Income Tax Severed Letters - 2004-12-31


22 December 2004 Miscellaneous 2004-0103001E5 - Social Assistance Payments

Unedited CRA Tags

Principal Issues: Whether salaries paid to caregivers, from a corporation receiving foster care payments, are excluded from the caregivers' income by virtue of paragraph 81(1)(h) of the Act.

Position: Provided that all of the other requirements of paragraph 81(1)(h) of the Act are satisfied, such salaries will generally be excluded from the recipient's income.

Reasons: Paragraph 81(1)(h) of the Act provides that the social assistance payments may be received "directly or indirectly".

22 December 2004 Miscellaneous 2004-0075611E5 - Part XI tax and Part XI.1 tax

Unedited CRA Tags
205 206 20 4900(1)(s)

Principal Issues: 1. Interaction between Part XI tax on excess foreign content of an RRSP and Part XI.I tax on non-qualifying investments of an RRSP;
2. Any transitional rules or relief from the application of these two taxes;
3. Transitional relief on non-qualified investments consisting of shares trading on an Over-the-Counter Bulletin Board ("OTC BB").

Position: 1. Part XI imposes a 1% tax at the end of each month on the cost amount of foreign property in excess of 30% of the cost amount of all property of the RRSP; Part XI.1 imposes a 1% tax at the end of each month on the fair market value at the time of acquisition of the property of an RRSP that is not a qualified property.
2. When a property is a foreign, non-qualified investment, only the Part XI.1 tax on the non-qualified investment will apply. There is also a 24-month relief period associated with the foreign content rule.
3. The shares were deemed to be a qualified investment, provided certain conditions are met

Reasons: 1. Sections 205, 206 and 207.1;
2. Subsection 206(2).
3. Paragraph 4900(1)(s) deems securities quoted on the OTC BB, which were acquired by a deferred plan in an arm's length transaction completed before September 1, 2000, to be a qualified investment until December 31, 2001. However, if, after December 31, 2001, the RRSP continued to hold property to which this transitional relief applied, that is, the RRSP did not dispose of the shares, the RRSP holds a non-qualified investment and the RRSP is subject to Part XI.1 tax.

20 December 2004 Miscellaneous 2004-0106241E5 - Single Purpose Co TN 31R

Unedited CRA Tags

Principal Issues: In a given fact situation where on November 24, 2004 a parent and the parent's children are the shareholders of a single-purpose corporation (SPco) and SPco purchases its shares held by the parent before January 1, 2005, whether CRA's Administrative Position of not applying a 15(1) benefit to the shareholders of SPco is applicable?

Position: No.

Reasons: The purchase by SPco of its shares held by the parent is not a type of transfer to which the Administrative Position is intended to apply to.

20 December 2004 Miscellaneous 2004-0092871E5 F - Arm's Length: de facto control

Unedited CRA Tags
251(1)(c) 256(5.1) 84.1

Principal Issues: Whether, in a given fact situation, subsection 84.1(1) would apply to deem a dividend to have been received by an individual who received a term note in consideration of shares of the capital stock of a "subject corporation" transferred to a "purchaser corporation"?

Position: General comments provided.

Reasons: All the conditions in subsection 84.1(1) are met except whether the disposing individual is dealing at non-arm's length with the purchaser corporation. It is a question of fact whether the disposing individual is not dealing at arm's length with the purchaser corporation pursuant to paragraph 251(1)(c). Subsection 84.1(1) would apply if the purchaser corporation is controlled, directly or indirectly in any manner whatever by the individual.

20 December 2004 Miscellaneous 2004-0100601E5 - Withholding tax on payments from an RPP

Unedited CRA Tags
153(1) 248(1)

Principal Issues: Whether an RPP that reimburses an employer in respect of plan administration expenses paid on behalf of the plan by the employer must withhold tax from and report such payments?

Position: Not if the expenses are bona fide administration expenses.

Reasons: They would not constitute a superannuation or pension benefit.

20 December 2004 Miscellaneous 2004-0080271E5 - Capital Deduction

Unedited CRA Tags

Principal Issues: Various issues dealing with the application of subsection 181.5.

Position: Refer to document.

Reasons: The legislation

17 December 2004 Miscellaneous 2004-0084881E5 - Deductibility of interest on assumed debt

Unedited CRA Tags
20(1)(c)(i) 20(1)(c)(ii)

Principal Issues: Deductibility of interest on assumed debt.

Position: If a taxpayer has assumed another person's indebtedness as part of the purchase price of an asset acquired by the taxpayer interest paid on the assumed debt is generally deductible pursuant to subparagraph 20(1)(c)(ii).

Reasons: The taxpayer will have "an amount payable for property acquired" and thus, interest paid on that assumed indebtedness will be deductible to the extent provided for in subparagraph 20(1)(c)(ii).

17 December 2004 Miscellaneous 2004-0098531E5 - Calculation of Income - Personal Services Business

Unedited CRA Tags
18(1)(p) 125(7)

Principal Issues: Whether a personal services business is entitled to deduct the Ontario Employer Health Tax (EHT) and the employer's portion of the Canada Pension Plan (CPP) in respect of the salary paid to an incorporated employee.

Position: Yes.

Reasons: Subparagraph 18(1)(p)(i) provides that expenses incurred by a "personal services business" in respect of the salary paid to an incorporated employee are deductible by such a corporation provided that the amounts would otherwise be deductible in computing the corporation's income, if its income were from a business other than a personal services business. "Any benefit or allowance" as described in subparagraph 18(1)(p)(ii) is not restricted to paragraph 6(1)(a) benefits and paragraph 6(1)(b) allowances.

17 December 2004 Miscellaneous 2004-0095331E5 F - Déductibilité des intérêts

Unedited CRA Tags

Principales Questions:
Déductibilité des intérêts sur un emprunt utilisé pour investir dans des fonds mutuels lorsqu'une partie des fonds mutuels a été disposée et que le produit de la vente est utilisé pour des fins personnelles.

Position Adoptée:
Les intérêts seront non déductibles sur la partie de l'emprunt utilisée à des fins personnelles.

L'utilisation actuelle n'est pas une fin admissible.

15 December 2004 Miscellaneous 2004-0097791E5 - Religious Order status

Unedited CRA Tags

Principal Issues: XXXXXXXXXX - Religious Order?

Position: No

Reasons: Does not meet all 6 criteria established by judge Bowman

15 December 2004 Miscellaneous 2004-0094921E5 - Demutualization Benefit and Pension Plan

Unedited CRA Tags

Principal Issues: Tax treatment of a lump sum payment received by an annuitant which may have been a demutualization benefit.

Position: Provided general comments on the tax implications of demutualization benefits.

Reasons: Insufficient information to make a determination.

14 December 2004 Miscellaneous 2004-0091411E5 - Deferred Salary Leave Plan

Unedited CRA Tags

Principal Issues: Does a particular arrangement satisfy the requirements of paragraph 6801(a) of the Regulations and qualify as a deferred salary leave plan?

Position: General information provided

XXXXXXXXXX Renée Shields
(613) 948-5273
December 14, 2004

10 December 2004 Miscellaneous 2004-0095451E5 - Retiring Allowance after Re-Employment

Unedited CRA Tags
248(1) 60(j.1)

Principal Issues: Is the payment of an amount to an employee to compensate the employee for their loss of employment where the employee is re-employed with the employer in another position prior to resigning from the employee's current position, a retiring allowance for purposes of the Act?

Position: Question of fact. However, it appears that the payment would not be a retiring allowance that is eligible for transfer to the employee's RRSP and a deduction in accordance with paragraph 60(j.1) of the Act would not be allowed.

Reasons: Position concerning retiring allowances outlined in paragraph 3 of IT-337R3.

10 December 2004 Miscellaneous 2004-0094241E5 - Qualified investment - RRSP

Unedited CRA Tags
146(1) 204

Principal Issues: General question asking for list of qualified investments for RRSP purposes

Position: N/A

Reasons: N/A

8 December 2004 Miscellaneous 2004-0055131E5 - Religious Order Status

Unedited CRA Tags

Principal Issues: Is a Collectivity within XXXXXXXXXX a religious order?

Position: yes

Reasons: 6 criteria offered by Judge Bowman. However not all members of the Collectivity qualify for the deduction.

7 December 2004 Miscellaneous 2004-0083021E5 - Lifelong Learning Plan

Unedited CRA Tags

Principal Issues: Whether a post-graduate student attending university outside Canada is considered to be enrolled as a full-time

Position: Question of fact.

Reasons: General comments provided and reference to ¶s 5 to7 of IT-515R2, Education Tax Credit

9 November 2004 Miscellaneous 2004-0099111I7 - Indian employment income - stand by time

Unedited CRA Tags

Principal Issues: Can a reserve-resident status Indian employee include the hours during which he is "on call" in determining the percentage of employment duties performed on a reserve?

Position: No

Reasons: Stand-by time during which an employee is required to be available for work, but is not requested to work, is not considered to be related to a specific location on or off a reserve. Therefore, this time should not be taken into consideration in determining what percentage of employment duties are performed on a reserve for purposes of applying the Guidelines.

2004 Miscellaneous 2003-0050951R3 - Substitution of XXXXXXXXXX Royalty

Unedited CRA Tags

Principal Issues: (a) Whether a royalty qualifies as a XXXXXXXXXX ; (b) Whether a royalty granted in exchange, in part, for another royalty that was a "specified royalty" will itself be a specified royalty; (c) Whether dividends received by a trust can be designated under 104(19) to be dividends of the beneficiary on a redemption of trust units; (d) Whether a corporation will be considered "connected" with itself for the purposes of Part IV tax; (e) Whether Part VI.1 tax is exigible in respect of a dividend deemed to be received by a corporation from itself.

Position: (a) Question of fact; (b) Question of fact; (c) Yes, in these circumstances; (d) Yes, in these circumstances; (e) Yes

Reasons: (a) Yes, in these circumstances and based on proposed legislation; (b) The answer does not depend on whether the new royalty is granted as part of a series of transactions or events that includes the disposition of a specified royalty; rather, it depends on whether the new royalty is granted as part of a series of transactions or events as a consequence of which depreciable property was acquired at a capital cost that was less than its fair market value; (c) In this case the trust agreement allowed the trustee to designate that amounts paid on a redemption of trust units could be from the income of the trust; (d) Yes, in these circumstances where more than 50% of the issued share capital (having full voting rights under all circumstances) of the corporation is owned by a person with whom the corporation does not deal at arm's length; (e) A dividend that is deemed to be received by a corporation from itself as a result of a designation under 104(19) is not considered to have been paid to the corporation as a shareholder of itself and, accordingly, is not an excluded dividend. Relief from Part VI.1 tax in these circumstances must rely on a specified amount under 191(4).

2004 Miscellaneous 2004-0103911R3 F - Continuance under CBCA

Unedited CRA Tags

Principal Issues: By reason of the continuance of OPCO from the XXXXXXXXXX to the CBCA, whether OPCO will be deemed to have disposed of any of its property or will be considered to have ended its current fiscal period; and whether its shareholders will be considered to have disposed of their shares in the capital of OPCO.

Position: No.

Reasons: Previous positions.

2004 Miscellaneous 2004-0068561R3 F - Butterfly Transaction - Papillon

Unedited CRA Tags
55(3)(b) 55(3.1) 55(2) 191(4)

Principal Issues: Split-up butterfly transaction.

Position: Favourable rulings provided.

Reasons: Meets the requirements of the law.

2004 Miscellaneous 2004-0075681R3 - Unfunded SERP; recognition of prior years service

Unedited CRA Tags
248(1) 6(1)

Principal Issues:
Will the arrangement be an SDA?


The employees' remuneration is not specifically being reduced or deferred in order to obtain the added benefits under the SERP. Accordingly, the arrangement is not an SDA.

XXXXXXXXXX 2004-007568

2004 Miscellaneous 2004-0102111R3 F - Butterfly Transaction - Papillon

Unedited CRA Tags
55(3)(b) 55(2) 186(2) 191(4)

Principal Issues: Split-up Butterfly Transaction.

Position: Favourable rulings provided.

Reasons: Meets the requirements of the law.