Income Tax Severed Letters - 2005-04-22


2005 Ruling 2005-0117481R3 F - Supplemental Ruling - 2004-006856

Unedited CRA Tags
55(3)(b) 55(3.1) 55(2) 191(4)

Principal Issues: Split-up butterfly transaction. Whether certain amendments to the proposed transactions would affect the rulings given in document no. 2004-006856.

Position: No.

Reasons: The requested amendments to the proposed transactions do not affect or change the application of the law in the circumstances.

2005 Ruling 2005-0120551R3 F - Butterfly Transaction - Papillon

Unedited CRA Tags
55(3)(b) 55(3.1) 55(2)

Principales Questions: Split-up butterfly transaction.

Position Adoptée: Favourable rulings provided.

Raisons: Meets the requirements of the law.

XXXXXXXXXX 2005-012055


2005 Ruling 2005-0121571R3 - Structured Settlement

Unedited CRA Tags

Principal Issues: Are payments received from a structured settlement annuity taxable?

Position: No

Reasons: Meets the position established in par 5 of It-365R2

Technical Interpretation - External

21 April 2005 External T.I. 2005-0117441E5 - Cost of Tools Replacement

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

Principal Issues: Should the Employer treat the amounts paid to employees with respect to the replacement of the employees tools used in the Employer's business as a taxable benefit.

Position: Yes, whether or not the amounts paid are reimbursements or allowances.

Reasons: The payment represents a benefit received by virtue of the employer-employee relationship.

21 April 2005 External T.I. 2005-0112831E5 - Classification of Grain Storage Silos

Unedited CRA Tags
20(1)(a) Class 43 Class 1, 8

Principal Issues: What is the proper classification for capital cost allowance purposes of silos built to store grain at a feed processing plant?

Position: Class 43

Reasons: Storage silo is otherwise included in Class 8.

21 April 2005 External T.I. 2005-0121521E5 - Lump-Sum Payment For Long Term Disability

Unedited CRA Tags

Principal Issues: Following the SCC decision in Tsiaprailis, what is the taxable status of a lump-sum payment made by a liquidator of a company to its retired employees in settlement of their lost future long-term disability benefits?

Position: A lump-sum payment in respect of future benefits under an employer long-term disability plan constitutes proceeds of disposition of a capital property that must be used to calculate the recipient's taxable capital gain resulting from the disposition.

Reasons: Consistent with the SCC and FCA decisions in Tsiaprailis. The SCC held that a lump-sum payment in respect of arrears benefits payable under an employer long-term disability plan is taxable under paragraph 6(1)(f) of the Income Tax Act, and that the portion of the payment "for future benefits is in the nature of a capital payment and is not taxable under 6(1)(f)". The FCA also stated that the settlement payment in respect of future benefits is a "capital transaction" resulting from "the disposition of a right".

20 April 2005 External T.I. 2004-0101461E5 F - Péninsule de Gaspé"-"comté"

Unedited CRA Tags

Principales Questions: Est-ce que le " comté de Kamouraska " auquel on fait référence dans la définition de " péninsule de Gaspé " au paragraphe 127(9) de la Loi, pourrait être défini comme la circonscription électorale à laquelle Kamouraska fait partie?

Position Adoptée: Non

Raisons: Dans la définition de " péninsule de Gaspé " le terme " comté " fait référence aux régions administratives du Québec, en l'occurrence, la municipalité régionale de comté (la " MRC ") de Kamouraska.

20 April 2005 External T.I. 2005-0119901E5 F - Associated Corporations - Shareholders' Agreement

Unedited CRA Tags

Principal Issues: An individual (X") owns all of the issued and outstanding shares of the capital stock of a corporation ("GESCO"). Another individual (Y") owns all of the issued and outstanding shares of the capital stock of another corporation ("HOLDCO"). Each of GESCO and HOLDCO owns 50 common shares of the capital stock of an operating corporation ("OPCO"). GESCO and HOLDCO are the only shareholders of OPCO and they deal with each other at arm's length. Pursuant to a shareholders' agreement, GESCO or HOLDCO, as the case may be, would have the right to acquire the shares of the capital stock of OPCO held by the other shareholder, if X or Y, as the case may be, would leave his or her employment with OPCO. Whether each of GESCO and HOLDCO would be deemed to own all of the issued and outstanding shares of the capital stock of OPCO pursuant to paragraph 256(1.4)(a) of the Act.

Position: Yes. Each of GESCO and HOLDCO would be deemed to own all of the issued and outstanding shares of the capital stock of OPCO pursuant to paragraph 256(1.4)(a). Consequently, GESCO would be associated with OPCO pursuant to paragraph 256(1)(a) or 256(1)(b) of the Act. Furthermore, HOLDCO would be associated with OPCO pursuant to paragraph 256(1)(a) or 256(1)(b) of the Act. It should be noted that pursuant to subparagraph 256(1.2)(b)(ii) of the Act, a corporation may be controlled by a person notwithstanding that the corporation is also controlled or deemed to be controlled by another person.

Reasons: Wording of the Act and previous positions.

20 April 2005 External T.I. 2005-0113961E5 F - Avocats nommés à la magistrature

Unedited CRA Tags
9 39 22

Principales Questions: Révision du rapport sur le traitement fiscal du revenu des avocats qui sont nommés à la magistrature.

Position Adoptée: Aucune position adoptée. Le document a été mis à jour en accord avec la Loi telle que modifiée jusqu'au 31 mars 2005 et comprenant les modifications proposées à la Loi jusqu'à cette date.

20 April 2005 External T.I. 2005-0122761E5 - Interest deductibility; mortgage; RRSP

Unedited CRA Tags

Principal Issues: Whether interest on mortgage deductible after mortgage is transferred to RRSP

Position: Depends on facts

Reasons: Must satisfy 20(1)(c) criteria

19 April 2005 External T.I. 2005-0125301E5 - Class 43.1

Unedited CRA Tags
Class 43.1 Class 17

Principal Issues: whether alterations to a small hydro-electric installation are eligible for inclusion in Class 43.1

Position: yes- provided that proposed amendments to Class 43.1 are promulgated

Reasons: compliance with technical requirements and technical opinion from Natural Resources Canada

15 April 2005 External T.I. 2005-0121351E5 - Exam Fees Paid For A Lic. To Practice Medicine

Unedited CRA Tags

Principal Issues: An optometrist who studies outside of Canada is required to pay exam fees to obtain a licence to practice in Canada. Are the exam fees fully deductible as a business expense?

Position: No.

Reasons: Where a doctor who studies outside of Canada is required to pay exam fees necessary to obtain a licence to practice in Canada, the exam fees and related travel costs qualify as an "eligible capital expenditure". These expenditures are not fully deductible in the taxation year in which they were incurred but rather go into an eligible capital property pool of which a percentage may be claimed each year as a deduction in computing business income from the practice.

14 April 2005 External T.I. 2005-0118981E5 - Received By A Volunteer

Unedited CRA Tags
5(1) 6(1)

Principal Issues: The taxable status of payments received by an individual volunteering overseas with a charitable international organization, in respect of expenses incurred to move household effects into storage for the duration of the volunteer assignment, to open the household on return to Canada after the volunteer assignment, and miscellaneous living expenses incurred between volunteer assignments or until the individual resumed employment.

Position: Not Likely taxable.

Reasons: An individual who is a volunteer is generally considered to be in a position of "employment" and payments received from a volunteer organization must be determined with regard to the provisions of the Act that tax employment income and benefits. Where, however, an employer covers reasonable expenses incurred to relocate an employee for employment-related reasons, a taxable benefit will generally not result. These payments seem to fall into this category and are likely not taxable on this basis.

14 April 2005 External T.I. 2004-0107991E5 F - Participation à des études cliniques

Unedited CRA Tags

Principales Questions: Est-ce que les particuliers qui participent à des études cliniques ayant pour but de tester de nouveaux médicaments pour des sociétés pharmaceutiques doivent inclure les montants qu'ils reçoivent de ces sociétés dans le calcul de leur revenu aux fins de l'impôt ?

Position Adoptée: Oui.

Raisons: Les montants sont reçus en contrepartie de services rendus aux sociétés pharmaceutiques.

XXXXXXXXXX 2004-010799
Lucie Vermette, CGA
Le 14 avril 2005

13 April 2005 External T.I. 2004-0108901E5 F - Indemnités-perte d'emploi et frais judiciaires

Unedited CRA Tags
56(1)a) 56(1)l.1) 60o.1)

Principales Questions: Est-ce que l'indemnité reçue en vertu d'une entente hors-cour (en raison de la perte d'emploi) est imposable?

Position Adoptée: La partie qui correspond à la facture des frais légaux semble constituer un remboursement des frais judiciaires. Si ces frais légaux étaient des frais engagés pour établir le droit à l'allocation de retraite, le remboursement de ces frais serait imposable en vertu de l'alinéa 56(1)l.1) de la Loi. Cependant, le contribuable aurait droit à une déduction correspondante en vertu de l'alinéa 60o.1) de la Loi. L'autre partie de l'indemnité constituerait une allocation de retraite. Toute partie de l'allocation de retraite reçue au cours d'une année d'imposition serait incluse dans le calcul du revenu de cette année d'imposition en vertu du sous-alinéa 56(1)a)(ii) de la Loi.

Raisons: Selon sa définition indiquée au paragraphe 248(1) de la Loi, l'expression " allocation de retraite " englobe une somme reçue à l'égard de la perte d'une charge ou d'un emploi, qu'elle soit reçue ou non à titre de dommages ou conformément à une ordonnance ou sur jugement d'un tribunal compétent. Une allocation de retraite ne comprend cependant pas un remboursement des frais judiciaires et extrajudiciaires. Un tel remboursement pourrait être visé par l'alinéa 56(1)l.1) de la Loi.

13 April 2005 External T.I. 2005-0115871E5 - Medical Expenses - Hydrotherapy Unit

Unedited CRA Tags
118.2(2) reg. 5700

Principal Issues: Whether the cost of a home hydrotherapy unit qualifies qualify as medical expenses.

Position: No

Reasons: It is not described in subsection 118.2(2) or Regulation 5700.

24 March 2005 External T.I. 2004-0092221E5 - rollover of family farm property on death

Unedited CRA Tags
70(9) 248(5)

Principal Issues: 1. Can we look at the total collective time an original property and its replacement property were farmed for purposes of determining whether land was farmed "principally" under 70(9).

Position: 1. No- must look at the replacement property's use only.

Reasons: 70(9) does not provide for property "substituted" --hence the legislation limits the test to the property being disposed of.

Technical Interpretation - Internal

14 April 2005 Internal T.I. 2004-0081371I7 - Requirement to file T5018

Unedited CRA Tags
153(1) Reg 200(1) Reg 238(2)

Principal Issues: Is a corporation required to file an information return pursuant to subsection 238(2) of the Income Tax Regulations where the corporation pays amounts to sub-contractors for the construction of a residential building on behalf of an employee of the corporation?

Position: Yes

Reasons: The Corporation is engaged in construction activities and is making payments for goods or services rendered in the course of construction activities to sub-contractors.

21 March 2005 Internal T.I. 2005-0113921I7 - non-resident trust canadian beneficiary

Principal Issues: taxabilty of amounts payable to Canadian beneficiaries of a Non-resident trust

Position: amounts are taxable

Reasons: ss.104(13) is applicable as benefiairies are "entitled" under the terms of the trust; also 250.1 is applicable to the foreign trust