Income Tax Severed Letters - 2007-01-05


2006 Ruling 2006-0211781R3 - Withholding Tax Exemption

Unedited CRA Tags
15(2.3) 212(1)(b)(vii) 245(2)
on-loan by special purpose sub in ordinary course

Principal Issues: 1. Will interest payments to be made by Finco (a wholly-owned sub that will on-loan to an LP within its business structure) to non-resident lenders in respect of a term loan and delayed drawdown term loans be exempt from Part XIII tax? 2. Will subsection 15(2) apply to amounts on-loaned to the LP? 3. Will GAAR apply?

Position: 1. Yes 2. No 3. No

Reasons: 1. The requirements of subparagraph 212(1)(b)(vii) are met. 2. Subsection 15(2.3) will apply to the on-loaned amount. 3. There is no avoidance transaction.

2006 Ruling 2006-0190311R3 - Reorganization of a mutual fund trust - s. 132.2

Unedited CRA Tags
132.2 131(8) 89(1) 245(2)

Principal Issues: A. Whether a corporation qualifies as a "mutual fund corporation" within the meaning of subsection 89(1) of the Act; B. Whether the transfer of the assets of a mutual fund corporation to a mutual fund trust would qualify as a "qualifying exchange" within the meaning of subsection 132.2(2) of the Act so that the rules in subsection 132.2(1) of the Act would apply to such transfer; and C. Whether subsection 245(2) of the Act would apply to redetermine the tax consequences confirmed in rulings A and B.

Position: A. Yes; B. Yes; and C. No.

Reasons: See statement of principal issues and file 2006-018227.

2006 Ruling 2006-0197511R3 - Bonus - Employee Benefit Plan

Unedited CRA Tags
5(1) 6(1)(a)

Principal Issues: Whether the allocation of credits to a flex benefits plan, which is linked to the bonus the employee is entitled to receive, would result in employment income to the employee.

Position: No

Reasons: The allocation of credits falls within the guidelines for flex plans set out in IT-529 in that there is an irrevocable election made prior to the plan year and prior to the employee being entitled to receive any bonus.

2006 Ruling 2006-0199751R3 - Income Trust Reorganization

Unedited CRA Tags
132.2 131(8) 253.1

Principal Issues: Whether transferring the partnership held by a corporate subsidiary to an income trust on a rollover basis using section 85 and 132.2 meets the requirements of the Act and is within policy. Before the proposed transactions the trust owns directly and indirectly the shares of the corporations that are the partners of the partnership. At the end of the proposed transactions, it owns a limited partnership interest and shares of the general partner of that partnership.

Position: The proposed transactions meet the requirements of the Act and rulings on the various rollover provisions and section 245 are granted.

Reasons: The provisions of the Act; the trustees of the trust do not form the majority of the directors of the corporate general partner.

2006 Ruling 2006-0206021R3 F - Underground Exploration Program - New Mine & CEE

Unedited CRA Tags
66.1(6) 66.2(5) 248(1) "Mineral Resource"

Principal Issues: A) Whether expenses relating to an underground exploration program to be carried out will be related to a mine that has come into production in reasonable commercial quantities, or to a potential or actual extension thereof.
B) Whether expenses relating to an underground exploration program to be carried out will qualify for inclusion under paragraph (f) of the definition of CEE.

Position: A) No.
B) Yes.

Reasons: Based upon the facts of the situation and a written opinion initially received from Natural Resources Canada, and provided that any economic mineralization found pursuant to the underground exploration program is not exploited using the existing surface and underground infrastructures. Favourable rulings issued in XXXXXXXXXX 2004 and XXXXXXXXXX 2005 with respect to this particular issue. Issuance of another favourable ruling, dealing with the same issues and the same Project, that would cover an additional 12-month period.

2006 Ruling 2006-0212581R3 - Change in facts to Ruling 2005-016295

Unedited CRA Tags

Principal Issues: Change in facts to Ruling 2005-016295.

Position: Accepted.

Reasons: No impact on rulings given.

Ministerial Correspondence

3 January 2007 Ministerial Correspondence 2006-0216211M4 - Public Transit Tax Credit

Unedited CRA Tags

Principal Issues: Whether daily or weekly passes are eligible for the credit.

Position: No.

Reasons: Definition of "eligible public transit pass" requires that the pass 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.

Technical Interpretation - External

2 January 2007 External T.I. 2006-0156421E5 F - Frais médicaux

Unedited CRA Tags
118.2(2) 118.4(2)

Principales Questions: Pourquoi les conseillers d'orientation accrédités à titre de psychothérapeutes par l'Ordre professionnel des conseillers et des conseillères d'orientation et des psychoéducateurs et psychoéducatrices du Québec ne sont pas reconnus parmi la liste de professionnels de la santé admissibles aux fins du crédit d'impôt pour frais médicaux?

Position Adoptée: Le conseiller ou la conseillère d'orientation accrédité(e) à titre de psychothérapeute n'est pas légalement autorisé à exercer la médecine au lieu où il ou elle se livre à cet exercice.

21 December 2006 External T.I. 2006-0170851E5 F - Option d'achat de biens immeubles

Unedited CRA Tags
49 54 110.6(2)

Principales Questions: Un contribuable a reçu un montant pour une option d'achat qu'il a accordé à l'égard de biens immeubles. Quelles sont les conséquences fiscales relativement à l'octroi de l'option, sa prolongation et l'exercice de l'option pour celui qui détient les biens immeubles?

Position Adoptée: Mention des conséquences de l'application de l'article 49 et mention, dans le cas de l'exercice de l'option, des possibilités d'exemption pour résidence principale et de la déduction pour gains en capital pour biens agricoles admissibles.

Raisons: Dispositions de la Loi

21 December 2006 External T.I. 2006-0180021E5 - Tax Credits

Unedited CRA Tags
118(1)B(b) 118(1)B(c.1) 118.3(2) 122.5(1) "eligible individual"

Principal Issues: 1. Whether or not a parent may claim an amount for an eligible dependant, an amount for infirm dependants age 18 or over, or a disability amount transferred from a dependant, for a severely handicapped child resident in long term care. 2. Whether or not the resident may file an income tax return and claim any credits, such as the GST credit, under the Act.

Position: 1. No. 2. Yes.

Reasons: 1. The child does not live with a parent and is not supported by a parent in the parent's home. 2. Residents are eligible to claim the GSTC when they are at least 19 years of age.

13 December 2006 External T.I. 2005-0156201E5 F - Records on Heat Sensitized Paper

Unedited CRA Tags
230 163(2)

Principal Issues: (1) What is CRA`s position regarding the retention of supporting documents on heat sensitized paper in view of the fact that one of the characteristics of this type of paper is that the data on such paper disappears over a relative short period of time? (2) Whether the CRA can disallow expenses because purchase invoices on heat sensitized paper are impossible to read? and (3) Whether the taxpayer could be penalized pursuant to ss. 163(2) for making a false statement under circumstances amounting to gross negligence if the taxpayer did not photocopy or digitize its purchase invoices on heat sensitized paper?

Position: (1) None. (2) Yes. (3) Generally, no

Reasons: (1) None. (2) The CRA's practice is to disallow unvouchered expenses unless there is other satisfactory evidence to support the amounts claimed. (3) The CRA's practice is not to levy the penalty under ss. 163(2) for unvouchered expenses unless (1) the evidence clearly indicates that expenses were grossly or deliberately overstated or (2) the amount of the disallowed expenses is material and the adjustment can be supported by a formal net worth statement.

13 December 2006 External T.I. 2006-0189561E5 - Deduction by an estate for attendant care expenses

Unedited CRA Tags
64 118.2 118.3 122(1.1)

Principal Issues: (1) In a situation in which an estate pays a claim for homecare expenses previously rendered to the deceased individual, and/or home renovations related to such homecare, to what extent can the estate use such expenses as a deduction from income or as a credit against tax payable by the estate?
(2) To what extent can the Disability Supports Deduction be used if the homecare allowed the deceased to earn investment income?

Position: (1) The expenses cannot be deducted by the estate from its income nor used as a credit against its tax payable. Provided the expense otherwise qualifies as an expense eligible for the medical expense tax credit for the deceased individual, and was paid by the estate within 24 months of the individual's death, the deceased's terminal return can be revised to include such amounts in the claim for the medical expense tax credit.
(2) The disability supports deduction is not available to the estate as it is only available where the amount paid benefits the taxpayer taking the deduction. Further, the deduction was not available to the deceased if the homecare only enabled him or her to earn investment income.

Reasons: (1) The medical expense tax credit is available only to an individual, not to a trust.
(2) The Disability Supports Deduction in section 64 is available only to the particular taxpayer who benefits from the outlay. The outlay did not enable the Estate to earn one of the specified types of income and therefore cannot be used by the Estate as a deduction. Furthermore, it does not appear that the decedent was eligible for the deduction, given that the expense was not incurred for homecare that allowed the individual to earn the types of income specified in the legislation.

XXXXXXXXXX Renée Shields
(613) 948-5273
December 13, 2006

27 October 2006 External T.I. 2006-0212001E5 F - Immobilisations admissibles - Quotas

Unedited CRA Tags
14(1) 14(3) 14(5)

Principales Questions: Le résultat de l'interprétation technique 2000-0024257 serait-il différent si, en sus des faits qui y sont mentionnés, le contribuable acquiert en 1997 20 000$ unités de quotas de poulet supplémentaires d'une personne avec laquelle il n'a aucun lien de dépendance?

Position Adoptée: Puisque l'article 14 ne contient pas de règle portant sur l'ordre de disposition d'immobilisations admissibles, l'ARC est d'avis que la méthode du prorata produit un résultat raisonnable qui est conforme à l'objet de l'article 14 de la Loi de l'impôt sur le revenu et à l'intention du législateur.

Raisons: Loi de l'impôt sur le revenu. La jurisprudence.


6 October 2006 Roundtable, 2006-0197111C6 F - Le paragraphe 70(5.3) de la Loi.

Unedited CRA Tags
70(5.3) 148(9)

Principales Questions: Application du paragraphe 70(5.3) de la Loi à deux scénarios.

Position Adoptée: Aucune.

Raisons: Le paragraphe 70(5.3) de la Loi ne permet pas de déterminer la valeur des actions détenues par un contribuable immédiatement avant son décès, ni ne précise de quelle façon la valeur d'une police d'assurance vie doit être répartie entre plusieurs catégories d'actions dont la valeur est fonction du produit d'une police d'assurance vie.

Technical Interpretation - Internal

2 January 2007 Internal T.I. 2006-0217551I7 - Jointly Owned Class 10.1 Vehicle - Permissible CCA

Unedited CRA Tags

Principal Issues: 1. Ownership of a vehicle where the purchase and sale documentation differs from the registration. 2. Quantum of CCA permissible in respect of a "passenger vehicle" with cost exceeding the Regulation 7307(1) limitations when jointly owned.

Position: 1. Ownership is always a question of fact. 2. Section 67.4 requires that multiple owners allocate the prescribed limit(s) on the basis of FMV ownership.

Reasons: The Act.

21 December 2006 Internal T.I. 2006-0216261I7 - Carryback of a capital loss

Unedited CRA Tags
104(4) 111

Principal Issues: Paragraph 104(4)(b) and subsection 104(5) applied in 2004. In 2006, the trust realized a capital loss from the disposition of a capital property purchased after 2004. Can that capital loss be carried back to 2004?

Position: A trust can use the net capital loss to reduce the trust's taxable capital gains in any of the three preceding years or in any future year. To apply the net capital losses from other years, the capital gains realized by the trust must form part of the trust's taxable income (and not of the beneficiaries' taxable income). The conditions to carry back a capital loss could be met by a trust even if the capital loss results from the disposition of a capital property purchased after the deemed disposition date.

Reasons: Provisions of the Act