Income Tax Severed Letters - 2007-03-30

Ruling

2007 Ruling 2005-0161581R3 F - Butterfly

Unedited CRA Tags
55

Principal Issues: Butterfly

Position: Favourable rulings given.

Reasons: Meets the requirements of the Act.

2007 Ruling 2006-0175261R3 F - Butterfly

Unedited CRA Tags
55

Principal Issues: Whether the proposed winding-up of the corporation will qualify as a butterfly?

Position: Yes. Favourable rulings given.

Reasons: Meets the requirements of the Act.

2007 Ruling 2006-0206431R3 - Partnership Reorganization

Unedited CRA Tags
125(7)

Principal Issues:
Where a partner of a professional partnership creates a professional corporation through which professional services will be provided to the partnership, will the corporation be eligible for the small business deduction?

Position:
Yes.

Reasons:
As long as the partner in his or her role of an employee of the professional corporation providing the services of the "professional function" would not, but for the corporation, be considered an employee of the partnership, then the business of the corporation is not a personal services business. Also, provided that the professional corporations are not themselves carrying on business in partnership, there is no specified partnership income.

2007 Ruling 2006-0212941R3 - Partnership Reorganization Personal Services Bus.

Unedited CRA Tags
125(7)("personal services business") 125(7)("specified partnership income")

Principal Issues: Where a partner of a professional partnership creates a professional corporation through which professional services will be provided to the partnership, will the corporation be eligible for the small business deduction?

Position: Yes.

Reasons: As long as the partner in his or her role of an employee of the professional corporation providing the services of the "professional function" would not, but for the corporation, be considered an employee of the partnership, then the business of the corporation is not a personal services business. Also, provided that the professional corporations are not themselves carrying on business in partnership, there is no specified partnership income.

2006 Ruling 2005-0134731R3 F - Transfer of Business Within Family

Unedited CRA Tags
84.1 40(3.6) 245(2)

Principal Issues: Use of the capital gains deduction in the context of the transfer of a family business to the owner's children.

Position: Favourable rulings provided.

Reasons: Meets the requirements of the law.

Ministerial Correspondence

21 March 2007 Ministerial Correspondence 2007-0222141M4 - Fitness Tax Credit

Unedited CRA Tags
118.03

Principal Issues: Whether bowling will be considered a "prescribed physical activity" for purposes of the Children's Fitness Tax Credit.

Position: Question of fact.

Reasons: While the provision of the Income Tax Regulations that will define a prescribed physical activity has not yet been drafted, the Department of Finance has indicated that the activity must be ongoing (either a minimum of eight weeks duration with a minimum of one session per week or, in the case of children's camps, five consecutive days), supervised, and suitable for children. In addition, substantially all of the activities must include a significant amount of physical activity that contributes to cardio-respiratory endurance plus one or more of muscular strength, muscular endurance, flexibility, or balance. The Agency will generally rely on the organization to make such determinations since it has the detailed knowledge of the particular program.

Technical Interpretation - External

23 March 2007 External T.I. 2007-0227981E5 - Canadian Resource Property

Unedited CRA Tags
66(15) 66.4(5) 66.2(5) 59(3.2)(c)

Principal Issues: tax treatment for consideration received on entering into a petroleum and natural gas lease

Position: consideration represents proceeds to be credited to the CCOGPE pool

Reasons: review of the legislation

21 March 2007 External T.I. 2007-0227451E5 - Principal Residence Exemption

Unedited CRA Tags
54

Principal Issues: Whether adjacent bare lot can be included as a principal residence.

Position: No.

Reasons: Adjacent lot is owned under separate title and considered not necessary for the use and enjoyment of the residence situated on the other lot

14 March 2007 External T.I. 2006-0169821E5 F - REÉÉ - définition de souscripteur

Unedited CRA Tags
146.1(1)

Principales Questions: Un REÉÉ peut-il avoir plus d'un souscripteur après le décès du souscripteur initial?

Position Adoptée: Oui

Raisons: Application de l'alinéa c) de la définition de souscripteur au paragraphe 146.1(1)

14 March 2007 External T.I. 2006-0212801E5 - Meaning of "capital" for non-share corporation

Unedited CRA Tags
149(1)(d.5) 149(1.3)

Principal Issues: 1. Does the fact that all voting rights are exclusive to members that are municipalities constitute ownership of "capital" of a non-share corporation by the municipalities, for the purposes of paragraph 149(1)(d.5)?
2. What is the meaning of the expression "controlled directly or indirectly in any manner whatever" in subsection 149(1.3)?

Position: 1. No.
2. Same meaning as given to this expression in subsections 256(5.1) and (6).

Reasons: 1. The word "capital" is not defined in the Act or jurisprudence and we have to look to the degree of control over the non-share corporation to establish the ownership of its capital and to determine whether the 90% test is met. Since this is a factual determination, no single factor is determinative of who owns capital of a non-share corporation. For this reason, the voting rights are not by themselves, sufficient to conclude, in this particular case, that the municipalities own at all relevant times the capital of the corporation in accordance with paragraph 149(1)(d.5).
2. Wording of the Act.

14 March 2007 External T.I. 2007-0219601E5 F - Police d'assurance-vie cédée en garantie

Unedited CRA Tags
20(1)e.2)

Principales Questions: Les primes payées par une société mère sur une police d'assurance-vie dont elle est titulaire et cédée à titre de garantie d'un emprunt de sa filiale sont-elles déductibles dans le calcul du revenu de la société mère en vertu de l'alinéa 20(1)e.2) de la Loi?

Position Adoptée: Non

Raisons: L'alinéa 20(1)e.2) accorde une déduction à un emprunteur qui a cédé un intérêt dans une police d'assurance-vie à titre de garantie

12 March 2007 External T.I. 2006-0213231E5 - medical expenses, tuition, travel, counselling

Unedited CRA Tags
118.2

Principal Issues: Do various expenses incurred qualify as medical expenses for purposes of the medical expense tax credit in section 118.2 of the Income Tax Act?

Position: Some appear to qualify but these determinations are a question of fact and must be made by the TSO.

Reasons: General comments provided.

9 March 2007 External T.I. 2006-0212781E5 - Employer's contributions to a RPP

Unedited CRA Tags
6(1)(a)

Principal Issues: Are benefits derived from employer's contribution to a multiple employer pension plan included in income from an office or employment under paragraph 6(1)(a)?

Position: No, if the contributions are payments made by the employer, as required by the terms of the plan and the plan constitute a "registered pension plan" as defined in subsection 248(1).

Reasons: Subparagraph 6(1)(a)(i) excludes such contributions.

Conference

6 October 2006 Roundtable, 2006-0196082C6 F - Frais de décontamination de sol

Unedited CRA Tags
9(1) 18(1)(b)

Principales Questions: Si un terrain doit être décontaminé à la suite d'un évènement survenu après l'acquisition du terrain et que les frais de décontamination n'ont pour objet que de ramener le terrain à son état au moment où le bien a été acquis, les frais de décontamination pourraient-ils constituer une dépense de nature courante?

Position Adoptée: Question de fait.

Raisons: Loi de l'impôt sur le revenu. La jurisprudence et les positions prises par l'ARC.

6 October 2006 Roundtable, 2006-0195961C6 F - FCA decision La Survivance

Unedited CRA Tags
256(9) 39(1)(c)

Principal Issues: (1)Whether the CRA accepts the FCA's conclusions in the case of La Survivance in regards to the application of the presumption in subsection 256(9) of the ITA? (2) Whether the CRA plans to assess similar cases to La Survivance's in order to disallow any BIL claimed.?

Position: (1) and (2) Yes.

Reasons: (1) The CRA has decided not to seek leave to appeal of the decision of the FCA before the SCC on the ground that this decision does not raise any question of national impact. (2) It seems that, the concept of "control in fact", as per its meaning in subsection 256(5.1) of the ITA, appears not to have been considered in the determination of whether La Survivance was eligible to a BIL under subparagraph 39(1)(c)(iii) of the ITA

6 October 2006 Roundtable, 2006-0196051C6 F - GAAR

Unedited CRA Tags
245

Principal Issues: See below.

Position: See below.

Reasons: See below.

6 October 2006 Roundtable, 2006-0196071C6 F - Servitude au Québec

Unedited CRA Tags
43 54 110.6

Principales Questions: Lors de la constitution d'une servitude réelle grevant un immeuble, un contribuable peut-il bénéficier de l'exonération du gain en capital relativement aux biens agricoles admissibles ou à la résidence principale, le cas échéant?

Position Adoptée: La concession d'un droit d'usage ou de passage public constitue une disposition d'une partie du bien faisant l'objet de la concession. En vertu de l'article 43 de la L.I.R., l'ARC considère que le PBR de la partie faisant l'objet de la concession correspond à la fraction du prix de base rajusté de la totalité du bien qu'il est raisonnable d'attribuer à cette partie. Ainsi, lors de la constitution d'une servitude un contribuable pourrait potentiellement bénéficier de l'exonération du gain en capital rattachée à un bien agricole admissible ou à une résidence principale.

6 October 2006 Roundtable, 2006-0196101C6 F - Moment où le montant devient payable

Unedited CRA Tags
39(1)(c) 39(12)

Principales Questions: (1) L'ARC est-elle en accord avec l'interprétation du juge dans l'affaire Proulx-Drouin relativement au moment où une créance devient payable pour la première fois?
(2) L'ARC peut-elle préciser quelles directives seraient appropriées dans la détermination de ce moment?

Position Adoptée: (1) Le terme "payable" tel qu'utilisé au paragraphe 39(12) de la LIR réfère au moment où un créancier peut, pour la première fois, exiger du garant le paiement de la dette de la société.
(2) Il s'agit de déterminations de fait.

6 October 2006 Roundtable, 2006-0196121C6 F - Définition de AAPE

Unedited CRA Tags
110.6(14)(b) 251(5)(b)

Principales Questions: (1) L'ARC considère-t-elle qu'une convention prévoyant que des actions d'une société pouvant être émises à une personne non-résidente dans certaines circonstances et sur décision de cette personne constitue une "convention d'achat-vente" aux fins de l'alinéa 1106.6(14)b)?
(2) L'ARC pourrait-elle apporter plus de précisions quant à son interprétation de cette expression?

Position Adoptée: (1) Non.
(2) L'expression "convention d'achat-vente" doit être interprétée à la lumière de son sens ordinaire. Il s'agit d'une détermination de fait.

6 October 2006 Roundtable, 2006-0196141C6 F - Disposition involontaire d'un bien

Unedited CRA Tags
44(2)

Principal Issues: (1) Quel est le jour de détermination de l'indemnité aux fins de l'alinéa 44(2)b)?
(2) Un contribuable peut-il réclamer la déduction pour amortissement à l'égard d'un bien pour les années d'imposition pendant lesquelles un contribuable est réputé détenir le bien en raison des alinéas 44(2)a) à e)?

Position: (1) Il s'agit soit du jour où le droit d'appel du contribuable expire soit le jour où un accord est conclu avec une autorité expropriante.
(2) Oui.

Reasons: Loi de l'impôt sur le revenu.