Income Tax Severed Letters - 2005-01-28

Ruling

2004 Ruling 2004-0082661R3 - Carrying on Business in Canada

Unedited CRA Tags
2(3)(b)

Principal Issues: Whether a non-resident investment fund (the Fund) and non-resident service provider are carrying on business in Canada through a Canco, a company related to the non-resident service provider, that provides accounting, valuation and investment services in Canada to the Fund when the non-resident service provider has contracted with the Fund to provide the services and then sub-contracted Canco to provide the services in Canada.

Position: No

Reasons: A business is carried on where the profit producing activity takes place and the profit producing activity of the Fund and the non-resident service provider are not in Canada.

2004 Ruling 2004-0083621R3 - Residency Determination

Unedited CRA Tags
2(1) 128.1(4) 250(5) Art IV US treaty

Principal Issues: Whether the taxpayer is a resident of Canada for the purposes of the Income Tax Act and the Canada-United States Income Tax Convention?

Position: Yes.

Reasons: He has significant ties in Canada and his centre of vital interests is in Canada.

2004 Ruling 2004-0088951R3 - Application of 111(5) on an Acquisition of Control

Unedited CRA Tags
111(5) 87(2.1)

Principal Issues: Are losses still available on an acquisition of control.

Position: Question of fact but yes in this situation.

Reasons: The law.

2004 Ruling 2004-0088961R3 F - Organisme public

Unedited CRA Tags
149(1)c) 75(2) 104(6) 104(13)

Principales Questions: Voir ci-dessus

Position Adoptée: Voir ci-dessus

Raisons: Voir ci-dessus

2004 Ruling 2004-0108941R3 - Substitution of XXXXXXXXXX Royalty

Unedited CRA Tags
XXXXXXXXXX

Principal Issues: Additional facts and clarifications to original ruling 2003-005095

Position: Will not impact on original rulings. Amendments accepted and rulings given.

Reasons: Amendments were inconsequential and did not impact on original rulings.

Technical Interpretation - External

25 January 2005 External T.I. 2004-0093341E5 - Deductibility of Child Support Payments

Unedited CRA Tags
60(b) 56.1(4)

Principal Issues: Whether child support payments, payable under a 1991 separation agreement, to a spouse after the child has attained the age of 18 will remain deductible?

Position: Question of fact, but likely yes.

Reasons: The 1991 separation agreement provides that a monthly amount will be paid to the former spouse for the maintenance, benefit, and support of their daughter for so long as the daughter remains a child of the marriage within the meaning of the Divorce Act. As it appears that there is no agreement or order to the effect that the daughter is no longer a child of the marriage, it appears that the child support payments will remain deductible based on the facts provided.

2004-009334
XXXXXXXXXX Karen Power, CA
(613) 957-8953
January 25, 2005

25 January 2005 External T.I. 2004-0109341E5 - Pay in lieu of notice vs damages

Unedited CRA Tags
248(1)

Principal Issues: Asked to clarify distinction between pay in lieu of notice and a payment of damages.

Position: Clarified that the nature of the payment changes when it is paid as damages.

Reasons: Explained differences.

24 January 2005 External T.I. 2004-0105181E5 - PHSP Within A Health Care Spending Account

Unedited CRA Tags
6(1)(a)

Principal Issues: Whether the non-taxable status of a PHSP provided through a HCSA will change where employees have certain rights in respect of the balance of credits in the HCSA?

Position: Question of fact.

Reasons: A HCSA that provides employees with inherent rights to the balance of credits in their account will not qualify as a PHSP. One of the criteria that a plan must meet to be considered a PHSP is that it be a plan of insurance, and a plan that provides employees with rights in respect of the balance of credits in the HCSA is not a plan of insurance. The only right that employees may have is to get reimbursed for eligible medical expenses under the terms of the plan. As well, when a HCSA provides for a carry forward of unused credits for a period not exceeding 12 months, this will not disqualify the plan as a PHSP solely because of the carry forward provision. Also, the status of a plan as a PHSP is unaffected as a result of the employer extending coverage to retired employees.

24 January 2005 External T.I. 2005-0110211E5 - Taxable benefit Employer-Provided Parking

Unedited CRA Tags
6(1)(a)

Principal Issues: Clarification with respect to a recently published technical interpretation (2004-010115), wherein it was stated that if 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 and therefore, the employee would not be in receipt of a taxable benefit. Was this a 5 or 7-day week? If an employee who does not necessarily use his or her vehicle 3 or more days on a weekly basis qualify if the employee used it more than an acceptable percentage of time during the year?

Position: The reference to a week was in reference to a 5-day normal workweek. This was meant to be a general guide, such that an employee who is required to use the parking space for employment-related reasons more than half the number of workdays during a week, would be considered to have regularly used the space that week. This simply relieves the employer and employee from determining the amount of the benefit, if any, that otherwise would have to be included in income in respect of the personal use of the space for that week. Another benchmark could be appropriate, depending on the circumstances. What may be acceptable is a question of fact.

24 January 2005 External T.I. 2004-0099471E5 F - Convention de retraite pour un actionnaire-employé

Unedited CRA Tags
248(1) "convention de retraite" 248(1) "entente d'échelonnement du traitement" 67 20(1)r)
no deduction regarding pre-incorporation services, and longstanding CRA position re shareholder-manager compensation
81 Roundtable position on shareholder-manager compensation also applies to RCA contributions
Part XI.3 tax and s. 56(1)(x) income inclusion apply even where RCA contribution is partially or fully non-deductible
a significant reduction in bonus or salary matched by an RCA contribution likely suggests it instead is an SDA

Principales Questions:
Est-ce que les cotisations versées dans le cadre d'une CR peuvent être déductibles dans le calcul du revenu d'une société dans la situation où les cotisations se rapportent à des services rendus par un actionnaire-employé lorsque ce dernier travaillait à son propre compte?
Est-ce qu'une CR peut être capitalisée lorsque des cotisations ne sont pas déductibles par l'employeur?
Est-ce qu'une société qui a comme pratique de verser des bonis à un actionnaire-employé peut réduire ces bonis pour verser des cotisations à une CR sans que cette technique ne donne lieu à une EET?

Position Adoptée:
Non.
Oui, si c'est une CR véritable au sens de la définition au paragraphe 248(1).
Question de fait.

Raisons:
Libellé de 20(1)r).
Il n'y a pas de disposition dans la Loi qui régit la capitalisation d'une CR.
On doit examiner tous les faits incluant un examen des ententes et une détermination des circonstances particulières entourant la création du régime ou du mécanisme.

XXXXXXXXXX 2004-009947
A. St-Amour, CA
Le 24 janvier 2005

21 January 2005 External T.I. 2004-0103721E5 - Borrowing to pay dividends

Unedited CRA Tags
20(1)(c)

Principal Issues: Can a parent company that has received all accumulated profits from the subsidiaries borrow and return its accumulated profits to its shareholders?

Position: Generally Yes

Reasons: Meets exception to direct use test discussed in paragraph 23 of IT-533

21 January 2005 External T.I. 2004-0098691E5 - Prizes Paid To Amateur Athletes

Unedited CRA Tags
56(1)(n) 7700

Principal Issues: Whether certain prizes paid to amateur athletes are taxable under paragraph 56(1)(n) of the Act?

Position: Question of fact. Such a determination can only be made with a complete knowledge of all the facts as they pertain to an individual taxpayer, but in this case it is likely.

Reasons: The wording of paragraph 56(1)(n) of the Act is sufficiently broad that it could encompass prizes awarded to amateur athletes under any of the circumstances described by the correspondent. The prizes are likely amounts received by the taxpayer for an achievement in a field of endeavour ordinarily carried on by the taxpayer and are not a prescribed prize.

20 January 2005 External T.I. 2004-0104921E5 F - RPDB et déficit cumulé

Unedited CRA Tags
147(1)
corporation with an accumulated deficit is not precluded from registering a DPSP

Principales Questions: Un Régime de participation aux bénéfices peut-il être agréé comme RPDB lorsque la société a un déficit cumulé?

Position Adoptée: Oui

Raisons: L'article 147 n'exige pas que la société ait des bénéfices non répartis pour agréer un régime de participation aux bénéfices?

20 January 2005 External T.I. 2004-0107081E5 - Clearly Marked Emergency-Response Vehicles

Unedited CRA Tags
248(1) 6(1)(a)

Principal Issues: Whether a taxable benefit results in respect of the personal use of an employer-provided motor vehicle that is not considered an automobile because it is a clearly marked emergency-response vehicle by virtue of paragraph (b.1) of the definition of automobile in subsection 248(1) of the Act?

Position: Yes.

Reasons: Notwithstanding the fact that such an employer-provided motor vehicle may not be an automobile, a benefit in respect of the personal use of such vehicle will result in a taxable benefit that must be included in the employee's income under paragraph 6(1)(a) of the Act.

19 January 2005 External T.I. 2004-0075601E5 F - Fiducie de fonds commun de placement

Unedited CRA Tags
53(2)h)i.1) 248(25.3)
no ACB reduction from distribution of ordinary income or capital gain (cf. ROC distribution) irrespective whether effected as cash or unit distribution
cost under s. 248(25.3) for distribution of ordinary income or capital gain made as units distribution

Principales Questions: Voir ci-dessous

Position Adoptée: Voir ci-dessous

Raisons: Voir ci-dessous

19 January 2005 External T.I. 2004-0081001E5 F - Réserve de valorisation d'une coopérative

Unedited CRA Tags
135(4) 136(2) 181.2(3) 181.1(3)
question of fact whether distributions of enhancement reserves are allocations in accordance with patronage
enhancement reserve of Quebec cooperative added to capital

Principales Questions: Quelles sont les conséquences fiscales de la création d'une réserve de valorisation et du paiement subséquent de cette réserve pour une coopérative et pour les bénéficiaires?

Position Adoptée: La création de la réserve n'est pas déductible en vertu de la partie I mais peut constituer une réserve aux fins de la partie I.3. Le paiement de la ristourne peut être imposé à titre de répartition proportionnelle à l'apport commercial ou à un autre titre selon les circonstances.

Raisons: Question de fait. Texte de loi.

6 January 2005 External T.I. 2004-0087221E5 F - Modification de la déclaration d'une société

Unedited CRA Tags
220(3.1) 53(2)h)(i.1) 132.1(1)d)
return amendment should be requested where a capital gain has been unreported due to a missed ROC distribution

Principales Questions: Comment une société doit-elle procéder pour (1) modifier une déclaration de revenus antérieure et pour (2) obtenir l'annulation d'intérêts.

Position Adoptée: (1) Par une demande de nouvelle cotisation. (2) Par une demande d'annulation d'intérêts.

Raisons: (1) Guide T4012, page 13. (2) Paragraphe 220(3.1) de la Loi et Circulaire d'information 92-2.

6 January 2005 External T.I. 2004-0088791E5 F - Paragraphe 4803(2) du Règlement

Unedited CRA Tags
4803(2)
Reg. 4803(2) satisfied if any of its paragraphs is satisfied

Principales Questions: Est-ce que les conditions énumérées aux alinéas 4803(2)a) à d) du Règlement sont cumulatives.

Position Adoptée: Non.

Raisons: Emploi de la conjonction "ou" entre les alinéas c) et d). Interprétations antérieures.

5 January 2005 External T.I. 2004-0085571E5 F - Art. XXIV de la Convention Canada-France

Art. 24(1) of Canada-France Convention would provide the principal residence exemption to a Canadian citizen if France accorded the exemption to a French national residing in Canada

Principales Questions: Interprétation du paragraphe 1 de l'Article XXIV de la Convention fiscale entre le Canada et la France.

Position Adoptée: Commentaires généraux.

Raisons: Article XXIV de la Convention fiscale entre le Canada et la France et Article 24 du Modèle de convention fiscale de l'OCDE et les commentaires s'y rapportant.

5 January 2005 External T.I. 2004-0083551E5 - Immigration of a discretionary trust

Unedited CRA Tags
94(1)(c) 128.1(1) 115(1) 104(2)

Principal Issues: Follow up comments on the answer we provided to question 7 of the 2004 STEP Round table.

Position: Remains as stated in answer to question 7 of the 2004 STEP Round Table.

Reasons: Previous positions.

7 December 2004 External T.I. 2003-0019751E5 - US Alternative Minimum Tax AMT and FTC

Unedited CRA Tags
126(7)

Principal Issues: Can an individual receive a Canadian FTC for US AMT? If so, how much US AMT is creditable?

Position: Yes, under certain circumstances, most notably when some non-Canadian source income is resourced to Canada pursuant to the Canada-US Income Tax Convention and the US AMT arises due to the limitation on US foreign tax credits under the US AMT rules. The US AMT must be apportioned between Canadian and non-Canadian source income to determine what amount is eligible for a Canadian FTC.

Reasons: When non-Canadian source income is resourced to Canada some of the foreign tax credits given by the US relate to that non-Canadian source income. Consequently, where AMT arises due to the 90% limitation on US foreign tax credits, some of that AMT can be said to relate to non-Canadian source income. As the AMT is not a voluntary tax, we consider it to be creditable to the extent that it does not relate to Canadian source income.

XXXXXXXXXX 2003-001975
Eliza Erskine
December 7, 2004

17 November 2000 External T.I. 2000-0046035 - Replacement farm property qualified farm property

Unedited CRA Tags
110.6(1)(a)(vii)

Principal Issues: Whether farm properties qualified as replacement property and whether they were "qualified farm property".

Position: Question of fact

Reasons: Property which is a replacement property for a former business property which was qualified farm property would also be qualified farm property. Any other property acquired in substitution would be a question of fact.

Conference

8 October 2004 APFF Roundtable Q. 1, 2004-0086681C6 F - Formulaire T-1134

Unedited CRA Tags
233.4 162(7) 162(10)

Principales Questions: Voir ci-après

Position Adoptée: Voir ci-après

Raisons: Voir ci-après

8 October 2004 APFF Roundtable Q. 19, 2004-0086871C6 F - Allocation automobile raisonnable

Unedited CRA Tags
6(1)b)

Principales Questions: 1. En tenant compte qu'il est habituel pour un président de vaquer à ses fonctions à bord d'un véhicule ayant un certain prestige pour donner une image de qualité à son entreprise, l'ARC considère-t-elle raisonnable qu'une société verse une allocation à un employé pour compenser les frais d'utilisation d'une voiture luxueuse ?
2. L'ARC est-elle d'avis que l'utilisation d'une voiture luxueuse est en quelque sorte déjà considérée par l'application de l'alinéa 18(1)r) L.I.R. au niveau du payeur ?

Position Adoptée: 1. Question de fait
2. L'application de l'alinéa 18(1)r) L.I.R. vise le traitement fiscal du point de vue du payeur. Pour le bénéficiaire de l'allocation i.e. l'employé, il y a d'autres implications fiscales possibles.

Raisons: 1. Le scénario présenté est hypothétique. Pour déterminer si une allocation est raisonnable ou non, il faut connaître et analyser tous les faits et circonstances de chaque employé.
2. Pour l'employeur, même si l'alinéa 18(1)r) L.I.R. n'est pas applicable, l'article 67 L.I.R. pourrait l'être. Pour l'employé et l'application de 6(1)b) L.I.R., une allocation est généralement considérée raisonnable si elle correspond aux taux prescrits énoncés à l'article 7306 du Règlement ou si elle couvre les frais réels encourus. De plus, si l'employé était également actionnaire de la société et qu'il recevait une allocation déraisonnablement élevée, le paragraphe 15(1) pourrait être applicable.

8 October 2004 APFF Roundtable Q. 24, 2004-0086921C6 F - Application de 75(2)b)

Unedited CRA Tags
75(2)b)

Principales Questions: Précisions concernant l'application de 75(2)b) lorsque la personne de qui des biens ont été reçus par une fiducie est l'un des co-fiduciaires et que les décisions sont prises à la majorité ou à l'unanimité.

Position Adoptée: 75(2)b) ne s'appliquera que si les termes de l'acte de fiducie exigent spécifiquement l'accord de la personne de qui des biens ont été reçus par la fiducie relativement à toute décision des fiduciaires concernant la disposition des biens de la fiducie.

Raisons: Positions antérieures.

8 October 2004 APFF Roundtable Q. 26, 2004-0086941C6 F - Application de 75(2)

Unedited CRA Tags
75(2)

Principales Questions: Est-ce que 75(2) est susceptible de s'appliquer à l'égard d'une action acquise par une fiducie de l'un de ses bénéficiaires pour une contrepartie égale à sa juste valeur marchande?

Position Adoptée: Oui.

Raisons: Positions antérieures.

TABLE RONDE SUR LA FISCALITÉ FÉDÉRALE
APFF - CONGRÈS 2004

8 October 2004 APFF Roundtable Q. 27, 2004-0086951C6 F - Application de 75(2)

Unedited CRA Tags
75(2)

Principales Questions: Est-ce que 75(2) s'applique si l'épouse du constituant d'une fiducie se voit accorder, en vertu de l'acte de fiducie, le pouvoir de déterminer par l'entremise de son testament le moment où la fiducie deviendra non-discrétionnaire et dans quelle proportion chacun des bénéficiaires participera dans le revenu et le capital de la fiducie?

Position Adoptée: Dans la mesure où le constituant ne peut devenir, de par l'exercice du pouvoir octroyé à son épouse, l'un des bénéficiaires du capital de la fiducie et que l'épouse du constituant n'a pas, directement ou indirectement, contribué de biens à la fiducie, le paragraphe 75(2) ne s'appliquera pas.

Raisons: Positions antérieures et dispositions de la Loi.

TABLE RONDE SUR LA FISCALITÉ FÉDÉRALE
APFF - CONGRÈS 2004

Technical Interpretation - Internal

24 January 2005 Internal T.I. 2005-0111281I7 - Alternative Minimum Tax

Unedited CRA Tags
127.52

Principal Issues: Whether alternative minimum tax applies with respect to the non-taxable portion of the proceeds received from the disposition of an eligible capital property.

Position: No

Reasons: The calculation of adjusted taxable income does not require any adjustment in respect of the disposition of an eligible capital property.

1 December 2004 Internal T.I. 2004-0064481I7 - Effect of NAFTA on Income From Time-Share Mexico

Unedited CRA Tags
20(1)(a)

Principal Issues: Whether NAFTA provides some relief for Canadian residents having income from time-share property located in Mexico or gains from the disposition of such property.

Position: No

Reasons: Article 2103 of NAFTA