Income Tax Severed Letters - 2006-02-17


2006 Ruling 2005-0156921R3 - XXXXXXXXXX ATR - 39(2) and CDA

Unedited CRA Tags
39(2) 89(1) def of CDA

Principal Issues: (i) Whether a corporate taxpayer has made a gain by virtue of any fluctuation of the US currency relative to the Canadian currency pursuant to subsection 39(2) when it extinguishes its US dollar denominated debt obligation ("AcoDebt") to its wholly-owned subsidiary by assuming a US dollar denominated debt ("Bco Debt") of that subsidiary of the same US dollar principal amount? (ii) Whether the non-taxable portion of the deemed capital gain under subsection 39(2) would be included in computing the amount of the capital dividend account of the taxpayer which is a private corporation?

Position: (i) Yes.

Reasons: (i) Since the Aco Debt has been settled and extinguished, subsection 39(2) would apply and the taxpayer is considered to have made a gain or sustained a loss by virtue of any fluctuation of the US currency relative to the Canadian currency in respect of the settlement of the Aco Debt. (ii) The capital gain under subsection 39(2) is deemed by that provision to be a capital gain from the disposition of a foreign currency which is a property for the purposes of the definition of "property" in subsection 248(1). Hence the non-taxable portion of such capital gain should be included in the computation of the amount of the capital dividend account of the taxpayer which is a private corporation.

2006 Ruling 2005-0160701R3 - Health Care Expense Account

Unedited CRA Tags

Principal Issues: Under a health care spending account, whether the allocation of credits, which is linked to a bonus the employees may be entitled to receive, would result in employment income to the employees.

Position: The allocation of credits will not result in taxable employment income for the employees.

Reasons: Consistent with IT-529 and previous rulings.

2005 Ruling 2005-0146161R3 - Incorporation of partnership

Unedited CRA Tags
85(2); 125(7)("personal services business"); 125(7)("specified partnership interest"); 85(3)

Principal Issues: Whether a professional corporation, providing XXXXXXXXXX services to another corporation, will be carrying on a "personal services business" within the meaning thereof in subsection 125(7) of the Act.

Position: No.

Reasons: The former partners that are providing services through a professional corporation will not provide services to Newco in the capacity of employees or officers of Newco. See previous rulings issued.

2005 Ruling 2005-0157901R3 - 212(1)(d)

Unedited CRA Tags

Principal Issues: Would payments in respect of the Participation Right described in the ruling letter be considered rents, royalties or similar payments for the purposes of paragraph 212(1)(d)?

Position: No.

Reasons: They do not fit into the definitions of rents, royalties or similar payments.

Technical Interpretation - External

15 February 2006 External T.I. 2005-0148311E5 - Characterization of a French SNC

Unedited CRA Tags

Principal Issues: Whether a French SNC is a partnership for the purposes of the Act

Position: Yes

Reasons: It has attributes consistent with those of a partnership under Canadian partnership law and the characterization thereof under French tax law is not relevant.

13 February 2006 External T.I. 2005-0151221E5 - Interest on Tax Refund

Unedited CRA Tags
164(3) 164(7)

Principal Issues: (1) Is the date that a return of income is filed that is referred to in 164(3)(c)(i) the date of filing of the original return? (2) Is the date of an overpayment the date that amounts were paid in excess of taxes payable, rather than the date a request for a refund is made?

Position: General Comments provided.

Reasons: The legislation

13 February 2006 External T.I. 2005-0156311E5 - wage loss replacement plan; long-term disability

Unedited CRA Tags

Principal Issues: Whether one or two wage loss replacement plans.

Position: General comments

Reasons: Question of fact whether one plan or two plans.

13 February 2006 External T.I. 2005-0161451E5 - Indian employment income & loss from business

Unedited CRA Tags
18(1)(c) 81(1)(a)

Principal Issues: Two questions are posed:
1) if a status Indian incorporates a reserve-resident company and employs himself to perform duties off-reserve, is his employment income tax-exempt?
2) if a status Indian operates a farm on a reserve, can he deduct farm losses from other taxable business income earned off-reserve?

Position: 1) Income from the corporation to the individual might be tax exempt. It will be a question of fact
2) A farming loss is unlikely to arise, therefore would not be available to offset taxable business income

Reasons: 1) It will be a question of fact whether the individual receives amounts from a corporation in his capacity as shareholder or in his capacity as an employee. If the amount is determined to be employment income, then Guideline 2 will likely have application.
2) Business income from a farm operated on a reserve by a status Indian is likely tax-exempt. As such, paragraph 18(1)(c) provides that no deduction may be taken for expenses incurred to earn that income. It is therefore not likely that a loss could arise in this situation.

XXXXXXXXXX Renée Shields
(613) 948-5273
February 13, 2006

13 February 2006 External T.I. 2005-0152821E5 - Commission or Bonus

Unedited CRA Tags
5 6 8

Principal Issues: Is the amount paid by an employer to its employee a commission or a bonus?

Position: General comments provided. Question of Fact.

Reasons: General comments provided. Question of Fact.

9 February 2006 External T.I. 2005-0118881E5 - Meaning of "commodities exchange"

Unedited CRA Tags

Principal Issues: Whether particular electricity exchanges can be considered "commodities exchanges" within the meaning of subsection 115.2(1).

Position: Based on the facts yes.

Reasons: In general, a commodity can include anything that is bought and sold.

9 February 2006 External T.I. 2005-0152401E5 - Employees' Motor Vehicle Expenses

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

Principal Issues: (i) Is driving between work locations during the course of the workday personal or employment related travel? (ii) If a non-taxable allowance is received for only certain employment travel, can a deduction be claimed for additional employment related travel? (iii) Is driving between home and various work locations personal travel?

Position: (i) Travel between work locations during the course of a workday is likely employment related travel. (ii) Possibly. (iii) Question of Fact

Reasons: (i) The travel was made in order to carry on the duties of employment. (ii) Subparagraph 8(1)(h)(iii) denies a deduction where a taxpayer receives an allowance for travel expenses that was, because of subparagraph 6(1)(b)(v), (vi) or (vii), not included in computing the taxpayer's income for the year. However, if employment-related motor vehicle expenses are in excess of the non-taxable motor vehicle allowance and a taxpayer voluntarily includes the allowance in income, the CRA will generally permit the deduction if the requirements in section 8 of the Act are otherwise met. (iii) Generally, travelling between an employee's home and the place where he or she regularly reports for work is considered personal travel. However, where an employee proceeds directly between their home and a location other than their regular place of work, it may be considered employment related travel. It is a question of fact as to whether a particular location is an employee's regular place of work.

9 February 2006 External T.I. 2005-0123991E5 - Overseas Employment Tax Credit

Unedited CRA Tags

Principal Issues: Whether compensation received by an employee on sick leave can qualify for the OETC.

Position: Question of fact.

Reasons: Where all of the other requirements of subsection 122.3(1) of the Act are otherwise satisfied, the sick leave will be part of the "qualifying period".

8 February 2006 External T.I. 2004-0064811E5 - Subsection 15(2)

Unedited CRA Tags
15(2.3) 15(2.1) 15(2) 95(6)(b)

Principal Issues: (i) Whether subsection 15(2.3) would apply to Situation A and (ii) whether subsection 15(2.1) would apply to Situation B and Situation C as described in the letter and whether GAAR would be applied?

Position: (i) not determinative, depending on whether the loans were made in the ordinary course of Cansub's ordinary business of lending money. (ii) Depending on the facts of the particular situation, paragraph 95(6)(b) may be applied such that subsection 15(2.1) would not apply. GAAR may also be applied because there appears to be a tax benefit, an avoidance transaction and a misuse of subsection 15(2.1).

Reasons: See above

8 February 2006 External T.I. 2004-0075441E5 - Employment in international traffic

Unedited CRA Tags
Article 14 Canada-Korea Tax Convention 110(1)(f)(i)

Principal Issues: Whether Canada is precluded (by virtue of paragraph 14(3) of the Canada-Korea Tax Convention) from taxing a Canadian resident individual's income from employment in respect of personal services as a pilot aboard an aircraft operated in international traffic by an airline resident in the Republic of Korea ?


Reasons: Paragraph 3 of Article 14 exempts from Canadian tax the remuneration described above of a Canadian pilot.

7 February 2006 External T.I. 2005-0122381E5 F - Consequential assessment

Unedited CRA Tags
152(4.3) 152(4)

Principal Issues: In a situation where a taxpayer requests in writing the carry forward of a loss to a statute barred taxation year, whether the Minister must reassess the tax payable by the taxpayer for the statute barred taxation year pursuant to ss 152(4.3).

Position: Yes.

Reasons: The law.

6 February 2006 External T.I. 2005-0155731E5 - Disability Tax Credit and Care in Nursing Home

Unedited CRA Tags
118.2(2) 118.3(1)(c)

Principal Issues: Whether the Disability Tax Credit may be claimed where the cost of nursing home care is also claimed as a medical expense.

Position: Question of Fact

Reasons: Where the reason for residing in a nursing home has met the conditions of paragraph 118.2(2)(e), the disability tax credit will not be denied solely because the residence qualifies as a nursing home.

6 February 2006 External T.I. 2004-0080131E5 - War Veterans Pension from Australia

Unedited CRA Tags
81(1)(e) 81(1)(d) Canada-Australia Convention, Article 18

Principal Issues:
Whether war veteran pension received from Australia by a resident of Canada is taxable in Canada.

Not enough information to give a definitive answer.

Reasons: Article 18 of the Canada-Australia treaty does not provide any exemption. However, the pension payment will be exempt from tax in Canada if it meets the requirements in paragraph 81(1)(e).

6 February 2006 External T.I. 2005-0156291E5 - Cogeneration System and Class 43.1

Unedited CRA Tags
Class 43.1 Reg 1104(13)

Principal Issues: Whether a proposed cogeneration facility will qualify for inclusion in Class 43.1

Position: General comments provided

3 February 2006 External T.I. 2005-0147101E5 - Child Care Expenses

Unedited CRA Tags

Principal Issues: Whether grandparents can claim child care expenses in a situation where their daughter and her children are living with and supported by them.

Position: It is possible.

Reasons: Each child can be considered an eligible child of a grandparent and the daughter can be considered a supporting person. Because the daughter is attending a designated educational institution, provided all other requirements of the provisions pertaining to the deductibility of child care expenses are met, the expenses may be claimed by the higher income earner which is a grandparent.

2 February 2006 External T.I. 2005-0152871E5 F - Crédit d'impôt pour emploi à l'étranger

Unedited CRA Tags

Principal Issues:
Dans le cadre de son emploi, un employé supervise, dans un pays étranger, trois projets de construction dont l'un est financé partiellement par un programme d'aide au développement international visé à l'article 3400 du Règlement.
Si les conditions prévues à l'alinéa 122.3(1)b) de la Loi sont respectées, l'employé pourra-t-il bénéficier du CIEÉ sur la partie de son revenu d'emploi raisonnablement attribuable aux deux projets sur trois qui ne sont pas financés par un programme d'aide au développement international?


Interprétation de la Loi.

2 February 2006 External T.I. 2005-0127351E5 F - Fiducie révocable -Prêt authentique

Unedited CRA Tags

Principales Questions: Voir ci-dessous.

Position Adoptée: Voir ci-dessous.

Raisons: Voir ci-dessous.

1 February 2006 External T.I. 2005-0154061E5 - taxable benefits; discount; fitness

Unedited CRA Tags

Principal Issues: whether taxable benefit where employer arranges for third party to provide discounted fitness passes to group of employees and employer does not absorb discount; the amount of the discount depends on the size of the group

Position: no

Reasons: the employer is not absorbing any costs relating to the discount; the benefit is merely that the employer "bundles" the employees together so that they can obtain a group discount offered by a third party and would be at most a de minimus benefit


7 October 2005 Roundtable, 2005-0141081C6 F - REÉR-Placement admissible dans une société privée

Unedited CRA Tags

Principales Questions: Si une fiducie régie par un REÉE souscrit à des actions d'une société de portefeuille avant que cette dernière acquière les actions d'une société exploitant une petite entreprise, le placement de la fiducie est-il un placement admissible au sens du paragraphe 4900(12) du Règlement?

Position Adoptée: Non

Raisons: Au moment où la fiducie régie par le REÉR acquiert les actions de la société de portefeuille, cette dernière n'est pas une société exploitant une petite entreprise.