Income Tax Severed Letters - 2005-08-26


2005 Ruling 2004-0067531R3 - Distribution of funds by a public corporation

Unedited CRA Tags
84(2) 55(3)(a) 245(2)

Principal Issues: 1. Whether the return of capital to the Class A shareholders is subject to the provisions of subsection 84(2)? 2. Whether the taxable dividends received by the Class C shareholders are subject to the provisions of subsection 55(2)? 3. Whether the proposed transactions will be subject to subsection 245(2)?

Position: 1. Yes. 2. No. 3. No.

Reasons: 1. Meets the requirements of the provision. 2. The dividends will be subject to the exemption under paragraph 55(3)(a). 3. The proposed transactions do not result in a "misuse or abuse".

2005 Ruling 2005-0112471R3 - Paragraph 149(1)(c) ruling.

Unedited CRA Tags

Principal Issues: Whether paragraph 149(1)(c) will apply to exempt the business income earned by a First Nation from its limited partnership interest.

Position: Yes.

Reasons: The First Nation can be considered a public body performing a function of government in Canada within the meaning of paragraph 149(1)(c).

2005 Ruling 2005-0118901R3 - SAR-type plan tied to XXXXXXXXXX appreciation.

Unedited CRA Tags

Principal Issues: Whether a plan in which the payout is based on the appreciation of the value of units from the grant date to the payment date will be excluded from the definition of a salary deferral arrangement as defined in subsection 248(1) of the Income Tax Act. Unlike a typical SAR, wherein appreciation is measured using the company's stock, the appreciation in this case is measured using the consolidated income of the parent before deducting certain items (including consolidated interest expenses, income and capital taxes, and depreciation and amortization of assets and other deductions as may be determined by Parentco from time to time) applied for accounting purposes and not including any consolidated interest income.

Position: Yes.

Reasons: Like a SAR, this plan may be considered a payment for future services since the eventual payout is based on the future performance of the Parentco group of companies.

XXXXXXXXXX 2005-011890

2005 Ruling 2005-0121201R3 - Split-up Butterfly

Unedited CRA Tags

Principal Issues: Split-up Butterfly - Various issues.

Position: Favourable Ruling issued.

Reasons: Proposed transactions comply with the law.

2005 Ruling 2005-0122141R3 - Paragraph 149(1)(c) ruling.

Unedited CRA Tags

Principal Issues: Whether paragraph 149(1)(c) will apply to exempt the business income earned by a First Nation from its limited partnership interest.

Position: Yes.

Reasons: The First Nation can be considered a public body performing a function of government in Canada within the meaning of paragraph 149(1)(c).

XXXXXXXXXX 2005-012214

2005 Ruling 2005-0125481R3 F - Cotisation syndicale

Unedited CRA Tags
8(1)(i) 8(5)(c)

Principales Questions: Est-ce qu'une cotisation syndicale versée pour financer des activités de formation syndicale sera déductible en vertu du sous-alinéa 8(1)(i)(iv) de la Loi.

Position Adoptée: Oui.

Raisons: La cotisation rencontre les critères du sous-alinéa (en autant que les employés ne soient pas remboursé et n'aient pas le droit d'être remboursé) et est prélevée pour des fins qui sont directement liées aux frais ordinaires de fonctionnement du syndicat.

2005 Ruling 2005-0134461R3 - Loss utilization

Unedited CRA Tags

Principal Issues: Loss utilization in a related group of companies. This ruling incorporates numerous minor changes to an earlier ruling (2004-008854), and rescinds and replaces that earlier ruling.

Position: The loss utilization is acceptable.

Reasons: Consistent with our position in previous rulings and with Department of Finance policy.

Ministerial Correspondence

27 July 2005 Ministerial Correspondence 2005-0134021M4 - Reserve Land

Unedited CRA Tags

Principal Issues: Whether employment income earned on specific lands of a certain First Nation would be considered tax exempt for years prior to XXXXXXXXXX ?

Position: Question of fact, however unlikely

Reasons: The lands in question were not set apart by the federal crown until the settlement agreement in XXXXXXXXXX .

6 July 2005 Ministerial Correspondence 2005-0120631M4 - Multi-unit residential building registry (MURB)

Unedited CRA Tags
Schedule II, ITR

Principal Issues: Has CRA maintained a registry of certificates, issued by the Canada Mortgage and Housing Corporation in respect of multi-unit residential buildings?

Position: No

Reasons: Program is completed.

Technical Interpretation - External

19 August 2005 External T.I. 2005-0126912E5 - Compensatory awards

Unedited CRA Tags

Principal Issues: Whether compensatory awards are taxable.

Position: The portion of the award that is to compensate for lost wages is not taxable as the taxpayer was never an employee of the payor and the portion relating to damages arising from human rights violation is not taxable.

Reasons: The definition of "retiring allowance" in subsection 248(1) of the Income Tax Act (the "Act") includes an amount received in respect of a loss of an office or employment of a taxpayer, whether or not received as, on account or in lieu of payment of, damages or pursuant to an order or judgment of a competent tribunal. Since the taxpayer was never an employee of the payor it cannot be said that the damages arose on the loss of employment.
To the extent that damages which are awarded by a human rights tribunal, or are a settlement in lieu thereof, do not relate to the loss of employment but relate solely to damages arising from human rights violation, such damages are not required to be included in income. Accordingly, a $10,000 award for injury to dignity received pursuant to S. 37(2)(d)(iii) of the Human Rights Code is non-taxable damages.

19 August 2005 External T.I. 2005-0145881E5 - T2202A and continuing education

Unedited CRA Tags

Principal Issues: How should a college describe a course on a T2202A when the student is taking a continuing education course?

Position: It is likely that a description such as "Continuing Education Credit Program" will be acceptable.

Reasons: A college course must be at the post-secondary level to be eligible for the tuition tax credit. Simply calling it "Continuing Education" would not provide sufficient certainty that the course qualifies. However, in discussion with IRPPD staff, it was felt that the phrase "Continuing Education Credit Program" would be acceptable.

XXXXXXXXXX Renée Shields
(613) 948-5273
August 19, 2005

18 August 2005 External T.I. 2005-0126131E5 - Section 7 Benefit - ACB of CCPC Shares

Unedited CRA Tags
7(1.1) 7(2) 53(1)(j)

Principal Issues: When does paragraph 53(1)(j) apply, with respect to shares of a CCPC

Position: Question of fact.

Reasons: We would need to review all of the relevant facts in the context of a ruling to determine if the arrangement is an agreement to sell or issue shares as contemplated by section 7 of the Act. As a result, general comments are provided based on the relevant sections of the Act.

18 August 2005 External T.I. 2005-0146601E5 - RRSP Beneficiary Designation/Settlement Annuity

Unedited CRA Tags
146(2)(c.2) 60(l)

Principal Issues: Correction to paragraph reference in the Income Tax Act.

Position: Reference to paragraph 56(1)(h) in Question 5 of 2005-012016 should be paragraph 56(1)(d.2).

Reasons: Reference should be to paragraph 56(1)(d.2).

17 August 2005 External T.I. 2005-0121081E5 - Employment income earned by status Indians

Unedited CRA Tags

Principal Issues: Whether guideline 4 of the The Indian Act Exemption for Employment Income Guidelines applies to income earned by status Indian employees where their duties are controlled by a Council made up of Indian bands/organizations which may or may not be the employer, i.e., it appear that another organization may in fact be the employer.

Position: Question of fact whether guideline 4 applies; however, guideline 4 will not apply unless the Council is determined to be the employer.

Reasons: While the Council may be a qualified organization under the second bullet in guideline 4, the other organization clearly isn't.

XXXXXXXXXX 2005-012108
J. Gibbons, CGA
August 17, 2005

12 August 2005 External T.I. 2004-0101771E5 - Specified Investment Business

Unedited CRA Tags

Principal Issues: How is paragraph (b) of the definition of specified investment applied

Position: Generally, it is necessary to have 6 full-time employees

Reasons: Historically, the courts have adopted a strict interpretation of Subsection 125(7) and have required 6 full-time employees in order for a corporation to be outside the definition of a specified investment business

10 August 2005 External T.I. 2005-0140771E5 - Qualified Farm Property

Unedited CRA Tags

Principal Issues: Whether farm property repossessed in 1983 and used prior to that for more than 5 years in the business of farming would be qualified farm property under the definition in 110.6 subparagraph (a)(vii).

Position: Yes.

Reasons: The requirement that the property be used 5 or more years in the business of farming is for the period when it was owned and not for the period after it was last acquired.

9 August 2005 External T.I. 2005-0115811E5 - Transfer of Farm Property

Unedited CRA Tags
73(3) 110.6(2) 110.6(1)(a)(vi)(A)

Principal Issues: i) Whether a property may be transferred tax free from parent to children under subsection 73(3)
ii) Whether a capital gains deduction may be claimed for qualified farm property under subsection 110.6(2).

Position: i) No.
ii) Likely yes.

Reasons: i) The taxpayer did not use the property in the business of farming as required under 73(3).
ii) Provided the parent (parent-in-law), meets the gross revenue test in clause (a)(vi)(A) of the definition of qualified farm property.

8 August 2005 External T.I. 2005-0145251E5 - Partition of Property

Unedited CRA Tags
248(21) 248(20)
partition of property with two buildings

Principal Issues: Can a property with two buildings on it be partitioned so that each former co-owner receives one building?

Position: No.

Reasons: The buildings are separate properties, and are not being partitioned.

15 July 2005 External T.I. 2004-0099751E5 - Principal residence exemption

Unedited CRA Tags
54 40(2)(b)

Principal Issues: General comments on principal residence exemption.

Position: General comments.

Reasons: General comments.

30 May 2005 External T.I. 2005-0114411E5 - Taxability of Bursary

Unedited CRA Tags

Principal Issues: Whether the Manitoba Bursary and Canada Millennium Scholarship Bursary fall within the meaning of bursary as contemplated under paragraph 56(1)(n).

Position: Yes.

Reasons: ITA


12 July 2005 Roundtable, 2005-0139731C6 - ICAA Round Table Question - re: Tsiaprailis

Unedited CRA Tags
56(1)(b) 60(b)

Principal Issues: How does the Tsiaprailis decision impact the CRA's position in respect of the deductibility and requirement for income inclusion of a lump sum support payment?

Position: The Tsiaprailis decision does not change our position in respect of a lump sum support payment.

Reasons: The CRA's position with respect to this issue is set out in paragraphs 21 and 22 of Interpretation Bulletin IT-530R.

Technical Interpretation - Internal

15 August 2005 Internal T.I. 2005-0111291I7 - Film Tax Credit-Reimbursement of Assistance

Unedited CRA Tags

Principal Issues: Can a qualified corporation that repays a conditional loan (assistance) in year 2, amend its tax return and/or its Form T1131 for year 1 and recalculate its film tax credit for year 1 without any reduction to its year 1 film tax credit in respect of the conditional loan?

Position: No.

Reasons: Scheme of the Act, which is consistent with Form T1131, allows the corporation to claim its tax credit in year 2, when the assistance is repaid.