Income Tax Severed Letters - 2006-11-24

Ruling

2006 Ruling 2006-0210561R3 - Witholding Tax Exemption

Unedited CRA Tags
212(1)(b)(vii) 15(2.3) 245(2)

Principal Issues:
Supplemental ruling to 2006-019188 to incorporate minor revisions to definitions and proposed transactions.

Position:
Changes accepted.

Reasons:
No impact on any of the rulings given.

XXXXXXXXXX 2006-021056

2006 Ruling 2006-0176351R3 - Incorporating a XXXXXXXXXX Practice

Unedited CRA Tags
125(7) 256(2.1) 56(2) 56(4)

Principal Issues: Where a partner of a professional XXXXXXXXXX partnership creates a professional corporation through which professional XXXXXXXXXX services are provided XXXXXXXXXX , will the corporation be carrying on a personal services business and/or earning specified partnership income?

Position: Question of fact. Generally, no, if certain conditions are met.

Reasons: Reading of relevant legislation and consistent with other rulings.

2006 Ruling 2006-0185881R3 - Assignment- Structured settlement

Unedited CRA Tags
56(1)(d)

Principal Issues: 1. Where a general insurance carrier is XXXXXXXXXX - can it assign the structured settlements it owns to other general insurance carriers? 2. Are the claimants still entitled to receive the amounts from the Lifeco tax-free?

Position: 1. YES, provided the Claimants consent
2. YES

Reasons: 1. Consent from claimant - policy in IT-365R2 2. Nothing changes for the claimant. The same Annuity is received from the same LIFECO

2006 Ruling 2006-0197521R3 - Partnership Reorganization

Unedited CRA Tags
125(7)("personal services business")

Principal Issues: Where a partner of a professional partnership creates a professional corporation through which professional services will be provided to the partnership, will the corporation be eligible for the small business deduction?

Position: Yes.

Reasons: As long as the partner in his or her role of an employee of the professional corporation providing the services of the "professional function" would not, but for the corporation, be considered an employee of the partnership, then the business of the corporation is not a personal services business. Also, provided that the professional corporations are not themselves carrying on business in partnership, there is no specified partnership income. This ruling is the same as previous rulings given, in particular see our document E2006-0170321R3.

2006 Ruling 2006-0204011R3 - Withholding Tax

Unedited CRA Tags
212(1)(b)(vii)

Principal Issues: Minor change to payment date and request of further rulings.

Position: Amended.

Reasons: Change does not affect ruling provided

Technical Interpretation - External

20 November 2006 External T.I. 2006-0187181E5 - Acquired Partnership WIP and AR On Withdrawal

Unedited CRA Tags
34 20(1)(l) 20(1)(p) 96(1)

Principal Issues: In the circumstances described:
· Would the section 34 election of the proprietor apply to exclude the acquired partnership WIP in computing his income from the partnership?
· Would the section 34 election of the proprietor apply to exclude WIP, including the acquired partnership WIP, in computing his income from the proprietorship?
· In a subsequent rollover to a corporation, would the cost amount of the proprietorship WIP, including any remaining acquired partnership WIP, be "nil" if the proprietor has made an election under section 34?
· Would a paragraph 20(1)(l) or 20(1)(p) bad debt allowance or deduction be available in respect of the partnership's AR acquired by the proprietor, in computing his income from the proprietorship.

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

Reasons: See letter

16 November 2006 External T.I. 2006-0198071E5 - transfer of property to spouse, MURB

Unedited CRA Tags
73(1) 74.2 20(1)(a)

Principal Issues: Whether taxpayer can transfer MURBs to his spouse without triggering capital gains

Position: Question of fact. Depends on whether there is a disposition and a change in beneficial ownership for purposes of the Income Tax Act. Also, attribution rules will likely apply.

Reasons: The law

16 November 2006 External T.I. 2005-0152241E5 - Trust and mentally handicapped minor child

Unedited CRA Tags
73(3)

Principal Issues: Whether a distribution date at age 65 would satisfy the condition in paragraph 13(c) of IT-268R4 for a transfer of farm property from a parent to a trust for the sole benefit of a minor child under subsection 73(3) of the Act, where the minor child is mentally disabled.

Position: Yes

Reasons: The condition in paragraph 13(c) of IT-268R4 is part of the conditions that ensure that the transfer of the property to an inter vivos trust is for the sole benefit of the child such that the child has an enforceable right or claim in the absolute ownership of the property so transferred, even though the child may not be entitled to the immediate enjoyment of all the benefits arising from that right.

16 November 2006 External T.I. 2006-0197591E5 - Class 41(a), prime metal, mining tax on potash

Unedited CRA Tags
Reg. 3900 20(1)(v) 18(1)(a)

Principal Issues: 1. Whether eligible depreciable property to be acquired for a new sylvite (potash ore) mine would qualify for inclusion in paragraph (a) of Class 41. 2.Whether for the purposes of paragraphs 1104(5)(a)(i) and 1104(5)(c)(i) of the Regulations, "the prime metal stage, or its equivalent" for potash would generally be marketable potash which meets specifications on grain size and contains a minimum of 60% K2O (potassium oxide) equivalent. 3. Whether the portion of the Sask. potash production tax calculated on profits from the sale of purchased and resold processed potash by a potash producer in Sask. would qualify as an "eligible tax" for purposes of paragraph 20(1)(v) of the Act and revised subsection 3900(2) of the Regulations.

Position: 1. Yes. 2. Yes. 3. No. Such tax will not be deductible under paragraph 20(1)(v) or any other provision of the Act.

Reasons: 1. & 2. As per position taken in previous correspondence and supported by previous comments received from officials at NRCan. 3. As per the legislation and policy intent of legislation. The position taken was agreed to by CRA's Mining Industry Specialist, ISS, Compliance Branch.

14 November 2006 External T.I. 2006-0209581E5 - Medicinal Marihuana

Unedited CRA Tags
118.2(2)(u) 118.2(1)

Principal Issues: Whether all expenses incurred to grow marihuana under a personal-use production licence to produce and keep marihuana for the medical purpose of the holder, are eligible medical expenses for purposes of the medical expense tax credit

Position: No

Reasons:
With the exception of the cost of seeds purchased from Health Canada, expenses incurred by authorized users to grow their own marihuana are not eligible medical expenses.

10 November 2006 External T.I. 2006-0183341E5 - Qualified Farm Property

Unedited CRA Tags
110.6(1)

Principal Issues: Whether farm property would be qualified farm property under the definition in 110.6 subparagraph (a)(vii).

Position: Yes.

Reasons: The property was acquired in 1986 so the pre 1987 rules apply and the taxpayers' father had used the land 5 or more years in the business of farming.

8 November 2006 External T.I. 2006-0205931E5 - Premiums and Prescription Co-payments

Unedited CRA Tags
248(1) 118.2(2)(n) 118.2(2)(q)

Principal Issues:
Whether premiums paid and prescription co-payments made to a provincial drug plan are qualifying medical expenses pursuant to subsection 118.2(2) of the Income Tax Act.

Position:
Yes

Reasons:
To the extent of the benefit coverage currently defined under the provincial drug plan, it is our opinion that premiums paid and prescription co-payments made to the plan are qualifying medical expenses pursuant to paragraph 118.2(2)(q). If the plan is ever modified to include coverage for disbursements which are not qualifying medical expenses pursuant to subsection 118.2(2), the premiums paid and prescription co-payments made to the plan would no longer qualify under paragraph 118.2(2)(q).

2006-020593
XXXXXXXXXX D Tiu
(613) 957-8961
November 8, 2006

Technical Interpretation - Internal

15 November 2006 Internal T.I. 2006-0202971I7 - Regulations 238

Unedited CRA Tags
238

Principal Issues: Whether section 238 of the Income Tax Regulations applies to real estate developers who hire a contractor to construct buildings and then sell the units if more than 50% of the developers' business income would be derived from the sale of the constructed units.

Position: Yes. Regulation 238 would generally apply to a real estate developer whose business income was primarily derived from construction if more than 50% of the developer's business income was from construction activities.

Reasons: The phrase "income derived from" has been broadly interpreted by the Supreme Court in the case of MNR v. Hollinger North Shore Exploration Co. Ltd. Therefore, a real estate developer who hires a general contractor to construct buildings and then sells the completed units, would be considered to derive his income primarily from construction activities if more than 50% of his income was derived from these activities.