Income Tax Severed Letters - 2006-04-28

Principal Issues:
Calculating the "eligible amount" of a tax receipt for a "Texas Hold'um" poker fund raising tournament in accordance with, proposed subsection 248(31) of the Income Tax Act (the "Act").

Position:
The methodology used is consistent with the approach taken in Income Tax Technical
News No. 26, dated December 24, 2002, and proposed subsection 248(31) of the Act.

Reasons:
In calculating the "eligible amount" of a tax receipt issued for a fund raising event, such as a "Texas Hold'um" poker tournament for the purposes of proposed subsection 248(31), the amount of the "advantage" allocated to each participant will include the total prize money divided by the number of participants and an amount equal to what a participant would pay to play in a similar "Texas Hold'um" poker tournament that is not sponsored by a charity.

Principal Issues:
Does subsection 80.4(1) of the Income Tax Act apply to deem a benefit to employees under the group housing benefit plan?

Position:
Question of Fact. Subsection 80.4(1) applies however, the deemed benefit calculated is nil.

Reasons:
The employee is receiving the loan because of or as a consequence of their current employment however, the employee is paying interest at the federal prescribed rate.

Principal Issues: Does our interpretation in document A (see below), that the consideration from the sale of an interest in revenue generated from certain contracts was capital in nature, contradict our interpretations in documents B, C, and D (see below), that a right to receive income, in and by itself, would not be considered capital property.

Position: No.

Reasons: The facts in the document A supported the conclusion that the sale of an interest in revenue generated from certain contracts was capital in nature.

Principal Issues: 1. Does subsection 127.53(2) apply to require the basic exemption for the short taxation year of the trust ending on the distribution of the trust assets to be shared with other trusts created by contributions of the same contributor?
2. If the basic exemption for the short taxation year of the trust ending on the distribution of the trust assets is required to be shared with other trusts having a common contributor, would the trustee able to amend the allocation submitted with the testamentary trust returns for their taxation year ending on April 25, 2006 (assuming that the original allocation filed with those returns did not contemplate that the trust in question would be wound up in 2006), to allow a portion of the basic exemption to allocated to the short taxation year for the trust that is winding up?
3. Assuming that the basic exemption for the short taxation year of the trust ending on the distribution of the trust assets is not required to be shared among the other 2006 taxation years of the trusts with a common contributor, is the basic exemption for that taxation year prorated because of its short taxation year?
4 Would our response be different if the testamentary trust wound up in 2007 instead of 2006?

Position: 1. Yes. 2. Yes, provided the relevant returns are not statute barred. 3. No. 4. Essentially, no.

Reasons: 1. The allocation of the $40,000 basic exemption required by subsection 127.53(2) is required for each taxation year ending in a particular calendar year. See 104(23)(b) and 249(1) and (2) for comments on the naming conventions used for taxation years.
2. Informal consultations with IPPRD. In addition, this position is consistent with the revisions permitted to the basic exemption allocation among associated corporations as set out in ¶30 of IT-73R6.
3. There is no provision in the Act which would require the basic exemption described in subsection 127.53(1) to be prorated for the trust's short taxation year.
4. If the trust were wound up in 2007 such that it had one taxation year ending in 2006 and one ending in 2007, the basic exemption for 2006 would be allocated among the 3 taxation years ending in 2006 and the basic exemption for 2007 would be allocated among the 3 taxation years ending in 2007.

Principal Issues: 1. Can paragraph (b)(v) of the definition of "disposition" apply if the bare trust has only one beneficiary?
2. Does a disposition arise when a bare trustee distributes the property back to the settlor\beneficiary who contributed the property to the trust?

Position: 1.Yes 2. No

Reasons: 1. Subsection 33(2) of the Interpretation Act, R.S.C. 1985 (5th supp.) c. 27, provides that words in the singular include the plural and words in the plural include the singular. Thus, when a bare trust only has one beneficiary, the reference to "all the beneficiaries" in 104(1) and (b)(v) of the definition of "disposition" would refer to the sole beneficiary.
2. Although paragraph (b)(v) of the definition of "disposition" would apply, paragraph (e) of the definition of "disposition" would presumably also apply in that the transfer back to the settlor would be a transfer which did not involve a change of beneficial ownership. Since paragraph (e) of the definition of "disposition" in 248(1) is not one of the provisions for which a bare trust is recognized as a trust under 104(1), then the exceptions in (e) of the definition of "disposition" in 248(1) under which the disposition would be recognized would not apply.