Income Tax Severed Letters - 2009-04-24

Principal Issues: The situation is one where, in 2008, Gesco receives on its preferred shares from Opco a taxable dividend of $ 529,785 to which subsection 55(2) applies and another dividend of $ 143 915 to which subsection 55(2) does not apply. Gesco has no safe income on hand in respect of its preferred shares of Opco. Opco also receives a dividend refund of $ 131,400 on total dividends of $ 2,873,695 paid during the same taxation year on both preferred and common shares. How to calculate the amount of Part IV tax payable by Gesco and the portion of the dividend subject to paragraph 55(2)?

Position: There is no need to use a circular calculation in order to determine Part IV tax to be paid by Gesco and the portion of a dividend subject to subsection 55(2). paragraph 55(2)a) would apply to an amount of $457 112.

Reasons: Because of the approach adopted by the Tax Court of Canada in 943963 Ontario Inc. v. The Queen, 99 DTC 802.

Principal Issues: Whether the interposition of a Partnership will result in USco, which would otherwise be a qualifying person for the purposes of clause XXIX A (2)(e)(i) of Canada - US Tax Convention (because all of its shares are effectively held by qualifying persons), being disqualified for those purposes. A similar question arises if the partnership were a limited liability corporation.

Position: Despite the interposition of the Partnership, USco will satisfy the test in clause XXIX A (2)(e)(i) of the Canada-US Tax Convention. Similarly, despite the interposition of a limited liability corporation, USco will satisfy the test in clause XXIX A (2)(e)(i) of the

Reasons: See reasons below

XXXXXXXXXX Angelina Argento
2007-026214
April 15, 2009

Principal Issues: Deductibility of travel expenses - computation of income from a business.

Position: General comments only.

Reasons: Question of fact as to whether such expenses were incurred in a business activity or a hobby.

Principal Issues: What are an organization's reporting requirements under the Act for payments made under a specific program?

Position: Question of fact but it appears that payments would be social assistance for the purposes of paragraphs 56(1)(u) and 110(1)(f).

Reasons: The payments appear to be made on the basis of a means, needs, or income test.

Principal Issues: Interest deductibility on line of credit and on income-earning investments

Position: General comments given

Reasons: The direct use of borrowed funds is the test that predominates in determining the deductibility of interest.

XXXXXXXXXX 2009-030795
V. Srikanth
March 31, 2009

Principal Issues:
1. Is a woodlot, used in a farming business, prevented by subsection 70(9.1) from qualifying for the intergenerational rollover on the death of the surviving spouse solely due to the fact that a prescribed forest management plan does not exist?
2. Is a woodlot, used in a farming business, prevented by subsection 70(9.1) from qualifying for the intergenerational rollover on the death of the surviving spouse solely because the woodlot was not managed in accordance with a prescribed forest management plan?

Position:
1. No. A prescribed forest management plan is not required in order for a woodlot, used in a farming business, to qualify for an intergenerational rollover under subsection 70(9.1).
2. No. A woodlot not managed in accordance with a prescribed forest management plan will not disqualify an otherwise qualifying woodlot farming property from being transferred under subsection 70(9.1).

Reasons:
The wording of subsection 70(9.1) does not specifically impose these conditions.