Income Tax Severed Letters - 2005-04-08


2005 Ruling 2004-0093711R3 - Incorporating a Proprietorship

Unedited CRA Tags
125(7) 56(2) & (4)

Principal Issues: Whether a physician who is also a faculty member of a university can conduct a medical practice through a corporation. Whether such corporation would be personal services business.

Position: Yes. and No.

Reasons: The physician's employment contract permits the physician to carry on a medical practice in such a manner, as does the applicable provincial legislation. The practice carried on by the corporation would not be a personal services business.

2005 Ruling 2004-0109391R3 - Supplemental Ruling

Unedited CRA Tags
88(1)(d.3) 88(1)(c.2) 73(1) 118.1

Principal Issues: Minor changes to facts in ruling.

Position: No impact on rulings previously given.

2005 Ruling 2005-0112651R3 - Supplemental Ruling

Unedited CRA Tags
88(1)(d.3) 88(1)(c.2) 73(1) 118.1

Principal Issues: Minor changes to facts in ruling.

Position: No impact on rulings previously given.

2004 Ruling 2004-0060271R3 - Alter Ego Trust Planning

Unedited CRA Tags
88(1)(d) 118.1 40(3.6) 88(1)(c.2)(ii)

Principal Issues: 1. Whether s. 88(1)(d) bump is available where alter ego trust holds shares of subsidiary. 2. Whether 88(1)(d.3) will apply to deem acquisition of control from non-arm's-length person. 3. Whether partnerships and trusts are to be recharacterized as corporations for the purposes of ascertaining specified shareholders for the purposes of s. 88(1)(c)(vi). 4. Whether alter ego trust may claim charitable donation tax credit upon making gift to registered charity. 5. Whether capital losses arising on share-for-share exchange involving trust and wholly-owned subsidiary that are denied under s. 40(3.6) will be realized on dispositions of shares to beneficiaries and donees of trust and are available to be carried back by trust to offset capital gains realized by trust pursuant to s. 104(4).

Position: 1. Yes 2. Yes 3. Yes 4. Yes 5. Yes

Reasons: 1. Technical requirements are met. 2. Shares of subsidiary are acquired as a consequence of death pursuant to the directions of the settlor in the terms governing the alter ego trust, trustees of the alter ego trust under equitable obligation to transfer shares of subsidiary to parent on the death of the settlor. 3. Wording of s. 88(1)(c.2) provides that recharacterization rules are to be taken into account for the purposes of s. 88(1)(c)(vi). 4. Trustee has full discretion to make voluntary transfer of property to charity in accordance with the intent of the settlor. 5. Property of trust will be fully distributed before the end of the third taxation year of the trust following the year in which it is deemed to dispose of its property pursuant to s. 104(4).

Ministerial Correspondence

29 March 2005 Ministerial Correspondence 2005-0116551M4 - Disability Tax Credit

Unedited CRA Tags

Principal Issues: The Taxpayer requested clarification of the criteria regarding the disability tax credit. The Taxpayer is considered a disabled person for CPP disability benefits and EI medical benefits.

Position: Comments provided to the Taxpayer and requested that Form T2201 be filed.

Technical Interpretation - External

5 April 2005 External T.I. 2005-0122561E5 - Motor Vehicle Allowances

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

Principal Issues: Taxable status of motor vehicle allowances received in various scenarios.

Position: Question of fact.

Reasons: The taxable status of the allowance depends on several factors, including whether it was paid for employment related travel, its reasonableness, and whether it is paid in combination with a flat-rate allowance.

5 April 2005 External T.I. 2004-0099071E5 - Part IV tax circularity

Unedited CRA Tags
186(1) 129(3) 129(1)

Principal Issues: In a circular calculation of Part IV tax where the amount of dividends is equal and exceeds 3 times the opening RDTOH which causes the circular problem, which corporation will have the RDTOH balance at the end of the circularity

Position: Generally, provided that no other dividend is paid by either corporation, they should be in the same position as before the payment of the dividends.

Reasons: In such circumstances, the amount of Part IV tax payable by each corporation and the amount of its dividend refund should be equal and offset

5 April 2005 External T.I. 2004-0109141E5 - Leasing of Wind Turbines

Unedited CRA Tags
1219(1) 1219(3) Class 43.1

Principal Issues: Whether wind turbines to be leased by a taxpayer developing a wind farm project, if favourable results are obtained from test wind turbines owned by the taxpayer in respect of the project, would form part of the wind farm project such that the leased wind turbines would be taken into account in determining the "project's planned nameplate capacity" for purposes of proposed paragraph 1219(3)(a) of the Regulations.

Position: Determination must be made based upon the facts and circumstances relevant to a particular wind farm project. However, the fact that wind turbines which are not test wind turbines and that will be included in Class 43.1 are leased should not, in and by itself, preclude such wind turbines from forming part of a particular wind farm project and being included in the above determination of the "project's planned nameplate capacity".

Reasons: Consideration of the relevant provisions of the Regulations and the nature of the determination.

5 April 2005 External T.I. 2005-0113381E5 - Executor's Fees

Unedited CRA Tags
5(1) 6(1) 9

Principal Issues: Where an individual earns executor's fees for the administration of an estate as income from an office, is the estate required to withhold CPP and tax amounts and is the estate required to report the amounts on a T4 slip?

Position: Yes

Reasons: Executor's Fees are included in income under 6(1)(c) of the Act and should be reported on a T4 slip. CPP and tax amounts should be withheld.

4 April 2005 External T.I. 2005-0110941E5 F - Transfert d'une police d'assurance-vie

Unedited CRA Tags
148(7) 148(9) 15(1)

Principales Questions: Un actionnaire doit-il inclure un avantage dans le calcul de son revenu si une société lui transfert sans contrepartie un intérêt dans une police d'assurance-vie?

Position Adoptée: Oui, pour un montant égal à la JVM de l'intérêt.

Raisons: Le transfert est sujet au paragraphe 15(1).

4 April 2005 External T.I. 2005-0115681E5 - Income Allocation to an Employee Benefit Program

Unedited CRA Tags

Principal Issues: Once a year, an employee can allocate certain income to either a health spending account that is a private health services plan (PHSP) or to a flexible spending account that is not a PHSP. Whether or not either of these allocations will reduce the employee's income.

Position: No.

Reasons: The conversion or allocation of any portion of an employee's salary to a health care spending account will result in an income inclusion of the amount of salary so converted.

28 February 2005 External T.I. 2004-0108551E5 - Disability Insurance Through a Professional Assoc.

Unedited CRA Tags
18(1)(a) 18(1)(h)

Principal Issues: Whether the premiums for disability insurance, purchased through a professional association plan (such as the XXXXXXXXXX ) by a self-employed individual would be a deductible business expense?

Position: No

Reasons: Expense is a personal and living expense.

25 February 2005 External T.I. 2004-0107981E5 - Limited Partnership Losses-Tiered Partnership

Unedited CRA Tags
96(2.1) 111(1)(e)
denial to upper-tier partners, who have no limited partnership loss

Principal Issues: Use of limited partnership losses in a tiered partnership situation.

Position: Allocation of losses of bottom partnership unavailable to members of top partnership.

Reasons: (Same as 2004-006280) Subsection 102(2) deems the top partnership to be a taxpayer only for purposes of division j and therefore any loss of the bottom tier could not be a carry forward loss of the top tier.