Income Tax Severed Letters - 2009-11-13

Principal Issues: Whether the reimbursement of an employee's PHSP premiums by an employer would result in taxable employment benefits.

Position: Question of fact.

Reasons: If the employer reimburses an employee's PHSP premiums and shows the reimbursement as a payroll adjustment, the reimbursement will be exempt from inclusion as taxable employment benefits pursuant to subparagraph 6(1)(a)(i).

Principales Questions: Un pensionné, âgé de moins de 65 ans, peut-il fractionner son revenu provenant de son RPA et de son REER dans l'année du décès du cessionnaire?

Position Adoptée: Il peut fractionner le revenu provenant de son RPA mais pas celui de son REER.

Raisons: Le revenu provenant du RPA est un "revenu de pension admissible" selon la définition de l'alinéa 118(7)a). Le revenu du REER du pensionné n'est pas reçu par suite du décès de son époux ou conjoint de fait tel que l'exige l'alinéa 118(7)b) de la définition de "revenu de pension admissible"

Principales Questions: 1. Would paragraph 55(3)(a) of the Act apply to the hypothetical situation described in the letter to exclude, from the application of subsection 55(2) of the Act, the deemed dividend resulting from the cross-redemptions of shares between Corporation A and Newco?
2. Would the CRA apply subsection 55(4) of the Act in the hypothetical situation?
3. Would the interests, payable on another person's indebtedness assumed by the taxpayer to acquire the preferred shares and the common shares of the capital stock of an operating corporation, be deductible?
4. Would the interests, payable on a debt assumed by the taxpayer to acquire the shares of an operating corporation, be deductible by the amalgamated corporation after the amalgamation of the taxpayer and the operating corporation?
5. Would subsection 84.1(1) of the Act apply on the transfer by the children of the shares of the capital stock of their operating corporation to their holding corporation?

Position Adoptée: 1. It would depend on whether we would apply subsection 55(4) of the Act and on the identity of the beneficiaries of the trust holding the common shares of a dividend recipient at a particular time.
2. General comments provided. It would depend on the facts of the particular situation.
3. The answer is subject to the legislation that may be proposed by the Department of Finance and the date of enactment. Without such a proposed legislation, the answer would depend on whether the preferred shares carries a stated dividend rate and on whether there is a reasonable expectation, at the time the common shares are acquired, that the common shareholder will receive dividends.
4. The position taken in paragraph 21 of IT-533 in relation to a deduction under subparagraph 20(1)(c)(i) of the Act would also be applicable in relation to a deduction under subparagraph 20(1)(c)(ii) of the Act. After the amalgamation, we would consider that the debt has been assumed for the acquisition of the assets of the acquired corporation that has been amalgamated and that are now held by the continuing corporation after the amalgamation. These assets would have to be acquired for purpose of gaining or producing income from the property or from a business.
5. It would depend on the consideration received for each class of shares.

Raisons: 1. Provisions of the Act.
2. The question of determining whether it is reasonable to consider that one of the main purposes for the issuance of the voting shares of the capital stock of the dividend recipients to A would be to cause 2 or more persons to be related to each other, is a question of fact.
3. Paragraphs 10 and 31 of IT-533. Statement of the Department of Finance which was published on February 23, 2005, as part of the presentation of the Federal Budget.
4. Previous positions. Paragraph 21 of IT-533.
5. Provisions of the Act.