Income Tax Severed Letters - 2010-06-25

Ruling

2009 Ruling 2009-0337651R3 - Reverse Earnout - Application of 12(1)(g)

Unedited CRA Tags
12(1)(g) 54

Principal Issues: Will paragraph 12(1)(g) of the Act apply to amounts received by a Canadian resident vendor, resulting from a long-term reverse earnout agreement, where the earnout agreement otherwise reflects contingent consideration in respect of the disposition of shares of a XXXXXXXXXX subsidiary? If 12(1)(g) were to apply, the provision effectively recharacterizes what would be proceeds of disposition to a full income inclusion.

Position: In the particular facts of this case, no.

Reasons: Although it is arguable that 12(1)(g) applies, in this case reliance has been placed upon the Agency's administrative position outlined in paragraph 9 of IT-462 which indicates that paragraph 12(1)(g) does not apply where the sale price of property is originally set at a maximum which is equivalent to the FMV of the property at the time of sale. A reverse earn-out results in the meeting of this condition.

Ministerial Correspondence

7 June 2010 Ministerial Correspondence 2009-0331151M4 - Home Renovation Tax Credit - Central Vacuum

Unedited CRA Tags
118.04

Principal Issues: Whether the cost of installing a central vacuum is eligible for the Home Renovation Tax Credit.

Position: The central vacuum unit itself would not qualify, however some of the costs associated with the installation might.

Reasons: We consider a central vacuum to fall under the category of a "household appliance". Household appliances are specifically excluded under the definition of "qualifying expenditure" in the legislation.

3 June 2010 Ministerial Correspondence 2010-0364901M4 - Income deferral

Unedited CRA Tags
80.3

Principal Issues: Letter from MP asking that bees be treated as "breeding animals" for the purpose of the income deferral in subsection 80.3(4) of the Income Tax Act.

Position: Referred letter to the Department of Finance.

Reasons: The Canada Revenue Agency is responsible for administering the legislation as passed by Parliament whereas the Department of Finance Canada is responsible for developing and evaluating federal income tax policy or amending income tax law. Taxpayer's concern relates to federal tax policy.

Technical Interpretation - External

16 June 2010 External T.I. 2009-0344861E5 F - Actifs de la Catégorie 16

Unedited CRA Tags
248(1); Catégorie 16
Summary Under
Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 16 - Paragraph 16(e)
pick-up trucks leased out on short-term basis but also used as described in (e)(ii) of automobile are in Class 16 - otherwise, Class 10

Principales Questions: Des camionnettes qui sont louées par une société canadienne imposable, dans le cadre de son entreprise de location à court terme de véhicules à moteur, sont-elles des actifs de la Catégorie 16 du Règlement de l'impôt sur le revenu?

Position Adoptée: En l'espèce, nous croyons que les camionnettes devraient être incluses dans la Catégorie 10 de l'Annexe II du Règlement de l'impôt sur le revenu. Il est nécessaire de déterminer si les camionnettes sont des automobiles aux fins de la LIR. Dans le cadre de cette détermination, il faut déterminer si elles sont visées par l'exception prévue au sous-alinéa 248(1)e)(ii) de la définition d'automobile. Cette disposition prévoit que les véhicules à moteur de type fourgonnette ou camionnette dont la totalité ou la presque totalité de l'utilisation au cours de l'année d'imposition où ils sont acquis ou loués est pour le transport de marchandises, de matériel ou de passagers en vue de gagner un revenu ne sont pas des automobiles.

Raisons: Afin de déterminer si les camionnettes peuvent être incluses dans la Catégorie 16, il faut qu'elles soient, au préalable, des automobiles. Dans le cadre de cette détermination, il faut déterminer si elles sont visées par l'exception prévue à l'alinéa 248(1)e) de la définition d'automobile. Cette disposition prévoit que les véhicules à moteur de type fourgonnette ou camionnette dont la totalité ou la presque totalité de l'utilisation au cours de l'année d'imposition où ils sont acquis ou loués est pour le transport de marchandises, de matériel ou de passagers en vue de gagner un revenu ne sont pas des automobiles.

15 June 2010 External T.I. 2009-0350371E5 - Disbursement of Union Surplus to Members

Unedited CRA Tags
3(a); 6(1)(a); 8(1)(i)(iv); 8(5)(c)

Principal Issues: Whether the Disbursement of surplus funds by a union to its members would be taxable to its members.

Position: Question of fact, but in this case, probably not.

Reasons: Likely that the Disbursement is not income from a source pursuant to paragraph 3(a) of the Act and the Supreme Court of Canada's decision in Fries v. The Queen, 90 DTC 6662. However, the deductibility of the Members' union dues under subparagraph 8(1)(i)(iv) or paragraph 8(5)(c) should be considered as well as the application of paragraph 6(1)(j) of the Act.

15 June 2010 External T.I. 2010-0353041E5 - Loyalty programs

Unedited CRA Tags
6(1)(a)

Principal Issues: Whether loyalty points on a company credit card give rise to a taxable benefit.

Position: Generally yes, but the employer is relieved from reporting requirements in this case.

Reasons: The points are accumulated on company credit cards but the employees have separate agreements for the rewards program and the employer does not control the points.

14 June 2010 External T.I. 2010-0357201E5 - First-Time Home Buyer Tax Credit

Unedited CRA Tags
118.05(1), 118.05(2), 118.05(3)

Principal Issues: When can an individual claim the First-Time Home Buyers' Tax Credit (HBTC) for the purchase of a condominium, where the individual occupies it in one taxation year but is not registered as the legal owner until the subsequent taxation year when the condominium corporation is formed.

Position: In the subsequent taxation year when the individual is registered as the legal owner.

Reasons: Pursuant to subsection 118.05(2) of the Act, an individual is considered to have acquired a qualifying home only if the individual's interest (or for civil law, right) in it is registered in accordance with the land registration system or other similar system applicable where it is located.

11 June 2010 External T.I. 2010-0354881E5 F - Traitement fiscal de la FNACC

Unedited CRA Tags
13(21); 20(16); 20(1)a)
Summary Under
Tax Topics - Income Tax Act - Section 20 - Subsection 20(16)
ceasing to use a class of depreciable property to generate income results in a terminal loss under ss. 45(1)(a) and 20(16)
Summary Under
Tax Topics - Income Tax Act - Section 45 - Subsection 45(1) - Paragraph 45(1)(a)
application of s. 45(1)(a) to film production that ceased to generate income, resulting in a terminal loss under s. 20(16)

Principales Questions: Si un bien amortissable ne sert pas à tirer un revenu provenant d'une entreprise pour une année d'imposition donnée, comment le contribuable devra traiter le solde positif de la FNACC?

Position Adoptée: Le contribuable pourra continuer à réclamer la DPA jusqu'à ce qu'il dispose du bien.

Raisons: Loi de l'impôt sur le revenu.

10 June 2010 External T.I. 2009-0328661E5 - Employees Profit Sharing Plan

Unedited CRA Tags
149(1), 149(10), 1500(3) regulations

Principal Issues: Does a valid EPSP exist in a hypothetical situation? Does an error result in all employees becoming members of the EPSP

Position: General comments.

Reasons: Question of fact.

9 June 2010 External T.I. 2010-0357481E5 - Social Assistance 81(1)(h)

Unedited CRA Tags
81(1)(h)

Principal Issues: Do payments to a caregiver for the care of two disabled adults qualify for the income exemption under 81(1)(h)?

Position: No.

Reasons: The organization that is the source of the funds has indicated that the amounts are not paid based on financial considerations. 81(1)(h) requires that the payments be based on the financial means, needs, or income of either the caregiver or the individuals under her care.

9 June 2010 External T.I. 2010-0365351E5 - Employment Expenses

Unedited CRA Tags
8

Principal Issues: Deductibility of certain expenses.

Position: Very general comments.

Reasons: Question of fact.

9 June 2010 External T.I. 2009-0348161E5 - Transfer of unmatured spousal RRSP to RRIF

Unedited CRA Tags
ITA 146(1); 146(16)(a); 146.3(5.1)

Principal Issues: Can an unmatured spousal RRSP be transferred to the taxpayer's non-spousal RRIF?

Position: Yes, as long as both plans have the same annuitant.

Reasons: Based on paragraph 146(16)(a) of the ITA, an unmatured spousal RRSP can be transferred to a RRIF with the same annuitant. The RRIF becomes a spousal RRIF.

8 June 2010 External T.I. 2010-0360281E5 - Deductibility of pre-school fees

Principal Issues: Whether pre-school fees paid on account of a taxpayer's three-year old daughter are deductible to the taxpayer

Position: Yes.

Reasons: Such payments are considered to be eligible child care expenses for the purposes of subsection 63(3) of the Act and therefore are deductible

4 June 2010 External T.I. 2010-0356151E5 - Deductibility of payment to former spouse

Unedited CRA Tags
56.1(4), 60(b)

Principal Issues: Whether an amount representing a share of the taxpayer's pension value and severance amount paid to the taxpayer's former spouse in accordance with a Change Order to their Divorce Order is deductible to the taxpayer.

Position: No.

Reasons: A payment in satisfaction of property rights arising from marriage is considered to be capital in nature. Such a payment does not qualify as a "support amount" for the purposes of paragraph 60(b) of the Act and therefore is not deductible in calculating the taxpayer's income.

3 June 2010 External T.I. 2010-0354491E5 - Attribution Rules Tax-Free Savings Accounts

Unedited CRA Tags
74.5(12), 74.1 to 74.5

Principal Issues: Will the attribution rules apply when money which was given to a spouse to contribute to TSFA is subsequently withdrawn from TFSA.

Position: Yes.

Reasons: A TFSA is an arrangement described in the definition qualified arrangement under subsection 146.2(1). Such an arrangement is a property under subsection 248(1) and property substituted for the money given to the spouse to contribute to the TFSA. Therefore, amount withdrawn from a TFSA will be property substituted and subject to the attribution rules.

3 June 2010 External T.I. 2010-0360511E5 - Education tax credit - full time student

Unedited CRA Tags
118.6

Principal Issues: Does part-time enrolment in two qualifying educational institutions qualify for the full-time education and textbook tax credit amount?

Position: Yes, provided the courses would otherwise qualify for the part-time credit amount.

Reasons: CRA's administrative policy is to allow the full-time education and textbook tax credit amount when a student is enrolled part-time at two or more qualifying educational institutions for courses that would otherwise qualify for the part-time credit amount.

3 June 2010 External T.I. 2010-0364801E5 - Northern Residents Deduction/Remote Work Location

Unedited CRA Tags
110.7, 6(6)

Principal Issues: 1) Whether a taxpayer qualifies for the northern residents deduction. 2) Whether a particular allowance can be excluded from income under subparagraph 6(6)(b)(ii) of the Act.

Position: 1) Question of fact but it appears that the taxpayer does not qualify. 2) Question of fact - general comments only.

Reasons: The law.

2 June 2010 External T.I. 2009-0338271E5 - Tuition Fees, Professional Membership Dues

Unedited CRA Tags
s. 118.5 ITA; p. 8(1)(i)

Principal Issues: 1. Where an employee repays amounts to a former employer in respect of tuition fees, may the employee claim the tuition tax credit?
2. Where an employee repays amounts to a former employer in respect of professional dues paid as a student, may the employee deduct the dues from income?

Position: 1. Yes, providing the tuition fees meet the requirements under s. 118.5 of the ITA.
2. No. As a student, the amounts were not incurred to maintain professional status.

Reasons: 1. The employee has in effect paid the tuition fees and is eligible to claim the tuition tax credit.
2. Subparagraph 8(1)(i)(i) of the ITA only applies to individuals that have already obtained the recognized professional status.

2 June 2010 External T.I. 2010-0354951E5 F - Bien de remplacement-disp. involontaire

Unedited CRA Tags
44(1), 44(5), 13(4), 13(4.1)
Summary Under
Tax Topics - Income Tax Act - Section 44 - Subsection 44(5) - Paragraph 44(5)(a.1)
rental building did not qualify as a replacement property to an expropriated parking lot because of different physical attributes

Principales Questions: Est-ce que les règles des biens de remplacement pourraient s'appliquer à un immeuble locatif acquis par un contribuable en remplacement d'un terrain de stationnement pour lequel il tirait des revenus locatifs et dont il a été exproprié?

Position Adoptée: Non.

Raisons: Pour les fins de 44(5)a.1), le bien de remplacement devrait généralement avoir les mêmes caractéristiques physiques que l'ancien bien.

6 May 2010 External T.I. 2010-0357341E5 - Child Care Expenses

Unedited CRA Tags
63

Principal Issues: 1. Where an individual pays his sister to take care of his child while he is temporarily out of town for work, will the payments qualify for deduction as child care expenses? 2. Is the individual's sister an employee of the individual or self-employed?

Position: Question of fact. General comments provided.

Reasons: 1. One of the requirements to be eligible to deduct child care expenses pursuant to section 63 is that the expense must be in respect of a child who resided with the individual at the time the expense was incurred. It is a question of fact whether this requirement is met. The fact that an individual may be temporarily out of town for work, in and of itself, will not preclude the payments from qualifying as child care expenses. 2. If an employer-employee relationship exists, income tax, Canada Pension Plan contributions and Employment Insurance premiums may have to be withheld and remitted by the employer.