Income Tax Severed Letters - 2007-08-10


2007 Ruling 2006-0213941R3 F - Régime d'options d'achat d'actions

Unedited CRA Tags
7(1)b) 110(1)d) 7(1.1)

Principales Questions: 1) Est-ce que l'alinéa 7(1)b) s'applique dans le cas où un employé a le droit de choisir une somme en espèces plutôt que des actions en vertu d'une convention d'option d'achat d'actions? 2) Dans une telle situation, est-ce que l'employé a droit à la déduction prévue à l'alinéa 110(1)d)?

Position Adoptée: 1) Oui. 2) Oui.

Raisons: 1) et 2) Position de longue date de l'ARC.

2007 Ruling 2007-0238971R3 - Finco - ordinary lending business

Unedited CRA Tags

Principal Issues: Is a single purpose corporation whose only activity is to on-loan funds to an LP subject to subsection 15(2.3) such that subsection 15(2) will not apply?

Position: YES

Reasons: Ruled on before, the only activity of Finco is to on-loan. In this situation, it meets the ordinary lending business exemption in subsection 15(2.3).

Technical Interpretation - External

7 August 2007 External T.I. 2007-0237261E5 - Overseas Employment Tax Credit

Unedited CRA Tags

Principal Issues: Whether the transportation of refined petroleum products from the refinery to the distribution centres is a qualified activity for the purposes of the credit.

Position: No.

Reasons: Pursuant to the Tax Court of Canada decision in the 2005 case of Gerald Dunbar v. the Queen, it is our view that the refining process signifies the end of the exploitation process.

24 March 2004 External T.I. 2003-0020781E5 - XXXXXXXXXX

Unedited CRA Tags

Principal Issues: i) Is a payment under a swap agreement for the use of posted collateral, a payment exempted from Part XIII tax by clause 212(1)(b)(ii)(C) of the Income Tax Act (the "Act")?
ii) Are the payments made in respect of "debt-claims of every kind" as the term is used in Canada's income tax treaties?

Position: i) Cannot determine without reviewing the particular swap agreement.
ii) Cannot determine without reviewing the particular swap agreement.
iii) Not generally.
iv) Yes.

Reasons: i) and ii) Swaps can be structured in different manners to achieve the same result.

Technical Interpretation - Internal

25 July 2007 Internal T.I. 2007-0230831I7 - OETC and FTC

Unedited CRA Tags
122.3 126(1)

Principal Issues: Whether an individual can claim a partial OETC to increase the FTC that the individual may claim to reduce income tax otherwise payable for a taxation year.

Position: No.

Reasons: The use of the words "equal to" in subsection 122.3(1) of the Act supports the conclusion that an individual must claim all of the OETC available for a taxation year or none of the OETC available for a taxation year.

23 July 2007 Internal T.I. 2007-0234691I7 F - Foreign Exchange Gains/Losses and CDA

Unedited CRA Tags

Principal Issues: A private corporation ("Holdco") has sustained foreign exchange losses by reason of various dispositions of securities and commercial papers during a certain taxation year. Holdco has also sustained foreign exchange losses by reason of the disposition, upon maturity, of commercial papers. Holdco held the securities and commercial papers as capital properties. Whether subsection 39(1) or subsection 39(2) applies with respect to these foreign exchange losses. What is the impact of these foreign exchange losses on Holdco's capital dividend account ("CDA")?

Position: CRA's position is that in reference to a gain or loss from the disposition of property, subsection 39(2) will apply only if the gain or loss is solely attributable to the fluctuation of the currency of a country other than Canada relative to Canadian currency. If the gain or loss is not solely attributable to the fluctuation in the value of currency, then subsection 39(1) should be used in computing the capital gain or capital loss. Considering the above, subsection 39(1) should have applied with respect to the dispositions of securities and commercial papers (other than those disposed upon maturity). Consequently, the capital gain (or loss) realized (sustained) by Holdco by reason of such dispositions would have affected Holdco's CDA at the time of the disposition, and not at the end of the relevant taxation year. However, it seems that subsection 39(2) should have applied with respect to the foreign exchange losses sustained by Holdco on the disposition, upon maturity, of commercial papers. If this is the case, such foreign exchange losses will only affect Holdco's CDA at the end of the taxation year in which the relevant dispositions occurred.

Reasons: Wording of the Act and previous positions.

29 June 2007 Internal T.I. 2007-0229431I7 F - Excessive Capital Dividend

Unedited CRA Tags
83(2) 184(3)(c) 184(4)

Principal Issues: In a situation where Part III applies to part of a capital dividend (the Excessive dividend) and only part of the total dividend payable is actually paid, how to calculate the part of the Excessive dividend that is paid for the purpose of 12(1)j), 82(1) and 184(3(d)?

Position: The part of the Excessive dividend that is paid for the purpose of 12(1)j), 82(1) and 184(3(d) is computed by multiplying the amount paid divided by the proportion the Excessive Dividend is of the total dividend payable.

Reasons: Question of fact.

27 June 2007 Internal T.I. 2006-0167351I7 - CRL - Contingent Liabilities

Unedited CRA Tags
2400 138(5)(b)(iii)

Principal Issues: 1. Should a contingent liability of the taxpayer in connection with an assumption reinsurance agreement, be included in determining the taxpayer's Canadian Reserve Liabilities ("CRL")?
2. Is the interest that accrued on the contingent liability, and that eventually became payable by the taxpayer to the reinsurer, deductible by the taxpayer in computing its income for the year in which the interest becomes payable?

Position: There is support for audit's position to include the contingent liability in the computation of the CRL and where the amount is included in CRL, the interest should be deductible in the year it becomes payable (ie. no longer contingent), pursuant to subparagraph 138(5)(b)(iii).

Reasons: The words of the CRL definition and subparagraph 138(5)(b)(iii)