Income Tax Severed Letters - 2005-02-11

Ruling

2004 Ruling 2004-0098711R3 - Credit Union Shares

Unedited CRA Tags
137(4.1) 12(3) 12(4)

Principal Issues: Whether shares of a credit union are shares or debt obligations for purposes of the Act including the interest accrual rules.

Position: They are shares for all purposes of the Act.

Reasons: The shares are equity shares under the relevant provincial legislation. Notwithstanding that subsections 137(4.1) and (4.2) deem dividends paid or payable on the shares to be interest and not to be dividends, there is nothing in the Act which changes their underlying nature as shares.

Ministerial Correspondence

2 February 2005 Ministerial Correspondence 2004-0096621M4 - Avian Flu - Compensation

Unedited CRA Tags
80.3(2)

Principal Issues: How are amounts received for the forced destruction of livestock as the result of the Avian flu outbreak treated?

Position: Amounts are taxable but the inclusion in income can be deferred for one year by virtue of subsection 80.3(2) of the Act.

Reasons: 80.3(2)

26 January 2005 Ministerial Correspondence 2004-0098421M4 - RESP and EAPs

Unedited CRA Tags
146.1(1)

Principal Issues: Whether an educational assistance payment can be in a foreign currency.

Position: Yes

Reasons: Although the RESP rules do not prevent a promoter from paying EAPs in a foreign-denominated currency, there is no obligation on the promoter to issue EAPs in the beneficiary's currency of choice.

Technical Interpretation - External

11 February 2005 External T.I. 2004-0100071E5 - Establishment of the Employer

Unedited CRA Tags
153(1)(a) Regulation 100(4) Regulation 400(2)(e)

Principal Issues: An employer located in Alberta sends employees to industrial, institutional and commercial construction sites in other provinces. Alberta is the employees' province of permanent residence and the projects run from 2 days to 2 years. Whether the Alberta tax tables, or the tax tables of the province where the construction site is located, should be used in preparing the payroll which is paid out of Alberta.

Position: The province of employment for purposes of the payroll deductions tables depends on whether or not the employee is required to report for work at an establishment of the employer.

Reasons: If the employee reports for work at an establishment of the employer, the province of employment is the province where the establishment is located. If the employee is not required to report for work at an establishment of the employer, the employee's province of employment is the province where the establishment of the employer is located and from where the employee's salary is paid.

10 February 2005 External T.I. 2004-0104701E5 - Taxation of Damages

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

Principal Issues: Whether amounts received as damages are a tax free receipt or a retiring allowance.

Position: Question of Fact.

Reasons: To the extent that the payment relates to a loss of income from employment, it will generally be a retiring allowance. Where the payment is an award of damages for a human rights violation, such payment is generally not taxable.

9 February 2005 External T.I. 2005-0113341E5 - photovoltaic system and wind energy

Unedited CRA Tags
Class 43.1

Principal Issues: tax treatment of a photovoltaic system and a wind energy conservation system to be used to supply electricity to a farming business.

Position: Outlined requirements of Class 43.1 and Reg. 1219 (CRCE)

Reasons: as per legislation

8 February 2005 External T.I. 2004-0103941E5 - Participating loan

Unedited CRA Tags
20(1)(c)(i) 20(1)(c)(ii) 12(1)(c), 12(3), 12(4) Reg.7000

Principal Issues:
(a) Deductibility of participating payments under the terms of a participating loan.
(b) Income inclusion of participating payments received by a lender.

Position:
(a) Briefly, our general position on participating payments where the facts support, inter alia, a finding that the loan exhibits the characteristics of debt and not equity and that the interest rate (including additional participating payments) on the loan does not exceed the prevailing market rates, is that the base interest payments and additional payments will generally be considered to be interest for the purposes of paragraph 20(1)(c).
(b) Generally, a Canadian lender/investor must recognize the amount as accrued or received pursuant to 12(1)(c), 12(3) or 12(4), as the case may be. Additionally, where the debt obligation is a prescribed debt obligation described in Regulation 7000(1), an amount determined in prescribed manner is deemed by virtue of 12(9) to accrue to the taxpayer as interest on the prescribed debt obligation.

Reasons:
(a) This position remains unchanged from that stated in response to Q. No.1 at the 1992 Corporate Management Tax Conference - Roundtable and in Income Tax Technical News No. 16 released on March 8, 1999.
(b) Operation of the Act.

8 February 2005 External T.I. 2005-0111891E5 - Gifts to Municipality

Unedited CRA Tags
118.1 110.1

Principal Issues: 1. Can a municipality in Canada issue a tax receipt for purposes of the donation tax credit for individuals and the donation tax deduction for corporations?
2. Does the Income Tax Act speak to the manner in which a municipality must use funds received by way of gift and for which a tax receipt has been issued?
3. Where a municipality receives funds by way of gifts from individuals and corporations, matches the amount of the gifted funds and then forwards the total funds to a registered charity, would the individuals and corporations be entitled to donation receipts in the amount they actually gave to the municipality or in the amount received by the registered charity (i.e. including the matched funds)?
4. Where a municipality receives funds by way of gifts from individuals and corporations, matches the amount of the gifted funds and then forwards the total funds to a registered charity, can the municipality issue donation tax receipts in the name of the charity?

Position: 1. Yes, where the municipality has received a gift.
2. No, the use of municipal funds would be governed by provincial statutes and/or municipal bylaws.
3. The amount of the tax receipt issued to the individual or corporate donors cannot be more than the amount they actually gifted to the municipality (i.e. their receipt cannot include the matched funding).
4. A municipality may issue a tax receipt in the name of a registered charity only where there is an agency agreement between the municipality and the registered charity which permits the municipality to collect donations as agent for the registered charity and permits the municipality to issue the tax receipts in the charity's name.

Reasons: 1. A municipality in Canada is a "qualified donee" for purposes of the charitable gifting rules in sections 118.1 and 110.1 of the Act.
2. The Income Tax Act.
3. A tax receipt issued to a donor cannot exceed the amount of the gift by the donor to the qualified donee. Any matched funds would be a donation of municipal funds to the registered charity by the municipality.
4. Legal relationship created by agency agreement.

7 February 2005 External T.I. 2004-0093851E5 - IT-115R2

Unedited CRA Tags
51(1)

Principal Issues: Whether the administrative position described in paragraph 3 of IT-115R2 is still our current position?

Position: Yes. However, where a taxpayer is seeking to rely on this administrative position in an abusive situation, such as where the cash amount received by the taxpayer for its fractional share on a share exchange is a significant amount, the taxpayer must report a deemed dividend under subsection 84(3) to the extent that the cash amount received exceeds the paid-up capital of its fractional share and any gain or loss from the disposition of its fractional share.

Reasons: See above.

7 February 2005 External T.I. 2004-0101491E5 - Medical Expenses-Home Renovations

Unedited CRA Tags
118.2(2)(m) 118.2(2)(l.2)

Principal Issues: Consider whether the expenses incurred by the taxpayer qualify as a medical expense under 118.2(2) of the Income Tax Act.

Position: Question of Fact. General comments provided.

Reasons: Legislation and Jurisprudence. The claim would have to be supported by a recommendation from a medical practitioner that the renovation costs were incurred to enable a person who lacks normal physical development to be more functional within the dwelling.

4 February 2005 External T.I. 2004-0083241E5 - Residency of Canadian citizens in Saudi Arabia

Principal Issues: Whether Canadian citizens who send their spouse, children and personal effects to Canada from Saudi Arabia will become resident in Canada for purposes of the Income Tax Act.

Position: None taken, but general explanation of the law given.

Reasons: It will depend on the individual's particular circumstances.

4 February 2005 External T.I. 2004-0101781E5 - Revenue Recognition

Unedited CRA Tags
9(1) 12(1)(a) 12(1)(b) 12(2)

Principal Issues: Whether amounts invoiced in the current taxation year, but not paid, for services to be performed in the subsequent taxation year, are included in income for the current taxation year.

Position: No.

Reasons: The amounts invoiced are not received, paragraph 12(1)(a), receivable, paragraph 12(1)(b), or earned, subsections 9(1) and 12(2). Therefore such amounts are not included in computing income.

3 February 2005 External T.I. 2005-0112141E5 F - Safe income

Unedited CRA Tags
55
Summary Under
Tax Topics - Income Tax Act - Section 55 - Subsection 55(2.1) - Paragraph 55(2.1)(c)
safe income prorated on a partial crystallization of an accrued gain

Principal Issues: Whether our position to prorate the allocation of safe income on a partial crystallization of an accrued gain applies in the given fact situation.

Position: Yes

Reasons: Situation different from the one in 729658 Alberta Ltd.

3 February 2005 External T.I. 2005-0111871E5 F - Intérêts / mise à part de l'argent

Unedited CRA Tags
20(1)(c)
Summary Under
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c) - Subparagraph 20(1)(c)(i)
cash damming to pay current deductible business expenses is an eligible use which continues with the business

Principales Questions:
Dans la mesure où l'entreprise continue d'être exploitée, les intérêts sur l'argent emprunté utilisé pour payer une dépense courante déductible continuent-ils d'être déductibles pour toute période postérieure à celle où la dépense a été effectuée?

Position Adoptée:
Oui.

Raisons:
L'utilisation actuelle de l'argent emprunté n'a pas changé et la source de revenu (l'entreprise) continue d'exister.

2 February 2005 External T.I. 2004-0104261E5 - Deductibility of legal fees

Unedited CRA Tags
60(b) 56(1)(b)

Principal Issues: Are legal fees incurred to obtain supports amounts as defined in subsection 56.1(4) of the Act deductible on a cash or accrual basis?

Position: They may be deducted on an accrual basis.

Reasons: Paragraph 18 of IT-99R5 refers to legal fees incurred.

2 February 2005 External T.I. 2004-0104671E5 F - Convention de retraite - Fonds mis de côté

Unedited CRA Tags
248(1) 207.6(1)
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Salary Deferral Arrangement
amounts agreed to be paid post-retirement do not create an SDA if they are not reasonably regarded as deferred salary
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Retirement Compensation Arrangement
no requirement that payment to the other be in trust

Principales Questions:
La mise sur pied d'un fonds de réserve spécial qu'un employeur crée en déposant des sommes chez un courtier constitue-t-il une convention de retraite?

Position Adoptée:
Aucune.

Raisons:
Questions de fait.

2 February 2005 External T.I. 2004-0109131E5 - Fraternal Benefit Society

Unedited CRA Tags
149(1)(k)

Principal Issues: Whether changes to a long-term disability plan administered by a fraternal benefit society would result in a change in the fraternal benefit society's status.

Position: Question of fact. In this case, no.

Reasons: The only change to the existing plan is a change to the provision dealing with beneficiaries.

1 February 2005 External T.I. 2004-0105951E5 - Principal-Business Corporation

Unedited CRA Tags
66(15) 66(19) 103

Principal Issues: Whether a corporate general partner in a partnership formed to develop a wind farm project may qualify as a principal-business corporation due to the activities carried on through the partnership such that Canadian exploration expense incurred by the partnership, and intended to be wholly allocated to the general partner, could ultimately be available for renunciation to investors in flow-through shares issued by the corporate general partner.

Position: Potentially, subject to various determinations including: whether a valid partnership exists; the nature and extent of business operations conducted by the relevant corporation; whether the provisions of section 103 would apply to the intended allocation of all CEE incurred by the partnership to the corporate partner; and whether the "anti-warehousing" rule contained in subsection 66(19) would apply to prohibit the corporation from renouncing amounts in respect of the CEE originally incurred by the partnership.

Reasons: Based upon the relevant legislative provisions and the nature of the determinations to be made.

31 January 2005 External T.I. 2004-0083521E5 - Commencement Day-Changes to an agreement

Unedited CRA Tags
56.1(4)

Principal Issues: Whether a pre-May 1997 agreement will have a "commencement day" in the following situations: (1) if child support amounts continue to be paid after the children reach the age of majority and pursue post-secondary education; (2) if the agreement is varied to change only third party payments, but not the fixed monthly support payments; (3) if an additional agreement is made to provide for additional third party payments, such as post-secondary education costs, without changing the terms of the initial agreement, and (4) if child support amounts cease in respect of one of the two children but continue in respect of the other child.

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

Reasons: (1) In this case, the agreement does not provide for the payments to cease when the children reach the age of 18 years old. (2) and (3) In this case, the third party payments do not constitute "child support amounts" as defined in ss. 56.1(4) of the Act. (4) The Initial Agreement did not provide for the termination of the obligation to pay child support.