Income Tax Severed Letters - 2009-02-27

Ruling

2008 Ruling 2008-0292231R3 - Partnership Reorg-Personal Service Business

Principal Issues: Where a partner of a professional partnership creates a professional corporation through which professional services will be provided to the partnership, will the corporation be eligible for the small business deduction?

Position: Question of fact. Generally, yes, if certain conditions are met.

Reasons: Reading of relevant legislation and consistent with other rulings.

2008 Ruling 2008-0295711R3 - Indian Band-Public Body & Function of Government

Unedited CRA Tags
149(1)(c)

Principal Issues: Is the Indian band a public body performing a function of government?

Position: Yes.

Reasons: The Indian Band is governed by an elected band council. The Indian Band performs several functions of government. The Indian Band has passed by-laws under the FSMA regarding property taxation. The Indian Band has a Health Services Transfer Agreement with Health Canada for various health services. The Indian Band operates, in conjunction with XXXXXXXXXX other First Nation communities, a community school for grades kindergarten to 12. The Indian Band provides for its community public works, social programs and infrastructure, such as road maintenance, fire protection and community water supply and maintenance.

2008 Ruling 2008-0289331R3 - Reduction of stated capital of public corporation

Unedited CRA Tags
54 84(2) 84(4.1)

Principal Issues: (1) Whether transaction constitutes reorganization of the taxpayer's business for purposes of subsection 84(2)? (2) Whether subsection 84(4.1) [as proposed to be amended by Bill C-10] applies?

Position: (1) Yes. (2) Yes.

Reasons: (1) Taxpayer is able to make a reasonable argument, based on the particular facts of this case, that the transaction in question should be considered a reorganization of the taxpayer's business for purposes of subsection 84(2). (2) In this particular case, it is our opinion that subsection 84(4.1) [as proposed to be amended by Bill C-10] applies.

Technical Interpretation - External

20 February 2009 External T.I. 2008-0294701E5 - Deductibility of Legal Fees and Penalties

Unedited CRA Tags
67.6 18(1)(a) 18(1)(b) 9

Principal Issues: 1) Are legal fees that were incurred by an employer in defending against a prosecution related to a workplace fatality deductible? 2) Is the court ordered payment as a result of that prosecution to a registered charity deductible?

Position: 1) Yes. 2) No.

Reasons: 1) The legal fees appear to have been incurred for defending the employer's negligence relating to an accident which caused the death of an individual. The repairs appeared to be routine repairs made to equipment used in operating its business. 2) The court ordered payment was pursuant to the applicable occupational health and safety legislation and as such is a penalty described in section 67.6 of the Act. The payment to the Foundation would not be deductible under 110.1 since it was not a gift for those purposes.

17 February 2009 External T.I. 2009-0307501E5 - Test Wind Turbine

Unedited CRA Tags
reg. 1219(3); 66(12.6); 66(15)

Principal Issues: Whether a wind turbine XXXXXXXXXX will be a test wind turbine per 1219(3) of the Regulations

Position: Yes

Reasons: favourable opinion received from NRCan also otherwise meets criteria.....also purchased turbine has not yet been commissioned

16 February 2009 External T.I. 2008-0293911E5 F - Application of subsection 55(2).

Unedited CRA Tags
55(2) 55(3)(a)
Summary Under
Tax Topics - Income Tax Act - Section 55 - Subsection 55(3) - Paragraph 55(3)(a)
s. 55(3)(a) most clearly unavailable where Opco repurchases a portion of its commons shares held by Bco, followed by Bco’s purchase of the Opco shares of Aco

Principal Issues: Whether subsection 55(2) applies to the dividend received in three proposed scenarios.

Position: Subsection 55(2) may apply depending on the circumstances.

Reasons: Wording of the Act and previous positions.

13 February 2009 External T.I. 2009-0308411E5 - Disposition of a policy 148(9)

Unedited CRA Tags
148(9)

Principal Issues: 1) For the purposes of (k) of the definition of disposition pursuant to ss.148(9), is an individual "totally and permanently disabled" where that individual is receiving CPP disability benefits? 2) In order for paragraph (k) of that definition to apply, is an exempt life insurance policy required to contemplate that the policy surrender and purchase of an annuity contract are as a result of the disability of the person whose life is insured?

Position: 1) Question of fact 2) No

Reasons: 1) Paragraph (k) of the definition of disposition found at ss.148(9) requires that the person whose life is insured be "totally and permanently disabled", which is independent of the requirements to receive CPP disability benefits, and must be determined based on the nature, severity, and expected duration of the impairment. 2) Further, the terms of the life insurance contract are not required to contemplate that the policy surrender and resulting issuance of an annuity are in consequence of the disability of the individual whose life is insured.

30 January 2009 External T.I. 2008-0287541E5 F - Décès - actions détenues en indivision

Unedited CRA Tags
70(6), 248(20), 248(21)
Summary Under
Tax Topics - Income Tax Act - Section 70 - Subsection 70(6)
s. 70(6) inapplicable if partition of bequeathed shares between death and distribution to spousal trust
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(21)
block of shares is not a single property, so that partition must occur on a share-by-share basis giving rise to separately-held fractional shares

Principales Questions: 1) À un moment où la succession d'un contribuable et le conjoint survivant du défunt détiennent des actions en indivision, est-ce que le partage de celles-ci peut être effectué entre le conjoint survivant et une fiducie exclusive à son profit sans compromettre un transfert par voie de roulement fiscal en faveur de la fiducie en vertu du paragraphe 70(6) ?
2) Dans le cas où il serait d'abord procédé au transfert par la succession du défunt des parts indivises des actions détenues en indivision en faveur de la fiducie exclusive au profit du conjoint survivant, est-ce que le partage des actions pourrait être effectué sans charge fiscale en application du paragraphe 248(20) ou (21) ?

Position Adoptée: 1) Non.
2) Le partage d'actions pourrait être effectué sans charge fiscale en application du paragraphe 248(20) ou (21), sous réserve du respect des conditions d'application de ces dispositions.

Raisons: 1) Libellé de la loi.
2) Libellé de la loi et position antérieure adoptée.

29 January 2009 External T.I. 2008-0280751E5 - Deceased taxpayer's residence sold by his estate

Unedited CRA Tags
38, 53, 54, 164(6)

Principal Issues: (1) Whether subsection 164(6) will apply to a situation in which a personal-use property that is a principal residence is transferred to a deceased's estate upon his death and then disposed of by the estate at loss?
(2) In those circumstances, how should a gain realized by the estate on disposition of the real property be characterised?

Position: (1) Generally yes.
(2) Generally capital gain.

Reasons: (1) and (2): Question of facts.