Income Tax Severed Letters - 2006-10-27

Ruling

2006 Ruling 2005-0143361R3 - split assets of 3 trusts into 5 separate trusts

Unedited CRA Tags
107.4 104(5.8)

Principal Issues: A. Will 107.4 apply on the dividing of the assets of the original 3 trusts into each of 5 separate trusts for the benefit of 1 the 5 beneficiaries and their issue?
B. Will 104(5.8) apply to preserve the date on which the next deemed disposition under 104(4) will occur?
C. Will 75(2) apply? The other rulings involve routine issues. No ruling was requested in respect of the potential application of 104(2) by the Minister.

Position: A. & B Yes C&D. No

Reasons: A.. Substantially the same issues as in past ruling 2002-018047. The beneficial ownership of the property under the existing trusts is the same as under the new trusts as the terms of the trust are substantially the same, even though the property held on behalf of each of the 5 principal beneficiaries in the new trust will be separate from the property held on behalf of the other principal beneficiaries. The other conditions set out for a qualifying disposition are met.
B. As the date of creation of the new trusts is after the last deemed disposition date of the original trusts, the next deemed disposition date for the new trusts will be XXXXXXXXXX , provided that none of the anti-avoidance provisions in 104(4) are met, such as 104(4)(a.2) and (a.3) and (a.5).
C. Past rulings such as ruling D of 2002-013633: the issue is who contributes the property in a trust to trust transfer: the original settlor, in which case 75(2) does not apply; or the trustees of the existing trust, in which case 75(2) would apply if they remain the trustees of the new trust. To the extent that the doctrine of look-back cannot be used to support the proposition that it is the original testator who creates the new trusts, this would be a situation in which the reference to "trust" is a case where the context requires the reference to be a reference to the trust, and not the trustees, such that 75(2) does not apply.

2006 Ruling 2006-0189151R3 - Reasonableness Shareholder Manager Remuneration

Unedited CRA Tags
67 18(1)(a) 5(1)

Principal Issues: The deductibility of shareholder/manager remuneration that is paid out of income triggered from the proceeds of a sale of business assets.

Position: Remuneration is deductible.

Reasons: Amount is reasonable and incurred for the purpose of earning business income.

XXXXXXXXXX 2006-018915

2006 Ruling 2006-0191431R3 - merging of 3 identical family trusts

Unedited CRA Tags
107.4(1) 75(2)

Principal Issues: 1. Does 75(2) apply on a trust to trust transfer solely by reason that some of the trustees of the transferor trust may form some of the trustees of the transferee trust (assuming that no other reason exists which would cause 75(2) to apply)?
2. Will 107.4 apply on the merging of the assets of the original 3 trusts into 1 single trust where the terms of all 3 trusts are virtually identical?

Position: 1. No 2. 107.4(2)(a) applies to ensure that there is no change in beneficial ownership such that the transfer is a qualifying disposition.

Reasons: 1. Past rulings such as ruling D of 2002-0136336: the issue is who contributes the property in a trust to trust transfer: the original settlor, in which case 75(2) does not apply; or the trustees of the existing trust, in which case 75(2) would apply if they remain the trustees of the new trust. To the extent that the doctrine of look-back cannot be used to support the proposition that it is the original testator who creates the new trusts, this would be a situation in which the reference to "trust" is a case where the context requires the reference to be a reference to the trust, and not the trustees, such that 75(2) does not apply. See also 2005-014336
2. Previous rulings dealt with the splitting of assets of one or more trusts into separate trusts for each beneficiary of the original trust or trusts. Rulings were given on the basis that no change in beneficial ownership occurred (and that the other conditions in 107.4 were met). In the present case, the proposal is to merge 3 trusts that have virtually identical terms and under which each beneficiary has an identical interest. The 2 differences identified between the terms of the various trusts were so insignificant as to arguably not result in any change of beneficial ownership. In addition, the transfers will meet the criteria in 107.4(2)(a) such that there is deemed to be no change in beneficial ownership

2006 Ruling 2006-0195471R3 - Innovative Instrument

Unedited CRA Tags
20(1)(c) 104(7.1) 104(6)

Principal Issues: 1. Whether the XXXXXXXXXX note constitutes borrowed money to ACO for the purpose of paragraph 20(1)(c)?
2. Whether subsection 104(7.1) will apply to deny a deduction to the Trust under paragraph 104(6)(b) of amounts payable to its unit holders?

Position: 1. Yes.
2. No.

Reasons: 1. In previous rulings, we concluded that deductibility under paragraph 20(1)(c) is dependent upon there being a borrower and lender relationship between the parties to the XXXXXXXXXX note. There is a good argument that a loan exists until such time as a mandatory conversion event occurs.
2. The existence of the voting rights attached to the Special Trust Securities is not intended to give ACO a percentage interest in the Trust's property in excess of ACO's income interest in the Trust.

2006 Ruling 2006-0198561R3 - Estate Transaction

Unedited CRA Tags
84.1 245

Principal Issues: Whether transfer of control block shares of Opco by estate to a new Holdco that is wholly-owned by the estate will result in receipt of a dividend by the estate pursuant to section 84.1.

Position: No.

Reasons: FMV of non-share consideration taken back by estate on the transfer will not exceed the value determined for "E" in paragraph 84.1(1).

2006 Ruling 2006-0199741R3 - Irish Common Contractual Fund

Unedited CRA Tags
215
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(1)
umbrella Irish CCF with sub-funds

Principal Issues: Whether the new section 739I of the Taxes Consolidation Act 1997of Ireland ("TCA") affects the position that an Irish Common Contractual Fund ("CCF") is a co-ownership arrangement for Canadian tax purposes?

Position: No.

Reasons: Generally, the corporate or common law, not the tax law, of a jurisdiction has a bearing on the classification of an entity. Hence, the amendments to the TCA in 2005 and 2006 would not change the nature and character of the CCF previously ruled to be a co-ownership arrangement for Canadian tax purposes.

2006 Ruling 2006-0208461R3 F - Mise à part de l'argent

Unedited CRA Tags
20(1)c) 245(2)

Principales Questions: (1) L'intérêt sur l'argent emprunté est-il déductible dans une situation de mise à part de l'argent et de remboursement de capital? (2) Est-ce que le paragraphe 245(2) s'applique à la situation?

Position Adoptée: (1)Oui. (2) non.

Raisons: (1) Jurisprudence et position adoptée en 2002 à l'APFF et à l'ACEF. Conforme aux paragraphes 16 et 23 du bulletin d'interprétation IT-533. (2) Aucun abus de l'alinéa 20(1)c) de la Loi.

2006 Ruling 2004-0089251R3 - Freezing an estate

Unedited CRA Tags
104(4) 104(5.8)

Principal Issues: Whether GAAR applies to the transfer of the property of a testamentary spousal trust to a corporation as consideration for preferred shares where a non-spousal mirror trust acquires the common shares of the corporation for nominal value.

Position: No.

Reasons: Gaar committee's decision.

Ministerial Correspondence

20 October 2006 Ministerial Correspondence 2006-0208541M4 - Transit Pass Credit

Unedited CRA Tags
118.02

Principal Issues: How is tax assistance received under the new transit pass credit initiative?

Position: Under the draft legislation an individual can claim a non-refundable tax credit for the cost of an eligible public transit pass used on or after July 1, 2006. The non-refundable tax credit is calculated using the lowest personal tax rate and is used to reduce federal income tax that would otherwise be payable.

Reasons: Draft legislation.

20 October 2006 Ministerial Correspondence 2006-0206491M4 - Transit Pass Credit

Unedited CRA Tags
118.02

Principal Issues: Whether a daily or weekly pass, including a limited round trip pass, would qualify for the transit pass credit?

Position: No.

Reasons: The draft legislation indicates that an "eligible public transit pass" must provide the individual with the right to use public commuter transit services of a qualified Canadian transit organization on an unlimited number of occasions and on any day on which the public commuter transit services are offered during an uninterrupted period of at least 28 days.

20 October 2006 Ministerial Correspondence 2006-0207361M4 - Transit Pass Credit

Unedited CRA Tags
118.02 118.92

Principal Issues: Is a non-refundable tax credit under the new transit pass credit initiative used to reduce tax payable before applying the tuition and education tax credits?

Position: Yes.

Reasons: There is consequential amendment to section 118.92 of the Act which will ensure that the tax credit available to an individual who acquires an eligible public transit pass will be applied to reduce tax payable before the tuition and education tax credits.

Technical Interpretation - External

23 October 2006 External T.I. 2006-0168601E5 - Charitable activities

Unedited CRA Tags
149.1

Principal Issues: Meaning of the term "charitable activities" as it applies to charitable organizations.

Position: Provided general comments.

Reasons: This issue is currently under review. While a charitable organization is required to expend an amount equal to its disbursement quota on charitable activities and to devote all its resources to charitable activities carried on by it, the Income Tax Act does not specifically define what constitutes a charitable activity. The CRA publications contain general commentary but additional guidance is required.

3 October 2006 External T.I. 2006-0204181E5 F - Déduction de frais de thérapie

Unedited CRA Tags
118.4(1) 118.2(2)a) 118.2(2)(l.9) 118.4(2)
Summary Under
Tax Topics - Income Tax Act - Section 118.4 - Subsection 118.4(1) - Paragraph 118.4(1)(c)
scope of activities of daily living

Principales Questions: Les frais de thérapie engagés par des contribuables dans un centre de vertébrothérapie donnent-ils droit au crédit d'impôt pour frais médicaux?

Position Adoptée: Question de fait. En l'espèce non, puisque les frais ne sont pas visés par les alinéas 118.2(2)a) ou l.9).

Raisons: Loi de l'impôt sur le revenu.

27 September 2006 External T.I. 2006-0201272E5 - Test Wind Turbine

Unedited CRA Tags
Regulation 1219

Principal Issues: Whether certain proposed wind turbines will qualify as test wind turbines within the meaning of subsection 1219(3) of the Income Tax Regulations?

Position: Yes, provided the Project is carried out as described.

Reasons: Opinion from NRCan and compliance with the legislation.

15 September 2006 External T.I. 2006-0179911E5 - Prescribed Prizes

Unedited CRA Tags
56(1)(n)

Principal Issues: Whether the Kobzar Literary Award qualifies as a prescribed prize as defined in Regulation 7700 of the Act and therefore excluded from income pursuant to the exception in 56(1)(n)(i).

Position: Yes. The Kobzar Literary Award qualifies as a prescribed prize.

Reasons: The award is a prize that is recognized by the general public and awarded for meritorious achievement in the arts.

Conference

11 September 2006 Roundtable, 2006-0185642C6 - 2006 STEP Questions 7,8,10,11, & 12

Unedited CRA Tags
116 162(7) 233.1

Principal Issues: 7-8: Administrative issues relating to the delays in obtaining a 116 certificate of compliance.
10-12: Administrative issues relating to foreign reporting requirements

Technical Interpretation - Internal

19 October 2006 Internal T.I. 2006-0204951I7 - PHSP - employee versus shareholder benefit

Unedited CRA Tags
6(1)(a) 15(1)

Principal Issues: Whether the benefits received by a shareholder/employee is received qua employee or qua shareholder.

Position: Question of fact.

Reasons: If the benefit is received as part of a reasonable remuneration package paid to the individual as an employee, it may be considered to be received qua employee; otherwise, it would be considered to be received qua shareholder.

19 October 2006 Internal T.I. 2006-0204151I7 - Scholarship versus research grant

Unedited CRA Tags
56(1)(n) 56(1)(o)

Principal Issues: Whether a fellowship can be considered a research grant such that it would be included in income under paragraph 56(1)(o)

Position: No.

Reasons: The main purpose of the grant is to further the education of the recipient and not to undertake research.

19 October 2006 Internal T.I. 2006-0204171I7 - Business Profits attributable to Prior PE

Unedited CRA Tags
Article VII Canada-US Tax Treaty

Principal Issues: Are the insurance policy renewal commissions earned by a non-resident insurance agent attributable to a prior PE that the agent had while he was resident of Canada?

Position: Yes it can be attributable to a prior PE that the agent had while he was resident in Canada.

Reasons: To what extent the commission income earned by the non-resident agent after his emigration is attributable to a PE that he had prior to his emigration is entirely a question of fact dependent on whether it was the activities taking place in his PE in Canada that gave rise to the commissions or whether it was the high level of contact with his clients after the emigration.