Income Tax Severed Letters - 2005-02-18

Ruling

2004 Ruling 2004-0065921R3 - Conversion of corporations into LLCs

Unedited CRA Tags
91(1)
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Disposition
conversion into California or Delaware LLC
Summary Under
Tax Topics - Income Tax Act - Section 90 - Subsection 90(3)

Principal Issues: Whether the conversions of corporations incorporated under the laws of Delaware and California into limited liability corporations result in dispositions at the shareholder or at the entity level.

Position: No.

Reasons: This is similar to corporate continuance in Canada and should be a non-taxable event.

2004 Ruling 2004-0091531R3 - Franchise rights - eligible property

Unedited CRA Tags
85(1.1)

Principal Issues: Whether goodwill and rights under a franchise agreement are eligible property within the meaning of subsection 85(1.1).

Position: Factual determination

Reasons: See Statement of principal issues.

2004 Ruling 2004-0098681R3 - Wage Loss Replacement Plan

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

Principal Issues: Whether paragraph 6(1)(f) of the Act will apply to a wage loss replacement plan that has changed to an employee-pay all plan.

Position: No.

Reasons: The plan has been purified in that at the beginning of the plan year in which the changes become effective, all previous employer-related contributions have been utilized and such benefits included in employment income. Further, all future contributions will be made by employees.

Ministerial Correspondence

10 February 2005 Ministerial Correspondence 2005-0110451M4 - List of Non-Qualified Shares for RRSP

Principal Issues: Does the Canada Revenue Agency maintain a list of shares that can not be held in an RRSP (non-qualified share list)?

Position: No.

Reasons: Given the diversity of financial products in the marketplace, and the fact that the attributes of many such products change over time, the CRA does not maintain a list of non-qualified investments for RRSPs purposes.

2 February 2005 Ministerial Correspondence 2004-0107931M4 - Medical Expense - hot tub

Unedited CRA Tags
118.2(2)

Principal Issues: The client requested that the CRA revise its position that the cost of a hot tub does not qualify as a medical expense.

Position: It remains the CRA position that the cost of a hot tub is not a qualifying medical expense.

Reasons: The relevant legislation does not provide for a hot tub as a qualifying medical expense.

Technical Interpretation - External

18 February 2005 External T.I. 2004-0084151E5 - irrigation pipe costs

Unedited CRA Tags
20(1)(ee)

Principal Issues: Tax treatment of costs paid towards the construction of an irrigation pipe on land owned by the farmer, but the farmer does not acquire title to the pipe.

Position: The cost will be deductible under paragraph 20(1)(ee) in the year paid.

Reasons: Meets the requirements of that provision.

17 February 2005 External T.I. 2004-0090411E5 F - Bien de remplacement-dispos. involontaire

Unedited CRA Tags
44(1) 44(5)
Summary Under
Tax Topics - Income Tax Act - Section 44 - Subsection 44(5) - Paragraph 44(5)(a.1)
replacement property potentially can be held through a partnership if the partnership property is physically similar
Summary Under
Tax Topics - Income Tax Act - Section 13 - Subsection 13(4)
rollover not available where building replaced by interest in partnership carrying on a similar business because the partnership interest is not depreciable property

Principales Questions: Est-ce qu'on peut appliquer les dispositions du paragraphe 44(1) de la Loi si un bâtiment et des équipements détruits par un incendie sont remplacés par une participation dans une société de personnes qui détient un bâtiment et des équipements comparables?

Position Adoptée: Discussion générale. Généralement, dans ce genre de situation, un ancien bien doit être remplacé par un bien ayant les mêmes caractéristiques physiques.

Raisons: Question de fait.

16 February 2005 External T.I. 2004-0097161E5 F - Fin d'exercice d'une société de personnes

Unedited CRA Tags
249.1(4) 249.1(1)b) 249.1(6)
Summary Under
Tax Topics - Income Tax Act - Section 249.1 - Subsection 249.1(4) - Paragraph 249.1(4)(b)
requirement that there not be a multi-tier partnership must be satisfied each fiscal period

Principales Questions: Deux sociétés de personnes n'ont que des particuliers à titre d'associé et un choix en vertu du paragraphe 249.1(4) de la Loi a été fait pour chacune d'elle de façon à avoir une fin d'exercice autre que le 31 décembre. Si une société de personnes devient associé de l'autre à un moment donné, est-ce que chacune des sociétés de personnes peut continuer à avoir une fin d'exercice autre que le 31 décembre ?

Position Adoptée: Non, dans les deux cas

Raisons: Les conditions du préambule du paragraphe 249.1(4) de la Loi doivent être rencontrées à chaque exercice pour qu'une société de personnes puisse continuer à avoir une fin d'exercice autre que le 31 décembre.

15 February 2005 External T.I. 2005-0114711E5 - Structured Settlements

Unedited CRA Tags
56(1)(d)

Principal Issues: Must the insurer from whom a settlement annuity is purchased, be a federally licensed insurer?

Position: Not a requirement in the Income Tax Act

Reasons: The business activities which may or may not be undertaken by an insurance corporation is governed by the legislation of the jurisdiction in which the insurer is licensed and in which the insurer intends to conduct the business activities.

15 February 2005 External T.I. 2004-0094791E5 - Excluded Interest

Unedited CRA Tags
40(3.15) 40(3.16)

Principal Issues: Whether an interest in a limited partnership would be an excluded interest for the purpose of 40(3.1) in the following scenarios:
1) the partnership rents out all the property that it had previously been using in carrying on a business and begins to earn property income
2) the partnership refinances mortgage loans

Position: 1) No 2) Question of Fact

Reasons: 1) The partnership did not satisfy either condition of subsection 40(3.15).
2) Question of Fact.

14 February 2005 External T.I. 2005-0113501E5 - Regulation 201(1), interest, T5 Slip reporting

Unedited CRA Tags
201(1)

Principal Issues: Can a parent corporation issue T5 slips on behalf of a subsidiary?

Position: Person paying interest is responsible for T5 slip.

Reasons: Wording of Regulation 201.

14 February 2005 External T.I. 2004-0103041E5 - Employees travelling from home to work

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

Principal Issues: An employee drives an employer-owned vehicle to an individual job site then arrives at work later in the day. What portion of the travel is personal, resulting in a taxable benefit to the employee?

Position: The travel between home and a regular work location is personal travel, unless the exception in paragraph 5 of IT-63R5 is met. Travel during the day between regular work locations is business travel. Personal travel impacts the calculation of the taxable benefits under subsection 6(1) of the Act.

Reasons: Long-standing position

14 February 2005 External T.I. 2004-0106351E5 - Medical Expenses - Supplements

Unedited CRA Tags
118.2(2)(a) 118.2(2)(n)

Principal Issues: Whether the amounts paid by the taxpayer to a Naturopath for supplements that can be purchased without a prescription qualify as a medical expense for the purposes of calculating the medical expense tax credit.

Position: NO.

Reasons: The amounts paid by the taxpayer to a Naturopath for medicaments were not recorded by a pharmacist as required pursuant to paragraph 118.8(2)(n) of the Act. Jurisprudence on point.

14 February 2005 External T.I. 2004-0108311E5 - Associated Corporations

Unedited CRA Tags
256(1) 256(2)

Principal Issues: Application of subsection 256(2) in a situation where there are more than three corporations in a corporate group.

Position: Multiple elections

Reasons: The law.

14 February 2005 External T.I. 2005-0111301E5 - Treatment of expenses - Cross country ski trails

Unedited CRA Tags
20(1)(a) Class 17

Principal Issues: How are the costs incurred for planning, clearing and maintaining a cross country ski trail treated for tax purposes?

Position: Question of Fact. Some costs will likely qualify for inclusion in Class 17 of Schedule II of the Regulations in this case.

Reasons: The tests laid out in the Mont-Sutton case will determine the appropriate tax treatment. The criteria in Mont-Sutton are satisfied with respect to the planning and clearing activities and these costs will qualify as "surface construction" within paragraph (c) of Class 17 in Schedule II of the Regulations.

10 February 2005 External T.I. 2005-0113771E5 - CRCE and FTS

Unedited CRA Tags
Reg. 1219 66(15)

Principal Issues: general information on CRCE and flow-through shares (FTS)

Position: Outlined general requirements of Reg. 1219 (CRCE), deduction available for CRCE (66.1(6)(g.1)) and FTS defined in 66(15).

Reasons: as per legislation

10 February 2005 External T.I. 2004-0090211E5 - PHSP and employer contributions

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

Principal Issues: Whether contributions to a PHSP can be made by way of a reduction in salary?

Position: Provided that the underlying plan qualifies as a PHSP, contributions by an employer would not be a taxable benefit to the employees under subparagraph 6(1)(a)(i). Moreover, employee contributions to a qualifying PHSP are a medical expense pursuant to paragraph 118.2(2)(q).

Reasons: Previously stated positions.

10 February 2005 External T.I. 2004-0106591E5 - Medical expenses

Unedited CRA Tags
118.2(2)

Principal Issues: The eligibility of certain items as qualifying medical expenses if prescribed by a medical practitioner.

Position: General comments provided.

Reasons: The determination is one of fact.

20 January 2005 External T.I. 2004-0092971E5 - Medical Expenses - Travel

Unedited CRA Tags
118.2(2) )

Principal Issues: Whether the travel costs for a patient, residing at a mental health facility, to periodically visit his family would qualify for the medical expense credit.

Position: No

Reasons: The travel costs are not to obtain medical services.

19 January 2005 External T.I. 2003-0030991E5 - PHSP - Cost Plus Plan

Unedited CRA Tags
118.2(2) 248(1)

Principal Issues: Whether our position has changed to permit "cost plus" plans, as described in IT-339R2, to qualify as a PHSP where the plan has no element of insurance.

Position: No

Reasons: Legislation.

17 September 1998 External T.I. 98222950 F - Régime d'accession à la propriété - habitation admissible

Unedited CRA Tags
146.01(1)
Summary Under
Tax Topics - Income Tax Act - Section 146.01 - Subsection 146.01(1) - Qualifying Home
qualifying home can be part of a larger commercial building

Principales Questions:
Est-ce que la définition de l'expression "habitation admissible" inclut un logement résidentiel dans un bâtiment semi-commercial?

Position Adoptée:
Oui.

Technical Interpretation - Internal

16 February 2005 Internal T.I. 2004-0105401I7 F - Frais de publicité

Unedited CRA Tags
18(1)a) 18(1)b) 14(5)
Summary Under
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Income-Producing Purpose
costs of commenting on an issue unrelated to the business were non-deductible

Principales Questions: Est-ce que les frais encourus pour la conception de l'annonce publicitaire et ceux encourus pour l'achat du périodique sont des frais de publicité déductibles dans le calcul du revenu aux fins de l'impôt de la société dans la situation où l'information véhiculée dans cette publicité correspond à une critique à l'égard du XXXXXXXXXX ?

Position Adoptée: Non, ce sont des dépenses non déductibles.

Raisons: Ces frais ne sont pas des dépenses faites ou engagées par la société en vue de tirer un revenu de son entreprise.

16 February 2005 Internal T.I. 2005-0114671I7 - Successor Pool Allocation

Unedited CRA Tags
66.7(3) 66.7(4) 66.7(5)

Principal Issues: Whether, for the purpose of determining the deduction from income from a particular property acquired by a successor corporation, the successor pool is required to be apportioned to each particular property, based on whether the expenses in the pool related to the particular property.

Position: No.

Reasons: The wording of clauses 66.7(3)(a)(i)(A) - CCEE, 66.7(4)(a)(i)(A) - CCDE and 66.7(5)(a)(i)(A) - CCOGPE establish a maximum deduction against income from a particular property acquired by a successor corporation based only on the amount of the particular successor pool immediately after the disposition of the particular property by the original owner. There is no wording to suggest that a further division or allocation of the successor pool is required to each particular property acquired from the original owner.

14 February 2005 Internal T.I. 2004-0091181I7 - LCT - Canadian GAAP vs. U.S. GAAP

Unedited CRA Tags
181(3)(b)

Principal Issues: Whether a Canadian subsidiary of a U.S. parent should use Canadian GAAP prepared financial statements or U.S. GAAP prepared financial statements for Part I.3 tax purposes.

Position: It is our view that the Canadian subsidiary should use the financial statements prepared in accordance with Canadian GAAP.

Reasons: Generally, GAAP as referenced in subsection 181(3) is Canadian GAAP.

11 February 2005 Internal T.I. 2005-0112841I7 - Damages Payment Supplementary XXXXXXXX Licence

Unedited CRA Tags
9

Principal Issues: Whether a damages payment made by the Department of Fisheries and Oceans in respect of its denial of a supplementary XXXXXXXXXX licence, is taxable? If so, is it taxable on account of income or capital?

Position: Taxable on account of income.

Reasons: Denial of the licence did not result in a material crippling or destruction of the profit-making apparatus of the taxpayers' business. The damages payment is based on the income loss during the years in which the licence was denied. The taxpayers were subsequently issued such a licence that they use to fish and earn income.

8 February 2005 Internal T.I. 2004-0099681I7 F - Remboursement de frais de déménagement

Unedited CRA Tags
6(1)
Summary Under
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a)
reimbursement of reasonable living expenses incurred until the employee permanently occupies new home in employer’s area is not a benefit

Principales Questions: Est-ce que le remboursement, par un employeur, des frais d'hébergement et du repas du soir en attendant que l'employé occupe son nouveau logement est imposable étant donné que le remboursement couvre une période supérieure à quinze jours?

Position Adoptée: Le remboursement de ce genre de frais ne serait pas imposable s'ils sont raisonnables ce qui est une question de fait. La position de l'ARC n'est pas de se baser sur un nombre maximal de jours pour déterminer si les frais de subsistance étaient raisonnables aux fins de l'alinéa 6(1)a) de la Loi.

Raisons: La limite de quinze jours s'appliquent en ce qui concerne la déductibilité des frais de déménagement à l'article 62 de la Loi mais il n'y a rien qui prévoit une telle limite aux fins de l'article 6 de la Loi.