Income Tax Severed Letters - 2005-09-30

Ruling

2005 Ruling 2005-0118951R3 F - Loss utilization

Unedited CRA Tags
20(1)(c) 55(2); 251.1 245(2)

Principal Issues: Standard loss-consolidation within an affiliated corporate group.

Position: Acceptable.

Reasons: Consistent with similar previous rulings and tax policy.

2005 Ruling 2005-0146081R3 F - Supplemental Ruling - 2005-011895

Unedited CRA Tags
20(1)(c) 55(2); 251.1 245(2)

Principales Questions: Loss utilization. Whether certain minor changes to the proposed transactions would affect the rulings given in document no. 2005-011895.

Position Adoptée: No.

Raisons: The requested changes to the proposed transactions do not affect rulings.

2005 Ruling 2005-0126801R3 - Income Trust

Unedited CRA Tags
104(7.1) 108(2)(a)

Principal Issues: 1. Will subsection 104(7.1) of the Act will apply to the trust?
2. Will the trust qualify as a "unit trust" under subparagraph 108(2)(a)(i) of the Act?

Position: 1. No.
2. Yes.

Reasons: 1. Multi-class structured trusts may be permissible so long as the units aren't structured with the objective of giving an interest in the capital of the trust that exceeds the income entitlement of the class. In this instance, the main purpose of the creation of two classes is to protect the public investor after the acquisition of a business through the purchase of shares in case the value paid for the shares is too high because of a wrong estimation. Furthermore, the percentage interest in the income of the trust for a class may be equal or approximately equal to the percentage interest in the capital of the trust for that same class.
2. Based on previous rulings, it is our view that the trust will be a unit trust under subparagraph 108(2)(a)(i) of the Act because the requirements of the provision has been met notwithstanding illiquid assets would be received by the trust unitholders upon the redemption of the trust units.

2005 Ruling 2005-0148611R3 - Single-wing Spilt-up Butterfly - Amend to Ruling

Unedited CRA Tags
55(3)(b)

Principal Issues: Amendments to Proposed Transactions described in Ruling 2004-010485.

Position: Amendments do not adversely affect any of the rulings given.

Reasons: The law.

2005 Ruling 2005-0139621R3 - Loss Utilization

Unedited CRA Tags
20(1)(c) 112(1) 80(1) 245(2)

Principal Issues: A loss utilization within an affiliated group of corporations

Position: Acceptable

Reasons: Paragraph 32 of IT-533

2005 Ruling 2005-0119091R3 - Withholding tax; interest

Unedited CRA Tags
212(1)(b)(vii) 245(2)
Summary Under
Tax Topics - Income Tax Act - Section 212 - Subsection 212(1) - Subparagraph 212(1)(b)(vii)

Principal Issues: Whether GAAR applies.

Position: No

Reasons: Consistent with GAAR Committee decision in file 2004-009475

2005 Ruling 2005-0139911R3 - Supplemental Ruling

Unedited CRA Tags
104(7.1) 108(2)(a)

Principal Issues: Changes to Ruling to introduce a second series of unsubordinated exchangeable shares and the delivery of Class A Units and such unsubordinated exchangeable shares to the Vendors to enable each of the Vendors to hold a portion of its retained interest in the Fund as an unsubordinated interest.

Position: Changes do not affect the validity of rulings given.

2005 Ruling 2005-0124151R3 - Trust Variation - Redemption Rights

Unedited CRA Tags
108(2) 132(6) 204.4(2)

Principal Issues: Whether the variation of a trust to provide for redemption rights would result: (i) in a disposition by the existing unit holders of their units; (ii) in a disposition by the trust of its assets or in a resettlement of the trust; (iii) in the trust qualifying as a "unit trust" under paragraph 108(2)(a) of the Act immediately; (iv) in the trust qualifying as a "mutual fund trust" within the meaning of subsection 132(6) of the Act; and (v) in the trust continuing to qualify as a "registered investment" under paragraph 204.4(2)(c) of the Act so that the units of the trust will not constitute "foreign property" within the meaning of subsection 206(1) of the Act. We are also asked to rule that: (vi) GAAR will not apply as a result of the proposed transactions.

Position: (i) and (ii) No; and (iii) to (vi) Yes.

Reasons: Previous rulings

2005 Ruling 2005-0140221R3 - Disposition of Taxable Canadian Property

Unedited CRA Tags
116(1) Article IV of Canada-US Treaty Article XIII of Canada-US Treaty

Principal Issues: Whether paragraph 4 of Article XIII of the Canada-US Treaty will apply to the disposition of taxable Canadian property (shares) by a US partnership that has elected to be treated as a corporation for US income tax purposes.

Position: Yes.

Reasons: The US partnership will be considered to be a "resident" of the US, within the meaning thereof in Article IV of the Canada-US Treaty, such that paragraph 4 of Article XIII will apply to the disposition of the shares.

XXXXXXXXXX 2005-014022

2005 Ruling 2004-0104851R3 - Single-wing Spilt-up Butterfly

Unedited CRA Tags
55(3)(b)

Principal Issues: Single-wing Split-up Butterfly - Mostly Standard Issues. Pre-butterfly sale of some shares of a public corporation that were owned by DC before the butterfly on a taxable basis for cash consideration. Other shares of the particular public corporation will be distributed to the transferee corporation on the butterfly distribution.

Position: Negative 55(3)(b) ruling given since paragraphs 55(3.1)(c) and (d) will apply as a result of the above described taxable sale. The Department of Finance has issued a comfort letter to the taxpayer advising that they will recommend amending the law to allow for such taxable sales for cash.

Reasons: The law.

2005 Ruling 2005-0143001R3 - Supplemental Ruling

Unedited CRA Tags
111(8)

Principal Issues: Correction of facts and proposed transactions.

Position: Changes made and accepted.

Reasons: The changes do not affect any of the rulings given.

2005 Ruling 2004-0109481R3 - Loss Consolidation

Unedited CRA Tags
85(1)(g) 191(2) 20(1)(c)

Principal Issues: Whether loss utilization within affiliated group of companies is acceptable.

Position: Yes

2005 Ruling 2005-0145531R3 - Supplemental Ruling

Unedited CRA Tags
111(8)

Principal Issues: Correction of facts and proposed transactions.

Position: Changes made and accepted.

Reasons: The changes do not affect any of the rulings given.

Technical Interpretation - External

28 September 2005 External T.I. 2005-0149411E5 - test wind turbines

Unedited CRA Tags
1219(1) 1219(3)

Principal Issues: whether changes to the placement of XXXXXXXXXX test wind turbines will affect the opinion provided in 2004-010308.

Position: no

Reasons: requirements of the Regulation continue to be met

22 September 2005 External T.I. 2005-0142911E5 - Non-Profit Organizations

Unedited CRA Tags
149(1)(l)

Principal Issues: General comments on application of paragraph 149(1)(l).

22 September 2005 External T.I. 2005-0149421E5 - test wind turbine - CRCE

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

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

Position: yes

Reasons: proposed project complies with Reg. 1219(3) and favourable written opinion has been provided by Natural Resources Canada dated August 30, 2005

19 September 2005 External T.I. 2004-0103871E5 - Deductibility of Contributions to the USRRA

Principal Issues: Are contributions by Canadian-resident employees to the USRRA deductible for Canadian tax purposes?

Position: No.

Reasons: Plan is no longer a registered pension plan. Payments made after revocation are contributions to an EBP.

19 September 2005 External T.I. 2005-0118351E5 - Withholding rate for periodic RRIF payments

Unedited CRA Tags
153(1) R.103

Principal Issues: What rate should be applied on periodic payments from an RRIF where the payments are instalments in satisfaction of a single request by an annuitant.

Position: The rate of withholding on each individual payment should be based on the total sum requested and not each individual payment.

Reasons: Based on our position as outlined in question 24 of the 2003 CRA RRSP/RRIF Session.

XXXXXXXXXX 2005-011835
J. Gibbons, CGA
September 19, 2005

13 September 2005 External T.I. 2004-0063831E5 - Grant of conservation easement by non-resident

Unedited CRA Tags
110.1 115 118 38

Principal Issues: (1) Whether grant of conservation easement constitutes disposition of taxable Canadian property by non-resident?
(2) Whether a capital gain will arise if the conservation easement is given for perpetuity to a United States charity other than the Nature Conservancy?
(3) Whether a capital gain will arise if the gift of the conservation easement is described in the definition "total ecological gifts"?

Position: (1) It depends on the agreement between the grantor and the holder.
(2) It depends on whether or not subsection 110.1(3) of the Act (where the donor is a corporation) or subsection 118.1(6) of the Act (where the donor is an individual) applies. Where the US charity is not The Nature Conservancy, these subsections will not apply if the US charity is not a charitable organization outside Canada to which Her Majesty in right of Canada has made a gift during the donor's taxation year or the 12 months immediately preceding that taxation year.
(3) Subsection 110.1(5) of the Act (where the donor is a corporation) or subsection 118.1(12) of the Act (where the donor is an individual) will apply to determine the fair market value. If the gift is described in the definition "total ecological gifts", subsection 110.1(3) of the Act or subsection 118.1(6) of the Act will apply. The taxable capital gain will be 1/4 of the donor's capital gain, if any.

Reasons: (1) Terms of agreement will have to be reviewed
(2) and (3) If subsection 110.1(3) of the Act or subsection 118.1(6) of the Act applies to a particular situation, the donor designates an amount not greater than the fair market value and not less than the adjusted cost base as proceeds of disposition and as the fair market value of the gift. If subsection 110.1(3) of the Act or subsection 118.1(6) does not apply, the proceeds of disposition is equal to the fair market value pursuant to subparagraph 69(1)(b)(ii) of the Act.

9 September 2005 External T.I. 2005-0142501E5 - Registered Investments - Pooled Fund Trust

Unedited CRA Tags
204.4(2)(a) 205

Principal Issues: Given the elimination of the foreign content rules under the Income Tax Act, will a pooled fund trust that invests in foreign securities continue to be eligible to be a registered investment for purposes of the Act?

Position: Yes

Reasons: The repeal of Part XI of the Act does not affect the conditions that must be satisfied by a pooled fund trust under paragraph 204.4(2)(a) of the Act.

8 September 2005 External T.I. 2004-0085081E5 - Conversion of a foreign currency denominated debt

Unedited CRA Tags
39(2) 51(1)
Summary Under
Tax Topics - Income Tax Act - Section 39 - Subsection 39(2)
s. 39(2) gain on conversion of US-dollar debt into common shares with different stated capital

Principal Issues: Whether a foreign exchange gain or loss was realized by a corporate debtor when its foreign currency denominated convertible debentures were converted into common shares?

Position: It is not clear.

Reasons: The cost to the corporation of the settlement of the debentures extinguished on the conversion would generally be the amount added to the stated capital of the corporation in respect of the shares issued. That amount is not mentioned in the facts provided.

Technical Interpretation - Internal

25 August 2005 Internal T.I. 2004-0085861I7 F - Fonctionnaire d'une organisation internationale

Unedited CRA Tags
110(1)(f)(iii) 250(5)

Principales Questions: 1) Est-ce qu'une personne doit invoquer au préalable un traité fiscal avant que ne prenne effet le paragraphe 250(5) de la Loi de l'impôt sur le revenu? 2) Est ce que le Programme des Nations Unies pour l'Environnement (PNUE) est une institution spécialisée des Nations Unies? 1) Whether a person need to seek treaty benefits before subsection 250(5) takes effect? 2) Whether the United Nations Environment Programme (UNEP) is a specialized agency of the United Nations?

Position Adoptée: non (no)

Raisons: 1) Le langage impératif de la disposition 2) Le PNUE fait partie intégrante des Nations Unies sans le recours à l'article 63 de la Charte des Nations Unies. 1) The imperative wording of the provision 2) UNEP is an integral part of the United Nations.