Income Tax Severed Letters - 2004-12-10


7 December 2004 Miscellaneous 2004-0101651E5 - Commutation-structured settlement

Unedited CRA Tags

Principal Issues: Can a structured settlement be amended to allow for greater monthly payments by using the final lump-sum payment?

Position: NO

Reasons: Structured settlement annuity contracts are non-commutable.

7 December 2004 Miscellaneous 2004-0103271E5 - Extra Food&Bev. Self-Emp. Foot&Bicycle Mess.

Unedited CRA Tags
9 18(1)(a) 18(1)(h)

Principal Issues: Whether there are any changes to the flat rate amount that a self-employed foot and bicycle messenger can deduct for extra food and beverages without supporting documentation.

Position: Yes.

Reasons: CRA policy, effective for 2003 and subsequent taxation years, increased the flat rate amount that can be claimed without receipts to $15 per working day..

6 December 2004 Miscellaneous 2004-0065531E5 - Interest deductibility

Unedited CRA Tags
20(1)(c) 20(2.1)

Principal Issues: Is the interest on a policy loan from a universal life policy of a life insurer deductible under paragraph 20(1)(c) of the Act?

Position: General comments only.

Reasons: Specific product.

2 December 2004 Miscellaneous 2004-0105281E5 - Withholding on payment to non-resident RRSP bene.

Unedited CRA Tags
146(1) 146(8) 146(8.8) 212(1)(l)

Principal Issues: Must Part XIII tax be withheld on a payment from the RRSP of a deceased annuitant to a non-resident beneficiary who, at the date of death, was not a spouse or common-law partner of the deceased, and was also not a financially dependent child or grandchild?

Position: Only if the payment exceeds the amount that was included in the income of the deceased annuitant pursuant to subsection 146(8.8).

Reasons: The wording of paragraph 212(1)(l) is clear.

2 December 2004 Miscellaneous 2004-0096811E5 - SR&ED Approved Status

Unedited CRA Tags
37(1)(a)(ii) 37(7)

Principal Issues: The client requested clarification of the criteria relating to "approved" status for SR&ED.

Position: General comments provided.

Reasons: The determination as to whether a particular entity can be approved can only be made following a review of a particular applicant's submission and related documentation as outlined in Application Policy SR&ED 96-10.

1 December 2004 Miscellaneous 2004-0094591E5 F - Impôt de la partie I.3

Unedited CRA Tags
181.1(1) 181.4 181.5

Principales Questions: Aux fins du calcul de l'impôt de la partie I.3, doit-on considérer le capital des sociétés associées non-résidentes?

Position Adoptée: Oui, à certains égards.

Raisons: Il faut tenir compte du capital calculé selon les paramètres de l'article 181.4 lorsque la société non-résidente exploite une entreprise par l'entremise d'un établissement stable au Canada et tenir compte de toutes les sociétés liées telles que définies à l'article 181.5 pour les fins de la répartition de l'abattement.

1 December 2004 Miscellaneous 2004-0095101E5 - Employee Dependant Scholarship Program

Unedited CRA Tags
6(1)(a) 56(1)(n)

Principal Issues: The taxable status of an employee dependant scholarship program.

Position: Included in income of the employee under paragraph 6(1)(a).

Reasons: Paragraph 6(1)(a) of the Act is a provision of broad import and will include in a taxpayer's employment income the value of a benefit that was directly received or enjoyed by another person because of the taxpayer's office or employment, including employer-provided scholarships to dependants of employees. On an administrative basis the CRA will accept that certain employer-provided scholarships to dependants of employees can instead be included in the income of the dependant under paragraph 56(1)(n) of the Act. For paragraph 56(1)(n) of the Act to apply to the dependant's scholarship, there must be objective selection criteria that focus on the accomplishments of the dependant, for example, scholastic achievement. In this regard, the employer's selection criteria for scholastic achievement must be higher than the minimum entrance requirements for most post-secondary institution; otherwise, any dependant who enters a post-secondary education program would qualify for a scholarship. Further, there must actually be a limited number of scholarships provided by the employer, such that the number of dependants chosen from those who are otherwise eligible should be low enough that most employees could not expect their dependants to be selected. Collectively, these criteria will ensure that the merit of the dependant is prevalent in the employer's selection rather than the employee's relationship with the employer. In terms of a situation where the employment relationship is severed, for example, where a scholarship is awarded to the dependant of a retired or deceased employee, paragraph 56(1)(n) of the Act would apply to include the amount in the dependant's income.

2004 Miscellaneous 2004-0085271R3 - Foreign exchange on lease transaction

Unedited CRA Tags

Principal Issues: Does a XXXXXXXXXX report the foreign exchange gains and losses arising from lease transactions in the ordinary course of business on account of income?

Position: Yes

Reasons: IT-95R, Question #19 at the 1995 TEI Conference, Normal business activities.

XXXXXXXXXX 2004-008527

2004 Miscellaneous 2004-0092931R3 - Deductibility Shareholder Manager Remuneration

Unedited CRA Tags

Principal Issues: Shareholder/manager remuneration.

Position: Deductibility of shareholder/manager remuneration paid out of the proceeds from the sale of business assets.

Reasons: Remuneration is deductible since it is reasonable and incurred for the purpose of earning business income.

2004 Miscellaneous 2004-0101501R3 - Deferred Share Units

Unedited CRA Tags

Principal Issues:
Whether a plan that provides for the payment of a bonus based on the value of deferred share units credited to participants is excluded from the SDA definition by virtue of the exception in (k) of that definition?


The terms of the plan meet the conditions in the subsection (k) exception found in the SDA definition.

XXXXXXXXXX 2004-010150