Income Tax Severed Letters - 2006-05-12

Ruling

2006 Ruling 2006-0171471R3 - labour sponsored venture capital corporation

Unedited CRA Tags
204.85

Principal Issues: Whether a series of transactions is a "merger" for purposes of section 204.85

Position: Yes

Reasons: Caselaw, corporate law, and two similar previous rulings given

2006 Ruling 2005-0126261R3 - Taxation of Indian Trust

Unedited CRA Tags
149(1)(c) 75(2) 104(24) 3(a)

Principal Issues: (A) Will subsection 75(2) apply to the particular trust income in the circumstance? (B) Whether income of the trust that is not subject to the provisions of 75(2) will be considered payable to the First Nation and thus deductible pursuant to subsection 104(6)? (C) Does the First Nation qualify as a public body performing a function of government for purposes of paragraph 149(1)(c)? (D) Will the per capita distributions to the members of the First Nation be considered income from a source within the meaning of paragraph 3(a) of the Act?

Position: (A) yes (B) yes (C) yes (D) no

Reasons: (A) The First Nation will be the settlor of the particular trust, directing the impact benefit payments to the trust on behalf of the First Nations. The First Nation, including all its members, is the sole beneficiary and on termination of the trust, all of the trust property will be transferred to the First Nation. (B) To the extent income earned exceeds income realized; the excess shall be irrevocably payable to the First Nation and will be evidenced by a demand promissory note. (C) The First Nation provides and administers a fairly extensive list of public works, social services and infrastructure programs and has passed bylaws pursuant to section 81 of the Indian Act. (D) Consistent with our previous position, the per capita distributions to the First Nation members would not be considered income from a source within the meaning of paragraph 3(a) of the Act.

XXXXXXXXXX 2005-012626

XXXXXXXXXX , 2006

2006 Ruling 2006-0172311R3 - Appl. of s.111(5)(a)(ii) - acquisition of cont.

Unedited CRA Tags
111(5)(a)(ii) 245

Principal Issues: Can non-capital losses of Lossco arising prior to acquisition of control of Lossco by Profitco be offset by income from leasing property transferred from Profitco to Lossco subsequent to acquisition of control?

Position: Question of fact - yes

Reasons: Leasing assets to be transferred from Profitco to Lossco are of the same type that Lossco leased or rented in the leasing business it carried on before the acquisition of control. In addition, the assets to be transferred are similar to those transferred to Lossco in the transaction ruled upon in E 2005-011346.

2006 Ruling 2005-0126281R3 - Taxation of Employment Income of a Status Indian

Unedited CRA Tags
81(1)(a)

Principal Issues: (A) Will employment income earned by a status Indian employee be exempt from income tax pursuant to paragraph 81(1)(a) where the employment duties are performed on reserve? (B) Will employment income earned by a status Indian employee living on reserve, be tax exempt where it is determined that the employer in question is also resident and providing employment training on reserve?

Position: (A) yes (B) yes

Reasons: Under the circumstances, there are sufficient connecting factors to connect the employment income earned to the reserve in both A) and B) above.

XXXXXXXXXX 2005-012628

XXXXXXXXXX , 2006

2006 Ruling 2005-0160521R3 - Provincially established - Public body

Unedited CRA Tags
149(1)(c)

Principal Issues: Would the particular corporation be considered a public body performing a function of government for purposes of paragraph 149(1)(c) of the Act?

Position: yes

Reasons: In the circumstances, the corporation can be considered a public body for the following reasons: (1) it is a non-share capital corporation, established and governed by a specific provincial Act of Parliament; (2) its board of directors consists of individuals who are publicly-elected municipal officials and the remaining directors must be appointed by the Lieutenant Governor in Council of the province; (3) it is accountable to the public on an annual basis; (4) the provincial government is responsible for providing the funding to this organization to allow it to meet its objectives; (5) upon wind-up of the organization, any remaining assets will be returned to the particular municipalities; and (6) the provincial government retains the ultimate power to demand repayment of any remaining funding at any time. In addition, the organization's mandate is to further the provincial promise to promote economic development and social stability in the specific regions - as such, it is performing a function of government for purposes of 149(1)(c).

XXXXXXXXXX 2005-016052

XXXXXXXXXX , 2006

2006 Ruling 2005-0161711R3 - Participating Interest

Unedited CRA Tags
20(1)(c)

Principal Issues: Can the Additional Interest paid or payable be deducted under paragraph 20(1)(c) provided it does not exceed a reasonable amount?

Position: YES

Reasons: IT-533, par 2 - not an equity investment.

2006 Ruling 2006-0170321R3 - Partners Creating Professional Corporations

Unedited CRA Tags
125(7)

Principal Issues: Where a partner of a professional partnership creates a professional corporation through which professional services will be provided to the partnership, will the corporation be eligible for the small business deduction?

Position: Yes.

Reasons: As long as the partner in his or her role of an employee of the professional corporation providing the services of the "professional function" would not, but for the corporation, be considered an employee of the partnership, then the business of the corporation is not a personal services business. Also, provided that the professional corporations are not themselves carrying on business in partnership, there is no specified partnership income. This ruling is the same as previous rulings given.

2006 Ruling 2006-0171011R3 - Withholding - on Loan to a partnership

Unedited CRA Tags
212(1)(b)(vii)

Principal Issues: 1. Are interest payments made by Finco to a Non-resident arm's length person exempt under 212(1)(b)(vii)? 2. Does a disposition of a partnership interest affect the withholding tax exemption available to Finco? 3. Is there a new obligation if a Lender assigns its obligation under the Loan agreement that causes the withholding exemption to cease?

Position: 1. YES 2. No 3. No

Reasons: 1. and 2. Finco is responsible for the loan, 3. Terms of the Loan agreement.

XXXXXXXXXX 2006-017101

2005 Ruling 2005-0113461R3 - Application of 111(5)(e) - acquisition of control

Unedited CRA Tags
245 111(1)(a)

Principal Issues: Are losses available after an acquisition of control?

Position: Question of fact - yes.

Reasons: Legislation

Ministerial Correspondence

28 April 2006 Ministerial Correspondence 2006-0175701M4 - Allowable Capital Losses

Unedited CRA Tags
50(1)(b) 241

Principal Issues: Whether a paragraph 50(1)(b) disposition arises as a result of the issuance of a cease trading order.

Position: This is a question of fact.

Reasons: The issuance of a cease trading order by a securities regulator does not necessarily imply that a company is bankrupt, wound-up, or insolvent and out of business as contemplated under paragraph 50(1)(b) ITA.

Technical Interpretation - External

12 May 2006 External T.I. 2006-0168981E5 - Remote Work Location& Special Work Site Exclusions

Unedited CRA Tags
6(6)

Principal Issues: Whether the exclusions under subsection 6(6) of the Act on employment at remote work location or special work site would apply to an employee who is able to move his or her principal place of residence, a houseboat, to a rented mooring site near the work location.

Position: The remote work location and the special work site exclusions would not apply to the employee in question.

Reasons: The remote work location exclusion would not apply to the employee in question because the employee would be establishing and maintaining a self-contained domestic establishment at the remote work location. The special work site exclusion would not apply to the employee in question because the employee would not be maintaining another self-contained domestic establishment as his or her principal place of residence at another location and furthermore, the employee's principal place of residence would be located at the special work site.

4 May 2006 External T.I. 2005-0160761E5 - Conversion Right - Joint Life Insured

Unedited CRA Tags
148(10)(d)

Principal Issues:
Whether paragraph 148(10)(d) of the Income Tax Act would apply to a joint first to die universal life insurance policy, where the insured has a contractual right to convert from joint first to die coverage into joint last to die coverage.

Position:
The facts provided are insufficient to provide an opinion on the application of paragraph 148(10)(d).

Reasons:
Whether or not a disposition occurs is a question of fact, the exercise of the conversion right is only one factor, all the terms of the insurance policy should be reviewed to determine whether the changes are so fundamental as to go to the root of the policy. If the changes were so fundamental as to go to the root of the contract, there would be a disposition of the policy and the acquisition of a new policy.

3 May 2006 External T.I. 2006-0169531E5 - Employer-paid educational costs.

Unedited CRA Tags
6(1)(a)

Principal Issues: Whether employer-paid educational costs are benefits to employee and deductible to employer.

Position: Question of fact.

Reasons: Income Tax Technical News, No. 13.

3 May 2006 External T.I. 2006-0178491E5 - Spousal RRSP LSF tax credit

Unedited CRA Tags
127.4 146(1)

Principal Issues: Who can claim the Labour Sponsored Fund Tax Credit where a contributor makes a contribution (other than approved LSF shares) to a spousal RRSP and the RRSP trust then acquires LSF shares?

Position: Either the contributor or the annuitant of the spousal RRSP can claim the LSF tax credit but they cannot split the LSF credit.

Reasons: Subsections 127.4(6) and 124.7(2) and definition of qualifying trust in subsection 127.4(1) and spousal trust in subsection 146(1).

3 May 2006 External T.I. 2006-0168351E5 - PHSP

Unedited CRA Tags
248(1) "private health services plan" 118.2(2)

Principal Issues: Is the proposed plan a PHSP?

Position: General comments provided.

Reasons: Insufficient details of plan to provide more than general comments.

28 April 2006 External T.I. 2006-0177891E5 - spousal support

Unedited CRA Tags
56.1(4)) 56(b) 60(b)

Principal Issues: Whether an amount purported to be for spousal support would be deductible if that amount was paid biweekly and derived at by reference to a formula

Position: Question of fact

Reasons: It is necessary to determine if the amounts paid are for the maintenance of the spouse and not for some other purpose.

26 April 2006 External T.I. 2005-0138381E5 - Life Interest and Qualified Farm Property

Unedited CRA Tags
110.6 69(1)(b) 248(1)

Principal Issues:
1) Is a life interest in real property a real property for the purposes of the definition of QFP?
2) Can the taxpayer claim the qualified farm property deduction on the gifting of the life interest to the beneficiaries of the remainder interest in the property?

Position:
1) YES.
2) Question of Fact.

Reasons:
1) The life interest holder and the remainder interest holders own the property in joint tenancy.
2) Where a taxpayer acquires a life interest in real property and the life interest was acquired after 1987, the life interest will qualify as QFP if it meets the farming use test as set out in paragraph (a)(vi) of the definition of QFP.

26 April 2006 External T.I. 2006-0171861E5 - contingent sale of rental property

Unedited CRA Tags
54

Principal Issues: At what point in time does a contingent sale of a rental property take place?

Position: It is a question of law when the disposition of a particular property takes place

Reasons: similar comments given in previous document

24 April 2006 External T.I. 2006-0166041E5 F - Transfert de biens entre époux séparés

Unedited CRA Tags
40(2)b) 54 74.2 74.5(3)

Principales Questions: (1) Quels sont les impacts fiscaux du transfert d'un époux à un autre d'un intérêt dans la résidence principale du couple?
(2) Quels sont les impacts fiscaux du transfert d'un époux à un autre d'un intérêt dans une immobilisation, autre qu'une résidence principale? Qu'en est-il si, au moment du transfert, les époux vivent séparés l'un de l'autre pour cause d'échec du mariage?
(3) Les résultats en (1) et en (2) sont-ils différents si le transfert découle d'un jugement de séparation ou de divorce portant sur le partage des biens des époux?

Position Adoptée: (1) En présumant que le choix stipulé au paragraphe 73(1) n'est pas effectué, le transfert entre vifs d'un intérêt dans la résidence principale du couple se fera à un montant égal au prix de base rajusté de l'intérêt et cet intérêt sera réputé avoir appartenu au cessionnaire pendant la période où elle appartenait au cédant. L'article 74.2 ne s'appliquera pas à ce transfert.
(2) En présumant que le choix stipulé au paragraphe 73(1) n'est pas effectué, le transfert entre vifs d'un intérêt dans une immobilisation se fera à un montant égal au prix de base rajusté de l'intérêt. Lors de la disposition subséquente de l'immobilisation, l'article 74.2 s'appliquera pour attribuer le montant du gain en capital de l'intérêt au cédant. Toutefois, aux termes de l'alinéa 74.5(3)b), il n'y a aucune attribution du gain en capital si les époux, vivant séparés au moment du transfert pour cause d'échec du mariage, effectuent le choix prévu par cet alinéa.
(3) Les règles d'attribution des gains en capital ne s'appliquent pas à la portion du gain en capital attribuable à la période où le bénéficiaire du transfert cesse d'être l'époux de l'auteur du transfert. Dans le cadre d'une séparation, les règles d'attribution des gains en capital ne s'appliqueront pas si les époux font le choix prévu à l'alinéa 74.5(3)b).

Raisons: Loi de l'impôt sur le revenu.

12 April 2006 External T.I. 2005-0156471E5 - U.K. pension not "foreign retirement arrangement"

Unedited CRA Tags
56(1)(a)

Principal Issues: Is U.K. pension excluded from income under 56(1)(a)(i)(C.1)?

Position: No

Reasons: It is not a "foreign retirement arrangement" as defined in Regulation 6803.

7 April 2006 External T.I. 2005-0132981E5 F - Avantages imposables à des employés

Unedited CRA Tags
6(1)b)

Principales Questions: 1. Est-ce que la notion de congrès inclus un colloque, une conférence, une session d'information et une réunion annuelle?
2. Pour les fins de la politique sur l'allocation de repas pour heures supplémentaires, est-ce que les heures de travail supplémentaires comprennent le temps de voyagement de l'employé et son heure de repas?
3. Est-ce qu'une allocation pour frais de garde d'enfants est imposable lorsqu'elle est versée à un employé pour le compenser pour des frais additionnels qu'il aurait encourus à cause de travail supplémentaire à son lieu de travail habituel dans l'établissement de son employeur?

Position Adoptée: 1. Un congrès peut se définir comme une rencontre officielle des membres d'une organisation à des fins professionnelles ou commerciales.
2. Non.
3. Oui.

Raisons: 1. Position de l'ARC énoncée dans le IT-131R2, par. 1;
2. La position de l'ARC énoncée dans le Guide de l'employeur spécifie bien qu'il s'agit d'heures de travail;
3. Dépenses de nature personnelle imposable selon l'alinéa 6(1)b).

7 April 2006 External T.I. 2005-0152801E5 F - Remboursement de frais de scolarité

Unedited CRA Tags
6(1) 15(1) 14 118.5

Principales Questions: (1) Le remboursement de frais de scolarité - incluant les frais d'hébergement et de déplacement - par une société pour le bénéfice de son actionnaire unique - qui est également un employé de la société - constitue-t-il un avantage imposable en vertu des paragraphes 6(1) ou 15(1) de la Loi de l'impôt sur le revenu?
(2) L'ensemble des frais payés par la société sont-ils déductibles de son revenu?

Position Adoptée: (1) Non. Selon les faits, il semble s'agir d'une opération commerciale véritable où la société engage la dépense afin de tirer un revenu d'entreprise.
(2) Les frais de scolarité payés par la société - incluant les frais d'hébergement et de déplacement - représentent une dépense en capital admissible pour celle-ci.

Raisons: Loi de l'impôt sur le revenu; Jurisprudence.

Conference

23 November 2005 Roundtable, 2005-0158741C6 - 2005 TEI Q#11 - Draft ITTN on 95(6)

Unedited CRA Tags
95(6)

Principal Issues: What is the status of the draft Income Tax Technical News on paragraph 95(6)(b)?

Position: On hold

Reasons: Waiting for outcome of appeals before the Tax Court of Canada

Technical Interpretation - Internal

28 April 2006 Internal T.I. 2005-0157441I7 - principal residence

Unedited CRA Tags
40(2) 45(2) 54 220(3.2) and 248(21)

Principal Issues: 1) Is it possible for each of two brothers, who co-own land which has two separate homes, to each claim the principal residence exemption pursuant to paragraph 40(2)(b) in respect of the home they occupy? 2) How does an election pursuant to subsection 45(2) by one of the brothers affect any principal residence exemption?

Position: 1) Yes 2) If a valid election is made, the taxpayer may designate the property as a principal residence for up to 4 years during which the election is in effect

Reasons: 1) The term housing unit mentioned in the definition of "principal residence" in section 54 has been broadly interpreted such that two units on the same property can be separate principal residences. 2) A valid election pursuant to subsection 45(2) deems there to be no change of use when a taxpayer converts a housing unit, that is his principal residence, into a rental property.

26 April 2006 Internal T.I. 2006-0167011I7 - transfer of farm property

Unedited CRA Tags
73(3) 110.6(1)

Principal Issues: Whether the transfer of farm property from father to a corporation as bare trustee for his children qualifies for a transfer of farm property pursuant to subsection 73(3) of the Income Tax Act

Position: Yes

Reasons: Meets the requirements of that provision

6 April 2006 Internal T.I. 2005-0157361I7 F - Pension alimentaire

Unedited CRA Tags
56.1(4) 60(b)

Principales Questions: Est-ce qu'une pension alimentaire pour enfants versée à un bénéficiaire résidant à l'étranger conformément à une ordonnance d'un tribunal émise le XXXXXXXXXX est déductible par le payeur?

Position Adoptée: Non.

Raisons: Un payeur n'a pas le droit de déduire les paiements faits pour subvenir aux besoins des enfants du bénéficiaire si les montants sont payables en vertu d'une ordonnance d'un tribunal rendue ou un accord écrit établi après avril 1997.
Les mêmes dispositions s'appliquent que le bénéficiare soit résident du Canada ou non.

24 November 2005 Internal T.I. 2004-0082571I7 - Computation of Insurer's CRL

Unedited CRA Tags
Reg 2400

Principal Issues: 1) Is an insurer's "Reserves for Reinsurance Ceded to Unregistered Insurer's" to be included in the computation of CRL?
2) Is an insurer's "Due to Reinsurer" to be included in the computation of CRL?

Position: 1) Yes.
2) Yes, to the extent the components of the "Due to Reinsurer" account have at least an indirect link to the insurer's insurance policies in Canada.

Reasons: 1) Victory Reinsurance Company Limited v. MNR (92 DTC 1869)
2) Court's analysis in Victory Re and Munich Reinsurance Company (Canada Branch) v. MNR (91 DTC 1137), as to the link required between the liability or reserve of the insurer and the insurer's insurance policies in Canada, our understanding of tax policy behind the definition of CRL and computation of a non-resident insurer's income for tax purposes.