Income Tax Severed Letters - 2010-02-26

Ruling

2009 Ruling 2008-0280261R3 F - Réorganisation d'une société de personnes

Unedited CRA Tags
125(7); 256(2.1); 56(2)

Principales Questions: Dans le cas où un associé d'une société de personnes créé une société par actions par l'entremise de laquelle des services professionnels seront fournis, est-ce que cette société par actions serait admissible à la déduction accordée aux petites entreprises?

Position Adoptée: Question de faits. Généralement oui, si certaines conditions sont rencontrées.

Raisons: Selon la Loi de l'impôt sur le revenu actuelle. En accord avec les motifs résultant des décisions anticipées antérieures sur des questions similaires.

2009 Ruling 2009-0348581R3 - Canada-U.S. Tax Convention ("Treaty")

Unedited CRA Tags
84(1); 212(2); Articles IV(7), X and XII of the Treaty

Principal Issues: 1) Whether a subsection 84(1) deemed dividend is a dividend for the purposes of Article X of the Treaty; 2) Whether Article IV(7)(b) of the Treaty applies to treat a subsection 84(1) deemed dividend as not being paid to or derived by a resident of the United States; 3) Whether Article IV(7)(b) of the Treaty applies to treat certain royalty payments as not being paid to or derived by a resident of the United States

Position: 1) Yes; 2) No; 3) No

Reasons: 1) The definition "dividends" in Article X(3) of the Treaty is broad enough to include a subsection 84(1) deemed dividend; 2) Article IV(7)(b) does not apply because the deemed dividend is subject to the same treatment under the taxation laws of the United States as it would be if the dividend payer were not fiscally transparent; 3) Article IV(7)(b) does not apply because the royalties are subject to the same treatment under the taxation laws of the United States as they would be if the royalty payer were not fiscally transparent.

Ministerial Correspondence

19 February 2010 Ministerial Correspondence 2010-0354251M4 F - Administration du régime fiscal

Principales Questions: Le correspondant exprime certaines préoccupations à l'égard de l'administration du régime fiscal, notamment en ce qui a trait aux biens transférés à l'extérieur du Canada au début des années 1990.

Position Adoptée: Commentaires généraux fournis. La Loi de l'impôt sur le revenu prévoit, dans certains cas, une disposition réputée des biens qui appartiennent à un contribuable qui quitte le pays. Il en va de même pour un contribuable qui attribue certains biens à un non-résident.

19 February 2010 Ministerial Correspondence 2009-0352571M4 - taxation of bonus

Unedited CRA Tags
5

Principal Issues: Is a bonus taxable?

Position: Yes

Reasons: A bonus is employment income and taxable under section 5 of the Act.

18 February 2010 Ministerial Correspondence 2009-0327391M4 - HRTC - Eligible Dwelling

Unedited CRA Tags
Subsection 118.04(1)

Principal Issues: Do renovations to an office building owned by a not-for-profit organization qualify for the HRTC?

Position: No.

Reasons: Pursuant to subsection 118.04(1) of the ITA, an office building is not an eligible dwelling.

18 February 2010 Ministerial Correspondence 2009-0351821M4 - HRTC-General Information

Unedited CRA Tags
118.04 ITA

Principal Issues: Client is requesting information of the HRTC grant for home improvements.

Position: The HRTC is a non-refundable income tax credit reducing an individual's federal tax payable. If, however, the total non refundable tax credits, including the HRTC, is more that the individual's federal income tax payable, he or she will not receive a refund for the difference.

Reasons: Legislation

9 February 2010 Ministerial Correspondence 2009-0348271M4 - Eligible expenditures- home renovation tax credit

Unedited CRA Tags
118.04

Principal Issues: Does the hiring of a painter to paint an existing fence qualify as an eligible expenditure for the HRTC?

Position: Depends

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 hiring of a painter paint an existing fence is enduring in nature and integral to the eligible dwelling provided the fence is on land forming part of the eligible dwelling and qualifies for the HRTC. The renovation appears not to be in the nature of a repair that would be undertaken annually.

9 February 2010 Ministerial Correspondence 2009-0348711M4 - HRTC - Eligible expenditures

Unedited CRA Tags
s.118.04

Principal Issues: Does the HRTC legislation provide any exemptions or exceptions for renovation expenditures made prior to the eligible period?

Position: No.

Reasons: The legislation does not provide any exemptions or expenditures for expenditures made, incurred, or contracted for before January 28, 2009.

9 February 2010 Ministerial Correspondence 2009-0330521M4 - HRTC - Eligible dwelling

Unedited CRA Tags
Subsection 118.04(1) of the ITA

Principal Issues: Will renovations to a church qualify for the HRTC?

Position: No.

Reasons: A church does not qualify as an eligible dwelling for purposes of the HRTC because it is not owned by an individual and is not ordinarily inhabited by the individual.

9 February 2010 Ministerial Correspondence 2009-0335701M4 - HRTC- Water Well

Unedited CRA Tags
118.04

Principal Issues: Does the installation of a water well for a rental property qualify for the HRTC?

Position: No. Although the installation of a water well is of an enduring nature and integral to the dwelling, a rental property is not considered an eligible dwelling.

Reasons: 118.04- Qualifying Expenditure

9 February 2010 Ministerial Correspondence 2010-0353831M4 - HRTC - Eligible Expenditures

Unedited CRA Tags
s.118.04

Principal Issues: (1) Renovation work is projected to be completed after January 31, 2010. Will all of the work completed by January 31, 2010 qualify for the HRTC? (2) Will fees for engineering and construction management qualify for the HRTC? (3) Are expenses generally associated with a construction site eligible for the HRTC?

Position: (1) Yes, qualifying expenditures will be limited to the cost of goods acquired and services received during the eligible period. (2) They will qualify if they are directly attributable to a qualifying renovation by the strata corporation. (3) They will qualify if they are made or incurred by the strata corporation during the eligible period, directly attributable to a qualifying renovation by the strata corporation during, and have not otherwise been included in any other expenses claimed for the HRTC.

Reasons: Subsection 118.04(1) - definitions of qualifying expenditure, and eligible period; Paragraph 118.04(2)(a) - rules of application

9 February 2010 Ministerial Correspondence 2009-0347521M4 - HRTC - Reduction in federal income tax payable

Unedited CRA Tags
s.118.04

Principal Issues: Is the HRTC applicable if an individual is already in a federal income tax credit position?

Position: Yes, however, if the individual's non-refundable credits, including the HRTC, total more than your federal income tax, the Canada Revenue Agency will not refund the excess.

Reasons: The HRTC is a 15% non-refundable income tax credit.

26 January 2010 Ministerial Correspondence 2010-0354221M4 F - CIRD-date de l'entente

Unedited CRA Tags
118.04

Principales Questions: Est-ce que des dépenses engagées pour des services reçus ou des biens acquis aux termes d'un accord conclu en janvier 2010 seront admissibles au CIRD?

Position Adoptée: Question de fait. Dépend notamment de la date où le bien a été acquis ou de la date où le service a été reçu.

Raisons: Analyse législative.

26 November 2009 Ministerial Correspondence 2009-0341401M4 - HRTC - Eligible expenditures

Unedited CRA Tags
Proposed s.118.04 (Bill C-51)

Principal Issues: Does the method or timing of payment determine if an expenditure is eligible for the HRTC?

Position: No. Individuals are free to choose the payment option, provided by the supplier, that best suits them. However, any financing costs associated with the qualifying renovation (for example, instalment interest costs) will not be eligible for the HRTC.

Reasons: Expenditures made or incurred after January 27, 2009, and before February 1, 2010, which are directly attributable to an individual's qualifying renovation and that are made or incurred for the cost of goods acquired or work performed during this same period will qualify for the HRTC.

24 November 2009 Ministerial Correspondence 2009-0348201M4 - Fitness Tax Credit - Personal Trainer

Unedited CRA Tags
118.03

Principal Issues: Whether the cost of a personal trainer qualifies for the chid fitness tax credit?

Position: Question of fact but it could be.

Reasons: If a contract was entered with a personal trainer for sessions that occur weekly for a minimum of eight weeks, or for five or more consecutive days and the "physical activity" definition criteria are met, the cost of a personal trainer could qualify.

November 24, 2009

Technical Interpretation - External

18 February 2010 External T.I. 2009-0318891E5 - Northern Residents Deduction

Unedited CRA Tags
110.7(1)

Principal Issues: Whether spouses (i.e., whether legally married or common law) who are both employed in a prescribed zone and in receipt of taxable benefits for travel from an arm's length employer can each claim two trips for each family member under paragraph 110.7(1)(a) of the Act as long as the same trip is not claimed more than once?

Position: Yes. While only two trips per taxpayer per family member are allowed under subsection 110.7(3) of the Act, it is the CRA's policy to apply the two-trip limit on a taxpayer by taxpayer basis.

Reasons: The law and CRA's policy.

17 February 2010 External T.I. 2009-0351581E5 - PHSP

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

Principal Issues: Tax consequences where non-qualifying medical services covered under a health and wellness plan.

Position: General comments provided.

Reasons: IT-339 & definition of PHSP under subsection 248(1)

17 February 2010 External T.I. 2009-0321921E5 - Transfer of Investment from one RRSP to another

Unedited CRA Tags
146(16), 4900(6)(a)

Principal Issues: Can investment in CCPC be transferred from one RRSP to another?

Position: Provided that the transfer meets the conditions in paragraph 146(16)(a), it could be transferred. However, if the investment is not a qualified investment under paragraph 4900(6)(a) or 4900(12(a) of the Regulations, subsection 146(10) would apply.

Reasons: The transfer of investment would be an acquisition of investment by second trust governed by an RRSP.

16 February 2010 External T.I. 2010-0354801E5 F - CIRD - construction d'un logement

Unedited CRA Tags
118.04
Summary Under
Tax Topics - Income Tax Act - Section 118.04 - Subsection 118.04(1) - Qualifying Renovation
credit dependent on timing of renovation expenditures and when moved into home
Summary Under
Tax Topics - General Concepts - Ownership
individual is considered to become owner of home in construction when it becomes habitable

Principales Questions: Est-ce qu'un particulier qui construit une résidence sur un terrain dont il est le propriétaire du 1er juillet au 30 novembre 2009 pour un montant de 100 000 $ sera admissible au CIRD s'il commence à l'habiter le 30 novembre 2009 et y effectue des dépenses supplémentaires de 20 000 $ après y avoir aménagé?
Est-ce qu'un particulier qui construit une résidence sur un terrain dont il est le propriétaire du 1er juillet au 30 novembre 2009 pour un montant pour un montant de 100 000 $ sera admissible au CIRD s'il commence à l'habiter le 30 novembre 2009 et n'y effectue aucune dépense supplémentaire après y avoir aménagé?
Est-ce qu'un particulier qui construit une résidence sur un terrain dont il est le propriétaire du 1er juillet au 30 novembre 2009 pour un montant pour un montant de 100 000 $ sera admissible au CIRD s'il ne commence à l'habiter que le 10 février 2010?

Position Adoptée: Question de fait. Le particulier doit notamment avoir un logement admissible et doit avoir effectué des dépenses directement attribuables à des travaux de rénovation admissibles :
Oui, si les dépenses effectuées après le 30 novembre 2009 jusqu'à 31 janvier 2010 sont directement attribuables à des travaux de rénovation admissibles.
Non, puisqu'aucune dépense directement attribuable à des travaux de rénovation admissibles n'a été effectuée après le 30 novembre 2009.
Non, le logement n'est pas un logement admissible.

Raisons: Analyse législative.
Analyse législative.
Analyse législative.

16 February 2010 External T.I. 2009-0322751E5 F - Traitement fiscal des indemnités reçues

Unedited CRA Tags
12(1)c)
Summary Under
Tax Topics - Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(c)
prejudgment interest included in class action award was tax free

Principales Questions: Le montant de l'indemnité adjugée par la Cour supérieure du Québec, incluant l'intérêt au taux légal et l'indemnité additionnelle prévue au Code civil du Québec, doit-il être inclus dans le revenu de ceux qui la reçoivent?

Position Adoptée: Seuls les montants constitués de l'intérêt et de l'indemnité additionnelle adjugés depuis la date des jugements devront être inclus dans le revenu des demandeurs.

Raisons: Le traitement fiscal de l'indemnité est déterminé selon le traitement fiscal du montant que l'indemnité vise à remplacer. L'intérêt au taux légal et l'indemnité additionnelle seront inclus dans le revenu des demandeurs si ces montants représentent de l'intérêt au sens de l'alinéa 12(1)c) de la Loi de l'impôt sur le revenu.

15 February 2010 External T.I. 2009-0345121E5 - Surface lease bonus paymts in oil and gas industry

Unedited CRA Tags
66.1(6), 66.2(5), 14(5)

Principal Issues: The income tax treatment of surface lease bonus payments.

Position: The annual surface lease payments would be deductible. The bonus payments would generally be considered an eligible capital expenditure. Where the payments are incurred prior to any relevant production, the payments may be considered CEE or CDE, depending on the status of the relevant resource property, and to the extent that the payments are not in respect of the cost or part of the cost of depreciable property of a prescribed class .

Reasons: Prior positions.

Bob Naufal
XXXXXXXXXX (613) 957-2097
2009-034512
February 15, 2010

12 February 2010 External T.I. 2010-0355661E5 - Article IV(6) of the Canada-US Tax Convention

Unedited CRA Tags
Canada-US Tax Convention Article IV(6); Fifth Protocol Article 27(2)(b)

Principal Issues: Where a US resident corporation derives business income through a US Limited Liability Company (USLLC), which entity's taxable year is relevant when considering the coming into force provision in subparagraph 2(b) of Article 27 of the Fifth Protocol?

Position: The USLLC's taxation year.

Reasons: The USLLC is the relevant taxpayer for Canadian tax purposes.

12 February 2010 External T.I. 2009-0340831E5 - GRIP

Unedited CRA Tags
89(7)

Principal Issues: Can a dividend from a connected public corporation be added to a CCPC's GRIP under subsection 89(7)

Position: Yes

Reasons: Wording of the Act

2009-034083
XXXXXXXXXX Henry Chong
(613) 957-2053
February 12, 2010

18 January 2010 External T.I. 2009-0348631E5 - Indian Employment Income - Death Benefits

Unedited CRA Tags
81(1)(a)

Principal Issues: 1. Are death benefits paid to the estate of an Indian exempt from tax? 2. Are death benefits paid to an Indian beneficiary from the estate exempt from tax?

Position: 1. No, but may be eligible for a deduction. 2. Maybe.

Reasons: 1. Included in the estate's income under 56(1)(a)(iii) and deducted under 104(6)(b). 2. If the death benefits arise in respect of an Indian's tax-exempt employment income and are paid to a beneficiary who is also an Indian, then the income will be exempt.

Lori Merrigan
XXXXXXXXXX (613) 957-8979
2009-034863
January 18, 2010

18 March 2008 External T.I. 2008-0265861E5 F - Programme d'aide financière d'urgence ("PAFU")

Unedited CRA Tags
56(1)(u) 110(1)(f) 233 Reg
Summary Under
Tax Topics - Income Tax Act - Section 56 - Subsection 56(1) - Paragraph 56(1)(u)
s. 56(1)(u) applied to emergency assistance not based on an income test
Summary Under
Tax Topics - Statutory Interpretation - French and English Version
English version of s. 56(1)(u), as the broader of the two, was to be preferred
Summary Under
Tax Topics - Income Tax Act - Section 153 - Subsection 153(1)
no source deductions from social assistance payments

Principales Questions: 1. Quel est le traitement fiscal des sommes qui seront versées dans le cadre du PAFU du Ministère de l'Emploi et de la Solidarité sociale (ci-après le "MESS") ?
2. Est-ce que l'aide financière doit faire l'objet de retenues à la source?
3. Est-ce que le MESS doit délivrer des feuillets de renseignements à l'égard des sommes versées dans le cadre du PAFU?

Position Adoptée: 1. L'aide financière versée dans le cadre du PAFU est une prestation d'assistance sociale à inclure dans le revenu net des bénéficiaires. Néanmoins, ces bénéficiaires auront droit à la déduction compensatoire prévue à l'alinéa 110(1)f) de la Loi de l'impôt sur le revenu (la "Loi") dans le calcul de leur revenu imposable.
2. Non. Une déduction à la source n'est pas nécessaire.
3. Oui, sauf exceptions. Les montants inférieurs à 500$ ainsi que ceux ne faisant pas partie d'une série de versements n'ont pas à être inclus au formulaire T5007.

Raisons: 1. Après examen du PAFU et de ses conditions spécifiques d'admissibilité, l'aide financière sera versée suite à un examen des ressources, des besoins ou du revenu des bénéficiaires en vertu de l'alinéa 56(1)u) de la Loi. La version anglaise de l'alinéa 56(1)u) de la Loi utilise l'expression "ressources, besoins ou revenu", alors que la version française utilise le terme "et" entre les mots besoins et revenu. Lorsque les deux versions de la Loi n'utilisent pas exactement les même termes, il faut opter, dans le présent cas, pour le sens le plus large, qui est davantage compatible avec l'intention du législateur et l'objet de la Loi. La rédaction constante de l'expression " ressources, besoins ou revenu" de la version anglaise de l'alinéa 56(1)u), la même depuis l'introduction de l'alinéa dans la Loi, doit être utilisée. D'ailleurs, la version française du Guide T5007- Déclarations des prestations utilise à quelques reprises l'expression "les ressources, les besoins ou le revenu" des bénéficiaires. De plus, la version française de l'alinéa 110(1)f) de la Loi utilise aussi le terme "ou" entre les termes besoins et revenu, en faisant référence à l'application de l'alinéa 56(1)u).
2. L'article 153 ne s'applique pas.
3. Selon le paragraphe 233(1) du Règlement de l'impôt sur le revenu (le "Règlement"), toute personne qui verse une prestation visée à l'alinéa 56(1)u) de la Loi doit remplir un formulaire prescrit. Les exceptions à l'obligation de produire un feuillet de renseignement, qui se retrouvent au paragraphe 233(2) du Règlement, visent un montant fait dans le cadre d'une série de versements dont le total n'excède pas 500 $ ou un montant ne faisant pas partie d'une série de versements.

Technical Interpretation - Internal

2 February 2010 Internal T.I. 2009-0345741I7 F - Programme d'aide financière d'urgence ("PAFU")

Unedited CRA Tags
56(1)u); 233 RIR
Summary Under
Tax Topics - Income Tax Act - Section 56 - Subsection 56(1) - Paragraph 56(1)(u)
social assistance paid without a means, needs or income test was not income to recipient
Summary Under
Tax Topics - Income Tax Regulations - Regulation 233 - Subsection 233(2) - Paragraph 233(2)(g)
lump sum emergency assistance under Quebec program would not be required to be included in income because no information slip required

Principales Questions: (1) L'aide financière versée sous forme d'un montant forfaitaire dans le cadre du PAFU est-elle visée par l'alinéa 56(1)u)? (2) Le MESS doit-il émettre des feuillets de renseignement aux personnes qui bénéficieront de l'aide financière?

Position Adoptée: (1) Oui, lorsqu'elles sont versées suite à un examen des ressources, des besoins ou du revenu. (2) Non.

Raisons: (1) À la lumière des informations à notre disposition, l'aide financière versé sous forme d'un montant forfaitaire le sera généralement après examen des besoins, ce qui est suffisant pour rencontrer le critère de "payée après examen des ressources, des besoins ou du revenu". À cet égard, la version anglaise de la Loi devrait être retenue.
(2) Selon l'alinéa 233(2)g) du Règlement, il n'est pas nécessaire de produire un feuillet T5007 à l'égard de l'aide financière versée sous forme d'un montant forfaitaire, puisque c'est un versement unique ne faisant pas partie d'un série de versements.

29 January 2010 Internal T.I. 2009-0339541I7 F - Inclusion au revenu et provision

Unedited CRA Tags
9(1); 12(1)a); 18(1)a); 18(1)e); 20(1)m)
Summary Under
Tax Topics - Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(a)
advance fees for futures goods-handling services included in income under s. 12(1)(a) rather than s. 9
Summary Under
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(m)
reserve available for future goods handling services to be performed
Summary Under
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Incurring of Expense
no deduction from prepaid fees of estimated cost of performance

Principales Questions: La vérificatrice nous soumet une situation où peut être équivoque l'utilisation du paragraphe 9(1) et de l'alinéa 12(1)a) afin d'imposer les revenus de la société. De plus, cette dernière déduit des frais qui n'ont pas encore été encourus.

Position Adoptée: Compte tenu des informations soumises par la vérificatrice, nous croyons que l'alinéa 12(1)a) trouve application. Ainsi, une provision d'un montant raisonnable aux termes de l'alinéa 20(1)m) peut être réclamée. Quant aux dépenses déduites avant même d'être encourues, elles ne sont pas admissibles.

Raisons: Application de la Loi.

21 January 2010 Internal T.I. 2009-0345541I7 - Settlement of Future Benefits

Unedited CRA Tags
6(1)(a), 6(1)(f), 8(1)(b), 56(1)(a)(ii) and 60(0.1)

Principal Issues: What is the correct amount of income to report?

Position: Question of fact.

Reasons: Depends on whether the particular plan is an insured group plan described in subparagraph 6(1)(a)(i) and paragraph 6(1)(f).

4 January 2010 Internal T.I. 2008-0296671I7 - First Nations as Public Bodies under the FSMA

Unedited CRA Tags
149(1)(c)

Principal Issues: Will a First Nation (FN) that does not have a section 81 by-law under the Indian Act, but has a law under subsection 5(1) of the FSMA, qualify as a public body performing a function of government for the purposes of 149(1)(c) of the Income Tax Act?

Position: Not definitive. Unless the FN also has section 81 by-laws under the Indian Act, activities of the FN will have to be reviewed.

Reasons: There may be circumstances where a paragraph 5(1)(a) law has been enacted but the activities of the FN are not sufficient to qualify the FN as a public body performing a function of government under paragraph 149(1)(c) of the Act.