Income Tax Severed Letters - 2005-03-04

Ruling

2005 Ruling 2004-0109031R3 - 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.

XXXXXXXXXX 2004-010903

2005 Ruling 2005-0112211R3 - Supplemental Ruling - 2004-010159

Unedited CRA Tags
84(2) 84(4)

Principal Issues: Changes to the facts and proposed transactions described in the advance income tax ruling no. 2004-010159.

Position: Confirmation that, subject to the conditions, limitations, qualifications and comments set out therein, the original ruling no. 2004-010159 will continue to be binding on the CRA.

2005 Ruling 2003-0051921R3 - Health and Welfare Trust

Unedited CRA Tags
6(1)(a) 18(1)(a) 18(9)

Principal Issues: Whether the proposed transaction will result in the creation of a heath and welfare trust within the meaning thereof in IT-85R2

Position: Yes.

Reasons: The proposed health and welfare trust meets all of the criteria set out in IT-85R2.

XXXXXXXXXX 2003-005192

2005 Ruling 2004-0088681R3 F - Split-up butterfly

Unedited CRA Tags
55 85 84(3) 20(1)(c)

Principal Issues: Standard butterfly.

Position: Favourable rulings given.

Reasons: Meets the requirements of the law.

2004 Ruling 2004-0105611R3 - Cost of License

Unedited CRA Tags
13(27) Class 14

Principal Issues: Whether the amounts contributed to the XXXXXXXXXX allowance account are included in the cost of the license.

Position: Question of fact.

Reasons: To the extent that the amounts in the XXXXXXXXXX allowance account are used to purchase XXXXXXXXXX , they will qualify as part of the cost of the license.

2004 Ruling 2003-0051741R3 - Capital Cost Allowance

Unedited CRA Tags
13(27) Class 14 13(7.1)

Principal Issues: The application of the available for use rules to the Licence acquired by the corporation.

Position: Paragraph 13(27)(b) of the Act will apply until the Licence is used for the purpose of earning income.

Reasons: The Licence will be acquired three years before it will used for the purpose of earning income such that paragraph 13(27)(b) of the Act will apply.

2004 Ruling 2004-0101591R3 - Paid-up Capital Reduction - Public Corporation

Unedited CRA Tags
84(2) 84(4) 53(2) 40(3)

Principal Issues: Whether subsection 84(2) applies to the proposed distribution of cash, to be effected as a reduction of the stated capital of the shares of a public corporation.

Position: Favourable rulings provided.

Reasons: In compliance with the law.

Technical Interpretation - External

2 March 2005 External T.I. 2004-0108511E5 - Minority discount

Unedited CRA Tags
Clause 248(1)(a)(i)(B) of the definition of short-term preferred share Subparagraph 248(1)(f)(ii) of the definition of taxable preferred share

Principal Issues:
For purposes of the (clause 248(1)(a)(i)(B) of the definition of short-term preferred share and subparagraph 248(1)(f)(ii) of the definition of taxable preferred share [hereinafter the "Excepting Provisions"], will the CRA allow a share of the issuing corporation to be acquired for an amount equal to its fair market value determined with no account being taken of the discount for minority interest.

Position:
A minority discount, if any, should be applied in determining the fair market value of a taxable preferred share and a short term preferred share, at the time described in subparagraph 248(1)(f)(ii) of the Act and clause 248(1)(a)(i)(B) of the Act, respectively.

Reasons:
To the extent that no account is taken of any "minority discount" in determining an amount for which a share could be repurchased under the terms of the agreement to acquire the share, it is possible that this amount could exceed the share's fair market value. This position is supported by jurisprudence (see below) and CRA published position (see below). Moreover, in connection with file # 911137, Finance was consulted on this very issue and in regards to the Excepting Provisions, Finance confirmed that "fair market value means fair market value and that if it was intended that minority discount be excluded in the calculation of fair market value the legislation would specifically so state."

28 February 2005 External T.I. 2004-0104121E5 F - Détermination du statut de résidence

Unedited CRA Tags
2601(1) 2607
Summary Under
Tax Topics - Income Tax Regulations - Regulation 2607
individual working in Ontario but visiting Quebec family home twice monthly likely was resident in Quebec

Principales Questions: Détermination du statut de résidence provincial.

Position Adoptée: Double résidence avec comme lieu principal de résidence la province de Québec.

Raisons: Faits et Règlement 2607.

24 February 2005 External T.I. 2004-0073101E5 - Partnership Property and FAPI

Unedited CRA Tags
93.1 95(2)(m) 95(2.2)

Principal Issues: When being applied for the purpose of computing the exempt surplus giving rise to a deduction in computing the taxable income of the partner under 113(1), whether 95(2.2) could apply when the shares of the non-resident corporation are acquired through a partnership.

Position: Yes

Reasons: Where subsection 96(1) doesn't apply (e.g. in the determination of deductions available in computing the taxable income of a Canadian resident corporation), a partnership is not a person. Under the common law, the partners are the collective owners of the partnership property. Consequently, where the partnership "acquires" a property, the partners are considered to have acquired such property collectively. Therefore, the "qualified interest test" and the "related test" under subsection 95(2.2) are satisfied even in a situation involving a partnership.

XXXXXXXXXX Sophie Chatel
2004-007310
February 24, 2005

23 February 2005 External T.I. 2004-0093921E5 F - Déménagement d'un employé-Paiement de frais

Unedited CRA Tags
6(1)a)
Summary Under
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a)
payment of house-hunting fee for new hire was non-taxable

Principales Questions: Dans le but de commencer à travailler à l'établissement de l'employeur situé au Canada, un employé travaillant pour cet employeur à l'extérieur du Canada doit déménager. L'employeur paie des honoraires pour la recherche du logement de l'employé et des honoraires pour la demande de numéro d'assistance sociale, de carte d'assurance-maladie, de permis de conduire et pour l'ouverture d'un compte bancaire. Est-ce que le paiement de ces honoraires est un avantage imposable pour l'employé?

Position Adoptée: Le paiement des honoraires ne représente pas un avantage imposable.

Raisons: Les honoraires font partie des frais raisonnables de déménagement nécessaires pour que l'employé puisse s'établir au nouveau lieu de travail. Leur paiement par l'employeur est à l'avantage de celui-ci.

22 February 2005 External T.I. 2004-0095001E5 - Charity - unrelated business

Unedited CRA Tags
149.1(2) 188.1(1)

Principal Issues: A charitable organization is planning to develop and lease real property. Whether the charitable organization would be considered to be carrying on an unrelated business and therefore be subject to the proposed penalty in draft subsection 188.1(1).

Position: Factual determination. Provided general comments.

Reasons: A determination can be made only after a review of the relevant facts, including the terms and conditions of the particular lease and the extent of property development activities.

21 February 2005 External T.I. 2004-0094931E5 F - Fiducie de santé et de bien-être

Unedited CRA Tags
18(9) 9(1) 15(1)

Principales Questions:
Si une fiducie de santé et de bien-être rencontre les critères mentionnés au IT-85R2?

Position Adoptée:
Aucune.

Raisons:
Commentaires généraux reflétant les caractéristiques de ce type de régime et les positions exprimées dans les Nouvelles techniques no 25 et le IT-85R2.

9 February 2005 External T.I. 2004-0100201E5 - Disp. of Interest in Property-joint ownership

Unedited CRA Tags
110.6 73(1) 74.2(1)

Principal Issues: The income tax consequences of transferring the ownership of farmland from sole ownership to joint ownership.

Position: Question of fact. In adding another name to the property, there may or may not be a disposition, depending on whether or not there is a change in beneficial ownership.

Reasons: Paragraph (e) of the definition of "disposition" in subsection 248(1) of the Act.

7 February 2005 External T.I. 2004-0101421E5 F - Subsection 111(5.1)

Unedited CRA Tags
111(5.1)
Summary Under
Tax Topics - Income Tax Act - Section 111 - Subsection 111(5.1)
FMV of assets should be established on a push-down basis from the share purchase price, but can be allocated based on an appraisal
Summary Under
Tax Topics - General Concepts - Fair Market Value - Other
depreciable assets’ value inferred from the share purchase price

Principal Issues: In a given fact situation, what is the fair market value of depreciable properties of two prescribed classes for the purpose of the application of subsection 111(5.1)?

Position: General comments.

Reasons: Question of fact.

7 February 2005 External T.I. 2005-0111431E5 F - Death of a Taxpayer - Deduction of CCDE

Unedited CRA Tags
66.2 66.1 66 70(5.1)
Summary Under
Tax Topics - Income Tax Act - Section 66.2 - Subsection 66.2(2)
CCDE balance cannot be deducted in terminal return or by estate
Summary Under
Tax Topics - Income Tax Act - Section 70 - Subsection 70(5.2)
no s. 70(5.2) deduction where CCDE balance arose “through” a partnership

Principal Issues: Whether the unutilized Cumulative Canadian Development Expenditures (CCDE) of a deceased taxpayer can be deducted in computing the taxpayer's income for the taxation year of his/her death.

Position: No. A deduction in an amount not exceeding 30% of CCDE may be claimed in the year of death under subsection 66.2(2). No further deduction is allowed for the unclaimed balance.

Reasons: The Act and previous position.

Technical Interpretation - Internal

28 February 2005 Internal T.I. 2004-0103991I7 F - Remboursement de frais de scolarité

Unedited CRA Tags
6(1)a) 6(3) 56(1)n)
Summary Under
Tax Topics - Income Tax Act - Section 56 - Subsection 56(1) - Paragraph 56(1)(n)
agreement of employer to pay tuition would have been taxable under s. 6(3) if a benefit
Summary Under
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a)
payment of tuition fees conditional on a return to extended employment was not a taxable benefit

Principales Questions: Est-ce que les montants d'aide financière reçus de l'employeur pour faire des études doctorales sont des sommes reçues au titre, dans l'occupation ou en vertu d'une charge ou d'un emploi?
Est-ce que la partie de cette aide financière qui est reliée au remboursement des frais de scolarité doit être incluse au revenu d'emploi?

Position Adoptée: Oui.
Non.

Raisons: Paragraphe 7 du Bulletin d'interprétation IT-75R. Le contrat accordant l'aide financière a été conclu pendant que la Contribuable était à l'emploi de l'employeur et il s'agit d'un contrat selon lequel l'employeur s'engage à payer une partie ou la totalité des frais liés aux études de l'employé à condition que l'employé reprenne cet emploi une fois ses études terminées.

25 February 2005 Internal T.I. 2005-0110351I7 - Payments From Trust To Mother Of Disabled Adult

Unedited CRA Tags
3

Principal Issues: What is the taxable status of payments received by the mother of a disabled adult from a trust that was created with a financial settlement received by her son as a result of the accident that caused his disability?

Position: Not taxable.

Reasons: Not income from a source that is taxable under the Act. The minimal nature of the monthly payment and the fact that it is possible there may no payment at all if the trust fails to earn income, suggests that the relationship in existence between the mother and her disabled son and/or his trust is personal. Therefore, the monthly payment, if any, merely represents a partial recoupment of the personal expenses incurred by the mother to care for her disabled adult son.

27 January 2005 Internal T.I. 2004-0080851I7 - Retiring Allowance-Article XI CanadaIreland Treaty

Unedited CRA Tags
248(1) retiring allowance 212(1)(j.1) Article XI on the Canada-Ireland Treaty

Principal Issues: Whether periodic payments made to a resident of Ireland (former resident of Canada) in respect of a retiring allowance received in recognition of long service are exempt from taxation in Canada by virtue of Article XI of the 1967 Canada-Ireland treaty

Position: Yes

Reasons: Such payments satisfy the definition of "pension" under the Canada-Ireland treaty and the ITCIA doesn't override such definition.