Income Tax Severed Letters - 2010-04-30


2010 Ruling 2010-0353141R3 - Related Foreign Entity Financing

Unedited CRA Tags
17(1), 17(2), 15(1), 15(2), 15(2.2), 15(9), 214(3)(a), 80.4(2), 212(2), 91(1), 245

Principal Issues: Whether a loan from a controlled foreign affiliate to a related non-resident entity will trigger the application of subsection 15(2) and Part XIII?

Position: No.

Reasons: Because of the application of subsection 15(2.2) GAAR will not apply because the interest on the loan is FAPI to the controlled foreign affiliate.

2010 Ruling 2009-0343201R3 - Trust Conversion to Corporation

Unedited CRA Tags

Principal Issues: Is the Trust conversion to corporate form acceptable?

Position: YES

2010 Ruling 2010-0357181R3 - Supp. ruling - pro corp contracting with Ptnshp

Unedited CRA Tags

Principal Issues: The representative has asked for a minor change to a ruling given with respect to the active business income of a professional corporation pursuant to a contract to provide professional services to a partnership of which the principal shareholder is a member. The change is to amend the allocation formula for both Electing and Non-Electing Partners so that the formula also takes into account the particular partners' capital contributions.

Position: The change was accepted.

Reasons: Similar to other rulings.

2009 Ruling 2007-0251451R3 - Bituminous Sands Project

Unedited CRA Tags

Principal Issues: (1) Whether bituminous sands projects described herein constitute one project and thus one mine. (2) Whether depreciable property to be used in the project is property described in Class 41.

Position: (1) Yes; (2) Yes

Reasons: We received an opinion from Natural Resources Canada that concluded that the projects described herein will each be one project. Based on this opinion, we are ruling that each project will be deemed to be one mine.

Ministerial Correspondence

13 April 2010 Ministerial Correspondence 2010-0362981M4 - medical expenses - cosmetic procedures

Unedited CRA Tags

Principal Issues: The client is requesting clarification on whether certain types of cosmetic procedures would be considered to be eligible medical expenses for purposes of the medical expense tax credit.

Position: Corrective laser eye surgery and dental crowns qualify as medical expenses.

Reasons: wording of proposed law (2010 Budget proposals).

1 April 2010 Ministerial Correspondence 2010-0359911M4 - HRTC-eligible expenditures for rebate

Unedited CRA Tags

Principal Issues: Client is asking whether redoing a driveway and the removal of a tree would qualify for the HRTC.

Position: The resurfacing of a driveway would qualify for the HRTC. The removal of a tree on its own does not qualify for the HRTC.

Reasons: Legislation

30 March 2010 Ministerial Correspondence 2010-0354571M4 - HRTC - Cottage on Leased Land

Unedited CRA Tags

Principal Issues: Will a cottage, which is situated on leased land, qualify as an eligible dwelling if it is not an individual's primary residence?

Position: The cottage will qualify as an eligible dwelling, if the cottage 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. However, the leased land on which the individual's cottage is situated does not form part of the individual's eligible dwelling.

Reasons: s.118.04(1) - definition of eligible dwelling

11 March 2010 Ministerial Correspondence 2010-0356731M4 - HRTC - Eligible Period

Unedited CRA Tags

Principal Issues: Will the eligible period for the HRTC be extended?

Position: No. The Minister of Finance has publicly commented that the Government has no plans to extend the HRTC.

Reasons: The HRTC provides individuals with a temporary 15% non-refundable income tax credit on eligible home renovation expenditures for services received or goods acquired after January 27, 2009, and before February 1, 2010. However, expenditures for services received or goods acquired under agreements entered into before January 28, 2009, do not qualify for the HRTC.

Technical Interpretation - External

28 April 2010 External T.I. 2010-0362101E5 F - Déductibilité des intérêts

Unedited CRA Tags
under current use test, deductible interest increased to 100% when unit in triplex converted to rental use

Principales Questions: Un emprunt hypothécaire est utilisé en partie pour financer un immeuble locatif, en partie pour financer l'achat d'une résidence principale et en partie pour des fins personnelles. Quelle est la portion des intérêts qui est déductible?

Position Adoptée: 1) Les intérêts sur la portion de l'emprunt qui est utilisée pour gagner un revenu de l'immeuble locatif.

Raisons: 1) Alinéa 20(1)c): l'emprunt doit être utilisé pour gagner un revenu.

26 April 2010 External T.I. 2010-0363521E5 - Northern residents deduction

Unedited CRA Tags
110.7, 248(1)

Principal Issues: Whether an employee who works and lives in a prescribed northern zone in employer provided accommodation for a schedule of fourteen days on and fourteen days off and maintains a principal residence outside any prescribed northern zone, would be considered to have resided in a prescribed northern zone for a period of more than six consecutive months for purposes of the northern residents deduction.

Position: While a question of fact, it appears that in this case the temporary period of residence in the prescribed northern zone is interrupted and as such the particular individual would not qualify for the deduction.

Reasons: The law.

20 April 2010 External T.I. 2010-0355071E5 F - Ligne directrice 4

Unedited CRA Tags
Indian organization did not qualify under Guideline 4 where 20% of clientele lived off reserve
central management and control of Indian organization is at the main office if control is legitimately exercised at meetings conducted there

Principales Questions: Est-ce que la Ligne directrice 4 s'appliquera aux employés de XXXXXXXXXX serait situé à l'extérieur d'une réserve et 80% de la clientèle serait des d'Indiens vivant dans une réserve.

Position Adoptée: Commentaires généraux. Probablement que les critères de la ligne directrice 4 ne seraient pas satisfaits.

Raisons: La clientèle visée ne serait pas composée exclusivement d'Indiens vivant pour la plupart dans une réserve.

20 April 2010 External T.I. 2010-0354681E5 - Part XI.1 Tax on RRSP Non-Qualified Investments

Unedited CRA Tags
207.1(1), 146(10)

Principal Issues: Does Part XI.1 Tax apply to a non-qualified investment if the property was a qualified investment at the time of its acquisition?

Position: Yes

Reasons: As per legislation and as explained in IT-320R3.

16 April 2010 External T.I. 2010-0353421E5 - Ontario microFIT Program

Unedited CRA Tags
3, 1100(24) - (29)

Principal Issues: The income tax consequences arising from the purchase of a solar photovoltaic system on the residence of an individual. Several issues discussed including income recognition, expense deduction, CCA deductibility, and principal residence status.

Position: 1) Income under the contract considered income from a source that must be reported for income tax purposes; 2) Certain expenses deductible as noted herein; 3) CCA on the solar photovoltaic system is available, subject to the CCA deduction restrictions described in subsection 1100(24) of the Regulations; and 4) Principal residence status of home should be preserved.

Reasons: Reasons described herein.

9 April 2010 External T.I. 2010-0358821E5 - Whole body vibration unit as medical expense.

Unedited CRA Tags
Regulations 5700(z.3), 118.2(2)(l.9)

Principal Issues: 1. Whether the cost of a whole body vibration unit (WBV unit) qualifies as a medical expense. 2. Whether the membership fee to the XXXXXXXXXX qualifies as a medical expense.

Position: 1. In this particular circumstances, likely yes. 2. No.

Reasons: 1. 5700(z.3) 2. The membership fee for services in the XXXXXXXXXX was not for therapy administered by a medical doctor or occupational therapist under paragraph 118.2(2)(l.9).

8 April 2010 External T.I. 2009-0317671E5 - child care expenses

Unedited CRA Tags

Principal Issues: A couple legally separate during the year, do not cohabitate with anyone else, split caregiver costs 50/50 and they have 2 children that reside 50% of their time with each parent. 1) Does each parent have to pay the nanny directly or can the father reimburse the mother for 50% of the cost of the nanny and be eligible to claim the child care expense? 2) Assuming that each parent does not have to pay the nanny directly, can each parent claim 50% of the wages and employer's portion of the Canada pension plan contributions and employment insurance premiums from one T4 summary issued by the mother, as child care expense?

Position: 1) The father can reimburse the mother for his share of the child care expenses paid to the nanny by the mother provided that the requirement in subsection 63(1) of the Act is met. 2) Yes, providing all other conditions of section 63 are met.

Reasons: 1) Subsection 63(1) of the Act requires that a claim be substantiated by receipts issued by the payee, that is normally the caregiver. 2) The list of child care services in the definition of "child care expense" under subsection 63(3) is not an exhaustive list.

8 April 2010 External T.I. 2010-0358421E5 - weight loss program

Unedited CRA Tags
118.2(2)(a) 118.2(2)(o)

Principal Issues: Whether the cost of a weight management program would qualify as a medical expense.

Position: Question of fact but it appears that the payments are made in respect of medical services performed by medical practitioners for the prevention of disease.

Reasons: 118.2(2(a) and 118.2(2)(o)

XXXXXXXXXX 2010-035842
R. Ferrari
April 8, 2010

1 December 2009 External T.I. 2009-0307821E5 - TFSA Contributions - Options and Warrants

Unedited CRA Tags
in-the-money value not reflective of option value
contribution to TFSA – recognition deferred until exercise by TFSA

Principal Issues: Can employee stock options and warrants be contributed to a TFSA? If so, what is the amount of the contribution? What are the tax consequences of an employee stock option being contributed to a TFSA?

Position: Provided the conditions of 4900(1)(e) are satisfied, options and warrants will be qualified investments for a TFSA. Contributions of property such as options, warrants, or similar rights, must be contributed to a TFSA at the property's FMV and are subject to the TFSA holder's unused TFSA contribution room. When an employee stock option is exercised by a TFSA, the employee is deemed to have received a benefit in accordance with paragraph 7(1)(c) of the Act. If the option expires in the TFSA, no benefit will be deemed received by the employee, in accordance with section 7.

Reasons: Paragraph 4900(1)(e) of the Act. Property must be contributed at the property's FMV, which is a question of fact and an appropriate valuation method must be used in the particular circumstances. In the CRA's view, the intrinsic value of an option, warrant or similar right is not reflective of the option's, warrant's or similar right's FMV.

25 November 2009 External T.I. 2009-0345161E5 - TFSAs - Asset Transfer Transactions (Swaps)

Unedited CRA Tags

Principal Issues: Are asset transfer transactions (swaps) involving TFSAs permitted under the Income Tax Act?

Position: No.

Reasons: Department of Finance news release dated October 16, 2009.
HAA: No paper record.


25 November 2009 Roundtable, 2009-0347881C6 - German Organschaft -- 95(2)(a)

Unedited CRA Tags

Principal Issues: Would capital gains from the disposition of excluded property by a foreign affiliate subsidiary in a German Organschaft arrangement be excluded in computing FAPI of the foreign affiliate parent?

Position: No.

Reasons: The amount of the transfer that represents the capital gains is income from property to the recipient and is not deductible in computing the amount that is prescribed to be the earnings from an active business (other than an active business carried on in Canada) of the payer.

Technical Interpretation - Internal

23 April 2010 Internal T.I. 2010-0359551I7 - Connected corporation

Unedited CRA Tags

Principal Issues: What is meant by "owns more than 10% of the issued share capital (having full voting rights under all circumstances)" as outlined in subparagraph 186(4)(b)(i) of the Act in the context where common shares and multiple voting shares are issued and outstanding?

Position: CRA's position with respect to that requirement is that subparagraph 186(4)(b)(i) refers to a calculation of the number of shares issued and outstanding having full voting rights under all circumstances. In the particular situation, the number of common shares held by the particular corporation would be XXXXXXXXXX and the total number of shares having full voting rights would be XXXXXXXXXX . Thus, in the given situation, the particular corporation would hold XXXXXXXXXX % of the total number of shares issued by Opco having full voting rights under all circumstances.

Reasons: Wording of subparagraph 186(4)(b)(i) of the Act and previous position.

16 April 2010 Internal T.I. 2010-0362601I7 F - Établissement stable-Province

Unedited CRA Tags
400(1) du Règlement; 400(2)e) du Règlement; 124(1)
CRA will accept shorter presence of substantial equipment at concerts than 30 days as representing PEs of the non-resident performance corporation

Principales Questions:
Une société non-résidente en tournée au Canada est-elle considérée avoir un établissement stable dans chacune des provinces où des spectacles sont présentés en vertu de l'alinéa 400(2)e) du Règlement?

Position Adoptée:
Oui, selon les faits de la situation donnée.

Les exigences de l'alinéa 400(2)e) ont été rencontrées par la société non-résidente en XXXXXXXXXX et cette dernière déclare posséder un établissement stable dans une juridiction particulière. Voir la position énoncée dans le Bulletin d'information sur l'attribution provinciale du revenu, no 2 Février 2010.

14 April 2010 Internal T.I. 2009-0347511I7 F - Partie I.3 - Société de personnes

Unedited CRA Tags
s. 181.2(3)(g) was to be applied on basis that partnership interest and debt held by a Crown agent was held by the Quebec government, being a corporation

Principales Questions: Dans le calcul du capital d'une société qui est un associé d'une société de personnes, doit-on déduire les montants dus par la société de personnes à un mandataire de l'État québécois qui est un associé de la société de personnes?

Position Adoptée: Oui.

Raisons: Libellé de l'alinéa 181.2(3)g). Le mandataire est une société aux fins de la Loi. L'État québécois est une société aux fins de la Loi.

10 March 2010 Internal T.I. 2010-0355831I7 - Audit of Non-Profit Organizations

Unedited CRA Tags
149(1)(l); 149(10)

Principal Issues: XXXXXXXXXX . 1. What happens when a 149(1)(l) entity no longer qualifies for the tax exemption? 2. What steps must be taken when this occurs? 3. For how many years can an assessment be raised? 4. Does the case Edmonton Badminton Club v. MNR affect this situation? 5. How does subsection 149(10) apply? 6. Is the CRA required to audit a 149(1)(l) entity each year?

Position: 1. Subsection 149(10) applies if the entity is a corporation. The result is a deemed year end for the corporation and the disposition and reacquisition of all of the corporation's assets immediately before the time 149(10) applies. Also affects the corporation's ability to carry forward losses and other balances or reserves. 2. No formal steps. 3. Subsection 152(3.1) applies unless there is a misrepresentation in which case subsection 152(4) may apply. 4. This case does not apply to restrict an assessment. 5. Subsection 149(10) applies to a corporation such that it is considered a "new" corporation after that time and the next tax return filed is considered its first tax return. 6. No.

Reasons: 1. Provisions in the ITA. 2. Provisions in the ITA. 3. Provisions in the ITA. 4. The case was dismissed due to the Crown providing insufficient evidence to support its case. 5. Provisions of the ITA. 6. Provisions of the ITA.

14 October 2009 Internal T.I. 2008-0301491I7 - TFSA Attribution Rule Exemption on Excess Amounts

Unedited CRA Tags
74.5(12)(c) 207.01(1)

Principal Issues: Will paragraph 74.5(12)(c) apply to a transfer of property to (i) a recipient spouse and the spouse contributes the property (or any substituted property) to their TFSA that already has an excess TFSA amount and (ii) a recipient spouse and the spouse contributes the property (or any substituted property) to their TFSA that creates an excess amount?

Position: The exemption under subsection 74.5(12)(c) will not apply.

Reasons: (i) Paragraph 74.5(12)(c) does not apply to transfers into TFSAs that has an excess TFSA amount. (ii) Definition of "excess TFSA amount" pursuant to subsection 207.01(1) includes transfers that will cause an excess TFSA amount, such that paragraph 74.5(12)(c) will operate to exclude the excess TFSA amounts.