Income Tax Severed Letters - 2007-07-13


2007 Ruling 2006-0176081R3 - XXXXXXXXXX - advance tax ruling

Unedited CRA Tags
53(1)(c) 245(2)

Principal Issues: (i) What is the cost to a corporation of the cash in U.S. currency contributed to the corporation by way of capital? (ii) Would there be a capital gain or loss as a result of the application of the cash by the corporation for the payment of the purchase price for shares of a target company?

Position: (i) The cost of cash is equal to the equivalent amount of cash in Canadian currency contributed. (ii) Subject to subsection 39(2), no gain or loss is realized when the cash in U.S, currency is applied to pay for the purchase price of the shares of the target company.

Reasons: Based on text, context and purpose of provisions of the Act and our understanding that immediate application of contributed cash is not intended to give rise to income, gain or loss.

2007 Ruling 2006-0182221R3 - Reorganization of a mutual fund trust - s. 132.2

Unedited CRA Tags
85(1) 131(8) 132(6) 132.2

Principal Issues: See Statement of Principal Issues.

Position: See Statement of Principal Issues.

Reasons: See Statement of Principal Issues.

2007 Ruling 2006-0201311R3 - Incorporation of professional partnership

Unedited CRA Tags

Principal Issues: Whether a professional corporation providing XXXXXXXXXX services to another corporation, will be carrying on a "personal services business" within the meaning thereof in subsection 125(7) of the Act.

Position: No.

Reasons: As long as the former partners that are providing services through a professional corporation do not provide services to Newco in the capacity of employees or officers of Newco, the new structure does not create a personal services business.

2007 Ruling 2006-0212481R3 - Reorganization of a mutual fund trust

Unedited CRA Tags
132.2 132(6)

Principal Issues: Reorganization aimed at moving from a trust on corporation structure to a trust on partnership structure using various rollover provisions. Whether that reorganization meets the requirement of the Act and is within policy.

Position: The proposed transactions are within policy and rulings on the 132.2 rollover and on section 245 are granted.

Reasons: Previous rulings granted.

2007 Ruling 2007-0226091R3 - Estate freeze of non-resident corporations

Unedited CRA Tags
85.1(3) 95(1) XXXXXXXXXX 256(7)

Principal Issues: 1. Will provisions of subsection 85.1(3) of the Act apply to the transfer of shares held by Opco to non-resident corporations?
2. Immediately after the issuance of shares of the capital stock of XXXXXXXXXX Holdco #1, XXXXXXXXXX Holdco #2 and XXXXXXXXXX Holdco #3 to XXXXXXXXXX Family Holdcos, will XXXXXXXXXX Holdco #1, XXXXXXXXXX Holdco #2 and XXXXXXXXXX Holdco #3 be foreign affiliates of each of the Family Trusts?

Position: 1. Provided the shares transferred are capital properties of Opco, 85.1(3) will apply.
2. Yes

Reasons: 1. The corporations the shares of which will be transferred are foreign affiliates of Opco, the purchaser will be a foreign affiliate of Opco immediately after the transfer, the consideration paid will include shares of the capital stock of the acquiring affiliate. Subsection 85.1(4) will not apply.
2. The equity percentage of each Family Trust 1 will be XXXXXXXXXX % because it will hold XXXXXXXXXX % of a specific class of a XXXXXXXXXX Family Holdco which will hold XXXXXXXXXX % of a specific class of shares of each of those corporations. The equity percentage of each Family Trust 2 will be XXXXXXXXXX % because it will hold XXXXXXXXXX % of a specific class of a XXXXXXXXXX Family Holdco which hold XXXXXXXXXX % of a specific class of shares of each of those corporations.

Ministerial Correspondence

6 July 2007 Ministerial Correspondence 2007-0239821M4 - Children's Fitness Tax Credit

Unedited CRA Tags

Principal Issues: Does the new children's fitness tax credit discriminate against children with disabilities?

Position: In connection with the children's fitness tax credit, the Department of Finance has announced measures to provide additional support to children who are eligible for the disability tax credit :
1) the age limit for the children's fitness tax credit will be increased from 16 to 18 for children who are eligible for the disability tax credit
2) in recognition of the additional expenses incurred by children with disabilities for such things as specialized equipment, transportation and attendant care, a separate $500 non-refundable amount will be introduced and will be available where expenses of at least $100 are incurred to enrol a disability tax credit-eligible child in an eligible program.

29 June 2007 Ministerial Correspondence 2007-0237391M4 - Children's Fitness Tax Credit - waterski

Unedited CRA Tags

Principal Issues: Will wakeboarding and waterskiing programs be eligible for the children's fitness tax credit?

Position: Possibly not

Reasons: The Regulations defining a "prescribed physical activity" for purposes of the credit have not yet been published by the Department of Finance. However, Finance has issued a statement that sporting, recreational and other activities in which motorized vehicles are used as an essential component of the activity will be excluded.

Technical Interpretation - External

9 July 2007 External T.I. 2006-0200791E5 F - Actions sous entiercement

Unedited CRA Tags
110.6(2.1) 248

Principales Questions:
Est-ce que des actions qui sont visées par une convention d'entiercement et que la société est obligée de détenir afin de pouvoir exploiter son entreprise sont des actifs utilisés principalement dans l'entreprise qu'une société exploite?

Position Adoptée:
Question de fait mais possible.

Le bien doit être réellement employé et risqué dans l'entreprise et le terme risqué doit impliquer plus qu'un risque éloigné. On satisfait aux exigences minimales du critère dès que le retrait du bien aurait un effet nettement négatif sur les opérations de la société.

9 July 2007 External T.I. 2007-0219471E5 - Compensation for In-Home Care to Disabled Persons

Unedited CRA Tags
81(1)(h) 5 9

Principal Issues: Whether amounts paid to individuals who provide Caregiver support services to clients are excluded from individuals' incomes under paragraph 81(1)(h) of the Act

Position: Question of fact.

Reasons: General comments provided on the requirements of paragraph 81(1)(h) of the Act.

4 July 2007 External T.I. 2007-0222981E5 - Information Returns under Regulation 237

Principal Issues: Whether an information return pursuant to section 237 of the Income Tax Regulations is required for a reimbursement or allowance paid to an individual for expenses incurred in attending a conference as a guest expert.

Position: Question of Fact, but likely not.

Reasons: Where a guest speaker is not remunerated for services, but merely has expenses reimbursed, he or she is likely not a "payee" and no information return is required.

3 July 2007 External T.I. 2007-0228581E5 - Employer-paid tuition as benefit

Unedited CRA Tags

Principal Issues: Whether tuition paid by employer is a taxable benefit.

Position: Question of fact.

Reasons: Question of fact whether principally for the benefit of the employer or the employee.

18 June 2007 External T.I. 2004-0093111E5 - 95(2)(l)

Unedited CRA Tags

Principal Issues: (i) Whether the clause "which for the purpose of this paragraph includes the earning of interest on indebtedness" in paragraph 95(2)(l) is meant to apply only to the interest earned on the indebtedness in which the foreign affiliate is trading or dealing? (ii) Whether the principal purpose of the business of the foreign affiliate described in the various scenarios in the letter is to derive income from trading or dealing in indebtedness? (iii) Is there any difference in meaning of the words "trading or dealing" found in the English version and the words "commerce de dettes" found in the French version of paragraph 95(2)(l)?

Position: (i) No. (ii) Not determinable. (iii) No difference in this context.

Reasons: (i) Interpretation of the law and policy (ii) Insufficient information to make a determination. (iii) They both give the notion of business and profession.

13 June 2007 External T.I. 2004-0087491E5 - Status of a Polish sp z o.o.

Unedited CRA Tags

Principal Issues: Whether a Polish sp z o.o. (which is translated as a limited liability company) is a corporation for the purposes of the Income Tax Act?

Position: Yes

Reasons: It has a separate legal personality apart from the shareholders and more closely resembles a corporation than a partnership.

7 June 2007 External T.I. 2006-0217931E5 - Gift of Life Insurance Premiums

Unedited CRA Tags

Principal Issues: Questions on the use of ten-year gifts to fund life insurance policies acquired by registered charities.

Position: Provided general comments.

Technical Interpretation - Internal

4 July 2007 Internal T.I. 2007-0237631I7 F - Frais de repas - Secteur du taxi

Unedited CRA Tags
18(1)(h) 18(1)(a)

Principales Questions: Est-ce qu'un travailleur indépendant dans le secteur du taxi peut réclamer des frais de repas le midi dans le cadre de ses déplacements?

Position Adoptée: Généralement, non.

Raisons: Application des alinéas 18(1)(a) et 18(1)(h) de la Loi.

4 July 2007 Internal T.I. 2007-0238391I7 F - Crédit pour stage en milieu de travail

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

Principales Questions: Le crédit pour stage en milieu de travail du Gouvernement du Québec est-il imposable?

Position Adoptée: Oui

Raisons: Il s'agit d'une forme d'aide se rapportant aux salaires. Si la dépense de salaires n'est pas réduite, le montant du crédit sera imposable en vertu de l'alinéa 12(1)x).

20 June 2007 Internal T.I. 2006-0178941I7 - Foreign Spin-off & Foreign Merger

Unedited CRA Tags
86.1(1) 87(8) 87(8.1)

Principal Issues: 1. Whether the disposition of the Newco's interests in various LLC's qualifies as an "eligible distribution" within the meaning thereof in subsection 86.1(2) of the Act. 2. Whether the subsequent merger of the Company with and into New LLC qualifies as a "foreign merger" within the meaning thereof in subsection 87(8.1) of the Act.

Position: 1. Yes 2. No.

Reasons: 1. Satisfies all of the requirements of subsection 86.1(2) of the Act.
2. The merger does not satisfy the requirement in paragraph 87(8.1)(a) of the Act that all or substantially all of the property of the Company become property of New LLC as a consequence of the merger.