Income Tax Severed Letters - 2004-12-03

Miscellaneous

30 November 2004 Miscellaneous 2004-0090181E5 F - Assurance maladie grave

Unedited CRA Tags
15(1) 18(1)a) 148(1) 39(1)a)(iii)

Principales Questions: 1) La prime payée par une société sur une police d'assurance maladie grave qui couvre l'actionnaire et la prime afférente à l'avenant pour le remboursement de primes sont-elles déductibles? 2) Les prestations reçues par la société si l'actionnaire est atteint d'une maladie grave et les primes remboursées dans le cas contraire sont-elles imposables? 3) Un avantage à l'actionnaire selon les dispositions du paragraphe 15(1) de la Loi devra-t-il être constaté pour l'actionnaire et à quel moment?

Position Adoptée: 1) Non; 2) Non; 3) Oui, dans l'année d'imposition où l'avantage est accordé (dans l'année du paiement des primes).

Raisons: 1) La dépense encourue par la société n'est pas pour gagner du revenu. 2) Les dispositions de l'article 148 de la Loi ne s'appliquent pas à une assurance maladie grave qui n'est pas une assurance sur la vie et les dispositions de l'alinéa 39(1)a)(iii) de la Loi prescrit que les règles sur les gains en capital ne s'appliquent pas aux polices d'assurances. 3) Le libellé du paragraphe 15(1) de la Loi est repecté.

30 November 2004 Miscellaneous 2004-0092941E5 F - Déductibilité des intérêt

Unedited CRA Tags
20(1)(c)

Principales Questions:
Un contribuable peut-il déduire les intérêts sur un emprunt lorsque l'argent emprunté sert à acquérir des placements qui génèrent un rendement de 1% annuellement d'une société que le contribuable contrôle?

Position Adoptée:
Question de fait.

Raisons:
Application de l'alinéa 20(1)c) et du paragraphe 31 du IT-533.

29 November 2004 Miscellaneous 2004-0080891E5 F - Régime d'assurance invalidité

Unedited CRA Tags
6(1)f)

Principales Questions: Est-ce que le régime d'assurance salaire de courte durée et celui de longue durée faisant partie d'un régime collectif d'assurance invalidité sont deux régimes financés en totalité par les employés lorsque l'employeur a l'obligation de payer 50% des cotisations totales du régime collectif d'assurance invalidité (comprenant également une assurance-vie, décès accidentel et mutilation et une assurance soins médicaux) mais qu'il attribue aux deux régimes d'assurance salaire uniquement les cotisations versées par les employées ? L'employeur alloue sa partie des cotisations aux autres composantes du régime.

Position Adoptée: Non

Raisons: On peut déterminer si un régime d'assurance salaire est un régime financé en totalité par des employés non pas en examinant de quelle manière les cotisations sont attribuées mais en s'assurant que l'obligation légale de payer repose entièrement sur les épaules des employés, ce qui n'est pas le cas

29 November 2004 Miscellaneous 2004-0105131E5 F - Avantages sur options - Diminution de valeur

Unedited CRA Tags
7(8) 7(1)a)

Principales Questions:
Lorsque le paragraphe 7(8) s'applique, comment détermine-t-on l'avantage imposable en vertu de l'alinéa 7(1)a) lorsque l'action a perdu de la valeur après son acquisition?

Position Adoptée:
L'alinéa 7(1)a) de la Loi s'applique en fonction de la JVM au moment où l'action a été acquise et le contribuable réalisera une perte en capital au moment de la disposition de l'action.

Raisons:
Application de la Loi.

29 November 2004 Miscellaneous 2004-0091771E5 - Substituted Property

Unedited CRA Tags
88(1)(c.3)(vii) 88(1)(c)(vi)

Principal Issues: Application of proposed subparagraph 88(1)(c.3)(vii) to particular fact situation.

29 November 2004 Miscellaneous 2004-0101311E5 - Valuation of Gifts in Kind

Unedited CRA Tags
110.1

Principal Issues: 1. How should a gift in kind be valued?
2. Are charitable donation deductions transferable from a subsidiary to it's parent?

Position: 1. Unable to comment. Referred to Valuations.
2. No

Reasons: 1. N/A
2. The legislation.

26 November 2004 Miscellaneous 2004-0101151E5 - Employer-Provided Parking

Unedited CRA Tags
6(1)(a)

Principal Issues: What constitutes regular employment-related use of an employer-provided parking space?

Position: Question of fact.

Reasons: Where an employee is required to use his or her vehicle 3 or more days on a weekly basis for employment-related travel and requires the parking space for this purpose, the parking space would be considered to be used regularly for employment-related reasons.

26 November 2004 Miscellaneous 2004-0093641E5 - AMT Health and Welfare Trust

Unedited CRA Tags
127.52

Principal Issues: Whether a HWT that is not permitted to deduct expenses in excess of gross income in accordance with paragraph 12 of IT-85R2 can do so and create a loss for AMT purposes?

Position: Yes.

Reasons: Paragraph 12 of IT-85R2 refers to a loss for purposes of Division C of Part I. Adjusted taxable income for purposes of AMT is determined under Division E.1. Where a HWT has expenses that were otherwise deductible and not allowed because of the limitation discussed in paragraph 12 of IT-85R2, it should be permitted to use those expenses to offset the impact of AMT, if any.

25 November 2004 Miscellaneous 2004-0092691E5 - Child Care Expenses

Unedited CRA Tags
63

Principal Issues: Deductibility of child care expenses.

Position: Non Deductible

Reasons: Paragraph (a) of the definition of "child care expense" - the taxpayer does not reside with the children (there is no supporting person)

25 November 2004 Miscellaneous 2004-0090471E5 - Sharespeople-Food&Beverage Exp. Limitation

Unedited CRA Tags
.1(1); .1(2); 6)

Principal Issues: Food was supplied by a fishing boat owner to self-employed offshore sharespeople on boats. 1. Whether the 50% limitation on the deductibility of the human consumption of food or beverages by the sharespeople is applicable to the boat owner in this situation pursuant to subsection 67.1(1). 2. Whether any of the exceptions in subsection 67.1(2) apply.

Position: 1. Yes. 2. No.

Reasons: Paragraphs 67.1(2)(d) and (e) may apply to employers in respect of food or beverages consumed by employees that resulted in a taxable employment benefit under section 6, or would have been a taxable benefit but for the remote work location exclusion in subparagraph 6(6)(a)(ii) or the special work site exclusion in subparagraph 6(6)(a)(i), respectively. Since the sharespeople are self-employed, the exceptions in paragraphs 67.1(2)(d) and (e) are not applicable to the boat owners.

25 November 2004 Miscellaneous 2004-0079751E5 F - Dépenses d'une auberge limitées par 18(12)

Unedited CRA Tags
18(12)

Principales Questions: 1. Déterminer l'application du paragraphe 18(12) de la Loi dans différentes situations données.
2. Est-ce qu'un propriétaire à 50% doit s'imposer sur les pourboires qu'il reçoit dans un commerce?

Position Adoptée: 1. Dans le cas d'une auberge, pour que le paragraphe 18(12) de la Loi s'applique, il faut, entre autres, s'assurer que le particulier réside dans l'établissement domestique autonome qui lui sert d'auberge. Cette détermination est toutefois une question de fait.
2. Les pourboires sont imposables.

Raisons: 1. Libellé du paragraphe 18(12) de la Loi
2. Montants reçus dans le cadre de l'exploitation de l'entreprise.

24 November 2004 Miscellaneous 2004-0088061I7 - CGD-netting of gains and losses

Unedited CRA Tags
110.6(2.1) 164(6)

Principal Issues: Whether capital losses on QSBC shares of an estate and deemed to be the losses of the deceased under ss. 164(6) must be netted against the deceased's capital gains on QSBC shares in the last taxation year for the purposes of par. 110.6(2.1)(d) of the Act.

Position: Yes.

Reasons: Reading of the Act.

24 November 2004 Miscellaneous 2004-0091791E5 - Clergy deduction

Unedited CRA Tags
8(1)(c)

Principal Issues: Does an individual who is confirmed in a separate ceremony and authorized to perform minister functions entitled to the 8(1)(c) deduction?

Position: YES

Reasons: Not required to be ordained in that denomination and church considers individual a "regular minister"

24 November 2004 Miscellaneous 2004-0091271E5 - Rollover of RRIF for financially dependent child

Unedited CRA Tags
146.3(6.1) 146(1.1) 60(l)

Principal Issues: Will a particular individual qualify as a financially dependent child for purposes of the deduction under paragraph 60(l) of the Act?

Position: Question of Fact

Reasons: General information provided. Where the individual has a physical or mental infirmity, income in excess of $13,814 in 2003 (indexed annually after 2003) will suggest that the person is not financially dependent, unless the contrary can be established.

2004-009127
XXXXXXXXXX Renée Shields
(613) 948-5273
November 24, 2004

23 November 2004 Miscellaneous 2004-0094101E5 F - IT-474R Administrative Relief

Unedited CRA Tags
87(2)a)

Principal Issues: In the given fact situation, where Parentco, a holding company, and its wholly-owned subsidiary, Subco, amalgamate, whether the CRA would allow, pursuant to paragraph 10.of IT-474R, SUBCO not to apply 87(2)(a) so that it does not have a deemed year end?

Position: No.

Reasons: The purpose of the comments in paragraph 10.of IT-474R is not to suggest that we will not apply 87(2)(a) in certain cases, but that, where the fact that a predecessor corporation is continued by the amalgamated entity causes problems in applying the Act, we will consider and try to solve them.

23 November 2004 Miscellaneous 2004-0056271E5 - income trusts as qualified investments

Unedited CRA Tags
132 4900

Principal Issues: Three follow-up questions were asked based on our file E2003-0030975.
1. Are income trusts qualified investments for an RRSP because they are mutual funds?
2. Are oil and gas income trusts always mutual fund trusts because they derive their value from Canadian resource property?
3. Can it be assumed that a fund is a mutual fund if either:
i. the prospectus includes a clause providing that the sale of the trusts to non-residents is not intended; or
ii. the units are only available on a Canadian prescribed stock exchange?

Position:
1. If an income trust is a mutual fund, it will be a qualified investment under Regulation 4900(1)(d) or (d.1). It is a question of fact whether any particular income trust is a mutual fund trust.
2. No.
3. No.

Reasons:
1. Application of Regulations.
2. This is a question of fact.
3. This is a question of fact..

22 November 2004 Miscellaneous 2004-0094131E5 - Paid up capital/Capital versé

Unedited CRA Tags
89(1)

Principal Issues: In a given situation, where a parent corporation (HOLDCO) transfers a property to its wholly-owned subsidiary (OPCO) for shares of a class of the capital-stock of OPCO, the shares are the only issued shares of that class, for corporate law purposes a $ 1000 is added to the stated capital of the class of the issued shares, for accounting purposes under GAAP the transaction is accounted for based on the carrying value (also equal to the ACB of the property) for HOLDCO ($ 100) and for tax purposes OPCO and HOLDCO jointly elect under 85(1) to transfer the property for $ 500, we are asked to confirm that the starting point of the computation of the PUC pursuant to 89(1)(b)(iii) is the related capital of the class of issued shares for corporate law purposes.

Position: Yes. But, it is CRA's practice to determine the amount of the PUC of a class of shares taking into account all relevant documents as well as the applicable corporate law and GAAP.

Reasons: IT-463R2 paragraph 2. It is the amount OPCO added to the stated capital account of the class pursuant to the applicable corporate law.

22 November 2004 Miscellaneous 2004-0086271E5 - Farming Activity

Unedited CRA Tags
248(1) 28(1)

Principal Issues: Is the Company carrying on a farming activity? Can the Company report income on a cash basis under subsection 28(1) of the Income Tax Act?

Position: Question of Fact.

Reasons: Where a taxpayer has the right to inspect land and make suggestions for the betterment of the crop, this activity alone may not constitute farming. The taxpayer must make an appreciable contribution to the growth and maturity of the crop and must be actively engaged in the management and/or day to day activities of the farming business.

18 November 2004 Miscellaneous 2004-0083251I7 - Management Fees

Unedited CRA Tags
12(1)(b) 18(1)(e)

Principal Issues: Whether Holdco has correctly reported management fees receivable.

Position: No.

Reasons: Holdco must report the management fees on a receivable basis pursuant to paragraph 12(1)(b) of the Act.

17 November 2004 Miscellaneous 2004-0097131E5 F - Travail temporaire; négociation de contrats

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

Principales Questions: 1. Quelle est la portée de l'expression " un travail de nature temporaire " indiquée au sous-alinéa 6(6)a)(i) de la Loi?
2. Quelle est la portée des termes " afférentes à une période pendant laquelle son emploi était lié à la vente de biens ou à la négociation de contrats pour son employeur " pour des employés d'un syndicat?

Position Adoptée: 1. La position générale est à l'effet que le travail est considéré de nature temporaire si on peut raisonnablement s'attendre à ce qu'il ne constitue pas un emploi continu de plus de deux ans. Dans certaines situations particulières, le travail pourrait être considéré de nature temporaire même s'il excède deux ans. Afin de le déterminer, nous tiendrions compte, entre autres, de la durée du contrat, de la possibilité que les employés puissent être réélus et du fait qu'un employé connaît la possibilité de renouvellement du mandat au début du premier mandat. Ainsi, on pourrait considérer qu'un travail n'est pas de nature temporaire même si les renouvellements de mandat dépendent de la réélection des employés.
2. L'employé d'un syndicat ne négocie pas de contrats pour son employeur si le syndicat n'est pas une des parties à la convention (où le contrat est entre le client de l'employeur et une tierce personne) et ce, même si ses tâches sont en relation avec la négociation de contrats. Ce ne sont pas toutes les tâches effectuées par un employé du syndicat qui sont reliées à la négociation de contrat. Par exemple, les fonctions reliées à l'application de la convention et à la représentation d'employés lors d'un grief ne feraient pas partie de la négociation de contrats.

Raisons: 1. Position prise antérieurement dans le dossier 2003-0002167.
2. Position prise antérieurement dans le dossier 9605855.

16 November 2004 Miscellaneous 2004-0092521I7 F - Frais médicaux - époux

Unedited CRA Tags
118.2(2)a) 248(1)

Principales Questions: Deux contribuables se marient dans l'année. Le premier contribuable peut-il inclure dans son calcul du crédit d'impôt pour frais médicaux, les frais médicaux engagés par l'autre contribuable pour une période de l'année où ils n'étaient pas encore mariés?

Position Adoptée: Non.

Raisons: Le libellé de la Loi spécifie qu'il doit s'agir de frais médicaux de l'époux ou du conjoint de fait. Le paragraphe 14 du IT-519 vient appuyer le fait que la personne doit être l'époux ou le conjoint de fait du contribuable lorsque les frais médicaux sont engagés.

12 November 2004 Miscellaneous 2004-0076081I7 - Application of Article 19 China Treaty; Students

Unedited CRA Tags
250(1) 250(5) Article 19 Article XX

Principal Issues: Whether a post-graduate fellow who is a Chinese national qualifies for an exemption from tax under Article 19 of the Canada-China tax treaty.

Position: Maybe, if the taxpayer was resident in China for purposes of the Convention either immediately before entering Canada or while staying in Canada.

Reasons: Application of Article 19 of the Convention and review of status as employee or student.

12 November 2004 Miscellaneous 2004-0080051E5 F - Allocation et remboursement de dépenses-employé

Unedited CRA Tags
6(1)a) 6(1)b) 8

Principales Questions: Est-ce que les montants reçus par l'employé de l'employeur pour le compenser pour des dépenses encourues dans l'accomplissement des fonctions de son emploi sont imposables?

Position Adoptée: Commentaires généraux sur les différents montants reçus. Il faut déterminer premièrement s'il s'agit d'une allocation ou d'un remboursement. S'il s'agit d'une allocation, l'alinéa 6(1)b) de la Loi prévoit que les allocations pour frais personnels ou de subsistance ou à toute autre fin sont imposables sauf si une des exceptions prévues aux sous-alinéas 6(1)b)(i) à (ix) de la Loi s'applique. S'il s'agit d'un remboursement de dépenses autres que la pension et le logement, le montant est inclus dans le revenu en vertu de l'alinéa 6(1)a) de la Loi lorsqu'il en résulte un avantage économique pour l'employé. Le remboursement de dépenses personnelles résulterait en un avantage économique. Généralement, nous considérons également qu'un employé a un avantage imposable quand il est remboursé, en totalité ou en partie, pour le coût d'immobilisations qui demeurent sa propriété.

Raisons: Pour les allocations reçues, cela dépend du libellé de l'alinéa 6(1)b) de la Loi sauf celles pour les vêtements auquel cas nous avons pris comme position de ne pas inclure l'allocation dans les mêmes circonstances que celles où on accepterait les remboursements. Pour les remboursements, la détermination qu'un avantage économique résulte pour l'employé dans le cas du remboursement de certains genres de dépenses provient de positions antérieures.

3 November 2004 Miscellaneous 2004-0083791I7 F - Paragraphe 44.1(2)

Unedited CRA Tags
44.1(2) 44.1(8) 44.1(10)

Principales Questions: 1. Est-ce que les actions de la nouvelle société acquises par le particulier sont des actions d'une société admissible exploitant une petite entreprise au moment de leur émission aux fins de leur qualification à titre d'actions déterminées de petite entreprise et, subséquemment, aux fins de leur détermination à titre d'actions de remplacement relativement à une disposition admissible dans le cadre de l'application du paragraphe 44.1(2) de la Loi ?
2. Est-ce que le paragraphe 44.1(8) de la Loi fait en sorte, à l'égard des actions de remplacement, d'élargir la période pour laquelle ces actions pourraient être des actions d'une société admissible exploitant une petite entreprise ?

Position Adoptée: Non aux deux questions.

Raisons: 1. Au moment de l'émission des actions par la société, celle-ci n'était pas une société admissible exploitant une petite entreprise étant donné que l'exploitation de l'entreprise n'avait pas débuté.
2. Une condition essentielle à l'application du paragraphe 44.1(8) de la Loi est que la société doit être considérée comme exploitant activement une entreprise à tous les moments où on veut déterminer si un bien en particulier peut être considéré comme un bien utilisé dans une entreprise exploitée activement. Dans la présente situation, cette condition n'est pas rencontrée puisque au moment où le particulier acquiert les actions, l'entreprise n'a pas débuté.

25 October 2004 Miscellaneous 2004-0080871E5 - Repayment of previously reimbursed relocation exp.

Unedited CRA Tags
8(1)(n) 60(q)

Principal Issues: Where an individual is required to repay reimbursed relocation expenses to his former employer, is the individual entitled to a deduction pursuant to the Act?

Position: No

Reasons: There is no provision of the Act that would enable the individual to deduct from income the repayment of relocation expenses previously reimbursed by his employer.

21 October 2004 Miscellaneous 2004-0060131I7 - Characterization of Foreign Dividend

Unedited CRA Tags
15(1)

Principal Issues: Whether a distribution of share premiums from a foreign corporation that could have been declared as a dividend but wasn't should be considered to be a dividend.

Position: No.

Reasons: It is better viewed as an authorized return of capital.

28 April 2004 Miscellaneous 2004-0066991I7 F - Paiement incitatif

Unedited CRA Tags
15(1) 12(1)x) 56(2)

Principales Questions: Quel est le traitement fiscal pour les récipiendaires d'un montant reçu pour les inciter à acheter une police d'assurance-vie exonérée?

Position Adoptée: Généralement imposable selon l'alinéa 12(1)x) de la Loi.

Raisons: La police d'assurance-vie est généralement un bien acquis en vue d'en tirer un revenu.

2004 Miscellaneous 2003-0051421R3 - blind management agreement for employee SAR

Unedited CRA Tags
248(1)

Principal Issues: 1. Will an arrangement which allows a third part custodian to determine when the ex-employee's SAR are exercised result in a disposition by the ex-employee when the arrangement is entered into?
2. Will the custodian or person holding the power to exercise the SAR be taxed on any amount as a result of exercise of the SAR?

Position: No to both questions

Reasons: The arrangement will not alter the tax consequences that would otherwise apply to the employee with respect to the SAR and the Custodian will not be taxed personally or as a person having ownership and control of the SAR.

XXXXXXXXXX 2003-005142

Attention: XXXXXXXXXX

2004 Miscellaneous 2004-0073171R3 - Creation and reclassification of classes of units

Unedited CRA Tags
104(7.1) 116 132 248 "disposition"

Principal Issues: Does the creation of new classes of units having substantially the same rights and the redesignation of existing units into units of one of the newly created classes result resettlement of the trust or in a disposition of units of the trust? The new classes of units will have substantially the same rights as the initial units but one of the classes will be designed to be held by residents and the other to be held by non-residents.

Position: The proposed amendments to the trust indenture will not result in a resettlement of the trust; the redesignation of the units into a new class will not result in a disposition; 104(7.1) will not apply; given the terms and conditions of the units, as long as the number of units of the class held by residents is higher than the number of units of the class held by non-residents and/or residents, the trust will not be considered to be maintained primarily for the benefit of non-residents; as long as the trust is a mutual fund trust, its units will be excluded units for the purposes of section 116.

Reasons: The trust indenture permits amendments to be made to ensure compliance with the Act and the amendments made not so significant so as to result in a resettlement of the trust. The redesignation of units into units of a new class will not result in a significant change to the bundle of rights held by unitholders.

2004 Miscellaneous 2004-0101681R3 F - Disposition - mandant/mandataire

Unedited CRA Tags
248(1) 69(1)

Principales Questions: • Un contribuable transfère la part indivise de deux immeubles, ainsi que ses biens meubles, pièces d'équipement et tous ses droits afférents à ces immeubles, à une société qui agit à titre de mandataire et de prête-nom du contribuable à l'égard de ce transfert. Selon la convention de mandat, le contribuable demeure propriétaire de ses biens. Par la suite, le mandataire transfère tous les biens relatifs à un de ces immeubles, au contribuable (le mandant). Est-ce qu'il y a disposition aux fins de la Loi lors de ces transferts?
• Dans le cadre de son mandat, le mandataire contracte un emprunt hypothécaire pour et au nom du mandant. Aux fins des alinéas 20(1)c) et e) ainsi que de la partie I.3 de la Loi, est-ce que le contribuable sera considéré comme étant le débiteur hypothécaire?

Position Adoptée: • Il n'y aura pas de disposition aux fins de la Loi lors des transferts et le paragraphe 69(1) de la Loi ne s'appliquera pas à l'égard de ces transferts. Par conséquent, en ce qui concerne le contribuable et le mandataire, il n'y aura pas de revenu, ni de gain en capital, ni de récupération de l'allocation du coût en capital à inclure dans le calcul du revenu en raison des transferts effectués entre eux dans le cadre du mandat. Aux fins de la Loi, le contribuable demeurera propriétaire des biens transférés au mandataire.
• Le contribuable sera considéré avoir contracté l'emprunt hypothécaire qui a été contracté par son mandataire en son nom.

Raisons: La convention établit une relation mandant-mandataire entre le contribuable et la société. Le contribuable demeure le vrai propriétaire et l'hypothèque contractée par la société à titre de mandataire du contribuable ne constitue pas une dette de la société mais une dette du contribuable.

XXXXXXXXXX 2004-010168

2004 Miscellaneous 2004-0088271R3 - Split-Up Butterfly

Unedited CRA Tags
55(3)(b) 55(3.1)(c)

Principal Issues: Standard butterfly.

Position: Meets requirements.

2004 Miscellaneous 2004-0074051R3 - variation of a grantor trust

Unedited CRA Tags
69(1)(b)

Principal Issues: 1. Do 56(2) or 105(1) apply as a result of the variation?
2. Are the amendments significant enough to cause the Trust to be a new trust?
3. Do the changes in the beneficial interests of any of the contingent beneficiaries, particularly, any diminishment of such interests, result in a disposition of any part of the contingent beneficiaries interest in the Trust?
4. Are the adult beneficiaries related, and thus dealing at non-arm's length with, the minor beneficiaries and mother\settlor?

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

Reasons: 1. 2003-002169C
2. The terms of the trust have provided for variation of the trust at the discretion of the settlors from the beginning such that the proposed variation does not alter the terms of the trust in any substantial way (even if the change is significant in respect of any of the contingent beneficiaries).
3. The settlors' intent in making the variation is not to alter the value of the net interest of any group of beneficiaries (other than the Foundation) but rather to alter the manner in which each group of children's share is computed following the death of father. No beneficiaries are being added to the trust and the variation only makes minor adjustments to the manner and timing of those future distributions. The purpose of the variation related to the children is give the adult beneficiaries access to a fixed portion of the residue on a more timely basis. The variation can and is being made without the consent of any of the contingent beneficiaries.
4. They share a common father but have different mothers. 251(6) defines persons connected by blood as including a person who is a brother or sister of the other. As stated in 9429945, a half-brother is related to his half-sister by blood. This is further confirmed by the Oxford concise dictionary which defines brother to include males who have the same parents or parent. Thus, while it is common to refer to such persons as half-brother or step-brother, they are still related by blood.

XXXXXXXXXX 2004-007405

2004 Miscellaneous 2004-0094581R3 - Gross Asset Butterfly

Unedited CRA Tags
55(3)(b)

Principal Issues: Standard Gross Asset Butterfly

Position: Favourable Rulings Given

Reasons: The law

2004 Miscellaneous 2004-0060891R3 - Linked notes - foreign property rules

Unedited CRA Tags
206(1) 248(1)

Principal Issues:
1. Whether the proposed issuance of linked notes by an authorized foreign bank would constitute foreign property.
2. Whether the use of the linked notes to circumvent the foreign property limits would result in the application of GAAR.
3. Whether the disposition of the underlying foreign property by the Canadian Branch prior to year-end to avoid capital taxes would result in the application of GAAR.

Position:
1. No.
2. No.
3. No.

Reasons:
1. It is our view that the linked notes constitute indebtedness issued by an authorized foreign bank and payable at a Canadian branch and therefore fall within the exception provided for in subparagraph (g)(i) of the definition of "foreign property" in subsection 206(1).
2. We have given favourable GAAR rulings on similar arrangements.
3. Based on the Imperial Oil decision and the fact that an investor is not obligated to purchase a new linked note in the following year and the Canadian branch is not obligated to hedge its obligations under the note.

2004 Miscellaneous 2004-0079541R3 - Transfer of shares of FA a related non-resident

Unedited CRA Tags
85.1(3) 56(2) 246(1) 245(2)

Principal Issues: (i) Whether subsection 85.1(3) would apply in a situation where a taxpayer transfers both cash and shares of a foreign affiliate ("FA1") to another foreign affiliate ("FA2") in exchange for "shares" (i.e., an additional "capital contribution" having a face value equal to the amount of cash transferred) of FA2? (ii) Whether a benefit is considered to have been conferred on a minority interest owner, who is a wholly-owned subsidiary of the taxpayer, of FA2 as a result of the transfer described in (i) above? (iii) Whether a non-resident transferor who has no nexus to Canada would be considered to be a taxpayer for the purposes of subsection 85(1) with respect to the transfer of eligible property that is not taxable Canadian property?

Position: (i) Yes. (ii) No. (iii) Probably not.

Reasons: (i) For the particular situation at issue, the additional "capital contribution" of FA2 would be considered "share" in accordance with IT-392 and it appears a "share" or a portion thereof is received as consideration for the disposition of FA1 shares for the purposes of subsection 85.1(3) in this case. There is also no particular policy reason to deny the application of subsection 85.1(3) in this case. (ii) Since the potential beneficiary (if there were a benefit conferred) is a wholly-owned subsidiary of the taxpayer and since such subsidiary will be wound up immediately after the transfer, no benefit is considered to have been conferred. (iii) In view of the Oceanspan case and the Lea-Don case, it may be difficult to say that such a non-resident person is a taxpayer for the purposes of the Income Tax Act. We do not have to make the determination in this regard because the taxpayer decided to carry out the proposed transactions without making a subsection 85(1) election.

2004 Miscellaneous 2004-0065961R3 - Spin-off Butterfly

Unedited CRA Tags
55(3)(b)

Principal Issues: Public Company Spin-off - Various issues XXXXXXXXXX .

Position: Favourable rulings issued.

Reasons: In compliance with the law.

2004 Miscellaneous 2004-0099101R3 - Special Work Site

Unedited CRA Tags
6(6)

Principal Issues: Advance income tax ruling request that a work location, which was previously considered a special work site for certain employees of the employer under an advance income tax ruling previously issued by the Canada Revenue Agency (2002-012699), is still a special work site for certain of the original employees who have been extended for a period of up to two more years.

Position: Yes.

Reasons: Employees otherwise met the provisions of 6(6) of the Act and the duties in this specific case are considered of a temporary nature.

2004 Miscellaneous 2004-0084311R3 - Incorporating a Partnership

Unedited CRA Tags
125(7)

Principal Issues: Whether a professional corporation, providing XXXXXXXXXX services to another corporation, will be carrying on a "personal services business" within the meaning thereof in subsection 125(7) of the Act.

Position: No.

Reasons: The former partners that are providing services through a "Contracting Company" do not provide services to Newco in his/her capacity as an employee or officer of Newco.

2004 Miscellaneous 2004-0093101R3 - Butterfly - Family Farm Corporation

Unedited CRA Tags
55(3)(b)

Principal Issues: Single-wing Split-up Butterfly

Position: Favourable Rulings Given

Reasons: The law

2004 Miscellaneous 2004-0091391R3 - loss-consolidation

Unedited CRA Tags
55(2)

Principal Issues: Standard loss-consolidation

2004 Miscellaneous 2004-0067771R3 - Irish Common Contractual Fund

Principal Issues: What is the characterization of an Irish Common Contractual Fund for purposes of the Income Tax Act (the "Act")?

Position: For purposes of the Act, the Fund itself is a non-entity and each investor in the Fund is a co-owner of the assets of the Fund.

Reasons: See statement of principal issues.

XXXXXXXXXX 2004-006777

25 November 2004 Miscellaneous 2004-0102471C6 - TEI 2004 Hybrid Partnerships

Unedited CRA Tags
n/a

Principal Issues: Update on CRA review of hybrid partnerships (also referred to as synthetic NROs). Whether the CRA will continue to give treaty benefits to partners resident in a treaty country that treats the partnership as a corporate entity.

Position: Still under review.

Reasons: Ongoing consultations within the government.

Ruling

2004 Ruling 2003-0053981R3 - XXXXXXXXXX

Unedited CRA Tags
132.2 245 107.4 206
qualifying drop-down of partnership units to subsidiary unit trust where s. 107.4(2)(a) was ousted due to units issuance
elimination of MFT corporate sub through creation of MFC and 132.2 merger
immediate refinancing of drop-down subsidiary trust of MFT did not offend policy of para. (h)

Principal Issues: 1. Whether the proposed transactions to effectively replace a taxable Canadian corporation (TCC) owned by a mutual fund trust (MFT) with a trust would constitute a misuse of section 132.2 or an abuse of the provisions of the Act read as a whole. A new mutual fund corporation (MFC) will be created, owned wholly by the MFT. The new corporation will acquire all of the shares of TCC on a rollover basis, and then do a short-form amalgamation resulting in Amalco MFC. Amalco MFC will windup and do a "qualifying exchange" pursuant to section 132.2 with the MFT.
2. Whether the refinancing of a newly created trust is offensive of the "qualifying disposition" rules of section 107.4. The new trust, owned by the MFT, will obtain a daylight loan from a third party, then distribute the funds received on the loan to the MFT as a return of capital. The MFT will loan the funds back to the new trust, and new trust will repay its loan to the third party.
3. Does 107.4(3)(m) increase the ACB of the Fund's capital interest in the Trust?

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

Reasons: 1. The proposed transactions do not involve the type of conversion of a taxable Canadian corporation to a mutual fund corporation that has historically caused us concern. The current corporation is presently within the mutual fund family and thus the conversion/restructuring is within that family. The desired structure could have been used when the MFT was created in XXXXXXXXXX (i.e., the MFT could have utilized a trust rather than the TCC to acquire the limited partnership units), XXXXXXXXXX .
2. The refinancing merely enables the MFT to hold at least 70% of its investment in the new trust in the form of debt rather than equity, thereby not being offside of the foreign property rules of Regulation 4800. The new trust will be resident in Canada and the property in which it will invest will be used in Canada, and thus the financing arrangement will be consistent with other rulings we have made.
3. The Fund will acquire one or more units of the Trust in exchange for the limited partnership units and 107.4(3)(m) will deem the cost of the additional units to be the Fund's tax cost of the limited partnership units so transferred. If the Fund had not acquired any additional units XXXXXXXXXX , the contribution to the Trust would not increase the Fund's ACB of its capital interest in the Trust, notwithstanding that it would increase the FMV of its capital interest in the Trust