Income Tax Severed Letters - 2006-03-10

Ruling

2006 Ruling 2005-0113161R3 - 86(1)

Unedited CRA Tags
86(1)

Principal Issues: Standard estate freeze. No major issues encountered.

2006 Ruling 2005-0163741R3 - ATR-Sale of Assets Shareholder/Manager Bonus

Unedited CRA Tags
67 18(1)(a) 5(1) 78(4)

Principal Issues: Whether the proceeds from the sale of eligible capital property can be paid to the directors as a deductible bonus.

Position: Yes.

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

2005 Ruling 2005-0147181R3 - Reorganization under 132.2

The following document was issued prior to the September 19, 2005 announcement that the provision of advance income tax rulings on income trusts and other flow-through entities would be postponed while the Department of Finance consultations are underway and until the government announces what action it may take.

SUBJECT: Reorganization under 132.2

XXXXXXXXXX

XXXXXXXXXX, 2005

Dear Messrs:

Technical Interpretation - External

7 March 2006 External T.I. 2005-0161891E5 - Equivalent to spouse credit

Unedited CRA Tags
118(1)(b)(i)(B)

Principal Issues: Whether taxpayer can claim equivalent to married credit.

Position: No.

Reasons: Physical separation of less than 3 weeks of one employed spouse from another employed spouse does not mean that the neither live together nor support each other.

7 March 2006 External T.I. 2005-0152041E5 - Foreign Reporting - Life Insurance Policy

Unedited CRA Tags
233.3 94.2 12.2 148

Principal Issues: Whether a particular foreign issued investment contract is a life insurance policy and must the investment be reported on the T1135 in connection with the foreign reporting requirements in section 233.2 of the Act.

Position: Cannot determine the nature of the foreign issued investment contract. General comments provided on the $100,000 cost amount test in section 233.3 as well as the provisions of sections 94.1-94.3, 56, 60, 12.2, 138.1 and 148 which may be relevant to the determination of the taxation of income from the foreign issued investment contract.

Reasons: Nature of the contract is a question of fact and law. We do not have all the necessary information to make such a determination.

7 March 2006 External T.I. 2006-0172881E5 - Application of paragraphs 85(1)(d) and (e)

Unedited CRA Tags
55(3) 85(1)(d) 85(1)(e)

Principal Issues: Does the administrative position described in document number 2001-0073995 concerning the application of paragraphs 85(1)(d) and (e) in the context of divisive reorganizations governed by subsection 55(3) still stand?

Position: Yes.

Reasons: Consistent with previous statements.

7 March 2006 External T.I. 2005-0161621E5 - retiring allowance

Unedited CRA Tags
56(1)(a)

Principal Issues: Questions re retiring allowance.

Position: General discussion.

Reasons: ITA

6 March 2006 External T.I. 2004-0103391E5 - Repayment of salary

Unedited CRA Tags
8(1)(f)

Principal Issues: Whether a person employed as a commission employee selling financial products can deduct amounts paid to a past employer for a commission chargeback and an error on trade against income from a subsequent employer.

Position: No.

Reasons: Paragraph 8(1)(f) of the Act provides for a deduction from income, "where the taxpayer was employed in the year in connection with the selling of property or negotiating of contracts for the taxpayer's employer, and ....amounts expended by the taxpayer in the year for the purpose of earning the income from the employment (not exceeding the commissions or other similar amounts referred to in subparagraph (iii) and received by the taxpayer in the year) to the extent that those amounts were not ...". It is our view that, the references to "the taxpayer's employer" and "the employment" means expenses incurred to earn income from a specific are deductible only from income for that employer

3 March 2006 External T.I. 2005-0154091E5 - Per Diems

Unedited CRA Tags
6(3)

Principal Issues:
Whether the amount received by the retired member of the police for attendance at court, as a witness, is taxable in the year received.

Position:
YES

Reasons: The retired member of the police received an amount in satisfaction of an obligation arising out of an agreement made during a period of employment. The amount is deemed to be remuneration pursuant to paragraph 6(3)(b) of the Act since the obligation to appear in court as a witness, is a covenant within the purview of paragraph 6(3)(e) of the Act.

27 February 2006 External T.I. 2006-0172711E5 - wind-up foreign affiliate into Canadian corp

Unedited CRA Tags
95(2)(E.1) 5907(9)

Principal Issues: Whether paragraph 95(2)(e.1) "applies" where preamble is satisfied but none of the operative provisions could possibly have application.

Position: No

Reasons: Existing view (see E2004-010543

20 February 2006 External T.I. 2006-0165421E5 - International Petroleum Taxation

Principal Issues:
Whether a pipeline constitutes a permanent establishment. Allocation of income and expenses from a single pipeline, which is laid from onshore to offshore, but within the Canadian jurisdiction.

Position: A pipeline may qualify as a permanent establishment. Canada's tax treaties generally follow the general principles described in the OECD Commentaries regarding the attribution of profits.

Reasons: Canada has reserved its right to insert a special article provision regarding the taxation of offshore hydrocarbon exploration and exploitation (see par.52 of the OECD Commentaries to Article 5) and has an offshore article in some of its treaties. In the absence of a special rule regarding the taxation of offshore activities, Canada generally follows the general principles described in the OECD Commentaries regarding the definition of permanent establishment and the allocation of profits.

1 February 2006 External T.I. 2005-0156781E5 - Transfer of retiring allowance - related employer

Unedited CRA Tags
60(j.1)

Principal Issues: Whether an employee's prior service which was bought back for pension purposes can be taken into account in determining the amount of retiring allowance that can be transferred into an RRSP under paragraph 60(j.1).

Position: Yes.

Reasons: Pursuant to subparagraph 60(j.1)(v), a person related to the employer included a previous employer of the employee whose service therewith is recognized in determining the retiree's pension benefits.

31 January 2006 External T.I. 2005-0148772E5 - ACBadj on cap int in unit trust wher XII.2 applies

Unedited CRA Tags
53(2)(h)(i.1) 104(31) 210.2(3) 104(21)

Principal Issues: In the case of a unit trust that is not a MFT that has a beneficiary resident in Canada and a beneficiary not resident in Canada and the trust has designated income under 210(1), is the Canadian beneficiary required to adjust the ACB of his or her units in the trust?

Position: No

Reasons: Provided that the trustee makes designations under subsection 210.2(3) and 104(21) in respect of the beneficiary resident in Canada, the beneficiary's income inclusion under 104(13) and amount designated under 104(21) will equal the full amount of the distribution

24 January 2006 External T.I. 2005-0157581E5 - taxation of CPP death benefits

Unedited CRA Tags
220 56(1)(a.1)

Principal Issues: request for administrative relief

Position: none available

Conference

7 October 2005 Roundtable, 2005-0140991C6 - R&D Credits and Subcontracting

Unedited CRA Tags
127(9) 37(8)

Principal Issues: APFF 2005 Question 7.

Position: See below

Reasons: See below.

7 October 2005 Roundtable, 2005-0141131C6 - SR&ED: Repayable Grants

Unedited CRA Tags
127(9) 37(1)(d)

Principal Issues: APFF 2005 Question 23 - SR&ED - Repayable Grants.

Position: See below.

Reasons: See below.

Technical Interpretation - Internal

3 March 2006 Internal T.I. 2005-0159081I7 - Timing of income inclusion for trust beneficiary

Unedited CRA Tags
104(13) 104(24)

Principal Issues: When must income amounts paid by a trust to a beneficiary be included in computing the beneficiary's income?

Position: The income amounts must be recognized by the beneficiary in the beneficiary's taxation year in which the relevant trust taxation year ends; the relevant trust taxation year being that in which the amounts became payable by the trust to the beneficiary.

Reasons: Paragraph 104(13)(a) of the Act.

3 March 2006 Internal T.I. 2005-0164501I7 - Medical Expenses; Cost of Servicing Modified Van

Unedited CRA Tags
118.2(2) Regulation 5700

Principal Issues: Are maintenance and repair costs relating to a modified van qualifying medical expenses?

Position: No, except to the extent that the servicing relates specifically to a device or equipment listed in 118.2(2) or Regulation 5700. In the particular case, it appears that the cost of servicing the hand controls will be a qualifying medical expense as the hand controls are described in Regulation 5700(n).

Reasons: This is a long-standing position. In general, if the cost of a device itself qualifies for the medical expense tax credit then the cost of maintaining and repairing the device should also qualify. General servicing costs are personal expenses that are not provided for in the Act or Regulations and are not deductible.