Income Tax Severed Letters - 2008-05-09

Ruling

2008 Ruling 2007-0232271R3 - Donation of flow-through shares

Unedited CRA Tags
118.1 38(a.1) 248(32)

Principal Issues: Whether a donation of flow-through shares constitutes a gift for income tax purposes.

Position: Yes, in this particular case

Reasons: Based on the facts and having regard to the caveats provided in the Ruling, it is our view that the donation would constitute a gift for income tax purposes and that the CEE and the investment tax credit renounced to the investor pursuant to the flow-through share financing will not constitute an advantage under the draft split-receipting rules.

2008 Ruling 2007-0240881R3 - 55(3)(b) Butterfly reorganization

Unedited CRA Tags
55(3)(b)

Principal Issues: Whether the proposed butterfly reorganization meets the requirements of paragraph 55(3)(b).

Position: Yes.

Reasons: Meets the requirements of the law.

2008 Ruling 2007-0248961R3 - Thin Capitalization

Unedited CRA Tags
18(4)

Principal Issues: Whether undistributed partnership income reduces the retained earnings computed for purposes of clause 18(4)(a)(ii)(A) of the Act.

Position: No.

Reasons: Does not fit into the "retained earnings of any other corporation" exclusion in that clause.

2008 Ruling 2008-0269981R3 - Credit party replacement

Unedited CRA Tags
9(1) 248(1)

Principal Issues: Is the transfer of rights and obligations of a swap from a counterparty to another counterparty (already involved in a mirror-swap) considered a disposition such that income or a loss is realized for tax purposes?

Position: no

Reasons: Rights and Obligations are identical.

Technical Interpretation - External

2 May 2008 External T.I. 2008-0265681E5 - Tax Shelters and ss. 16.1(1) election

Unedited CRA Tags
16.1(1) 237.1(1) 143.2(7)

Principal Issues: What is the application of subsections 237.1(1) [tax shelters] and 143.2(7) [limited-recourse debt] of the Income Tax Act to a subsection 16.1(1) joint election by a lessee and lessor.

Position: General comments given only.

Reasons: Insufficient information available to conclude. Matter should be determined in the context of an advance tax ruling submitted in accordance with IC 70-6R5.

XXXXXXXXXX 2008-026568
L. Carruthers, CA
May 2, 2008

1 May 2008 External T.I. 2007-0250141E5 F - Crédit pour la création d'emplois d'apprentis

Unedited CRA Tags
127(9)

Principales Questions: (1) Est-ce que le mot année dans la définition d'apprenti admissible s'interprète en fonction des règles applicables au métier en question?
(2) De quelle façon un employeur peut-il déterminer le début de la période deux ans d'apprentissage dans le domaine de la construction au Québec pour les fins du calcul du CICEA?
(3) Lorsque des employeurs dans le domaine de la construction au Québec ne sont pas liés entre eux, est-ce qu'il existe une méthode qui nous permet de nous assurer que la limite de 2000$ par apprenti n'est pas dépassée lorsque l'apprenti a travaillé pour plus d'un employeur au cours de l'année d'imposition?

Position Adoptée: (1) Voir l'interprétation F2007-0228611E5.
(2) Question de fait. Dans le domaine de la construction au Québec, un apprenti doit détenir un certificat de compétence-apprenti pour travailler. Nous sommes d'avis que la date de délivrance du premier certificat de compétence peut servir de point de départ pour calculer la période de deux ans aux fins du calcul du CICEA.
(3) Voir l'interprétation F2008-0268881I7.

Raisons: (1) Application de la notion d'année dans la loi d'interprétation
(2) Loi de l'impôt sur le revenu
(3) Il n'existe pas de limite de 2000$ par apprenti admissible. Chacun des employeurs non liés a le droit de réclamer un montant maximal de 2000$ relativement à un même apprenti admissible.

1 May 2008 External T.I. 2007-0257221E5 - Definition of "Qualified Farm Property"

Unedited CRA Tags
110.6(1) 110.6(1.3)(b)(i)

Principal Issues: 1. Whether it is possible for a husband and wife as co-owners to meet subparagraph 110.6(1.3)(b)(i) if the husband is the only individual who meets the actively engaged test while the wife is the only individual who meets the gross revenue test. 2. Whether the word "principally" in paragraph (a) of the definition of QFP in subsection 110.6(1) and in clause 110.6(1.3)(b)(i)(B) impose two separate use tests.

Position: 1. The gross revenue test and the actively engaged test do not need to be met by the same individual. 2 No.

Reasons: 1. Based on the wording used in clauses 110.6(1.3)(b)(i)(A) and (B). 2. Finance is prepared to recommend to the Minister that paragraph (a) of the definition of "qualified farm property" in subsection 110.6(1) of the Act be amended to remove the word "principally." Meanwhile, the CRA will not make any reassessments based on the current wording of this subparagraph before the changes in question are published and adopted except in situations of abuse.

2007-025722
XXXXXXXXXX André Gallant
(613) 957-8961
May 1, 2008

30 April 2008 External T.I. 2007-0252051E5 F - Commercial Woodlot - Timber Limit

Unedited CRA Tags
20(1)(a); 1100(1)(e); 1101(3)

Principal Issues: A taxpayer acquires land on which there is standing timber. Whether such property constitutes a "commercial non-farm woodlot," as this expression is used in IT-373R2. Whether such property constitutes a "timber limit."

Position: It is possible that the land acquired constitutes a "commercial non-farm woodlot," as this expression is used in IT-373R2, and a "timber limit." However, the facts provided are insufficient to confirm the income tax consequences resulting from the acquisition of the land. General comments provided only. In the context of a commercial non-farm woodlot, paragraph 23 (b) of IT-373R2 states that capital cost allowance may be available in respect of the cost to the taxpayer of the woodlot. The expression "timber limit" is not defined in the Act. However, paragraph 7 of IT-481 states that if a taxpayer acquires land on which there is standing timber (for example, freehold timberlands), such property is a timber limit. Furthermore, paragraph 3 of IT-481 states that paragraph 20(1)(a) and paragraph 1100(1)(e) of the Income Tax Regulations (the "Regulations") provide for a deduction in respect of the capital cost of a timber limit. The amount claimed may not exceed the amount calculated in accordance with Schedule VI of the Regulations. Each property that is a timber limit is prescribed by subsection 1101(3) of the Regulations to be a separate class of property. Finally, rather than deduct an amount calculated pursuant to section 1 and section 2 or section 3 of Schedule VI of the Regulations, a taxpayer may elect to deduct the lesser of $100 and the amount of his timber sales in the year in accordance with section 4 of Schedule VI of the Regulations.

Reasons: Wording of the Act and previous positions.

30 April 2008 External T.I. 2007-0254311E5 F - Estate Freeze - Attribution Rules

Unedited CRA Tags
74.4(2) 74.4(4)

Principal Issues: An individual ("Individual") first implements an estate freeze, whereby his participating shares of the capital stock of a corporation ("Opco") are converted into preferred shares of the capital stock of Opco, and a personal trust ("Trust1") subscribes for participating shares of the capital stock of Opco. The beneficiaries of Trust1 are the two minor children of Individual ("Child1" and "Child2"). The terms of Trust1 contain the restrictions described in subsection 74.4(4). At that point, the only interests of Child1 and Child2 in Opco are their beneficial interests in the shares of Opco held by Trust1. Some years later, a second freeze is implemented, whereby the participating shares of the capital stock of Opco held by Trust1 are converted into preferred shares of the capital stock of Opco, and a personal trust ("Trust2") subscribes for participating shares of the capital stock of Opco. The beneficiary of Trust2 is Child1. The terms of Trust2 contain the restrictions described in subsection 74.4(4). Whether the condition described in paragraph 74.4(4)(a) would be met, even if Child1 would be the beneficiary of two trusts holding shares of the capital stock of Opco.

Position: Yes. In the given situation, the fact that Child1 would be the beneficiary of two trusts holding shares of the capital stock of Opco would not, in and by itself, render subsection 74.4(4) inapplicable.

Reasons: Wording of the Act.

30 April 2008 External T.I. 2007-0257041E5 F - Crédit pour la création d'emplois d'apprentis

Unedited CRA Tags
127(9)

Principales Questions: De quelle façon un employeur peut-il déterminer le début de la période deux ans d'apprentissage dans le domaine de la construction au Québec pour les fins du calcul du CICEA?

Position Adoptée: Question de fait. Dans le domaine de la construction au Québec, un apprenti doit détenir un certificat de compétence-apprenti pour travailler. Nous sommes d'avis que la date de délivrance du premier certificat de compétence peut servir de point de départ pour calculer la période de deux ans aux fins du calcul du CICEA.

Raisons: Loi de l'impôt sur le revenu.

25 April 2008 External T.I. 2008-0274401E5 F - Crédit d'impôt pour enfant

Unedited CRA Tags
118(1)b.1) 118(9.1)

Principales Questions: Quelle est la signification des termes "habituellement" et "tout au long de l'année" que l'on retrouve à l'alinéa 118(1)(b.1) de la Loi de l'impôt sur le revenu? Est-ce que le fait qu'un relevé 4 ait été émis pour un enfant, empêche un parent de réclamer le crédit de 2 000 $ à l'égard de cet enfant?

Position Adoptée: La question de savoir si un particulier peut réclamer le crédit pour enfant à l'égard de son enfant est une question de fait. Le fait qu'un relevé 4 ait été émis au nom de l'enfant est un des éléments à considérer. Puisque l'expression " tout au long de l'année n'est pas définie dans la loi, il faut donc s'en remettre au sens littéraire. Un contribuable réside habituellement à l'endroit où dans la routine de sa vie il vit régulièrement, normalement ou habituellement.

24 April 2008 External T.I. 2008-0275171E5 - Interest deductibility

Unedited CRA Tags
20(1)(c)

Principal Issues: Will interest on borrowed money, used for the purpose of investing in income producing assets, be deductible, where the income earned from the investments may be less than that interest expense.

Position: As noted in paragraph 10 of IT 533, income earned need not be in excess of interest paid, but must consider draft section 3.1 of the Income Tax Act.

Reasons: Until the Department of Finance's review of the October 2003, legislative proposals is complete and the results are made available to the public, we cannot comment further on their impact on interest deductibility.

Technical Interpretation - Internal

29 April 2008 Internal T.I. 2008-0275501I7 - Effective Interest Date

Unedited CRA Tags
161(7)

Principal Issues: What is the effective interest date under paragraph 161(7)(b) in a given

Position: The latest of the days referred to in paragraph 161(7)(b) would be at the time that the taxpayer requested that the additional loss for year 4 be carried back to the prior years.

Reasons: The legislation