Income Tax Severed Letters - 2009-04-17

Ruling

2009 Ruling 2008-0289771R3 - Loss Consolidation

Unedited CRA Tags
20(1)(c); 55(2); 55(3.01); 245
Summary Under
Tax Topics - Income Tax Act - Section 251.1 - Subsection 251.1(1) - Paragraph 251.1(1)(b)
Summary Under
Tax Topics - Income Tax Act - Section 111 - Subsection 111(1) - Paragraph 111(1)(a)
iteration of loss transactions

Principal Issues: 1. Deduction of interest on debt created to consolidate losses in affiliated corporate group. 2. Application of s. 55(2). 3. Whether loss consolidation transactions acceptable where voting power of controlling party in one of the affiliated corporations is disproportionate to participating equity interest and consideration for the losses is given. 4. Determination of whether corporations are affiliated where partnerships are the direct holders of the control block of shares of one of the corporations.

Position: 1. Interest is deductible. 2. Dividends arising on share redemption will be recharacterized as proceeds as will the dividends paid as part of the loss consolidation, subject to the purpose test in s. 55(2) and the safe income exception. 3. Transactions are acceptable. 4. Corporations are affiliated and related.

Reasons: 1. Meets the requirements of s. 20(1)(c)(ii). 2. Paragraph 55(3.01)(c) problem that is supposed to be remedied by amendments contemplated in April 21, 2005 comfort letter. 3. The affiliation test, for determining if loss consolidation is acceptable, is a de jure control test, which is satisfied in the circumstances. 4. Meets the requirements of a technical affiliation in s. 251.1 and appropriate representations given in respect of the partners of the partnerships to allow for conclusion that a related group of persons controls the corporation.

2009 Ruling 2008-0299171R3 - LSVCC - Asset Consolidation

Unedited CRA Tags
211.8; 248(1)

Principal Issues: Will the asset consolidation and the consequential amendment of the terms of the XXXXXXXXXX Shares result in an acquisition, redemption, cancellation or disposition of those shares for purposes of the Act.

Position: No

Reasons: The asset consolidation does not result in any changes to the inherent bundle of rights that the shareholders of the XXXXXXXXXX Shares hold, and does not result in the cessation, divestiture, alienation, or transfer of the incidents of ownership of the XXXXXXXXXX Shares. Furthermore, in this case, the changes to the share attributes are not viewed as significant enough so as to constitute a constructive disposition of those shares.

2009 Ruling 2009-0308921R3 - Supplemental Ruling XXXXXXXXXX

Unedited CRA Tags
20(1)(c)

Principal Issues: (1) Is the interest paid or payable by Finco Subco on the Third-party Loans deductible pursuant to 20(1)(c)? (2) Is the interest paid or payable by New Canco on the New Canco Loans deductible pursuant to 20(1)(c)? (3) Is the interest paid or payable on the New Opco Demand Loans deductible pursuant to 20(1)(c)? (4) XXXXXXXXXX

Position: (1)-(3) Yes, to the extent amounts are paid pursuant to a legal obligation to pay interest. (4) Yes.

Reasons: (1)-(3) Application of 20(1)(c). (4) XXXXXXXXXX

2008 Ruling 2008-0289491R3 - Ptnshp contracting out pro services to ptnr's corp

Unedited CRA Tags
125(7)

Principal Issues: Whether a corporation's income derived from professional services performed for a partnership, of which the corporation's controlling shareholder is a partner, would qualify for the small business deduction.

Position: Question of fact; however, if certain conditions are met, the fact that the partnership is contracting out its professional services to a partner's corporation, will not prevent the corporation from claiming the small business deduction on active business income.

Reasons: Identical to other rulings provided for similar proposed transactions.

Ministerial Correspondence

30 March 2009 Ministerial Correspondence 2008-0304521M4 - Taxpayer's concern - pension

Unedited CRA Tags
241(1)

Principal Issues: The taxpayer's concern that decisions of his employer's corporate parent could have a negative impact on his pension.

Position: The Minister assured the taxpayer that the CRA properly applies the provisions of the Act concerning these types of plans. OSFI and the provincial authorities will ensure requirements, as they apply to pensions, are satisfied.

30 March 2009 Ministerial Correspondence 2009-0306831M4 F - Processus de décision anticipée

Unedited CRA Tags
241

Principales Questions: Un député porte à notre attention des impacts possibles d'une décision.

Position Adoptée: Explication du processus de décision anticipée.

Raisons: Circulaire d'information 70-6R5.

16 March 2009 Ministerial Correspondence 2009-0310811M4 - Literature to hand out on the HRTC

Unedited CRA Tags
January 27, 2009 budget

Principal Issues: Taxpayer looking for literature to hand out to potential clients on the Home Renovation Tax Credit

Position: Yes

Reasons: Department of Finance produced a pamphlet

Technical Interpretation - External

14 April 2009 External T.I. 2009-0307791E5 F - Allocation de retraite et congé de maladie

Unedited CRA Tags
248(1)
Summary Under
Tax Topics - Income Tax Act - Section 5 - Subsection 5(1)
payment of accumulated sick leave on termination was employment income given pattern of annual payouts
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Retiring Allowance
payout of accumulated sick leave on employment termination can be a retiring allowance – but not where it has been annually distributed

Principales Questions: Lors du départ d'un employé, est-ce que le paiement du solde annuel de la banque de congés de maladie peut être considéré comme une allocation de retraite ?

Position Adoptée: Non, ce paiement est un revenu d'emploi.

Raisons: Définition d'allocation de retraite au paragraphe 248(1) : le paiement n'est pas effectué en reconnaissance de longs états de service.

7 April 2009 External T.I. 2008-0277531E5 - 20(1)(m) and upfront loan fees

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

Principal Issues: Whether a taxpayer is entitled to claim a 20(1)(m) reserve for the unearned portion of an upfront loan fee collected as part of the initial advance on a loan.

Position: Generally, yes.

Reasons: A reserve pursuant to 20(1)(m) is available for an upfront loan fee to the extent that the amount is described in paragraph 12(1)(a), and included in the taxpayer's income.

1 April 2009 External T.I. 2009-0311051E5 - In-vitro fertilization

Unedited CRA Tags
118.2(2)(a) 118.2(2)(o) 118.2(2)(h) 118.2(2)(l.1)

Principal Issues: (1) Are amounts paid to or on behalf of a donor for an IVF process allowable as a medical expense to the individual recipient? (2) Are the medical tests and procedures for the individual and her spouse for an IVF process allowable as a medical expense? (3) Are the travel costs of individual and her spouse allowable as medical expenses?

Position: (1) No (2) Insufficient information. (3) Insufficient information.

Reasons: (1) Amounts paid to or on behalf of the donor are not medical services or procedures provided for the patient (i.e., the individual, spouse or dependant) as required under paragraphs 118.2(a), (n), (o) of the Act. Additionally, the amounts paid for agency fees and donor fees would not appear to be paid for the purpose of obtaining medical services or of a medical nature as required under these provisions. (2) The expenses may qualify under paragraph 118.2(2)(a) of the Act if paid to a medical practitioner or to a public or licensed private hospital to obtain medical services. To the extent that amounts paid do not qualify under paragraph 118.2(2)(a) of the Act, paragraphs 118.2(2)(n) and 118.2(2)(o) of the Act may provide some relief. (3) Travel as medical expenses are limited to eligible travel expenses to obtain medical services pursuant to paragraph 118.2(2)(g) or (h) of the Act.

31 March 2009 External T.I. 2009-0310821E5 F - Associated Corporations - 256

Unedited CRA Tags
256
Summary Under
Tax Topics - Income Tax Act - Section 256 - Subsection 256(1) - Paragraph 256(1)(d)
Mr. B was related to each member of a related group comprising him and his brother for purposes of engaging s. 256(1)(d)

Principal Issues: In a given situation, whether two corporations are associated pursuant to subsection 256(1).

Position: The two corporations are associated with each other pursuant to paragraph 256(1)(d) of the Act.

Reasons: Wording of the Act.

25 March 2009 External T.I. 2009-0306941E5 - Ontario Taxation Act - Transitional Tax Dr.& Cr.

Unedited CRA Tags
TA Subsection 26(1) TA subsection 48(1), (4) and (6) TA subsection 50(1)

Principal Issues: Whether certain exploration and development pools are included in the definition of "total federal balance" and "total Ontario balance" for the purposes of the transitional tax debit and credit.

Position: Generally no.

Reasons: Definition of "total federal balance" and "total Ontario balance" exclude the particular pools.

Conference

10 October 2008 Roundtable, 2008-0285241C6 F - Attributes of Estate Freeze Preferred Shares

Unedited CRA Tags
85(1)(e.2), 15(1), 51(2), 86(2)

Principal Issues: See below.

Position: See below.

Reasons: See below.

Technical Interpretation - Internal

6 April 2009 Internal T.I. 2009-0310391I7 - Deduction of Legal Fees

Unedited CRA Tags
8(1)(b)

Principal Issues: Are the legal fees incurred by the taxpayer deductible under paragraph 8(1)(b)?

Position: Question of fact.

Reasons: It depends on whether the taxpayer was attempting to establish that salary or wages were owed for services performed.