Income Tax Severed Letters - 2005-10-07


2005 Ruling 2005-0122691R3 - Allocation of safe income

Unedited CRA Tags

Principal Issues: Whether safe income on hand which is attributable to one class of shares can be combined with the nominal safe income on hand which is attributable to another class of shares where the two classes of shares are exchanged for one class of new shares under a tax-deferred exchange.

Position: Yes.

Reasons: Consistent with the position taken in question 25 at the 2001 APFF and the "Robertson rules".

2005 Ruling 2005-0133051R3 - exploration/new mine- CEE

Unedited CRA Tags

Principal Issues: Whether expenses relating to an underground exploration program will qualify for inclusion under paragraph (f) to the definition of CEE.

Position: Expenses to be incurred in respect of the underground exploration program may potentially qualify under paragraph (f) to the definition of CEE.

Reasons: Based upon the facts of the situation and a written opinion received from Natural Resources Canada dated July 15, 2005. A representative of that Department visited the site and reached conclusions that support the above position.

2005 Ruling 2005-0146021R3 - ATR-Deduct. of Shareholder/Manager Remuneration.

Unedited CRA Tags
67 18(1)(a)

Principal Issues: The deductibility of shareholder/manger remuneration that is paid out of income triggered from the proceeds of a sale of business assets

Position: Remuneration is deductible.

Reasons: Amount is reasonable and incurred for the purpose of earning business income.

Ministerial Correspondence

26 September 2005 Ministerial Correspondence 2005-0109621M4 - Status Indian Post-secondary education assistance

Unedited CRA Tags

Principal Issues: Are status Indians taxable on post-secondary education assistance received from INAC?

Position: The CRA will continue to treat such amounts as tax-exempt and there is no requirement to issue a T4A slip

Reasons: The Government of Canada has undertaken a review of Aboriginal policies including PSE assistance. In light of the current legal and policy uncertainty, the admin position will continue.

14 September 2005 Ministerial Correspondence 2005-0146771M4 - Class 43.1 assets

Unedited CRA Tags

Principal Issues: Does equipment use to produce biogas from non-anaerobic digestion of manure qualify as a class 43.1 asset.

Position: No.

Reasons: Budget 2005 only proposes to extend eligibility for Class 43.1 to equipment used to produce biogas (which is primarily methane) from the anaerobic digestion of manure.

2 September 2005 Ministerial Correspondence 2005-0139761M4 - Non-competition payments

Unedited CRA Tags

Principal Issues: Whether non-competition payments received are taxable.

Position: General comments.

Reasons: Proposed amendment 56.4.

23 August 2005 Ministerial Correspondence 2005-0140431M4 - Status Indian post secondary education assistance

Unedited CRA Tags

Principal Issues: Are status Indians taxable on post secondary education assistance received from INAC?
Are status Indians taxable on Part II EI benefits?

Position: The CRA will continue to treat PSE amounts received from INAC as tax-exempt and there is no requirement for the issuance of a T4A slip.
Part II EI benefits are available to the public at large. If sufficient factors connect the amount to a reserve, the benefit may be exempt.

Reasons: The Government of Canada has undertaken a review of Aboriginal policies including post secondary assistance. The admin position on PSE assistance will continue in light of the legal and policy uncertainty.
EI Part II benefits are not related to prior employment, accordingly the income must be connected to a reserve in order to be exempt.

Technical Interpretation - External

3 October 2005 External T.I. 2005-0146001E5 - Specified Invest. bus., Active Business Income

Unedited CRA Tags
125(7) 67

Principal Issues: Whether the creation of an associated corporation could be used to convert specified investment business income into active business income.

Position: No.

Reasons: We would apply Section 67 to the inter-company management fees. We would also consider applying GAAR.

3 October 2005 External T.I. 2005-0133331E5 - PHSP - Cost Plus for limited liability partnership

Unedited CRA Tags
248(1) 20.01

Principal Issues: Specific questions relating to the acceptability of certain transactions relating to a "cost plus" PHSP of a limited liability partnership.

Position: General comments provided.

Reasons: Comments would only be provided in the context of an advance income tax ruling submitted in the manner outlined in Information Circular IC 70-6R5.

3 October 2005 External T.I. 2005-0134351E5 - SR&ED - Associated

Unedited CRA Tags
127(10.22) 127(10.23) 256(1)

Principal Issues: Whether the corporations in questions are associated for the purpose of the definition of Qualifying Corporations and for the purpose of calculating their expenditure limit under 127(10.2) of the Act.

Position: Associated

Reasons: The corporations would be associated under at least paragraph 256(1)(e).

XXXXXXXXXX 2005-013435
Shaun Harkin, CMA
October 3, 2005

3 October 2005 External T.I. 2004-0103341E5 - Qualified Farm Property

Unedited CRA Tags

Principal Issues: Whether farm property consisting of land and a gravel pit operation would be qualified farm property under the definition in 110.6 subparagraph (a)(vii).

Position: Yes.

Reasons: The property was acquired in XXXXXXXXXX so the pre 1987 rules apply and both the taxpayer's mother and father had used the land 5 or more years in the business of farming.

3 October 2005 External T.I. 2005-0151071E5 - Transfer of land from grandparent to grandson

Unedited CRA Tags
110.6(1)(a), 110.6(2), 70(10), 252(2)(a)(i)

Principal Issues: If grandparent transfers vacant/idle land once used in farming business to the grandson, and the grandson does not farm the land, will the grandson still be entitled to claim a capital gains exemption under subsection 110.6(2) when he disposes of the property?

Position: Yes.

Reasons: The period of ownership by the grandson, and his grandparents exceeds the test's 24-month de minimis period and the gross revenue test is met by the grandparent

30 September 2005 External T.I. 2004-0093661E5 F - Revenu d'une fiducie et droit acquis par un mineur

Unedited CRA Tags
104 108

Principales Questions: 1. Quels documents pourraient démontrer qu'un montant est payable à un bénéficiaire d'une fiducie?
2. Est-ce qu'un fiduciaire peut attribuer à un bénéficiaire du revenu le gain en capital imposable et attribuer à un bénéficiaire du capital la partie non imposable du gain en capital?

Position Adoptée: 1. Une résolution écrite et signée par les fiduciaires d'une fiducie( ou les procès-verbaux d'une réunion des fiduciaires), en vertu de laquelle ces derniers confèrent un droit irrévocable à un bénéficiaire de la fiducie pour recevoir une partie du revenu de la fiducie, constitue un moyen pour établir que le bénéficiaire est en droit d'en exiger le paiement.
2. Oui si l'acte de fiducie contient une clause spécifique qui permet légalement de le verser de cette façon.

Raisons: 1. Position antérieure.
2. À défaut d'une disposition contraire dans l'acte de fiducie, le gain en capital réalisé par une fiducie ne fait généralement pas partie du "revenu" aux fins civiles. L'ARC et la jurisprudence ne reconnaissent pas les clauses laissant aux fiduciaires d'une fiducie l'entière discrétion quant à la détermination de ce qui constitue du capital ou du revenu. Les clauses spécifiques prévoyant clairement que certains types de paiement constitueront du revenu pour la fiducie sont cependant acceptables.

XXXXXXXXXX 2004-009366

29 September 2005 External T.I. 2005-0140581E5 - attribution rules; rollovers

Unedited CRA Tags
74.5(1) 73(1) 85(1)

Principal Issues: Whether subsection 74.5(1) has an impact on the rules in subsection 85(1).

Position: No.

Reasons: 74.5(1) does not contain a deeming rule re the fair market value of a property.

28 September 2005 External T.I. 2005-0142851E5 - Structured Settlements - transfer

Unedited CRA Tags

Principal Issues: Will a Claimant remain non-taxable on a structured settlement annuity payment should an insurer transfer the ownership of the structured settlement to another insurer.

Position: YES, however such a transfer is not in accordance with our comments in IT-365R2 and the CRA will not provide an advance income tax ruling on this type of transfer by an insurer.

Reasons: The CRA is not a party to the structured settlement arrangement.

20 September 2005 External T.I. 2005-0128711E5 - Change in Use of Property

Principal Issues: Can a non-resident taxpayer make the election under subsection 45(3) of the Act?

Position: Where there has been a change in use of a property from gaining or producing income in Canada to some other use and CCA has been taken on the property, the election under subsection 45(3) is deemed not to have been made by virtue of subsection 45(4) of the Act.

Reasons: Wording in the Act.

14 September 2005 External T.I. 2005-0137781E5 - Medical Expense; Storage Umbilical Cord Blood

Unedited CRA Tags

Principal Issues: Whether amount paid for collection and storage of umbilical cord blood qualifies as a medical expense for purposes of 118.2(2).

Position: No.

Reasons: Not a service relating to an existing medical condition or disease. Not a diagnostic procedure.

XXXXXXXXXX Eliza Erskine
(613) 954-3199
September 14, 2005

13 September 2005 External T.I. 2005-0142361E5 - Nursing Home Attendant Care Expense

Unedited CRA Tags
118.2(2)(b) 118.2(2)(d) 118.2(2)(b.1)

Principal Issues: Whether the residents of XXXXXXXXXX may claim the full fees paid to the lodge as medical expenses.

Position: No, however, some residents may be eligible to claim a portion of the fees for remuneration paid for attendant care as medical expenses.

Reasons: It is unlikely the residents received full-time care in a nursing home as required by paragraphs 118.2(2)(b) and (d). However, some residents may be eligible to claim remuneration paid for attendant care pursuant to paragraph 118.2(2)(b.1)

13 September 2005 External T.I. 2005-0122544E5 - Legal Fees

Unedited CRA Tags
39(12) 18(1)(a) 39(1)(b)

Principal Issues: Whether a shareholder's legal fees are deductible as a current expense, allowable business investment loss or a capital loss.

Position: No

Reasons: They were not incurred for the purpose of gaining or producing income from a business or property, they were not incurred to a guarantee of the debt of a corporation, nor were they incurred for the purpose of making a disposition of a capital property.

9 September 2005 External T.I. 2005-0126771E5 - predeces. partnership by new partnership

Unedited CRA Tags
pay-out of departing partner consistent with rollover

Principal Issues: Whether subsection 98(6) applies in various scenarios

Position: Depends

Reasons: Various

9 September 2005 External T.I. 2004-0091711E5 - Business limit year - 125(3)

Unedited CRA Tags
125(2) 125(3) 249(1)

Principal Issues: 1) What is the statutory authority for specifying "calendar year" in line 50 of T2SCH23; 2) Whether term "year" referenced in subsection 125(3) means "taxation year" or "the calendar year that includes the fiscal period of a corporation that ends in that calendar year of each associated corporation"

Position: 1) 249(1); 2) taxation year

Reasons: 1) definition of taxation year in 249(1) states that where taxation year is referred to by reference to a calendar year, the reference is to the taxation year or years coinciding with, or ending in the calendar year. 2) When read in conjunction with subsection 125(2), the reference to "year" in subsection 125(3), means "taxation year".

9 September 2005 External T.I. 2005-0118921E5 - Sabbatical Leave Research Grant

Unedited CRA Tags
5(1) 56(1)(o)

Principal Issues: 1) Where an employee travels between his/her residence and the University during a sabbatical leave for the purpose of supervising graduate students are the travel and other subsistence expenses allowable research expenses?
2) Are there guidelines to determine the reasonability of amounts paid to an employee while on sabbatical leave?
3) Where a computer is purchased before the beginning of a sabbatical leave can the purchase of the computer be considered an allowable research expense?
4) What is the current definition of sojourning? Is the employee sojourning where an employee remains in one place for more than 30 days?

Position: 1) Personal or living expense for travel between residence and university. Allowable research expenses if incurred away from home while carrying on the work.
2) Amounts will be considered reasonable if designed to cover the out-of-pocket costs that the employee will incur for the expense.
3) Purchases made for a research project in the year but prior to the receipt of the research grant will be considered allowable research expenses if the expense is not otherwise deductible in computing the researcher's income for the year.
4) Sojourning is not defined in the ITA but means temporarily residing in a place. The determination is dependent on a number of factors. More than 30 days in one place will likely be considered sojourning.

Reasons: 5(1), 56(1)(o) and IT-75R4

7 September 2005 External T.I. 2004-0099541E5 - Moving Expenses

Unedited CRA Tags
62(1) 248(1) 62(3)

Principal Issues: Application of 62(1) for moving expenses in a number of situations.

Position: Question of fact, general information provided

Reasons: Departmental Position, 2002-013918, IT-178R3

7 September 2005 External T.I. 2005-0146421E5 - Northern Res. Deduction - Prescribed Zone

Unedited CRA Tags
110.7 7303.1

Principal Issues: Whether 1) Easterville, Manitoba; 2) Sapotaweyak, Manitoba; and 3) Keewaywin, Ontario fall within a prescribed northern zone or prescribed intermediate zone.

Position: 1) No; 2) No; 3) Yes, prescribed northern zone.

Reasons: Confirmation of latitude and longitude for each location with Dave Harron of Winnipeg Taxation Centre. 1) & 2) do not meet criteria set out in 7303.1; 3) meets criteria set out in 7303.1

6 September 2005 External T.I. 2005-0127741E5 - Prescribed Prize

Unedited CRA Tags
56(1)(n) Reg. 7700

Principal Issues: Whether the XXXXXXXXXX qualifies as a prescribed prize within the meaning of Regulation 7700

Position: No

It is a fellowship/scholarship rather than a prize for meritorious achievement.
Part of the fellowship is an amount received as compensation for services rendered or to be rendered.

Technical Interpretation - Internal

16 September 2005 Internal T.I. 2005-0132401I7 - Employee Contribution to RCA

Unedited CRA Tags
8(1)(m.2) 248(1)

Principal Issues: Are employees' contributions to an RCA deductible pursuant to paragraph 8(1)(m.2) of the Act?

Position: Question of fact - general comments provided

Reasons: Pertinent issues that may be considered have been addressed in the response.

26 August 2005 Internal T.I. 2005-0131171I7 F - Alinéa 18(1) e) de la LIR

Unedited CRA Tags
18(1) e)

Principales Questions: Peut-il y avoir obligation légale de payer lorsque l'obligation légale ou contractuelle n'identifie pas de tiers pour prendre paiement?

Position Adoptée: Non.

Raisons: La Cour d'appel fédérale, dans Wawang, confirme que l'obligation juridique [de payer] naît de l'exécution des obligations contractuelles auxquelles le paiement se rattache.