Income Tax Severed Letters - 2010-07-09

Principal Issues: CRA's administrative policy on how the proposed amendments to subsection 99(1) will be applied.

Position: While awaiting Royal Assent, in situations where there is the possibility of double taxation, the CRA is prepared, in the context of a ruling request, to apply the law in a manner such that a taxpayer is not taxed twice on the same amount.

Reasons: Similar to position outlined in Technical News No. 9

Principal Issues: Whether dividends paid by a Canadian corporation (Canco) to a US limited liability company owned by an U.S. S-Corp owned by a US resident individual are entitled to the 5% withholding rate under Article X(a) of the Canada-United States Tax Convention (Treaty)

Position: The 5% rate is applicable where the S-Corp is, pursuant to Article X(2)(a), considered to own at least 10% of the shares of Canco, the dividends are considered to be derived by the S-Corp pursuant to Article IV(6), and the S-Corp is eligible for benefits under Article XXIX A of the Canada-United States Tax Convention (Treaty).

Reasons: Article IV(6), X and XXIX A of the Treaty.

Principales Questions: Questions diverses concernant le CIRD liées à plusieurs situations de fait hypothétiques.

Position Adoptée: Commentaires généraux.

Raisons: Analyse législative.

Principal Issues: In a situation where two parents share custody, does the same parent have to claim both the amount for a wholly dependent person and the child tax credit in respect of the child.

Position: Yes. If the child did not reside with both parents throughout the year, only the parent or the spouse or common-law partner who claims the wholly dependent amount for the child may claim the child tax credit for that child.

Reasons: Wording of the legislation and as per guidance found in General Income Tax Guide - 2009.

Principal Issues: 1. Is the amount paid to a PDF for non-teaching activities a scholarship, bursary or fellowship? 2. If yes, does a PDF qualify for the scholarship exemption?

Position: 1. Unlikely. 2. Unlikely.

Reasons: 1. In our view, PDFs usually receive either employment income or research grants. 2. We do not view PDFs to be students and thus they do not qualify for the ETC. Further we likely will not view the amount received as being "connected to the program".

Principal Issues: Can property situated outside Canada be designated as a principal residence? Can an election under subsection 45(2) of the Act be made if depreciation has been taken on the property for US tax purposes?

Position: Property situated outside Canada can be designated as a principal residence provided it otherwise qualifies as a principal residence under section 54 of the Act. An election under subsection 45(2) of the Act can be made if CCA has not been claimed on the property for Canadian tax purposes.

Reasons: The definition of principal residence in section 54 of the Act does not limit the property to Canadian property, which is confirmed in IT-120R6. The subsection 45(2) election is available as long as CCA has not been claimed on the property for Canadian tax purposes. Depreciation taken for US tax purposes would have no impact for Canadian tax purposes.

Principal Issues: Whether moving expenses are deductible, upon relocation from one province in Canada to another province in Canada, as a result of the taxpayer resuming a position with a previous employer.

Position: Question of fact. In and of itself, the fact that the taxpayer is relocating to resume duties with a former employer after a period of absence would not preclude the relocation from qualifying as an eligible relocation.

Reasons: Definition of eligible relocation in section 248(1).

Principal Issues: Does subsection 75(2) apply to a settlor who subsequently becomes a beneficiary of a trust?

Position: It depends on the facts, but in this case it appears that it does.

Reasons: Legislation

XXXXXXXXXX 2009-035271
Katharine Skulski
May 11, 2010