Income Tax Severed Letters - 2010-08-13

Ruling

2010 Ruling 2009-0339201R3 - Split-up Butterfly Farm Property

Unedited CRA Tags
55(3)(b)

Principal Issues: Standard split-up butterfly

Position: Standard rulings given

Reasons: Consistent with previous rulings

Technical Interpretation - External

6 August 2010 External T.I. 2010-0364091E5 F - Utilisation d'un véhicule fourni par l'employeur

Unedited CRA Tags
6(1)e); 6(1)k)
Summary Under
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(e)
benefit even if the vehicle is made available for responding quickly to an emergency

Principales Questions: L'utilisation par un employé d'un véhicule fourni par son employeur dans une situation donnée entraîne-t-il un avantage imposable en vertu des alinéas 6(1)e) et 6(1)k)?

Position Adoptée: Dans la situation donnée, oui.

Raisons: Lorsqu'un véhicule d'un employeur est mis à la disposition d'un employé et qu'il se qualifie d'"automobile" tel que définie au paragraphe 248(1), un montant se rapportant à l'usage personnel du véhicule devrait être inclus aux revenus de l'employé en vertu des alinéas 6(1)e) et 6(1)k).

6 August 2010 External T.I. 2009-0350571E5 - Grandfathering under 98(3)(d)

Unedited CRA Tags
98(3)(d), 14(6), 14(7)

Principal Issues: Whether grandfathering under the coming-into-force rules for the repeal of paragraph 98(3)(d) would apply to goodwill that is a replacement property.

Position: Replacement property is not grandfathered if it was acquired by the partnership after December 4, 1985, otherwise than pursuant to an agreement in writing entered into before that date.

Reasons: Wording of the coming-into-force rules for the repeal of paragraph 98(3)(d).

4 August 2010 External T.I. 2009-0330501E5 F - Superficial loss

Unedited CRA Tags
40(2)g)(i), 53(1)f), 54, 251.1(1), 251.1(3) and 251.1(4).
Summary Under
Tax Topics - Income Tax Act - Section 251.1 - Subsection 251.1(1) - Paragraph 251.1(1)(b) - Subparagraph 251.1(1)(b)(ii)
X (holding the Opco non-voting shares), and a discretionary trust (holding the Opco voting shares) of which X was a beneficiary, were an affiliated group

Principales Questions: An inter-vivos trust owns all of the issued and outstanding voting and participating shares of the capital stock of Opco. The trust's beneficiaries are X, X's issue and another trust. X owns all of the issued and outstanding non-voting and participating shares of the capital stock of Opco. X's spouse owns all of the issued and outstanding shares of the capital stock of Lossco, the fair market value of which is lower than X's spouse's adjusted cost base. X's spouse wants to sell his shares of the capital stock of Lossco to Opco. Whether the loss of X's spouse could be treated as a superficial loss.

Position Adoptée: Yes.

Raisons: X's spouse could be affiliated with Opco under three scenarios: 1) If X's spouse has de facto control over Opco, 2) If X has de facto control over Opco or 3) If X and the inter-vivos trust constitute an affiliated group of persons that has de facto control over Opco.

30 July 2010 External T.I. 2010-0365181E5 - Principal residence

Unedited CRA Tags
40(2)(b), (c); 54; 104(21), (21.2); 110.6(1), (2), (12); 248(1), (25)

Principal Issues: 1. Whether the farm house can qualify for the principal residence exemption in paragraph 40(2)(b) of the Income Tax Act (the "Act"). 2. Whether the farm land can qualify as a qualified farm property for the purposes of the capital gains exemption in section 110.6 of the Act.

Position: 1. Question of facts. 2. Question of facts.

Reasons: General comments provided.

28 July 2010 External T.I. 2010-0367781E5 - Donated or Waived Remuneration

Unedited CRA Tags
5, 6, 153

Principal Issues: The taxability and reporting requirements concerning director's remuneration in various situations.

Position: General comments. See response.

Reasons: Mixed questions of fact and law.

27 July 2010 External T.I. 2009-0331861E5 - CCA-MultiDAT Datalogger; FM300 Communicator

Unedited CRA Tags
20(1)(a) ITA; 1100, 1104(2) ITR; Sch II - Class 50 and 52

Principal Issues: 1. Whether an electronic datalogger installed on heavy equipment specifically to monitor its utilization in forestry operations would be included in class 52 for CCA purposes. 2. Whether an FM 300 Communicator installed on a hauling truck to monitor the truck's whereabouts and communicate this information to office in real time would belong to class 52.

Position: 1. No 2. No.

Reasons: In our view, the Datalogger and the FM300 Communicator are not general purpose electronic data processing equipment and would be included under class 8(i). Moreover, both devices may be regarded as being principally or being used principally by the taxpayer as electronic process control or monitor equipment, which is excluded from class 50 and 52. The systems software for these devices would also be included in class 8(i). The related applications software would be included in class 12(o).

26 July 2010 External T.I. 2010-0372651E5 - AJCTC

Unedited CRA Tags
127(5); 127(9)

Principal Issues: Can the aggregate claim for the AJCTC, in respect of wages payable under an eligible apprentice's apprenticeship contract, vary in circumstances where differing payors had different taxation year ends?

Position: Yes. Because the ITC is partly dependent upon amounts payable to an apprentice during the apprentices' first 24 months, the ITC in respect of a particular year may, and likely will, differ due to differences in the payor's taxation year-end. Because the AJCTC is capped only in respect of a particular year, and not in respect of an aggregate claim, it is possible that the aggregate claim might vary.

Reasons: The legislation.

20 July 2010 External T.I. 2010-0361081E5 - Class 1 Non-Residential Buildings

Unedited CRA Tags
1100(1)(a.2); 1104(2)

Principal Issues: Whether certain buildings may be considered "non-residential" in respect of use such that additional CCA allowances may be available in respect of such properties as permitted by amendments made consequent to the 2007 Budget.

Position: The purpose for acquiring a property and its actual use are questions of fact. Where a property that is a building is used on a more or less permanent basis, as the place of residence or abode of its occupants, there is a presumption that the building is used residential.

Reasons: The law. Case law. Previous positions.

20 July 2010 External T.I. 2010-0360211E5 - Farming income - FIT / microFIT Programs

Unedited CRA Tags
248(1) "farming", 1100(24)

Principal Issues: 1. Is the income earned by a farmer under a FIT / microFIT contract considered farming income? 2. Is the income earned by a farmer for the rental of farmland to a third party who enters into FIT / microFIT contract considered farming income? 3. Would the income earned by a farmer under items 1 & 2 be considered incidental to farming income?

Position: 1. No. 2. No. 3. Not likely.

Reasons: These activities in of themselves would not meet the definition of farming contained in subsection 248(1) of the Act. In addition, the arrangements appear to be long-term in nature and involve a significant capital investment.

15 July 2010 External T.I. 2010-0361991E5 - Personal use of employer's vehicles

Unedited CRA Tags
6(1)(a); 6(1)(e); 6(1)(k); 6(2); 248(1) definition of "automobile" and "motor vehicle"; Regulation 7306, Regulation 7305.1

Principal Issues: 1. Whether personal use of City emergency vehicles by on-call firefighters results in a taxable benefit. 2. Whether personal use of City pick-up trucks by on-call staff results in a taxable benefit. 3. What specialized equipment and/or costs are included in the standby charge and/or operating expense benefit?

Position: 1. Yes. 2. Yes. 3. Various.

Reasons: 1. 6(1)(a) 2. Either 6(1)(a) or 6(1)(e) & (k) depending on whether or not the vehicle is considered an "automobile". 3. Per IT-63R5 and 6(1)(e), specialized equipment is not included in the cost of the vehicle for the purposes of the standby charge. Per 6(1)(k), the amount of the operating benefit is not contingent on the type of maintenance charges paid for by the employer.

13 July 2010 External T.I. 2010-0370221E5 - Permanent Establishment

Principal Issues: Where a non-resident corporation carrying on a business through a permanent establishment in one province has two employees who live and work remotely from their homes in another province providing computer consulting services to clients outside that other province, does this constitute a permanent establishment for the corporation in that other province

Position: A question of fact but in this case probably not.

Reasons: The non-resident corporation does not have a permanent establishment in the other province considering the facts (as outlined in the letter).

14 June 2010 External T.I. 2010-0362061E5 - Capital Cost Allowance

Principal Issues: What is the CCA class for a computerized telephone system?

Position: It is a class 8 asset.

Reasons: Property falling into class 52 does not include property that is principally or is used principally as electronic process control or monitor equipment (including related system software), electronic communications control equipment (including related system software), or data handling equipment (other than such equipment that is ancillary to general-purpose electronic date processing equipment). The IP telephone and its related hardware are excluded from Class 46 because of paragraphs (a) and (e) of the definition of the expression "data network infrastructure equipment" in subsection 1104(2) of the Regulations. Accordingly, the computerized telephone system should be included in Class 8(i).

19 May 2010 External T.I. 2010-0362001E5 - Wage Loss Replacement Plans

Unedited CRA Tags
6(1)(f)

Principal Issues: Would an existing insured wage loss replacement plan be treated as an employee-pay-all plan if the employer's portion of the insurance premium is simply added to the employee's income?

Position: No.

Reasons: The employees, under the terms of the particular plan, must be legally obligated to pay all such premiums. In this case, the employer appears to be legally responsible for at least 50% of the premiums.

Technical Interpretation - Internal

29 July 2010 Internal T.I. 2010-0370771I7 - Non-taxable mileage allowance

Unedited CRA Tags
81(3.1)

Principal Issues: Does the exception apply in the particular situation.

Position: Question of fact but the conditions of 81(3.1) appear to be met.

Reasons: The law.

27 July 2010 Internal T.I. 2010-0374771I7 - Notice of Assessment Bearing Mistaken Information

Unedited CRA Tags
s. 128.1(1); s. 152((1), (3), (3.1), & (4)

Principal Issues: Whether mistaken information on a notice of assessment is fatal to its legal effectiveness.

Position: It depends on the nature of the mistake, but generally, a tax liability is not affected by an incorrect or incomplete assessment.

Reasons: Subsections 152(1), (3), (3.1), (4).

26 July 2010 Internal T.I. 2010-0370781I7 - POD - Purchase Price Adj for Debt

Unedited CRA Tags
54

Principal Issues: Whether a debt adjustment should be permitted as a reduction to POD in respect of a share sale.

Position: In this case, yes.

Reasons: The debt is corporate debt for which an undertaking had been provided to retire corporate debt within the purchase agreement. No benefit accrues to the shareholder vendors. Consistent with case law.

23 July 2010 Internal T.I. 2010-0374761I7 - Section 160 and Multiple Transfers of Property

Unedited CRA Tags
s. 152(3) & (8), 160

Principal Issues: Whether one assessment can be used to encompass a number of transfers of property.

Position: Yes.

Reasons: While an assessment does not create a liability, and is at most a confirmation of its existence, it is deemed to be valid and binding notwithstanding any error, defect, or omission therein. A tax liability is not affected by an incorrect or incomplete assessment.

16 July 2010 Internal T.I. 2010-0365121I7 - NR Partner's F/X Gain on Repayment of Debt

Unedited CRA Tags
ITA: 39(2); 115(1)(a)(iii); 115(1)(b); Canada-Japan Treaty: Article 13, paragraphs 2 & 4

Principal Issues: Is a non-resident partner subject to tax in Canada on foreign exchange gains incurred by a partnership as a result of settling a foreign-currency denominated debt?

Position: No

Reasons: A gain on the repayment of debt that is deemed by subsection 39(2) to be from a disposition of a currency of a country other than Canada cannot be regarded as arising from a disposition of taxable Canadian property, and as such is not taxable under 115(1)(b) of the Act. Debt owed by the partnership is not property to the partnership. It is property to the creditor, but not to the partnership as debtor. The repayment of the loan discharged the debt owed. Subsection 39(2) of the Act, in the context of a debt repayment, creates a deemed gain from the disposition of currency of a country other than Canada. However, the notional currency referred to in subsection 39(2) does not really exist. Thus, it is not possible to test such notional currency of a country other than Canada under the definition of taxable Canadian property to assess whether it is property used in the business.

12 July 2010 Internal T.I. 2010-0371141I7 - Moving Expenses

Unedited CRA Tags
62(3)(g)

Principal Issues: Can spouses or common-law partners each claim the $5,000 maximum provided for in 62(3)(g) in calculating the deduction of moving expenses.

Position: Yes

Reasons: The Act allows every taxpayer to deduct moving expenses incurred by the taxpayer in respect of an "eligible relocation" of that taxpayer.
CRA PUBLICATIONS: IT- 178R3
LEGISLATIVE REFERENCE: 62(3)(g)
HAA: No paper record.

23 June 2010 Internal T.I. 2010-0368161I7 F - 84.1

Unedited CRA Tags
84.1, 84.1(2), 84.1(2.2), 251(1)
Summary Under
Tax Topics - Income Tax Act - Section 84.1 - Subsection 84.1(2) - Paragraph 84.1(2)(b)
s. 84.1(2)(b) inapplicable to individual’s transfer of ½ of Opco to Holdco (owned by 3 unrelated individuals) for note and non-voting pref
Summary Under
Tax Topics - Income Tax Act - Section 84.1 - Subsection 84.1(2.2) - Paragraph 84.1(2.2)(b)
s. 84.1(2.2)(b) group can include a non-voting shareholder

Principales Questions: Three individuals ("A", "B" and "C") own all of the issued and outstanding shares of the capital stock of a holding corporation ("Holdco") in equal proportions. Holdco and another individual ("D") own all of the issued and outstanding shares of the capital stock of an operating corporation ("Opco") in equal proportions. D would dispose of his shares of the capital stock of Opco to Holdco in consideration for the issuance of one non-voting preferred share of the capital stock of Holdco and a note. Section 85 would apply to this share transfer. 1) Whether the deeming provision in paragraph 84.1(2)(b) would apply in this situation. 2) Whether shares have to be voting for the purpose of the application of paragraph 84.1(2.2)(b).

Position Adoptée: 1) No. 2) No.

Raisons: Wording of the Act and previous positions.

16 June 2010 Internal T.I. 2009-0344351I7 - Clearance Certificates

Unedited CRA Tags
s. 159 Income Tax Act, s. 86 Employment Insurance Act, s. 270 Excise Tax Act, s. 36 Canada Pension Plan

Principal Issues: Highlights of the legislation regarding clearance certificates not covered in the audit manual.

15 June 2010 Internal T.I. 2010-0360021I7 - Bursaries

Unedited CRA Tags
Regulation 200(2)

Principal Issues: (1) Whether a T4A slip is to be issued in the taxation year in which a bursary is awarded or when the bursary is credited to a student's account in a scenario where an educational institution awards a bursary to a student in 2009 but instead of being received by the student, the educational institution credits the student's account against future tuition? (2) Whether a third party that funds the bursary is responsible for issuing the T4A slip or whether it is the responsibility of the educational institution that awards the bursary?

Position: (1) Provided that no conditions are placed in relation to the use of the bursary when it is awarded in 2009, the student will be considered to have constructively received the amount in 2009 and the T4A slip will need to be issued by the end of February 2010 for the 2009 taxation year. Otherwise, the T4A slip will need to be issued in the taxation year in which the amount is used towards the student's tuition. (2) The educational institution could issue the T4A slip as agent on behalf of the non-profit. Otherwise, the non-profit organization will be required to issue the T4A slip.

Reasons: (1) Doctrine of constructive receipt (2) Pursuant to subsection 200(2) of the Income Tax Regulations, every payer of a research grant, scholarship, fellowship, bursary or prize must report the amount on a T4A slip. There is no exclusion to prohibit the educational institution to act as agent of the non-profit organization to issue the T4A.

2 June 2010 Internal T.I. 2010-0357921I7 - Replacement Property - Amalgamation

Unedited CRA Tags
44(1),44(5),87(2)(l.3),248(1)

Principal Issues: Can property acquired by a predecessor corporation, prior to an amalgamation, be considered to have been acquired by the amalgamated corporation for purposes of applying the replacement property rules found in section 44 of the Income Tax Act?

Position: Yes.

Reasons: See response.

19 May 2010 Internal T.I. 2008-0279441I7 F - Canadian-controlled private corporation

Unedited CRA Tags
125(7)
Summary Under
Tax Topics - Income Tax Act - Section 125 - Subsection 125(7) - Canadian-Controlled Private Corporation - Paragraph (a)
future acquisition right under a USA of 50% Canadian shareholder gave its non-resident shareholder de jure control of underlying corporation
Summary Under
Tax Topics - Income Tax Act - Section 251 - Subsection 251(5) - Paragraph 251(5)(b) - Subparagraph 251(5)(b)(i)
future acquisition right under a USA gave indirect 50% non-resident shareholder de jure control

Principales Questions: In the particular situation, whether the corporation is a Canadian-controlled private corporation.

Position Adoptée: No

Raisons: Exception provided in paragraph (a) of the definition of "Canadian-controlled private corporation" in subsection 125(7) applies.