Income Tax Severed Letters - 2007-06-22

Ministerial Correspondence

12 June 2007 Ministerial Correspondence 2007-0234591M4 - Guidelines - Status Indians

Unedited CRA Tags
81(1)(a)

Principal Issues: Taxation of First Nation people in Canada.

Position: General Comments given.

Reasons: Jurisprudence and the CRA Indian Act Exemption for Employment Income Guidelines.

17 May 2007 Ministerial Correspondence 2007-0233011M4 - Pension Tax Credit

Unedited CRA Tags
118(3) 118(7)

Principal Issues: Are amounts paid from an RRSP to an annuitant who is under age 65 eligible for the pension tax credit?

Position: No.

Reasons: Provisions of subsection 118(3) and definition of "qualified pension income" in subsection 118(7).

15 May 2007 Ministerial Correspondence 2007-0230821M4 - Mortgage as a qualified investment

Unedited CRA Tags
Reg 4900(1)(j)

Principal Issues: Can a "locked-in" RRSP hold a mortgage as a qualified investment under the Income Tax Act?

Position: Question of Fact

Reasons: Although a debt obligation secured by a mortgage may be a qualified investment for an RRSP if certain conditions are met, an RRSP that is "locked-in" under federal or provincial pension standard legislation is subject to a locking-in agreement. Requirements under this agreement are not imposed by the Income Tax Act and as such, we are unable to provide any specific comments in this matter.

Technical Interpretation - External

18 June 2007 External T.I. 2006-0215001E5 - Capital Dividend Account

Unedited CRA Tags
89(1) 14(1)(b) 96(1)
Summary Under
Tax Topics - Income Tax Act - Section 89 - Subsection 89(1) - Capital Dividend Account
partnership recognition of eligible capital amount increases partner CDA at end of partnership fiscal year

Principal Issues: Whether an amount allocated to a corporate partner in respect of a 14(1)(b) amount arising in a fiscal period of a partnership would constitute an addition to the capital dividend account of the corporation immediately after the end of such fiscal period.

Position: Yes.

Reasons: The paragraph 14(1)(b) amount, in respect of a business of the partnership, would have been determined at the end of the fiscal period of the partnership. For purposes of subparagraph (c.2)(i) of the definition of CDA the addition for the corporate partner's share of such amount would be available for purposes of payment of a capital dividend the day following the end of the partnership's fiscal period.

14 June 2007 External T.I. 2006-0209341E5 F - Utilisation d'un bien d'une société de personnes

Unedited CRA Tags
12(1)x) 53(2)c)(v)
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 103 - Subsection 103(1)
personal use of property is a factor going to the reasonableness of the profit-sharing arrangements
Summary Under
Tax Topics - Income Tax Act - Section 96 - Subsection 96(2.2) - Paragraph 96(2.2)(d)
personal use of property could engage s. 96(2.2)(d)
Summary Under
Tax Topics - Income Tax Act - Section 246 - Subsection 246(1)
conferral-of-benefit provisions do not apply to a partner’s personal use of partnership property other than car
Summary Under
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Income-Producing Purpose
partner’s use of partnership property is addressed by denying partnership income deductions and under s. 103, rather than through benefit-conferral provisions

Principales Questions: (1) Y a-t-il un avantage imposable à inclure dans le revenu d'un associé qui utilise personnellement un bien appartenant à la société de personnes?
(2) Si aucun avantage n'est inclus au revenu de l'associé utilisant personnellement un bien appartenant à la société de personnes, s'agira-t-il d'une somme reçue par l'associé en paiement de l'attribution de sa part des bénéfices ou du capital de la société de personnes réduisant ainsi le prix de base rajusté de sa participation en vertu du sous-alinéa 53(2)c)(v)?

Position Adoptée: (1) Non.
(2) Non.

Raisons: (1) À l'exception de l'alinéa 12(1)y), il n'y a aucune disposition législative qui s'appliquerait à un associé en raison de l'usage personnel qu'il fait d'un bien de la société de personnes.
(2) L'associé ne reçoit aucune somme au titre ou en paiement intégral ou partiel de l'attribution de sa part des bénéfices ou du capital de la société de personnes.

14 June 2007 External T.I. 2006-0198341E5 F - L'EXPRESSION "VIT DANS UNE RELATION CONJUGALE"

Unedited CRA Tags
248(1)
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Common-Law Partner
meaning of "cohabits… in a conjugal relationship
Words and Phrases
cohabit in a conjugal relationship

Principales Questions: La question vise à préciser le sens de l'expression "vit dans une relation conjugale" que l'on retrouve dans la définition de "conjoint de fait" au paragraphe 248(1) de la Loi de l'impôt sur le revenu.

Position Adoptée: C'est une question de faits où des éléments tels le partage du toit, les rapports personnels et sexuels, les services, les activités sociales, le soutien financier, les enfants et aussi l'image sociétale du couple peuvent être présents à divers degrés mais que tous ne sont pas nécessaires pour que l'union soit tenue pour conjugale.

Raisons: Application de la jurisprudence.

13 June 2007 External T.I. 2006-0178031E5 F - Biens détenus par des fiducies testamentaires

Unedited CRA Tags
104(2)
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(2)
property settled on a spousal trust that, on the spouse/s death, passes to testamentary trusts for the testator’s children, originates from him for s. 104(2)(a) purposes

Principales Questions:
Les biens des Fiducies familiales testamentaires C-1 et C-2 (tout comme D-1 et D-2 et E-1 et E-2) proviennent-ils d'une seule personne de sorte que la condition énoncée à l'alinéa 104(2)a) de la Loi est rencontrée?

Position Adoptée: Commentaires généraux

Raisons:
Dans une situation particulière, une étude détaillée des actes de fiducies et des actifs serait requise pour déterminer si une désignation en vertu du paragraphe 104(2) de la Loi est appropriée. Cette désignation revient notamment aux directeurs des bureaux des services fiscaux

12 June 2007 External T.I. 2007-0223571E5 - Medical - Renovation to Home and Van Modification

Unedited CRA Tags
118.2(1) 118.2(2)(l.7) 118.2(2)(m) 118.2(2)(l.2)

Principal Issues: 1. Whether some or all of an individual's qualifying medical expenses may be allocated to his/her spouse for purposes of the medical expense tax credit. 2. Whether particular payments for the modification of a mini-van are medical expenses for purposes of the medical expense tax credit. 3. Whether particular expenses related to renovations and alterations of a home are medical expenses for purposes of the medical expense tax credit.

Position: 1. Yes. 2. Question of fact but the expenses likely don't qualify. 3. Question of fact but some of the expenses likely don't qualify.

Reasons: 1. The formula in subsection 118.2(1) of the Income Tax Act allows an individual to claim a tax credit for qualifying medical expenses incurred in respect of the individual's spouse. 2. The description of the modifications to the mini-van do not appear to conform to the types of modifications prescribed in section 5700 of the Income Tax Regulations. 3. It appears that some of the renovations to render the home usable would reasonably be incurred by a person who has normal physical development or who does not have a serious and prolonged mobility impairment. It also appears that some of the renovations are of a nature that would increase the value of the dwelling.

12 June 2007 External T.I. 2007-0226571E5 - Deferred Salary Leave Plan

Unedited CRA Tags
6801(a)

Principal Issues: Whether a participant in a DSLP can temporarily suspend salary deferrals.

Position: Yes, provided the deferral period does not exceed 6 years.

Reasons: The Act and previous positions.

2007-022657
XXXXXXXXXX Bruce Hartt
(613) 946-3558
June 12, 2007

11 June 2007 External T.I. 2007-0225741E5 - MB Medical Student/Resident Financial Assistance

Unedited CRA Tags
6(1)(a) 12(1)(x)

Principal Issues: How should financial assistance paid by the Manitoba Government to medical students residents be taxed?

Position: Taxed as employment or business income.

Reasons: Since the amounts paid to students are likely forgivable loans and would be forgiven when the students are employees of the Province or self-employed, they would be taxed as income from employment under paragraph 6(1)(a) and subsection 6(15) or as self-employment income under paragraph 12(1)(x). Amounts paid to medical doctors are paid upon the completion of one year of service, and thus would be received by the individuals in their capacity as employees or self-employed physicians.

1 May 2007 External T.I. 2007-0228871E5 - Fellowship Exemption: Post-Doctoral Fellow Abroad

Unedited CRA Tags
118.6 56(3)

Principal Issues: Can a post-doctoral fellow at a university outside Canada qualify under paragraph 56(3)(a) for a full scholarship exemption for his fellowship income?

Position: Depends on the facts, but most likely no.

Reasons: To qualify for a full scholarship exemption under paragraph 56(3)(a), the fellowship must be connected with an educational program that is eligible for the education tax credit in subsection 118.6(2). To qualify for the education tax credit the individual must be enrolled at a designated educational institution. For a university outside Canada to be a designated educational institution, the individual must be enrolled in a course leading to a degree. Generally, a post-doctoral fellowship does not lead to a degree and therefore a course taken by a post-doctoral fellow cannot be considered to lead to a degree.

Technical Interpretation - Internal

14 June 2007 Internal T.I. 2006-0185611I7 - Deductibility of fine or penalty

Unedited CRA Tags
s. 67.6 S. 7309 of the Regulations

Principal Issues: Whether fines or penalties imposed by a self-regulatory organization that is recognized by a provincial securities commission are deductible for income tax purposes.

Position: No.

Reasons: Section 67.6 of the Income Tax Act.

12 June 2007 Internal T.I. 2007-0236641I7 - Deductibility - ETA interest & penalties

Unedited CRA Tags
18(1)(t) 67.6 9 7309

Principal Issues: 1. Whether an amount paid or payable as interest under Part IX of the ETA pertaining to a net amount of GST/HST that relates to a taxation year commencing prior to April 1, 2007 is deductible - where such interest accrues during periods before April 1, 2007 and after such date.
2. Whether an amount [6% penalty] paid or payable under any of paragraphs 280(1)(a), 280(1.1)(a) and 280(2)(a) of the ETA is deductible in computing income for tax purposes in respect of net amounts of GST/HST relating to a taxation year that commenced before April 1, 2007 but where the amount so paid or payable, was imposed under the ETA in a taxation year that commenced on or after April 1, 2007.

Position: 1. Interest that accrues in a taxation year that commences prior to April 1, 2007 would be deductible whereas interest that accrues in a taxation year that commences on or after April 1, 2007 would not be deductible.
2. Yes, the penalty is deductible.

Reasons: 1. With regard to paragraph 18(1)(t) of the ITA, an amount paid or payable as interest under Part IX of the ETA, which relates to a GST/HST liability that arose in the course of earning income from a business or property, and that accrued in a taxation year commencing before April 1, 2007, is deductible. An amount paid or payable as interest under Part IX of the ETA that accrued in a taxation year commencing on or after April 1, 2007 is non-deductible even where such amount relates to a net amount of GST/HST pertaining to a taxation year of the taxpayer that began before April 1, 2007.
2. With regard to the 6% penalty, an amount paid or payable under any of paragraphs 280(1)(a), 280(1.1)(a) and 280(2)(a) of the ETA, which relates to a GST/HST liability that arose in the course of earning income from business or property, and pertains to an amount of GST/HST due and outstanding before April 1, 2007, such penalty is deductible in the year but if imposed in a subsequent taxation year, may alternatively, be deducted for administrative purposes, in that subsequent year.