Income Tax Severed Letters - 2006-07-14

Ruling

2006 Ruling 2004-0105021R3 - bituminous sands in-situ - 1 project

Unedited CRA Tags
Reg. 1104(7)(c) and 1100(1)(y) to (ya) Reg. 1101(4c) and (4d) Reg. 1102(8) and (9) Classes 28 and 41

Principal Issues: Whether all of the wells for the extraction of material from the deposit of bituminous sands included in XXXXXXXXXX constitute one project, and will be deemed to be one mine pursuant to paragraph 1104(7)(c) of the Regulations.

Position: Yes.

Reasons: Based on the facts of the situation and a written opinion received from Natural Resources Canada dated XXXXXXXXXX . A representative of that Department visited the site and reached the conclusion that supported the above position.

2006 Ruling 2005-0142471R3 - Amalgamation of NPOs

Unedited CRA Tags
149(1)(l)

Principal Issues: 1. NPO1 and NPO2, which carry on similar non-profit activities and share many of the same members, wish to amalgamate to streamline their operations and reduce costs. However, because a contingent liability faced by NPO1 may increase following an amalgamation, they will defer the amalgamation until the lawsuit is resolved and will in the interim combine their operations, resulting in NPO2 carrying out the operations of both entities in property owned by NPO1. NPO2 would rent such property from NPO1 under a lease agreement which would be set at an amount that would cover the cost of NPO1's mortgage payments and other costs of the property. NPO1 and NPO2 have asked for a ruling that, notwithstanding the lease arrangement, they will still be considered to be organized exclusively for non-profit purposes within the meaning of paragraph 149(1)(l) of the Act?
2. Whether the amalgamation of NPO1 and NPO2 will result in a disposition, by either NPO1 or NPO2 of any of its assets or an acquisition by Amalco of any of the assets of NPO1 or NPO2 for purposes of the Act?
3. Whether any of the members of NPO1 and NPO2 will be considered to have received a gain on the disposition of his or her membership in NPO1 or NPO2, as the case may be, or to have received a benefit pursuant to subsections 15(1), 56(2) or 246(1) or Part XIII of the Act as a result of becoming members of Amalco?

Position: 1. Yes. 2. No. 3. No.

Reasons: 1.The ruling is given based on the overall circumstances, i.e., NPO1 and NPO2 share many of the same members and objects, the proposed lease is temporary and the payments thereunder cover only the mortgage payments and other costs, and any profits will be used for the non-profit objectives for which NPO1 was created.
2. Since NPO1 and NPO2 are not taxable corporations, section 87 of the Income Tax Act does not apply. Accordingly, reference must be made to the governing corporate statutes, which provide that an amalgamated corporation is a continuation of the predecessor corporations.
3. None of the members will receive any money or property or any enhancement of their membership benefits as a result of the amalgamation.

XXXXXXXXXX 2005-014247

2006 Ruling 2006-0171291R3 - Loss Utilization

Unedited CRA Tags
20(1)(c) 112(1) 15(1) 12(1)(c)

Principal Issues: A loss utilization within an affiliated group of corporations

Position: Acceptable

Reasons: Paragraph 32 of IT-533

2006 Ruling 2006-0185251R3 - replacement property for former business property

Unedited CRA Tags
44(5)

Principal Issues: Whether new land and new building will be considered a replacement property for former business property.

Position: Yes.

Reasons: Properties will satisfy requirements in paragraph 44(5)(a) and 13(4.1)

Technical Interpretation - External

11 July 2006 External T.I. 2006-0177781E5 - Association - Deemed Ownership of Shares

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

Principal Issues: Whether subparagraph 256(1.2)(f)(ii) would operate to deem certain beneficiaries of a trust to own all the shares of a particular corporation.

Position: Yes.

Reasons: The law.

6 July 2006 External T.I. 2005-0152011E5 - Transfer of title to joint ownership with child

Unedited CRA Tags
"disposition" 248(1)(e) 69(1) 70(5)

Principal Issues: The income tax consequences of transferring title to property (principal residence) to joint ownership with child.

Position: General comments provided.

Reasons: Definition of the term "disposition" [par. 248(1)(e)]. Whether there has been a disposition when the sole owner of the real property transfers title to joint ownership with his or her child will depend on whether there has been an actual change in beneficial ownership of the property, which is a question of fact.

4 July 2006 External T.I. 2005-0111731E5 - ownership of shares held in a trust

Unedited CRA Tags
256(1) 256(1)(f)(ii)

Principal Issues: When shares are held by multiple trustees for the benefit of the beneficiaries of a trust that is not a bare trust or a nominee arrangement, who "owns" the shares for the purpose of section 256, and if it is the trustees, what portion of the shares does each trustee own?

Position: As the registered owners of the shares, each of the trustees own all of the shares held by the trust jointly. In addition, section 256(1.2)(f)(ii) may apply to deem the beneficiaries to own the shares as well.

Reasons: Except in the case of a nominee or bare trust arrangement, ownership includes legal ownership. In addition, paragraph 256(1.2)(f) provides additional rules for determining the ownership of shares held in a trust. We were asked to take the view that each trustee owns a pro rata share of the trust property. Such a position is not viable as it is the ownership of the property by the trustee(s) that is a characteristic of a common law trust. If one out of three named trustees, in the situation described, did not have ownership of the assets, that person named as a trustee would presumably not be a trustee (by reason of not having ownership of the trust property); rather, that person might be a protector or an advisor to the trustees, etc. While there is significant research on the topic of beneficial ownership, it is generally recognized that the trustees do not have beneficial ownership of the trust property for most purposes since they cannot use the property for their own benefit (whether the trust is a bare trust or not). The comments in paragraph 15 of IT-64R4 which state that it is beneficial ownership, not legal ownership that is relevant for the purpose of section 256 in the case of a nominee or bare trust arrangement do not apply to trusts that are recognized for tax purposes. In the situation presented in this file, either paragraph 256(1)(d) or (e) could apply to deem the corporation to be associated with another corporation based on the cross-ownership of the shares, if the group of trustees of the trust holding voting control of the corporation is a related group.

28 June 2006 External T.I. 2006-0172111E5 - ABIL

Unedited CRA Tags
50(1) 20(1)(c) 40(2)(g)(ii)

Principal Issues: The taxpayer borrowed money and lent it interest free to a corporation of which he owns XXXXXXXXXX per cent of the common shares. The corporation no longer generates any revenue and there is no expectatoin that it will earn any income in the future. Can the taxpayer claim an allowable business investment loss in respect of the loan?

Position: Question of fact. General comments given.

Reasons: Based on the Byram decision, where a clear connection between the shareholder and the corporation's dividend icnome can be demonstrated, subparagraph 40(2)(g)(ii) should not be applied to deny the capital loss. It is a question of fact whether such a connection exists.
2006-017211
XXXXXXXXXX G. Moore
(613) 957-9232
June 28, 2006

Conference

9 May 2006 Roundtable, 2006-0174021C6 - Calu Roundtable - Question 8

Unedited CRA Tags
88(1)(d.2) 88(1)(d.3)

Principal Issues: Post-mortem "bump" transactions and when control last acquired for the purposes of paragraph 88(1)(c).

Position: Will rule on a case-by-case basis.

Reasons: Question of fact.

9 May 2006 Roundtable, 2006-0174111C6 - RDTOH Income from Disposition of Life Ins. Policy

Unedited CRA Tags
129(4) 56(1)(j)

Principal Issues: Whether an inclusion under paragraph 56(1)(j) may be properly considered to be income from a source that is a property for the purposes of the definition of aggregate investment income in subsection 129(4)?

Position: Yes.

Reasons: The law.