Income Tax Severed Letters - 2009-03-13


2008 Ruling 2008-0282491R3 - XXXXXXXXXX Claim Trust; 149(1)(c)

Unedited CRA Tags
149(1)(c) 75(2) 104(6)(b)

Principal Issues: 1.Whether the XXXXXXXXXX is a public body performing a function of government. 2.Whether the Primary Income of the trust will be attributed back to the First Nation by 75(2). 3.Whether the Secondary Income is payable in the year to a beneficiary for purposes of 104(6)(b) such that the income will not be taxed in the trust.

Position: 1.Yes. 2. Yes. 3.Yes, in these particular circumstances.

Reasons: 1.The First Nation is democratically organized and performs several functions of government, including providing municipal-type services and negotiating and implementing agreements with the provincial and federal governments. 2.Wording of 75(2) of the Act. The First Nation is the settlor and the beneficiary. 3.Previous similar rulings given; however, note wording changed to "as soon as practicable" for issuing the promissory notes - the right is fixed, and only practical matters of computation delay actual receipt of the promissory note.

Technical Interpretation - External

4 March 2009 External T.I. 2008-0300801E5 - Transfer of a Retiring Allowance in a RRSP

Unedited CRA Tags
60(j.1), 251(2)

Principal Issues:
Whether a taxpayer's years of services with previous employers can be included in the computation of the amount that is eligible to be transferred to a registered pension plan or a registered retirement savings plan under paragraph 60(j.1) of the Income Tax Act?

Yes, if some years of service with the previous employers are recognized in determining the retiree's pension benefits.

Subparagraph 60(j.1)(v) provides that a "person related to the employer" includes a previous employer if the employee's years of service with the previous employer is recognized in the determining the retiree's pension benefits.

XXXXXXXXXX 2008-030080
I. Landry, M. Fisc.
March 4, 2009

4 March 2009 External T.I. 2008-0293291E5 - Classification of Freezer Plant

Unedited CRA Tags
classes 1, 8, 29, 43 127(9), Reg. 4600(2)(k)

Principal Issues: CCA class of a freezer plant.

Position: It depends.

Reasons: See response.

3 March 2009 External T.I. 2008-0289721E5 F - Droit de bénéficiaire et résidence principale

Unedited CRA Tags
54; 104(1.1); 248(25)

Principales Questions: Les parents d'enfants bénéficiaires d'une fiducie peuvent-ils être considérés comme étant des bénéficiaires déterminés de la fiducie aux termes du sous-alinéa c.1(ii) de la définition de résidence principale à l'article 54 de la Loi de l'impôt sur le revenu?

Position Adoptée: Probablement que oui.

Raisons: Les parents semblent avoir un droit de bénéficiaire dans la fiducie aux termes du paragraphe 248(25) de la Loi de l'impôt sur le revenu et habitent normalement le logement pour les années en question.

2 March 2009 External T.I. 2008-0264301E5 - Capitalization of Policy Loan Interest

Unedited CRA Tags

Principal Issues:
Is there any impact on the adjusted cost basis of a policyholder's interest in a life insurance policy in circumstances where non-deductible interest on a policy loan is paid with a new policy loan?

Position: No.

Reasons: Legislation

2 March 2009 External T.I. 2008-0304991E5 - 111(4)(e) - Land & Bldg Separate Capital Prop.

Unedited CRA Tags
111(4)(e) 248(1) 54(1);13(21) 1100(1)(a);1102(2)

Principal Issues: Could a corporation elect to treat land with a building as two separate capital properties for purposes of the paragraph 111(4)(e) designation?

Position: Yes.

Reasons: Wording of the ITA.

25 February 2009 External T.I. 2008-0303211E5 - Private Health Services Plan

Unedited CRA Tags

Principal Issues: Whether a long term care insurance plan qualifies as a Private Health Services Plan

Position: Insufficient information provided. Question of fact

Reasons: The plan criteria that an individual must receive attendant or nursing home care before benefits are paid out of the plan is not sufficient to conclude the plan qualifies as a PHSP.

24 February 2009 External T.I. 2008-0296711E5 - Partnership Income - Status Indian

Unedited CRA Tags

Principal Issues: Is partnership income received by a Status Indian exempt from tax?

Position: Question of fact. Likely taxable income for both partners.

Reasons: Individuals who are not registered or cannot be registered as Indians under the Indian Act do not qualify for the exemption from tax provided by s. 87 of the Indian Act and paragraph 81(1)(a) of the ITA. The general rules of the ITA will apply to these individuals. It is a question of fact whether the income earned through the partnership by an Indian is situated on a reserved and therefore exempt from tax.

24 February 2009 External T.I. 2008-0276661E5 - Government Rebates and Standby Charge

Unedited CRA Tags
9 12(1)(x) 6(1)(k) 6(2)

Principal Issues: Tax treatment of government rebates and whether government rebates received for hybrid vehicles can reduce the standby charge and the operating cost benefits to employees where the employer leases the vehicles.

Position: Government rebates are included in income in accordance with paragraph 12(1)(x). The rebates do not reduce the standby charge and the operating expense benefit to employees.

Reasons: The formulas for the calculation of the standby charge and the operating expense benefit are based on the payments to the lessor.

24 February 2009 External T.I. 2008-0300991E5 - RPP--Return of Contributions--First Nations

Unedited CRA Tags

Principal Issues: Will a return of contribution from a member's registered pension plan to the employer be taxable, if the employer is resident on a reserve?

Position: May be taxable.

Reasons: Question of fact. General comments given on application of s. 87 Indian Act exemption.

(613) 957-2747
February 24, 2009

17 February 2009 External T.I. 2008-0273701E5 - Deductibility of costs for a commissioned employee

Unedited CRA Tags

Principal Issues: The taxpayer has installed a ground source heat and septic system at a cost of $40,000. Consequently, there are no monthly utility bills. How should the annual portion of deductible utilities be calculated in order to ensure the entitlement to the deduction is similar to other taxpayers who have more traditional forms of utility costs?

Position: The ground source heat and septic systems are capital expenditures. Subparagraph 8(1)(f)(v) explicitly denies the deduction of capital outlays by employees.

Reasons: Subparagraph 8(1)(f)(v) explicitly denies the deduction of capital outlays by employees.

17 February 2009 External T.I. 2008-0297051E5 - Oil and Gas Company Payments to Landowners

Unedited CRA Tags
66.2(5) 66.4(5) 66.2(1) 59(3.2)(c)

Principal Issues: What is the tax treatment of payments made by an oil and gas company to a landowner with regard to a right of way, exploration rights, and compensation for damages?

Position: (1) Generally, payments received by a landowner as compensation for damage to crops and compensation for additional costs and losses of a property owner who carries on farming operations around structures situated on the owner's property would be included in computing the property owner's income from farming operations, rather than capital. Non-recurring amounts, often paid in the first year of a lease as compensation for damaged or destroyed property constitute "proceeds of disposition" within the meaning of section 54 and may result in a capital gain or loss. (2) Generally, the granting of an easement or a public right of way is considered a disposition of a part of the property in respect of which it is granted, 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 Act. This could result in a capital gain or loss. (3) Payments received by a landowner from an oil and gas company for exploration rights or pursuant to a petroleum and natural gas lease should be treated as proceeds of disposition of a "Canadian resource property", defined in subsection 66(15) of the Act as including any right, licence or privilege to explore for, drill for or take petroleum, natural gas or related hydrocarbons in Canada.

Reasons: Review of the legislation, interpretation bulletins and previous technical interpretations.

16 February 2009 External T.I. 2008-0296361E5 - "Affiliate" for the purpose of Retiring Allowances

Unedited CRA Tags
251(2);248(1); 60(j.1)

Principal Issues:
Whether a Provincial Government is considered affiliated with a Provincial Crown Corporation for the purpose of determining if there is a retirement or a loss of an office or employment.

Provided general comments.

Question of facts.

30 January 2009 External T.I. 2008-0299791E5 - Clergy Residence Deduction

Unedited CRA Tags

Principal Issues: Is Director of XXXXXXXXXX eligible for Clergy residence deduction pursuant to paragraph 8(1)(c) of the Act ?

Position: No

Reasons: Does not meet the function test for the purpose of deduction under 8(1)(c)

30 January 2009 External T.I. 2008-0301781E5 - Clergy residence deduction

Unedited CRA Tags

Principal Issues: To determine if a School is a religious order and if so, do certain members of the School qualify for clergy residence deduction, pursuant to paragraph 8(1)(c) of the Act.

Position: No

Reasons: The School does not qualify as a religious order

XXXXXXXXXX 2008-030178
V. Srikanth
January 30, 2009

26 November 2008 External T.I. 2008-0280801E5 - Deductibility of Settlement and Related Legal Fees

Unedited CRA Tags
9 18(1)(a)

Principal Issues: Whether settlement payments made by a farmer for property damage and personal injury suffered in connection with a tractor-vehicle collision are deductible from business income. Whether the related legal fees incurred in the payment of the settlement are deductible from business income.

Position: Question of fact.

Reasons: The income tax treatment of settlements can be conclusively determined in any particular case only after an examination of all the relevant facts. Reasonable legal fees incurred in the payment of damages will be deductible if the damages themselves are deductible.


10 October 2008 Roundtable, 2008-0284961C6 F - Eligible Dividend Designation and 55(2)

Unedited CRA Tags
89(14) 55(2) 55(5)(f) 89(1) "General rate income pool"

Principal Issues: First scenario: Bco holds 500 preferred shares of the capital stock of Aco, having an ACB of $1, a paid-up capital of $1 and a FMV of $150,000. For the purposes of section 55, the "safe income on hand" attributable to these shares is $90,000. As of December 31, 2007, the GRIP of Aco is $70,000. On December 31, 2007, Aco acquires the preferred shares of its capital stock held by Bco for an amount of $150,000. Aco is then deemed to have paid, and Bco is deemed to have received, a dividend in the amount of $149,999 pursuant to subsection 84(3) of the ITA. Pursuant to paragraph 55(5)(f), Bco designates the amounts of $70,000, $20,000 and $59,999 as separate taxable dividends. Is it possible for Aco to designate the first amount of $70,000 to be an eligible dividend pursuant to subsection 89(14) of the ITA? Second scenario: instead of acquiring the preferred shares, Aco declares a dividend of $70,000 in favour of Bco in a situation involving the application of section 55 of the ITA. Aco designates the total amount to be an eligible dividend pursuant to subsection 89(14). Furthermore, Bco makes an election pursuant to paragraph 55(5)(f) to consider this taxable dividend as seven separate dividends of $10,000 each. The CRA revises the amount of the safe income on hand attributable to the preferred shares to $60,000. What is the amount that must be deducted from the GRIP of Aco and what is the GRIP addition of Bco?

Position: Fisrt scenario: the wording of subsection 89(14) of the ITA requires that the entire amount of the dividend paid by a corporation must be designated as an eligible dividend. Consequently, the designation of a fraction of a dividend is not possible. Second scenario: the GRIP of Aco would have to be reduced by an amount of $70,000. The GRIP of Bco should be increased by an amount of $60,000.

Reasons: Wording of the Act and previous positions.

10 October 2008 Roundtable, 2008-0285391C6 F - Emploi non assurable / Actions votantes

Unedited CRA Tags

Principales Questions: Dans la situation donnée, un père a effectué un gel en faveur de ses deux fils. Suite à la transaction, les deux fils possèdent respectivement 45% du nombre d'actions votantes émises et en circulation. Dans cette situation, est-ce que l'emploi des deux fils auprès de la société est un emploi assurable en vertu de l'alinéa 5(2)b) de la LAE?

Position Adoptée: Oui

Raisons: Aux termes de l'alinéa 5(2)b) LAE, un contribuable n'occupe pas un emploi assurable auprès d'une société s'il détient plus de 40% des actions avec droit de vote de la société. Pour les fins de l'application de l'alinéa 5(2)b) LAE, nous devons considérer toutes les catégories d'actions votantes et nous devons également tenir compte du nombre de votes attribués à chaque action. Dans la présente situation, suite à la transaction de gel, chacun des fils ne contrôle qu'environ 5% du pourcentage du nombre de votes de la société (soit 500 votes sur un total de 11000) et contrôle moins de 40% des actions avec droit de votes de la société. L'ARC est donc d'avis que les emplois des fils 1 et 2 sont assurables et que l'alinéa 5(2)b) LAE ne s'applique pas.

10 October 2008 Roundtable, 2008-0285021C6 F - Associated Corporations and Trustees

Unedited CRA Tags
256(1); 104(1); 104(2); 256(4)

Principal Issues: A woman ("Mother") controls a corporation ("MotherCo"), a man ("Father") controls a second corporation ("FatherCo") and the two children of Father and Mother who have reached the age of majority, control a third corporation ("ChildrenCo"). A discretionary trust owns 100% of the common shares of ChildrenCo. The trustees of this trust are Mother and Father. The beneficiaries of this trust are the two adult children and the grandchildren. Question a): For the purposes of the rules mentioned in section 256 and in the context of Quebec civil law, whether the trust (and not the trustees) is the owner of the shares that it holds. Question b): What criteria would the CRA apply in order to determine if two trusts constitute the same person for the purposes of applying paragraph 256(1.2)(c)? Question c): Is the CRA of the view that each of the trustees is the owner of 100% of the shares held by the trust or does the CRA consider that the shares are owned by all the trustees as a group? Question d): Is the CRA of the view that subsection 104(1) must be considered for the purposes of the analysis of question a)?

Position: Answer to question a): Based on the terms of subsections 104(1) and (2) and paragraph 256(1)(d), the position of the CRA is to the effect that both the trust and the trustees of this trust would be considered the owners of the common shares of the capital stock of ChildrenCo for the purposes of paragraph 256(1)(d). Thus, in the example described in this question, each of MotherCo and FatherCo would be associated with ChildrenCo pursuant to paragraph 256(1)(d) even if the Québec civil law is applicable in the particular situation. Answer to question b): the question of determining whether there are one or more trusts, and thus, if there are one or more individuals/persons, generally depends on the terms of the trust indentures, subject, however, to the potential application of subsection 104(2). However, the application of subsection 104(1) must also be considered for the purposes of section 256 of the ITA. Thus and as an example, an individual acting as a trustee for two trusts would be considered as one and the same person for purposes of the application of section 256, subject to the potential application of subsection 256(4). Answer to question c): in the example described in this question, the two trustees, Mother and Father, would be considered to own together all of the common shares of the capital stock of ChildrenCo by reason of the application of subsection 104(1). Consequently, the CRA would normally consider that each of Mother and Father would be the owner of at least 25% of the issued shares of any class, other than a specified class, of the capital stock of ChildrenCo for the purposes of paragraph 256(1)(d). Answer to question d): Yes.

Reasons: Wordin of the Act.

10 October 2008 Roundtable, 2008-0285421C6 F - Prescription - associés - société de personnes

Unedited CRA Tags

Principales Questions: Dans le cas où l'ARC a exempté la société de personnes de produire sa déclaration de renseignements T5013, l'ARC peut-elle confirmer que la période de prescription est disponible selon l'alinéa 152(1.4)a) L.I.R. et que, compte tenu qu'aucune déclaration n'était exigible, l'alinéa 152(1.4)b) L.I.R. ne pourrait faire en sorte d'étendre indéfiniment la période de prescription de l'exercice financier?

Position Adoptée: D'un point de vue technique, l'ARC est d'avis qu'une société de personnes, qui ne produit pas une déclaration de renseignements en raison d'une exemption accordée par le ministre du Revenu national, ne peut bénéficier du délai de prescription au paragraphe 152(1.4).

Raisons: Libellé de la loi

10 October 2008 Roundtable, 2008-0285041C6 F - Potential beneficiary of a trust

Unedited CRA Tags

Principal Issues: See below.

Position: See below.

Reasons: See below.

10 October 2008 Roundtable, 2008-0285461C6 F - Non-Identified Deemed year Ends

Unedited CRA Tags
249(4); 256(9); 152(6); 152(4)

Principal Issues: "Corporation Inc." has a fiscal period ending on December 31. It filed its income tax return for the fiscal period ending December 31, 20X0. On July 1, 20X1, there is an acquisition of control of Corporation Inc., but it was not made aware of this situation. It therefore files its income tax return for the period from January 1 to December 31, 20X1. The CRA issues a notice of assessment for the year in question. The same occurs for the year 20X2 and subsequent years. Question a): Could the 20X1 taxation year, that is, the period from January 1 to December 31, become statute barred following the issuance of a notice of assessment? Question b): Since a return was filed as of December 31, 20X1, will the CRA assume that December 31 will be the date chosen for the end of the new fiscal period? Question c): The corporation makes a loss carry-back from the year 20X3 to the year 20X1. In 20X6, in the course of an audit for the year 20X3, the CRA revises the loss and realizes that there was a deemed year end on June 30, 20X1. However, the year 20X1, being the period from January 1 to December 31, became statute barred because it was assessed. How will the CRA treat the loss carry-back? Could the CRA require that the 20X1 year be modified and that the corporation files two returns, which are for the period from January 1 to June 30 and for the period from July 1 to December 31?

Position: Answer to question a): A taxation year of Corporation Inc. for the period from January 1, 20X1 to December 31, 20X1, does not exist for the purposes of the ITA. Therefore, the limitation periods provided in the ITA would not be applicable in this respect. By reason of the application of subsection 249(4), Corporation Inc. would have two taxation years for the purposes of the ITA in 20X1, the first commencing January 1, 20X1 and ending June 30, 20X1, and the second commencing July 1, 20X1 and ending December 31, 20X1. Technically, Corporation Inc. would not have filed income tax returns in respect of these two taxation years. The Minister would not have made an assessment or given notification that no tax is payable with respect to one or the other of these two taxation years. Consequently, the limitation periods provided in the ITA would not have technically begun in regard to the aforesaid taxation years of Corporation Inc. Answer to question b): The CRA would generally consider that Corporation Inc. would have established its fiscal year end as of December 31 for the taxation years ending after the acquisition of control. Answer to question c): It would be necessary that Corporation Inc. file income tax returns for each of the taxation years ending on June 30, 20X1 and December, 31, 20X1, respectively, pursuant to paragraph 150(1)(a). In this respect and as needed, the CRA, pursuant to subsection 150(2), could request, on demand, that Corporation Inc. file, within a reasonable time, income tax returns for each of these two taxation years. It would also be necessary that Corporation Inc. makes a new loss carry-back request, clearly indicating in computing the taxable income of which taxation year ending in 20X1 Corporation Inc. would want to deduct the loss incurred in taxation year 20X3.

Reasons: Wording of the Act.

10 October 2008 Roundtable, 2008-0285231C6 F - 53(1)(b) - Notion of Contributed Surplus

Unedited CRA Tags
53(1)(b); 52(3)(a); 55(2)

Principal Issues: What interpretation does the CRA want to give to the notion of contributed surplus to which paragraph 53(1)(b) of the ITA makes reference?

Position: The term "contributed surplus" is not defined in the ITA. However, the CRA is of the view that the meaning of "contributed surplus" should be based on the meaning given to this term under GAAP.

Reasons: Wording of the Act and previous positions.

10 October 2008 Roundtable, 2008-0285271C6 F - Bien agricole admissible

Unedited CRA Tags
110.6(1), définition de bien agricole admissible 110.6(1.3); 252(2)

Principales Questions: Est-ce qu'on peut appliquer les critères prévus à l'annexe A du IT-513R pour déterminer si les liens familiaux sont maintenus suite au décès d'un conjoint dans le cadre de l'interprétation des règles visant les biens agricoles admissibles prévues aux paragraphes 110.6(1) et (1.3)?

Position Adoptée: Non

Raisons: En règle générale, lors de la rupture d'une relation par suite d'un divorce ou d'un décès, un particulier cessera d'être uni par les liens du mariage ou par les liens du sang aux parents de son ex-conjoint. L'approche indiquée à l'annexe A du IT-513R est seulement valable pour les crédits d'impôt personnels qui y sont mentionnés. Aux fins d'appliquer le test de revenu brut prévu à l'alinéa b) du paragraphe 110.6(1.3), l'ARC est d'avis que le test doit se faire pendant la période où le lien de parenté existait.

10 October 2008 Roundtable, 2008-0285331C6 F - Solde des gains exonérés

Unedited CRA Tags
14(1); 14(3); 24(2); 110.6(19)b)

Principales Questions: Un contribuable a effectué un choix en vertu de l'alinéa 110.6(19)b) à l'égard d'un achalandage. En conséquence de ce choix, le solde des gains exonérés du contribuable, tel que défini au paragraphe 14(5), est de 75000$. Le contribuable cesse d'exploiter son entreprise et la conjointe acquiert tous les biens et le solde du MCIA selon 24(2). Le jour suivant, la conjointe dispose de l'achalandage pour un produit de disposition de 100000$. Est-ce que la conjointe devra être imposée sur un revenu tiré d'une entreprise d'un montant de 50000$ même si le contribuable s'est déjà imposé sur ce gain lors de l'exercice du choix de 1994?

Position Adoptée: Non

Raisons: L'ARC estime que le paragraphe 14(3) peut s'appliquer malgré les dispositions de 24(2). Le contribuable peut ainsi choisir de vendre les immobilisations admissibles à sa conjointe pour un montant égal à leur JVM et appliquer son solde des gains exonérés à l'encontre du montant à inclure dans son revenu selon 14(1). Pour la conjointe, sa dépense en capital admissible sera réduite de l'exonération réclamée selon 110.6(19)b) par le contribuable. Cependant, selon 14(3)c) et d), la réduction réputée de la dépense en capital admissible de la conjointe sera annulée lorsqu'elle disposera des immobilisations admissibles en faveur d'une personne non liée pour un produit de disposition équivalent à la JVM

10 October 2008 Roundtable, 2008-0285351C6 F - Kilométrage entre résidence et lieu de travail

Unedited CRA Tags

Principales Questions: Suite à la décision rendue dans l'affaire Tolson A. Hudson c. La Reine, 2007 DTC 1713, quelle est la position de l'ARC à l'égard du kilométrage entre la résidence et le lieu de travail?

Position Adoptée: Les frais de déplacement engagés par un contribuable pour voyager entre sa résidence et son lieu de travail régulier sont des frais personnels et ne constituent pas des frais engagés par lui pour voyager dans l'accomplissement des fonctions de sa charge ou de son emploi.

Raisons: Interprétation de la loi et de la jurisprudence

Technical Interpretation - Internal

2 March 2009 Internal T.I. 2009-0307391I7 - Eligible Apprentice

Unedited CRA Tags
127(5); ITR 7310

Principal Issues: Whether an apprentice in a trade that is an aircraft maintenance engineer or an aircraft structural technician is an "eligible apprentice" [ITA 127(9)] for the purposes of the apprentice job creation tax credit.

Position: No.

Reasons: Neither of the above-noted trades is a prescribed trade.