Income Tax Severed Letters - 2006-03-31

Ruling

2006 Ruling 2005-0121481R3 - Deductible Loss - Foreign Affiliate

Unedited CRA Tags
5903 95(2)(f)(iv)

Principal Issues: If a foreign affiliate (Forco) of a Canadian company (Canco) incurred losses in previous years and its shares are transferred to a newly incorporated Canadian subsidiary (Newco) of Canco, will the losses be a "deductible loss" of Forco vis-à-vis Newco under Regulation 5903

Position: In general, yes.

Reasons: In these circumstances, Forco's losses incurred during previous years will be available after the transfer of Forco to Newco.

2006 Ruling 2005-0130401R3 - Patronage dividends

Unedited CRA Tags
135(1) 84(3)

Principal Issues: Whether a distribution to be made by a cooperative corporation to its non-active members based on their member loan balances is an allocation in proportion to patronage for the purposes of section 135.

Position: No.

Reasons: In this case, the non-active members have not conducted any business with the cooperative corporation during the particular year. Accordingly, it is our view that the non-active members are not customers of the cooperative corporation for that particular year for the purposes of section 135.

2006 Ruling 2005-0139631R3 - Private Health Services Plan

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

Principal Issues: Whether (1) a health care expense account offered to employees would qualify as a "private health services plan"; and (2) the allocation of credits linked to a bonus that employees may be entitled to receive in circumstances as described would result in employment income to the employees.

Position: (1) Yes; (2) No.

Reasons: (1) The conditions in the definition of "private health services plan" will be met; (2) the employees are not entitled to a bonus at the time the irrevocable election is made regarding the allocation of credits to the health care expense account.

Technical Interpretation - External

28 March 2006 External T.I. 2005-0145821E5 - Insurer's Investment Income Tax

Unedited CRA Tags
211.1 1401 1408

Principal Issues: Where an insurer is unable to determine the "modified net premium" in respect of universal life insurance policies, can the insurer assume that the amount determined under subparagraph 1401(1)(c)(ii) is nil?

Position: Where an insurer can support it's position that no reasonable amount can be determined under paragraph (b) of the definition of "modified net premium" in respect of its universal life insurance policies, then we will accept that the amount determined under paragraph 1401(1)(c) in respect of those policies is the amount determined under subparagraph 1401(1)(c)(i) for the purposes of computing the insurer's liability under Part XII.3 and its income for purposes of Part I of the Act.

Reasons: Words of paragraph (b) of the definition of "modified net premium" in subsection 1408(1) of the Regulations, state that it applies "in any other case" and accordingly insurers must attempt to provide a reasonable calculation of the "modified net premium" in respect of universal life insurance policies. Where they insurer can satisfy the Minister that there is no reasonable amount that can be determined under paragraph (b) of the definition of "modified net premium" then we are prepared to accept that the insurer may use the amount determined under subparagraph 1401(1)(c)(i), in respect of its universal life insurance policies, to be the amount determined under paragraph 1401(1)(c) for all purposes under the Act.

28 March 2006 External T.I. 2005-0157201E5 - Motor Vehicle Expenses for Self-Employed

Unedited CRA Tags
18(1)(a) 18(1)(h) 18(12)(a)

Principal Issues: Deductibility of expenses to travel from home office by self-employed individual.

Position: Where a self-employed individual, whose home office is their primary place of business, incurs motor vehicle expenses in the course of earning business income, such expenses are deductible subject to other provisions of the Income Tax Act. It is a question of fact whether an individual is self-employed, and is eligible to deduct home office expenses under 18(12) of the Act.

Reasons: Consistent with Agency policy.

23 March 2006 External T.I. 2005-0157521E5 - Tax Treatment of Employee Stock Options

Unedited CRA Tags
7(1)(a) 7(8) 7(10) 153(1)(a)

Principal Issues: 1) How will stock options provided to employees of a Canadian corporation by a XXXXXXXXXX public corporation that was the parent corporation when the options were issued but is no longer related be treated when exercised? 2) How should employees report the stock option benefit? 3) How should they make an election to defer the stock option benefit?

Position: 1) As long as the XXXXXXXXXX corporation has agreed to sell or issue shares, section 7 will apply. 2) The employee must include the benefit as employment income in the year of exercise unless a valid deferral election is made. 3) Written election to the person that would have been required to report the benefit, but for the election to defer, within the timeframe provided in subsection 7(10) of the Act.

Reasons: 1) Subsection 7(1) is clear. 2) The law is clear. 3) Subsections 7(8) and (10).

6 March 2006 External T.I. 2005-0149961E5 - Capital of estate distributed to n/r beneficiaries

Unedited CRA Tags
110(1)(f) 116 248(1)

Principal Issues: Does section 116 of the Act applies to a distribution of property made in satisfaction of the capital interest of the non-resident beneficiaries in an estate?

Position: If the estate is resident in Canada, the capital interest in the estate will be a taxable Canadian property. In case of a distribution by the estate in satisfaction of the capital interest, that taxable Canadian property will be disposed pursuant to the definition of disposition in subsection 248(1) of the Act and section 116 of the Act will apply. The estate will be considered the purchaser for the purposes of subsection 116(5) of the Act.

Reasons: Provisions of the Act like 116 and 248(1). Section 116 does not provide fo treaty exempt status. Information Circular IC 72-17R5.

6 March 2006 External T.I. 2005-0155271E5 F - Disposition d'une participation au capital

Unedited CRA Tags
39 107(1) 107(1.1) 108(1)
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 107 - Subsection 107(2) - Paragraph 107(2)(a)
computation of capital gain, where another taxpayer paid by another beneficiary to surrender his or her capital interest in the estate, based on para. (b) of “cost amount”

Principales Questions: Est-ce que la somme reçue en considération de la disposition des droits au capital d'un bénéficiaire d'une succession en faveur d'un autre bénéficiaire peut amener des conséquences fiscales?

Position Adoptée: Comme nous n'avons pas de renseignements sur le coût indiqué de la participation au capital, nous ne pouvons pas déterminer s'il y a un gain en capital et par conséquent des conséquences fiscales. Commentaires généraux sur le calcul du gain et sur le calcul du prix de base rajusté aux fins de la détermination d'un gain en capital.

Raisons: Le gain sera fonction du prix de base rajusté selon les règles prévues à l'alinéa 107(1)a) de la Loi. Ce prix de base rajusté sera fonction du coût indiqué de la participation au capital qui est fonction du coût indiqué des biens de la succession. Nous n'avons pas les données nécessaires pour déterminer le prix de base rajusté.