Income Tax Severed Letters - 2009-01-30

Ruling

2008 Ruling 2008-0292081R3 - Pay Equity - human rights damages

Unedited CRA Tags
5; 6

Principal Issues: Taxability of amounts to be paid to by an employer to certain employees pursuant to an arbitration award to settle the outstanding claims for breach of the employees' rights under the XXXXXXXXXX Human Rights Code and for related pain and suffering.

Position: Amounts are not taxable.

Reasons: Consistent with prior positions that damages received for violation of human rights are not taxable.

2008 Ruling 2008-0297811R3 - Shareholder Benefits

Unedited CRA Tags
15(1); 53(2)(b)(ii)

Principal Issues: 1. Whether a distribution that is a reduction of a corporation's paid-up capital gives rise to a subsection 15(1) benefit to the shareholder. 2. Whether the distribution reduces the ACB of the shares of DC held by Parent.

Position: 1. No. 2. Yes.

Reasons: 1. Paragraph 15(1)(a) applies to exclude the distribution from the application of subsection 15(1). 2. Paragraph 53(2)(b)(ii) applies to reduce the ACB.

2008 Ruling 2008-0300351R3 - Taxation of Foreign Affiliates

Unedited CRA Tags
Part LIX

Principal Issues: Whether a XXXXXXXXXX is a resident of XXXXXXXXXX for purposes of Part LIX of the Regulations.

Position: Yes.

Reasons: Wording of paragraph 5907(11.2)(c) of the Regulations.

2008 Ruling 2008-0267821R3 - Foreign Affiliates

Unedited CRA Tags
Reg. 5907(11.2)

Principal Issues: Whether a XXXXXXXXXX will be resident in XXXXXXXXXX for the purposes of Part LIX of the Regulations

Position: The XXXXXXXXXX will be considered to be resident in XXXXXXXXXX for the purposes of Part LIX of the Regulations if central management and control is located in XXXXXXXXXX and the XXXXXXXXXX carries on business in XXXXXXXXXX pursuant to a valid certificate of qualification

Reasons: Canada-XXXXXXXXXX Tax Treaty and Part LIX of the Regulations

2008 Ruling 2008-0279811R3 - Pro services by a partner's corporation for ptnshp

Unedited CRA Tags
125(7); 56(2); 96(1)

Principal Issues: Whether the active business income earned by a partner's corporation from providing professional services to a partnership of which the partner is a member would be restricted under the rules for specified partnership income or personal services business.

Position: Generally no.

Reasons: The proposed transactions conform to our requirements as set out in other similar rulings.

2008 Ruling 2008-0290361R3 - Foreign divisive reorganization

Unedited CRA Tags
15(1); 40(3); 53(2)(b)(ii); 56(2); 93(1); 93(1.1); 95; 246(1); ITR 5902(6); 5907(5.1)

Principal Issues: 1) What are the proceeds of disposition to the distributing corporation of the property disposed of in the course of the reorganization? 2) What is the cost of the property acquired by the transferee corporations? 3) What is the cost to the shareholders of the distributing corporation of the shares of the transferee corporations acquired in the course of the reorganization? 4) Does the proposed reorganization result in benefits under subsection 15(1), 56(2) or 246(1)?

Position: 1) For the purposes of section 5907 of the Regulations, the proceeds of disposition of a property that is described in subsection 5907(5.1) of the Regulations will be equal to the aggregate of its adjusted cost base to the distributing corporation and any outlays incurred to make the disposition; 2) For the purposes of section 5907 of the Regulations, the cost to the transferee corporations of a property described in subsection 5907(5.1) of the Regulations will be an amount equal to the distributing corporation's proceeds of disposition; 3) Fair market value of the shares acquired; 4) No

Reasons: 1) Paragraph 5907(5.1)(a) of the Regulations; 2) Paragraph 5907(5.1)(b) of the Regulations; 3) General principles of cost determination; 4) Conditions precedent to the application of subsections 15(1), 56(2) and 246(1) are not met

Technical Interpretation - External

28 January 2009 External T.I. 2008-0292461E5 - Income/capital treatment - commodity transactions

Unedited CRA Tags
9 39

Principal Issues: A corporation will purchase a commodity. The corporation intends to hold the commodity long-term as an investment. The corporation does not carry on any other business activities. Will the comments in paragraph 7 of IT-346R allow the corporation, as a speculator, to treat any gain or loss on account of capital?

Position: No.

Reasons: While the determination of income or capital treatment is a question of fact the position described in paragraph 7 of IT-346R for speculators is not intended to apply to corporations described in paragraph 5 of IT-346R.

26 January 2009 External T.I. 2008-0301371E5 - Disposition - Interest in a Life Insurance Policy

Unedited CRA Tags
148(1) 148(3) Reg. 308

Principal Issues: Guidance requested with respect to the taxation of a disposition of an interest in a life insurance policy.

Position: Generally, the disposition of an interest in a life insurance policy will result in an amount being included in the income of the policyholder.

26 January 2009 External T.I. 2007-0233631E5 - Gain on Disposition of Life Insurance Policy

Principal Issues: What are the tax implications of the disposition of a term life insurance policy that provides for a return of part of the premiums if the policy is surrendered or cancelled prior to the end of the term.

Position: General comments provided. Taxable gain arises to the extent the proceeds of disposition exceed the adjusted cost basis of the policy at the time of the disposition.

Reasons: The legislation.

22 January 2009 External T.I. 2008-0300671E5 - Monthly flat rate fee for clergy vehicle expenses

Unedited CRA Tags
6(1)(b)(vi) 6(1)(b)(x) 6(1)(b)(xi)

Principal Issues: Whether a set flat rate fee paid to clergy member may be excluded from income under subparagraph 6(1)(b)(vi)

Position: No

Reasons: Paragraphs 6(1)(b)(x) and 6(1)(b)(xi) deem amounts to be unreasonable for the purposes of 6(1)(b)(vi).

22 January 2009 External T.I. 2008-0287751E5 - Non-Arm's Length Transfer of Property

Unedited CRA Tags
s. 160

Principal Issues: When is interest chargeable on a section 160 assessment.

Position: Interest is chargeable from the date of the assessment.

Reasons: Paragraph 160(1)(e) of the Act has been amended to override Algoa Trust v. R.

22 January 2009 External T.I. 2008-0304581E5 - Renovations as medical expenses

Unedited CRA Tags
118.2(2)(l.2) 118.2(2)(l.21)

Principal Issues: Whether an addition to a taxpayer's home qualifies as medical expenses under paragraph 118.2(2)(l.2) or 118.2(2)(1.21)

Position: Paragraph 118.2(2)(l.2) is the relevant provision to consider where an extension is made to a taxpayer's home for medical purposes. Only a small portion of such expenses would qualify since subparagraphs 118.2(2)(l.2)(i) and (ii) likely deny most of the costs of an addition to the home.

Reasons: Amendment to paragraphs 118.2(2)(l.2) and 118.2(2)(l.21) for expenses incurred after February 22, 2005.

21 January 2009 External T.I. 2008-0297871E5 - Land Partition

Unedited CRA Tags
248(21); 248(20)

Principal Issues: Whether two parcels of farmland, with both names of two brothers on each title, can be partitioned so that only one name will remain on each parcel without any tax consequences.

Position: Yes.

Reasons: The requirements for subsection 248(21) treatment would be available if the subdivisions of the original parcel of land into two parcels occurred in the course of, or in contemplation of, a partition and provided each parcel has the same fair market value.

21 January 2009 External T.I. 2008-0266191E5 F - Part IV & Capital Gain Strip

portion of the dividend received by the recipient corporation that is subject to Pt. IV also includes any safe income attributable to the shares of the payer held by the recipient

Principal Issues: (1) Is technical interpretation F9906255 still valid? (2) The situation in technical interpretation F9906255 was one where: Gesco received from Canco (its subsidiary) a taxable dividend of $2 M to which subsection 55(2) applied, Gesco had safe income on hand of $300,000 in respect of its shares of Canco and Canco received a dividend refund of $25,000 on total dividends paid of $2.1M. The second issue raised is what would be Gesco's Part IV tax if in this situation Canco's dividend refund instead of $25,000 was $400,000, and, what would be the part of the dividend to which subsection 55(2)(a) would apply?

Position: (1) No. (2) Part IV tax would be approximately $380,950 and subsection 55(2)(a) would apply to $857,143.

Reasons: (1) and (2) Because of the approach adopted by the Tax Court of Canada in 943963 Ontario inc. v. HMQ (99 DTC 802).

20 January 2009 External T.I. 2008-0284681E5 - Specified Investment Business

Unedited CRA Tags
125(7)
partnership rental income, where partnership has 6 full-time employees, is not from a SIB to the partners

Principal Issues: 1. Whether, for the purposes of the exclusion in paragraph (b) in the definition of "specified investment business" (SIB) in subsection 125(7) of the Act, the associated property management company must employ more than five full-time employees per corporate co-owner of the commercial real estate rental properties under its management. 2. For the purposes of the paragraph (b) SIB exclusion, whether the associated property management company is considered to be in the same business as the corporate co-owners of the commercial real estate rental properties. 3. Whether a corporation has carried on an active business as a member of a partnership.

Position: 1. No. 2. No. 3. Yes.

Reasons: 1. The test is whether it can be reasonably expected that a particular corporation that received services from an associated corporation would otherwise have required more than 5 full-time employees in its business had the services not been provided. 2. The business of the corporate co-owners is to derive income from property in the form of rent, which is a different business than that of the associated corporation, which is to provide property management services. 3. Paragraph 20 of IT-73R6.

19 January 2009 External T.I. 2008-0305071E5 - Light Therapy Device as Medical Expense

Unedited CRA Tags
118.2(2) 5700

Principal Issues: Whether a light therapy device for the treatment of Seasonal Affective Disorder qualifies as a medical expense.

Position: No.

Reasons: Light therapy devices are not provided for under subsection 118.2(2) or section 5700 of the Regulations.

16 January 2009 External T.I. 2008-0291121E5 - respite care - medical

Unedited CRA Tags
118.2(2)(b); 118.2(2)(d)

Principal Issues: Whether respite care qualifies for METC

Position: Question of fact.

Reasons: It depends on the nature of the individual's disability and whether the respite care facility is a nursing home or another type of facility.

15 January 2009 External T.I. 2008-0295831E5 - Exam fees paid to a Professional Association

Unedited CRA Tags
118.5; 14(5); 18(1)

Principal Issues: 1. Do the fees paid for exams mandated by a regulatory body for licensing purposes qualify for the tuition tax credit?
2. If not, can they be deducted as business expenses?

Position: 1. No.
2. No. May qualify as an ECE.

Reasons: 1. The regulatory body is not an educational institution as defined in s. 118.5 because it does not appear to provide courses at a post-secondary level. The student was not enrolled in a program of study at the regulatory body.
2. The exam fees are not incurred as business expenses, but since they can be considered to have a lasting benefit to the student, they may be considered as capital in nature if they are incurred for the purpose of earning income from a business.

14 January 2009 External T.I. 2008-0270771E5 - Residence of a corporation

Unedited CRA Tags
250(4), 250(5), 116, Article IV(1) & (3) of Canada-US Income Tax Convention

Principal Issues: Where a particular corporation is resident.

Position: Generally a question of fact. Here both corporations appear to be resident in Canada.

Reasons: Application of subsections 250(4), 250(5) and paragraph 3 of Article 4 of the Canada-US Income Tax Convention.

17 December 2008 External T.I. 2007-0253031E5 - Loss Consolidation Arrangement

Unedited CRA Tags
20(1)(c); 245(2)

Principal Issues: Whether the proposed loss consolidation arrangement within an affiliated group of corporations is acceptable?

Position: No

Reasons: Lossco does not have the borrowing capacity required to realize the loss consolidation arrangement. In that regard, it is our opinion that it is the borrowing capacity of the entity that actually suffered the losses, rather than the borrowing capacity of the affiliated group as a whole, that is relevant in the particular circumstances. Ruling withdrawn.

Technical Interpretation - Internal

26 January 2009 Internal T.I. 2008-0303901I7 F - Allocation raisonnable et coûts d'opération

Unedited CRA Tags
6(1)b); 8(1)h); 8(1)h.1); 8(1)j)
Quebec government-mandated travel allowances are reasonable including re depreciation – if too low, can make s. 8(1)(h.1) claim

Principales Questions: Afin de déterminer si une allocation pour frais de déplacement est raisonnable, est-il nécessaire de tenir compte de la dépréciation du véhicule de l'employé engendrée par l'usage aux fins d'emploi?

Position Adoptée: Oui.

Raisons: Une allocation raisonnable couvre tous les coûts relatifs à l'usage d'un véhicule et doit compenser tous les frais réels engagés par le contribuable, dont la dépréciation, les frais de financement, les assurances et les frais de carburant.

23 January 2009 Internal T.I. 2008-0300811I7 - Gift Certificates - Timing of Income Recognition

Unedited CRA Tags
9(1); 12(1)(a); 20(1)(m)

Principal Issues:
1. When should a business recognize income from the sale of a gift certificate?
2. If at the date of sale, can a reserve be claimed in respect of any unredeemed gift certificates at a taxpayer's year-end?

Position:
1. Income should be recognized at the date of sale of the gift certificate.
2. Question of fact, but generally a reasonable reserve representing the amount of any outstanding gift certificates at a taxpayer's year-end (excluding expired gift certificates, where applicable) less a percentage for gift certificates which (on the basis of past experience) are not redeemed by their holders, could be claimed by a taxpayer.

Reasons:
1. Pursuant to paragraph 12(1)(a) of the Income Tax Act ("the Act").
2. Pursuant to subparagraph 20(1)(m)(i) of the Act. The reserve must be reasonable and in respect of goods in which it is "reasonably anticipated" will have to be delivered after the end of the year.