Income Tax Severed Letters - 2006-06-02

Ruling

2006 Ruling 2006-0168701R3 - sale of assets; shareholder/key employee bonuses

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 shareholder/managers as a deductible bonus.

Position: Yes

Reasons: The company is a CCPC paying bonuses to active shareholder/key employees who are residents of Canada to reduce the CCPC's income from the Business and the asset sale to a nominal amount.

2006 Ruling 2006-0172201R3 - XXXXXXXXXX Single wing Butterfly Distrib.

Unedited CRA Tags
55(3)(b)

Principal Issues: Single wing butterfly distribution of property on a net asset basis.

2006 Ruling 2005-0163541R3 - Health Care Expense Account

Unedited CRA Tags
6(1)(a)

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 to the employees.

Reasons: Consistent with IT-529 and previous rulings.

Ministerial Correspondence

23 May 2006 Ministerial Correspondence 2006-0180961M4 - Deduction from Income

Unedited CRA Tags
8(1) 20(1)

Principal Issues: Whether a deduction from income is available to parents that support income of their child with monetary gifts.

Position: No

Reasons: No such deduction available under Section 8 or 20 of the Income Tax Act.

Technical Interpretation - External

31 May 2006 External T.I. 2006-0168181E5 - Deceased Shareholder's Bonus

Unedited CRA Tags
70(1) 70(2)

Principal Issues: What are the tax implications of the receipt of a bonus by the estate of the deceased shareholder of the corporation?

Position: Question of fact.

Reasons: Where the employer has a contractual obligation to pay a bonus annually or on some other periodic basis, but the bonus for the period has not been declared as of the date of death, the amount is considered to be a periodic payment of remuneration taxable under subsection 70(1) of the Act.

31 May 2006 External T.I. 2005-0161311E5 - Wellness Spending Accounts

Unedited CRA Tags
6(1)

Principal Issues: Tax implications of various flexible benefits programs.

Position: Question of Fact.

Reasons: General information provided.

31 May 2006 External T.I. 2006-0185481E5 F - Remboursement de dépenses et allocations

Unedited CRA Tags
6(1)b)
Summary Under
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(b) - Subparagraph 6(1)(b)(vii)
premiums to cover additional personal costs of travel do not come within the s. 6(1)(b)(vii) exception

Principales Questions: Quel est le traitement des éléments suivants pour des employés qui voyagent dans l'accomplissement de leurs fonctions:
(1) Des allocations pour frais de subsistance calculées à même les taux établis par le Secrétariat du Conseil du Trésor;
(2) Une prime d'éloignement de 35$ par nuitée;
(3) Une prime de fin de semaine de 100$ par jour pour un employé qui est en attente à l'extérieur de la région durant une fin de semaine;
(4) Des indemnités pour les heures de déplacement pour les employés payés à l'heure;
(5) Le remboursement des frais d'hébergement engagés par les employés qui sont en déplacement dans l'accomplissement de leurs fonctions.

Position Adoptée: (1) Non imposable.
(2) À inclure dans le revenu de l'employé à titre d'allocation pour frais personnels et de subsistance.
(3) Voir le point 2 ci-dessus.
(4) À inclure dans le revenu tiré d'une charge ou d'un emploi.
(5) Un remboursement de dépenses n'est pas imposable à moins qu'il soit versé pour payer les frais personnels de l'employé.

Raisons: Loi de l'impôt sur le revenu.

29 May 2006 External T.I. 2005-0153771E5 - Venture Capital Corporation

Unedited CRA Tags
53(2)(k)(i)(C) 12(1)(x) 40(2)(i)

Principal Issues: Do provincial tax credits received by a taxpayer in respect of the acquisition of shares of a venture capital corporation reduce the adjusted cost base of the shares?

Position: No.

Reasons: Where government assistance is in respect of capital property other than depreciable property, paragraph 53(2)(k) of the Act generally provides for a reduction to the adjusted cost base of the property by the amount of the assistance received. However, clause 53(2)(k)(i)(C) of the Act provides an exception for "the amount of prescribed assistance that the taxpayer has received or is entitled to receive in respect of, or for the acquisition of, shares of a prescribed venture capital corporation..."

29 May 2006 External T.I. 2006-0167031E5 F - Location automobile

Unedited CRA Tags
6(2)
Summary Under
Tax Topics - Income Tax Act - Section 6 - Subsection 6(2) - Element E
deposit that is unconditionally refundable at conclusion of the car lease does not affect the standby charge

Principales Questions: Est-ce qu'un dépôt remboursable à la fin de la location sans aucune condition doit être considéré dans l'avantage automobile de l'employé et si oui, de quelle manière?
Whether a lump-sum lease payment that is refundable in full without conditions at the end of the lease has to be included by the employee in the calculation of the standby charge on his automobile. If yes, how?
- Car lease ( calculation of a standby charge on an automobile)

Position Adoptée: non

29 May 2006 External T.I. 2005-0160581E5 - Retirement of a partner

Unedited CRA Tags
96(1.1) 53(2)(c)(v) 53(1)(e)(i)

Principal Issues: 1. Whether an allocation to a retired partner of a share of the partnership's work in progress, all in accordance with the partnership agreement is the type of agreement contemplated in 96(1.1)?
2. Whether drawings taken before ceasing to be a partner would be taken under an agreement contemplated in 96(1.1)?

Position: In both instances - insufficient information to conclude. General comments provided.

Reasons: These matters involve questions of fact. Best addressed when all the relevant facts are available.

29 May 2006 External T.I. 2005-0160891E5 - Incorporating a partnership

Unedited CRA Tags
125(7) 245(2)

Principal Issues: 1. Whether a non-compete clause between the professional, the professional corporation and Newco that operated for the duration of contract for services would cause a business to be a "personal services business".
2. Whether remunerating professional corporations on the basis of an estimate of the value of services that they will provide in a month and discretionary dividends would cause a business to be a "personal services business" or raise other concerns.

Position: 1. Insufficient information to conclude. However, the competition restrictions are one indicator that the incorporated employee [i.e., the incorporated professional] would reasonably be regarded as an officer or employee of the corporation to whom services were ultimately provided. Depending on all of the relevant facts, this could result in a determination that the professional corporation is carrying on a personal service business.
2. Insufficient information to conclude. General comments given re: fees. No position regarding the discretionary shares. Should be considered in the context of a ruling request.

Reasons: Reading of the legislation.

29 May 2006 External T.I. 2006-0175831E5 - Executive Medical

Unedited CRA Tags
118.2(2)(a)

Principal Issues: Whether the cost of an executive medical in the form of a comprehensive health assessment or an executive health and lifestyle assessment is qualifying medical expenses for purposes of paragraph 118.2(2)(a)

Position: Yes, to the extent that services rendered under the executive medical was performed by a medical practitioner and the services relates to the diagnosis, treatment or prevention of disease

Reasons: The costs of health care services qualify as a medical expense for purposes of the medical expense tax credit if the services relate to the diagnosis, treatment or prevention of disease and the services are performed by a medical practitioner or nurse acting within the scope of their professional training.

29 May 2006 External T.I. 2006-0179011E5 - Education Tax Credit

Unedited CRA Tags
118.6

Principal Issues: Clarification of issues concerning the education tax credit

Position: General comments provided

Reasons: General interpretation of the Income Tax Act

29 May 2006 External T.I. 2005-0131701E5 F - Durée de l'exercice d'une société

Unedited CRA Tags
249(3) 249.1 249.1(1) 249.1(3)
Summary Under
Tax Topics - Income Tax Act - Section 249.1 - Subsection 249.1(3)
s. 249(3) did not preclude a 53 week fiscal period covering 3 calendar years

Principales Questions: Quelle est la durée de l'exercice d'une entreprise ou d'un bien d'une société qui débute le 31 décembre 1996 et se termine le 3 janvier 1998?

Position Adoptée: Pour l'établissement d'une cotisation en vertu de la Loi de l'impôt sur le revenu, l'exercice de l'entreprise ou du bien de la société se termine le 3 janvier 1998 et l'exercice subséquent débute le 4 janvier 1998. Pour certaines circonstances précises, l'exercice de la société sera réputé se terminer le 31 décembre 1997.

Raisons: Loi de l'impôt sur le revenu.

29 May 2006 External T.I. 2006-0165971E5 - Meal Allowances

Unedited CRA Tags
6(1)

Principal Issues: Whether a $25 meal allowance paid every two weeks for meals expenses incurred due to extended shifts results in a taxable benefit.

Position: No.

Reasons: It meets the CRA's general position that a taxable benefit does not result where: (a) the employee works three or more hours of overtime right after his or her regularly scheduled hours of work, and (b) the overtime is infrequent and occasional in nature (less than three times a week).

26 May 2006 External T.I. 2006-0167041E5 - Employment income of status Indian

Unedited CRA Tags
81(1)(a)

Principal Issues: Would the employment income of certain status Indian individuals be sufficiently connected to a reserve to be tax-exempt?

Position: No

Reasons: None of the Guidelines is met. Furthermore, the extenuating circumstances that created additional connecting factors in certain other limited situations do not exist here.

2006-016704
XXXXXXXXXX Renée Shields
(613) 948-5273
May 26, 2006

25 May 2006 External T.I. 2005-0164991E5 - Employer-provided vehicle

Unedited CRA Tags
6(6) 6(2) (6)(1)(e) 6(1)(k)

Principal Issues: Whether the distance driven by an employee between a special work site or remote work location and his or her principal place of residence, are considered personal use for the purpose of computing a standby charge and operating benefit in respect of an employer-provided vehicle?

Position: No, provided all the conditions specified under subsection 6(6) are met.

Reasons: Where all the conditions set out in subsection 6(6) are met transportation benefits or allowances in respect of expenses incurred for travel between an employee's principal place of residence and a special work site or remote work location are also excluded from employment income, this includes for the purposes of computing a standby charge and operating benefit.

16 May 2006 External T.I. 2005-0155251E5 F - Dépenses de vêtements - travailleur indépendant

Unedited CRA Tags
18(1)b) 18(1)h) 20(1)a)
Summary Under
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(h)
CCA cannot be claimed for suits of business person

Principales Questions: En l'espèce, le contribuable peut-il soit déduire le coût de vêtements (un habit) de son revenu d'entreprise ou alternativement, peut-il réclamer un montant à titre de la déduction pour amortissement à l'égard du coût des vêtements?

Position Adoptée: Non. Il s'agit d'une dépense personnelle ou de subsistance aux termes de l'alinéa 18(1)h) de la Loi de l'impôt sur le revenu.

Raisons: Loi de l'impôt sur le revenu.

Technical Interpretation - Internal

31 May 2006 Internal T.I. 2006-0177961I7 - Non-Competition Payments

Unedited CRA Tags
56.4 6(1)(a) 6(3) 14

Principal Issues: Whether a non-competition payment is taxable to the recipient in the particular situation.

Position: It appears the payment may be considered an "eligible capital amount" for the purposes of section 14 of the Act.

Reasons: Legislation at the time of the payment and jurisprudence.

25 May 2006 Internal T.I. 2006-0172181I7 - Medical Expenses; Nursing Home and Attendant Care

Unedited CRA Tags
118.2(2)(b) 118.2(2)(b.1) 118.3

Principal Issues: Does the $10,000 limit found in paragraph 118.2(2)(b.1) for attendant care apply only on an individual payer basis (i.e., to each person paying for attendant care), or does it apply to restrict the total of all claims made for attendant care in respect of a particular patient to $10,000?

Position: Each person who is entitled to claim a medical expense tax credit in respect of the cost of attendant care provided to a particular patient under paragraph 118.2(2)(b.1) may claim up to $10,000.

Reasons: The wording of paragraph 118.2(2)(b.1).

25 May 2006 Internal T.I. 2006-0174951I7 - Investment Allowance - Leases

Unedited CRA Tags
181.2(4)(c) 181.2(3)

Principal Issues: Whether a taxpayer is entitled to an investment allowance under paragraph 181.2(4)(c) with respect to a direct financing lease.

Position: Depends on whether the indebtedness under the lease constitutes a note or similar obligation of another corporation within the meaning of paragraph 181.2(4)(c).

Reasons: Based on the terms of the lease agreements provided, it is our view that the indebtedness under such agreements constitutes a note or similar obligation of another corporation within the meaning of paragraph 181.2(4)(c) of the Act. Accordingly, the taxpayer is entitled to claim an investment allowance in respect of the indebtedness.

18 May 2006 Internal T.I. 2005-0162821I7 F - Imposition - article 1619 du Code civil

Unedited CRA Tags
12(1)c)
Summary Under
Tax Topics - Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(c)
additional indemnity awarded under CCQ Art. 1619, computed by applying an interest rate to damages award, was interest
Words and Phrases
interest

Principales Questions: Un montant versé en vertu de l'article 1619 du Code civil du Québec est-il imposable?

Position Adoptée: Oui

Raisons: Il s'agit d'un montant imposable en vertu de l'alinéa 12(1)c).

12 May 2006 Internal T.I. 2006-0184781I7 F - Montant forfaitaire reçu en vertu de 56(1)v)

Unedited CRA Tags
110.2 122.5 122.6 56(1)v)
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 110.2 - Subsection 110.2(1) - Qualifying Amount
lump sum workers’ compensation payments were not qualifying amounts
Summary Under
Tax Topics - Income Tax Act - Section 122.5 - Subsection 122.5(1) - Adjusted Income
deductibility of s. 56(1)(v) inclusions under s. 110(1)(f) did not detract from inclusion in adjusted income
Summary Under
Tax Topics - Income Tax Act - Section 122.6 - Adjusted Income
lump sum workers' compensation payments were deductible under s. 110(1)(f), but not deductible from adjusted income

Principales Questions: (1) L'article 110.2 de la Loi de l'impôt sur le revenu s'applique-t-il aux sommes forfaitaires reçues aux termes de l'alinéa 56(1)v) de cette loi?
(2) L'inclusion de ces sommes dans le revenu du contribuable pour l'année où elles sont reçues donnera-t-il lieu à une réduction du Crédit d'impôt pour taxe sur les produits et services et de la Prestation fiscale pour enfants?

Position Adoptée: (1) Non. L'article 110.2 ne s'applique pas lorsqu'un montant peut être déduit en vertu de l'alinéa 110(1)f) de la Loi de l'impôt sur le revenu.
(2) Oui. Les montants du Crédit d'impôt pour taxe sur les produits et services et de la Prestation fiscale pour enfants sont fonction du "revenu rajusté" et du "revenu modifié" respectivement, concepts qui se basent sur le revenu net et non sur le revenu imposable.

Raisons: Loi de l'impôt sur le revenu. La jurisprudence.

9 May 2006 Internal T.I. 2006-0175551I7 F - Traitement fiscal d'un montant forfaitaire

Unedited CRA Tags
6(1)a) 6(1)f) 8(1)n) 39(1)a)
Summary Under
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(f)
lump sum received in settlement of entitlement to future disability benefits was not taxable under s. 6(1)(f), as was forgiveness of obligation to repay disability overpayments
Summary Under
Tax Topics - Income Tax Act - Section 39 - Subsection 39(1) - Paragraph 39(1)(a) - Subparagraph 39(1)(a)(iii)
lump sum received in settlement of entitlement to future disability benefits was non-taxable s. 39(1)(a)(iii) receipt
Summary Under
Tax Topics - Income Tax Act - Section 6 - Subsection 6(15)
forgiveness of rehabilitation loan was taxable

Principales Questions: Quel est le traitement fiscal à accorder à la somme forfaitaire correspondant à chacun des éléments suivants:
(1) la valeur actuelle du droit du contribuable de recevoir des prestations futures;
(2) la remise d'une portion des prêts pour réadaptation;
(3) la remise d'une portion des trop-payés des prestations d'assurance invalidité.

Position Adoptée: (1) La portion du montant forfaitaire correspondant à la valeur actuelle du droit du contribuable de recevoir des prestations futures est un paiement en capital non imposable.
(2) La portion remise des prêts pour réadaptation représente un avantage imposable à être inclus dans le revenu du contribuable tiré d'une charge ou d'un emploi.
(3) La portion remise des trop-payés des prestations d'assurance invalidité a un traitement fiscal neutre puisque les trop-payés furent initialement inclus dans le revenu du contribuable tiré d'une charge ou d'un emploi.

Raisons: Loi de l'impôt sur le revenu. La jurisprudence.

9 May 2006 Internal T.I. 2006-0176371I7 F - Bourses d'études ou d'entretien

Unedited CRA Tags
56(1)n) 56(3)
Summary Under
Tax Topics - Income Tax Act - Section 56 - Subsection 56(1) - Paragraph 56(1)(n)
payments (made by application against student loans) were “given to students who need financial assistance to continue their education” and, thus, were bursaries
Words and Phrases
bursary
Summary Under
Tax Topics - General Concepts - Payment & Receipt
bursaries “received” by students even though required to be applied directly to their loans

Principales Questions: (1) Quel est le traitement fiscal accordé aux bourses d'études versées aux étudiants québécois dans le cadre du programme québécois des prêts et bourses?
(2) Un étudiant peut-il être considéré comme ayant reçu une bourse d'études malgré le fait que le montant de la bourse ne lui est jamais remis en main propre?

Position Adoptée: (1) En l'espèce, un étudiant qui reçoit une bourse dans le cadre du PQPB doit l'inclure dans son revenu aux termes de l'alinéa 56(1)n) de la Loi de l'impôt sur le revenu, sous réserve de l'exemption du paragraphe 56(3).
(2) Oui.

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

3 May 2006 Internal T.I. 2005-0133341I7 F - Cours normal des activités de l'entreprise

Unedited CRA Tags
112(2.1)
Summary Under
Tax Topics - Income Tax Act - Section 112 - Subsection 112(2.1)
s. 112(1) applies to dividends received through partnership/whether venture capital firm received such dividends in ordinary course turned on similarity of this with its other investments
Words and Phrases
ordinary course of the business

Principales Questions: Dans une situation particulière donnée, est-ce que les actions privilégiées à terme du capital-actions d'une société (BCO) ont été acquises dans le cours normal des activités de l'entreprise exploitée par une institution financière déterminée (ACO)?

Position Adoptée: Question de fait

Raisons: Dans la mesure où il était démontré XXXXXXXXXX que l'investissement par ACO dans BCO n'a pas un caractère exceptionnel par rapport aux autres investissements qu'elle a effectués, nous serions d'avis que les actions du capital-actions de BCO auraient été acquises dans le cours normal des activités de l'entreprise exploitée par ACO et que le paragraphe 112(2.1) s'appliquerait à la situation donnée. ..