Income Tax Severed Letters - 2006-07-07


2006 Ruling 2006-0175801R3 - App of provisions of Canada-Switzerland Tax Treaty

Unedited CRA Tags
Articles 4(5) and 13(6) of the Canada-Switzerland Treaty

Principal Issues: (1) Whether the CRA will consider Mr. A, a resident alien of Switzerland who chooses to be taxed under the modified forfait taxation regime, to be a resident of Switzerland for the purposes of the Canada-Switzerland Tax Treaty? (2) If so, will the gain on the proposed disposition of his Canco shares be exempt from any Canadian income tax pursuant to Article 13 of the Treaty?

Position: (1) Yes (2) Yes

Reasons: (1) Under the modified forfait taxation regime, all the income received by the resident alien from treaty countries is subject to tax under normal Swiss rules. Therefore, paragraph 5 of Article 4 of the Treaty will not apply. (2) Since paragraphs 4 and 7 of Article 13 of the Treaty do not apply to Mr. A's capital gain on the disposition of his Canco shares, the capital gain is only taxable in Switzerland pursuant to paragraph 6 of Article 13 of the Treaty.

Ministerial Correspondence

21 June 2006 Ministerial Correspondence 2006-0182181M4 - Draft Section 3.1

Unedited CRA Tags

Principal Issues: Concern expressed over the impact of draft section 3.1 of the Income Tax Act.

Position: Finance intends to address the concerns raised prior to the legislation being enacted.

Reasons: There has been extensive public consultation with Finance since release.

19 June 2006 Ministerial Correspondence 2006-0182841M4 - Wage Loss Replacement Plan

Unedited CRA Tags

Principal Issues: Taxability of disability benefits under employer-sponsored wage loss replacement plans

Position: When an employer pays all or a portion of the cost of premiums for such a plan, the amount is not included in the employee's income as a benefit, pursuant to a specific exception in the Act. Should the employee receive periodic payments under the plan because of a disability, they are taxable as employment income in the year received. However, the employee can deduct all the contributions he or she made to the plan in that year and in previous tax years if they have not already been deducted from benefits previously received. The gross amount of the benefit received under a plan is reported in box 28 of a T4A slip the employee receives. The amount the employee reports on line 104 of his or her tax return is the gross amount of the benefit less the contributions.

Reasons: Paragraph 6(1)(f) of the Act and IT-428

Technical Interpretation - External

29 June 2006 External T.I. 2006-0180221E5 - BONDS AT A PREMIUM

Unedited CRA Tags

Principal Issues: Does a bond purchased on the open market at a premium result in a capital loss when the bond matures or is the premium a reduction of the interest income in that year?

Position: Capital loss in the year bond matures or is disposed.

Reasons: Position in IT-114

29 June 2006 External T.I. 2006-0172341E5 - Motor Vehicle Allowance & SBI Reimbursement

Unedited CRA Tags
6(1)(b)(vii.1) 6(1)(b)(xi) 7306 (ITR)

Principal Issues: Whether a reimbursement of an employee's supplementary business insurance (SBI) will render the payment of a motor vehicle allowance unreasonable for the purposes of subparagraph 6(1)(b)(vii.1) of the Act and cause the allowance to be a taxable benefit for the employee recipient.

Position: No

Reasons: The reimbursement of an employee's SBI insurance premium would not, in and by itself, cause a motor vehicle allowance to be unreasonable.

27 June 2006 External T.I. 2004-0106031E5 - Taxable Income Allocation Rules

Unedited CRA Tags
402(5) 402(3) 402(4)(j)

Principal Issues: How paragraph 402(4)(j) and subsection 402(5) of the Regulations are to be applied in computing the taxable income of a corporation in a province, where the corporation has earned rental revenue from leasing of real property that is not connected with the principal business operations of the corporation.

Position: If the land is not used in connection with the principal business operations of the corporation, the rentals therefrom would be excluded in computing the gross revenue reasonably attributable to the PE in the province the land is situate. Such rentals would also not be viewed as reasonably attributable to PE in another province.

Reasons: Pursuant to subsection 402(3) of the Regulations, where a corporation has a PE in a province and a PE outside of the province, its taxable income earned in the province is deemed to be an amount computed with reference to the gross revenue for the year that is reasonably attributable to the PE in the province. Pursuant to paragraph 402(4)(j), the "gross revenue" that is reasonably attributable to a PE in a province includes gross revenue which arises from leasing land owned by the taxpayer that is situated in that province, and included in computing its income under Part I of the Act. Pursuant to subsection 402(5), "gross revenue" for purposes of subsection 402(3) does not include ..... rentals ..... from property that is not used in connection with the principal business operations of the corporation".

2 June 2006 External T.I. 2006-0178501E5 - Amounts paid to Employee after Death

Unedited CRA Tags
248(1) 56(1)(a)(ii)

Principal Issues: Will an amount paid by an employer in recognition of long service of an employee after his or her death be considered a death benefit or a retiring allowance?

Position: Question of fact, but likely a death benefit in the circumstances

Reasons: wording of the legislation

2 May 2006 External T.I. 2006-0182811E5 - Part X.5 RESP Tax on Accumulated Income Payments

Unedited CRA Tags

Principal Issues: Can the Agency provide any relief from the taxes applied under Part X.5 of the Act?

Position: No.

Reasons: The law is clear and intended to apply to all RESPs that make accumulated income payments.

XXXXXXXXXX 2006-018281

1 May 2006 External T.I. 2005-0149261E5 - SDA versus RCA

Unedited CRA Tags

Principal Issues: Whether a proposed employee incentive plan would be considered an RCA or an SDA?

Position: Question of fact

Reasons: The purpose for which a plan was established must be determined.

27 April 2006 External T.I. 2005-0149321E5 - SDA versus RCA

Unedited CRA Tags

Principal Issues: Whether a proposed employee incentive plan would be considered an RCA or an SDA?

Position: Question of fact

Reasons: The purpose for which a plan was established must be determined.

6 April 2006 External T.I. 2005-0144501E5 - Division of a foreign pension

Unedited CRA Tags

Principal Issues: Whether the division of a foreign pension will be recognized such that the recipient will only include half of the gross proceeds of the pension benefits in his income while the other half, which the taxpayer forwards to his former spouse, will be included in her income?

Position: Based on the limited information provided, likely yes.

Reasons: The situation appears to be essentially the same as the situation in the tax case of Carol Ann Walker, wherein the court ruled the division of the pension benefits should be recognized since this was the intention of the parties.

15 March 2006 External T.I. 2005-0140101E5 - Survivor benefits received from U.S. employer

Unedited CRA Tags
56(1)(a)(i) 248(1)

Principal Issues: Whether survivor benefits received from U.S. employer are death benefits.

Position: Question of fact. However, since it appears that the benefits are payable from the Basic Plan of the Federal Employment Retirement System (FERS), they are likely pension benefits.

Reasons: It is our position that benefits from a pension plan are excluded from the definition of death benefits.


29 June 2006 Roundtable, 2006-0174011C6 - guarantee and shareholder benefits

Unedited CRA Tags

Principal Issues: Where a corporation guarantees the loan of a shareholder of the corporation, whether the corporation has conferred a benefit on the shareholder?

Position: It is a question of fact.

Reasons: We have no firm guidelines as to when we will assess a benefit.
CRA PUBLICATIONS: question 62 of the 1986 CTF Revenue Canada Round Table; question 24 of the 1991 CTF Revenue Canada Round Table; question 41 of the "Insights Into The 1991 Revenue Canada Round Table Discussion"; question 6 of the 1992 Manitoba Round Table; question 15 of the 1990 APFF.

CALU - Conference for Advanced Life Underwriting (2006)

9 May 2006 Roundtable, 2006-0174121C6 - CALU 2006 Conference Questions and Answers

Principal Issues: Questions regarding group wage loss replacement plans, draft IT-85R3, post retirement health benefits funded by a trust, the meaning of insurance plan for purposes of wage loss replacement plans, and health benefits provided to employees who are shareholders.

Position: See Attached

Reasons: See Attached

9 May 2006 Roundtable, 2006-0174781C6 - CALU-2006 Question 1 - Paragraph 20(1)(e.2)

Unedited CRA Tags

Principal Issues:
The deductibility of premiums under paragraph 20(1)(e.2) of the Income Tax Act as referred to in the questions referred to below.

See the questions and responses referred to below.

Reasons: IT-309R2

CALU - CONFERENCE FOR Advanced Life Underwriting (2006)
Question 1
Determination of Deductible Portion of Premium for a Life Insurance Policy Assigned as Collateral for a Loan

9 May 2006 Roundtable, 2006-0175101C6 - CALU Q2-Paragraph 20(1)(e.2)

Unedited CRA Tags

Principal Issues: Where a partnership borrows money from a restricted financial institution and that the interest on the loan is deductible in computing the partnership's income, whether the partner will be entitled to claim deductions under paragraph 20(1)(e.2) of the Income Tax Act in respect of premiums payable under the life insurance policy

Position: No.

Reasons: One of the requirements for the deduction of premiums under paragraph 20(1)(e.2) is that the interest on the borrowed money be deductible in computing the income of the taxpayer who paid the premiums. In the example above, the interest is deductible by the partnership in computing partnership income by virtue of subsection 96(1), rather than in computing the income of the partner who is paying the premiums.

9 May 2006 Roundtable, 2006-0175121C6 - CALU 2006 Q4 - ACB of Insurance Policy

Unedited CRA Tags

Principal Issues:
Please refer to the question referred to below.

Please refer to the response referred to below.

The interpretation of the definitions, "premium" and "adjusted cost basis" referred to in subsection 148(9) of the Income Tax Act.

CALU -Conference for Advanced Life Underwriting (2006)

Technical Interpretation - Internal

4 July 2006 Internal T.I. 2006-0191501I7 - WCB Lump Sum Payment on Death

Unedited CRA Tags
56(1)(v) Reg. 232

Principal Issues: Are amounts excluded from T5007 reporting by subsection 232(4) of the Regulations worker's compensation for purposes of paragraph 56(1)(v)?

Position: It is the practice of the CRA not to include these amounts in the net income of the recipients.

Reasons: It is our understanding that the purpose of subsection 232(4) of the Regulations is to exclude those amounts from the calculation of income-tested benefits.

27 June 2006 Internal T.I. 2006-0174191I7 - Partnership Wind-Up and Resource Expenditures

Unedited CRA Tags
98(3) 66(15) 66.1

Principal Issues: Taxation of partnership wind-up involving renounced resource expenditures.

Position: General comments provided.

Reasons: Insufficient facts to conclude on this hypothetical scenario.

20 June 2006 Internal T.I. 2006-0189531I7 - Retroactive WCB payments

Unedited CRA Tags
56(1)(v) 110.2

Principal Issues: (1) Should retroactive WCB benefit payments be reported on a T5007 in the year of receipt or in the year to which the benefit relates? (2) Will a retroactive WCB benefit payment be considered as qualifying retroactive lump sum for purposes of section 110.2 of the Income Tax Act.

Position: (1) WCB benefits should be reported on a T5007 in the year of receipt. (2) No

Reasons: Wording of the legislation

14 June 2006 Internal T.I. 2006-0179371I7 - Part XIII Withholding Tax

Unedited CRA Tags
212(1)(d) 212(5)

Principal Issues: Whether paragraph 212(1)(d) or subsection 212(5) of the Act apply to the payment for an option to acquire the motion picture rights in respect of a script and/or the payments made to exercise such option and actually acquire the motion picture rights.

Position: No.

Reasons: Paragraph 212(1)(d) and subsection 212(5) of the Act applies to payments for the use of the property described therein, not to the purchase of such property.

27 April 2006 Internal T.I. 2005-0161401I7 - Deduction of employer RPP contributions

Unedited CRA Tags
20(1)(q) 147.2(1) 67

Principal Issues: Can an employer establish an RPP with an effective date of January 1, make an eligible contribution for past service before April 30 and deduct the contribution as an expense in the previous year

Position: Yes

Reasons: Interpretation of the legislation.