Income Tax Severed Letters - 2007-08-17

Ruling

2007 Ruling 2006-0199781R3 F - Butterfly Transaction - Papillon

Unedited CRA Tags
55(3)(b) 55(3.1) 55(2) 191(3)

Principal Issues: Split-up butterfly transaction.

Position: Favourable rulings provided.

Reasons: Meets the requirements of the law.

2007 Ruling 2007-0227171R3 - Split-receipting rules

Unedited CRA Tags
248(31) 248(32)

Principal Issues: Whether a gift results from a sale of property to a charity for less than its fair market value under the draft split-receipting rules.

Position: Question of fact. Yes in this particular case.

Reasons: Under the draft split-receipting rules, a sale of property for partial consideration can qualify as a gift as long as there is donative intent. Based on the facts provided, the amount of the advantage to the vendor will not exceed 80% of the fair market value of the property transferred to the charity. As a result, the transfer will not be precluded from qualifying as a gift under the draft split-receipting rules.

XXXXXXXXXX 2007-022717

Ministerial Correspondence

14 August 2007 Ministerial Correspondence 2007-0239511M4 - Convention Expenses

Unedited CRA Tags
20(10)

Principal Issues: What are the criteria for the deductibility of convention expenses?

Position: General criteria provided.

Reasons: General comments.

8 August 2007 Ministerial Correspondence 2007-0242861M4 - Foreign Exchange Rate on Pension

Unedited CRA Tags
56(1)(a)

Principal Issues: Must a taxpayer use the Bank of Canada annual average exchange rate to convert pension and investment income to Canadian dollars when preparing his T1 Personal Income Tax Return?

Position: Not necessarily.

Reasons: The taxpayer may use another rate (such as the actual exchange rate provided by the taxpayer's bank) if it is appropriate.

8 August 2007 Ministerial Correspondence 2007-0243821M4 - Transit Tax Credit

Unedited CRA Tags
118.02

Principal Issues: Request that bus tickets be made eligible for public transit tax credit.

Position: Taxpayer referred to Finance.

Reasons: Finance is responsible for amendments to the Act.

8 August 2007 Ministerial Correspondence 2007-0244091M4 - Public Transit Tax Credit (PTTC)

Unedited CRA Tags
118.02

Principal Issues: Whether a transportation pass with a privately owned company could qualify for the public transit tax credit.

Position: Question of fact.

Reasons: An eligible public transit pass entitles the holder to use the "public commuter transit services" of a "qualified Canadian transit organization" during an uninterrupted period of at least 28 days. The phrase "public commuter transit services" is defined in the ITA as return-trip transportation services offered to the general public within Canada for a period of at least five days per week by means of bus, ferry, subway, train, or tram. Secondly, a company will be considered a "qualified Canadian transit organization" provided it is authorized under the laws of Canada or the Province to carry on the business of public commuter transit services through a permanent establishment in Canada.

Technical Interpretation - External

14 August 2007 External T.I. 2007-0235861E5 - Medical Expense Tax Credit

Unedited CRA Tags
118.2(2) 118.4(2)

Principal Issues: Will Rolf therapy be eligible for the medical expense tax credit?

Position: Likely not.

Reasons: Payments for Rolf therapy would not qualify as eligible medical expenses unless amounts were paid for "medical services" performed by a medical practitioner authorized to practice as such according to the laws of the jurisdiction in which the service was rendered.

10 August 2007 External T.I. 2007-0223881E5 - Municipal Officers Allowance

Unedited CRA Tags
81(3)(b)

Principal Issues: Whether a private individual who is not an officer of a municipal utilities board is allowed to exclude from his/her income, a portion of his/her allowance paid by the commission, pursuant to paragraph 81(3)(b) of the Act.

Position: No

Reasons: Unless the board member is elected, he or she is not eligible for the exemption.

9 August 2007 External T.I. 2007-0237341E5 - Change in Use

Unedited CRA Tags
45(1) 45(3) 54 252(1) Child

Principal Issues: Whether there is a deemed disposition as a result of the change in use.

Position: General comments.

Reasons: Subject to subsection 45(3), where a taxpayer has acquired capital property for the purpose of gaining or producing income and has commenced at a later time to use it for some other purpose, pursuant to subparagraph 45(1)(a)(iii) of the Act, the taxpayer is deemed to have disposed of the property at that later time for proceeds equal to its fair market value and, pursuant to subparagraph 45(1)(a)(iv) of the Act, to have immediately thereafter reacquired it at a cost equal to that fair market value. Subsection 45(3) provides for an election to defer the deemed disposition if the property becomes the taxpayer's principal residence (e.g., another property is not designated as a principal residence by the taxpayer or a member of the taxpayer's family unit) and CCA was not previously claimed in respect of the rental property.

9 August 2007 External T.I. 2007-0238901E5 - Investment Tax Credit-Fishing assets

Unedited CRA Tags
127(9) 127(11) 248(1) Reg.4600

Principal Issues: Whether a newly constructed building used primarily for the storage of fishing gear, such as lobster traps or a fishing vessel, qualifies as being for the purpose of fishing for purposes of the definition of qualified property in subsection 127(9) of the Income Tax Act.

Position: Yes.

Reasons: The law.

7 August 2007 External T.I. 2007-0242891E5 - Test Wind Turbines

Unedited CRA Tags
Regulations 1219

Principal Issues: Whether certain proposed changes to the Project described in our letter 2005-0152451 would alter our opinion regarding the ability of the test turbines to qualify as test wind turbines under Regulations 1219.

Position: No.

Reasons: Requirements of subsection 1219(3) will continue to be met according to an electronic message from NRCan on July 12, 2007.

2 August 2007 External T.I. 2007-0226321E5 - Personal line of credit - investment in shares

Unedited CRA Tags
50(1) 20.1 38(1)(c), (12) 40(1)

Principal Issues: Whether a taxpayer can adjust past income tax returns to claim an interest expense deduction and a capital loss on a debt (personal line of credit).

Position: Representative was referred to TSO.

Reasons: Situation involved completed transactions with a request for adjustments to previously assessed income tax returns.

2 August 2007 External T.I. 2007-0239601E5 - Injury Compensation Payments

Unedited CRA Tags
56(1)(v) 110(1)(f)

Principal Issues: 1. What is CRA's policy on the treatment of injury compensation payments made by an Employer under collective agreements since the Whitney Court case? 2. Whether paragraph 4 of IT-202R2 would still represent the Agency's current administrative practice with respect to the provisions of paragraph 56(1)(v).

Position: 1.CRA's policy has not changed as a result of the Whitney case. 2. Yes

Reasons: 1. Payments received "under an employees' or workers' compensation law of Canada or a province in respect of an injury, a disability or death" are included in a taxpayer's income pursuant to paragraph 56(1)(v) of the Act. The amount so included is deductible pursuant to subparagraph 110(1)(f)(ii) of the Act. . This treatment applies only where the taxpayer is entitled to payments under these compensation laws. In the Whitney case, the taxpayer was factually determined not to be entitled to any qualifying statutory compensation. As a result, she did not fit within the scope of ¶4 of the IT Bulletin. The Federal Court of Appeal agreed that the benefits received by Mrs. Whitney were taxable as employment income under section 5 of the Act. 2. Although it is acknowledged that the wording of ¶4 of the IT Bulletin is not as clear as it might be, it is our view that the administrative position described therein is still a reasonable approach to the taxation of injury compensation benefits received in the context described. .

27 July 2007 External T.I. 2006-0177471E5 - Death of a partner

Unedited CRA Tags
70(2) 20(1) 66.1 66.2

Principal Issues: 1. An individual dies and he was a member of limited partnerships at the date of death. Will he have to report an amount of income or loss from the partnership?
2. If the individual borrowed funds to acquire the partnership interest, will the interest incurred in the year of death be deductible?
3. If the individual acquired units of a limited partnership which invested in flow-through shares and which has a December 31 year-end, will he be entitled to various resource deductions in the year of death?

Position: 1. Assuming the partnership continues to exist after the death of a partner, the terms of the partnership agreement will provide whether or not a deceased taxpayer will be allocated a share of the income or loss of the partnership from the end of the last fiscal period to the date of death. The deceased's share will be determined by reference to the income of the partnership calculated at the end of the fiscal period of the partnership according to the terms of the partnership agreement. If a share of the income is allocated to the deceased, it represents a right or thing. If a share of the loss is allocated to the deceased, it represents loss from business or property where the ACB has been reduced by the amount of the loss.
2. Except as provided in paragraph 4 of IT-212R3, an interest expense would not be deducted from the value of the right or thing in the year of death. An interest expense that is not deducted in computing the value of right or thing may be deductible in computing the income from business or property of the deceased if the conditions provided for in paragraph 20(1)(c) are met. If a loss results from the deduction of the interest, it could be claimed in the final return for the year of death.
3. Canadian exploration expenses or Canadian development expenses incurred by a partnership in a particular fiscal period may be allocated to persons who were partners of the partnership at the end of that fiscal period. There would be no allocation to the deceased partner in the year of death because he was not a partner at the end of the fiscal period that is December 31.

Reasons: 1. IT-278R2 and previous opinions.
2. IT-212R3 and wording of the Act.
3. Wording of the definitions of Canadian exploration expense and of Canadian development expense (paragraph 66.1(6)(h) and 66.2(5)(f))

Technical Interpretation - Internal

7 August 2007 Internal T.I. 2007-0240691I7 - Music CD production-CCA class

Unedited CRA Tags
18(1)(b) 18(1)(a) Schedule II
costs of producing a music CD including artists’ remuneration are added to Class 8

Principal Issues: How should the costs associated with producing a music CD be treated?

Position: The costs should be capitalized. A master audio-tape or a master disc is a class 8 asset, while; a master die (stamper) for processing CDs is a Class 12 asset.

Reasons: The production of a music CD brings into existence an asset of an enduring benefit and should be capitalized. Various types of tangible capital property that are not included in any other class in Schedule II come within Class 8 by reason of the provision of paragraph (i). A die is specifically included in Class 12 by paragraph (d).