Income Tax Severed Letters - 2007-08-31

Ruling

2007 Ruling 2006-0192561R3 - 132.2 reorganization

Unedited CRA Tags
132.2

Principal Issues: Along the lines of other issued rulings.

2007 Ruling 2006-0196501R3 - 21 year rule Trust

Unedited CRA Tags
104(4) 107(2); 108(1)(g)

Principal Issues: Application of 104(4)

Position: Not applicable

Reasons: Vested interest

2007 Ruling 2007-0218481R3 F - Fondation publique

Unedited CRA Tags
149.1(3)a) et c)

Principales Questions: (1) Une fondation publique qui acquiert 50% des actions votantes d'une société imposable et qui reçoit des dividendes sur ces actions exploite-t-elle une entreprise qui n'est pas une entreprise complémentaire aux fins de l'alinéa 149.1(3)a)? (2) Une fondation publique qui acquiert 50% des actions votantes d'une société imposable a-t-elle acquis le contrôle de la société aux fins de l'alinéa 149.1(3)c)?

Position Adoptée: (1) Non; (2) Non.

Raisons: (1) La réception d'un dividende sur les actions privilégiées d'une société ne constitue pas en soi l'exercice d'une activité commerciale qui n'est pas une activité commerciale complémentaire. (2) L'acquisition et la détention de 50% des droits de vote en toute circonstance ne confère pas le contrôle de jure à la fondation.

XXXXXXXXXX 2007-021848

2007 Ruling 2007-0243581R3 - 21 year rule Trust

Unedited CRA Tags
104(4) 107(2) 108(1)(g)

Principal Issues: See Statement of principal issues in file 2006-019650

Position: See statement of principal issues in file 2006-019650

Reasons: See statement of principal issues in file 2006-019650

Technical Interpretation - External

22 August 2007 External T.I. 2007-0224941E5 - Variance order of Structured Settlement

Unedited CRA Tags
12.2 56(1)(d)

Principal Issues: Does a court ordered variance of a structured settlement affect the taxation?

Position: No.

Reasons: Award is the same, only the participation has been changed and had it been done originally, it would have been tax exempt.

22 August 2007 External T.I. 2007-0242721E5 F - Frais de déménagement engagés par un étudiant

Unedited CRA Tags
62(1) 62(1)c)(ii) 248(1)

Principales Questions: Un étudiant qui engage des frais de déménagement afin de poursuivre des études postsecondaires peut-il déduire ces frais à l'encontre des revenus d'emploi liés à sa formation postsecondaire ou à l'encontre d'autres revenus d'emploi?

Position Adoptée: L'étudiant ne peut déduire ses frais de déménagement à l'encontre de ses revenus d'emploi futurs. Toutefois, s'il est établi que la réinstallation est effectuée à la fois pour poursuivre des études postsecondaires et pour occuper un emploi, l'étudiant pourrait déduire les frais de déménagement à l'encontre de ce revenu d'emploi. En outre, il est nécessaire que le déménagement constitue une réinstallation admissible au sens du paragraphe 248(1) de la Loi de l'impôt sur le revenu.

21 August 2007 External T.I. 2006-0204621E5 - Rental property interest deductibility

Unedited CRA Tags
20(1)(c)

Principal Issues: Can an individual deduct interest paid on a mortgage on his principal residence against the rental income earned on a mortgage-free rental property?

Position: No, it is the current and direct use of borrowed funds that is the test to be applied in determining the deductibility of interest.

Reasons: The current and direct use of the borrowed funds in this circumstance is to purchase a principal residence. Accordingly, the borrowed funds have not been used to earn income from a business or property and therefore the interest thereon is not deductible pursuant to subsection 20(1)(c).

XXXXXXXXXX 2006-020462
M. Thomson
August 21, 2007

Dear XXXXXXXXXX

Re: Deductibility of interest

This is in response to your letter dated September 5, 2006 concerning deductibility of the interest expense on your principal residence mortgage against the rental income from your rental property. You have asked for an administrative concession should the interest not be deductible.

21 August 2007 External T.I. 2007-0236351E5 - Interest deductibility

Unedited CRA Tags
20(1)(c)

Principal Issues: Will interest on money borrowed to invest in mutual fund units continue to be deductible following a return of capital?

Position: Depends on the current use of the capital returned.

Reasons: Current use vs. original use as noted in IT-533 paragraph 17.

20 August 2007 External T.I. 2005-0111151E5 - Article 13(4) Canada - Germany Tax Agreement

Principal Issues: Whether a motel would be considered immovable property for the purpose of Article 13(4) of the Canada-Germany Tax Agreement.

Position: Question of fact. However, we would generally not consider a full-service motel to be immovable property for the purpose of Article 13(4).

Reasons: A motel will not be immovable property if it is property (other than rental property) in which a motel business is carried on.

20 August 2007 External T.I. 2006-0216251E5 - Employer-Paid Fitness Membership

Unedited CRA Tags
6(1)(a)

Principal Issues: Whether an employer-paid fitness membership is a taxable employment benefit.

Position: Generally yes but question of fact.

Reasons: The law.

17 August 2007 External T.I. 2007-0242801E5 - Post-doctoral fellows - education tax credit

Unedited CRA Tags
118.6

Principal Issues: "Post-doctoral fellows - education tax credit

Position: Question of Fact.

Reasons: Eligibility for the education tax credit is to be determined on a case-by-case basis. An individual must satisfy all of the conditions of section 118.6

13 August 2007 External T.I. 2007-0224151E5 F - Surplus Stripping

Unedited CRA Tags
84(2) 245

Principal Issues: Whether either 84(2) or the GAAR applies to the proposed transactions?

Position: Yes.

Reasons: The purpose of the proposed series of transactions is to convert a taxable dividend that would otherwise have been paid by a corporation (Opco) out of the proceeds of sale of its business, into a proceeds of disposition the shareholders of Opco would have received from the sale, in favour of an unrelated purchaser, of the shares of a newly formed corporation that would have acquired Opco's business on a taxable basis before its shares being sold to the unrelated purchaser. The proposed series of transactions corresponds to a dividend stripping arrangement of Opco to which all the conditions under either 84(2) or the GAAR are met.

25 July 2007 External T.I. 2007-0222251E5 F - Perte finale sur un immeuble démoli

Unedited CRA Tags
13(21.1)(b)

Principales Questions: 1. L'alinéa13(21.1)(b) de la Loi s'applique-t-il dans le cas où une société encourt une perte finale sur un bâtiment démoli alors que le terrain sur lequel était situé le bâtiment n'a pas été disposé?
2. Est-ce que le montant refusé à titre de perte finale en vertu de l'alinéa 13(21.1)(b) vient ajuster le coût d'un nouveau bâtiment construit ou le prix de base rajusté du terrain, sur lequel l'immeuble a été démoli?

Position Adoptée: 1. Oui
2. Non

Raisons: 1. Application de l'alinéa 13(21.1)(b).
2. La Loi ne le permet pas

25 July 2007 External T.I. 2007-0224601E5 F - Application de l'alinéa 40(2)b)

Unedited CRA Tags
40(2)b) 54

Principales Questions: Un contribuable peut-il réclamer la déduction pour gain en capital relativement à une résidence principale lorsque le contribuable vend le fonds de terre et que la résidence principale a précédemment été démolie?

Position Adoptée: Oui, pour les années où le contribuable utilisait la résidence en tant que résidence principale.

Raisons: Le terrain pourrait être désigné comme résidence principale pour les années d'imposition au cours desquelles le contribuable a normalement habité la résidence si toutes les autres conditions relatives à la désignation d'un bien comme résidence principale sont rencontrées. Donc, le nombre d'années où le contribuable habitait normalement la résidence pourrait être inclus dans l'élément B de la formule à l'alinéa 40(2)b). Les années où le terrain est vacant ne sont pas considérées comme étant "normalement habité" par le contribuable.

17 July 2007 External T.I. 2007-0237811E5 F - Régime à traitement différé

Unedited CRA Tags
6 8(1)n)

Principales Questions:
1. Quel est le traitement à accorder au remboursement d'un montant reçu dans le cadre d'un régime à traitement différé suite à la démission de l'employé?
2. Quelles sont les exigences en matière de production de feuillets?

Position Adoptée:
1. L'employé peut bénéficier d'une déduction en vertu de l'alinéa 8(1)n) dans l'année où il rembourse une somme.
2. Le feuillet T4 est préparé sans égard au remboursement et une lettre doit être remise à l'employé confirmant le montant remboursé et la date de remboursement.

Raisons:
1. Analyse législative.
2. Position énoncée dans le RC4120(F) Rév. 06

17 July 2007 External T.I. 2007-0220121E5 F - Lac artificiel - catégorie d'amortissement

Unedited CRA Tags
1100 Règl.

Principales Questions: Dans quelle catégorie doit-on imputer les frais de construction et de creusage d'un lac artificiel utilisé dans le cadre de l'exploitation d'une pourvoirie?

Position Adoptée: Ces coûts doivent être capitalisés dans la catégorie 6 du Règlement de l'impôt sur le revenu.

Raisons: En conformité avec la Loi et ses Règlements ainsi que les interprétations antérieures

Conference

8 June 2007 Roundtable, 2007-0229481C6 - 2007 STEP Conf-Q.16- 2005 A-G Report

Principal Issues: In her report of November 2005, the Auditor-General of Canada suggested that the CRA does not have enough information to adequately assess the tax at risk for trust returns. That report contained a number of recommendations to the CRA, including:
a. requiring trusts to submit a statement of assets and liabilities with their trust returns;
b. evaluating the tax risks in domestic trusts when it selects trusts for review; and
c. ensuring that there is proper reporting of trust income allocated to beneficiaries on information slips.
What steps has the CRA taken in addressing the comments of the Auditor General in the November 2005 report?

Position: Further to our response at the 2006 STEP Conference the CRA is still in the process of identifying the nature and extent of non-compliance issues related to trusts, considering options to ensure proper reporting of income and analysing the impact of requiring trusts to include a statement of assets and liabilities with the T3 Trust Income Tax and Information Return. We continue to meet with internal stakeholders to assess the usefulness of a statement of assets and liabilities, the extent of the burden that this requirement would have on taxpayers and the CRA, and the value of imposing different requirements for different types of trusts. The analysis and consultations are still ongoing. We also noted that a T3 Trust Income Tax and Information Returns is not considered correctly filed unless it includes both the T3 summary and income tax portions of the return (where income has been allocated to beneficiaries).

8 June 2007 Roundtable, 2007-0235231C6 - 2007 STEP Conf-Q.9-Departure from Canada

Principal Issues: In 1920, the great grandfather of our taxpayer established an inter vivos trust for the benefit of his issue. Great grandfather was a U.S. citizen resident in the United States, and the property transferred to the trust included shares of a U.S. operating company and U.S. real estate (a ranch which continues to operate). Our taxpayer (Mother) came to Canada as a student in 1979, married a Canadian citizen and had two children (one now attending university in the United States and the other still a minor). When her father died in 1990, our Canadian resident (but U.S. citizen) taxpayer became entitled to receive income during her lifetime, and on death, she has the power to appoint the capital of the trust to her husband and children in her will. Since the elder child is attending school in the United States, the family has decided to move south, closer to old family connections. What are the departure tax consequences to our taxpayer, her husband and children in respect of the trust created by the great grandfather?

Position: As husband is an appointee under a general power of appointment and not a beneficiary under the trust, he has no rights or property that is deemed disposed of on departure. Assuming that mother and children are beneficiaries of the trust based on the fact that the trust provides for great-grandfather's descendants, each of them would have a deemed disposition of her respective interest in the trust.

Reasons: Since Mother has been resident in Canada for 26 years as of December 31, 2006, the exception in subparagraph 128.1(4)(b)(iv) does not apply nor is her interest in the trust an "excluded right or interest" as defined in subsection 128.1(10). The two excluded rights relating to an interest in a personal trust are contained in paragraphs (j) of that definition - which deals with personal trusts resident in Canada - and (k) -which deals with non-resident testamentary trusts. Likewise, these exceptions will not apply to the children's interests in the trust.

8 June 2007 Roundtable, 2007-0233721C6 - 2007 STEP Conference - Q. 3 - Testamentary Trust

Unedited CRA Tags
108(1) 104(5.8)

Principal Issues: (1) Can the CRA provide comments as to when it views a testamentary trust to be created? (2) Can the CRA ever envision circumstances where such a trust could be created at a time long after the time of the decedent's death while still retaining the status of a testamentary trust?

Position: (1) A testamentary trust is generally created on the day that a person dies. (2) The terms of the will may provide that on the death of the first generation beneficiary (e.g., the spouse or common law partner), the trustee is to divide the remaining property into equal parts for the children and then create a new trust for the interest of each child. The trusts for the interest of each child would be testamentary trusts as they may be said to arise on and as a consequence of death even though the official create date of the new trusts is at a later point in time.

Reasons: Wording in subsection 108(1) of the ITA.

8 June 2007 Roundtable, 2007-0235241C6 - 2007 STEP Conf-Q.10-Deemed resident trusts

Principal Issues: Canadian resident and citizen taxpayer ("Mother") has two adult children. One child attended university in the U.S. and has now decided to take up residence there (she married a U.S. person). The other child plans to remain in Canada. Mother wants to create a will that splits her estate 50/50 between her two children (her husband has died). To minimize U.S. estate tax on the death of her U.S. resident child, she plans to put 50% of the estate into a U.S. resident trust, with U.S. resident trustees. The beneficiaries of this trust will be her U.S. resident daughter and her children. The balance of the estate will go directly to the Canadian resident beneficiary.
The U.S. resident daughter will be one of the three trustees of the U.S. trust. The trust will last beyond her lifetime. There is a power to pay income to her and to her grandchildren, and to encroach on capital for the health, maintenance and education of her children. However, if this daughter dies without issue, or all her issue are deceased, the residue of the trust will go to the Canadian resident beneficiary and ultimately to her children.
Will the U.S. trust be deemed to be resident in Canada under proposed subsection 94(3) of the ITA? Will the Canadian child be considered to have an interest in a non-resident trust?

Position: No.

Reasons: Since the daughter who is resident in Canada would be a "successor beneficiary" as defined in proposed subsection 94(1) of the ITA as long as her sister and her sister's children are alive, the trust would not be deemed resident in Canada under proposed subsection 94(3) of the ITA following the mother's death and during the period in which any of the other beneficiaries of the trust are alive and not resident in Canada.

8 June 2007 Roundtable, 2007-0233731C6 - 2007 STEP Conf-Q.5-Concurrent filing dates

Principal Issues: It is becoming increasingly common for trusts to have investments in other trusts. These investments may be income trusts, or mutual funds that are structured as trusts. In such circumstances, the filing due date for the trust is coincident with the date on which T3 information slips are to be furnished. Thus, as a practical matter, it is difficult to complete a tax return for the trust by the due date. This difficulty was acknowledged in the March 19, 2007 federal budget. Until this matter is resolved in some way, possibly by legislative amendment, what would you advise practitioners to do in these circumstances? It is noted that while it is possible to file an amended T-3 return, it is not possible to retroactively make income payable to a beneficiary.

Position: As outlined in the T3 Guide and consistent with the other guides for filing income tax returns, where the preparer of a trust return does not have all of the information slips needed to complete the return when it is due, the income should be estimated. If the estimate differs from the actual amounts when the actual information slips are received, the information slips, including any revised information slips that are being issued by the trust, accompanied by a letter requesting an adjustment to the trust's income, should be sent to the Ottawa Technology Centre accompanied by a letter requesting an adjustment to the trust's tax return.
With respect to the inability to retroactively make income payable, it is noted that a trust is only entitled to a deduction under subsection 104(6) for amounts of income that became paid or payable to the beneficiaries in the year in which the income was earned, and is not entitled to a deduction for amounts that only became payable after the end of the year. Thus, the timing of the receipt of slips will not impact on how much income the trustees made payable to the beneficiaries before the end of the taxation year. In determining whether an amount was payable to the beneficiaries before the end of the taxation year in which the income was earned, we would look to the terms of the trust and any resolutions of the trustees in respect of the exercise of any discretion they might have in respect of the distribution of the trust's income.

Reasons: same response as given at 2005 STEP conference

8 June 2007 Roundtable, 2007-0240421C6 - 2007 STEP Conference - Q. 4 - Howson

Unedited CRA Tags
75(2)

Principal Issues: Has the CRA changed its position with respect to the application of subsection 75(2) to loans as a consequence of the Howson decision?

Position: Absent the particular scenario where a loan to a trust is not outside and independent of the terms of the trust, we are of the view that a loan to a trust falls outside the ambit of subsection 75(2) of the ITA and should rather be dealt with under subsections 56(4.1) and 74.1(1) to (3) of the ITA.

Reasons: Although property held by a trust pursuant to a genuine or bona fide loan will eventually revert to the creditor, given that such reversion will usually not flow from the terms of the trust but by operation of the loan itself and the law of creditor rights, it follows that such property should not be subject to subsection 75(2) of the ITA.

8 June 2007 Roundtable, 2007-0233741C6 - 2007 STEP Conf-Q.8 Foreign Reporting

Principal Issues: When a resident of Canada receives a distribution from a non-resident trust or estate following the death of a parent, is the resident of Canada required to file Form T1142, Information Return in Respect of Distributions from and Indebtedness to a Non-Resident Trust?

Position: Only distributions from the estate are exempt from the filing requirements under 233.6

Reasons: The exception in 233.6 for "an estate that arose on and as a consequence of the death of an individual" only applies to distributions from the estate before it is fully administerd. It does not apply to distributions from an alter ego trust or any other inter vivos trust that makes distributions following the death of an individual, nor does it apply to distributions from an on-going testamentary trust that was created under the terms of the will.

8 June 2007 Roundtable, 2007-0240431C6 - 2007 STEP Conf-Q. 12-Change in Trustees & Cntrl

Unedited CRA Tags
257(7)(a) 256(1)

Principal Issues: Can the CRA advise if there have been any further developments on the issue of whether a change in any of the trustees of a trust would result in a change in control of the corporation of which the trust is the shareholder?

Position: There have been no further developments on this particular issue, although other related issues brought to our attention.

Reasons: On-going issues.

8 June 2007 Roundtable, 2007-0233761C6 - 2007 STEP Conf-Q.1-In-trust Accounts

Principal Issues: What is the CRA's view of in-trust accounts and how does it determine the nature of the account?

Position: The CRA's position has consistently been that the determination of the nature of an "in-trust" account has to be made on a case by case basis in light of the specific facts. The legal relationship between the parties must be determined before applying the Act

Reasons: For tax purposes, no distinction is made between a formal trust and an informal trust except that it is typically more difficult to establish whether an informal trust is in fact valid. As noted in the question, the three certainties must be present in order for a trust relationship to be established. It will often be very difficult for the person creating the trust - typically a parent of the child - to prove that the three certainties are met unless the creation of the trust has been clearly documented. While the CRA recognizes that a formal trust deed is not required in order to establish a trust, a parent who wants a reasonable degree of certainty as to whether the CRA will agree that a trust has been established for the child would be well advised to set out the terms and conditions of the trust in a formal trust deed and to handle the trust funds in accordance with the terms and conditions so established.

8 June 2007 Roundtable, 2007-0240451C6 - 2007 STEP Conf Q. 14- Listed for Trading

Unedited CRA Tags
Reg. 4900(1)

Principal Issues: The phrase "listed for trading on a prescribed stock exchange" is used many times in the Act and Regulations. For instance, an RRSP which wishes to purchase shares must ensure that they are "listed" so they are eligible investments. However, if an RRSP buys shares in an IPO, how will the taxpayer determine if the shares are listed?

Position: We have had a longstanding position that shares will be regarded as being listed on a stock exchange so long as a full listing (i.e., an unqualified listing prior to the date set for the shares to be called for trading) of the shares exists. Shares that are conditionally listed will not be listed until the time at which all of the conditions for their listing have been satisfied. We are considering this position in conjunction with an advance income tax ruling request in progress for an income trust - see addendum to response.

Reasons: Question of fact.

8 June 2007 Roundtable, 2007-0233801C6 - 2007 STEP Conf-Q.2-Use of SIN for child

Principal Issues: In Technical Interpretation # 9812245 (dated June 22, 1998) the CRA indicated that the social insurance number (SIN) of a child (under age 18) is not required if the child's income is expected to be $2500 or less. The CRA also commented that the SIN to be recorded on the information slip would depend on whether the attribution rules apply - if they apply, the parent's SIN must be used; if they do not apply, the child's SIN is to be used. Does the above represent CRA's position, and if so, how is the issuer of the information slips to know which SIN should be used?

Position: Where the funds are held in the child's name only, with the parent acting as agent or guardian of the child's property, the financial institution would issue the appropriate information slip in the name of the child. If the parent is also listed as a joint account holder, the financial institution would issue the appropriate information slip in the name of both the parent and the child in the same manner as for other joint account holders. In either case, the child's social insurance number would not be required where a beneficiary is under 18 and the beneficiary's total income is expected to be less than $2500. If the parent is listed as a joint account holder, the parent's social insurance number will be required in all cases.

Reasons: The application of the attribution rules does not impact on whose social insurance number is required on the information slip as the payor is not normally in a position to determine the extent to which the attribution rules apply.

8 June 2007 Roundtable, 2007-0240461C6 - 2007 STEP Conf- Q. 17 - Interest Deductibility

Unedited CRA Tags
20(1)(c)

Principal Issues: Two recent cases seem directly opposed. Can you give us any indication how the CRA plans to reconcile Lipson and Singleton?

Position: The CRA will be considering the impact of the Lipson decision on the position set out in paragraph 13 of IT-533.

Reasons: It appears that the outcome in Lipson cast doubt on the position set out in paragraph 13 of IT-533 to the effect that a taxpayer may restructure borrowings and ownership of assets to meet the direct use test.

8 June 2007 Roundtable, 2007-0233811C6 - 2007 STEP Conf- Q. 11 - Draft NRT/FIE Legislation

Unedited CRA Tags
75(3)(c.2) 94 94.1

Principal Issues: In the event that Bill C-33 is not passed before the filing dates for the 2007 taxation year, is it still the Canada Revenue Agency's ("CRA") view that taxpayers should file in accordance with the proposed legislation? In particular, can immigrant taxpayers who contributed property to a trust that is not resident in Canada in circumstances where the conditions in subsection 75(2) are met continue to rely on proposed paragraph 75(3)(c.2) of the ITA to exclude the income earned by that trust from their income? What is required of taxpayers who have previously filed tax returns in accordance with draft legislation when the effective date was for taxation years after 2002?

Position: It is the CRA's longstanding practice to ask taxpayers to file on the basis of proposed legislation. Consequently, even if the legislation does not receive Royal Assent by the filing due dates for 2007, taxpayers will be expected to file their 2007 returns on the basis of that proposed legislation. For trusts created in 2001 or subsequent taxation years, the trust may elect to have the proposed rules apply from the date the trust was created. If the trust has filed based the proposed legislation and intends to elect, no further action is required. Additionally, as there is no change to the proposed implementation date for proposed paragraph 75(3)(c.2) of the ITA no action is required at this time for taxpayers who have filed based on this proposal. If adjustment requests are required, taxpayers should write to the CRA, as soon as possible. Adjustment requests for NRTs should be sent to the International Tax Services Office and adjustment requests for FIEs should be sent to the local tax office where the taxpayer lives.

Reasons: Wording of provisions and CRA practice.

Technical Interpretation - Internal

23 August 2007 Internal T.I. 2007-0245591I7 F - Déductibilité d'un montant de pension alimentaire

Unedited CRA Tags
60b) 56.1(4) 60.1(3)

Principales Questions: Est-ce que Monsieur peut déduire de ses revenus, en vertu de l'alinéa 60 b) de la Loi de l'impôt sur le revenu, les montants de XXXXXXXXXX $ et de XXXXXXXXXX $ versés au titre de pension alimentaire pour les années 2005 et 2006 respectivement dans le calcul de son revenu?

Position Adoptée: Non. Rien n'indique que ces montants étaient payables par Monsieur de façon périodique. Ces montants ne constituent pas une pension alimentaire au sens du paragraphe 56.1(4) de la loi.

Raisons: La loi est claire.

20 August 2007 Internal T.I. 2007-0226811I7 - Regulations 5907(1.3) and 5907(1.4)

Unedited CRA Tags
Regulations 5907(1.3) and (1.4) 91(1) 91(4) 95(1)

Principal Issues: Does the reference to the taxation year beginning after November 1999 in the coming-into-force provision in respect of Regulation 5907(1.4) apply to the taxation year for which the affiliate would have paid foreign taxes or the taxation year in which the compensatory payment was made.

Position: It refers to the taxation year of the affiliate for which income or profits tax would have been payable by the affiliate had its tax liability not been computed on a consolidated or combined basis.

Reasons: Consistent with position on subsection 91(4) in respect of actual foreign tax paid.

14 August 2007 Internal T.I. 2007-0244621I7 - Apprenticeship Job Creation Tax Credit - 12(1)(t)

Unedited CRA Tags
12(1)(t) 127(5)

Principal Issues: What is the proper tax treatment of investment tax credits received in respect of the Apprenticeship Job Creation Tax Credit?

Position: If well-accepted business principles do not apply to reduce an expense or the cost of property by the ITC, or to otherwise include the ITC in computing income, paragraph 12(1)(t) provides a specific rule requiring income inclusion of the ITC in the taxation year following the year in which the credit is claimed to reduce tax payable.

Reasons: The law. Paragraphs 2 and 21 of IT-273R2.

13 August 2007 Internal T.I. 2007-0228901I7 - Investment Tax Credit

Unedited CRA Tags
127(9) 127(11)

Principal Issues: (1) Meaning of "sale" in the expression "manufacturing or processing goods for sale" in paragraph (c) of the definition of qualified property in ITA 127(9). (2) Whether the taxpayer's shop expansion and XXXXXXXXXX that otherwise would meet the conditions for qualified property are used for the purpose of manufacturing or processing goods for sale

Position: 1) The meaning of sale is to be interpreted taking into account the sale of goods legislation and common law as decided by the SCC in Will-Kare Paving and Construction Ltd 2000 DTC 6467, and not in a literal sense as decided by the FCA in Nowsco Well Services Ltd, 90 DTC 6312, and Halliburton Service Ltd, 90 DTC 6320. (2) No position. General comments

Reasons: (1) Will-Kare Paving and Construction Ltd, 2000 DTC 6467. (2) Insufficient information

1 August 2007 Internal T.I. 2007-0239941I7 - Subsection 188.1(9) Penalty for False Information

Unedited CRA Tags
188.1

Principal Issues: 1) The meaning of the phrase "is liable for their taxation year that includes that time". 2) Time restriction for assessment of penalty.

Position: 1) To attribute the penalty to a particular taxation year. 2) None.

Reasons: Legislation

31 July 2007 Internal T.I. 2007-0237541I7 F - Frais de déplacement, de pension et de logement

Unedited CRA Tags
118(2)l.1) 118.2(2)h) 118.2(2)g)

Principales Questions: En l'espèce, est-ce que des parents - y compris des accompagnateurs - peuvent réclamer un crédit d'impôt pour frais médicaux relativement aux frais de déplacement, de pension et de logement encourus dans le cadre d'une transplantation de la moelle épinière que subiront leurs enfants?

Position Adoptée: En présumant que les frais ne sont pas des frais visés aux alinéas 118.2(2)g) et h), les parents peuvent se prévaloir du sous-alinéa 118.2(2)l.1(ii) pour réclamer un crédit d'impôt pour frais médicaux. Les frais encourus par les deux accompagnateurs ne sont pas admissibles à titre de frais médicaux.

Raisons: Pour les parents, ces frais constituent les frais d'une personne qui accompagne une personne à sa charge relativement à une transplantation que doit subir cette dernière. Pour les deux autres personnes, les frais ne pourront donner lieu au crédit d'impôt pour frais médicaux puisque la Loi de l'impôt sur le revenu restreint à une personne le nombre de personnes pouvant accompagner le patient.

20 July 2007 Internal T.I. 2007-0230451I7 F - Aide financière aux mineures enceintes

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

Principales Questions: (1) Les prestations versées dans le cadre du programme "Soutien financier aux mineures enceintes" du gouvernement du Québec sont-elles considérées être des prestations imposables en vertu de l'alinéa 56(1)u) de la Loi de l'impôt sur le revenu?
(2) Si la réponse à la première question est "oui", les récipiendaires des sommes versées en vertu du programme peuvent-elles se prévaloir de la déduction compensatoire visée à l'alinéa 110(1)f) de la Loi de l'impôt sur le revenu?

Position Adoptée: (1) Oui.
(2) Oui.

Raisons: (1) Après examen du programme, de ses conditions et de son application, nous sommes d'avis que les sommes payées en vertu du programme sont versées suite à un examen des ressources, des besoins et du revenu des postulantes.
(2) Libellé de l'alinéa 110(1)f).

16 July 2007 Internal T.I. 2007-0242391I7 - Manufacturing and Processing Tax Credit

Unedited CRA Tags
125.1 125.1(3) Reg. 5202 Reg. 1204

Principales Questions: (1) Can profits from a limestone quarry fall under resource profits as this expression is defined in section 1204 of the Income Tax Regulations.
(2) In the situation at hand, at what point does the production of the ore end and its manufacturing and processing begin?

Position Adoptée: (1) No.
(2) The production of limestone includes the initial crushing of the raw material by the primary crusher.

Raisons: (1) The "resource profits" concept is not applicable if the Minister of Natural Resource does not certify that the limestone ore constitutes a mineral resource. In the situation at hand, the limestone ore may qualify as an industrial mineral.
(2) In the current situation, the processing of the limestone ore would begin after the ore has been reduced in size in the primary crusher by compression or impact.