Income Tax Severed Letters - 2006-02-10

Technical Interpretation - External

6 February 2006 External T.I. 2005-0160561E5 - Board Fees - Municipal Officer

Unedited CRA Tags
6(1)(c) 81(3)

Principal Issues: Whether 1/3 of the XXXXXXXXXX remuneration is considered an expense allowance excluded from computing the XXXXXXXXXX income pursuant to subparagraph 81(3).

Position: No.

Reasons: The corporations paying the board fees are taxable entities.

3 February 2006 External T.I. 2005-0156441E5 - Management Fee Paid To Shareholders

Unedited CRA Tags
15(1)

Principal Issues: Whether a management fee that is paid to all the shareholders of a corporation on the basis of the number of shares they own, is a deductible expense of the corporation.

Position: No

Reasons: Generally, if the criteria upon which an amount is paid to shareholders is solely on the basis of their shareholdings, the amount is not considered incurred by the corporation of the purpose of earning business income. Notwithstanding that the amount is not deductible to the corporation, the shareholders must include the amount in income.

2 February 2006 External T.I. 2005-0152431E5 F - Utilization of non-capital losses

Unedited CRA Tags
69(11) 88(1.1) 256(7) 111(5)
Summary Under
Tax Topics - Income Tax Act - Section 69 - Subsection 69(11)
s. 69(11) would not apply where losses are applied against services income of Amalco
Summary Under
Tax Topics - Income Tax Act - Section 256 - Subsection 256(7) - Paragraph 256(7)(a) - Subparagraph 256(7)(a)(i)
s. 256(7)(a)(i) applicable where sister transfers Lossco to Profitco owned equally by her and three siblings

Principal Issues: 1. Whether the restrictions in subsections 88(1.1) or 111(5) would apply in the situations described? 2. Whether subsection 69(11) would apply in the situations described?

Position: 1. No. 2. No.

Reasons: 1. No acquisition of control because of subparagraph 256(7)(a)(i). 2. No disposition of property after the winding-up or amalgamation.

2 February 2006 External T.I. 2005-0111911E5 F - Participation indivise dans un immeuble-fiducie

Unedited CRA Tags
70(5) RAIR 20(1) RAIR 26(5) 54
Summary Under
Tax Topics - Income Tax Act - Section 70 - Subsection 70(5)
grant under will of usufruct and bare ownership to surviving spouse and children, respectively, resulted in a deemed s. 70(5) disposition to a testamentary trust
Summary Under
Tax Topics - Income Tax Act - Section 54 - Principal Residence - Paragraph (c.1)
grant under will of usufruct in 2-unit property to surviving spouse constituted a disposition to a testamentary trust which could make the (c.1) designation for the home unit

Principal Issues:
Comment doit être calculé le gain en capital réalisé par une fiducie testamentaire suite à la vente de sa participation indivise dans un immeuble lequel était détenu par le testateur et son conjoint avant 1972?

Position:
Aucune. Commentaires généraux.

Reasons:
Interprétation de la Loi.

30 January 2006 External T.I. 2005-0156741E5 - Personal Services Business

Unedited CRA Tags
125(7)

Principal Issues: In the context of incorporating a professional practice, would a newly incorporated professional corporation be carrying on a personal services business if the professional corporation and the professional were not allowed to compete with the corporation to whom the professional services are provided?

Position: Insufficient information to conclude. However, the competition restrictions are one indicator that the incorporated employee [i.e., the incorporated professional] would reasonably be regarded as an officer or employee of the corporation to whom services were ultimately provided. Depending on all of the relevant facts, this could result in a determination that the professional corporation is carrying on a personal service business.

Reasons: Reading of the legislation.

25 January 2006 External T.I. 2004-0105141E5 - Money received from a non-resident estate

Unedited CRA Tags
104(13) 107(1)

Principal Issues: Whether a monetary inheritance from a deceased relative residing in a foreign country is taxable under the Income Tax Act?

Position: If the money is received in satisfaction of a capital interest in the estate, the taxpayer will not generally pay tax on that amount of money.

Reasons: The estate is generally a personal trust. The capital gain will be computed using an adjusted cost base equal to the amount of money received.

25 January 2006 External T.I. 2005-0141481E5 - Residence owned by an estate

Unedited CRA Tags
54 104(6) 104(13) 104(13.2)

Principal Issues: 1. Are the expenses or outlays incurred for the maintenance and the upkeep of a residence owned by an estate deductible?
2. What are the tax consequences of the disposition of a residence owned by an estate?

Position: 1. In the particular situation, no.
2. General comments on the principal residence exemption and the taxation of the estate or its beneficiaries.

Reasons: 1. The estate does not earn any income and subsection 105(2) does not apply.
2. The tax consequences will depend, inter alia, on whether or not the residence is a principal residence. We consider that a person who has the right to use the residence of an estate rent-free is beneficially interested in the estate and, if that person inhabits the house, qualifies as a specified beneficiary.

4 January 2006 External T.I. 2005-0129961E5 - Group Term Life Insurance

Unedited CRA Tags
6(1)(a) 248(1)

Principal Issues: Where an employer self-funds its employees' life insurance benefit through a trust, will the addition of a catastrophe insurance policy ensure that the trust is treated as a Health and Welfare Trust and not as an employee benefit plan?

Position: No.

Reasons: A life insurance plan that is self-funded is not based on a "policy of insurance" and could be considered an employee benefit plan and obtaining a catastrophe insurance policy will not, in and by itself, ensure that the trust is treated as a Health and Welfare Trust.

Technical Interpretation - Internal

2 February 2006 Internal T.I. 2005-0129131I7 F - Assessing 163(2) penalty

Unedited CRA Tags
163(2) 122.51
Summary Under
Tax Topics - Income Tax Act - Section 163 - Subsection 163(2)
s. 163(2) can be imposed where false adjustments are requested, without the necessity to first process those adjustments

Principal Issues: In a given situation, where the CRA identifies an infraction described in 163(2) in a taxpayer requested adjustment to an assessed return for a taxation year before reassessing to allow the requested adjustments, whether the penalty under 163(2) can be assessed without reassessing the requested adjustments?

Position: Yes.

Reasons: The Act.