Income Tax Severed Letters - 2005-11-25


2005 Ruling 2005-0139661R3 - Withholding Index-Linked Notes

Unedited CRA Tags
212(1)(b)(iii)(D) 9

Principal Issues: Is the positive return of a foreign denominated index-linked note exempt from withholding under 212(1)(b)(iii)(D)

Position: YES

Reasons: Not linked to performance of the payor

Technical Interpretation - External

25 November 2005 External T.I. 2005-0122351E5 - Service Connection and CRCE

Unedited CRA Tags
Reg 1219(1) 66(12.6)

Principal Issues: Whether the cost to design and purchase certain property will qualify as CRCE under paragraph 1219(1)(a) of the Regulations as having been incurred for the purpose of making a service connection to a qualifying project for the transmission of electricity to a purchaser.

Position: Question of fact whether purpose test in paragraph 1219(1)(a) of the Regulations satisfied. In addition, costs that relate to the acquisition of property by the taxpayer are expressly excluded from qualifying as CRCE under that paragraph. Even if purpose test satisfied, a PBC which has incurred CRCE/CEE will be precluded from renouncing an amount in respect thereof to an investor in flow-through shares to the extent of the assistance the PBC has received, is entitled to receive or can reasonably be expected to receive at any time that can reasonably be related to such CEE.

Reasons: Nature of determination as well as the wording of the relevant provisions of the Act and Regulations.

25 November 2005 External T.I. 2005-0135801E5 - amounts paid to missionaries

Unedited CRA Tags
6(1)(a) 6(1)(b) 6(6)(a)(i)

Principal Issues: whether amounts received by volunteers working as missionaries are taxable

Position: amounts would be taxable either as income from employment or as an independant contractor

Reasons: amounts paid are not nominal and are compensation for services provided by the volunteer

25 November 2005 External T.I. 2005-0151611E5 - Class 43.1 - wood waste system

Unedited CRA Tags
Class 43.1 Regulation 1104(13)

Principal Issues: whether a boiler fuelled by wood pellets to generate heat for use in a greenhouse will qualify for inclusion in Class 43.1

Position: General comments provided

Reasons: question of fact

24 November 2005 External T.I. 2005-0146891E5 - Foster Care Payments

Unedited CRA Tags

Principal Issues: Whether amounts paid by an organization to individuals who provide support services to its clients are exempt from inclusion in the individuals' incomes under paragraph 81(1)(h) of the Act.

Position: Question of fact.

Reasons: General comments provided on the requirements of paragraph 81(1)(h) of the Act.

24 November 2005 External T.I. 2005-0126211E5 - PHSP - Benefit Allocation

Unedited CRA Tags
248(1) definition of "private health services plan" 6(1)(a)

Principal Issues: An employee that is a member of a flexible employee benefit program has a choice of various medical benefits. The employee allocates all available coverage in one year to, for example, dental expenses and incurs unexpected drug expenses. 1. Can the employee carry forward the drug expenses and allocate sufficient coverage in the subsequent year to use up the expenses? 2. Must the employee allocate at least 1 cent to drug expense coverage in the first year in order to be eligible to carry forward drug expenses? 3. Will such a plan retain its character as a PHSP?

Position: No, the plan would not qualify as a PHSP.

Reasons: 1. A plan will not be considered a PHSP if it allows a participating employee who has no allocation to a particular component of the plan in the prior year to carry those expenses forward or back to another year. 2. A plan that allows a participating employee to allocate a nominal amount to a particular component of a plan in a year merely to allow the carry forward of excess expenses into another plan year would not be considered a PHSP. 3. We cannot envisage how such a plan contains the requisite element of insurance since it has little or no risk.

21 November 2005 External T.I. 2005-0122181E5 - Employment income earned by a status Indian

Unedited CRA Tags

Principal Issues: Will employment income earned by status Indians employed by a First Nation band be tax exempt where the status Indian employees are then subcontracted to various industries both on and off reserve?

Position: Question of fact

Reasons: Consistent with previous positions and based on the connecting factors test

XXXXXXXXXX Kimberly Duval
(613) 599-6054
November 21, 2005

21 November 2005 External T.I. 2005-0147831E5 - Taxable Benefit - Rent Free Apartment

Unedited CRA Tags

Principal Issues: Whether it is appropriate to reduce a taxable benefit for a rent-free apartment from 2/3 of the fair market value to 25% on the basis of the TCC decision in Potvin.

Position: No.

Reasons: The CRA does not have a general position on the amount of a reduction that is appropriate in different situations; only that the reduction must be reasonable in the circumstances. We do not envision any situation where an employee's privacy and quiet enjoyment is so disrupted that no taxable benefit is appropriate. The value of the benefit determined by the TCC in the Potvin decision would be on the low end of the scale. A distinctive fact in Potvin that is worth noting, other than the general nature of the tenants and the usual problems encountered by building managers in these situations, is that Mr. and Mrs. Potvin were the only individuals who managed two townhouse complexes (24 and 36 units) and they were on call 24 hours each day. In the case at hand, there are three superintendent couples and a resident manager couple that collectively manage the property, and these employees are only on call 6 days per month.

21 November 2005 External T.I. 2005-0148221E5 - Wage Loss Replacement Plans

Unedited CRA Tags
6(1)(a) 6(1)(f)

Principal Issues: The taxable status of a wage loss replacement plan from an employee/shareholder benefit perspective, whether a company is entitled to a deduction for the cost of the premiums and whether separate policies have to be grouped together by a corporate director's resolution to be considered a qualifying wage loss replacement plan.

Position: Question of fact.

Reasons: The fact that an employee who is insured by a wage loss replacement plan is also the sole shareholder of a company would not generally affect the tax treatment if the plan provides the same benefits coverage received by other employees of the company or, if the company has no other employees that deal at arm's length with the employer, the plan provides the same type of benefits coverage received by employees who are in comparable positions with other employers. Otherwise, the premium paid could be considered a shareholder benefit when paid and the company would not be entitled to a deduction. There is no requirement under the Act that different insurance policies that provide wage loss benefits coverage to employees be "grouped" together to qualify as a wage loss replacement plan for purposes of paragraphs 6(1)(a) and 6(1)(f)

21 November 2005 External T.I. 2005-0143231E5 - Terminal Charge / ONT Tax Reduction

Unedited CRA Tags

Principal Issues: (a) The taxable status of a $XXXXXXXXXX terminal loss incurred by an employer in respect of a leased automobile at the end of the lease - should the entire amount of the terminal loss be included in the employee's income as a taxable benefit? (b) Should an individual be entitled to a deduction for the entire "personal amount" under the Ontario Tax Reduction Program?

Position: (a) The whole amount will not be entirely reflected in the amount of the automobile benefit that is included in the employee's income for the year. (b) The OTR is not a rebate program nor does it provide for a deduction in computing Ontario taxable income.

Reasons: (a) When calculating the standby charge on a leased automobile, the amount of the terminal charge incurred at the end of a lease is included in the employer's cost of leasing the automobile for that year. The maximum amount that could possibly included in the employee's income for the year on the basis of the formula in subsection 6(2) of the Act, is two-thirds (2/3) of the terminal charge. This amount could be further reduced if the employee is required by the employer to use the automobile in connection with or in the course of the office or employment and the distance travelled is primarily in connection with or in the course of that office or employment. (b) The OTR will provide an individual with Ontario tax relief in one of two ways: (1) it will eliminate Ontario tax payable for an individual who in the taxation year has Ontario tax otherwise payable that is less than the individual's "personal amount", as calculated under the Ontario Act, or (2) it will reduce an individual's Ontario tax payable if it is in excess of the individual's personal amount, by reducing it by the amount, if any, by which twice the individual's personal amount exceeds the Ontario tax otherwise payable.

21 November 2005 External T.I. 2005-0144811E5 - Board and Lodging

Unedited CRA Tags

Principal Issues: What is the taxable status of any benefit that may be enjoyed by employees of a group home in respect of board and lodging, where the employees are required to work 24-hour shifts each day with 8 days of respite per month. In the situation presented the employees are required to sleep in the home but still maintain their own primary residence

Position: No benefit in respect of lodging but there may be a benefit for the cost of meals.

Reasons: The employees would not be in receipt of any benefit in respect of accommodations since they are required by the employer to stay in the home while on shift and also maintain their own primary residence. If the employer also provides these employees with meals at no cost, a taxable benefit is enjoyed in respect of the additional costs, if any, which may be incurred by the employer to provide those meals.

18 November 2005 External T.I. 2005-0141551E5 - Leasing Property

Unedited CRA Tags
1100(15) 1100(17)

Principal Issues: Interpretation of 1100(15) and 1100(17)

Position: General comments given

XXXXXXXXXX 2005-014155
G. Moore
November 18, 2005