Income Tax Severed Letters - 2007-01-12


2006 Ruling 2006-0172931R3 - income trust reorganization

Unedited CRA Tags

Principal Issues: Whether reorganization of an existing MFT structure using 132.2 meets the requirements of the Act and is within policy. Before the proposed transactions, the trust wholly owns various corporations, limited partnerships and XXXXXXXXXX in a complex structure. While the trust limits its undertaking to the investing of its funds in property, the various wholly owned corporations and limited partnerships carry on similar businesses. At the end of the proposed transactions, the trust owns all of its assets indirectly through a limited partnership interest and shares of a corporation that is the general partner of the limited partnership which carries on the businesses formerly operated by various entities within the corporate structure. Does the proposed internal reorganization qualify for a 132.2 exchange? Will GAAR apply?

Position: The proposed transactions are within policy and ruling on the application of 132.2 and section 245 are granted.

Reasons: The proposed transactions do not involve the type of conversion of a taxable Canadian corporation to a mutual fund corporation that has historically caused us concern. The current corporations are 100% within the mutual fund family and thus the conversion/restructuring is within that family.

2006 Ruling 2006-0209121R3 - Internal Reorganization - 55(3)(a)

Unedited CRA Tags
55(3)(a) 256(7)

Principal Issues: Split-up of a family owned corporation controlled by Parent under paragraph 55(3)(a).

Position: Favourable rulings issued.

Reasons: The law.

Technical Interpretation - External

11 January 2007 External T.I. 2006-0182591E5 - life insurance and eligible funeral arrangements

Unedited CRA Tags

Principal Issues: What is the tax treatment of transferring funds from an eligible funeral arrangement to an insurer to pay for a life insurance policy to fund a funeral?

Position: Any accrued income will be taxable to the individual to the extent provided by 148.1(2) on the withdrawal of the funds from the EFA

8 January 2007 External T.I. 2006-0192721E5 - Allowance Received Under A Living Donor Program

Unedited CRA Tags

Principal Issues:
Treatment under the Act of the following payments received under a living organ donor program run by a charitable organization:
· A living allowance paid to a donor; and
· The reimbursement of specific personal expenses incurred by a donor

1. Within the scope of information provided, tax exempt
2. Tax-exempt

1. Not an "income ..... from a source" within the meaning section 3
2. Not income from a source that is taxable on the basis that they are for personal expenses not normally deductible for tax purposes

8 January 2007 External T.I. 2006-0202931E5 - Prescribed Prize

Unedited CRA Tags

Principal Issues:
Whether the annual Regional Awards, Minister's Award and Premier's Award for Agri-Food Innovation Excellence are prescribed prizes pursuant to Section 7700 of the Income Tax Regulations.


On the basis of the information provided, we agree that the Prizes qualify as prescribed prizes under section 7700 of the Regulations and therefore, are exempt from income under paragraph 56(1)(n) of the Act.

5 January 2007 External T.I. 2005-0133321E5 F - Validité d'un REER

Unedited CRA Tags
146 248(3)

Principales Questions:
Validité d'un REER suite à la décision rendue par la Cour suprême du Canada dans l'affaire Banque Nouvelle-Écosse c. Thibault, [2004] C.S.C. 29.

Position Adoptée:
Toujours valide selon le Projet de Loi C-33 de novembre 2006 si l'arrangement n'est pas une fiducie selon le droit civil.

L'alinéa 248(3)c) proposé.

XXXXXXXXXX 2005-013332
L. J. Roy, CGA
Le 5 janvier 2007

4 January 2007 External T.I. 2006-0185441E5 - Advertising on a Foreign Radio Station

Unedited CRA Tags

Principal Issues: Does subsection 19.1(1) of the Income Tax Act apply to disallow a deduction for outlays and expenses paid by a Canadian company to a Canadian advertising agency, who uses part of the funds to purchase air time for them on a foreign broadcast undertaking? Would this provision also apply to deny the Canadian advertising agency a deduction for the cost of purchasing this air time?

Position: Question of fact; however, subsection 19.1(1) would generally not apply to the ad agency.

Reasons: It is likely that the ad agency is acting as an agent for its Canadian client when purchasing the air time on the foreign broadcast undertaking.

4 January 2007 External T.I. 2006-0217191E5 - Settlement of Future Long-Term Benefits

Unedited CRA Tags
39(1)(a)(iii) 6(1)(f)

Principal Issues:
Whether lump sum payments in lieu of future long-term benefits are non-taxable receipts for purposes of the Income Tax Act.


The SCC affirmed in Tsiaprailis [2005] DTC 5119 that amounts received from any settlement attributable to the disposition of the employee's entitlements to future benefits under a disability insurance plan is a payment on account of capital. The CRA's position is that the term "insurance policy" is broad enough to include an employer-sponsored disability insurance plan, and therefore, subparagraph 39(1)(a)(iii) applies to exclude the amount of a capital gain in respect of the insurance policy from capital gains treatment.

4 January 2007 External T.I. 2006-0187051E5 - Spousal -Automobile Benefit

Unedited CRA Tags
15(5) 15(1) 6(1) 6(2)

Principal Issues: How to treat the automobile benefit received by a business owner's spouse who is also an employee of the company.

Position: Question of fact.

Reasons: Based on the facts and whether subsection 15(5) would apply.

3 January 2007 External T.I. 2006-0180601E5 F - Facturation entre deux sociétés affiliées.

Unedited CRA Tags
230(1) 230(4.1) 248(1).

Principales Questions: Y a -t-il nécessité de facturation écrite des services de gestion entre deux sociétés ayant un lien de dépendance?

Position Adoptée: Non selon la Loi de l'impôt sur le revenu mais demeure une preuve de l'impôt à payer de la Loi de l'impôt sur le revenu.

Raisons: Les Circulaires d'information CI78-10R4 et CI05-1 fournissent des renseignements et directives nécessaires à toute société qui doit tenir des registres comptables.

19 December 2006 External T.I. 2006-0189491E5 - Revised carryback & Interest computations

Unedited CRA Tags
161(1) 161(7) 152(6) 111

Principal Issues: Where in year 3 by virtue of ss.152(6), the taxpayer requests a reduction of tax for year 1 by means of a loss carryback from year 3 to year 1, but then subsequently in year 5, revises the request in order to increase the loss carryback from year 3 to year 1, would the interest charged pursuant to subsections 161(1) and (7) be charged on the combined reduction up to the date of the later request, or would interest be charged on each reduction separately up to the date of each respective request?

Position: Interest would be calculated on the original reduction from the balance due date up to the date of the 1st request and interest would be calculated on the subsequent reduction, up to the date of the later request.

Reasons: The general charging provision for interest under subsection 161(1) provides that where the total taxes payable exceeds the total of all amounts paid at or before the balance due day for a taxation year, the taxpayer shall pay interest on the excess, computed for the period during which that excess is outstanding. However, it should be noted that the CRA's policy is to disallow a request for reassessment to reduce taxes payable where the request is based solely on an increased claim of a particular (as opposed to substituting one for another) permissive deduction when the taxpayer had originally claimed less than the maximum allowable (see paragraph 4 of IC75-7R3).

18 December 2006 External T.I. 2006-0208681E5 - Change in Use

Unedited CRA Tags
45(1) 45(3) 54

Principal Issues: Whether a cottage that is to be used for personal use was purchased with the intention of gaining or producing income or for personal use.

Position: Question of fact.

Reasons: The fact that there was four years of rental income prior to the personal use would be an indication that is was purchased for the purpose of gaining or producing income.

15 December 2006 External T.I. 2006-0182471E5 F - Intérêts " explicitement identifiés "

Unedited CRA Tags

Principales Questions: Demande de précision concernant la position administrative de l'Agence du revenu du Canada énoncée dans les Nouvelles techniques no 30 où cette dernière utilise l'expression " intérêts explicitement identifiés ".

Position Adoptée: Commentaires généraux

Raisons: Question de fait

15 December 2006 External T.I. 2006-0213071E5 - Eligible Capital Property Acquisition

Unedited CRA Tags
14(5) 20(1)(b) 85(1)

Principal Issues: (1) Can parentco claim a CEC deduction based upon acquisition of subco? (2) Can parentco claim a CEC deduction based on acquisition of subco's business assets utilizing subsection 85(1)?

Position: (1) No (2) Yes, but subject amount elected under subsection 85(1).

Reasons: (1) Parentco has acquired shares only, not goodwill (eligible capital property). (2) Permissable CEC is dependent upon the value of goodwill (eligible capital property) acquired, subject to elected adjustments if subsection 85(1) is utilized.


21 December 2006 Roundtable, 2006-0215491C6 - timing recognition foreign currency gains & losses

Unedited CRA Tags

Principal Issues: When to report a foreign currency gain or loss in respect of funds denominated in a foreign currency on deposit for the purposes of the Act

Position: Depends on whether the gain or loss is on account of capital or on revenue account.

Reasons: If the deposit is on account of capital, subsection 39(2) applies. Then the gain has to be "made" or the loss "sustained". This implies that the gain or loss has been realized and is not merely an accrued gain or loss. However, if the gain or loss is on revenue account, income computed in accordance with GAAP may represent the truer picture of the income of the taxpayer and the temporal method sanctioned by GAAP requires accrual of currency gains and losses on monetary assets at taxation year-end.

2 November 2006 Roundtable, 2006-0174041C6 - Rollover to trust on death

Unedited CRA Tags
70(6) 105

Principal Issues: Whether subsection 70(6) rollover available if trustee required to pay life insurance premiums.

Position: No.

Reasons: As a result of the duty to pay life insurance premiums, persons other than the surviving spouse or common-law partner may, before the survivor's death, obtain the use of the trust income or capital.

Technical Interpretation - Internal

3 January 2007 Internal T.I. 2006-0194311I7 - Registered Securities Dealer

Unedited CRA Tags
248(1) 181(1) 142.2(1)

Principal Issues: Whether a particular corporation was a "registered securities dealer" within the meaning of subsection 248(1).

Position: Yes.

Reasons: Based on the corporation's letters of registration, the relevant provincial legislation and the policy intent of the "registered securities dealer" definition in subsection 248(1).