Income Tax Severed Letters - 2009-08-07

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.

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.

XXXXXXXXXX Robert Dubis
2009-031443
July 28, 2009

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.

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

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.

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.

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.