Income Tax Severed Letters - 2007-03-16


2007 Ruling 2006-0211991R3 - Part XIII Tax

Unedited CRA Tags
212(1)(d)(ix) 212(13)

Principal Issues: 1. Whether payments pursuant to a bareboat charter are made for the use of corporeal property. 2. Does Article 21 of the Canada-Norway Treaty apply to a bareboat charter payment? 3. Are payments under a bareboat charter covered by Article 7 of the Canada-Norway Treaty? Does GAAR apply to the proposed transactions?

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

Reasons: Ownership structure is consistent with taxpayer's worldwide ownership structure. See statement of principal issues for file #2005-012796 for detailed discussion of all issues.

2007 Ruling 2006-0218321R3 - Structured Settlement

Unedited CRA Tags
56(1)(d) 60(a)

Principal Issues: An individual (Claimant) suffered personal injuries as a result of a motorcycle accident. The Claimant commenced an action for damages against the driver (Defendant). Pursuant to an out of court settlement, the Defendant's Insurer will purchase a single-premium annuity contract with a life insurance company (Lifeco) to provide the proposed periodic payments to be received under a structured settlement arrangement. The Insurer will direct Lifeco to pay the periodic payments under the annuity contract to the Claimant. Will such payments be taxable in the hands of the recipient?

Position: No.

Reasons: The terms of the structured settlement are consistent with the CRA's position as set out in Interpretation Bulletin IT-365R2.

2007 Ruling 2006-0218471R3 - Gift Subject to Conditions

Unedited CRA Tags
110.1(1) 15(1) 248(32)

Principal Issues:
Whether a donation constitutes a gift for income tax purposes when the donation is subject to various conditions.
Where a corporation, the controlling shareholder of the corporation and a charity enter into an agreement with respect to a donation, will subsection 15(1) apply to include the amount of the donation made by the corporation in the income of the controlling shareholder?
Whether the amount of the advantage in respect of the naming rights granted to the controlling shareholder is nil for the purposes of draft subsection 248(32).

Based on the facts, it is our view that the donation would constitute a gift for income tax purposes.
No, the terms of the agreement provide that the Corporation will make the gift.
Factual determination. Provided that there is no prospective economic benefit associated with the naming rights, it is our opinion the amount of the advantage is this case would be nil.

Reasons: Consistent with previous positions.

2007 Ruling 2006-0208571R3 - Entity Classification

Unedited CRA Tags
248(1) "corporation" 85.1(3)

Principal Issues: Whether the proposed XXXXXXXXXX cooperative will be treated as a corporation for purposes of the Act.

Position: Question of fact depending on the articles creating the cooperative. In this particular case, it will be treated as a corporation.

Reasons: The provisions of the foreign legislation and the articles creating the cooperative support the conclusion that this cooperative will be treated as a corporation for purposes of the Act.

2007 Ruling 2006-0209631R3 - Entity Classification

Unedited CRA Tags
248(1) - corporation

Principal Issues: Whether the proposed XXXXXXXXXX company will be treated as a corporation for purposes of the Act.

Position: Question of fact depending on the articles of incorporation. In this particular case, it will be treated as a corporation.

Reasons: The provisions of the foreign legislation and the agreement to be entered into to convert the existing LLC to a XXXXXXXXXX company support the conclusion that the XXXXXXXXXX company will be treated as a corporation for purposes of the Act.

2007 Ruling 2006-0211191R3 - Flexible Employee Benefit Program

Unedited CRA Tags
5(1) 6(1)(a) 248(1) "private health services plan" 118.2(2)

Principal Issues: Whether credits under a flex plan that are allocated in lieu of scheduled days off that were lost as a result of the implementation of the new plan will, in and of itself, result in an income inclusion for the employee pursuant to either subsection 5(1) or paragraph 6(1)(a).

Position: No.

Reasons: The allocation of flex credits falls within the guidelines for flex programs set out in IT-529 because there is a valid renegotiated employment contract in place for the new plan. Further, the employee may choose to replace the former scheduled days off with the same number of days off under the new plan, with the only change being that the days are not available for carry over to another year.

2007 Ruling 2006-0217441R3 F - Fiducies de fonds commun de placement

Unedited CRA Tags
108(2) 132(6) 4900(1)

Principales Questions: (1) Est-ce que les fonds constituent des " fiducies à participation unitaire " au sens du paragraphe 108(2) de la Loi. (2) Est-ce que les fonds constituent des " fiducies de fonds commun de placement " au sens du paragraphe 132(6) de la Loi. (3)Est-ce que les unités des fonds constituent des " placements admissibles " au sens du paragraphe 4900(1) du Règlement.

Position Adoptée: (1) Oui. (2) Oui. (3) Oui.

Raisons: Les conditions prévues à la Loi et au Règlement sont rencontrées.

2006 Ruling 2006-0202071R3 - Definition of "corporation" in subsection 248(1).

Unedited CRA Tags
248(1) - corporation 85.1(3)

Principal Issues: Will the XXXXXXXXXX -Foreign XXXXXXXXXX Joint Venture be treated as a corporation for purposes of the Act?

Position: Yes.

Reasons: The characteristics of this joint venture are similar to the characteristics of a corporation under Canadian commercial law.

2006 Ruling 2006-0203981R3 - Butterfly reorganization

Unedited CRA Tags
55(3)(b) 88(2)(b) 83(2)

Principal Issues: Sequential split-up butterflies of two private corporations

Position: Favourable rulings given.

Reasons: Meets the requirements of the law.

Technical Interpretation - External

9 March 2007 External T.I. 2006-0218501E5 F - Application de 75(2) lors d'une émission d'actions

Unedited CRA Tags
75(2) 107(4.1)

Principales Questions: Est-ce que le paragraphe 75(2) de la Loi s'applique à une société qui émet des actions en faveur d'une fiducie dont elle pourrait devenir bénéficiaire en vertu d'une faculté d'élire?

Position Adoptée: Non.

Raisons: Le paragraphe 75(2) de la Loi s'applique à la personne qui était propriétaire du bien avant sa détention par la fiducie. Comme une société n'est pas propriétaire de ses propres actions avant leur émission, il s'ensuit que le paragraphe 75(2) de la Loi ne s'appliquera pas lorsqu'une société émet des actions en faveur d'une fiducie dont elle est ou pourrait devenir bénéficiaire ou encore lorsque la société détient l'un ou l'autre des pouvoirs décrits à 75(2)a)(ii) et b).

9 March 2007 External T.I. 2007-0224101E5 - Subsection 15(1)

Unedited CRA Tags

Principal Issues: Application of subsection 15(1) in two specific fact situations.

Position: See response.

Reasons: The law.

8 March 2007 External T.I. 2006-0218021E5 - Medical Expense Tax Credit - Dental Implants

Unedited CRA Tags
118.2(2)(a) 118.2(2)(o) 118.2(2)(p) 118.4(2)

Principal Issues: Whether the cost of implanting individual teeth by means of a peg implanted into a patient's jawbone to secure the tooth would qualify as an approved dental expense.

Position: Yes, provided the payment is to a medical practitioner or a dentist.

Reasons: Payments made to a "medical practitioner" or a "dentist", who is a person authorized to practice as such pursuant to the laws of the jurisdiction in which the service is rendered, would generally constitute a medical expense for the purposes of paragraph 118.2(2)(a). Some of these payments may qualify as medical expenses pursuant to paragraph 118.2(2)(o), for laboratory, radiological or other diagnostic procedures, if they have been prescribed by a medical practitioner or a dentist.

(416) 952-8930
March 8, 2007

7 March 2007 External T.I. 2005-0158871E5 - OETC -Tax free overseas allowance

Unedited CRA Tags
122.3(1) 6(1)(b)(iii) 250(1)(d) 6(6)

Principal Issues:
Whether Mr. A is entitled to the overseas employment tax credit ("OETC") in subsection 122.3(1) of the Act?
Assuming the CIDA allowance is eligible under subparagraph 6(1)(b)(iii) of the Act, would the employer's allowance also be tax-free?


The "all or substantially all test" in paragraph 122.3(1)(b) of the Act is not met.
The allowance received by M. A from his employer and relating to the non-CIDA project would not be received by Mr. A "as a person described in paragraph 250(1)(b), (c), (d) or (d.1)". That allowance would be taxable and should be reported on a T4 information slip, unless the exception contained in subsection 6(6) of the Act was applicable.

7 March 2007 External T.I. 2006-0175081E5 - Subsections 188.1(3) and 149.1(12)

Unedited CRA Tags
149.1(12)(a) 188.1(3)

Principal Issues: 1. Can a charitable foundation be considered to control a corporation for purposes of paragraph 149.1(12)(a) of the Act, if the foundation does not own any shares of the particular corporation?
2. Does the 5% "safe harbour" rule in subsection 149.1(12)(a) of the Act, apply for purposes of subsection 188.1(3) of the Act?

Position: 1. No
2. Yes

Reasons: The legislation and previous positions

2 March 2007 External T.I. 2006-0185471E5 F - Frais de représentation - 67.1

Unedited CRA Tags
67.1(1) 67.1(2)

Principales Questions: L'entente entre l'Association canadienne de la construction et l'Agence du revenu du Canada - telle que mentionnée dans le communiqué AD-98-24 de la Direction générale des programmes d'observation - est-elle toujours en vigueur? Si oui, quelle portion d'une allocation visée par l'entente est assujettie à la limite de déductibilité retrouvée au paragraphe 67.1(1) de la Loi de l'impôt sur le revenu?
Lorsqu'une portion d'une allocation est assujettie à la restriction retrouvée au paragraphe 67.1(1), quelle portion de l'allocation donne droit au crédit de taxe sur les intrants sous la Loi sur la taxe d'accise?

Position Adoptée: L'entente est toujours en vigueur. La portion d'une allocation assujettie à la limite de déductibilité du paragraphe 67.1(1) sera déterminée en appliquant l'entente.
Lorsque le paragraphe 67.1(1) s'applique, 50 pour cent de la taxe payée ou payable sur le montant total des dépenses d'aliments, de boissons ou de divertissements donne droit à un crédit de taxe sur les intrants.

Raisons: Application de l'entente.

2 March 2007 External T.I. 2007-0224581E5 - NPO - capital gains and rental income

Unedited CRA Tags

Principal Issues: (1) Is an NPO taxable on the capital gain realized upon the sale of real property it owns?
(2) Will an NPO lose its exempt status if it purchases a replacement office building with tenants who will remain in occupancy and pay rent for a transitional period of 2 months?

Position: (1) No
(2) Question of Fact, but likely not.

Reasons: (1) A validly organized and operated NPO is not taxable on capital gains.
(2) Although an NPO cannot have profit as a motive, it can earn income. The particular circumstances of the acquisition as well as the use to which the organization puts the income will be relevant.

XXXXXXXXXX Renée Shields
(613) 948-5273
March 2, 2007

2 March 2007 External T.I. 2006-0204381E5 - Payment re School Supplies

Unedited CRA Tags

Principal Issues: Whether a one-time payment in recognition of past purchases of school supplies is taxable employment income

Position: No

Reasons: Treated as a reimbursement of expenditures that are the responsibility of the employer. No economic benefit considered received

27 February 2007 External T.I. 2006-0216481E5 F - Montant payable à des retraités (annul ass. malad)

Unedited CRA Tags
5(1) 6(3) 56

Principales Questions: Est-ce que les montants périodiquement payés à des retraités pour compenser l'abrogation de leur programme d'assurance-maladie privé sont imposables?

Position Adoptée: Non

Raisons: Selon nos recherches au sein de la LIR, dans nos différents bulletins d'interprétation et dans les différentes interprétations techniques, nous sommes d'avis que les sommes compensatoires versées aux ex-employés ne sont pas imposables en vertu de la LIR. Les paiements effectués ne rencontrent pas les critères des paragraphes 5(1) et 6(3) non plus que de l'article 56. Ce type de paiement de provient pas des sources énumérées dans la LIR.

26 February 2007 External T.I. 2005-0163391E5 F - Choix en vertu du paragraphe 256(2) de la LIR

Unedited CRA Tags
125 129(6) 256(2)

Principales Questions: Dans deux situations données, lorsque le choix prévu au paragraphe 256(2) de la LIR est effectué, est- ce que le revenu de biens gagné par une société associée conserve sa qualification ou est-il réputé être du revenu tiré d'une entreprise exploitée activement au Canada?

Position Adoptée: Le choix du paragraphe 256(2) de la LIR n'influe que sur l'application de l'article 125 de la LIR et n'a pas d'incidence sur l'application du paragraphe 129(6) de la LIR.

Raisons: Loi de l'impôt sur le revenu.

5 February 2007 External T.I. 2006-0214111E5 F - Silos à grains: Cat. 8 ou 43

Principales Questions: Dans quelle catégorie doit-on classer les silos à grains conçus pour entreposer et déshumidifier les céréales ?

Position Adoptée: S'il s'agit d'une entreprise exerçant des activités de fabrication et de transformation, le bien se qualifie pour la catégorie 43. Par contre, les exploitations agricoles se qualifient rarement à titre d'entreprise exerçant des activités de fabrication et de transformation. Si l'entreprise ne se qualifie pas, les silos à grains se qualifient pour la catégorie 8.

Raisons: Voir la LIR et les IT.

(613) 957-2082
Le 5 février 2007

Technical Interpretation - Internal

8 March 2007 Internal T.I. 2006-0214291I7 - Part XIII withholding tax

Unedited CRA Tags
212(1) 214(3) 215(1)

Principal Issues: How do we apply Part XIII withholding on the gross-up amount where a loan agreement provides that a borrower is to gross up the interest payments made to a non-resident lender such that the amount received by the non-resident, net of the required Part XIII tax required to be withheld, equals the amount of interest that would have been received by the non-resident if there were no withholding taxes?

Position: For the purposes of Part XIII, the gross-up amount would be considered as an interest.

Reasons: As the gross-up amount is provided for in the loan agreement, the total cost of each interest payment is the stipulated amount of interest paid to the non-resident plus the gross-up amount calculated in respect of the interest payment.

6 March 2007 Internal T.I. 2007-0219731I7 - Earned Depletion Allowance - Successor Corporation

Unedited CRA Tags
Reg 1202(2) Reg 1202(7) Reg 1214(1)

Principal Issues: Determination of income that can reasonably be regarded as attributable to qualifying processing "with the particular property" for purposes of clause 1202(2)(b)(i)(D) after an amalgamation to which subsection 1214(1) applied.

Position: Calculated on same basis as applicable to the relevant predecessor corporation.

Reasons: Interpretation of clause 1202(2)(b)(i)(D) in light of the facts of this situation and the provisions of paragraph 1214(1)(b) which deem the new corporation formed upon the amalgamation to be the same corporation as, and a continuation of, the relevant predecessor for purposes of determining any deduction to the new corporation under subsection 1202(2).

20 February 2007 Internal T.I. 2007-0221261I7 - Definition of "corporation" in subsection 248(1).

Unedited CRA Tags
248(1) - corporation

Principal Issues: How will an "association of persons", carrying on business in Pakistan, be classified for purposes of the Act, as a corporation or as a partnership.

Position: A partnership.

Reasons: The characteristics of an association of persons are similar to the characteristics of a partnership under Canadian commercial law.

15 February 2007 Internal T.I. 2006-0193891I7 - Transfer of Tuition Tax Credits to Brother

Unedited CRA Tags
118.5 118.6 252

Principal Issues: Whether the taxpayer may claim any unused tuition or educational tax credits in respect of a sister that was wholly dependent on the taxpayer when she was XXXXXXXXXX years old.

Position: Question of fact.

Reasons: Definitions of child and parent in section 252.

3 March 2003 Internal T.I. 2002-01356370 - XXXXXXXXXX

Unedited CRA Tags
39(1)(b) 40(1)(b) 104(1), 126(1) 54 definition of "proceeds of disposition

Principal Issues: The taxpayer received a payment from the XXXXXXXXXX in settlement of a class action suit against the company pertaining to a loss realized by the taxpayer on the disposition of the shares of the company. Only a portion of the loss was recovered.
1. How is she to report the balance of her "realized loss"?
2. How should the receipt of the amount be reported for tax purposes in Canada?
3. Is the 30% tax withheld reduced under the Canada-U.S. Income Tax Convention?
4. Can the taxpayer claim a foreign tax credit in XXXXXXXXXX for the tax withheld by XXXXXXXXXX ?

1. Likely, she has already reported the loss in the years the shares were sold. There is no further loss to report.
2. The payment is likely damages, and would be additional proceeds of disposition for the year of sale, which is probably statute-barred.
3. No.
4. Only if she has other U.S. "qualifying income" in XXXXXXXXXX .

1. The payment from the settlement fund was to shareholders who sold their shares between XXXXXXXXXX and XXXXXXXXXX .
2. Based on the information we have been able to obtain.
3. If our conclusions are correct, the U.S. has taxed in accordance with the Convention.
4. The additional proceeds of disposition are not taxable in XXXXXXXXXX .