Income Tax Severed Letters - 2007-06-01


2007 Ruling 2005-0123381R3 - internal reorg of an income trust structure

Unedited CRA Tags
132.2 253.1

Principal Issues: 1. Will subsection 132.2 apply to the transfer of assets from Amalco, a corporation that is stated to be a mutual fund corporation to the Fund?
2. Will Gaar apply given that the existing structure still has outstanding exchangeable shares of Opco?

Position: 1. Yes.
2. No, since the exchangeable shares will not form part of the reorganization.

Reasons: 1. The conditions of 132.2 will be met.
2. Since the exchangeable shares represent less than 10% of the equity of Opco, the conditions set out in 132.2 can be met even if though the exchangeable shares will not be converted to units as part of the reorganization. It is our view that GAAR would apply if the exchangeable shares had been converted to units of the Fund as part of the exchange.

2007 Ruling 2006-0188921R3 - Bituminous Sand Project

Unedited CRA Tags
Class 41

Principal Issues: Whether a bituminous sand project constitutes one project and one mine. Whether depreciable property to be used in the project is property described in Class 41.

Position: Yes.

Reasons: We received an opinion from Natural Resources Canada that concluded that the particular project will be one project. Based on this opinion, we are ruling that the project will be deemed to be one mine.

2007 Ruling 2006-0195571R3 - Full split-up butterfly

Unedited CRA Tags

Principal Issues: Standard butterfly

Position: Rulings given

Reasons: Complies with 55(3)(b).

Ministerial Correspondence

23 May 2007 Ministerial Correspondence 2007-0232661M4 - Transit Pass Credit

Unedited CRA Tags

Principal Issues: Whether a transportation pass to travel via a commuter van or car service for a fee will qualify for the transit pass credit.

Position: No.

Reasons: Does not meet the definition of public commuter transit services. The transportation is not by means of bus, ferry, subway, train or tram.

Technical Interpretation - External

25 May 2007 External T.I. 2007-0231211E5 - support amount

Unedited CRA Tags
56.1(4) 60(b)

Principal Issues: whether spousal support, child support, and house loan payments, paid to non-resident, is deductible

Position: question of fact

Tel: 1-613-957-2113
Fax: 1-613-957-2088

24 May 2007 External T.I. 2006-0209081E5 F - Withholding Source Deductions - Trustee Fees

Unedited CRA Tags
153(1)(a) 153(1)(g)

Principal Issues: In a given situation, where each trustee of a trust will receive for his/her services (which will not be rendered in the course of the trustee's business) a fixed fee plus a fee per meeting of the trustees attended, whether the trust has to withhold income tax from the fees paid to the trustees?

Position: Yes.

Reasons: Long standing CRA position (T4001) under Estate executors or liquidators, and administrators and in paragraph 5 of IT-377R ARCHIVED.

24 May 2007 External T.I. 2006-0213501E5 - Payments to home providers

Unedited CRA Tags

Principal Issues: Are payments made to a caregiver to be included in the caregiver's income?

Position: Question of Fact.

Reasons: Dependant on whether the caregiver meets the requirements articulated in ITTN-31R2.

24 May 2007 External T.I. 2007-0232091E5 - Carbon credits paid to farmers

Unedited CRA Tags
9(1) 12(1)(x) 28(1)

Principal Issues: What is the tax treatment of cash paid to farmers for carbon credits?

Position: Business Income.

Reasons: Sections 9 and 28.

23 May 2007 External T.I. 2007-0222411E5 - Boarding School Children from Remote Location

Principal Issues: Taxability of home boarding income to recipients. Host home providers receive payment to board children from a remote location to permit them to attend secondary school.

Position: The taxability of the amounts paid to host home providers is a question of fact, which may vary case by case. For example, if the amount paid to the home providers is strictly to reimburse costs and there is no element of income, it would not be taxable. However, if there is an element of income, its character must be determined. If there is sufficient activity and commerciality, it would be appropriate to treat it as business income, whereby the host home provider would then be entitled to business deductions. If there were a rental income component, then it would be appropriate to treat it as property income, subject to rental expense restrictions.

Reasons: Insufficient information provided. Each recipient's situation and therefore tax treatment may differ.
CGA, CPA(vt)
(613) 957-8954
May 23, 2007

17 May 2007 External T.I. 2006-0190931E5 - Incorporation of Professionals - 110.6(14)(f)

Unedited CRA Tags

Principal Issues: If the deeming rule in paragraph 110.6(14)(f) applies where a dental practitioner has share ownership in a new company (the "Professional Corporation") before transferring the assets of the practice into the Professional Corporation.

Position: Question of fact.

Reasons: Whether or not there was a series of transactions is a question of fact.


6 October 2006 APFF Roundtable Q. 21, 2006-0195981C6 F - Deductibility of Professional Fees - Reorg.

Unedited CRA Tags
9(1) 18(1)(b) 14(5) Eligible Capital Expenditure

Principal Issues: Whether fees incurred by a given public corporation with respect to a "fairness opinion" relating to the redemption of shares of its capital stock are deductible as current expenses. Whether similar "fairness opinion" fees incurred with respect to the amalgamation of two corporations are deductible as current expenses.

Position: Since these fees would be incurred in connection with transactions of a capital nature, the said fees would generally constitute expenditures or outlays of a capital nature and their deduction as current expenses would be precluded by paragraph 18(1)(b) of the Act. The redemption of shares is a transaction of a capital nature because it generally results in the reshaping of the corporation's capital structure. Furthermore, any expenses in connection with the redemption of shares can be viewed as being made "once and for all", at least with respect to the shares being redeemed. Merger costs are generally on account of capital as they are incurred for the creation of a business entity, structure or organization, for the earning of profit, or for the modification or the development of such entity, structure or organization. The merger costs may also be viewed as being expended on the structure within which the profits are earned, as opposed to amounts expended as part of the money-earning process. Finally, the merger costs are expenditures made once and for all, with a view to bringing into existence an advantage of enduring benefit. The decisions in Boulangerie St-Augustin, International Colin Energy and BJ Services (which dealt with the tax treatment of take-over bid costs incurred by a target) can be distinguished from the two given situations. However, if the amalgamation is part of a series of transactions relating to the acquisition of a target, expenses incurred by such target to meet obligations imposed under a Securities Act and/or Business Corporations Act in producing circulars for shareholders concerning take-over bids (which would normally include fees relating to fairness opinions) would generally be deductible pursuant to subsection 9(1), and not be precluded by paragraphs 18(1)(a) and (b). As for the fees incurred by a purchaser in such a case, they would be considered as capital expenditures.

Reasons: Wording of the Act and previous positions.

Technical Interpretation - Internal

24 May 2007 Internal T.I. 2007-0228231I7 - Workspace in Home - Employee

Unedited CRA Tags
8(13) 8(10) 8(1)(f) 8(1)(i)

Principal Issues: 1) Does the employer have to ensure the conditions are met before signing Form T2200? 2) Can a commissioned sales employee claim expenses related to workspace in the home, used to earn employment income, if their work requires them to be in the field working at clients locations for greater than 50% of the time and the workspace is used exclusively for business purposes? 3) How is the 50% principal use condition determined? 4) What is the meaning of the condition "for meeting customers" in paragraph 2b of IT-353R2? Does the customer have to physically visit the home office?

Position: 1) Pursuant to subsection 8(10) of the Act, Form T2200 is the prescribed form which must be signed by an employer in order for an employee to claim deductions for expenses under paragraphs 8(1)(c), (f), (h) or (h.1) or subparagraphs 8(1)(i)(ii) or (iii) of the Act. The words of subsection 8(10) of the Act indicate that by signing the form, the employer certifies that the required conditions set out in the above provisions are met. It follows that the best course of action is for the employer to be reasonably certain the employee meets the conditions before signing Form T2200. For the employee to claim the deduction, however, he or she must be able to demonstrate that the requirements of subsection 8(13) of the Act have in fact been met. 2) Question of fact. The conditions required in subsection 8(10) and subparagraph 8(1)(f) of the Act must be met and any deduction otherwise available is subject to further restrictions pursuant to subsection 8(13) of the Act. 3) Although the term "principally" is not defined in the Act, we have accepted the view that it means "more than 50% of the time". Such a determination however involves a finding of fact in each case as to where a particular individual "principally performs the duties of the office or employment". 4) The regularity and frequency of meetings in a workspace to meet the requirement of being on a regular and continuous basis will depend on the nature of the business activity and is determined on the facts of each situation. However, a workspace in respect of a business, which normally requires infrequent meetings or frequent meetings at irregular intervals, would not meet the requirement. Generally, it is CRA's view that meetings are conducted in person.

Reasons: Reading of the legislation and consistent with prior positions.

22 May 2007 Internal T.I. 2007-0229241I7 - sharecropper

Unedited CRA Tags

Principal Issues: Whether income under "sharecropping arrangement" received by a farmer from a tenant in lieu of rent is considered rental income or farming income.

Position: Question of fact.

Reasons: Often sharecropping income is rental income. However, there may be other types of sharecrop arrangements, where the sharecropper is actually an employee of the taxpayer and receives a share of the crop as remuneration for services rendered. Under these other types of arrangements the landlord could be in the business of farming depending upon the facts of a specific case.