Income Tax Severed Letters - 2010-03-05

Ruling

2010 Ruling 2009-0348181R3 - Canada-US Tax Convention ("Treaty")

Unedited CRA Tags
Article XXIX A(3) of the Treaty

Principal Issues: Whether interest paid by a Canadian corporation to a United States resident corporation qualifies for treaty benefits under Article XXIX A(3) of the Treaty

Position: Yes

Reasons: The interest income will be derived by a resident of the United States in connection with an active trade or business carried on in the United States that is substantial in relation to the activity in Canada that gives rise to the income

XXXXXXXXXX 2009-034818

Ministerial Correspondence

26 February 2010 Ministerial Correspondence 2010-0354981M4 - HRTC-Pellet Insert

Unedited CRA Tags
118.04 ITA

Principal Issues: Would a pellet insert for a fireplace qualify as an eligible expenditure for the HRTC.

Position: Generally, yes. A pellet insert requires an electrical connection [hard wiring] with most inserts requiring a conventional flue. A pellet insert for a fireplace that is hard wired directly to the electrical panel and utilizes a conventional flue would be enduring in nature and integral to an eligible dwelling and will qualify as eligible expenditures for the HRTC.

Reasons: Legislation

23 February 2010 Ministerial Correspondence 2009-0344081M4 - Eligible expenditures- home renovation tax credit

Unedited CRA Tags
118.04 ITA

Principal Issues: Taxpayer wanted to know whether specific expenditures would qualify for the HRTC.

Position: Depends, expenditures before January 28, 2009 are not eligible. Expenditures must be enduring in nature and integral to the eligible dwelling. Expenditures that are part of routine repairs and maintenance, normally performed on an annual or more frequent basis, would not qualify for the HRTC.

Reasons: Legislation

23 February 2010 Ministerial Correspondence 2009-0350751M4 - HRTC - Eligible expenditures

Unedited CRA Tags
s.118.04

Principal Issues: Are goods purchased in the United States of America eligible for the HRTC?

Position: Yes, if all other conditions are met, the cost of the goods acquired would be eligible if they are directly attributable to a renovation or an alteration of an eligible dwelling located in Canada.

Reasons: Legislation - definitions of: eligible dwelling, qualifying expenditure, and qualifying renovation.

19 February 2010 Ministerial Correspondence 2009-0351831M4 - HRTC - Qualifying expenditures

Unedited CRA Tags
Section 118.04 of the ITA; January 27, 2009 Federal Budget - Annex 5

Principal Issues: Asked for a list of expenditures that will qualify for the home renovation tax credit (HRTC).

Position: Provided general information pertaining to the HRTC and examples of eligible expenditures

Reasons: Generally, the eligible expenditures include expenses for building materials, fixtures, equipment rentals, building plans and permits.

Technical Interpretation - External

26 February 2010 External T.I. 2009-0352761E5 - Residency of Qualified Subchapter S Subsidiary

Unedited CRA Tags
Article IV (1) of the Canada-U.S. Income Tax Convention (1980);

Principal Issues: Whether the CRA will treat a Qualified Subchapter S Subsidiary as a resident of the United States for the purposes of the Canada-U.S. Income Tax Convention

Position: Yes

Reasons: Consistent with the position adopted in 9816355 and 2005-0144621E5

25 February 2010 External T.I. 2008-0302321E5 - Article XXI(2) Canada-Israel Treaty

Unedited CRA Tags
Par (2) of Article XXI of Canada-Israel Treaty

Principal Issues: Whether an Israeli resident individual which benefits from a tax holiday in Israel is entitled to the benefit of paragraph 2 of Article XXI of the Canada-Israel Treaty (i.e. reduced withholding rate of 15%) on income arising in Canada from an estate or trust?

Position: No

Reasons: See below

25 February 2010 External T.I. 2009-0341621E5 - Principal Residence: Trailer on Land > .5 Hectare

Unedited CRA Tags
40(2)(b), 54

Principal Issues: 1) Whether or not a trailer and land in excess 1/2 hectare would qualify as a principal residence, and 2) whether or not upgrading the trailer periodically would affect the taxpayer's ability to claim the principal residence exemption.

Position: 1) It is a question of fact. However, Windrim case shows it would be difficult to establish that the excess land was necessary for the trailer to properly fulfill its function as a residence. Objective factors and subjective factors must be considered.
2) Even if the trailer is upgraded periodically (taxpayer states 2 or 3 times over 10 years), CRA would generally allow for the taxpayer to claim the principal residence exemption provided that the housing unit is not treated as inventory.

Reasons: Various court findings, incl. Windrim v. The Queen (91 DTC 5221) and Carlile v. The Queen (95 DTC 5483)

24 February 2010 External T.I. 2009-0323701E5 - RRSP, RRIF, Pension Credit, and GAAR

Unedited CRA Tags
ITA 245, 118(3), 146(16), 248(1), 118(7), 146(1)

Principal Issues: An individual converts an RRSP to a RRIF, claims a pension credit on a withdrawal from the RRIF and then re-contributes to an RRSP in the same tax year. Is GAAR applicable?

Position: Provided general comments.

Reasons: Whether GAAR applies can only be determined in context of an advance income tax ruling request.

XXXXXXXXXX 2009-032370

24 February 2010 External T.I. 2009-0348011E5 - Moving expenses

Unedited CRA Tags
62(1)

Principal Issues: Whether moving expenses can be carried forward and deducted in years subsequent to the year of the move.

Position: Yes.

Reasons: Effective 1998, moving expenses can be carried forward to future years and deducted against income at the new location subject to the limitations in subsection 62(1).

24 February 2010 External T.I. 2009-0341571E5 - Moving expenses

Unedited CRA Tags
62(1)

Principal Issues: Whether moving expenses can be carried forward and deducted in years subsequent to the year of the move.

Position: Yes.

Reasons: Effective 1998, moving expenses can be carried forward to future years and deducted against income at the new location subject to the limitations in subsection 62(1).

24 February 2010 External T.I. 2009-0343541E5 - Health and Welfare Trusts

Unedited CRA Tags
6(1)(a)

Principal Issues: Can a health and welfare trust distribute funds to an employee's RRSP?

Position: No.

Reasons: Only certain health benefits can be provided through an employer's health and welfare trust.

24 February 2010 External T.I. 2010-0353971E5 - Moving expenses - less than 40 km

Principal Issues: Are moving expenses deductible if the new residence is less than 40 km closer to the new work location than the old residence?

Position: No.

Reasons: Based on the definition of "eligible relocation" in subsection 248(1), the new residence must be at least 40 km closer to the new work location than the old residence.

23 February 2010 External T.I. 2009-0346331E5 - Association dues

Unedited CRA Tags
8(1)(i)

Principal Issues: Whether dues paid to an association of non-unionized employees of the XXXXXXXXXX are deductible.

Position: No

Reasons: The association documents do not indicate that the primary purpose of the association is to improve conditions of employment.

2009-034633
XXXXXXXXXX Rita Ferguson
519-645-5261
February 23, 2010

18 February 2010 External T.I. 2009-0348491E5 - Capital expenditure

Principal Issues: Whether costs of renovation of rental property are capital expenditures or current expenses

Position: General comments

Reasons: Question of fact

10 February 2010 External T.I. 2009-0347571E5 - 149(1)(l) Entity - Gain on Real Property

Unedited CRA Tags
149(1)(l); 149(5); 150(1)(a)

Principal Issues: 1. Whether a gain on the disposition of real property by a paragraph 149(1)(l) entity is a taxable capital gain. 2. What the reporting requirements are with respect to the disposition.

Position: 1. Likely no. 2. A T2, Corporation Income Tax Return.

Reasons: 1. A validly organized and operated paragraph 149(1)(l) entity is generally not taxable on a capital gain. 2. Corporations resident in Canada must file a T2 for every taxation year.

25 January 2010 External T.I. 2008-0298941E5 - foreign embassy to withhold source deductions

Unedited CRA Tags
Section 153; regulation 100

Principal Issues: Whether a foreign embassy is required to withhold and remit payroll deductions for locally engaged Canadian resident employees performing employment services for the foreign embassy in Canada.

Position: Yes.

Reasons: There are no provisions in the Vienna Convention on Diplomatic Relations that exempt a foreign embassy from Canadian domestic payroll withholding and remitting obligations in respect of employment income earned by its Canadian resident employees. Our position is supported by paragraph 2 of Article 23 and paragraph 3 of Article 33 of such Vienna Convention.

19 January 2010 External T.I. 2009-0344681E5 F - Récompenses visées par règlement

Unedited CRA Tags
5(1); 6(1)a); 9(1); 56(1)n); article 7700 du Règlement
Summary Under
Tax Topics - Income Tax Regulations - Regulation 7700
literary prizes were sufficiently recognized by the general public to be prescribed

Principales Questions: Les prix décernés par le CEAD Diffusion sont-ils des récompenses visées à l'article 7700 du Règlement de l'impôt sur le revenu et, de ce fait même, exclu du calcul du revenu de ceux qui les reçoivent?

Position Adoptée: Oui, sauf pour le volet Prime à la création du prix Gratien-Gélinas qui, selon toute vraisemblance, représente un revenu d'entreprise pour la compagnie théâtrale qui le reçoit.

Raisons: À l'exception du volet Prime à la création du prix Gratien-Gélinas, les prix sont reconnus par le public et sont décernés pour des oeuvres méritoires réalisées dans le domaine des arts et ne sont pas considérés comme reçus en échange de services rendus ou à rendre.

XXXXXXXXXX 2009-034468

Conference

8 December 2009 Roundtable, 2009-0347711C6 - Subsection 116(5.02) Notice & Estimates

Unedited CRA Tags
116(5.01), 116(5.02)

Principal Issues: Can a purchaser file a Notice under subsection 116(5.02) when the purchase price is estimated as of the date of the acquisition?

Position: Yes. The purchaser should report the estimated purchase price on Form T2062C, and note that it is an estimate. If the final amount is different, the purchaser should file an amended T2062C with a copy of the original Notice.

8 December 2009 TEI Roundtable Q. 4, 2009-0347701C6 - Qualifying person & multiple shares

Unedited CRA Tags
Subparagraph 2(c) of Article XXIX-A of the Canada-U.S. Tax Convention
Summary Under
Tax Topics - Treaties - Income Tax Conventions - Article 29A

Principal Issues: Whether corporations that have multiple classes of voting shares are "qualifying persons" under subparagraph 2(c) of Article XXIX-A of the Canada-U.S. Tax Convention where one or more of the classes of shares is thinly traded, or does not trade.

Position: Possibly not.

Reasons: Each class of shares must be considered separately for purposes of satisfying the "regularly traded" test.

Technical Interpretation - Internal

23 February 2010 Internal T.I. 2010-0356121I7 F - Avantage imposable - appareils auditifs

Unedited CRA Tags
6(1)a)
Summary Under
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a)
hearing aid reimbursement was taxable given that employee owned the devices and primarily benefited

Principales Questions: Est-ce que le remboursement par un employeur, des coûts encourus par un employé pour se procurer des appareils auditifs, constitue un avantage imposable à inclure dans le revenu de l'employé?

Position Adoptée: Question de fait. En l'espèce, oui.

Raisons: Application de la Loi.

18 February 2010 Internal T.I. 2009-0325831I7 - SR&ED proxy method - overhead outside Canada

Unedited CRA Tags
37(1.4), (1.5)

Principal Issues: Whether the amount deemed by subsection 37(1.4) of the Income Tax Act should be taken into consideration in calculating the prescribed proxy amount under subsection 2900(4) of the Income Tax Regulations.

Position: Yes.

Reasons: Application of subsection 37(1.4) of the Income Tax Act and subsection 2900(4) of the Income Tax Regulations.

3 February 2010 Internal T.I. 2009-0343591I7 - Home renovation tax credit

Unedited CRA Tags
118.04

Principal Issues: 1. Do expenditures for the cost of the rebuilding of a new cottage after the old cottage has been demolished qualify as eligible expenditures for the home renovation tax credit (HRTC)?
2. Do expenditures for the cost of renovations to a house that is on an Indian reserve qualify as eligible expenditures for the HRTC?

Position: 1. No. 2 . Eligible expenditures for the house qualify, but not expenditures for the land that is not owned.

Reasons: 1.In this fact situation there is no housing unit that is owned by the individual and ordinarily inhabited by the individual, his or her current or former spouse or current or former common-law partner, or his or her children at any time after January 27, 2009, and before February 1, 2010, therefore, there is no eligible dwelling for a qualifying renovation to take place. 2. Land whether on an Indian reserve or elsewhere, that is not owned by the individual is not part of the eligible dwelling. This fact alone does not disqualify a housing unit from qualifying as an eligible dwelling.

29 January 2010 Internal T.I. 2009-0337341I7 - Arrears Interest on Adjustments to Tax Payable

Unedited CRA Tags
s. 161(7)(b)

Principal Issues: 1. Whether document E2009-031387 replaces E2008-027550.
2. What is the appropriate effective interest date for losses carried back to offset taxable income.

Position: 1. No.
2. It depends on the facts.

Reasons: 1. It could be subparagraph 161(7)(b)(i), (ii), (iii), or (iv), depending on the facts.
2. Should be subparagraph 161(7) (b)(iv)