Income Tax Severed Letters - 2007-02-02

Principal Issues:
Tax treatment of a lump sum settlement received by an employee or former employee in respect of future long-term disability ("LTD") benefits under an employer's self-funded LTD plan.

Position:
Where an employer's self-funded LTD plan is not an insurance plan, it is our view that Tsiaprailis [2005] DTC 5119 (SCC) would have no direct relevance in the tax treatment of a lump sum settlement received by an employee or former employee in respect of future LTD benefits under the plan. In the absence of any other information, it is our view, where an employee receives a lump sum benefit under an uninsured wage loss replacement plan pursuant to the terms of an employment contract, the amount is to be included in computing the taxpayer's income under subsection 5(1) or section 6, as income from an office or employment.

Reasons:
Reading of the relevant legislation and Agency's general position in IT-428 regarding uninsured wage loss replacement plans.

Principal Issues:
Whether an allowance or reimbursement paid to teachers who are on call as substitutes in respect of travel between home and the workplace is a taxable employee benefit under the Act.

Position:
For income tax purposes, travel between home and the workplace is personal in nature and applies equally to regular scheduled work trips and the trips that occur while an employee is on call. Accordingly, any payment in respect of such travel is a taxable benefit to the employee under subsection 6(1). Subsection 81(3.1) exempt from employment income an allowance or reimbursement with respect to travel expenses paid by an employer to a part-time employee for travel necessitated by the part-time employment, where certain conditions are satisfied.

Reasons:
Understanding of long standing policy objectives of the legislation.

Principal Issues: Whether the license agreement for a childcare facility should be classified as a license or lease for CCA purposes.

Position: It is a license.

Reasons: The agreement would result is a license as this is the stated intent of the parties

2006-019945
XXXXXXXXXX Charles Rafuse
(613) 957-8967
January 25, 2007

Principal Issues: Is a resident of Switzerland taxable in Canada on the disposition of shares of Corporation where the purchaser is Corporation?

Position: In a situation where the purchaser of the shares of the capital stock of a corporation is that corporation, a dividend is deemed to have been paid to the shareholder pursuant to subsection 84(3) of the Act. That deemed dividend is equal to the proceeds of disposition less the paid-up capital of the shares. Pursuant to subsection 212(2), that deemed dividend will be subject to Part XIII tax. Pursuant to subsection 40(3.7) and 112(3), the capital loss resulting from the disposition would be reduced. Where the period of reassessment of paragraph 152(4)(b) is not expired, Part XIII tax paid on dividends may be credited by the amount provided in section 119 against the tax imposed on the departure gain on shares.

Reasons: Provisions of the Act.

Principal Issues: Who is entitled to deduct Canadian exploration expense (CEE) in the situation where an individual subscribes for units of a limited partnership in a particular calendar year; prior to the end of that year, the individual dies and the units are acquired by the individual's estate, which holds the units on December 31 of that year. On December 31 of that year, the limited partnership allocates CEE that has been renounced to the partnership (as a result of holding flow-through shares) to its partners as of that date?

Position: Subject to the limitation in subsection 66.8(1), the estate can deduct the CEE in its tax year that includes the partnership's fiscal period ending December 31, as it will be a partner on the date that the CEE is allocated by the limited partnership to its partners.

Reasons: CEE can only be allocated to the persons that are partners at the end of the partnership's fiscal year, pursuant to paragraph (h) of the definition of CEE in subsection 66.1(6). Subsection 66.8(1) restricts the amount of CEE allocated to a limited partner to the partner's at-risk amount less investment tax credit allocated to partner from the partnership. The estate is considered to have legal title to the partnership units.