Income Tax Severed Letters - 2009-04-24

Ruling

2008 Ruling 2008-0267631R3 - income trust, stapled units & elimination of corp

Unedited CRA Tags
132.2

Principal Issues: 1. Will the exchange between the Fund and the newly created MFT qualify under 132.2?
2. Will the Finance Trust be a SIFT trust?
3. Will the Fund be a SIFT trust?
4. Will GAAR apply to the proposed transactions?

Position: 1. Yes.
2. No.
3. Provided the Fund does not exceed its normal growth, it will not be a SIFT trust until 2011.
4. No.

Reasons: 1. The facts demonstrate that the conditions of 132.2 will be met, that the consolidation of units will not result in a disposition and that nothing in the proposed transactions will adversely affect the Fund or Finance Trust's status as a MFT or Amalco's status as a MFC.
2. The Finance Trust will hold no non-portfolio property and will thus not be a SIFT trust.
3. Provided the Fund does not exceed its normal growth, it will not be a SIFT trust until 2011.
4. The stapled securities created by the Spin-off were created solely for US tax reasons; and in particular, so that the financing would be held by a trust that qualifies as a fixed investment trust in the US such that the investors, and not the trust would be considered the creditors and recipients of the interest payments. As a result there are no tax benefits as defined in 245(1) such that GAAR will not apply to the portion of the transactions relating to the stapled securities. With respect to the debt reorganization contemplated by the Spin-off, the debt cannot be converted into equity of the Fund and as such, would not be contrary to the stated public policy behind the SIFT rules as set out in the October 31, 2007 Dept of Finance Press Release. Favourable GAAR rulings have been issued in similar circumstances involving the elimination of the underlying corporation in rulings such as 2003-0053981R3, 2002-0178943, 2001-0081903, 9904643 and 9918323.

Ministerial Correspondence

16 April 2009 Ministerial Correspondence 2009-0312211M4 F - Crédit d'impôt pour frais médicaux

Unedited CRA Tags
118.2(2) 118.2(1)

Principales Questions: (1) Le contribuable peut-il bénéficier de l'aide pour l'achat et l'entretien de prothèses auditives?
(2) Le contribuable suggère la mise sur pied d'un crédit d'impôt à l'achat d'oeuvres d'art directement d'un artiste ou d'une galerie d'art.

Position Adoptée: (1) Un particulier peut réclamer le crédit d'impôt pour frais médicaux à l'égard d'un appareil de prothèse auditive. Cette expression fait référence aux piles nécessaires au fonctionnement de l'appareil et les réparations de celui-ci.
(2) Nous avons envoyé une copie de la lettre du contribuable au ministre des Finances.

Raisons: Voir ci-dessous.

23 February 2009 Ministerial Correspondence 2009-0309611M4 - Home Renovation Tax Credit

Unedited CRA Tags
2009 Federal Budget - Annex 5

Principal Issues: How much is the HRTC and does the installation of a new furnace qualify for the HRTC?

Position: The HRTC is a non-refundable tax credit that can be claimed for work performed or goods acquired between January 26, 2009 and February 1, 2010 for an eligible dwelling. Purchase of new furnace is listed as an eligible expenditure in CRA Qs and As.

Reasons: 2009 Federal Budget; CRA Qs and As posted on CRA website.

19 February 2009 Ministerial Correspondence 2009-0310361M4 - Home Renovation Tax Credit

Unedited CRA Tags
2009 Federal Budget - Annex 5

Principal Issues: Whether an eligible dwelling, for purposes of the new home renovation tax credit, must be a principal residence as defined in the Income Tax Act.

Position: Presently, there is no proposed legislation regarding the new HRTC. However, the budget documents states that an eligible dwelling is a dwelling that is eligible at any time after January 27, 2009, and before February 1, 2010, to be an individual's principal residence or that of one or more of his or her family members.

Reasons: In general, a housing unit is considered to be eligible to be an individual's principal residence if it is owned and ordinarily inhabited by the individual, his or her spouse or common-law partner, or his or her children. Therefore, any dwelling that an individual owns and uses personally could qualify, including a home and a cottage.

18 February 2009 Ministerial Correspondence 2009-0309491M4 - Home Renovation Tax Credit

Unedited CRA Tags
2009 Federal Budget - Annex 5

Principal Issues: Whether certain electrical services would qualify for the HRTC?

Position: Presently there is no legislation, however, the budget documents have stated that expenditures will qualify for the HRTC if they relate to a renovation or alteration of an eligible dwelling and the renovation and alteration is of an enduring nature and integral to the dwelling. Such expenditures include the cost of labour and professional services.

Reasons: 2009 Federal Budget; Department of Finance HRTC pamphlet

18 February 2009 Ministerial Correspondence 2009-0309581M4 - Home renovation tax credit

Unedited CRA Tags
2009 Federa Budget - Annex 5

Principal Issues: What home renovation projects are eligible for the new home renovation tax credit (HRTC)?

Position: Expenditures for work performed, or goods acquired, after January 27, 2009 and before February 1, 2010, will qualify for the HRTC if they relate to a renovation or an alteration of an eligible dwelling and they are of an enduring nature and integral to the eligible dwelling.

Reasons: 2009 federal budget

18 February 2009 Ministerial Correspondence 2009-0309591M4 - Home Renovation Tax Credit

Unedited CRA Tags
2009 Federal Budget - Annex 5

Principal Issues: 1. What constitutes a renovation and what is the difference between a renovation and maintenance? 2. Whether the purchase of a new roof qualifies for the HRTC?

Position: 1. Presently, there is no legislation, however, based on 2009 budget documents, expenditures will qualify for the HRTC if they relate to a renovation or alteration of an eligible dwelling and the renovation or alteration is of an enduring nature and integral to the eligible dwelling. The cost of routine repairs and maintenance normally performed annually or more frequently will not qualify for the HRTC. 2. Yes

Reasons: Based on 2009 budget documents.

Technical Interpretation - External

16 April 2009 External T.I. 2008-0294631E5 F - Interaction between 55(2) and 186(1)

Unedited CRA Tags
55(2); 186(1); 186(3); 129(1)
Summary Under
Tax Topics - Income Tax Act - Section 55 - Subsection 55(2)
application of s. 55(2) does not affect amount of assessable dividend for Pt. IV tax purposes

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.

16 April 2009 External T.I. 2009-0308691E5 - Payments to a sports coach

Unedited CRA Tags
5(1)

Principal Issues: Is an amount paid to a coach by an NPO taxable?

Position: General comments only but likely taxable.

Reasons: Limited facts available.

XXXXXXXXXX 2009-030869
Michael Cooke, CA
April 16, 2009

16 April 2009 External T.I. 2008-0267271E5 - Shareholder Loans and Indebtedness

Unedited CRA Tags
15(2) 15(2.6) 15(2.1) 212(2)

Principal Issues: Whether a repayment of a loan in the circumstances described would be considered to be part of a series of loans or other transactions and repayments.

Position: General comments only.

Reasons: Question of fact.

15 April 2009 External T.I. 2007-0255861E5 - Qualified REIT Property - Roads and Sewers

Unedited CRA Tags
122.1(1)

Principal Issues: A trust holds non-portfolio property consisting of apartment buildings and land that is used as a manufactured home community. Would supporting infrastructure, including sewers and roads, be qualified REIT property of the trust?

Position: It is a question of fact. General comments.

Reasons: "Qualified REIT property" of a trust is defined to include a "real or immovable property" held by the trust. It also includes a property held by a trust that is ancillary to the earning by the trust of "rent from real or immovable properties" or capital gains from the disposition of such properties.

15 April 2009 External T.I. 2007-0262141E5 - Art XXIX A (2)(e)(i), LOB 5th Proto to Can US Tax

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

14 April 2009 External T.I. 2009-0306571E5 - Northern Residents Deduction

Unedited CRA Tags
110.7 6(6) 8(1)(h) 8(1)(i)

Principal Issues: Deductibility of certain travel costs and other expenses in a prescribed zone.

Position: Question of fact, but in this case the additional amounts do not appear to be deductible.

Reasons: May not reside in a prescribed zone throughout a qualifying period.

XXXXXXXXXX 2009-030657
Michael Cooke, CA
April 14, 2009

14 April 2009 External T.I. 2009-0305561E5 - Deductibility of Travel Expenses - Business Income

Unedited CRA Tags
18(1)(a) 18(1)(b) 18(1)(h)

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.

14 April 2009 External T.I. 2008-0264231E5 - Retroactive Lump-Sum Payments for Individuals

Unedited CRA Tags
110.2, 120.31

Principal Issues: 1.) Whether an individual who receives a lump-sum payment for a retroactive salary adjustment as a result of an interest arbitration award, is receiving a "qualifying amount" as defined in 110.2 of the Act? 2) When an individual attaches a Form T1198 with its income tax return, will the Canada Revenue Agency only make an adjustment to the individual tax calculation if it is beneficial to the individual? 3) What requirement or responsibility is there to the payor of a qualifying amount to complete the Form T1198 when requested by the recipient of the lump-sum payment?

Position: 1) An interest arbitration award could be a qualifying amount. 2) Yes. 3) There is no legislated requirement in the Act or in the Income Tax Regulations that requires a payor to issue a form T1198

Reasons: 1. The law. 2. Application of CRA assessing system. 3. The law.

XXXXXXXXXX 2008-026423
N. Shea-Farrow
April 14, 2009

14 April 2009 External T.I. 2009-0305961E5 - Social assistance payments

Unedited CRA Tags
56(1)(u) 110(1)(f) Reg 233(1) Reg 233(2)

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.

31 March 2009 External T.I. 2009-0307951E5 - Restructuring of Borrowings

Unedited CRA Tags
20(1)(c)

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

25 March 2009 External T.I. 2008-0300401E5 F - Fiducie en faveur de soi-même - prêt sans intérêt

Unedited CRA Tags
56(4.1), 75(2), 104(13.1)
Summary Under
Tax Topics - Income Tax Act - Section 75 - Subsection 75(2)
Howson applied to find that non-interest bearing loan by individual to his alter ego trust not subject to s. 75(2)/no contribution if individual pays trust taxes following a s. 104(13.1) election
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(13.1)
s. 104(13.1) election generally available where no s. 75(2) application, which is not engaged by the individual’s payment of trust-level taxes
Summary Under
Tax Topics - Income Tax Act - Section 56 - Subsection 56(4.1)
s. 56(4.1) inapplicable to NIB loan made by individual to his alter ego trust
Summary Under
Tax Topics - General Concepts - Payment & Receipt
individual pays trust taxes when he receives trust distributions net of such taxes

Principal Issues: 1. Est-ce que le paragraphe 75(2) est susceptible de trouver application à l'égard du bénéficiaire d'une fiducie en faveur de soi-même du fait que celui-ci procède à un prêt sans intérêt en faveur de la fiducie ?
2. Dans le cas où le paragraphe 75(2) trouverait application à l'égard d'une fiducie en faveur de soi-même, serait-il possible d'effectuer un choix en vertu du paragraphe 104(13.1) afin d'imposer les revenus au sein de la fiducie ?
3. Dans le cas où le paragraphe 75(2) serait inapplicable à l'égard d'une fiducie en faveur de soi-même, serait-il possible d'effectuer un choix en vertu du paragraphe 104(13.1) afin d'imposer les revenus au sein de la fiducie ?
4. Est-ce que le paragraphe 56(4.1) est susceptible de trouver application à l'égard du bénéficiaire d'une fiducie en faveur de soi-même du fait que celui-ci procède à un prêt sans intérêt en faveur de la fiducie ?

Position: 1. Généralement non.
2. Non.
3. Généralement oui, sous réserve des termes de l'acte de fiducie.
4. Non.

Reasons: 1. Cause Howson.
2., 3., 4. Texte de la LIR.

23 March 2009 External T.I. 2008-0303071E5 - Rollover of woodlot held by a spousal trust

Unedited CRA Tags
70(9), 70(9.01), 70(9.1), 70(9.11)

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.

20 March 2009 External T.I. 2008-0300791E5 - Right or thing-dividends paid by post-dated cheque

Unedited CRA Tags
70(2)

Principal Issues: Whether a cheque to pay dividends that is dated the same day on which the shareholder dies is considered to be a right or thing.

Position: No

Reasons: Cheque is negotiable at the time of death.

Conference

10 October 2008 Roundtable, 2008-0285091C6 F - Transfers and Loans to Corporations

Unedited CRA Tags
74.4(2)

Principal Issues: See below.

Position: See below.

Reasons: See below.

10 October 2008 Roundtable, 2008-0285131C6 F - Capital Dividend

Unedited CRA Tags
83(2); 184

Principal Issues: See APFF questions

Position: See CRA Response to questions.

Reasons: See CRA Response to questions

10 October 2008 Roundtable, 2008-0285221C6 F - CGD under 110.6 and Acquisition of Control

Unedited CRA Tags
110.6; 256(9)

Principal Issues: Status update request pertaining to an undertaking made in technical interpretation 2006-0214781E5 to refer to the Department of Finance the matter described therein.

Position: Update given.

Reasons: Requested.

10 October 2008 Roundtable, 2008-0284441C6 F - Stock Options / Superficial Loss

Unedited CRA Tags
54

Principal Issues: In a given fact situation, whether two stock options to acquire shares of the same class of shares of a corporation are identical properties, for the purpose of the superficial loss rules under section 54, if either the agreed-upon exercise price or the exercise period are different?

Position: Provided general comments given that the question summarily describes a hypothetical situation. In the given situation, it may be possible that a prospective buyer would not be indifferent as to his preference for one option as opposed to the other such that the options could be considered not be identical properties.

Reasons: CRA's general view described in paragraph 1 of Interpretation Bulletin IT-387R2.

10 October 2008 Roundtable, 2008-0285251C6 F - Transfers and Loans to Corporations

Unedited CRA Tags
69(1)

Principal Issues: See below.

Position: See below.

Reasons: See below.

10 October 2008 Roundtable, 2008-0284941C6 F - GRIP Addition for 2006

Unedited CRA Tags
89(7)

Principal Issues: See APFF questions.

Position: See CRA Responses to questions.

Reasons: See CRA Responses to questions.

10 October 2008 Roundtable, 2008-0285281C6 F - Benefit conferred on a shareholder

Unedited CRA Tags
15(1)

Principal Issues: See below.

Position: See below.

Reasons: See below.

10 October 2008 Roundtable, 2008-0284951C6 F - Eligible Dividend and Non Residents

Unedited CRA Tags
89(1); 89(14)

Principal Issues: See APFF questions.

Position: See CRA responses to questions.

Reasons: See CRA responses to questions.

10 October 2008 Roundtable, 2008-0284981C6 F - LRIP and Payments from a Mutual Fund Trust

Unedited CRA Tags
89(1) LRIP

Principal Issues: See APFF questions.

Position: See CRA Response to questions.

Reasons: See CRA Response to questions.

Technical Interpretation - Internal

17 April 2009 Internal T.I. 2009-0307981I7 - CCTB--Income Situated on a Reserve

Unedited CRA Tags
81(1)(a)

Principal Issues: Are the GST/HST credit, Canada Child Tax Benefit and the National Child Benefit Supplement situated on a reserve if they are received by an Indian residing on a reserve?

Position: No.

Reasons: There are insufficient connecting factors to conclude the income is situated on a reserve.

15 April 2009 Internal T.I. 2008-0298261I7 - Salary Deferral Arrangement

Unedited CRA Tags
248(1) "Salary Deferral Arrangement" 6801(a) Income Tax regulations 163(2)

Principal Issues:
Whether a penalty can be assessed under subsection 163(2) of the Act if at the time the employer and the employee entered into a Deferred Salary Leave Plan ("DSLP"), the conditions in paragraph 6801(a) were not all met?

Position:
Yes, if the CRA is able to prove that the employer and/or the employee did, knowingly or under circumstances amounting to gross negligence, make a false statement.

Reasons:
There is an argument that the employee and/or the employer is making, knowingly or under circumstances amounting to gross negligence, a false statement when they know that the employee does not qualify for the exclusion in the SDA definition and a T4 slip and/or income tax return is prepared as if the employee qualified.

15 April 2009 Internal T.I. 2008-0301171I7 F - 7(3)b) vs 143.3(3)

Unedited CRA Tags
7(3)b); 143.3
Summary Under
Tax Topics - Income Tax Act - Section 7 - Subsection 7(3) - Paragraph 7(3)(b)
recognition of compensation expense under GAAP on granting and then exercise of conventional Pubco options precluded by s. 7(3)(b) and notwithstanding Alcatel
Summary Under
Tax Topics - Income Tax Act - Section 143.3 - Subsection 143.3(3) - Paragraph 143.3(3)(b)
s. 143.3(3)(b) inapplicable given prior application of s. 7(3)(b)

Principales Questions: Est-ce que c'est l'alinéa 7(3)b) ou le paragraphe 143.3(3) qui s'applique dans une situation particulière donnée?

Position Adoptée: C'est l'alinéa 7(3)b).

Raisons: La Loi.

8 April 2009 Internal T.I. 2009-0310621I7 - Clergy Residence Deduction

Unedited CRA Tags
8(1)(c)

Principal Issues: Is a rabbi, who is employed in XXXXXXXXXX , a Jewish school, considered to minister a congregation for the purpose of the deduction pursuant to paragraph 8(1)(c) of the Income tax Act ( the "Act")

Position: No

Reasons: Giving lectures on religion and providing counselling service to a group of students is not considered to be "in charge of " or "ministering a congregation" for the purpose of deduction provided in paragraph 8(1)(c) of the Act