Income Tax Severed Letters - 2009-08-07


2009 Ruling 2009-0308961R3 - Principal Purpose of Business

Unedited CRA Tags

Principal Issues: Whether the principal purpose of the business of a controlled foreign affiliate of a taxpayer is to derive income from property with respect to those amounts received by the affiliate under the XXXXXXXXXX Agreements?

Position: No, provided that the business of the affiliate is one single business.

Reasons: Based on the character of the income earned through the XXXXXXXXXX Agreements.

2009 Ruling 2008-0305091R3 - Retiring Allowance and Bonus from Farm Operation

Unedited CRA Tags
248(1); 60(j.1); 67

Principal Issues: Are amounts paid by a Farm Corporation to a husband and wife, who are the sole directors, officers and shareholders, considered a reasonable retiring allowance and bonus?

Position: Yes.

Reasons: In accordance with guidelines provided in Question 10 at the 1992 Prairie Tax Conference Round Table and prior rulings given in similar circumstances.

XXXXXXXXXX 2008-030509


2009 Ruling 2009-0327951R3 F - Butterfly & Transfer of shares

Unedited CRA Tags
6(1)(a) 73(4.1)

Principal Issues: 1. Whether paragraph 6(1)(a) will apply with respect to the transfers of shares by the parents to their children? 2. What will be the proceeds of disposition of the share?

Position: 1. No. 2. Amount determined under 73(4.1)(a)(iii).

Reasons: 1. Donations. 2. 73(4.1)

Ministerial Correspondence

21 July 2009 Ministerial Correspondence 2009-0309981M4 - Eligible expenditures- home renovation tax credit

Unedited CRA Tags
January 27, 2009 federal budget

Principal Issues: Do the costs of renovating a kitchen or a bathroom, including appliances, qualify for the HRTC?

Position: Cost of renovating a kitchen or bathroom qualify, but appliances do not.

Reasons: Renovations to a kitchen or bathroom are integral to the dwelling and are of an enduring nature. Appliances have been specifically excluded in the budget.

21 July 2009 Ministerial Correspondence 2009-0327421M4 - HRTC - Eligible expenditures and T1 positioning

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

Principal Issues: (a) Would amounts associated with the replacement of an existing driveway qualify as eligible expenditures for the purposes of the home renovation tax credit (HRTC). (b) How/Where will the HRTC be reported for purposes of filing the 2009 individual income tax return.

Position: (a) Yes (b) A new schedule will be included in the 2009 individual income tax return to list the eligible expenditures and calculate the amount to enter on a new line on Schedule 1.

Reasons: (a) Similar to a new driveway or the resurfacing of an existing driveway, the replacement of the same is both enduring in nature and integral to the eligible dwelling (or the land that forms part of the eligible dwelling). (b) Based on information available at this time.

21 July 2009 Ministerial Correspondence 2009-0328351M4 - HRTC - Eligible expenditures

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

Principal Issues: General information regarding renovations that will qualify for the home renovation tax credit (HRTC).

Position: Provided standard information pertaining to the HRTC, and examples of eligible expenditures that the taxpayer may be considering to undertake.

Reasons: Taxpayer's question was very broad in scope.

21 July 2009 Ministerial Correspondence 2009-0325561M4 - HRTC-Removal of a tree

Unedited CRA Tags
2009 Budget Documents

Principal Issues: Is the removal of a tree eligible for the HRTC?

Position: The removal of a tree on its own does not qualify for the HRTC. However, if the removal relates to a renovation project that is of an enduring nature and integral to the eligible dwelling, the costs of removal would qualify for the HRTC

Reasons: The removal on its own is not integral to the dwelling.

21 July 2009 Ministerial Correspondence 2009-0327131M4 - HRTC - Eligible expenditures & individual projects

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

Principal Issues: Would a homeowner be eligible to claim the home renovation tax credit (HRTC), if he/she decides to perform the work himself/herself. Would individual items costing less than $1,000, but totalling not more than $10,000, qualify for the HRTC.

Position: Yes.

Reasons: To be eligible for the HRTC, expenditures incurred in relation to a renovation or alteration to an eligible dwelling (or the land that forms part of the eligible dwelling) must be of an enduring nature and integral to the dwelling. Homeowners may choose to perform the work themselves; however, the value of their labour cannot be included. The HRTC is based on an individual's total eligible expenditures incurred after January 27, 2009 and before February 1, 2010.

20 July 2009 Ministerial Correspondence 2009-0325281M4 - Taxation of Employee Stock Options

Unedited CRA Tags

Principal Issues: When is an employee taxed on a benefit arising from an employee stock option?

Position: At the time that the employee exercises the employee stock option.

Reasons: Section 7(1) of the Act.

17 July 2009 Ministerial Correspondence 2009-0319621M4 - employee stock option losses

Unedited CRA Tags

Principal Issues: Under section 7 of the Act, a taxpayer has to include an amount in income that is based on the value of the shares acquired under a stock option determined at the time the option is exercised. Is there any relief where the shares have decrease in value at the time the taxpayer disposes of them?

Position: The letter provides a brief explanation of the existing legislation.

Reasons: CRA must apply the law as written. The Department of Finance is responsible for the implementation and amendment of tax policy.

10 June 2009 Ministerial Correspondence 2009-0320691M4 - In-kind RRSP withdrawals and TFSA contributions

Unedited CRA Tags
146; 146.2

Principal Issues: What is the tax treatment of an in-kind withdrawal of securities from an RRSP and a corresponding contribution of the securities to a TFSA?

Position: The taxpayer would be treated as having received a taxable RRSP benefit, and as having made a TFSA contribution, equal to the FMV of the securities at the time of the respective transactions.

Reasons: The transactions are considered to be a disposition and acquisition between separate taxpayers occurring at fair market value.

30 April 2009 Ministerial Correspondence 2009-0315041M4 - RRSP transfers to the UK

Unedited CRA Tags
217 212

Principal Issues: Can a lump sum amount be transferred from an RRSP to a UK pension plan on a tax free basis

Position: no

Reasons: there is no provision in the Act that allows for such a transfer of a lump sum amount

Technical Interpretation - External

29 July 2009 External T.I. 2008-0297011E5 F - Conversion de participations dans une SNC

Unedited CRA Tags
43(1); 96(1.01); 96(1.1); 53(2)(d); 97(2)
no disposition if new partnerships interests exchanged for old interests are not in totality substantially distinguishable
s. 97(2) rollover not available if new partnerships interests exchanged for old interests are not in totality substantially distinguishable

Principales Questions: Dans la mesure où un contrat de société est modifié afin de prévoir l'émission de participations permettant le partage du revenu et l'émission de participations permettant le partage du capital de la société de personnes, nous devons répondre aux questions suivantes :
1) y a-t-il disposition si une participation dans une société de personnes est convertie en part-revenu et en part-capital, c'est-à-dire scindée en deux?
2) si seule la part-revenu fait l'objet d'une disposition ultérieure, par exemple, dans le cadre d'une réorganisation mettant en cause une société par actions, s'agirait-il d'une disposition partielle de bien?
3) si la précédente transaction était réalisée, le paragraphe 96(1.1) et le paragraphe 96(1.01) proposé s'appliqueraient-ils au transfert de la participation?

Position Adoptée: (1) Question de fait.
(2) Le paragraphe 43(1) et l'alinéa 53(2)d) pourraient s'appliquer pour déterminer le PBR de la partie qui est disposée et de la partie qui est conservée.
(3) Question de fait. Probablement non.

Raisons: La Loi de l'impôt sur le revenu.

29 July 2009 External T.I. 2009-0312891E5 - Payments to Parent for Attendant Care

Unedited CRA Tags

Principal Issues: Are regular payments received by a parent for the attendant care of a disabled child as a result of an accident, from the proceeds of a non-taxable award of damages, taxable to the parent for income tax purposes

Position: Question of fact but probably not.

Reasons: The Tax of Canada (Informal Procedure) decisions in Maurice v. The Queen, [2002] 1 CTC 2172 and Pellerin v. The Queen, 2008 DTC 3210.

29 July 2009 External T.I. 2009-0314611E5 F - Résidence pour membres du clergé à la retraite

Unedited CRA Tags
248(1) 8(1)c) 149.1 6(1)a)

Principales Questions: Quelles sont les conséquences fiscales lorsqu'une église acquiert une résidence pour ses pasteurs et missionnaires à la retraite?

Position Adoptée: (1) Nous avons référé le destinataire de la lettre au guide RC4108 disponible sur le site Internet de l'ARC.
(2) La résidence mise à la disposition des pasteurs et missionnaires à la retraite ne donnera pas lieu à un avantage imposable. Puisque les pasteurs et missionnaires n'auront pas de rémunération provenant d'un emploi admissible et qu'ils ne satisferont pas au critère de la fonction, ils n'auront pas accès à la déduction pour résidence des membres du clergé.

Raisons: (1) et (2) Loi de l'impôt sur le revenu.

28 July 2009 External T.I. 2009-0314431E5 - Home renovation tax credit- security film

Unedited CRA Tags
2009 Budget Document

Principal Issues: Does the permanent installation of security window film qualify as an eligible expenditure for the home renovation tax credit.

Position: Yes, the permanent installation of security window films at an eligible dwelling qualifies for the HRTC.

Reasons: Provided the installation is to an eligible dwelling and incurred within the required time period, it is our view that the installation is integral to the dwelling and of an enduring nature.

July 28, 2009

22 July 2009 External T.I. 2009-0314971E5 - transfer of retiring allowance to an RRSP

Unedited CRA Tags

Principal Issues:
1 - was the employee employed by one or two employers and if 2, are they related employers or are they deemed to be related employers?
2 - Is the employee entitled to the $1,500 per year for service before 1989 available under 60(j.1)(ii)(B) in addition to the $2,000 per year for service before 1996 available under 60(j.1)(ii)(A)?

1 - The employee had one employer.
2 - No.

1 - The employee has one employer being the crown in right of Canada.
2 - In general, the additional $1,500 transfer is available for each year or part year (described in 60(j.1(ii)(A) that a taxpayer was employed by the employer (or a person related to the employer) prior to 1989 for which the employer's (or a person's related to the employer's) contributions to a RPP or DPSP had not vested in the taxpayer at the time the retiring allowance is paid.

22 July 2009 External T.I. 2009-0306731E5 - RRSP contribution room

Unedited CRA Tags

Principal Issues: What amount can be contributed to an RRSP when a person leaves an employer in 2008 and joins a new employers pension plan in 2009?

Position: A general and basic explanation of the relevent law was provided.

Reasons: The RRSP room must be calculated and must take into consideration the PA and PAR in respect of the person's participation in the former employers pension plan.

21 July 2009 External T.I. 2009-0311851E5 - RDSP - various questions

Unedited CRA Tags

Principal Issues: The writer requested information on the ability to contribute to, and withdraw amounts from an RDSP.

Position: General answers were provided.

Reasons: There was very little background information provided and most of it concerned application of the Canada Disability Savings Act which is not administered by CRA.

21 July 2009 External T.I. 2008-0265651E5 - top up life insurance and disability payments

Unedited CRA Tags
6(1)(a),6(1)(f),6(1)(g) 56(1)(a)(iii) 248(1)

Principal Issues: The terms of the collective agreement require the employer to top up life insurance and long term disability benefits and pay the premiums for the retirees' health benefits. What are the tax implications to the employees?

Position: Factual determination. Provided general comments.

Reasons: The tax implications can be ascertained only after a review of all of the relevant facts and documentation. Based on the facts provided, the top up life insurance benefit is likely a death benefit which is included in the income of the beneficiary under subparagraph 56(1)(a)(iii). The top up long-term disability benefits may be taxed under paragraph 6(1)(a), (f) or (g) depending on how the plan is structured. If the plan to provide health benefits to retired employees constitutes a private health services plan, any benefit derived from the employer contributions to the plan would be excluded from employment income under subparagraph 6(1)(a)(i).

XXXXXXXXXX 2008-026565
Nancy Shea-Farrow
July 21, 2009

17 July 2009 External T.I. 2009-0328191E5 - 20(1)(p)(ii) -Deductibility of uncollectible loans

Unedited CRA Tags

Principal Issues: Whether it is possible for a taxpayer to deduct an amount for bad debts if the amount has not been included in computing the taxpayer's income for the year or a preceding year.

Position: A deduction under subparagraph 20(1)(p)(ii) of the Act is not restricted to amounts that have been included in computing the taxpayer's income for the year or a preceding taxation year.

Reasons: 20(1)(p)(ii)

(613) 957-3496
July 17, 2009

8 July 2009 External T.I. 2008-0290351E5 - Dividend from pre-acquisition surplus

Unedited CRA Tags
40(3) 92(2) 95(2)(f.1) 5900 et 5901

Principal Issues: 1.Whether the dividend paid would be deemed to have been paid out of pre-acquisition surplus.
2. Whether the dividend would reduce the ACB of the shares pursuant to subsection 92(2) of the Act such that the holder of the shares would realize a deemed gain pursuant to subsection 40(3) of the Act.
3.Whether paragraph 95(2)(f.1) of the Act would apply to exclude the taxable capital gain from the FAPI of the holder of the shares.
4. Whether the capital gain would create any exempt or taxable surplus for the holder of the shares.

Position: 1. Yes
2. Yes
3. No position taken
4. Our answer would depend on whether or not the capital gain is excluded from the FAPI of the holder of the shares pursuant to paragraph 95(2)(f.1) of the Act.

Reasons: 1. Paragraphs 5900(1)(c) and 5901(1)(c) of the Regulations.
2. Wording of the Act.
3. Question of fact.
4. Subsection 5907(5) of the Regulations provides that each capital gain of a foreign affiliate from the disposition of property shall be computed in accordance with the rules set out in subsection 95(2) of the Act.

30 June 2009 External T.I. 2009-0308711E5 - Paragraph XXIII(4) of the Canada-US Treaty

Unedited CRA Tags
Part X.1 tax

Principal Issues: Is CRA prevented from imposing Part X.1 tax on excess contributions in a RRSP held by a resident of United States?

Position: No

Reasons: Part X.1 tax is a penalty tax and is not a tax on capital for the purposes of Article XXIII of the Canada-US Income Tax Convention.

30 June 2009 External T.I. 2008-0304311E5 F - Période admissible - CIEE

Unedited CRA Tags

Principal Issues: Aux fins du crédit d'impôt pour emploi à l'étranger, quand commence et quand finit la période admissible de plus de six mois consécutifs?

Position: Aucune mais quelques exemples illustrent certaines situations.

Reasons: Question de fait.

29 June 2009 External T.I. 2008-0296371E5 F - Capital dividends

Unedited CRA Tags
83(2.1); 83(2.2); 83(2.4); 129(2.1)

Principal Issues: The situation is one where: Three children, X,Y and Z are the only beneficiaries of the Estate of Individual A, which owns all the shares of Corporation A, a Canadian-controlled private corporation. Corporation A has a capital dividend account (CDA) and a refundable dividend tax on hand (RDTOH), but owns no assets. On the other hand, X owns all the shares of Corporation X, a Canadian controlled private corporation. Corporation X intends to buy all the shares of Corporation A. After the amalgamation of Corporations A and X, the amalgamated corporation would pay a capital dividend to X. 1. Does subsection 83(2.1) apply in the particular situation? In the affirmative, does subsection 83(2.2) or 83(2.4) apply? 2.Would the answer be different if X, Y or Z owned directly the shares of Corporation A before the transfer to Corporation X? 3. Does subsection 129(1.2) apply in the particular situation

Position: 1. and 2. General comments.
3. Yes.

Reasons: 1. and 2. Question of fact.
3. Conditions for the application of subsection 129(1.2) are met.

XXXXXXXXXX Lucie Allaire, avocate, CGA, D. Fisc.
(613) 957-2046
Le 29 juin 2009

23 April 2009 External T.I. 2009-0306371E5 - Determination of SERP benefits

Unedited CRA Tags
248(1)"S"; 248(1)"R"
employee application of severance to acquire additional service under SERP

Principal Issues: Can an employee forgo the payment of a retiring allowance and as a consequence be credited with pensionable service under an unfunded SERP such that the employee will receive increased benefits under the SERP

Position: No.

Reasons: The SERP would not reflect provisions that are normally found in a pension plan or a registered pension plan since it is generally not considered appropriate to provide benefits under a pension for periods of service that do not exist. Furthermore, the SERP would not reflect the same terms of any underlying RPP. Accordingly, the Plan would not be excluded from the salary deferral arrangement rules.
If a retiring allowance is payable as a result of the involuntary termination of an employee and the employee directs the amount to be paid into a SERP, it is arguable that the employee has constructively received the retiring allowance at the time the amount is paid into the SERP.

28 July 2008 External T.I. 2008-0298011E5 - Branch Tax - Section 219

Unedited CRA Tags
219(1), 219(1.1), 248(1)
gains on capital property used in Cdn active business are subject to branch tax

Principal Issues: (1) Whether a particular property can fit within paragraphs (a) and (b) of the definition of "taxable Canadian property" in subsection 248(1). (2) Whether a capital gain realized on the disposition of real property that is used or held by a taxpayer in a business carried on in Canada is subject to the branch tax.

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

Reasons: (1) Paragraph (a) of the taxable Canadian property definition refers to real property situated in Canada and paragraph (b) of the definition refers to property used or held by a taxpayer in a business carried on in Canada. Since the definition of "property" in subsection 248(1) includes "property of any kind whatever whether real or personal or corporeal or incorporeal and a right of any kind whatever...", it is our view that property described in paragraph (a) can also fit within paragraph (b) of the definition. (2) By virtue of subsection 219(1.1), capital gains realized on the disposition of real property used or held by the taxpayer in a business carried on in Canada will be subject to the branch tax. If the real property is not used or held by the taxpayer in a business carried on in Canada, the branch tax will not apply on the disposition of such property.

Technical Interpretation - Internal

16 July 2009 Internal T.I. 2009-0317371I7 - T2062C Notice-TCP disposed of by Partn or LLC

Unedited CRA Tags

Principal Issues: Whether a T2062C Notice should be filed in respect of a) the partnership or the partners; b) the LLC that is a partnership for U.S. tax purposes, or the members

Position: a) The partners; b) The LLC, if all of the members of the LLC are resident in the U.S. and entitled to benefits under the Canada-U.S. Tax Convention.

Reasons: a) The partnership is not deemed to be a separate person for purposes of section 116; b) The LLC is the "non-resident person" in section 116, but is not entitled to treaty benefits

30 June 2009 Internal T.I. 2009-0311891I7 - Trust related to a beneficiary

Unedited CRA Tags
104(1) 104(2) 251(2)(a)

Principal Issues: Whether a trust may be related to a beneficiary pursuant to paragraph 251(2)(a) of the Act.

Position: Yes, if the beneficiary is related to the trustee having ownership and control of the trust property.

Reasons: Combination of subsection 104(1) and 104(2) of the Act.

5 June 2009 Internal T.I. 2009-0319871I7 - RDSP Advantages

Unedited CRA Tags
205(1) 206.2

Principal Issues: If an RDSP issuer pays a medical practitioner's fee for the cost of completing the form T2201, will this result in an advantage for purposes of Part XI of the Act?

Position: Yes.

Reasons: Based on the definitions of "benefit" and "advantage" in subsection 205(1) of the Act.

4 June 2009 Internal T.I. 2009-0322761I7 - RDSP Advantages

Unedited CRA Tags
205(1), 146.4(4)(h)

Principal Issues: Will proposed promotions by an RDSP issuer be advantages as defined in subsection 205(1) of the Income Tax Act?

Position: First promotion, question of fact, but if structured properly may not be an advantage. The second promotion will result in an advantage.

Reasons: First promotion - paragraph (b) of the definition of "advantage" in subsection 205(1) and paragraph 146.4(4)(h). Second promotion will result in a benefit as defined in subsection 205(1) and an advantage (not excluded under paragraphs (a) to (f)).