Income Tax Severed Letters - 2009-07-03


2009 Ruling 2008-0287701R3 - Foreign Affiliate Issues

Unedited CRA Tags
95(2); 5907(1); 5907(11.2)

Principal Issues: (1) Will the group compensation payments be considered deductible in computing the Foreign Target's income from active business (to the extent the income is otherwise considered income from active business)? (2) Is FA6 resident in a designated treaty country for the purposes of Part LIX of the Regulations? (3) Will the amount included in Foreign Target's taxable profits for reserves previously claimed in accordance with XXXXXXXXXX tax law be included in Foreign Target's "earnings" from an active business? (4) Will FA6 be "resident" and "subject to taxation" in XXXXXXXXXX for the purpose of clause 95(2)(a)(ii)(D)? (5) If so, and assuming the other conditions of clause 95(2)(a)(ii)(D) are met, will the interest paid or payable by FA6 to FA5 on Loan 2 be included in computing FA5's income from active business?

Position: (1) Yes, but will not be included in exempt earnings. (2) No. (3) No. (4) Yes. (5) Yes, but will not be included in exempt earnings.

Reasons: (1) Application of clause 95(2)(a)(ii)(B). (2) In order to be resident in a designated treaty country for the purposes of Part LIX of the Regulations subsection 5907(11.2) of the Regulations requires that the foreign affiliate be resident in the same country under the Income Tax Act and under the relevant treaty. (3) No, amounts are notional amounts that are unrelated to the actual income of Foreign Target for the taxation year from an active business and thus will not be taken into account when computing Foreign Target`s prescribed earnings from an active business. (4) Yes, to be resident in XXXXXXXXXX and subject to taxation clause 95(2)(a)(ii)(D) requires only common law residency (as opposed to the requirements 5907(11.2) of the Regulations). (5) Plain reading of clause 95(2)(a)(ii)(D).

2009 Ruling 2008-0290481R3 - Housing Assistance Program

Unedited CRA Tags
6(23) 6(9) 80.4(1) 6(15)

Principal Issues: 1. Will an interest-free loan from an employer to an employee give rise to a taxable benefit?
2. Will forgiveness of an interest-free loan from an employer to an employee give rise to a taxable benefit?
3. Will interest paid by the employer to an institutional lender in respect of an employee's mortgage give rise to a taxable benefit?

Position: 1. Yes. 2. Yes. 3. Yes

Reasons: 1. There will be a deemed interest benefit to the extent provided under subsections 80.4(1), 6(9) and 6(23) of the Act.
2. The forgiven amount will be deemed to be a benefit by subsections 6(15) and 6(23) and included in income by paragraph 6(1)(a) of the Act.
3. There will be a deemed interest benefit to the extent provided for under subsections 80.4(1), 6(9) and 6(23) of the Act.

Ministerial Correspondence

29 June 2009 Ministerial Correspondence 2009-0319351M4 - Home Renovation Tax Credit (HRTC)

Principal Issues: Does the cost of clearing trees and brush from a cottage lot qualify for the home renovation tax credit (HRTC)?

Position: On its own, the clearing of trees would not qualify for the HRTC. However, if the clearing relates to a renovation project of an enduring nature that is integral to the dwelling, the costs of clearing the lot will qualify for the HRTC.

Reasons: Based on the 2009 budget documents, the renovation must pertain to land which forms part of a principal residence, and relates to a renovation project which is of an enduring nature and is integral to the eligible dwelling.

22 June 2009 Ministerial Correspondence 2009-0322881M4 F - Déduction pour amortissement - ordinateurs

Unedited CRA Tags

Principales Questions: Les contribuables désirent obtenir de l'information concernant un programme incitatif qui aiderait les entreprises au Canada à acquérir des systèmes informatiques.

Position Adoptée: Information générale soumise. Le budget fédéral de 2009 prévoit que les ordinateurs et les logiciels pour ces ordinateurs acquis après le 27 janvier 2009 et avant le 1er février 2011 donnent droit à une déduction pour amortissement à un taux temporaire de 100%.

22 June 2009 Ministerial Correspondence 2009-0324711M4 F - Crédit d'impôt pour la rénovation domiciliaire

Unedited CRA Tags
2009 Federal Budget - Annex 5

Principales Questions:
Les dépenses reliées aux coûts d'achat et d'installation de quais en aluminium se qualifient-elles de dépenses admissibles donnant droit au CIRD?

Position Adoptée:
Question de fait

Les coûts d'achat et d'installation de quais seront admissibles au CIRD seulement si le quai est fixé sur un fonds de terre qui fait partie d'une habitation admissible.

3 June 2009 Ministerial Correspondence 2009-0311781M4 - HRTC - Eligibility of expenditures

Unedited CRA Tags
January 27, 2009 Federal Budget - Annex 5

Principal Issues: Whether 2008 home renovation expenditures would qualify for the home renovation tax credit (HRTC)

Position: No.

Reasons: The HRTC applies to eligible home renovation expenditures for work performed or goods acquired between January 27, 2009 and February 1, 2010, pursuant to agreements concluded after January 27, 2009.

2 June 2009 Ministerial Correspondence 2009-0318311M4 - share trading

Unedited CRA Tags
9(1); 38; 39

Principal Issues: Income tax treatment of gains arising on disposition of shares.

Position: None taken.

Reasons: General comments only.

21 April 2008 Ministerial Correspondence 2008-0269941M4 - Disposition of a Life Insurance Policy

Unedited CRA Tags

Principal Issues: General comments on the taxation of a return of premium benefit on the disposition of a life insurance policy.

Position: See document

Reasons: The legislation

Technical Interpretation - External

29 June 2009 External T.I. 2008-0299611E5 - Post Retirement benefit assistance Plan

Unedited CRA Tags
6(1)(a), 6(4), 248(1); 56(1)(a);

Principal Issues:
What is the tax treatment of amounts paid by an employer for the cost of post retirement group benefits when it is part of an early retirement incentive plan?

Provided general comments.

The determination of whether an amount is taxable is a question of fact.

26 June 2009 External T.I. 2009-0323711E5 F - Commissions à des travailleurs indépendants

Principales Questions: Lorsqu'un payeur paie des commissions à un travailleur indépendant, est-ce qu'il est nécessaire qu'un feuillet T4A soit produit? En est-il de même lorsque les commissions sont versées à une société de personnes ou à une société?

Position Adoptée: Oui.

Raisons: Loi de l'impôt sur le revenu.

18 June 2009 External T.I. 2008-0303761E5 - Rollover of farms to children on death

Unedited CRA Tags
70(9) 70(9.1) 70(.2) 70(9.21)

Principal Issues: 1. Would the fact that Mr. A owns multiple farm properties and farm corporations limit his ability to transfer said properties pursuant to subsections 70(9.01) and 70(9.21) of the Act? 2. Would the fact that Mr. A works on more than one farm preclude a conclusion that he works on a "regular and continuous basis" on any of the farms? 3. If all of the farms were merged (by amalgamating all XXXXXXXXXX corporations and by Mr. A transferring his XXXXXXXXXX farm properties into the amalgamated corporation), and provided that all XXXXXXXXXX farms could be considered one business, would this result in a different conclusion to the first two issues above?

Position: 1. No; 2. No; 3. No

8 June 2009 External T.I. 2009-0311301E5 - Principal residence - two condo units

Unedited CRA Tags
40(2)(b) 54

Principal Issues: Whether, for the purposes of the principal residence exemption in paragraph 40(2)(b) of the Income Tax Act (the "Act"), condos #1 and #2 can be considered one "principal residence" as defined in section 54 of the Act.

Position: No.

Reasons: See response


21 May 2009 IFA Roundtable Q. 1, 2009-0321451C6 - Meaning of beneficial owner in Article 10, 11 & 12

Unedited CRA Tags
Article 10, 11 & 12 of Canada's Tax Conventions

Principal Issues: 2009 IFA Conference Question #1 - Beneficial Owner

Position: See comments

Reasons: See comments

1 May 2009 CLHIA Roundtable Q. 4, 2009-0316641C6 - CLHIA Round Table Question #4 - TIEAs

Unedited CRA Tags
95(1), Regulations 5907(11), 5907(11.2) 5907(2) and definition of "exempt earnings" in 5907(1)

Principal Issues: (1) If a foreign affiliate is incorporated and resident in Country A, and only carries on an active business in Country B through a branch, assuming neither country has a tax treaty with Canada is it necessary that both Country A and Country B has a TIEA with Canada for the income to fall within the definition of "exempt earnings" in subsection 5907(1) of the Regulations? (2) If a foreign affiliate of a taxpayer is resident in a country which has a TIEA with Canada under the common law tests and that corporation carries on an active business in that TIEA country, but is incorporated in a non-TIEA and non-treaty country, will the income it earns be exempt earnings?

Position: (1) Yes. (2) Yes.

Reasons: (1) In order for income from an active business carried on by a foreign affiliate to qualify as "exempt earnings" the affiliate must be resident in a designated treaty country and its active business must be carried on it a designated treaty country. (2) For the purposes of LIX of the Regulations in determining where a foreign affiliate is resident, we look at where the foreign affiliate is resident under common law tests.

1 May 2009 CLHIA Roundtable Q. 12, 2009-0317191C6 - CLHIA Roundtable Question #12- 95(2)(a)(ii)(D)

Unedited CRA Tags

Principal Issues: (1) Is it necessary for an affiliate to be resident and subject to income tax in the same jurisdiction for clause 95(2)(a)(ii)(D) to apply?

Position: (1) Yes

Reasons: (1) Plain reading of 95(2)(a)(ii)(D).

Technical Interpretation - Internal

26 June 2009 Internal T.I. 2009-0319501I7 F - Résidence reçue en héritage - PBR

Unedited CRA Tags
26(3) RAIR

Principales Questions: Concernant une propriété qui a été léguée à des contribuables en XXXXXXXXXX , quelle date faut-il utiliser afin de déterminer le prix de base rajusté?

Position Adoptée: En l'espèce, le jour de l'évaluation, soit le 31 décembre 1971.

Raisons: Loi de l'impôt sur le revenu; Règles concernant l'application de l'impôt sur le revenu.

25 June 2009 Internal T.I. 2009-0328171I7 F - Pénalité pour omission - 163(1)

Unedited CRA Tags
163(1) 163(2)

Principales Questions: La pénalité prévue au paragraphe 163(1) peut-elle s'appliquer lorsqu'une personne réclame, pour une seconde année d'imposition consécutive, des dépenses qui ne sont pas permises en déduction par la Loi de l'impôt sur le revenu?

Position Adoptée: Non.

Raisons: Cette pénalité ne s'applique que lorsqu'une personne omet d'inclure un montant "brut" dans le calcul de son revenu pour une année d'imposition donnée.

12 June 2009 Internal T.I. 2009-0306951I7 - Transitional Tax dr./cr. CCA taken by partnership

Unedited CRA Tags
TA 48(4) TA 48(6) CTA 11(10) Ontario regulation 183 section 201

Principal Issues: Whether a partnership can claim different CCA amounts for federal and Ontario purposes under the CTA. If so, how is the difference shown on Schedule 506 in calculating the transitional tax dr. and cr.

Position: A partnership can claim different CCA amounts under the CTA. The income of the partnership flows through to the adjusted cost base of the partnership which is included in the total federal balance and total Ontario balance.

Reasons: As provided by legislation.

9 June 2009 Internal T.I. 2009-0310601I7 - Stop loss rules - separate transactions

Unedited CRA Tags

Principal Issues: Under subsection 112(3.2), how will the stop loss reduction be determined where the redemption of shares held by a trust is structured in two steps on consecutive days?

Position: The transactions will be viewed as two separate transactions

Reasons: Similar to previous positions, the stop loss reduction pursuant to subsection 112(3.2) should be computed on a share by share basis.