Income Tax Severed Letters - 2007-06-08

Ruling

2007 Ruling 2006-0201321R3 - Borrowed money, shares of subsidiary

Unedited CRA Tags
20(3) 20(1)(c)(i) 20(1)(e) 9

Principal Issues: Whether (1) interim financing from Certificates of Deposits would qualify as borrowed money for purposes of subsection 20(3); (2) interest payable on Notes would be deductible under paragraph 20(1)(c); and (3) expenses incurred in the course of the issuance of the Notes would be deductible under paragraph 20(1)(e)(ii)?

Position: (1), (2) and (3) Yes

Reasons: (1) the terms of the Certificates of Deposits depict a loan arrangement under a lender-borrower relationship; (2) borrowed money was used to purchase common shares of foreign affiliate that was "capital property" to the taxpayer, within the meaning of section 54; (3) the expenses were incurred in the course of borrowing money used for the purpose of earning income from property which was not exempt income.

2007 Ruling 2007-0219291R3 - Specified employer - overseas tax credit

Unedited CRA Tags
95(6) 122.3

Principal Issues: Will Opco2 be a specified employer, as defined in subsection 122.3(2)?

Position: Opco2 will be a specified employer for the purposes of section 122.3 of the Act.

Reasons: Subsection 95(6) will not apply to the acquisition by Opco1 of 10% of the shares of Opco2. Therefore, Opco2 will be a foreign affiliate of Opco1 which resides in Canada and will be a specified employer pursuant to paragraph c) of the definition of specified employer in subsection 122.3(2) of the Act.

2007 Ruling 2007-0223521R3 - Interest deduction and withholding exemption

Unedited CRA Tags
20(1(c) 20(1)(f), 212(1)(b)(vii)

Principal Issues: Is the interest deductible on XXXXXXXXXX yr Notes issued by a XXXXXXXXXX under 20(1)(c)? 2. Is the shallow discount on the issue deductible under 20(1)(f)? 3. Is the withholding exemption available to non-residents holders of the Notes who deal at arm's length with the XXXXXXXXXX ?

Position: 1. YES 2. YES 3. YES

Reasons: 1. Meets the provision of 20(1)(c) 2. Meets 20(1)(f)(i), but is too far in the future to rule. 3. Meets the provisions of 212(1)(b)(vii)

2007 Ruling 2007-0226271R3 - Structured Settlement

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

Principal Issues: An individual (Plaintiff) suffered personal injuries as a result of a XXXXXXXXXX accident. The Plaintiff commenced an action for damages against the driver of the other vehicle and various other defendants. Pursuant to an out of court settlement, the Assignee of two of the casualty insurers of certain defendants (pursuant to an Assignment and Assumption Agreement) 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 Assignee will direct Lifeco to pay the periodic payments under the annuity contract to the Plaintiff. 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.

2006 Ruling 2006-0185501R3 - Corporate Reorg. and DSU Adjustment

Unedited CRA Tags
6801(d)

Principal Issues: 1) Where a corporation spins out part of its operations, can the board of directors adjust the number of DSUs credited to member accounts to reflect the effects of the reorganization? 2) Could the adjustment reflect the post-reorganization increase in value resulting from the disappearance of the consolidated discount?

Position: 1) Yes.

Reasons: 1) Most plans contain a provision allowing for the adjustment in order to ensure that members are not adversely affected by reorganizations. 2) Our long-standing position has been that the fair market value of the DSUs after the reorganization must be equal to the fair market value of the DSUs before the reorganization in order to meet paragraph 6801(d) of the Regulations.

XXXXXXXXXX 2006-018550

2005 Ruling 2005-0126061R3 - Butterfly reorganization

Unedited CRA Tags
55(3)(b) 106(3) 107(2)

Principal Issues: Whether a proposed reorganization meets the requirements of 55(3)(b)

Position: Yes.

Reasons: Meets the requirements of the law

Ministerial Correspondence

29 May 2007 Ministerial Correspondence 2007-0234291M4 - Children's Fitness Credit

Unedited CRA Tags
118.03

Principal Issues: Will "for fee" classes offered by a private company for 25 minutes during the school day qualify for the credit?

Position: It appears not.

Reasons: The Regulations prescribing what will qualify as a "prescribed physical activity" have not yet been promulgated by the Department of Finance. However, Finance has publicly indicated that an activity occurring as part of physical education programming during the school day will not be eligible, even if a surcharge is levied for the activity.

17 May 2007 Ministerial Correspondence 2007-0225892M4 - Transit Pass Tax Credit

Unedited CRA Tags
118.02

Principal Issues: Whether swipe cards will qualify for the transit pass tax credit under the proposed 2007 Federal Budget.

Position: No.

Reasons: Swipe cards providing a limited number of rides that the user can choose to use within a month or to carry forward for use in another month will not qualify under the proposed changes.

Technical Interpretation - External

31 May 2007 External T.I. 2007-0223081E5 - Commercialization Investment Funds Program

Unedited CRA Tags
12(1)(x) 53(2)(k)

Principal Issues: What is the appropriate tax treatment of a grant received under the Ontario Commercialization Investment Funds Program in respect of an investment in an eligible business?

Position: In this case, the ACB of the shares or partnership interest, as the case may be, is reduced.

Reasons: Paragraph 53(2)(k) is applicable.

30 May 2007 External T.I. 2006-0200271E5 F - Bien agricole et résidence principale

Unedited CRA Tags
40(2)(b) 54 110.6(1) 110.6(2)
Summary Under
Tax Topics - Income Tax Act - Section 40 - Subsection 40(4)
s. 45(3) election did not extend time that farm house was a principal residence, once the occupant went to nursing home
Summary Under
Tax Topics - Income Tax Act - Section 45 - Subsection 45(3)
no change of use when occupant of residence moved into a nursing home
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 110.6 - Subsection 110.6(1.3) - Paragraph 110.6(1.3)(c)
principally references over 50% of use

Principales Questions:
1. Une personne décédée, qui était veuve, est-elle réputée avoir disposé de ses biens à la juste valeur marchande?
2. La résidence d'un contribuable est inhabitée parce qu'il a dû être hébergé dans un centre d'hébergement et de soins de longue durée. La résidence respecte-elle la définition de résidence principale à l'article 54 pour les années où elle est inhabitée?
3. Au moment du décès, la ferme sera-t-elle considérée comme un bien agricole admissible au sens du paragraphe 110.6(1) si la ferme a été exploitée de XXXXXXXXXX à XXXXXXXXXX ?
4. Quel est le prix de base rajusté utilisé pour calculer le gain en capital de la ferme?

Position Adoptée:
1. Oui.
2. Non.
3. Question de faits
4. Commentaires généraux.

Raisons:
1. Application de l'alinéa 70(5).
2. Selon la définition de résidence principale à l'article 54, la résidence doit être normalement habitée par le contribuable, par son époux ou par un enfant du contribuable.
3. Définition de bien agricole admissible prévue à 110.6(1) et en vertu de 110.6(1.3).
4. Les faits soumis ne permettent pas de répondre précisément à la question

XXXXXXXXXX 2006-020027
Lucie Allaire, LL.B., CGA
Le 30 mai 2007

30 May 2007 External T.I. 2006-0211371E5 - Bed and breakfast - application of ss 18(12)

Unedited CRA Tags
18(12)

Principal Issues: Given that there are several tax court decisions in which the TCC ruled that subsection 18(12) did not apply in bed and breakfast type operations, will the CRA reconsider its current position to the contrary.

Position: No.

Reasons: There is nothing in the words of subsection 18(12) that support the position that it does not apply to bed and breakfast operations. Nonetheless, the CRA abides by the Tax Court of Canada's decision in Sudbrack, the only decision on this issue heard under the general procedures. Accordingly, the CRA recognizes that an exception to the application of subsection 18(12) occurs in situations that fall within the same fact pattern as Sudbrack.

30 May 2007 External T.I. 2006-0218101E5 F - Interaction entre 125.4(1) et 256(1.2)c)

Unedited CRA Tags
125.4(1) 256(1.2) 256(5.1) 1106(2)
Summary Under
Tax Topics - Income Tax Regulations - Regulation 1106 - Subsection 1106(2)
s. 256(1.2)(c) does not inform the definition of prescribed taxable Canadian corporation
Summary Under
Tax Topics - Income Tax Act - Section 256 - Subsection 256(1.2) - Paragraph 256(1.2)(c)
s. 256(1.2)(c) does not affect the determination of de facto control

Principales Questions: L'alinéa 256(1.2)c) est-il pertinent pour déterminer si une société est une société canadienne visée par règlement telle que prévue à la définition de "société admissible" au paragraphe 125.4(1)?

Position Adoptée: Non

Raisons: L'alinéa 256(1.2)c) ne s'applique qu'aux paragraphes (1), (1.1), (1.2) et (1.3) à (5) de l'article 256.

XXXXXXXXXX 2006-021810
Nancy Turgeon, CGA
Le 30 mai 2007

28 May 2007 External T.I. 2007-0219801E5 F - Paiement de soutien aux enfants

Unedited CRA Tags
74.1(2)
Summary Under
Tax Topics - Income Tax Act - Section 74.1 - Subsection 74.1(2)
child assistance payment is transferred to a minor child is subject to s. 74.1(2) attribution

Principales Questions: Un paiement de soutien aux enfants mentionné à l'article 1029.8.61.18 de la Loi sur les impôts (Québec) qui est transféré à un enfant mineur est-il sujet aux règles d'attribution édictées au paragraphe 74.1(2)?

Position Adoptée: Oui

Raisons: Libellé de la loi. Ce paiement appartient à celui qui le reçoit et n'est pas un montant exclu aux termes du paragraphe 74.1(2).

XXXXXXXXXX 2007-021980
Michel Lambert CA, M.Fisc.
Le 28 mai 2007

14 May 2007 External T.I. 2006-0205361E5 - Lease obligations

Unedited CRA Tags
95(2)(a.3) 260

Principal Issues: In a securities lending arrangement, is a compensation for dividends paid to the lender represent a lease obligation for the purposes of paragraph 95(2)(a.3) of the Act?

Position: It can be argued that the obligations under a securities lending arrangement described in section 260 of the Act falls within the scope of a lease obligation because the expression "lease obligation" is worded broadly to include an obligation under an agreement that authorizes the use of property.

Reasons: The borrower has an obligation to pay the two kinds of compensation. Nothing in the definition of lease obligation limits an obligation to use the property to an obligation that constitutes an incremental benefit to the lender.

11 May 2007 External T.I. 2006-0214351E5 F - Transfert d'un droit de propriété

Unedited CRA Tags
45(1)a)(ii) 45(3) 45(4) 54
Summary Under
Tax Topics - Income Tax Act - Section 40 - Subsection 40(2) - Paragraph 40(2)(b)
where duplex co-owned by husband and wife, the one unit occupied by them can be designated as a principal residence – but this changes when daughter moves into the 2nd unit
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Property
an occupied unit in a co-owned duplex can be designated as a principal residence

Principales Questions: (1) Les auteurs du transfert d'une quote-part d'un droit de propriété dans un duplex doivent-ils inclure un gain en capital imposable dans le calcul de leur revenu?
(2) La bénéficiaire du transfert pourra-t-elle désigner l'unité de logement qu'elle habite à compter de 2004 en tant que résidence principale?

Position Adoptée: (1) Pour chacune des années 2004 et suivantes, les auteurs du transfert pouront désigner l'une ou l'autre des unités du duplex alors que pour les années antérieures à 2004, seule l'unité de logement normalement habitée par les auteurs du transfert pourra être désignée en tant que résidence principale.
(2) Oui, si toutes les conditions énoncées à l'article 54 de la Loi de l'impôt sur le revenu sont rencontrées et que la bénéficiaire du transfert habite normalement l'unité de logement à partir de 2004.

Raisons: (1) Selon les faits présentés, le droit de propriété dans le duplex est acquis en 2004 et non antérieurement.
(2) La loi est claire à cet égard.

9 May 2007 External T.I. 2006-0189931E5 F - Renonciation à une fiducie par un conjoint

Unedited CRA Tags
70(6) 104(4) 106(2) 107
Summary Under
Tax Topics - Income Tax Act - Section 69 - Subsection 69(1) - Paragraph 69(1)(b)
renunciation of interest in spousal trust not a disposition to the family beneficiaries
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Disposition
extinguishment of trust interests on their renunciation is a disposition of the renounced interest, but resulting variation of trust to accelerate distribution entitlements is not
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(4) - Paragraph 104(4)(a)
variation of spousal trust, following renunciation by spouse, to accelerate distribution entitlement of residuary beneficiaries would not engage s. 104(4) until distribution
Summary Under
Tax Topics - Income Tax Act - Section 70 - Subsection 70(6)
variation of spousal trust, following renunciation by spouse, to accelerate distribution entitlement of residuary beneficiaries would not deny s. 70(6) rollover

Principales Questions: 1. Quelles sont les conséquences fiscales résultant d'une renonciation aux bénéfices d'une fiducie effectuée selon l'article 1285 du Code civil du Québec sans contrepartie et sans avoir indiqué qui était en droit de bénéficier de la renonciation? Le bénéficiaire ne renonce pas aux revenus déjà réalisés par la fiducie.
2. Si les conditions de l'alinéa 70(6)b) sont respectées par ailleurs, est-ce que le fait que le conjoint renonce ultérieurement empêche l'application de cet alinéa?
3. Est-ce que la fiducie est réputée disposer de ses biens lors de la renonciation?

Position Adoptée: 1. Le bénéficiaire ne serait généralement pas considéré avoir reçu un produit de disposition pour sa participation aux revenus et au capital. La renonciation n'étant pas faite en faveur d'une personne, le paragraphe 69(1) de la Loi ne s'applique pas.
2. Non
3. Non

Raisons: 1. Paragraphe 9 du Bulletin d'interprétation IT-385R2 et opinions précédentes.
2. Les conditions sont respectées au moment du transfert des biens et de la dévolution. Selon le paragraphe 8 du Bulletin d'interprétation IT-305R4, la fiducie demeurera une fiducie au profit du conjoint même si l'on en modifie les modalités par suite d'une entente, d'une poursuite en justice ou d'un abus de confiance.
3. La fiducie n'a pas disposé de biens et il n'y a rien dans la Loi qui répute une disposition pour la fiducie uniquement en raison de la renonciation.

Technical Interpretation - Internal

5 June 2007 Internal T.I. 2007-0237291I7 F - Disposition d'une police d'assurance-vie

Unedited CRA Tags
148(7) 96(1)a) 96(1)c)
Summary Under
Tax Topics - Income Tax Act - Section 148 - Subsection 148(7)
s. 148(7) applicable to gift of policies by partners to a limited partnership

Principales Questions: Une société de personnes est-elle une personne aux fins du paragraphe 148(7)?

Position Adoptée: Oui

Raisons: La pratique de l'Agence consiste à considérer qu'une société de personnes est une personne aux fins du calcul du revenu. Le paragraphe 148(7) est une disposition qui s'applique dans le calcul du revenu.

4 June 2007 Internal T.I. 2007-0229251I7 F - Montants reçus pour aide personnelle à domicile

Unedited CRA Tags
9
Summary Under
Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit
no income to parental caregiver in situations similar to Pellerin

Principales Questions:
Un enfant d'âge majeur, victime d'un accident de la route, reçoit un montant au titre d'aide personnelle à domicile de la SAAQ conformément l'article 79 de la Loi sur l'assurance automobile du Québec. Il verse tout ou une partie de cette somme à sa mère en guise de compensation pour les soins qu'elle lui prodigue. La mère doit-elle ajouter le montant qu'elle reçoit de son enfant à son revenu pour les fins de la loi de l'impôt sur le revenu?

Position Adoptée:
Question de faits. Possiblement que non à la lumière de la cause Lise Pellerin c. La Reine [2006 DTC 3341].

Raisons:
Jurisprudence.

31 May 2007 Internal T.I. 2007-0226251I7 - Income reasonably attributable to production

Unedited CRA Tags
66(4)(b)(ii) 66.7(3)(b)(i) Reg 1204(1)

Principal Issues: Whether indirect expenses can be excluded from the determination of "income for the year" relevant for purposes of accessing deductions in respect of FEDE [subclause 66(4)(b)(ii)((A)(I)] or certain "successored" resource expenditure pools [e.g., clause 66.7(3)(b)(i)(C) with regard to successored CEE].

Position: No - A reasonable allocation should be made based upon the facts of the situation.

Reasons: Based upon the determination embodied in the relevant legislative provisions. In a business context, the "income for the year" referred to therein is, essentially, the profit for the year adjusted in accordance with Part I of the Act (modified to the extent provided in the provision in question). However, the part of such income "reasonably attributable to" the relevant production must be determined. As such, while the deduction of indirect expenses is not precluded, the allocation thereof must be reasonable in the circumstances.

24 May 2007 Internal T.I. 2007-0235681I7 F - Frais de bureau à domicile

Unedited CRA Tags
18(12) 9(1) 18(1)a) 18
Summary Under
Tax Topics - Income Tax Act - Section 18 - Subsection 18(12)
home office expenses to earn income from property are not subject to s. 18(12)

Principales Questions: À la lumière de la décision Jha v. Canada, [2002] T.C.J. No. 593, les interprétations techniques 2002-0118727 et 2002-0120025 reflètent-elles toujours la position de l'Agence?

Position Adoptée: Oui.

Raisons: La restriction se trouvant au paragraphe 18(12) de la Loi de l'impôt sur le revenu ne s'applique pas lorsque le particulier engage des dépenses pour frais de bureau à domicile afin de tirer un revenu provenant de biens.

10 May 2007 Internal T.I. 2005-0163331I7 - CCA of printers

Unedited CRA Tags
20(1)(a) Regulation 1104(2) class 10 class 45

Principal Issues: (1) What is the proper CCA class for the small multi-functional printers described below? (2) What is the proper CCA class for the large multi-functional printers described below?

Position: (1) Generally, class 45. (2) Generally class

Reasons: (1) Each small printer is likely "ancillary data processing equipment". (2) Generally, large printers are not computers but printers and/or special-purpose equipment.