Income Tax Severed Letters - 2009-06-12


2009 Ruling 2008-0280391R3 - Loss Consolidation

Unedited CRA Tags
20(1)(c); 55(3)(a); 112(1)

Principal Issues: 1) Deductibility of interest expense in loss consolidation scenario. 2) Tax treatment of intercorporate dividends to be paid as part of loss consolidation transactions.

Position: 1) Interest is deductible 2) Subsection 55(2) does not apply to recharacterize dividends. Dividends are deductible in computing recipients' taxable incomes and are not subject to tax under Part IV, IV.1 or VI.1.

Reasons: Intercorporate loss consolidations acceptable where parties are affiliated. Technical requirements for interest deductibility and tax treatment of intercorporate dividends are met.

Technical Interpretation - External

4 June 2009 External T.I. 2009-0312701E5 - Payments for an Easement or Right of Way

Unedited CRA Tags
110.6(1), (2)

Principal Issues: (1) Can a landowner use the $750,000 lifetime capital gains exemption for dispositions of qualified farm property to offset the capital gain realized from the disposition of a pipeline easement? (2) Where the pipeline easement is for a term of 5 or 10 years, does a subsequent pipeline easement qualify as a disposition of qualified farm property?

Position: (1) Yes. The granting of an easement or right of way by a landowner is considered to be a disposition of a part of the property in respect of which it is granted. Provided that the whole property to which the easement or right of way pertains meets the definition of "qualified farm property" under subsection 110.6(1), the landowner may be entitled to utilize the capital gains deduction under subsection 110.6(2) in respect of the easement or right of way. (2) Where a subsequent easement or right of way is granted following the expiration of the 5 or 10-year term of an earlier easement or right of way, it is a question of fact whether a subsequent payment to extend, renew or renegotiate the terms of a pipeline easement contract or right of way is on account of income or capital, and whether a disposition has occurred that would be eligible for the capital gains deduction for qualified farm property.

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

3 June 2009 External T.I. 2009-0319551E5 F - Déductibilité des dépenses

Unedited CRA Tags
18(1)a) 9 67 67.1

Principales Questions: Est-ce que des dépenses engagées dans le cadre d'une entreprise de marketing de réseau sont déductibles?

Position Adoptée: Question de fait.

Raisons: Premièrement, il est nécessaire de déterminer si une source de revenu existe. Si une telle source existe (en l'espèce, une entreprise), il est nécessaire d'examiner les diverses dispositions de la Loi de l'impôt sur le revenu pour déterminer si les dépenses engagées sont proprement déductibles.

3 June 2009 External T.I. 2009-0310231E5 F - Exonération des gains en capital

Unedited CRA Tags
110.6(1) 110.6(2.1) 110.6(14)(d) 248(1)

Principales Questions: À la lumière des faits présentés, est-ce que les actions d'une société privée sous contrôle canadien qui exploite activement une entreprise se qualifient à titre d'actions admissibles de petite entreprise aux fins de l'exonération des gains en capital?

Position Adoptée: Question de fait. La deuxième condition, qui exige que les actions n'aient pas été la propriété de nul autre que le particulier (celui désirant se prévaloir de l'exonération des gains en capital) ou une personne ou société de personnes qui lui est liée, semble être respectée.

Raisons: Loi de l'impôt sur le revenu. Voir l'alinéa 110.6(14)(d) de la Loi.

2 June 2009 External T.I. 2009-0311161E5 - Directors' Liability

Unedited CRA Tags
s. 227.1 Income Tax Act s. 323 Excise Tax Act s. 179 Bankruptcy and Insolvency Act

Principal Issues: Whether interest is exigible on a director's liability assessment for a corporation's failure to remit where the corporation is bankrupt and interest does not accrue on the corporate liability.

Position: Yes.

Reasons: At bankruptcy, the stay of proceedings protects the bankrupt from the Crown assessing further interest on a liability. However, by section 179 of the Bankruptcy and Insolvency Act, a person who is jointly bound with a bankrupt does not obtain that protection. Therefore, the Crown can assess interest against a director after the bankruptcy of a corporation.

2 June 2009 External T.I. 2009-0312311E5 - Employer Paid Health Club Dues

Unedited CRA Tags
6(1)(a) 6(6)

Principal Issues: What is the taxability of an employer's reimbursement of a gym membership to an employee who is working temporarily in another city?

Position: While the determination of whether certain amounts paid or reimbursed by an employer are primarily for the benefit of the employer or employee is a question of fact, in this case the amount would be taxable.

Reasons: These types of expenses appear to be primarily personal.

1 June 2009 External T.I. 2009-0319481E5 - Dividends Paid to S Corporation

Unedited CRA Tags
212(2); Article X(2); Article IV(7)

Principal Issues: Rate of Part XIII withholding tax applicable to dividends paid by taxable Canadian corporation after 2009 to S-corporation where S-corporation holds greater than 10 percent of the dividend payer's voting shares and dividend payer is fiscally transparent for U.S. tax purposes.

Position: Even if the S-corporation is a qualifying person under Article XXIX-A of the Canada-United States Income Tax Convention (or is entitled to limited treaty benefits under Article XXIX-A(4)) and beneficially owns the dividends, the rate of withholding tax will be 25% of the amount of the dividend due to Article IV(7)(b). Furthermore, the U.S. resident shareholder(s) of the S-corporation would not be considered to derive the dividend income received by the S-corporation.

Reasons: The dividend payer is fiscally transparent for U.S income tax purposes. Consequently, the treatment of the dividend payment under U.S income tax laws is not the same as its treatment would be if the dividend payer were not treated as fiscally transparent under U.S. income tax laws. For U.S. income tax purposes, the shareholders of the S-corporation would not be considered to derive dividend income for U.S. income tax purposes and therefore would not satisfy the requirements of Article IV(6).

29 May 2009 External T.I. 2009-0313571E5 - Eligible expenditures - home renovation tax credit

Unedited CRA Tags
January 27, 2009 federal budget

Principal Issues: Do hot tubs qualify for the HRTC?

Position: Depends on the type of hot tub.

Reasons: Eligible expenditures for the home renovation tax credit include only expenditures that relate to a renovation or an alteration of an eligible dwelling (including land) that is enduring in nature and integral to the dwelling. The 'plug in product' type is not enduring in nature or integral to the dwelling. The heavier variety that is hard wired directly to the electrical panel and permanently placed in position is considered enduring in nature and integral to the dwelling.

27 May 2009 External T.I. 2008-0303971E5 F - Transfer of a life insurance policy

Unedited CRA Tags
148(1), 148(7), 148(9)

Principal Issues: What are the tax consequences of the transfer of a life insurance policy by an individual to his wholly-owned corporation

Position: Amount included in his income under subsection 148(1). Not enough information available to comment on subsection 15(1) and other provisions of the ITA.

Reasons: Statutory provisions.

27 May 2009 External T.I. 2009-0305751E5 - Surrender of property

Unedited CRA Tags
79(2); 79(3); 80; 89(1)

Principal Issues: Whether section 79, specifically, subsections 79(2) and (3) apply to the series of transaction and if so whether:
1) there is a capital gain on the deemed disposition,
2) there is a creation of a capital dividend account from the non-taxable portion of the gain, and
3) there is a non-capital loss carry forward balance from the accrued interest

Position: General comments provided.

Reasons: Depends on the facts of the case.

26 May 2009 External T.I. 2009-0312421E5 - Presumption of death

Unedited CRA Tags
Survivorship and Presumption of Death Act, R.S.B.C. 1996, c. 444 146(1), 146(4)(c), 146(8), 60(1) ITA

Principal Issues: The presumed date of the annuitant's death as declared by the Court Order precedes the date of the Court Order by 7 years and as a falls outside the tax free period prescribed in paragraph 146(4)(c) ITA.

Position: The date of the actual Court Order can be used as the date of death for the purposes of paragraph 146(4)(c) ITA.

Reasons: Reliance on the date of the retroactive presumption of the annuitant's death would give rise to an unintended tax consequence.

19 May 2009 External T.I. 2007-0263441E5 - Tax Treaties

Unedited CRA Tags
Articles 4 and 28(3) of the Canada-Luxembourg Tax Convention

Principal Issues: Whether a SOPARFI is a resident of Luxembourg for the purposes of the Canada-Luxembourg Tax Convention

Position: A SOPARFI that has a material economic nexus to Luxembourg will be considered to be a resident of Luxembourg for the purposes of the Canada-Luxembourg Tax Convention

Reasons: See letter


5 October 2007 Roundtable, 2007-0243101C6 F - Partie VI.1: Dividende réputé exclu

Unedited CRA Tags

Principales Questions: Dans une situation particulière donnée, est-ce que l'ARC considère que des actions ont été émises lorsqu'une société dépose des statuts de modification?

Position Adoptée: L'ARC considère pour les fins de la Loi qu'une action donnée du capital-actions d'une société a été émise lorsqu'elle l'a été selon le droit corporatif applicable.

Raisons: Position de longue date.

5 October 2007 Roundtable, 2007-0243201C6 F - Taux d'imposition des coopératives

Unedited CRA Tags
125; 123.4; 186; 136

Principales Questions: Quelles sont les taux d'imposition applicables à une société coopérative?

Position Adoptée: Commentaires généraux.

Raisons: Loi.

1 May 2009 IFA Roundtable Q. 12, 2009-0320231C6 F - Convertible Debt Obligations

Unedited CRA Tags
no deemed interest on conversion of traditional convertible debenture
no deemed interest on conversion of traditional convertible debenture

Principal Issues: See below.

Position: See below.

Reasons: See below.

Technical Interpretation - Internal

4 June 2009 Internal T.I. 2009-0311441I7 - Directors' Liability

Unedited CRA Tags
s. 227.1 ITA s. 323 ETA s. 124(1) BIA

Principal Issues: 1. Whether the preconditions in paragraphs 227.1(2)(a), (b), or (c) ITA and 323(2)(a), (b), (c) ETA operate disjunctively.
2. Whether a "liquidation" referred to in paragraphs 227.1(2)(b) ITA and 323(2)(b) ETA relates to proceedings under company law or insolvency law.
3. Whether a proof of claim has to be completed on the prescribed form.

Position: 1. The preconditions operate disjunctively.
2. "Liquidation" refers to proceedings under company law.
3. It is not necessary to complete a proof of claim on the prescribed form.

Reasons: 1. Green v. M.N.R., 90 D.T.C. 1898 (T.C.C.).
2. Paragraphs 227.1(2)(b) ITA and 323(2)(b) ETA.
3. Section 32 of the Interpretation Act.

27 May 2009 Internal T.I. 2009-0320311I7 F - CELI - Notion d'avantage

Unedited CRA Tags
207.05 207.01(1)
accretion in common shares issued to employee's TFSA on an estate freeze was an advantage

Principales Questions: Une émission d'actions par une société donnée en faveur du CÉLI d'un employé-clé donne-t-elle lieu à un avantage au sens du paragraphe 207.01(1)?

Position Adoptée: Une telle émission d'actions pourrait donner lieu à un avantage selon les circonstances applicables à une situation donnée.

Raisons: Question de fait.