Income Tax Severed Letters - 2005-05-27


2005 Ruling 2004-0105461R3 - Rent prepayment

Unedited CRA Tags
12(1)(a) 20(1)(m) 248(1) disposition

Principal Issues: income tax treatment of rent prepayment

Position: 12(1)(a) inclusion, 20(1)(m) reserve

Reasons: regardless of whether income is property income or business income, if person carries on business 12(1)(a) may apply

2005 Ruling 2005-0128041R3 - Lease; disposition; prepayment

Unedited CRA Tags
248(1) 12(1)(a) 18(1)(a)

Principal Issues: Minor changes to ruling

Position: Rulings will continue to be binding

Reasons: Changes do not have an impact on rulings given

2004 Ruling 2004-0099081R3 - XXXXXXXXXX

Unedited CRA Tags
248(1)"disposition"(k)(ii) 248(25.2)

Principal Issues: Whether the transfer of shares to a voting trust would result in a disposition for the purposes of the Act and whether subsection 248(25.2) of the Act would apply to such a transfer.

Position: No. Yes.

Reasons: Falls within the exception of subparagraph (k)(ii) of the definition "disposition" in subsection 248(1) of the Act.

XXXXXXXXXX 2004-009908


Technical Interpretation - External

25 May 2005 External T.I. 2005-0128651E5 - Foreign content limits for registered plans

Unedited CRA Tags
7(1) 110(1)

Principal Issues: What is CRAs position concerning the implementation of the 2005 Budget proposal to eliminate the foreign content limits for registered plans?

Position: Provided confirmation of the Commissioner's position on this matter.

Reasons: To provide assurance on the way the provisions will be applied..

24 May 2005 External T.I. 2004-0087761E5 - Acquisition of control - replacement of trustees

Unedited CRA Tags
  • Principal Issues: Whether control of corporation acquired when trustee of trust holding the shares of the corporation is replaced.

Position: Various scenarios - see document.

Reasons: See document.

19 May 2005 External T.I. 2005-0114721E5 - Related persons

Unedited CRA Tags
251(2) 251(6)(b)

Principal Issues: Whether a step-parent continues to be related to his adult step-son after the death of the parent of the step-son.

Position: No.

Reasons: This position is consistent with paragraph 6 of Interpretation Bulletin IT-419R2 which states that where an individual's marriage is dissolved by the divorce or the death of the spouse, the individual will cease to be "connected by marriage" or to be "connected by blood relationship" to the parents and any siblings of the deceased spouse.

17 May 2005 External T.I. 2005-0117671E5 - Rental Property

Unedited CRA Tags
13(6); 45 54 Class 1, 6

Principal Issues: 1) To determine if the rental property can be reclassified to Class 6 for CCA purposes.
2) To determine if the capital gain accrued to the time the property's use changes from rental to a principal residence can be deferred for tax purposes.

Position: 1) Request should be made to the local Tax Services Office.
2) Yes.

Reasons: 1) Where the rental property is a building of frame construction and has no footings or any other base support below ground level, it can be reclassified into Class 6 for CCA purposes. The Minister may make any reassessment pursuant to subsection 13(6).
2) Where the taxpayer makes an election under subsection 45(3), the capital gain accrued during the period the property was used for rental purposes can be deferred for tax purposes.

17 May 2005 External T.I. 2005-0118271E5 - Deduct. from Real Estate Agent's bus. income

Unedited CRA Tags
18(1)(a) 8(2) 8(1)(f)

Principal Issues: Can the real estate agent pay commissions to an assistant based on the amount of sales made by the real estate agent?
Are there limits with respect to the deductibility of the amounts paid to the assistant for tax purposes?

Position: Yes, the real estate agent can pay commissions to an assistant. Yes, there are conditions and limitations set out in the Income Tax Act with respect to the deductibility of an amount paid ot an assistant of a real estate agent .

Reasons: Paragraph 18(1)(a) for business expenses. Subsection 8(2) and paragraph 8(1)(f) for employees.

17 May 2005 External T.I. 2005-0119331E5 - Home Support Assistance Device

Unedited CRA Tags

Principal Issues: Does an electronic attendant care device qualify as a medical expense.

Position: No.

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

5 May 2005 External T.I. 2005-0122221E5 - Executor Fee Received

Unedited CRA Tags
6(1)(c) 248(1) definition of "office"

Principal Issues: Whether $20,000 received annually as an executor fee is either a non-taxable gift or, alternatively, taxable income.

Position: The executor fees are likely taxable as other fees.

Reasons: The remuneration is ascertainable and is likely received in consideration for services rendered in the office of executor.


26 May 2005 Roundtable, 2005-0116621C6 - Capital dividend streaming - insurance proceeds

Unedited CRA Tags
15(1) 83

Principal Issues: Where a corporation issues a special share to its sole shareholder's adult child for the purpose of streaming life insurance proceeds, will subsection 15(1) apply on the acquisition of the share by the shareholder's child.

Position: In the situation described, provided that the issue price reflects the fair market value of the special share at the time of issuance, it is our view that subsection 15(1) will not apply to include a benefit in the child's income as a consequence of the child acquiring the special share.

26 May 2005 Roundtable, 2005-0116671C6 - CALU 2005 - Question 6 - Indexed Side Account

Unedited CRA Tags

Principal Issues: 1. What is the tax treatment of income accruing in an indexed side account where the investment return is based on an index return such as the S&P/TSX Composite Total Return Index.
2. What is the insurer's reporting obligation in respect of the income from in the indexed side account?

Position: 1. See Q&A
2. See Q&A

Reasons: See Q&A

Technical Interpretation - Internal

18 May 2005 Internal T.I. 2005-0126891I7 - Proposed Subsections 127(10.22) and (10.23)

Unedited CRA Tags
127(10.22) 127(10.23)

Principal Issues: Application of proposed subsections 127(10.22) and (10.23) to differing scenarios

Position: General comments provided.

Reasons: The facts of each case must be examined in order to determine whether the draft provisions could apply to dis-associate a particular corporation from another corporation for SR&ED ITC purposes. Since these relieving provisions only determine association by ignoring the extended definition of "group of persons" in subsection 256(1.2)(a), it is necessary to determine, based on all of the facts, whether the corporations would otherwise be associated.

16 May 2005 Internal T.I. 2004-0104301I7 - Share Capital Reflected in the Balance Sheet

Unedited CRA Tags

Principal Issues: Following a non-arm's length transfer of assets, a corporation's books reflected the transferred assets at fair market value. The share capital reported on the consolidated balance sheet presented to the shareholders reflected the transferred assets at fair market value. The share capital reported on the unconsolidated balance sheet prepared for Part I.3 tax purposes reported a lesser amount in share capital as if the transferred assets were carried at the rollover transfer amount rather than fair market value. Can the unconsolidated balance sheet prepared using different accounting principles than those used in preparing the consolidated financial statements presented to the shareholders be used for purposes of Part I.3?

Position: It depends upon whether the accounting presentation for that transaction as reflected in the consolidated statements was in accordance with GAAP. If it was, the same accounting principles must be employed in establishing the unconsolidated balances for Part I.3 purposes. If it was not, a presentation for the transaction that is in accordance with GAAP must be employed in preparing the unconsolidated financial statements.

Reasons: Subsection 181(3) of the Act requires that amounts reflected in the unconsolidated balance sheet prepared in accordance with GAAP and presented to the shareholders shall be used for Part I.3 purposes. Where no such balance sheet exists, the balances that would have been reflected in such a balance sheet shall be used. Where only a consolidated balance sheet has been prepared and presented to the shareholders, the unconsolidated balance sheet prepared for tax purposes shall incorporate only those changes necessary to satisfy the criteria of subsection 181(3). Hence, if the consolidated statements were prepared in accordance with GAAP, the only acceptable changes would be to remove the effects of consolidation.

16 May 2005 Internal T.I. 2005-0119061I7 F - Montant d'aide-actions

Unedited CRA Tags
125.4 12(1)(x)(viii) 80(2)g)

Principales Questions:
1) Si M Co investit 60 000 $ sous forme d'actions dans sa filiale Prod Co, est-il raisonnable de considérer cette mise de fonds additionnelle comme un paiement fait au titre de l'acquisition par M Co d'un droit sur Prod Co en l'occurrence des actions, au sens du sous-alinéa 12(1)x)(viii) de la Loi?
2) Peut-on traiter la mise de fonds de M Co, sous forme d'actions, comme étant un montant d'aide lequel réduirait la " dépense de main d'œuvre admissible " de Prod Co aux fins de l'article 125.4 de la Loi?
3 Si M Co convertit son prêt en actions à la fin de la production, cette conversion sera-t-elle traitée comme un montant d'aide?

Position Adoptée:
1) Oui
2) Non.
3) Non.

1) Il nous apparaît que chaque action émise à une personne par une société, à même l'une des catégories d'actions de son capital-action, a des droits particuliers. À notre avis, lorsque Prod Co émet des actions à M Co, cette dernière acquiert des droits sur sa filiale au sens du sous-alinéa 12(1)x)(viii) de la Loi.
2) La définition " montant d'aide " au paragraphe 125.4(1) vise les montants qui, entre autres, seraient inclus dans le calcul du revenu d'un contribuable en vertu de l'alinéa 12(1)x) de la Loi compte non tenu des sous-alinéas 12(1)x)(v) à (vii) de la Loi.
3) En assumant que l'alinéa 12(1)x) de la Loi ne s'est pas appliqué au moment où le prêt a été consenti, le prêt pourrait être visé par l'article 80 au moment où il est réglé ou éteint sans qu'un paiement ait été effectué ou par le paiement d'une somme inférieure au principal. Application des alinéas 80(2)g) et (g.1) de la Loi. Le règlement de dette ne constituerait pas un montant d'aide aux fins du paragraphe 125.4 de la Loi.