Income Tax Severed Letters - 2010-07-02

Ruling

2010 Ruling 2009-0343991R3 - Classification of a XXXXXXXXXX Co-op

Principal Issues: Whether a XXXXXXXXXX Co-op would be treated as a corporation for purposes of the Act?

Position: In the present instance, yes.

Reasons: The provisions of the foreign legislation and the articles creating the XXXXXXXXXX Co-op support the conclusion that this cooperative should be treated as a corporation for purposes of the Act.

2010 Ruling 2009-0347301R3 - Does s.s. 13(21.2) apply on s.s. 98(5) rollover

Unedited CRA Tags
13(21.2); 98(5)
Summary Under
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21.2)
Summary Under
Tax Topics - Income Tax Act - Section 98 - Subsection 98(5)

Principal Issues: Where subsection 98(5) applies on the transfer of all of the property of a partnership to one of the partners, it is not clear whether subsection 13(21.2) would apply.

Position: Question of fact, but no in the circumstances.

Reasons: Although there is no specific rule in the Act that provides an exception to the application of subsection 13(21.2) in the case of a rollover under subsection 98(5), this provision would not apply to the particular circumstances set out in the ruling.

2010 Ruling 2009-0350941R3 - exploration/new mine CEE

Unedited CRA Tags
66.1(6)

Principal Issues: Whether expenses relating to a certain exploration and development program will qualify for inclusion under paragraph (f) or paragraph (g) to the definition of CEE. Whether a mine which may be established would be a "new mine" for purposes of paragraph (g) to the definition of CEE.

Position: Expenses incurred in respect of the proposed exploration and development program may potentially qualify under paragraph (f) or paragraph (g) to the definition of CEE. A mine to be established in accordance with the pre-feasibility study described herein would be a "new mine" for purposes of paragraph (g) to the definition of CEE.

Reasons: Based upon the facts and a written opinion from Natural Resources Canada.

Ministerial Correspondence

7 June 2010 Ministerial Correspondence 2010-0365721M4 - Children's Fitness Tax Credit

Unedited CRA Tags
9400(2)(a)

Principal Issues: Suggested amendment to definition of prescribed program of physical activity for the purposes of the children's fitness tax credit.

Position: Copy of correspondence forwarded to Minister of Finance.

Reasons: Any change to legislation is the responsibility of the Department of Finance Canada.

3 June 2010 Ministerial Correspondence 2010-0362631M4 - Subpara 110(1)(f)(iii)-Prescribed Intl orgs

Unedited CRA Tags
Subparagraph 110(1)(f)(iii) of the Act; Regulation 8900(1) of the Regulations; and Articles 57 and 63 of the Charter of the United Nations

Principal Issues: What are the prescribed international organizations referred to in subparagraph 110(1)(f)(iii) of the Act?

Position: The organizations referred to in Regulation 8900(1) of the Income Tax Regulations

Reasons: Law

Technical Interpretation - External

24 June 2010 External T.I. 2010-0356391E5 - Baby wipes as medical expense

Unedited CRA Tags
118.2(2)(i.1)

Principal Issues: Whether baby wipes qualify under paragraph 118.2(2)(i)

Position: No

Reasons: The reference to other products in the statement "for or in respect of diapers, disposable briefs, catheter, catheter trays, tubing or other products" is restricted to the same class of products as diapers, disposable briefs, etc.
LEGISLATIVE REFERENCE: 118.2(2)(i.1)
HAA: No paper record.

24 June 2010 External T.I. 2010-0369551E5 - Capital Gains Reserve - Disp to Closely Held Corp

Unedited CRA Tags
40(1)(a)(iii); 40(2)(a)(ii); 256(5.1

Principal Issues: Can a capital gains reserve be claimed by a taxpayer in respect of the disposition of farmland to a closely held corporation.

Position: Unable to opine. Depends upon whether or not the corporation is controlled by the taxpayer, and, whether or not proceeds of disposition are payable to the taxpayer after the end of the year.

Reasons: The determination rests upon the resolution of matters which are a question of fact. The law.

23 June 2010 External T.I. 2010-0355181E5 - Flex Plan - One time change

Principal Issues: One time change from expense carryforward to credit carryforward and whether the unused medical expenses from Plan Year 1 could be used against new credits allocated in Plan Year 2.

Position: One time change may be acceptable.

Reasons: Consistent with prior interpretation

23 June 2010 External T.I. 2010-0369581E5 - Allocation of Partnership Income

Unedited CRA Tags
12(1)(l);96; 103(1.1)

Principal Issues: Is the full allocation of income earned from a husband / wife farming partnership to one spouse acceptable during a period in which the other spouse takes maternity leave from the business operations of the partnership and contributes no labour?

Position: Any allocation should be governed by the partnership agreement. However, a full allocation to the spouse providing all the labour to generate the income earned by the partnership would not normally be considered unreasonable.

Reasons: The law. Previous positions.

23 June 2010 External T.I. 2010-0365581E5 F - Règles d'attribution de l'article 74.2

Unedited CRA Tags
73, 74.2, 74.3, 74.5
Summary Under
Tax Topics - Income Tax Act - Section 74.5 - Subsection 74.5(1) - Paragraph 74.5(1)(c)
s. 74.2(1) inapplicable to transfer at FMV of property to a discretionary family trust, with capital gain on property subsequently distributed to spouse of transferor
Summary Under
Tax Topics - Income Tax Act - Section 75 - Subsection 75(2)
s. 75(2)(a)(i) is satisfied where a person transferring to a trust holds a capital interest in that trust

Principales Questions: Est que les règles d'attribution prévues au paragraphe 74.2(1) s'appliqueraient à une situation donnée?

Position Adoptée: Question de fait

Raisons: Analyse législative

21 June 2010 External T.I. 2010-0354711E5 - Legal fees

Unedited CRA Tags
18(1)(a), 18(1)(b), 18(1)(h), 20(1)(cc), 248(1), 9(1) 8(1)(b), 12(1)(j)(k)

Principal Issues: Are legal fees deductible if incurred to (1) settle an estate and (2) to secure the payment of dividends?

Position: (1) No. (2) Possibly

Reasons: (1) Generally, legal fees incurred for the purpose of settling an estate (taking possession of the property of the deceased, obtaining probate, distribution of a deceased's property) are personal expenses that are non-deductible. (2) Legal fees incurred to establish a right to income are generally considered to be capital in nature and non-deductible. Where it can be demonstrated that there is a pre-existing right to property income (such as dividends) and there is a direct connection between the legal fees incurred and efforts to enforce the payment of that property income, the expense may be deductible in the taxation year in which it was incurred.

21 June 2010 External T.I. 2010-0355521E5 - Health and Welfare Trust

Principal Issues: 1- Degree of independence and criteria to be met in choosing the trustee or trustees for a health and welfare trust. 2- Does a trust account need to be opened for each employee or is one trust account with a financial institution sufficient?

Position: 1- Question of fact. 2- Generally, a trust bank account for each employee is not necessary.

Reasons: 1- Question of fact as to whether trustee or trustees are independent of the employer. 2- Generally, it would not be necessary to keep a separate trust bank account for each employee. Proper internal records for each employee should be maintained to ensure compliance with the Income Tax Act and its reporting requirements.

21 June 2010 External T.I. 2010-0360581E5 - Construction Activities - Well Drilling

Unedited CRA Tags
Section 238 of the Income Tax Regulations

Principal Issues: 1) Does the definition of construction activities under Ssec 238(1) of the Regulations include well drilling?

Position: 1) Yes.

Reasons: 1. The definition of construction activities "includes the... excavation, (and) installation... of all or any part of a... structure, surface or "sub-surface" construction, or any similar property". A structure has been defined in the courts as something that is in one place, that is affixed somehow and which is built up of parts and is intended to remain on a foundation. A drilled well is a structure created in the ground by drilling to access ground water in underground aquifers.

18 June 2010 External T.I. 2010-0356961E5 - Qualified Farm Property

Unedited CRA Tags
110.6(1), 110.6(1.3)

Principal Issues: Can farm land previously owned by a sibling of a taxpayer, neither of the siblings has ever farmed the land, qualify as QFP under subsection 110.6(1), if the land was owned before the sibling by the parent of the taxpayer that actively farmed the land?

Position: No.

Reasons: The period of continuous ownership of the property by the parent and the taxpayer was interrupted by the acquisition of the property by the sibling of the taxpayer.

16 June 2010 External T.I. 2010-0361271E5 - Laser hair removal as a medical expense

Unedited CRA Tags
118.2

Principal Issues: Whether hair removal procedures qualify for the purposes of the METC and for PHSPs.

Position: Generally no.

Reasons: Hair removal procedures are generally for enhancing a person's physical appearance.

16 June 2010 External T.I. 2010-0361221E5 - Wheelchair & bath cushion as medical expense

Unedited CRA Tags
118.2(2)(i)

Principal Issues: 1. Whether a wheelchair cushion qualifies as a medical expense. 2. Whether bath cushions qualify as medical expenses.

Position: 1. Yes. 2. No.

Reasons: 1. 118.2(2)(i). 2. Bath cushions are not provided for under ss. 118.2(2) or Regulation 5700.

16 June 2010 External T.I. 2009-0335731E5 - SIB and Partnership

Unedited CRA Tags
125(7) 96(1)

Principal Issues: Whether corporations in partnerships are carring on SIBs in varying scenarios

Position: No.

Reasons: Paragraph 20 IT-73R6.

14 June 2010 External T.I. 2010-0363401E5 - Qualified Farm Property

Unedited CRA Tags
110.6, 248(1)

Principal Issues: 1) Whether three farm properties owned by a taxpayer would be eligible for the capital gains exemption in respect of qualified farm property. 2) Whether income under "sharecropping arrangement" received by a farmer from a tenant in lieu of rent is considered to be rental income or farming income.

Position: General comments

Reasons: See response

26 May 2010 External T.I. 2009-0342121E5 - rooftop solar panels & class 43.2

Principal Issues: 1.will rooftop solar panels & equip qualify for inclusion in class 43.2 under various scenarios subject to the specified energy rules limiting CCA . 2.will claiming cca jeopardize the principal residence exemption?

Position: 1.provided expenses incurred for the purpose of producing income & other conditions of the class are met; 2. the principal residence claim will not be jeopardized provided no cca claim is made on the building itself & the earning of income is ancillary to the residence use.

Reasons: 1. 1102, 1100(25); 1100; 2.45(2) & IT120-r6

21 May 2010 External T.I. 2009-0352221E5 F - Bien de remplacement- résidence principale

Unedited CRA Tags
44(1), 44(5), 73(1), 73(1.01), 69(1)b), 40(2)b), 54, 248(1). Reg 2301.
Summary Under
Tax Topics - Income Tax Act - Section 44 - Subsection 44(5) - Paragraph 44(5)(a.1)
replacement property rules re involuntary disposition of secondary residence in country could apply to replacement property in city

Principales Questions: 1. Dans le cas où l'ancien bien qui fait l'objet d'une disposition involontaire est une résidence secondaire, l'acquisition d'une autre résidence secondaire ayant différents attributs peut-elle constituer un bien de remplacement selon le paragraphe 44(5) de la Loi de l'impôt sur le revenu?
2. L'acquisition d'une part indivise dans une résidence secondaire peut-elle respecter les conditions énoncées au paragraphe 44(5) de la Loi?
3. Si un transfert d'une part indivise dans une résidence personnelle s'effectue entre conjoints, quel est l'impact sur l'application des règles sur les biens de remplacement?

Position Adoptée: 1.Question de fait. Possiblement.
2. Une part indivise dans une résidence secondaire peut, selon les faits, constituer un bien de remplacement aux termes du paragraphe 44(5).
3. Le fait qu'un bien de remplacement soit acquis d'un conjoint ne vient pas, de ce seul fait, empêcher l'application des règles sur les biens de remplacement.

Raisons: Loi de l'impôt sur le revenu.

17 May 2010 External T.I. 2009-0346011E5 F - Immeuble - Convention Canada - Portugal

Unedited CRA Tags
2(1), 40(2)b); Art. 13 et 23 Convention Canada- Portugal
Summary Under
Tax Topics - Income Tax Act - Section 54 - Principal Residence - Paragraph (a)
Portuguese home of Canadian resident could qualify for the principal residence exemption
Summary Under
Tax Topics - Treaties - Income Tax Conventions - Article 25
no discrimination in Canada taxing a Canadian resident on a Portuguese real estate gain exempted from Portuguese tax

Principales Questions: 1) Est-ce qu'un gain en capital réalisé par un citoyen portugais résident du Canada et découlant de la disposition d'un immeuble situé au Portugal serait imposable au Canada ?
2) Dans l'affirmative, le particulier pourrait-il invoquer le bénéfice du paragraphe 1 de l'Article 23 de la Convention Canada - Portugal ?

Position Adoptée: 1) Oui.
2) Non.

Raisons: 1) et 2) Libellé de la LIR et de la Convention Canada - Portugal.

14 May 2010 External T.I. 2009-0323151E5 F - Cross Border Stock Option

Unedited CRA Tags
128.1(1)
Summary Under
Tax Topics - Income Tax Act - Section 128.1 - Subsection 128.1(1) - Paragraph 128.1(1)(b) - Subparagraph 128.1(1)(b)(iv)
individual fully taxable on s. 7 benefit without carve-out for portion that had accrued prior to immigration to Canada

Principales Questions: En tenant compte de l'application du paragraphe 128.1(1) de la Loi lorsqu'un contribuable immigre au Canada, comment calculer l'avantage imposable du contribuable, aux fins de l'application des dispositions de l'alinéa 7(1)a) de la Loi, lorsqu'une partie de l'appréciation de la valeur de ces actions a eu lieu durant la période où il était un non-résident?

Position Adoptée: Selon l'alinéa 7(1)a), l'avantage est égal à l'excédent de la valeur des actions au moment où il les a acquises sur la somme qu'il a payée à la société pour les actions et le droit de les acquérir.

Raisons: Lorsque le contribuable devient un résident canadien, il n'est pas réputé avoir disposé de ses droits d'achat d'actions en vertu d'une convention visée au paragraphe 7(1). L'avantage (dont la partie qui reflète l'augmentation de la valeur de l'action alors que le contribuable n'était pas un résident du Canada), calculé selon l'alinéa 7(1)a), est donc imposable au Canada à titre de revenu d'emploi (et non, par exemple, à titre de gain en capital résultant de la disposition réputée de certains biens lors de l'immigration) même si l'option lui a été octroyée alors qu'il était un non-résident.

Conference

16 June 2010 Roundtable, 2010-0369271C6 - Canada-US Tax Convention - Treatment of LLCs

Unedited CRA Tags
Article IV of the Canada-US Tax Convention

Principal Issues: Impact of the Tax Court of Canada decision in TD Securities (USA) LLC

Position: See response

Reasons: See response

4 May 2010 Roundtable, 2010-0359431C6 - Grandfathering provisions - stop-loss rules

Unedited CRA Tags
112(3), 245(2)

Principal Issues: Whether a change in ownership of a life insurance policy or a change in beneficiary designation due to the CRA's new assessing practice related to corporate-owned life insurance announced in 2009 would result in the loss of grandfathered status for the purposes of subsections 112(3) to (3.32)?

Position: None.

Reasons: Grandfathering for the purposes of the stop-loss rules is fact dependent and will be determined on a case-by-case basis. Subsection 245(2) could apply where the change would result in one corporation being the beneficiary of the policy without also being the policyholder of the policy.

4 May 2010 Roundtable, 2010-0359451C6 - Commission Income on Life Insurance Policies

Unedited CRA Tags
5, 9

Principal Issues: What is the impact to the CRA's longstanding administrative policy not to tax commission income earned by a life insurance salesperson, whether employed or self-employed, as essentially described in paragraph 27 of IT0470R as the result of the TCC decision in Bilodeau.

Position: See Response.

Reasons: See Response.

4 May 2010 Roundtable, 2010-0359441C6 - CALU CRA Roundtable Q4 -2010

Unedited CRA Tags
S. 55 TA; ss 54(2) TA; ss. 57(1) TA; ss.57(2) TA; ss 56(1) TA

Principal Issues: Does CMT apply to a life insurance death benefit? 2) Can CMT payable be reduced by paying a taxable or capital dividend?

Position: 1) Yes; 2) No

Reasons: 1) life insurance benefits included in net income for accounting purposes are included in adjusted net income for CMT purposes. 2) There is no reduction to net income for CMT purposes for taxable or capital dividends paid or payable.

4 May 2010 Roundtable, 2010-0359391C6 - Cost of interest life insurance policy 248(35)

Unedited CRA Tags
248(35)

Principal Issues: Whether the adjusted cost basis is a reasonable proxy for "cost" of an interest in a life insurance policy in applying the deeming provisions of 248(35) with respect to a gift to a qualified donee in certain circumstances.

Position: Yes, generally.

Reasons: There is no definition of "cost" for interests in life insurance policies in the Act.

4 May 2010 Roundtable, 2010-0359411C6 - Definition of Property for purposes of s. 128.1

Unedited CRA Tags
128.1(4); 128.1(10); 138(12)

Principal Issues: 1. Is a disability insurance policy excluded from the deemed disposition rules in s. 128.1 where an individual ceases to be a resident of Canada?
2. If a disability insurance policy is subject to the deemed disposition rules, can the CRA confirm that the proceeds of disposition would be NIL for the purposes of this provision?

Position: 1. No.
2. No.

Reasons: 1. The exclusion in subsection 128.1(10) refers to a life insurance policy. Where a disability policy is not a life insurance policy, the exclusion does not apply.
2. The disposition is at fair market value. The fair market value of a disability policy is a question of fact.

4 May 2010 Roundtable, 2010-0359401C6 - Rebate Paid by an Advisor to a Policyholder

Unedited CRA Tags
12(1)(x); 53(2.1); 148(9)
Summary Under
Tax Topics - Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(x)
insurance policy premium rebate generally deductible by insurance advisor payor and included under s. 12(1)(x) in client’s income
Summary Under
Tax Topics - Income Tax Act - Section 148 - Subsection 148(9) - Adjusted Cost Basis - Element A
insurance premium rebate paid by broker does not reduce policy ACB

Principal Issues: Where an insurance advisor or salesperson pays a rebate to a client who has purchased a life insurance policy:
1. What is the tax treatment of the rebate to the insurance advisor?
2. What is the tax treatment of the rebate to the policyholder?
3. Alternatively, can the policyholder reduce the adjusted cost basis of the policy?

Position: 1. Subject to the general limitations in the Act (e.g., sections 18 and 67), the rebate is deductible pursuant to subsection 9(1).
2. Taxable pursuant to paragraph 12(1)(x).
3. No.

Reasons: 1. The rebate is a general business expense.
2. The rebate is property income of the policyholder.
3. There is nothing in subsection 148(9) to allow the reduction in the adjusted cost basis and no election, similar to subsection 53(2.1) available.

4 May 2010 CALU Roundtable, 2010-0359421C6 - Shareholder's benefit and life insurance

Unedited CRA Tags
15(1); 245(2); 12(1)(x); 9
Summary Under
Tax Topics - Income Tax Act - Section 246 - Subsection 246(1)
potential s. 246(1) benefit where Parent holds and pays premiums on policy of which its subsidiary is beneficiary

Principal Issues: 1) Does 15(1) apply in circumstances where

a) Parentco is the policyholder of a life insurance policy and its subsidiary is the beneficiary.
b) Same situation but Subco reimburses Parentco the payment of the premium.
c) Sisterco 1 and Sisterco 2 are wholly-owned by an individual. Sisterco 1 owns the policy, Sisterco 2 is the beneficiary and would reimburse Sisterco 1 the amount of the premium paid.

2) In situations 1b) and c), will the ACB to the policyholder be affected by the reimbursement?

Position: 1a) No but subsection 246(1) may apply to Subco.

1b) and 1c) Subsection 9 and paragraph 12(1)(x) could apply to include in the income the reimbursement received. Subsection 15(1) is not applicable to Parentco if the reimbursement is included in its income. Subsection 15(1) is not applicable to Sisterco 1.

2)No

Reasons: 1)a),b),c) 15(1) applies to a shareholder who receives a benefit and that determination is a question of fact.