Income Tax Severed Letters - 2006-06-09

Ruling

25 April 2006 Ruling 2005-0165031R3 F - Action admissible de petite entreprise

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

Principales Questions: Les actionnaires d'une société peuvent-ils demander l'exonération des gains en capital à l'article 110.6 de la Loi de l'impôt sur le revenu à l'égard d'actions admissibles de petite entreprise?

Position Adoptée: Question de fait.

Raisons: À la lumière des faits qui nous ont été communiqués, il nous est impossible de déterminer avec exactitude si les actions en l'espèce constituent des actions admissibles de petite entreprise.

2006 Ruling 2006-0166731R3 - Indian Band as Public Body

Unedited CRA Tags
149(1)(c)

Principal Issues: Does a particular First Nation qualify as a public body performing a function of government for purposes of paragraph 149(1)(c)?

Position: Yes

Reasons: The First Nation has passed bylaws pursuant to section 81 and 82 of the Indian Act and provides extensive programs and services to its members such as social and economic development programs and capital infrastructure. The First Nation is currently in treaty negotiations and has entered into other agreements with the Crown. It also provides educational services at the primary levels.

XXXXXXXXXX 2006-016673

2006 Ruling 2005-0159071R3 - Indian Band as Public Body

Unedited CRA Tags
81(1)(a)

Principal Issues: Does a particular First Nation qualify as a public body performing a function of government for purposes of paragraph 149(1)(c)?

Position: Yes

Reasons: The First Nation has passed bylaws pursuant to section 81 and 83 of the Indian Act and provides extensive programs and services to its members such as social and economic development programs and capital infrastructure. The First Nation also provides educational services at the pre-school and the primary levels, plus financial assistance for post-secondary level education.

XXXXXXXXXX 2005-015907

2006 Ruling 2005-0163191R3 - Paid-up capital reduction

Unedited CRA Tags
84(2) 84(4.1

Principal Issues: Exchange by a public corporation of limited partnership units for units of a mutual fund trust that also holds an interest in the partnership. Subsequent distribution of the trust units to the shareholders on a reduction of capital. Whether the distribution of the trust units gives rise to a deemed dividend under subsection 84(4.1).

Position: No.

Reasons: The transaction is a transaction described in subsection 84(2). Therefore, the reduction of paid-up capital of the public corporation does not result in the application of subsection 84(4.1)

2006 Ruling 2005-0165001R3 - First Nation as public body

Unedited CRA Tags
149(1)(c)

Principal Issues: Will a First Nation be taxable on income it earns from its participation as the limited partner in a Limited Partnership?

Position: No, such income will be tax-exempt to the First Nation.

Reasons: The First Nation qualifies as a public body performing a function of government within paragraph 149(1)(c) of the Act. As a result, income of the First Nation is exempt from tax.

XXXXXXXXXX 2005-016500

XXXXXXXXXX , 2006

2005 Ruling 2005-0117591R3 - Reorganization of a mutual fund trust

Unedited CRA Tags
132.2 245 253.1

Principal Issues: Whether the proposed transactions to effectively replace a taxable Canadian corporation (Opco) directly and indirectly owned (Holdco) by a mutual fund trust (Fund) with a partnership structure would constitute a misuse of section 132.2 or an abuse of the provisions of the Act read as a whole. (Opco & Holdco amalgamate to form Amalco I. A subsidiary corporation (GPco) 100% owned by Fund will be created. GPco & Amalco I will form a Partnership with Amalco I transferring all former operating assets on a rollover basis. A new mutual fund corporation (Newco) will be created and the Fund will distribute Class A shares acquired to current Fund unitholders so that Newco will meet mutual fund requirements. Fund will then roll it's shares of Amalco I to Newco under s.85(1). Newco & Amalco I will amalgamate to form Amalco II. Fund will use 132.2 to acquire all the assets of Amalco II and become the limited partner of the Partnership. Amalco II will be wound up.)

Position: No

Reasons: The proposed transactions do not involve the type of conversion of a taxable Canadian corporation to a mutual fund corporation that has historically caused us concern. The current corporations are 100% within the mutual fund family and thus the conversion/restructuring is within that family. The desired structure could have been used when the MFT was created.

Technical Interpretation - External

7 June 2006 External T.I. 2006-0168091E5 - Hong Kong pension payments

Unedited CRA Tags
56(1)(a) 60(j)(i)

Principal Issues: Is a Canadian resident taxable on lump sum and periodic payments received from a Hong Kong pension plan relating to periods during which he was a non-resident?

Position: The amounts are taxable as superannuation or pension benefits under subparagraph 56(1)(a)(i) of the Act. An offsetting deduction may be available under subparagraph 60(j)(i) with respect to the lump sum payment from the foreign pension plan.

Reasons: Interpretation of the legislation; consistent with many prior opinions.

6 June 2006 External T.I. 2006-0180081E5 - EPSP minimum contribution

Unedited CRA Tags
144(1) 144(10)

Principal Issues: In a situation in which an employer proposes to establish an employee savings plan wherein the employee can decide whether the employer contribution will be made to an EPSP or to an RRSP, does the minimum employer contribution requirement apply when the employee chooses to direct the employer contribution to the RRSP?

Position: Although we would question whether a valid EPSP has been established, the minimum employer contribution requirement always applies.

Reasons: By definition, an EPSP is an arrangement under which payments are required to be made by the employer to a trustee under the arrangement. As such, where the employee can require the employer to remit the payment to a different arrangement (here, an RRSP), the foregoing requirement will not have been met.

6 June 2006 External T.I. 2006-0187481E5 - Deductibility of RPP contributions

Unedited CRA Tags
20(1)(q) 147.2 8503(3)(a)

Principal Issues: Can a corporation deduct certain RPP contributions in respect of two individuals?

Position: Question of fact.

Reasons: It is unclear whether an employer-employee relationship existed at any time between the corporation and one of the individuals. It is also unclear whether an employer-employee relationship existed for either of them after the corporation ceased business operations

5 June 2006 External T.I. 2006-0175291E5 - Employment Expense - Tool Deduction

Unedited CRA Tags
8(1)(i)(iii) 8(1)(r)

Principal Issues: Whether a deduction is available for the expense incurred for tools used to earn employment income as an industrial electrician.

Position: No

Reasons: Currently, the Income Tax Act does not provide an employee such as yourself a deduction for the cost of tools incurred and used to earn income from employment. However, the 2006 Budget proposes to recognize a deduction for the cost of eligible new tools acquired by an employed tradesperson after May 1, 2006. The deduction will be limited to the lesser of $500 and the amount by which the total cost of new tools acquired in the year exceeds $1,000.

2 June 2006 External T.I. 2006-0174671E5 F - Frais de repas et de logement

Unedited CRA Tags
8(1)
transporting of waste was not the employer’s principal business
Words and Phrases
principal business

Principales Questions: Est-ce que la déduction de 8(1)g) s'applique à des employés (plus précisément à des chauffeurs-opérateurs et chauffeurs-aides) pour un employeur qui œuvre dans le domaine du Pompage et du transport de déchets liquides?

Position Adoptée: La déduction ne peut s'appliquer puisqu'il a été établi que les employés ne travaillent pas pour un employeur ayant comme principale activité le transport.

Raisons: L'alinéa 8(1)g) de la Loi s'applique, entre autres, dans le cas d'une entreprise de transport mais pas dans une entreprise dont l'activité principale est une combinaison de transport et autre activité.

1 June 2006 External T.I. 2006-0172701E5 - Educational Costs

Principal Issues: (1)Whether amounts for tuition fees reimbursed by a professional development fund created under a collective agreement should be included in the taxpayer's income. (2) Whether per diem funding and moving expenses, in respect of courses taken by the union member, should be included in the taxpayer's income.

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

Reasons: (1) Employer related training is a not a taxable benefit. (2) Reasonable travel allowances and moving expenses paid in respect of employment related training are not taxable benefits.

1 June 2006 External T.I. 2006-0174331E5 - Employer Payment Of Union Dues

Unedited CRA Tags
8(1)(i)

Principal Issues: Where due to an administrative error of the employer, an employee's union dues were in arrears and the employer subsequently paid the union dues and included the amount in the employee's income as a taxable benefit, whether the employee in entitled to a deduction for the amount included in employment income.

Position: Yes, if the union dues would have been otherwise deductible in computing the employee's income had they been paid by the employee himself or deducted from the employee's salary and paid by the employer, the employee is entitled to a deduction for the amount paid directly by the employer and included in income as a taxable benefit.

Reasons: Reasonable interpretation of the law. Further, there is currently a legislative proposal to amend paragraph 8(1)(i) of the Act to clarify that an expense described in that paragraph that is paid on an employee's behalf is deductible by the employee if the amount paid is required to be included in computing the employee's income

31 May 2006 External T.I. 2006-0183751E5 - Filing deadline of an individual limited partner

Unedited CRA Tags
150(1)(d)(ii)

Principal Issues: What is the filing deadline of an individual who is a limited partner of a partnership that does not include a rental or farming operation and is not a tax shelter investment?

Position: The filing deadline is June 15 of the following year.

Reasons: In accordance with subparagraph 150(1)(d)(ii) of the ITA, the filing due date for individuals who carried on a business in the year, other than through tax shelter investments, is June 15 of the following year. In the court cases Robinson 98 DTC 6232 (FCA) and Grocott 96 DTC 1025 (TCC), the courts held that limited partners and non-active partners of an active partnerships are still considered to have carried on a business in the year regardless of the particular partners' risk or involvement.

23 May 2006 External T.I. 2004-0107751E5 - Income recognition -income Trust Beneficiary

Unedited CRA Tags
104(6) 104(24) 53(2)(h) 104(13)

Principal Issues: 1. Timing of Income Recognition by Income Trust beneficiary

Position: 1. Depends on facts but guided by previous positions taken by the Agency

Reasons: 2. see IT133 & IT342R

2 May 2006 External T.I. 2005-0112511E5 - Association: shares held in disc trust for minors

Unedited CRA Tags
256(1.2)(f)(ii)

Principal Issues: Does 256(1.2)(f)(ii) apply to beneficiaries with a future conditional right under a discretionary trust as well as to beneficiaries with an immediate conditional right under a discretionary trust?

Position: Yes

Reasons: For the purpose of 256(1.2)(f), a beneficiary is a person who has a right as a beneficiary under common law (and not simply beneficially interested as defined in 248(25)). However the fact that the income is not immediately payable to a particular beneficiary does not preclude that beneficiary from being considered a beneficiary at law under the terms of the trust.

Technical Interpretation - Internal

31 May 2006 Internal T.I. 2006-0181651I7 - Application of Section 67 of the Act

Unedited CRA Tags
67 18(1)(a) 230

Principal Issues: Whether section 67 can be applied to disallow a subcontracting expense where the contractor has failed to provide sufficient information on Form T5018 to allow CRA to adequately identify the recipient.

Position: No.

Reasons: Section 67 cannot be used to disallow an expense to enforce an administrative obligation of a business, such as in this particular case, where section 238 of the Income Tax Regulations requires a construction contractor to file a complete T5018 Summary and T5018 slips in respect of a payment or credit of amounts to subcontractors. Where a taxpayer has failed to file an information return as or when required or fails to comply with a duty or obligation imposed by the Act or the Regulations, subsection 162(7) may impose penalties. As well, where the taxpayer fails to make a reasonable effort to obtain information from another person or partnership, paragraph 162(5)(a) may impose a penalty for failure to provide any information required on a prescribed form made pursuant to the Act or the Regulations.

30 May 2006 Internal T.I. 2006-0175401I7 F - Assurance-vie donnée en garantie

Unedited CRA Tags
15(1)
shareholder benefit where corporate universal life policy is pledged for shareholder loan, with loan plus accumulated interest repaid with cash surrender value of policy on the shareholder’s death
use of policy to secure shareholder loan is not a policy loan

Principales Questions:
Lorsqu'une société donne la valeur de rachat d'une police d'assurance-vie dont elle est propriétaire en garantie d'une marge de crédit de l'actionnaire, doit-on inclure un avantage imposable et à quel moment?

Position Adoptée:
Question qui ne peut être déterminée qu'après un examen des termes du contrat d'assurance-vie, des ententes pertinentes et des liens entre les diverses parties. Toutefois, il peut y avoir des avantages accordés à l'actionnaire ou 245(2) pourrait s'appliquer.

Raisons:
Analyse législative

29 May 2006 Internal T.I. 2006-0171931I7 F - Medical expense tax credit - XXXXXXXXXX

Unedited CRA Tags
118.2(2)(a)
“donation” to medical clinic which treated taxpayer’s son did not qualify as a charitable gift
“donation” to clinic recharacterized as an eligible medical expense

Principal Issues: Whether XXXXXXXXXX provided by a particular clinic qualifies as an eligible medical expense.

Position: Yes.

Reasons: This is a medical service provided by or under the supervision of a medical doctor.

19 April 2006 Internal T.I. 2004-0080731I7 - attribution of FAPI of a 94(1)(c) trust

Unedited CRA Tags
75(2) 94(1)(c)(i)(C)

Principal Issues: 1. Does 75(2) apply in a particular fact situation?
2. If 75(2) applies to attribute an amount of FAPI to the settlor of a trust to which 94(1)(c) applies, is the income to be attributed computed under 91 or 94(1)(c)(i)(C)?
3. If the CFA of the trust incurs a loss, can the loss be used to reduce the amount attributed to the settlor in the previous year (assuming the March 16, 2001 amendments to Regulation 5903 are promulgated in the same form as proposed)?

Position: 1. Yes
2. Section 91
3. Provided that 75(2) applies in the loss year, the amount of the deductible loss can be applied by the taxpayer to whom the income was attributed in the previous year.

Reasons: 1. A Canadian resident who is a capital beneficiary of the trust contributed the common shares of the CFA to the 94(1)(c) trust. Although the trustees took steps to avoid the attribution of 75(2) in years following the initial year, the application of 95(6) would result in the continued attribution of the trust's FAPI to the Canadian resident.
2. The income or loss from property, or taxable capital gains or allowable capital losses from the disposition of property are to be computed in accordance with Division B of Part I of the Act; thus section 91 is the appropriate taxing provision for the contributor. The calculation under 94(1)(c)(i)(C) is not appropriate because 94(1)(c)(i)(C) is a component of the trust's total taxable income and does not necessarily reflect the net income from any particular property.
3. If 75(2) does not apply to the loss year, there is no authority for any taxpayer other than the Trust to claim the Trust's "deductible loss".

27 November 2003 Internal T.I. 2002-0180587 F - Mauvaise créance et taxes de vente

Unedited CRA Tags
20(1)l), 20(1)p), 248(16)
remittance of tax by supplier results in subrogation of the Crown’s claim for the tax
bad debt credit is not an ITC

Principales Questions: Les taxes de vente peuvent-elles être déduites dans le calcul du revenu à titre de provisions pour créances douteuses ou pour créance irrécouvrable?

Position Adoptée: Le fournisseur ne peut pas se prévaloir des provisions pour mauvaises créances et pour créance irrécouvrable.

17 April 2003 Internal T.I. 2003-0009837 - Redemption of Units of Mutual Fund Trust

Unedited CRA Tags
248(1) 104(6)

Principal Issues: Tax consequences arising from redemption of units of a mutual fund trust.

Position: Amounts paid out of income of the trust must be included as income in the hands of the unitholder but such amounts do not form part of the proceeds of disposition for the redeemed units.

Reasons: Wording of paragraph (i) of the definition of "disposition" in s. 248(1) of the Act.