Income Tax Severed Letters - 2005-05-06

Ruling

2004 Ruling 2004-0098931R3 - Subsections 7(1.4) and 7(1.5) Exchanges

Unedited CRA Tags
7(1.4) 7(1.5) 110(1)(d) 6801(d)

Principal Issues: Will subsections 7(1.4) and 7(1.5) of the Act apply to option and share exchanges, as a result of a proposed corporate butterfly spin-off?

Position: Question of Fact.

Reasons: Provided the conditions of paragraphs 7(1.4)(a) to 7(1.4)(c) are satisfied concerning the option exchanges, the provisions of paragraphs 7(1.4)(d) through 7(1.4)(f) will apply. In this particular ruling, provided the conditions of paragraph 7(1.5)(c) are satisfied, the provisions of paragraphs 7(1.5)(d) through (g) will apply to the share exchanges.

Technical Interpretation - External

5 May 2005 External T.I. 2005-0124801E5 - Test Wind Turbine - CRCE

Unedited CRA Tags
Reg 1219(1) Reg 1219(3)

Principal Issues: Whether certain revisions to the transactions detailed in our files 2004-005784 and 2004-010162 would alter our opinion regarding the ability of each of three wind turbines to qualify as a "test wind turbine" for purposes of CRCE under proposed amendments to section 1219 of the Regulations.

Position: No. Provided the amendments come into force as proposed and the taxpayer proceeds with the development of the wind farm projects under the revised plan, each of the wind turbines would so qualify.

Reasons: Based upon the wording of the proposed amendments, written opinions received from Natural Resources Canada and the facts of the situation.

4 May 2005 External T.I. 2004-0099421E5 - test wind turbine - CRCE

Unedited CRA Tags
Reg. 1219(1) and (3)

Principal Issues: whether proposed exploratory wind turbines will qualify as test wind turbines under proposed Reg. 1219(3).

Position: yes, provided the amendments to the Regulations are promulgated as described

Reasons: proposed project complies with proposed amendments and favourable written opinion has been provided by Natural Resources Canada

4 May 2005 External T.I. 2005-0126791E5 - Interest deductibility - common shares

Unedited CRA Tags
20(1)(c)

Principal Issues: Is interest on money borrowed to invest in common shares deductible?

Position: Interest on money borrowed to invest in common shares is deductible under subparagraph 20(1)(c)(i) of the Act if the borrowed money was used for the purpose of earning income. There has to be a reasonable expectation of income at the time the investment was made.

Reasons: Previous position in paragraph 11 of IT-533, Interest Deductibility

3 May 2005 External T.I. 2005-0124261E5 - Employee Stock Purchase Plan

Unedited CRA Tags
7(6)
Summary Under
Tax Topics - Income Tax Act - Section 7 - Subsection 7(3) - Paragraph 7(3)(b)
s. 7(3)(b) applies to trusteed treasury share, but not open-market purchase, plan

Principal Issues: How is a plan distinguished as being an RCA, SDA or section 7 arrangement?

Position: Provided information

Reasons: It is a factual determination that is made after giving consideration to the terms of the plan and the circumstances in which it is to be implemented.

2 May 2005 External T.I. 2005-0114431E5 - Salary deferral arrangement

Unedited CRA Tags
248(1)(k)

Principal Issues: 1. Whether an arrangement would constitute a "salary deferral arrangement" within the meaning of subsection 248(1). 2. Whether an arrangement would meet paragraph (k) of the SDA definition if the actual receipt of the payment under the arrangement is made after three years.

Position: 1. Question of fact whether under a plan or arrangement, a legal right exists in a taxation year to receive an amount after the year. 2. The law requires that an amount has to be paid within the three-year period following the calendar year in which the right to receive the bonus arose.

2005-011443
XXXXXXXXXX G. Moore
(613) 957-8982
May 2, 2005

2 May 2005 External T.I. 2004-0103081E5 - test wind turbines - CRCE

Unedited CRA Tags
Reg. 1219(3) 66.1(6)

Principal Issues: whether proposed exploratory wind turbines will qualify as test wind turbines

Position: yes, provided proposed amendments to Regulation 1219(3) are promulgated

Reasons: favourable technical opinion from NRCan

28 April 2005 External T.I. 2005-0121951E5 - Put Options and Call Options

Unedited CRA Tags
251(5)(b)
Summary Under
Tax Topics - Income Tax Act - Section 251 - Subsection 251(5) - Paragraph 251(5)(b)

Principal Issues: Would the existence of a call option result in the application of subparagraph 251(5)(b)(i)

Position: Case by case - question of fact but in this case yes.

Reasons: The law.

28 April 2005 External T.I. 2005-0115691E5 - Shareholder vs. Employee Benefits

Unedited CRA Tags
6(1)(a) 15(1)

Principal Issues: An individual is both an employee and a shareholder of a corporation. What is necessary in a contract of employment to deem benefits received to be by virtue of employment, rather than shareholdings?

Position: Question of fact

Reasons: Where an individual who is both a shareholder and an employee receives a benefit and equivalent benefits are not available to all employees, the individual is generally considered to be in receipt of a shareholder benefit taxable under subsection 15(1). However when an equivalent benefit is extended to all employees, including employees who are shareholders, the benefit provided to the employee/shareholder is normally considered an employment benefit rather than a shareholder benefit.

28 April 2005 External T.I. 2005-0117561E5 - transfer of partnership interest

Unedited CRA Tags
97 98

Principal Issues: Tax implications of transfer of partnership interest.

Position: None.

Reasons: Too general - should request advance ruling if definite proposal.

27 April 2005 External T.I. 2005-0112921E5 - Interaction of subsections 84(3) and 112(3.01)

Unedited CRA Tags
84(3) 112(3.01)

Principal Issues: Whether "the separate class of shares" referred to in subsection 84(3) should apply to "the issued shares of any class of the capital stock of the corporation" referred to in subsection 112(3.01)?

Position: No.

Reasons: It is consistent with the tax policy underlying subsection 112(3.01).

20 April 2005 External T.I. 2005-0110421E5 F - ACB BUMP on an AMALGAMATION

Unedited CRA Tags
87(11) 88(1)(c) 88(1)(d)
Summary Under
Tax Topics - Income Tax Act - Section 88 - Subsection 88(1) - Paragraph 88(1)(c) - Subparagraph 88(1)(c)(iii)
land included in timber limit is ineligible property
Summary Under
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Depreciable Property
land included in timber limit is depreciable property

Principal Issues: In a given situation where Opco is wholly-owned by Gesco, Gesco and Opco amalgamate, Opco's only property is a timber limit other than a timber resource property, whether Amalco can bump the cost of the land on which is the timber pursuant to 87(11)(b) and 88(1)(c) and (d)?

Position: No.

Reasons: Land that is part of a timber limit other than a timber resource property is an ineligible property pursuant to 88(1)(c) as the land is depreciable property pursuant to paragraph 1100(1)(e) and Schedule VI of the Income Tax Regulations and depreciable property is ineligible property pursuant to 88(1)(c)(iii).

13 April 2005 External T.I. 2004-0104911E5 - Child care expenses

Unedited CRA Tags
63(3)

Principal Issues: Reasonableness of allocation of a private school's fees between education and child care services.

Position: General comments.

Reasons: Question of fact

8 April 2005 External T.I. 2004-0107501E5 - Qualified farm property

Unedited CRA Tags
110.6(1)

Principal Issues: A taxpayer files an election under ITA 110.6(19) in respect of farmland that was QFP under the pre-June 18, 1987, rules of the definition of QFP in ITA 110.6(1). At issue is whether the deemed reacquisition of the farmland pursuant to ITA 110.6(19)(a)(ii) results in the farmland still qualifying as QFP under the pre-June18, 1987, rules in relation to a subsequent disposition.

Position: No

Reasons: The deemed reacquisition of the farmland under the ITA 110.6(19)(a)(ii) occurs on February 23, 1994. Thus, for purposes of the QFP definition, the farmland was property last acquired after June 17, 1987, and the post-June 17, 1987, rules of the definition of QFP would have to be met before the farmland can be considered QFP upon a subsequent disposition.

Technical Interpretation - Internal

3 May 2005 Internal T.I. 2005-0120711I7 F - Subsection 104(2) of Regulations

Unedited CRA Tags
104(2) 212(1)(j.1)
Summary Under
Tax Topics - Income Tax Regulations - Regulation 104 - Subsection 104(2) - Paragraph 104(2)(b)
no Reg. imposes withholding on a retiring allowance paid to a non-resident

Principal Issues: Whether paragraph 104(2)(b) of Regulations is relevant for lump sum payment of a retiring allowance?

Position: No

Reasons: No amount withheld under sections 102 and 103 for lump sum payment of a retinring allowance.

2 May 2005 Internal T.I. 2005-0113941I7 F - Reassessment in the Extended Reassessment Period

Unedited CRA Tags
152(4) 152(4.01) 152(6)
Summary Under
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) - Paragraph 152(4)(b) - Subparagraph 152(4)(b)(i)
notwithstanding Agazarian, CRA may allow a consequential reallocation of the SBD where it reassesses under s. 152(4)(b)(i) to reduce a loss carryback (and will also adjust M&P credit)

Principal Issues: (1) In the given fact situation, where two associated corporations share the business limit for the purpose of the SBD, both corporations were reassessed to allow a loss carry-back to the same year, pursuant to 152(6) (as a consequence of which part of the business limit of one of the corporations (the first corporation) is unused), and, the amount of the loss-carry back by the second corporation must be reduced, whether the tax payable by the second corporation can be reassessed after the normal reassessment period has expired, pursuant to 152(4)(b)(i), to reduce the loss carry-back and to allow it the amount of the unused business limit of the first corporation? (2) In a case where tax payable by a corporation in a particular year is reassessed as a consequence of a loss carry-back request made pursuant to 152(6), whether the Minister in reassessing the corporation's tax pursuant to 152(6) includes recalculating the corporation's abatement under 124(1) and M&P credit under 125.1(1) using the revised taxable income?

Position: (1) Yes. (2) Yes.

Reasons: (1) The requirement under 152(4)(b)(i) is not met with respect to increasing the business limit and the SBD as such reassessment is not required pursuant to 152(6). However, the CRA`s administrative practice, in such circumstances, could apply provided the corporations file a revised T2 SCH 23. (2) Once taxable income is determined or revised the deductions in the computation of tax under 124(1) and 125.1(1) are mechanical.

2 May 2005 Internal T.I. 2005-0119971I7 F - CDA - Excessive Election & Late Filed Election

Unedited CRA Tags
83(2) 184(2) 184(3) 83(3)
Summary Under
Tax Topics - Income Tax Act - Section 184 - Subsection 184(3)
where the corporation failed to file s. 83(2) election, CRA should assess Pt. III tax first, then assess any s. 184(3) taxable dividends, without normal reassessment period limitation
Summary Under
Tax Topics - Income Tax Act - Section 83 - Subsection 83(3.1)
where no s. 83(2) election filed for statute-barred year, CRA should request late election under s. 83(3.1) or, failing which, assess a taxable dividend under s. 184(4)(b)(ii)

Principal Issues: 1) In a given fact situation, a corporation ("XCO") filed in 2001 an election under subsection 83(2) of the Act. The amount designated as a capital dividend exceeded the amount available to be paid as a capital dividend. No notice of assessment under Part III was ever issued in respect of XCO for the 2001 taxation year. Furthermore, no notification that no Part III tax is payable was ever issued in respect of XCO for such taxation year. 2) In another given fact situation, the Canada Revenue Agency ("CRA") never received an election made by a corporation ("YCO") under subsection 83(2) of the Act (the "1997 Election"). The 1997 Election was in respect of a dividend payable in XXXXXXXXXX 1997, but was dated XXXXXXXXXX 1998. No penalty for late filing was ever received in respect of the 1997 Election. At the time of the 1997 Election, an individual ("Y") was the only shareholder of YCO. Finally, the "normal reassessment period" in respect of the 1997 taxation year of Y and YCO would be expired. Furthermore, no waiver was filed within the normal reassessment period for Y or YCO in respect of their 1997 taxation year.

Position: 1) The CRA should first assess Part III tax in respect of the 2001 taxation year of XCO. If XCO elects under subsection 184(3) of the Act to avoid the Part III tax, the CRA would have to assess the shareholders of XCO in order to take into consideration the taxable dividend that would be deemed to be received by the shareholders under paragraph 184(3)(d) of the Act. Under subparagraph 184(4)(b)(ii) of the Act, such assessment of tax payable by the shareholders may be made notwithstanding subsection 152(4) to (5) of the Act. 2) The CRA should request, under subsection 83(3.1) of the Act, that an election referred to in subsection 83(3) be made by YCO in respect of the 1997 dividend. YCO could comply with this request within the ninety-day prescribed period and make a late filed election in 2005 in respect of the 1997 dividend. YCO would have to pay an estimate of the penalty in respect of such election, at the time the late-filed election is made. Under subsection 83(5) of the Act, the Minister would have to examine the late-filed election referred to in paragraph 83(3)(a), assess the penalty payable and send a notice of assessment to YCO in 2005. Under subsection 220(3.1) of the Act, the Minister may, depending on the circumstances, waive or cancel all or any portion of any penalty or interest otherwise payable by a taxpayer. If YCO does not comply with the CRA's request made under subsection 83(3.1) within the ninety-day prescribed period and considering the facts and circumstances surrounding the given situation, the application of subparagraph 152(4)(a)(i) should be considered with respect to Y and the dividend received by him from YCO in 1997.

Reasons: Wording of the Act.