Income Tax Severed Letters - 2010-06-04


2010 Ruling 2010-0363471R3 - Supplemental Ruling

Unedited CRA Tags
129(1) and 186(1)

Principal Issues: Amendment to ruling to avoid circular RDTOH/PartIV tax

Position: Supplemental ruling given

XXXXXXXXXX 2010-036347

2010 Ruling 2010-0353901R3 - Common Contractual Funds

Unedited CRA Tags
94(1); Part XIII; Part XIII.2;

Principal Issues: 1. Whether the proposed Irish common contractual fund is a trust for purposes of subsection 94(1) of the Act. 2. Whether the custodian is required to withhold and remit Part XIII and Part XIII.2 tax in respect of amounts paid or credited to the custodian by a payor resident in Canada.

Position: 1. The CCF will not be a trust. 2. The custodian must withhold and remit the applicable Part XIII and Part XIII.2 tax on behalf of the Canadian payor.

Reasons: 1. The unitholders are co-owners of the property held by the CCF. 2. The custodian withholds and remits withholding taxes on behalf of the Canadian payor.

Technical Interpretation - External

31 May 2010 External T.I. 2010-0361001E5 - Employee allowances for travel and home office

Unedited CRA Tags
6(1)(b); 8; 67.1

Principal Issues: The correct treatment of allowances paid to employees to partially cover costs of travel and home offices as required by the employment contract.

Position: Allowances must be included in employment income. The employees may be entitled to deduct some of the costs incurred for travel and home offices.

Reasons: The provisions of paragraph 6(1)(b). Employment expenses may be deducted only as allowed by section 8.

XXXXXXXXXX Rita Ferguson
May 31, 2010

28 May 2010 External T.I. 2010-0359871E5 F - Déduction pour gain en capital

Unedited CRA Tags
deduction available on NAL disposition inter vivos or on death
s. 84.1(2)(a.1)(ii) grind where parent claims s. 110.6(2.1) deduction on bequest to child

Principales Questions: Est-ce qu'un particulier pourrait déduire un montant de déduction pour gains en capital dans le calcul de son revenu imposable :
s'il vendait la totalité ou une partie des actions qu'il détient dans le capital-actions d'une société donnée à son enfant âgé de plus de 18 ans; ou
si, à son décès, ses actions étaient plutôt léguées à son enfant âgé de plus de 18 ans.

Position Adoptée: Généralement, oui.

Raisons: Analyse législative.

XXXXXXXXXX 2010-035987 I. Landry, M. Fisc
Le 28 mai 2010

27 May 2010 External T.I. 2010-0359491E5 F - Programme Agri-investissement

Unedited CRA Tags
withdrawal from second AgriInvest Fund is property income except for s. 125 purposes

Principales Questions: Est-ce que le revenu que tire un contribuable de son second fonds du programme Agri-investissement est un revenu tiré de biens?

Position Adoptée: Oui.

Raisons: Paragraphes 12(10.2) et 248(1) "second fonds du compte de stabilisation du revenu net ".

Le 27 mai 2010

26 May 2010 External T.I. 2009-0352331E5 - Old Age Security ("OAS") Claw Back

Unedited CRA Tags

Principal Issues: Should the maximum income level, which results in 100% of the OAS benefit being clawed back, be prorated by the number of months in the year that an individual received the OAS benefit.

Position: No

Reasons: Part I.2 of the Act does not provide for such a proration. The claw back is based on adjusted income and the amount of the OAS benefit received "in the year".

XXXXXXXXXX 2009-035233 A. Townsend
May 26, 2010

25 May 2010 External T.I. 2010-0365771E5 - Maximum CCA for First Year on Franchise Fee

Unedited CRA Tags
ITA 18(1)(b), ITA 20(1)(a), ITR Class 14 of Schedule II, ITR 1100(1)(c), ITR 1100(2)(a)(iv), ITR 1100(3)

Principal Issues: 1. Is a fee to acquire a franchise treated as a cost of a depreciable property in Class 14 or as an Eligible Capital Expenditure? 2. Is a depreciable property in Class 14 subject to the half-year rule and/or the short year rule?

Position: 1. Depends 2. No, franchise for a limited period is not subject to half year rule nor short year rule.

Reasons: 1. Cost of franchise for a limited period is included in Class 14 whereas cost of franchise that is for an indefinite period is included as an eligible capital expenditure. 2. Regulations 1100(2) and 1100(3).

21 May 2010 External T.I. 2009-0337531E5 - Foreign tax credit

Unedited CRA Tags
ITA 113(1)(c); 126(4); 126(7)

Principal Issues: Whether a Canadian company would be entitled to either a foreign tax credit under section 126 of the Act or a deduction under section 113 of the Act in respect of a withholding tax imposed by Costa Rica where the withholding tax is conditional on the availability of a credit in Canada.

Position: No.

Reasons: Subsection 126(4) of the Act will apply to exclude the Costa Rican withholding tax from the meaning of the term "income or profits tax" for all purposes of the Act.

20 May 2010 External T.I. 2009-0352801E5 F - Caractère raisonnable - honoraires de gestion

Unedited CRA Tags
67, 9(1), 18(1)a).
factors reviewed in considering reasonableness of management fees

Principales Questions: Des honoraires de gestion payés par une société de personnes à une société par actions liée sont-ils raisonnables?

Position Adoptée: Question de fait. Le caractère raisonnable dépend de facteurs tels la nature des services rendus et le temps nécessaire pour rendre les services, ainsi que les frais qui auraient pu être payés pour obtenir des services similaires de tiers.

Raisons: Positions antérieures.

19 May 2010 External T.I. 2010-0364131E5 F - Issuance - Discretionary shares

Unedited CRA Tags
15(1); 69(1); 245(2)
subscription for discretionary shares of Opco might represent a s. 15(1) benefit conferred by Opco on subscriber, or engage s. 69(1)(b) where this is benefit conferred by existing shareholder
Kieboom/s. 69(1)(b) rather than s. 15(1) where benefit conferred by shareholder rather than corporation
application of Kiebom to consider interest in corp to have been transferred to spouse could engage s. 74.1(1)

Principales Questions: Are there income tax consequences resulting from the issuance of discretionary shares?

Position Adoptée: Subsection 15(1) or paragraph 69(1)(b) could apply, depending on the facts and circumstances surrounding the particular situations.

Raisons: Subsection 15(1) may apply where a benefit is conferred by the corporation. For example, this could be the case where shares are issued by a corporation for consideration that is less than the fair market value of the said shares. If the benefit is conferred by a shareholder rather than by the corporation, paragraph 69(1)(b) may apply to the shareholder. Finally, the potential application of subsection 245(2) should be considered in any particular situation.

19 May 2010 External T.I. 2010-0364761E5 F - Beneficiary not taxed on Part XII.4 tax credit

Unedited CRA Tags
Pt XII.4 tax credit is received by the taxpayer respecting Pt XII.4 tax paid by the QET

Principal Issues: A corporation is entitled to the Part XII.4 tax credit provided for in section 127.41. Whether the corporation is taxable on the credit amount pursuant to paragraph 12(1)(x).

Position: No.

Reasons: In our view, paragraph 12(1)(x) does not apply to include in the income of the corporation the Part XII.4 credit provided for in section 127.41. The Part XII.4 credit is not an inducement. Furthermore, as the Part XII.4 tax is with respect to an outlay made by another taxpayer (the trust), subparagraph 12(1)(x)(iv) would not apply to include in the corporation's income the amount of that credit. This interpretation appears to be in line with the legislator's intent, as indicated in the Technical Notes of the Department of Finance with respect to section 127.41.

17 May 2010 External T.I. 2009-0341721E5 - Specified Energy Property

Unedited CRA Tags
1100(24) - (29); Class 43.1 / 43.2

Principal Issues: Whether the specified energy property provisions would apply to restrict CCA in a situation where a taxpayer acquired a photovoltaic system to generate electricity which is sold to the Ontario Power Authority under the Standard Offer Program.

Position: If the photovoltaic system is acquired principally for the purpose of generating energy for sale, then the specified energy property rules would apply to restrict the CCA on the photovoltaic system.

Reasons: The legislative wording.

17 May 2010 External T.I. 2010-0361131E5 - 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 and the participation in the Ontario microFIT Program. In particular, can CCA be claimed on the solar photovoltaic system.

Position: CCA on the solar photovoltaic system is available, subject to the CCA deduction restrictions described in subsection 1100(24) of the Regulations.

Reasons: In the situation described, the solar photovoltaic system is a specified energy property.

(613) 957-2097
May 17, 2010

17 May 2010 External T.I. 2009-0343551E5 - Specified energy property - partnership

Unedited CRA Tags
1100(24) - (29); Class 43.1 / 43.2

Principal Issues: Can a partnership claim CCA on the cost of depreciable property that is a rooftop photovoltaic system acquired by the partnership to generate electricity that is sold to the Ontario Power Authority pursuant to the Feed-In Tariff Program?

Position: Yes, provided that 1) the photovoltaic system is acquired for an income earning purpose, and 2) the CCA is computed within the specified energy property restrictions described in subsection 1100(24) of the Regulations.

Reasons: The legislative wording.

13 May 2010 External T.I. 2009-0325921E5 - Regulation 105 withholding

Unedited CRA Tags
ITA 153(1)(g); Regulation 105

Principal Issues: Whether payments made to a non-resident for recruiting services are subject to Regulation 105 withholding

Position: Provided general comments.

Reasons: If the payments are for services rendered in Canada, Regulation 105 withholding would apply. If the payments are for services rendered outside of Canada, they are not subject to Regulation 105 withholding.

5 May 2010 External T.I. 2010-0363501E5 - Clergy Residence Deduction

Unedited CRA Tags

Principal Issues: Is an Executive Director of a charitable organization eligible for a clergy residence deduction pursuant to paragraph 8(1)(c) of the Act.

Position: No.

Reasons: Does not meet the conditions for 'status' test and we did not consider the 'function' test.

Technical Interpretation - Internal

31 May 2010 Internal T.I. 2010-0360271I7 - Children's Fitness Tax Credit

Unedited CRA Tags
118.03(1) Regulation 9400

Principal Issues: Does the physical activity have to take place in Canada?

Position: No

Reasons: There is no requirement in the Act that the physical activity take place in Canada.

21 April 2010 Internal T.I. 2010-0355871I7 - Derivatives - Income or Capital

Unedited CRA Tags

Principal Issues: Are the hedges to be reported on account of income or capital?

Position: Income

Reasons: No underlying transaction

13 April 2010 Internal T.I. 2010-0358541I7 - Annual gains limit

Unedited CRA Tags
110.6(1); 111(1)(b); 111(1.1); 104(21)

Principal Issues: Whether the amount of net capital losses deducted under paragraph 111(1)(b) that is referred to in subparagraph (a)(i) of the description of parameter B of the definition of annual gains limit in subsection 110.6(1) should be the amount deducted under paragraph 111(1)(b) in computing taxable income or the said amount but adjusted to reflect the provisions of subsection 104(21).

Position: The amount of net capital losses adjusted to reflect the provisions of subsection 104(21)

Reasons: see response