Income Tax Severed Letters - 2007-01-19

Principales Questions: Une contribuable qui exploite une entreprise à titre de conseillère et styliste personnalisée peut-elle déduire les coûts pour ses vêtements, sa coiffure et ses frais de nettoyage à sec de son revenu d'entreprise?

Position Adoptée: Non, il s'agit de dépenses personnelles ou de subsistance aux termes de l'alinéa 18(1)h) de la Loi de l'impôt sur le revenu.

Raisons: Loi de l'impôt sur le revenu, analyse de jurisprudence, position énoncée dans des bulletins d'interprétation.

Principal Issues: Where a taxpayer has a partial disposition of farm quota, which are essentially identical properties, that may be qualified or unqualified as a consequence of subsection 14(1.03), can the taxpayer determine the extent of qualified property disposed using a pro-rata calculation?

Position: Yes.

Reasons: The Act provides for the election in respect of the disposition of certain ECP. A pro-rata calculation in the circumstances of identical properties provides a reasonable approach to determine relevant amounts.

Principal Issues:
Whether the cost of a particular over-the-counter medication is an eligible medical expense pursuant to paragraph 118.2(2)(n) for purposes of the medical expense tax credit

Position:
No, amounts are eligible only if the particular medication is included in Schedule I of the Drug Schedule Regulations to the relevant provincial legislation and purchased for use by the patient as prescribed by a medical practitioner or dentist and as recorded by a pharmacist.

Reasons:
In interpreting the phrase "as prescribed by a medical practitioner or dentist and as recorded by a pharmacist", the CRA relies on the legislative authorities governing the sale, dispensing or disposal of drugs and devices. This approach is consistent with the decision of the Federal Court of Appeal in Ray [2004] DTC 6028.

Principal Issues:
Whether the breach of contract settlement received is a deemed dividend for tax purposes based on the terms and conditions of the contract of employment.

Position:
No.

Reasons:
In our opinion, the breach of contract settlement amount is a retiring allowance for purposes of the Act as defined in subsection 248(1) and included in the income of the recipient under subparagraph 56(1)(a)(ii).

Principal Issues: If real property that is owned by a shareholder of a corporation, but used by the corporation in its business, is transferred to the corporation prior to a sale of shares, will the capital gains exemption be available?

Position: No.

Reasons: Per paragraph 110.6(14)(f), the shares issued on transfer will be deemed to have been owned by a person not related to the shareholder and thus will not meet the definition of QSBC shares. Consistent with CRA position taken in response to 1988 Round Table question.