Income Tax Severed Letters - 2009-01-02

Technical Interpretation - External

22 December 2008 External T.I. 2008-0299651E5 - Transfer of Assets

Principal Issues: Determination of fair market value of goodwill and intangible assets of business.

Position: Unable to comment on suggested valuation of goodwill and intangible assets. Inquirer may wish to contact Valuations section at Tax Services Office and/or consult with case law where valuation of goodwill was decided upon.

Reasons: Question of fact.

19 December 2008 External T.I. 2008-0299321E5 F - Exploitation forestière et DBFT

Unedited CRA Tags
125.1(1); 125.1(3); 5200 REG
Summary Under
Tax Topics - Income Tax Act - Section 125.1 - Subsection 125.1(3) - Canadian Manufacturing and Processing Profits
managing processing operation of another corp. did not qualify
Summary Under
Tax Topics - Income Tax Regulations - Regulation 5202 - Cost of Manufacturing and Processing Labour
fees of another corp. for managing the taxpayer’s log processing operation could qualify as "cost of manufacturing and processing labour"

Principales Questions: la société B utilisant des billots de bois appartenant à un tiers, auxquelles différentes finalités sont réservées, désire savoir si les bénéfices qui découlent de ses activiés sont des bénéfices de fabrication et de transformation.

Position Adoptée: Non.

Raisons: Selon les faits soumis à notre attention, la société B ne produit pas d'articles destinés à la vente ou à la location pour au moins 10% de ses revenus. Il s'agit de travaux de sous-traitance effectués pour la société A.

17 December 2008 External T.I. 2008-0296741E5 - PROCEEDS FROM EASEMENT ON LAND

Unedited CRA Tags
43

Principal Issues: The income tax treatment of a $XXXXXXXXXX payment received by a taxpayer from neighbouring municipality for the right to XXXXXXXXXX

Position: Generally, the granting of an easement is considered a disposition of property, and a reasonable portion of the adjusted cost base of the whole property attributable to the part disposed of is required to be allocated to the disposition pursuant to section 43 of the Income Tax Act. However, the CCRA will accept an amount equal to the proceeds from such a disposition as being the reasonable portion of the adjusted cost base of the whole property attributable to the part disposed of provided that (a) the area or the portion of the property that was expropriated or in respect of which an easement was granted is not more than 20% of the area of the total property, and (b) the amount of the compensation received is not more than 20% of the amount of the adjusted cost base of the property.

Reasons: IT-264R

16 December 2008 External T.I. 2008-0270201E5 - Sole shareholder-employee housing loan

Unedited CRA Tags
15(2)

Principal Issues: Whether a loan to a shareholder-employee qualifies as a housing loan.

Position: Question of fact. The fact that an individual is the only employee and shareholder of a corporation does not mean, in and of itself, that a benefit is conferred qua employee.

Reasons: Whether any benefit, including a loan to purchase a dwelling, is conferred on an individual qua employee or qua shareholder is always a question of fact, which must be determined in each particular case.

XXXXXXXXXX 2008-027020
S. deLang-Lenters
December 16, 2008

16 December 2008 External T.I. 2008-0279741E5 F - Renonciation au capital d'une fiducie

Unedited CRA Tags
75(2) 74.3 107(2.1) 248(1)
Summary Under
Tax Topics - Income Tax Act - Section 75 - Subsection 75(2)
settlor’s valid renunciation of capital interest (but not income interest) prior to trustees’ exercise of discretion to distribute a capital gain would avoid application of s. 75(2)(a)(i)
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(9) - Disclaimer
legally impossible for a beneficiary of a discretionary trust to partially renounce income from a specific trust property
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Disposition - Paragraph (i)
non-disposition distribution of non-taxable portion of trust capital gains avoids a gain under s. 107(2.1)
Summary Under
Tax Topics - Income Tax Act - Section 54 - Proceeds of Disposition
settlor’s renunciation of capital interest (but not income interest) prior to trustees’ exercise of discretion to distribute a capital gain would generate nil proceeds and not engage s. 56(2) or (4)
Summary Under
Tax Topics - Income Tax Act - Section 69 - Subsection 69(1) - Paragraph 69(1)(b)
s. 69(1) does not apply to a renunciation of trust capital interest since no disposition "to" any person
Summary Under
Tax Topics - Income Tax Act - Section 56 - Subsection 56(2)
s. 56(2) inapplicable to renunciation of capital interest in a trust
Summary Under
Tax Topics - Income Tax Act - Section 56 - Subsection 56(4)
s. 56(4) inapplicable to disclaimer of capital interest in a trust

Principales Questions: 1. Est-ce que le paragraphe 75(2) continuerait de s'appliquer suite à une renonciation?
2. Si 75(2) ne s'applique pas à l'auteur du transfert, est-ce que les autres bénéficiaires du capital pourront demander une déduction pour gain en capital à l'égard du gain en capital sur des actions admissibles de petite entreprise détenues par la fiducie?
3. Y a-t-il des conséquences fiscales à payer la partie non imposable du gain en capital aux bénéficiaires du capital si l'acte de fiducie le permet?
4. Si la renonciation est valide légalement, est-ce que les paragraphes 56(2) et (4) s'appliqueraient?
5. Si la renonciation est valide légalement et n'est pas faite en faveur de quelqu'un, est-ce qu'il y aurait disposition de la participation au capital et quel serait le produit de disposition?

Position Adoptée: 1. Si la renonciation est valide légalement et si le particulier ne pouvait en aucun cas redevenir bénéficiaire du bien ou du bien y substitué (y compris le produit de disposition du bien), le sous-alinéa 75(2)a)(i) ne semble plus s'appliquer. Cependant, d'autres règles d'attribution pourraient s'appliquer.
2. Si le paragraphe 75(2) ne s'applique pas, le paragraphe 74.2 et 74.3 s'appliquerait à l'égard du gain en capital qui serait attribué au conjoint en vertu du paragraphe 104(21) ne permettant pas à ce dernier de profiter de la déduction pour gain en capital. Pour les autres bénéficiaires, il faudrait que la partie imposable du gain en capital leur soit payable au cours de l'année, que la fiducie leur attribue un montant en vertu du paragraphe 104(21) et selon les dispositions prévues au paragraphe 104(21.2).
3. Si le paiement de la partie non imposable du gain en capital est effectué en argent et est visé à l'alinéa (i) de la définition de disposition au paragraphe 248(1), le paiement ne constituerait pas une disposition. Cependant, dans une telle situation, l'alinéa 107(2.1) n'aurait pas de conséquence fiscale.
4. Non
5. Si la renonciation est valide légalement et n'est pas effectuée en faveur de quelqu'un, il y aurait disposition de la participation au capital mais le produit de disposition serait nul.

Raisons: 1. Nous n'avons aucun document qui nous permettrait de dire que les autres dispositions du paragraphe 75(2) ne s'appliquent pas. De plus, nous n'avons pas les documents et nous n'avons pas le mandat de donner une opinion légale sur la validité de la renonciation.
2. Libellé de la Loi.
3. Libellé de la Loi.
4. 56(2): la participation au capital (le bien auquel on renonce) n'aurait pas été inclus dans le revenu du particulier.
56(4): le particulier renonce au bien au complet et pas seulement au droit aux revenus.
5. Le paragraphe 69(1) ne s'applique pas car la disposition ne se fait pas en faveur de quelqu'un.

Conference

9 December 2008 TEI Roundtable Q. 2, 2008-0300381C6 - Eligible Dividend Designations

Unedited CRA Tags
89(14) 89(1)

Principal Issues: Would CRA consider extending the administrative relief to the designation requirements of subsection 89(14) of the ITA as provided to public corporations, to Canadian-controlled private corporations ("CCPC")?

Position: No.

Reasons: In accordance with a previously issued technical interpretation, we have found that the main tax policy objective for the written and contemporaneous designation requirements in subsection 89(14) is the entitlement of dividend recipients to certainty regarding the tax consequences of corporate distributions. Furthermore, late designations are not permitted under subsection 89(14) pursuant to section 600 of the Income Tax Regulations, which also supports the view that Parliament intended to provide taxpayers with certainty as to the tax implications of corporate distributions. In our view, there are valid and compelling reasons to provide administrative relief to public corporations from the statutory designation requirements in respect of public corporations. First, most public corporations face a potentially significant burden associated with providing written and contemporaneous notification of each eligible dividend to its numerous shareholders. In addition, there are fundamental differences in the eligible dividend regime applicable to the CCPCs and the one applicable to public corporations. For example, a non-CCPC, which is required to calculate its low-rate income pool ("LRIP") at the time that it designates an eligible dividend, is unrestricted in its capacity to designate eligible dividends, to the extent the it does not have an LRIP balance. Furthermore, a CCPC must have a general rate income pool ("GRIP") balance at the end of the year in order to designate an eligible dividend and avoid an excessive eligible dividend designation ("EEDD"), whereas a non-CCPC must not have an LRIP balances to designate eligible dividends without penalty. Moreover, it is our understanding that most public corporations generally will not have an LRIP balance. Thus, our administrative position with respect to public corporations is intended to alleviate certain administrative hardships vis-à-vis the designation requirements, while continuing to preserve the dividend recipient's entitlement to certainty with respect to the tax implications of corporate distributions. We are unable to apply the same reasoning to CCPCs and non-CCPCs, other than public corporations.

9 December 2008 TEI Roundtable Q. 17, 2008-0300391C6 - Section 51 Convertible Property

Unedited CRA Tags
51(1)(d) 86(1)(b) 85(1)(c)

Principal Issues: Whether, under section 51, the ACB of the preferred shares, received in exchange for common shares having no value, would be nil?

Position: Technically yes. An identical technical result would occur pursuant to paragraph 86(1)(b). However, where the exchanged shares have a nominal value, the ACB of the new preferred shares would be the ACB to the taxpayer of the convertible property immediately before the exchange. Finally, the taxpayer could elect to have the provisions of section 85 apply, precluding the application of sections 51 and 86 (pursuant to subsections 51(4) and 86(3)). Pursuant to paragraph 85(1)(c), a capital loss would be triggered, subject to the potential application of the stop loss rules.

Reasons: Wording of the Act.