Income Tax Severed Letters - 2005-06-10


2005 Ruling 2005-0112561R3 - Part XIII on Payments for Patent Use

Principal Issues: Whether a payment for use of a patent is subject to withholding under Part XIII of the Income Tax Act?

Position: No.

Reasons: The payment is exempt from withholding pursuant to the Canada-U.S. Income Tax Convention (1980).

Ministerial Correspondence

18 May 2005 Ministerial Correspondence 2005-0125641M4 F - Frais de scolarité et corporation professionnelle

Unedited CRA Tags

Principales Questions: Les frais d'examen qu'un candidat à l'exercice de la médecine doit payer au Collège des médecins du Québec ou à une association médicale canadienne sont-ils admissibles au crédit d'impôt pour frais de scolarité

Position Adoptée: Ces frais ne sont pas admissibles aux crédits d'impôt pour frais de scolarité

Raisons: Le Collège des médecins ou une association médicale n'est pas un établissement d'enseignement mentionné au paragraphe 118.5(1) de la Loi.

Technical Interpretation - External

9 June 2005 External T.I. 2004-0092001E5 F - Droits indivis dans les actions

Unedited CRA Tags
110.6(1) 110.6(2.1)

Principales Questions: Est-ce qu'un droit indivis dans une action peut être une " action admissible de petite entreprise ", telle que définie au paragraphe 110.6(1) de la Loi?

Position Adoptée: Un droit indivis dans une action serait considérée comme étant une action aux fins de déterminer s'il s'agit d'une action admissible de petite entreprise selon la définition du paragraphe 110.6(1). Ainsi si toutes les conditions prévues à cette définition étaient respectées, les droits indivis sur les actions pourraient donner droit à la déduction pour gains en capital prévue au paragraphe 110.6(2.1) de la Loi.

9 June 2005 External T.I. 2005-0131341E5 - Social Assist. payments for foster care

Unedited CRA Tags

Principal Issues: Tax treatment of foster care payments.

Position: Not taxable.

Reasons: Excluded by 81(1)(h)

8 June 2005 External T.I. 2005-0116231E5 - Disposition of property

Unedited CRA Tags
54 69(1)

Principal Issues: Whether a disposition of property occurs on the transfer of legal ownership of a property from one individual to a family member

Position: Question of fact. Depends on whether there is a transfer of beneficial ownership

Reasons: See paragraphs 2 to 5 of IT-437R

(613) 957-8982
June 8, 2005

7 June 2005 External T.I. 2005-0126661E5 - Medical exp. tax credit-learning disability

Unedited CRA Tags

Principal Issues: Do various expenses incurred qualify as medical expenses for purposes of the medical expense tax credit in section 118.2 of the Act?

Position: Some appear to qualify, some do not appear to qualify and others require more information, which determinations should be made by the taxpayer's Tax Services Office.

Reasons: General comments provided. Correspondence referred to the TSO.

XXXXXXXXXX Renée Shields
(613) 948-5273
June 7, 2005

6 June 2005 External T.I. 2005-0129111E5 - Small business investment trust as Q1

Unedited CRA Tags
146(1) 4900(6)(c) 4900(8) 4900(9)

Principal Issues: The submitter requested our comments on whether a small business investment trust would be a qualified investment for an RRSP.

Position: General summary of the provisions in the Act and Regulations relating to qualified investments provided.

Reasons: A question of fact; overview of legislation provided.

2 June 2005 External T.I. 2005-0112151E5 - Information Returns

Unedited CRA Tags
56(1)(a)(iv) 39(1)(a) 60(n)

Principal Issues: Whether the person making a repayment of benefits under subsection 46(1) of the Employment Insurance Act must file an information return for such amounts.

Position: No.

Reasons: There is no requirement under the Act or the Employment Insurance Act to file an information return. The T4 supplied by HRSDC will reflect the net benefits received by a claimant.

2 June 2005 External T.I. 2005-0116801E5 - Airplane Lease Costs & Withholding Tax

Unedited CRA Tags
6(1)(a) 15(1) 212(1)(d)(xi)

Principal Issues: Canco leases an airplane from USco for use in the shareholder's business travel. 1. Whether the lease payments and operating expenses (such as fuel, maintenance, insurance and pilot's salary) are deductible. 2. Whether withholding tax applies to the lease payments.

Position: 1. Whether or not the expenses are deductible is a question of fact. 2. No, withholding tax does not apply to the lease payments.

Reasons: 1. Reasonable costs incurred in providing air travel are deductible to Canco to the extent that they are laid out to earn income from a business or property, therefore, operating costs related to the personal use of an aircraft by the shareholder are not deductible by Canco. 2. Payments made by Canco to arm's length USco for the lease of an aircraft for use in Canada are not subject to withholding tax pursuant to subparagraph 212(1)(d)(xi).

1 June 2005 External T.I. 2005-0113991E5 - Legal Expenses of Employee

Unedited CRA Tags
8(1)(b) 60(o.1)

Principal Issues: Whether legal fees relating to inappropriate termination notice and negotiating a settlement are deductible under paragraph 8(1)(b) or paragraph 60(o.1).

Position: No

Reasons: Employment was always maintained and salary was fully paid by the employer. No legal expenses were incurred to "collect or establish a right to salary or wages owed" as required by paragraph 8(1)(b).
Retiring allowances are not salaries or wages, as defined under subsection 248(1), and therefore legal fees paid for the purpose of obtaining these payments cannot be deducted under paragraph 8(1)(b).
Legal Fees incurred to try to obtain a retiring allowance may in some instances be deducted under paragraph 60(o.1), however, only to the extent the retiring allowance has been included in taxable income. No such retiring allowance was received or reported in income.

31 May 2005 External T.I. 2005-0122531E5 - Accomodation Allowance

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

Principal Issues: Is the accomodation allowance a taxable benefit to the elected representatives of the professional labour organization? Is the allowance reasonable? Is the organization maintaining adequate records to support the payment of the allowance?

Position: No. Question of Fact, in this case yes. Yes.

Reasons: The elected representatives are officers and employees of the organization and receive allowances that qualify for the exclusion under subparagraph 6(1)(b)(vii) of the Act.

31 May 2005 External T.I. 2005-0122641E5 F - Intérêts courus

Unedited CRA Tags
12(4) 12(9) 7000(2)(c.1)

Principales Questions: Quand survient le "jour anniversaire" d'un "contrat de placement" qui est une "créance visée par règlement" lorsque la date d'émission du contrat est le 1er janvier d'une année donnée ?

Position Adoptée: Le "jour anniversaire" est le 31 décembre.

Raisons: Conformément au paragraphe 12(11), le "jour anniversaire" est le jour qui est un an après la veille de la date d'établissement du contrat, soit le 31 décembre.

XXXXXXXXXX Guy Goulet, CA, M.Fisc.
(613) 957-9768
Le 31 mai 2005

31 May 2005 External T.I. 2005-0132181E5 - Specified Investment Business

Unedited CRA Tags

Principal Issues: Wether a corporation is a specified investment business.

Position: It is a question of fact to be determined upon a review of the circumstances.

Reasons: In one example, there is a corporation carrying on a business with the principal purpose of earning income from property and not having more than five employees. Accordingly, it is a specified investment business. In a second example, the circumstances are the same except that the corporation is associated with another corporation. Paragraph 129(6)(b) of the Act provides that when income from a source that is property is paid or payable by an associated corporation and deducted by the payor in computing its active business income it is deemed to be active business income in the hands of the recipient corporation. Accordingly, amounts paid for rent and deducted in computing active business income by another corporation would be deemed to be active business income in the hands of the corporation.

31 May 2005 External T.I. 2005-0128871E5 - Overseas Employment Tax Credit

Unedited CRA Tags

Principal Issues: Whether the proposed employment of a doctor at a XXXXXXXXXX clinic in XXXXXXXXXX would qualify for an overseas employment tax credit.

Position: No. The doctor would not be employed by a specified employer as defined for an OETC.

Reasons: The terms of employment specify that the doctor would be an employee of the Ministry of Health and Social Welfare of the government of XXXXXXXXXX

26 May 2005 External T.I. 2005-0129481E5 - U.S. annuity received by Canadian resident

Principal Issues: Whether amounts on 1099-R slip received by Canadian resident are taxable

Position: Unable to answer

Reasons: Since this is a completed transaction, the TSO will determine the tax consequences.

24 May 2005 External T.I. 2005-0121291E5 F - Processing in Canada of ore

Unedited CRA Tags
20(1)(v.1) 1204(1)(b)(iii)(A)

Principal Issues: In a given fact situation, whether income from crushing nickel ore on surface would be included in the gross resource profits of a taxpayer for a particular taxation year under clause 1204(1)(b)(iii)(A) of the Regulations?

Position: Yes.

Reasons: In the given fact situation, the crushing activities would be part of the processing of ore.

XXXXXXXXXX Guy Goulet, CA, M.Fisc.
(613) 957-9768
Le 24 mai 2005

20 May 2005 External T.I. 2005-0128051E5 - German Ghetto pension payments

Unedited CRA Tags

Principal Issues: Whether payments under the German Ghetto Pension Law are included in income under the Income Tax Act?

Position: Request should be resubmitted as a request for an advance income tax ruling, but initial view is that the payments are exempt under 81(1)(g).

Reasons: Appears to meet the requirements of paragraph 81(1)(g).

19 May 2005 External T.I. 2004-0072331E5 - Whether 17(2) applies

Unedited CRA Tags
17(2) 17(15) exempt loan or transfer

Principal Issues: Whether 17(2) applies in the situation described

Position: Probably

Reasons: Request must be resubmitted as a request for an advance income tax ruling, but on its face, it appears that the scenario meets the conditions in 17(2).

19 May 2005 External T.I. 2005-0113681E5 F - Dédommagement pour congédiement injustifié

Unedited CRA Tags
5(1) 6 60n)

Principales Questions:
Quel est le traitement fiscal d'indemnités qui seront versées à un employé pour congédiement injustifié?
Quel est le traitement fiscal des intérêts pré-jugement et post-jugement?
Est-ce que le remboursement de prestations d'assurance-emploi doit réduire le montant imposable des indemnités versées à l'employé?

Position Adoptée:
Les indemnités versées en remplacement du salaire et autres avantages d'emploi sont du revenu d'emploi.
Les intérêts (incluant les intérêts pré-jugement et les intérêts post-jugement) sont imposables en tant que revenu d'intérêts en vertu de l'alinéa 12(1)c) s'ils sont des intérêts de par leur nature.

Réintégration rétroactive de l'employé dans son emploi.


11 May 2005 Roundtable, 2005-0118691C6 F - Certificat américain d'actions étrangères

Unedited CRA Tags

Principales Questions:
Un certificat américain d'actions étrangères (American Depository Receipt) conserve-t-il la nature des titres qu'il représente aux fins de l'application de l'alinéa 181.2(4)a) de la L.I.R.?

Position Adoptée:

Question légale et de fait.

11 May 2005 Roundtable, 2005-0118731C6 F - Contrat avec une société d'affacturage

Unedited CRA Tags

Principales Questions:
Un montant dû à une société d'affacturage peut-il être inclus dans le calcul du capital en vertu de l'alinéa 181.2(3) de la L.I.R.?

Position Adoptée:
Oui, si prêt, avance ou autre dette.

Question légale et de fait.

11 May 2005 Roundtable, 2005-0127081C6 F - États financiers - Impôt de la Partie I.3

Unedited CRA Tags

Principales Questions:
Aux fins de l'impôt de la Partie I.3, peut-on accepter des états financiers préparés selon les PCGR américains?

Position Adoptée:
Généralement non.

La notion de PCGR au paragraphe 181(3) réfère généralement aux PCGR canadiens.

3 May 2005 Roundtable, 2005-0116611C6 - CALU- Foreign Currency Annuities

Unedited CRA Tags
Reg 304 12.2

Principal Issues: Can a foreign currency contract be a prescribed annuity contract?

Position: YES

Reasons: inferred from previous letters.

3 May 2005 Roundtable, 2005-0116651C6 - Calu-Deductiblity of life insurance

Unedited CRA Tags
18(2) 20(1)(e.2) 12.2

Principal Issues: Is the condition in clause 20(1)(e.2)(i)(B) satisfied for a particular year if only part of the interest on the loan is deductible?

Position: Generally, YES

Reasons: Wording of 20(1)(e.2)(i)(B)

3 May 2005 Roundtable, 2005-0116681C6 - Transfer of Joint Last-to- Die Policy

Unedited CRA Tags

Principal Issues: Application of subsection 148(8) where a child and the child's parent are the only lives insured under a last-to-die policy, the parent dies and the child is the contingent owner of the policy within meaning of subsection 199(1) of the Insurance Act (Ontario).

Position: Subsection 148(8) applies to the transfer of the policy from the parent to the child.

Reasons: At the time of the transfer, the child is the only life insured under the policy.
HAA: 1250-13
SECURITY: For distribution

Technical Interpretation - Internal

31 May 2005 Internal T.I. 2004-0106951I7 - Shareholder/Manager Remuneration

Unedited CRA Tags
15(1) 84(2) 18(1)(a)

Principal Issues: Whether the amount paid to each of the shareholders of the corporation should be considered a bonus or a winding up dividend and whether the amounts paid are reasonable in the circumstances.

Position: Amounts paid to shareholders A and C are reasonable bonus amounts. Amounts paid to shareholders B, D, E, F and G are not bonus amounts but benefits conferred on them in their capacity as shareholders on the discontinuance of the business. The amounts paid to these shareholders are deemed to be dividends pursuant to subsection 84(2) of the Act.

Reasons: 15(1), 84(2), CRA policy

31 May 2005 Internal T.I. 2005-0131681I7 - Medical Expenses of Dependents

Unedited CRA Tags
118.2(1) 118(6)

Principal Issues: Whether medical expenses of dependents may be claimed by more than one person.

Position: Generally yes. Question of Fact.

Reasons: A person may be dependent on more than one person for support.