Income Tax Severed Letters - 2005-04-01

Ruling

2004 Ruling 2004-0099651R3 - Migration to Canada / PUC Reduction

Unedited CRA Tags
XXXXXXXXXX 84(4.1)

Principal Issues: 1. Opinion - Whether TCo has acquired residence in Canada?
2. Ruling - Whether 84(4.1) will apply to reduction of PUC?

Position: Yes
No

Reasons: Central management and control resides in Canada.
The PUC reduction is "on the winding-up, discontinuance or reorganization" of a business.

2004 Ruling 2004-0081531R3 - XXXXXXXXXX - Internal Restructuring

Unedited CRA Tags
55(3)(a) 20(1)(c)

Principal Issues: Internal "spin-off" reorganization relying on the paragraph 55(3)(a) exception from the application of subsection 55(2).

Position: Favourable Rulings Given.

Reasons: The requirements of the law have been met.

Ministerial Correspondence

16 March 2005 Ministerial Correspondence 2005-0110641M4 - transfers of foreign pensions to RRSPs and RRIFs

Unedited CRA Tags
60(l) 146

Principal Issues: Can the taxpayers transfer amounts from a US 401(k) plan to an RRSP? If not, why?

Position: Not in this case. They are over 69 years of age.

Reasons: An RRSP must mature before the end of the year in which the annuitant becomes 69. Once an RRSP has matured it cannot accept any more contributions (and must begin paying benefits). In the present situation, both taxpayers are over 69 years of age. They therefore cannot transfer (contribute) the amounts accumulated in their 401(k) plans to an RRSP. The taxpayers may have RRIFs instead of RRSPs. However, RRIFs are also precluded from receiving transfers of any amounts from 401(k) plans. RRIFs were intended to provide a means of paying retiring benefits that are accumulated in registered pension plans and RRSPs upon the maturity of those plans and were not intended to accept direct contributions or transfers from unregistered arrangements such as foreign pensions.

11 March 2005 Ministerial Correspondence 2005-0116531M4 - Tuition Tax Credit - Internet Foreign University

Unedited CRA Tags
118.5(1)(b) 118.6(1)

Principal Issues: Are tuition fees paid for courses taken by way of the Internet with a foreign university eligible for the tuition tax credit?

Position: No

Reasons: Interpretation of the legislation and consistent with prior opinions

1 March 2005 Ministerial Correspondence 2004-0108331M4 - Tuition tax credit for university outside Canada

Unedited CRA Tags
118.5(1)(b)

Principal Issues: Whether courses taken over the internet from a foreign university qualify for the tuition tax credit

Position: No

Reasons: Paragraph 118.5(1)(b) requires a student to be in full-time attendance, which we interpret to mean physical attendance.

1 March 2005 Ministerial Correspondence 2005-0110441M4 - Whether employment income earned on a reserve

Unedited CRA Tags
81(1)(a)

Principal Issues: Whether employment income earned by status Indian with employer situated on land known as the XXXXXXXXXX is tax exempt.

Position: No.

Reasons: While the Federal Government has entered into negotiations with the XXXXXXXXXX , the particular land is not a reserve.

Technical Interpretation - External

30 March 2005 External T.I. 2004-0102421E5 F - Placement à rendement progressif

Unedited CRA Tags
7000(1)c) 7000(2)c) 7000(2)c.1)

Principales Questions:
Comment calculer les intérêts sur des titres de créance à taux progressif lorsque le taux d'intérêt payable n'est pas précisé pour au moins une période de leur terme ou peut être rajusté à la hausse à la discrétion de l'émetteur selon les dispositions des alinéas 7000(2)c) ou 7000(2)c.1) du règlement ?

Position Adoptée:
L'émetteur doit effectuer annuellement le calcul en vertu du sous-alinéa 7000(2)c)(ii) et de l'alinéa 7000(2)c.1) du Règlement en se basant sur les taux connus au moment du calcul.

Raisons:
Analyse législative.

29 March 2005 External T.I. 2005-0121121E5 - interest deductibility

Unedited CRA Tags
20(1)(c)

Principal Issues: interest deductibility

Position: general comments

Reasons: ITA

24 March 2005 External T.I. 2005-0119471E5 - Issuance of T2202A if fees in dispute

Unedited CRA Tags
118.5 118.6

Principal Issues: Can an educational institution withhold a T2202A for a year in respect of which the fees are paid, by reason of the fact that a dispute exists over fees for a subsequent year?

Position: It would be inappropriate to withhold the T2202A

Reasons: Because there is no legislative requirement to issue a T2202A at all, it cannot be said that the institution is required to issue the slip in this situation.

22 March 2005 External T.I. 2005-0111811E5 - Acquisition of Control

Unedited CRA Tags
256(7)

Principal Issues: Application of subsection 256(7) to particular fact situation.

22 March 2005 External T.I. 2004-0079041E5 - Non-resident's RRSP withdrawal - loss carryforward

Unedited CRA Tags
212(1)(l) 217 115(1)

Principal Issues: Can a non-resident of Canada withdraw an amount out of his RRSP and deduct non-capital losses carried forward that were incurred while he was a resident of Canada to prevent the losses from expiring.

Position: Yes.

Reasons: The taxpayer can elect under section 217 of the Act for no Part XIII tax to be payable on the RRSP withdrawal. The RRSP withdrawal will be "Canadian benefits" for purposes of subsection 217(2). The non-capital losses carried forward can be deducted from the amount determined under subparagraph 217(3)(b)(i) (through paragraph 115(1)(d)). Even if the amount determined under subparagraph 217(3)(b)(i) was to be lesser than the amount determined under subparagraph 217(3)(b)(ii) and not be the amount that is the "taxable income earned in Canada" (TIEC), the non-capital losses carried forward would nevertheless be deductible through the operation of the rules for the credit under subsection 217(6).

22 March 2005 External T.I. 2005-0117661E5 - Factual or Deemed Resident

Unedited CRA Tags
250(1)(b) 250(3)

Principal Issues: Residential ties with Canada.

Position: If no significant ties with Canada, not a factual resident of Canada.

Reasons: The only ties were RRSP accounts in a Canadian chartered bank.

18 March 2005 External T.I. 2005-0117691E5 F - Significant increase in interest in any corp

Unedited CRA Tags
55(2) 55(3)(a)

Principal Issues: Whether subsection 55(2) would apply to a dividend in the situation described?

Position: Yes

Reasons: Significant increase in the total direct interest in GESTION.

18 March 2005 External T.I. 2004-0070911E5 F - Allocation ou salaire - traitement fiscal

Unedited CRA Tags
5(1) 6(1) 6(6)

Principales Questions: Quel est le traitement fiscal des sommes reçues par les deux individus engagés par XXXXXXXXXX ?

Position Adoptée: Les sommes reçues sont soit un salaire imposable en vertu du paragraphe 5(1) de la Loi, soit un remboursement de dépenses ou une allocation imposable en vertu de l'alinéa 6(1)a) ou b) de la Loi sauf si le paragraphe 6(6) de la Loi s'applique.

Raisons: Selon les contrats soumis, les sommes en jeu semblent être versées en fonction des services rendus, donc il s'agit d'un salaire. Lorsqu'un individu reçoit un tel salaire, il n'y a pas d'allègement disponible contrairement à certains remboursements ou allocations qui peuvent être exclus du revenu en vertu du paragraphe 6(6) de la Loi ou du sous-alinéa 6(1)b)(iii) de la Loi.

18 March 2005 External T.I. 2004-0089661E5 F - Fiducie personnelle-Résidence principale

Unedited CRA Tags
40(2)b) 40(7) 248(3) 54

Principales Questions: Le paragraphe 248(3) présume l'existence d'une fiducie suite au legs par testament d'un usufruit sur un Immeuble, à son conjoint survivant. La nue-propriété a été léguée à sa fille. La fiducie présumée loue une partie de l'Immeuble à la fille qui répond à la définition d'un bénéficiaire déterminé de la fiducie personnelle. Dans deux situations différentes, la fiducie personnelle (ou le bénéficiaire déterminé) peut-elle faire un choix de résidence principale et ainsi réduire le gain en capital autrement réalisé lors de la disposition de l'Immeuble?

Position Adoptée: Oui. Un particulier ainsi qu'une fiducie personnelle peuvent faire une désignation de résidence principale. Si les circonstances font en sorte que la fiducie personnelle est réputée disposer de l'immeuble à la JVM (104(5) ou 107(2.1)), c'est la fiducie personnelle qui pourra faire la désignation. Dans le cas où la fiducie attribuerait le bien à un bénéficiaire en règlement de sa participation au capital de la fiducie et que les critères à 107(2) sont rencontrés, c'est le bénéficiaire qui pourra faire la désignation. Dans ce cas, si les conditions d'application du paragraphe 40(7) sont rencontrées, le bien sera réputé avoir appartenu continuellement au bénéficiaire depuis que la fiducie a acquis le bien pour la dernière fois.

Raisons: Le fait que l'Immeuble soit loué au bénéficiaire ne change en rien le fait que le bien puisse constituer une résidence principale pour la fiducie présumée et qu'elle peut faire la désignation de résidence principale en vertu de l'alinéa 40(2)b) de la Loi.

17 March 2005 External T.I. 2005-0118601E5 F - Sale of Shares-Transfer of Family Business

Unedited CRA Tags
84.1 84(2) 245(2) 248(5)

Principal Issues: An individual ("A") owns all of the issued and outstanding shares of the capital stock of a holding corporation ("Holdco"). More specifically, A owns Holdco common shares having a fair market value ("FMV") of $0,5 million, a nominal adjusted cost base ("ACB") and a nominal paid-up capital ("PUC"). A also owns Holdco preferred shares having a FMV and an ACB of $0,5 million, and a nominal PUC. The high ACB would be the result of a previous crystallization of the capital gains deduction by A. Holdco owns all of the issued and outstanding shares of the capital stock of an operating corporation ("Opco"). More specifically, Holdco owns Opco common shares having nominal FMV, ACB and PUC. Holdco also owns Opco preferred shares having a FMV and ACB of $1 million, and nominal PUC. A would first dispose of his or her Holdco common shares in favour of his or her children for FMV consideration. The children would then dispose of the Holdco common shares in favour of another corporation ("Newco") in consideration for a promissory note. The children would be the only shareholders of Newco. Holdco would then redeem its preferred shares owned by A. Opco would redeem its preferred shares owned by Holdco, in order to allow Holdco to repay the note issued to A. Holdco would pay dividends to Newco in order to allow Newco to repay the notes issued to the children. Whether section 84.1 or 245 would apply in the given fact situation.

Position: General comments provided. Section 84.1 would apply if, for legal purposes, it is established that A disposed of his or her Holdco common shares directly to Newco. Based on the proposed transactions, the children should be able to establish a "nil" amount, pursuant to subparagraph 84.1(2)(a.1)(ii) of the Act, as being the amount in respect of which a deduction under section 110.6 was claimed. It is the CRA's practice to comment on the application of subsection 245(2) of the Act only after reviewing all the facts and circumstances of a transaction in the context of an advance tax ruling. However, it is noted that the loss realized by A on the redemption of the Holdco preferred shares is the result of the crystallization of A's capital gains deduction. This capital loss could be applied to offset the capital gain apparently realized by A on the disposition of the Holdco common shares. These elements should be considered in examining the purpose of section 84.1. This provision is designed to prevent the removal of corporate surpluses as a tax-free return of capital through a non arm's length transfer of shares and the utilization of the capital gains deduction. Furthermore, transactions or series of transactions similar to those described in this letter could, depending on the facts and circumstances surrounding a particular situation, involve surplus stripping. The loss sustained by A on the redemption of the Holdco preferred shares would be denied under subsection 40(3.6) of the Act if, immediately after the redemption of such shares, it is established that A controlled, directly or indirectly in any manner whatever, Holdco.

Reasons: Wording of the Act and previous positions.

28 February 2005 External T.I. 2004-0094071E5 - Principal Residence / Qualified Farm Property

Unedited CRA Tags
54 110.6

Principal Issues: Interaction of paragraph 40(2)(c) of the Act and the definition of "qualified farm property" in subsection 110.6(1) of the Act.

Position: Paragraph 40(2)(c) of the Act does not provide that a legal property may be regarded as two separate properties for purposes of determining whether the property is "qualified farm property" as defined in subsection 110.6(1) of the Act.

Reasons: Paragraph 40(2)(c) applies for purposes of computing the gain from the disposition of land used in a farming business carried on by the taxpayer that includes property that was at any time the taxpayer's principal residence.

23 September 1998 External T.I. 98116350 - Travel Expenses for Construction Workers

Unedited CRA Tags
8(1)(h.1) 6(1)(b)

Principal Issues: Are travel expenses deductible for construction workers reporting to different construction sites of employer under 8(1)(h.1)

Position: Where construction employees are required to report to different work sites, each work site is considered an employer's place of business and related travel costs to various work locations are not deductible

Reasons: Definition of 'employer's place of business' and different places as previously interpreted and as discussed in draft position paper. Each construction site is considered a regular place of employment, not a 'different place.'

Technical Interpretation - Internal

24 March 2005 Internal T.I. 2005-0115921I7 - Specified debt obligations & loan originating cost

Unedited CRA Tags
248(1) 142.2(1) Reg 9004 Reg 8604
debt definition - includes conditional sales contracts

Principal Issues: (a) Are the taxpayers restricted financial institutions ("RFI") within the meaning of paragraph (e) of the definition in subsection 248(1)?
(b) Are the taxpayers financial institutions ("FI") as defined in subsection 142.2(1)?
(c) Whether the income from the conditional sales agreements ("CSAs") and the leases ("Leases") constitute income from specified debt obligations ("SDO")?
(d) Whether the costs of an SDO would include allocated costs (the "LOCs")?

Position: (a) Yes, both A Co and Leaseco are RFIs.
(b) Yes, both A Co and Leaseco are FIs.
(c)
(i) A Co, yes, provided a CSA is a conditional sales agreement.
(ii) Leaseco, perhaps no, provided the Lease is described in paragraph 142.2(1)(c) and (d) of the SDO Definition.
(d) No, perhaps.

Reasons: (a) Factual determination.

23 March 2005 Internal T.I. 2005-0113931I7 F - Safe income on hand calculation: Life Insurance

Unedited CRA Tags
55(2) 55(5) 148(7)

Principales Questions: Whether premiums paid under a life insurance policy reduce the safe income on hand of a corporation?

Position Adoptée: Yes. The amount of premiums paid under a life insurance policy that has not already been deducted in computing the corporation's net income for tax purposes and that is no longer on hand to contribute to the capital gain on a share of the capital stock of the corporation reduces the safe income on hand attributable to the particular share. However, the amount of the non deductible premiums paid that is reflected in the cash surrender value of the life insurance policy and that contributes to the capital gain on the particular share of the capital stock of the corporation does not reduce the safe income on hand attributable to the particular share.

Raisons: Previous positions and review of case law.

23 March 2005 Internal T.I. 2005-0117541I7 - Allowable business investment loss

Unedited CRA Tags
40(2)(g)(ii)

Principal Issues: Whether subparagraph 40(2)(g)(ii) would deny a capital loss, where a shareholder has loaned funds to a corporation interest free?

Position: Question of fact

Reasons: Based on the Byram decision, where a clear connection between the shareholder and the corporation's dividend income can be demonstrated, subparagraph 40(2)(g)(ii) should not be applied to deny the capital loss. It is a question of fact whether such a connection exists.

10 March 2005 Internal T.I. 2004-0105851I7 - War Veterans Pension from Norway

Unedited CRA Tags
81(1)(e) 81(1)(d) Canada-Norway Convention, Article 18(4)

Principal Issues: Whether war veteran pension from Norway received by a resident of Canada is taxable in Canada.

Position: Not enough information to give a definitive answer.

Reasons: The payment must meet the requirements in paragraph 81(1)(e).

18 June 2004 Internal T.I. 2004-0065141I7 - Seed capital - Mutual funds

Unedited CRA Tags
9(1)

Principal Issues: Is the total or partial redemption of the "seeding capital" of a mutual fund unit on account of income?

Position: YES

Reasons: Not invested in the general way like an investor - made for the purpose of creating a fund that will generate management income