a prospective re-characterization of an existing salary an acceptable method to calculate the amount of northern travel benefit for purposes of claiming the northern residents deduction?

Position: Likely no, based on the limited facts provided.

Reasons: Where the employer does not pay additional compensation but simply re-characterizes or designates an amount of existing salary or wages, where the facts do not support that a portion of the existing salary or wages was originally intended to be in respect of travel expenses, the amount is not paid in respect of travel expenses for purposes of the deduction in subsection 110.7(1) of the Act.

21 October 2004 External T.I. 2004-0075041E5 - QFP-land owned by a partnership

Unedited CRA Tags
110.6(1)

Principal Issues: Must a partnership have been in existence for at least 24 months in order to qualify as an "interest in a family farm partnership" as defined is subsection 110.6(1)?

Position: Yes

Reasons: If a partnership has not been in existence for at least 24 months, it cannot meet the "throughtout any 24-month period ending before that time" condition in paragraph (a) of the definition of an "interest in a family farm partnership".

15 October 2004 External T.I. 2004-0080741E5 - Principal Residence-Partial change in use

Unedited CRA Tags
40(2)(b) 45(1)(c) 18(1)(b)

Principal Issues: (1) Whether there was a change of use of a residence. (2) Whether cost of replacing roof is capital or current. (3) Whether CCA deductions can be removed from previous tax returns.

Position: (1) Yes. (2) Question of fact. (3) TSO determination based on guidelines in IC 84-1.

Reasons: (1) Based on the facts and our administrative position in par. 32 of IT-120R6. (2) Based on par. 4 of IT-128R. Insufficient facts were provided to conlcude. (3) see above position.

5 October 2004 External T.I. 2004-0072141E5 - fellowship versus research grant

Principal Issues: 1. PhD student received amount as a fellowship and thinks part of the amount is a research grant.

Position: 1. No part of the amount received appears to be a research grant.

Reasons: 1.Amount appears to be given in order to further academic career- not to further research goal.

Conference

8 October 2004 APFF Roundtable Q. 8, 2004-0090801C6 F - Benefit to Shareholders

Unedited CRA Tags
15(1)
Summary Under
Tax Topics - Income Tax Act - Section 15 - Subsection 15(1)
s. 15(1) could apply where corporate funds used to acquire non-participating preferred shares

Principal Issues: Mrs. X is divorced from Mr. Z and receives $50,000 of spousal support payments each year. Mr. Z dies and his children (which are not Mrs. X's children) must continue to make the support payments until Mrs. X's death. It is decided that an annuity contract will be acquired to guarantee the amounts to which Mrs. X is entitled. More specifically, Mrs. X would first incorporate "NEWCO." A corporation ("CHILDCO") owned by the children would then subscribe to non-voting and non-participating preferred shares of NEWCO for a consideration of $1 million. NEWCO would use this amount to acquire an annuity contract and a $1 million life insurance policy on the life of Mrs. X. NEWCO would receive the amounts under the annuity contract, pay the cost of insurance coverage and pay taxable dividends to Mrs. X. At Mrs. X's death, NEWCO would use the proceeds of the insurance policy to redeem its preferred shares held by CHILDCO. Whether subsection 15(1) would apply in such a situation.

Position: The result of the proposed transactions is to remove the children's obligations towards Mrs. X. In that sense, there is a benefit for the children resulting from the proposed transactions. Among other things, subsection 15(1) could apply in the given situation if it is established that CHILDCO is impoverished as a result of the transactions. The amount or value of the benefit could equal the amount that the children would have to pay, in similar circumstances, to get the same benefit from a non-arm's-length person.

Reasons: Wording of the Act and previous positions.

Technical Interpretation - Internal

29 October 2004 Internal T.I. 2004-0097181I7 - Dealer's equipment rental

Unedited CRA Tags
248(1) 1102(1)(b) Reg 20(1)(a)

Principal Issues:
Whether the leased equipment of a dealer in heavy equipment is classified as inventory or depreciable property?

Position:
Probably classified as inventory.

Reasons:
Question of fact and law.

20 October 2004 Internal T.I. 2004-0081811I7 - Effect of bankruptcy on CNIL

Unedited CRA Tags
128(2) 110.6(1)

Principal Issues: Whether an individual's bankruptcy affects the computation of his/her CNIL balance for purposes of the capital gains exemption under s.110.6 of the Act.

Position: No.

Reasons: Upon bankruptcy, the trustee in bankruptcy is deemed to be the bankrupt individual's agent for purposes of the Act and the individual's property is deemed not to pass to or vest in the trustee but to remain vested in the individual. Nothing in the Act requires an individual's CNIL balance to be reduced to nil or otherwise affected by the individual's bankruptcy.

15 October 2004 Internal T.I. 2004-0074201I7 - Deductibility of Support Amounts

Unedited CRA Tags
60(b)

Principal Issues: Whether the total of support amounts paid in a year and permitted a deduction under par. 60(b) of the Act is considered "deductible" even though the taxpayer has insufficient income to absorb the deduction.

Position: Yes.

Reasons: Section 3 of the Act does not prohibit the deduction of a specific amount otherwise permitted under subdivision e of the Act. Where the amounts permitted a deduction equal or exceed the items of income determined under par. 3(a) plus 3(b) of the Act, the t/p's income is deemed to be nil under par. 3(f) of the Act. An amount may be deductible even though there is insufficient income to absorb the deduction, as contemplated in particular in the definition of "non-capital loss" in ss.111(8) of the Act.