Income Tax Severed Letters - 2007-09-21

Ruling

2007 Ruling 2007-0224751R3 - Application of 115.2

Unedited CRA Tags
115.2
Summary Under
Tax Topics - Income Tax Act - Section 115.2 - Subsection 115.2(1) - Designated investment service
application to original issue mezzanine debt

Principal Issues: (1) Whether subsection 115.2(2) will apply to the partners of Foreign LP that are not resident in Canada such that the services provided to Foreign LP by the Manager as described under the Proposed Transactions will not, in and by themselves, cause such partners to be carrying on business in Canada for the purposes of subsection 115(1) and Part XIV?

Position: Yes

Reasons: The services provided by Manager to Foreign LP would satisfy the requirements of subsection 115.2(2) of the Act.

2007 Ruling 2007-0246871R3 - Whether a bonus is deductible in the circumstances

Unedited CRA Tags
67(1)

Principal Issues: Whether a bonus to be paid out of proceeds of disposition of business property, including goodwill, will be reasonable in the circumstances.

Position: Yes, based on the facts provided.

Reasons: The issue of the reasonableness of the amount of a bonus payment is a question of fact. In this ruling, all of the relevant facts are known.

XXXXXXXXXX 2007-024687

2006 Ruling 2006-0207391R3 - FAPI Determination

Unedited CRA Tags
91(1) 95(2)(f); 95(6) 245(2)

Principal Issues: Whether a gain accrued prior to a specific day on a property of a foreign affiliate ("FA") of a Canadian corporation (Holdco) would be excluded in the computation of FAPI of FA in respect of Holdco when the property is disposed of by FA?

Position: Yes.

Reasons: Because of the operation of subparagraph 95(2)(f)(iv). Also GAAR would not be applied in this case.

Technical Interpretation - External

17 September 2007 External T.I. 2006-0215701E5 - Employee Dependant Scholarship Program

Unedited CRA Tags
6(1)(a) 56(1)(n)

Principal Issues: The taxable status of an employee dependant scholarship program.

Position: General comments only - proposed/completed transactions.

Reasons: Question of fact.

17 September 2007 External T.I. 2007-0234531E5 - Natural Persons

Unedited CRA Tags
2(1) 237 150(1) 162(6)

Principal Issues: 1. Whether a natural person is subject to the Income Tax Act
2. Whether an employer must obtain the Social Insurance Number for a natural person in his or her employ.

Position: 1. Yes
2. Yes

Reasons: 1. Subsection 2(1) of the Act
2. Section 237 of the Act

XXXXXXXXXX 2007-023453

17 September 2007 External T.I. 2007-0250101E5 - Article 12(4) of Canada/Switzerland Tax Convention

Principal Issues: Whether an aircraft would be considered to be equipment for the purposes of Article 12(4) of the Canada-Switzerland Tax Convention.

Position: Yes.

Reasons: Generally accepted meaning of the word "equipment"

13 September 2007 External T.I. 2007-0251081E5 F - Transactions d'options d'achat d'actions

Unedited CRA Tags
49(1) 245
Summary Under
Tax Topics - Income Tax Act - Section 49 - Subsection 49(1)
before any GAAR application, an expiring non-capital loss can be converted to a net capital loss by selling a covered option at year end and purchasing an offsetting position a few days later

Principales Questions: Est-il possible de mettre en place des transactions d'options d'achat d'actions de manière à "rajeunir" une perte autre qu'une perte en capital?

Position Adoptée: Question de fait.

Raisons: La RGAÉ pourrait s'appliquer selon les faits et circonstances.

XXXXXXXXXX 2007-025108
Guy Goulet, CA, M.Fisc.
Le 13 septembre 2007

13 September 2007 External T.I. 2007-0238961E5 - Nature of a Flexible Benefit Plan

Unedited CRA Tags
248(1)

Principal Issues: Will the proposed benefits under a flex plan cause the arrangement to be an SDA, EBP or RCA?

Position: Question of fact; however, it appears that the proposed benefits under the flex plan are contrary to our positions stated in IT-529 and paragraph 6801(a) of the Regulations for purposes of the SDA rules.

Reasons: The proposed benefits allow the use of vacation past the year of purchase, and in some cases, permit a cash-out of unused leave upon termination and/or retirement, which is strictly prohibited. Further, the proposal does not ensure compliance with subparagraph 6801(a)(v) of the Regulations for purposes of a DSLP.

2007-023896
XXXXXXXXXX W. C. Harding
613-957-8953
September 13, 2007

12 September 2007 External T.I. 2007-0246921E5 - Flow-through shares - CEDOE

Unedited CRA Tags
66.1(6) 66(12.6)(b) Reg 1206

Principal Issues: Whether certain expenses can be renounced to flow-through shareholders.

Position: An expense that qualifies as a Canadian exploration expense and that also meets the definition of CEDOE in Regulations 1206 is not eligible for renunciation to flow-through shareholders.

Reasons: Requirements of the law.

11 September 2007 External T.I. 2007-0227421E5 F - Investment tax Credit - Production of Slate

Unedited CRA Tags
127(5); 127(9) "Qualified Property"
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Mineral Resource
extracting slate from quarry would be producing industrial minerals rather than extracting minerals from a mineral resource

Principal Issues: Whether excavating and extracting slate from a pit area constitutes producing industrial minerals (subparagraph (c)(vii) of "qualified property" in subsection 127(9)), or whether it constitutes extracting minerals from a mineral resource.

Position: Excavating and extracting slate from a pit area would constitute "producing industrial minerals" (subparagraph (c)(vii) of "qualified property" in subsection 127(9)).

Reasons: Wording of the Act and opinion of Natural Resources Canada

10 September 2007 External T.I. 2007-0230341E5 - Interest deductibility

Unedited CRA Tags
20(1)(c)

Principal Issues: Where the market value of a property acquired with borrowed money has increased since the time of acquisition, would the interest continue to be deductible when a taxpayer disposes of all or a portion of the property under: Scenario 1 - 100% of the property is disposed of, the original borrowing is paid off, a new borrowing is entered into and new units of the same property are acquired; or Scenario 2 - a portion of the property, reflecting the capital growth of the property, is disposed of resulting in the remaining property having a market value equal to the original borrowing?

Position: Scenario 1 - Generally, yes.
Scenario 2 - Depends on the current use of the money from the prorated portion of original units disposed of.

Reasons: Scenario 1 - current use and original use of borrowed money remains the same.
Scenario 2 - current use vs. original use is relevant as noted in IT-533 paragraphs 17-18.

Conference

21 June 2007 Roundtable, 2007-0229731C6 - Segregated Funds - Various Issues

Unedited CRA Tags
138.1 107.4 104

Principal Issues: 1. Do the Qualifying Disposition Rules in section 107.4 of the Act apply to mergers and partitions of segregated funds?
2. How are non-capital losses realized by a segregated fund treated under sections 138.1 and 104 of the Act?
3. How does paragraph 138.1(1)(j) of the Act apply to payments of segregated fund guarantee benefits in certain circumstances?

Position: See document.

Reasons: See document

21 June 2007 Roundtable, 2007-0240241C6 - Subsections 247(2) and (7)

Unedited CRA Tags
247(2) 247(7) 17(8)

Principal Issues: Whether or not subsection 247(2) would apply to reduce the cost of a loan made by a corporation resident in Canada to a nonresident wholly-owned subsidiary.

Position: See document.

Reasons: See document.

21 June 2007 Roundtable, 2007-0229771C6 - Conversion rights and paragraph 148(10)(d)

Unedited CRA Tags
148(10)(d)

Principal Issues: Whether the conversion of a life insurance policy into another life insurance policy issued by the same insurer pursuant to the terms of the policy would result in a disposition of the policy.

Position: Determination can only be made on a case by case basis.

Reasons: It is necessary to determine whether the changes that are made to the terms of the policy are so fundamental as to go to the root of the policy.

21 June 2007 Roundtable, 2007-0240191C6 - RRSP Registration - SIN requirement

Unedited CRA Tags
146 237(1.1)

Principal Issues: Requirement that the annuitant's SIN be provided in order to register an RRSP.

Position: See document.

Reasons: See document.

21 June 2007 Roundtable, 2007-0240201C6 - Mediation of tax disputes

Principal Issues: What is the CRA's position with respect to mediation of tax disputes?

Position: See document.

21 June 2007 Roundtable, 2007-0240211C6 - Mark-to-market property

Unedited CRA Tags
142.2(1) 142.5

Principal Issues: Does the phrase "carried at fair market value" in the definition "mark-to-market property" in subsection 142.2(1) mean carried at the amount determined in accordance with the CICA's Handbook section 3855?

Position: See document.

Reasons: See document.

21 June 2007 Roundtable, 2007-0240221C6 - Capital Tax - Determination of CRL and TRL

Unedited CRA Tags
181(3)(b)(ii) 190(2)

Principal Issues: Whether CRL and TRL mean liabilities and reserves as determined for the purpose of OSFI or other similar authority.

Position: See document.

Reasons: See document.

21 June 2007 Roundtable, 2007-0240231C6 - International Tax Planning Centres of Expertise

Principal Issues: Update on CRA's International Tax Planning Centres of Expertise.

Position: See document.

29 May 2007 STEP Roundtable Q. 6, 2007-0233701C6 - Foreign Tax Credit

Unedited CRA Tags
126(1) 20(11) 20(12)

Principal Issues: In circumstances where subsection 75(2), 56(4.1), 74.1(1) or 74.1(2) of the Act attribute foreign non-business income earned by a trust to a person who contributed property to the trust, does any foreign non-business income tax paid by the trust also attribute to that person for purposes of subsection 126(1), subsection 20(11) or subsection 20(12) of the Act.

Position: Subsection 126(1) of the Act --- No.
Subsection 20(12) of the Act --- question of fact.
Subsection 20(11) of the Act --- Yes.

Reasons: Subsection 126(1) of the Act --- trust pays tax, not the person to whom income is attributed, so no foreign tax credit to person.
After December 20, 2002, subsection 20(12) of the Act requires that the person claiming the deduction be a resident of Canada.
Subsection 20(11) of the Act does not have a residency requirement.

Technical Interpretation - Internal

6 September 2007 Internal T.I. 2007-0244231I7 - Loan transactions within a group of companies

Unedited CRA Tags
20(1)(c)(i)

Principal Issues: Will the interest on funds borrowed to invest in common shares of a subsidiary be deductible pursuant to paragraph 20(1)(c) where the sub on-loans the funds on an interest-free basis to a related company?

Position: A strong argument exists that the requirements of 20(1)(c) are not met in this case.

Reasons: The borrowed money was not used for the purpose of earning income from a business or property.