Income Tax Severed Letters - 2007-10-26

Ruling

2007 Ruling 2006-0215921R3 F - Don à une municipalité / 149(1)l)

Unedited CRA Tags
248(31) 248(32) 149(1)l)

Principales Questions: (1) Quel est le montant admissible d'un don fait à une municipalité lorsque la municipalité entend verser un montant équivalent à un organisme sans but lucratif (OSBL) à la suite du don? (2) Une société est-elle constituée comme une OSBL aux fins de l'alinéa 149(1)l)?

Position Adoptée: (1) Le montant admissible du don correspond à la somme versée à la municipalité si le montant de l'avantage, au sens du paragraphe 248(32) proposé est nul. (2) Oui

Raisons: (1) Le fait que la municipalité verse un montant équivalent à la somme qu'elle a reçue n'affecte pas le montant admissible du don. (2) La Société satisfait aux exigences de la Loi.

XXXXXXXXXX 2006-021592

Le XXXXXXXXXX 2007

2007 Ruling 2006-0213721R3 - Trust amendments to delete references to units

Unedited CRA Tags
108(2)
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Disposition
no disposition on conversion from unitized to non-unitized trust

Principal Issues: 1. Will the amendment to the trust indenture to delete all references to units cause a resettlement of the trust property or a disposition of the beneficiary's interest in the trust?
2. Will the trust be a unit trust following the amendments to the trust indenture?

Position: 1. No. 2. No.

Reasons: 1. The changes to the declaration of trust are not so significant as to cause a resettlement of the existing trust. In particular, the amendment of the trust indenture will not affect the beneficial entitlement or rights of its existing sole unitholder. The amendments will not give rise to any change in beneficial ownership of the trust property nor will the sole beneficiary receive any proceeds of disposition. While paragraph (h) of the definition of disposition in subsection 248(1) states, by negative inference, that any payment to a unitholder that does involve a reduction in the number of units would give rise to a disposition, none of the conditions in paragraphs (a) to (d) of the def'n of "disposition" apply in this case and for greater certainty no payment will be made to the sole beneficiary as a result of the amendments. Consequently, the reduction in the number of units held by the sole beneficiary will not result in a disposition at law or for tax purposes since the beneficiary will still have the same beneficial interest in the trust property as before the amendments.
2. As a result of the amendments to the trust indenture, the sole beneficiary's interest in the trust will not be described by reference to units such that the trust will not be a unit trust as defined in subsection 108(2).

2007 Ruling 2007-0226891R3 - MFT issues guarantee notes issuedby whollyownedLP

Unedited CRA Tags
132(6)
Summary Under
Tax Topics - Income Tax Act - Section 132 - Subsection 132(6)
guarantee of internal notes

Principal Issues: Will the Fund's action of guaranteeing the notes issued by the LP constitute a separate undertaking such that the Fund will cease to qualify as a MFT?

Position: No, the issuance of the guarantee will not, in itself, cause the trust to lose its MFT status.

Reasons: As with ruling 2006-019188 & officer analysis 2006-019338, the level of integration of the Fund's investing activities in the limited partnership, albeit indirectly, is sufficiently high for considering that the issuance of a guarantee is not an undertaking by itself. Also, the Fund is not in the business of providing guarantees.

2007 Ruling 2006-0206961R3 - Entity Classification

Unedited CRA Tags
248(1) "corporation"

Principal Issues: Whether the XXXXXXXXXX cooperative will be treated as a corporation for purposes of the Act.

Position: Yes.

Reasons: The provisions of the foreign legislation and the notarial deed of the cooperative support the conclusion that the cooperative will be treated as a corporation for purposes of the Act

Ministerial Correspondence

2 October 2007 Ministerial Correspondence 2007-0248931M4 - accessing locked-in retirement plans

Unedited CRA Tags
146 146.3

Principal Issues: How can a person gain access to money in a locked in retirement fund?

Position: This is a matter which is within the jurisdiction of the provincial pension regulator.

Reasons: The Income Tax Act does not impose the notion of "locking in". Rather, it is a measure governed by provincial pension benefits legislation.

Technical Interpretation - External

18 October 2007 External T.I. 2007-0250301E5 - Sale of eligible capital property

Unedited CRA Tags
20(1)(n)

Principal Issues: Whether a reserve could be claimed on the gain realized on the sale of eligible capital property.

Position: No.

Reasons: Paragraph 37 of IT-123R6.

16 October 2007 External T.I. 2007-0237571E5 - Education Tax Credit

Unedited CRA Tags
118.6

Principal Issues: Eligibility of students enrolled in "Directed Field Studies" programs for the education tax credit.

Position: Question of Fact - See general comments below.

Reasons: A student may work in a related field or industry while enrolled in University, however such a student must otherwise meet the criteria in subsection 118.6(1) to be eligible to claim the education tax credit.

15 October 2007 External T.I. 2007-0239491E5 F - Prepayment of Reassessments

Unedited CRA Tags
161(1) 152(3) 164(1) 164(7)
Summary Under
Tax Topics - Income Tax Act - Section 161 - Subsection 161(1)
payments made in advance of a reassessment reduce arrears interest under s. 161(1)

Principal Issues: Whether the Canada Revenue Agency accepts that a taxpayer prepays tax for an anticipated reassessment.

Position: Yes. This allows the taxpayer to reduce charges of arrears interest under subsection 161(1).

Reasons: Wording of the Act and previous positions.

12 October 2007 External T.I. 2007-0252231E5 - Connected Corporations

Unedited CRA Tags
186(4) 186(2) 251(1)(b)

Principal Issues: A family trust with a corporate beneficiary (Holdco) owns 100% of the issued share capital of Opco. Husband and wife each own 50% of Holdco. Issue is whether Holdco and Opco are connected.

Position: General comments given. Wording of 186(2) indicates that one corporation controls another if that corporation, or taxpayers not at arm's length with that corporation, own more than 50% of the issued shares with full voting rights. As the family trust owns 100% of Opco, and Holdco and the family trust are not dealing at arm's length, Opco and Holdco are connected under 186(4).

Reasons: Wording of Legislation

12 October 2007 External T.I. 2007-0252941E5 F - OSBL et organisation agricole

Unedited CRA Tags
149(1)e) 149(1)l)
Summary Under
Tax Topics - Income Tax Act - Section 149 - Subsection 149(1) - Paragraph 149(1)(e)
"agricultural organization" has its ordinary meaning/ss. 149(1)(e) and (l) can overlap
Words and Phrases
agricultural organization

Principales Questions: Une association agricole peut-elle être visée par les dispositions des alinéas 149(1)e) ou 149(1)l)

Position Adoptée: Question de fait.

Raisons: Les conditions d'application des alinéas 149(1)e) ou 149(1)l) doivent être remplies.

10 October 2007 External T.I. 2007-0243601E5 F - Proposal - Taxation year end

Unedited CRA Tags
128(1)d); 248(1) "bankrupt" 248(1) "bankrupt"
Summary Under
Tax Topics - Income Tax Act - Section 128 - Subsection 128(1)
person who made a successful proposal was not a bankrupt
Words and Phrases
bankrupt

Principal Issues: Whether the deemed year-end provisions of paragraph 128(1)(d) of the Income Tax Act apply where a corporation that is not a bankrupt has made a proposal to its creditors.

Position: No, since the taxpayer is not a bankrupt, provision of paragraph 128(1)(d) does not apply.

10 October 2007 External T.I. 2006-0202871E5 - 70(6) & spouse's election under Family Law Act ONT

Unedited CRA Tags
70(6) 248(23.1)

Principal Issues: 1. Does 70(6) apply to property transferred to a surviving spouse under the Family Law Act of Ontario?
2. Does our response change depending on whether a court order is obtained in respect of the election?

Position: 1. Provided that the spouse is resident in Canada and receives the property within 36 months of the death of the individual (or within the period specified by the Minister of National Revenue if written application has been made within that period), yes. 2. Provided a valid election is filed with the Estate Registrar of Ontario on a timely basis, no.

Reasons: 1. Subsection 248(23.1) deems the property transferred under a FLA election to be made as a consequence of death. Provided the other conditions of 70(6) are met, subsection 70(6) will apply to the transfer. 2. Provided the surviving spouse makes a valid election under the relevant provincial family law legislation, the property acquired as a consequence of that election is deemed to be made as a consequence of the other spouse's death under 248(23.1).

7 September 2007 External T.I. 2006-0218381E5 - Interest Deduction - Linking/Tracing

Unedited CRA Tags
20(1)(c)

Principal Issues: What amount of interest is deductible where a personal mortgage is increased, the additional borrowed money is used for investment purposes and then payments are made against the mortgage?

Position: A constant prorated portion based on initial eligible vs. ineligible use.

Reasons: Tracing/Linking concept relevant where cash and borrowed funds are co-mingled not where single borrowed account is utilized for eligible and ineligible purposes.

7 September 2007 External T.I. 2007-0221071E5 - Interest Deduction - Linking/Tracing

Unedited CRA Tags
20(1)(c)

Principal Issues: What amount of interest is deductible where a personal line of credit is increased, the additional borrowed money is used for investment purposes and then payments are made against the mortgage.

Position: A constant prorated portion based on initial eligible vs. ineligible use.

Reasons: Tracing/Linking concept relevant where cash and borrowed funds are co-mingled not where a single borrowed account is utilized for eligible purposes.

Conference

11 October 2007 Roundtable, 2007-0251981C6 - 2007 TEI Question RRSP Qualified Investment

Unedited CRA Tags
204(d)

Principal Issues: Will the CRA provide further guidance with respect to specific security investments that would be considered a qualified investment for purposes of the amended definition of "qualified investment" in paragraph (d) of section 204 of the Act?

Position: Question of fact

Reasons: The CRA will not provide an all-inclusive list of specific investments. The amended definition of "qualified investment" in paragraph (d) of section 204 of the Act uses the broad term "securities", this term should be interpreted using the ordinary meaning of the term as used in the financial community.

Technical Interpretation - Internal

16 October 2007 Internal T.I. 2007-0224221I7 - Carrying on business in the US

Unedited CRA Tags
126 4(1)(b), 248(1)

Principal Issues: (1) Is Canco carrying on business in the US? (2) If we consider that Canco is carrying on business in the US, how should the income be allocated to that business?

Position: (1) Yes (2) Subsection 4(1)(b), the Revised Commentaries on Article 7 of the OECD Model Tax Convention and the OECD Report on the Attribution of Profits to Permanent Establishments provide some guidance when determining how to allocate income as pertaining to a foreign jurisdiction.

Reasons: (1) There are a number of indicators that suggest Canco may be carrying on business in XXXXXXXXXX , such indicators include the facts that, the product is stored in XXXXXXXXXX , title and beneficial ownership transfer in XXXXXXXXXX , and Canco receives payment for the product in its US bank account. (2)

11 October 2007 Internal T.I. 2007-0236981I7 - Pennsylvania Business Trust

Unedited CRA Tags
104
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(1)
Pennsylvania business trust was a trust

Principal Issues: Is a certain Pennsylvania Business Trust considered a trust for Canadian tax purposes where the trust does not appear to have a settlor, may be a purpose trust, has perpetual existence, status as a legal entity and the trustees might be acting as agents rather than trustees?

Position: Provided the trustees cannot reasonably be considered to be acting as agents for the beneficiary, yes.

Reasons: An examination of the essential characteristics of a trust under Canadian law and an examination of the essential characteristics of this particular arrangement would suggest that this arrangement, which is a valid trust for US purposes, would be treated as a trust for Canadian tax purposes. While the object of the trust is described as a purpose, the trust has a U.S. corporation as a beneficiary and is not a purpose trust.

3 October 2007 Internal T.I. 2006-0199101I7 - Computations under the FIE rules

Unedited CRA Tags
94.1 94.2 94.3 94.4

Principal Issues: Various questions on the application of the FIE legislation - 1), 2) and 3) basic computations; 4) dispositions; 5) choice of methods; 6) and 7) foreign exchange

Position: See body of letter

Reasons: See body of letter