Income Tax Severed Letters - 2005-12-30

Ruling

2005 Ruling 2005-0139651R3 F - Transfert d'actions et par. 73(1) et 107.4(3)

Unedited CRA Tags
73 107.4 248(3)

Principales Questions: Relativement au transfert d'actions par un particulier en faveur d'une fiducie dont il est le seul bénéficiaire: (i) est-ce que les alinéas 73(1)a) et b) de la Loi s'appliqueront en regard des actions qui constituent pour le contribuable des immobilisations aux fins de la Loi; et (ii) est-ce que le paragraphe 107.4(3) de la Loi s'appliquera à l'égard des actions qui constituent pour le contribuable des biens en inventaire aux fins de la Loi?

Position Adoptée: (i) Oui; et (ii) Oui.

Raisons: (i) et (ii) Les conditions requises quant à l'application des alinéas 73(1)a) et b) et du paragraphe 107.4(3) sont rencontrées.

XXXXXXXXXX 2005-013965

Le XXXXXXXXXX 2005

2005 Ruling 2005-0147881R3 - Taxable Preferred Shares

Unedited CRA Tags
146(10) 248(1) 4900

Principal Issues: Does a Put agreement cause the shares to be taxable preferred Shares

Position: No

Reasons: FMV option

Ministerial Correspondence

6 December 2005 Ministerial Correspondence 2005-0156571M4 F - Déduct. des frais de déplacement par employé

Unedited CRA Tags
6(1)b) 8(1)h)

Principales Questions: Déductibilité des frais de déplacement reçus par un employé dans l'accomplissement de ses fonctions ou de son emploi.

Position Adoptée: Les allocations raisonnables pour les frais de déplacements et pour l'usage d'un véhicule à moteur ne sont pas imposables lorsqu'un employé les a reçues de son employeur pour voyager dans l'accomplissement de ses fonctions ou de son emploi. Par contre, dans un cas où une allocation est jugée non raisonnable par ce qu'elle n'est pas assez élevée, l'employé peut inclure dans le calcul de son revenu le montant total de l'allocation et ensuite déduire ses frais de déplacement et ses frais afférents à un véhicule à moteur si certaines conditions sont remplies.

Technical Interpretation - External

21 December 2005 External T.I. 2005-0154191E5 - Indexed debt obligation, excluded payment

Unedited CRA Tags
16(6) 7001(1) 7001(7)

Principal Issues: Whether an "excluded payment" as defined in subsection 7001(7) of the Regulations would be considered to be interest on interest and qualify for a deduction under paragraph 20(1)(d) of the Income Tax Act

Position: Question of fact. Depends on whether it qualifies as "interest" and meets the criteria set out in the Miller court case.

Reasons: Definition of prescribed amount in paragraph 7001(1)(a) excludes "excluded payment" as interest receivable and received by a taxpayer in respect of an indexed debt obligation. Therefore, amount in question is not prescribed interest for purposes of subsection 16(6). Whether the amount would qualify as "interest" would depend on if the criteria as set out in the Miller case are met in a particular debt obligation.

20 December 2005 External T.I. 2005-0145151E5 - Charitable Annuities held by a Non-Resident

Unedited CRA Tags
212(1)(o 60(a)

Principal Issues:
Whether a non-resident holder of a charitable annuity issued before December 21, 2002 in accordance with IT-111R2, Annuities Purchased from Charitable Organisations (cancelled), would be required by paragraph 212(1)(o) to pay income tax of 25% on annuity payments received after December 21, 2002.

Position:
No

Reasons:
Interpretation of paragraph 212(1)(o) and IT-111R2, Annuities Purchased from Charitable Organisations.

19 December 2005 External T.I. 2005-0155621E5 - Qualified Corporation

Unedited CRA Tags
125.4

Principal Issues: Would single purpose corporations be qualified corporations if their parent corporation is not a qualified corporation?

Position: Question of fact. Insufficient information to conclude. However, generally a subsidiary corporation would not be precluded from being a qualified corporation simply because the parent corporation was not a qualified corporation.

Reasons: Reading of relevant legislation.

7 December 2005 External T.I. 2005-0160611E5 - structured settlement- commutation

Unedited CRA Tags
56(1)(d)

Principal Issues: Is a casualty insurer allowed to commute the remaining guarantee payments after the death of the Claimant under a structured settlement arrangement where it is named a beneficiary.

Position: yes

Reasons: Position established in 922785 and 971705. IT-365R generally meant to apply to Claimants. This position allows commutation for the remaining guarantee period where the claimant dies and the casualty insurer is a named beneficiary.

5 December 2005 External T.I. 2004-0078921E5 - Foreign accrual tax

Unedited CRA Tags
95(1)

Principal Issues: Must the foreign affiliate that realizes FAPI also be the affiliate that pays the foreign tax to take that foreign tax paid into account in the amount provided for in subparagraph (a)(i) of the definition of foreign accrual tax in subsection 95(1) of the Act?

Position: Yes

Reasons: The words "in respect of a particular foreign affiliate" are not considered to modify only the words "foreign accrual tax" but modify all the preamble. Previous position.

28 November 2005 External T.I. 2004-0073431E5 - Foreign accrual property income

Unedited CRA Tags
95(1) 95(2)(a)

Principal Issues: Meaning of "indirectly" in subparagraph 95(2)(a)(ii) of the Act.

Position: No definitive conclusion. The agreements should set out clearly that one loan is conditional on the deposit and the documentation for the transactions should establish clearly that the flow of income can be directly traced and that the bank involved is acting as a conduit and is in effect receiving an accommodation fee for that service. The payment by the initial payer must, in some manner, be conditional on a payment being made to the ultimate payee or be part of an arrangement to which the initial payer is a party for a payment to be made to the ultimate payee.

Reasons: Previous positions.

28 November 2005 External T.I. 2004-0075721E5 - Two-tiered partnerships and section 216

Unedited CRA Tags
96(1) 216(1)

Principal Issues: 1. Can a non-resident make an election under subsection 216(1) of the Act to file a return under Part I of the Act in connection with the rental income earned by a partnership which is allocated to another partnership and subsequently to its non-resident member?
2. For the purpose of computing the income of a partnership from its interest in real property, will the issuance costs deductible under paragraph 20(1)(e) of the Act by the partnership reduce its net income otherwise computed if the only property of a partnership is an interest in a partnership whose only property is a real property?

Position: 1. A non-resident would be permitted to make an election under subsection 216(1) with respect to the rental income which is allocated to him/her through a two-tiered partnership in the present situation. This position applies whether the partnerships are general partnerships or limited partnerships.
2. The issuance costs deductible by the partnership under paragraph 20(1)(e) of the Act, if any, will reduce the share of the net income computed otherwise.

Reasons:
1. Position taken in document 9225705.
2. The interest in the real property is the only source of income of the partnerships.

29 August 2005 External T.I. 2005-0159831E5 - Patent Infringement Payment

Unedited CRA Tags
9(1)

Principal Issues: Under the Patent Act, if a defendant ("D") infringes a plaintiff's ("P") patent, D is liable for damages sustained by P or, if P so elects, the court may in its discretion award instead an accounting of profits. Both remedies are compensatory. The issue is whether, where the payment of damages would be deductible to D, the payment ordered under an accounting of profits would also be deductible.

Position: Given two otherwise identical fact situations, the tax treatment would be the same under the two altenatives.

Reasons: There is nothing specific in the ITA that distinguishes a damages award from an accounting of profits. If in two otherwise identical fact situations, a plaintiff opted for (or was accorded by the court) damages from its defendant, and the other plaintiff received an accounting of profits from its defendant, the tax treatment for the two defendants should be the same. What that treatment would be would depend on those identical facts.

Conference

7 October 2005 Roundtable, 2005-0132991C6 F - Régime d'options d'achat d'action

Unedited CRA Tags
7(1)

Principales Questions: Comment doit-on évaluer un escompte sur une action dû au fait que l'actionnaire doit détenir l'action pendant un certain temps?

Position Adoptée: C'est une question de fait. L'escompte doit être établi selon des méthodes d'évaluation reconnues.

Raisons: Pratique courante. Le service d'évaluation de l'ARC est en accord avec la réponse.

7 October 2005 Roundtable, 2005-0136701C6 F - Transfert d'une police d'assurance-vie à un enfant

Unedited CRA Tags
148(8)

Principales Questions: Le paragraphe 148(8) s'applique-t-il dans une police d'assurance-vie ayant la désignation du titulaire subrogé faite selon l'article 2446 du Code civil ?

Position Adoptée: Oui, si toutes les conditions d'application sont satisfaites. Un transfert à une fiducie ne permet pas l'application du paragraphe 148(8).

Raisons: Selon le paragraphe 148(8), le bénéficiaire du transfert doit être l'enfant du titulaire

7 October 2005 Roundtable, 2005-0138361C6 F - Actions d'assurance vie

Unedited CRA Tags
70(5.3)
CSV of corporate life insurance policy allocated to common shares rather than to special tracking share that would pay a death benefit dividend following death

Principales Questions: (1) Quelle est la valeur marchande d'une action donnant droit au détenteur de recevoir un dividende égal à un produit d'assurance vie ? (2) Aux fins du paragraphe 70(5.3), comment doit-on répartir la valeur de rachat d'une police d'assurance vie entre les actions ordinaires et les actions donnant droit au détenteur de recevoir un dividende égal à un produit d'assurance vie ?

Position Adoptée: (1) aucune (2) La valeur marchande des actions ordinaires immédiatement avant le décès de la personne assurée tiendrait compte de presque toute la valeur de rachat de la police d'assurance.

Raisons: (1) Question de fait (2) Règles d'évaluation

7 October 2005 Roundtable, 2005-0141101C6 F - Article 116 - bien québécois imposable

Unedited CRA Tags
116

Principales Questions: Existe-t-il une politique administrative permettant de réduire le taux de retenue de 25% prévu aux paragraphes 116(2) ou (4) de la Loi dans le cas d'une disposition de bien québécois imposable.

Position Adoptée: Non

Raisons: Dispositions de la Loi.

Technical Interpretation - Internal

15 December 2005 Internal T.I. 2005-0156081I7 - novation of debt

Unedited CRA Tags
54 39(1)

Principal Issues: When does a change in the terms of a debt obligation result in a new obligation?

Position: Question of fact based on laws of contract in the relevant jurisdiction

Reasons: Case law