Income Tax Severed Letters - 2010-09-24

Ruling

2010 Ruling 2009-0349141R3 - Canada-United States Tax Convention

Unedited CRA Tags
Article XI and XXIX A(3) of the Canada-United States Tax Convention (1980); Subsection 18(6) of the Income Tax Act

Principal Issues: 1) Whether interest arising in Canada and beneficially owned by a resident of the United States is, pursuant to Article XXIX A(3) and Article XI of the Convention, only taxable in the United States; 2) Whether subsection 18(6) applies to certain loans between related Canadian corporations

Position: 1) Yes; 2) No

Reasons: 1) The interest is income derived in connection with an active trade or business in the United States that is substantial in relation to the activity in Canada giving rise to the income; 2) Subsection 18(4) is not frustrated or circumvented

2010 Ruling 2010-0359731R3 - Foreign Accrual Property Income

Unedited CRA Tags
91(1)

Principal Issues: Do the proposed transactions give rise to foreign accrual property income?

Position: No

Reasons: The proposed transactions involve the sale of property used exclusively in an active business.

2010 Ruling 2009-0342511R3 - Indirect transfer of surplus between RPPs

Unedited CRA Tags
56(1)(a)(i)

Principal Issues: Will a proposed distribution of surplus to an insolvent employer from one of its pension plans, and an immediate corresponding contribution by the employer to another of its pension plans, be includable and deductible in computing the employer's income?

Position: 1.Yes; 2. Yes

Reasons: 1. The surplus distribution will be received by the employer and thus includable in the employer's income under ITA 56(1)(a)(i).
2. The contribution satisfies the conditions in ITA 147.2(1) to be deductible: (i) the contribution will be made by the employer to an RPP in respect of the employer's former employees immediately upon receipt of the surplus distribution; (ii) the Registered Plans Directorate confirmed that the contribution will be an eligible contribution in accordance with ITA 147.2(2); and (iii) the contribution is to fund a wind up deficiency relating to benefits provided for service before the wind-up of the plan in XXXXXXXXXX .

2009 Ruling 2007-0220151R3 - funded pension plan

Unedited CRA Tags
18(10) 207.6

Principal Issues: Is the proposed plan an Employee Benefit Plan?

Position: Yes

Reasons: The Plan is not an RCA and there are no resident's contributions being made to it at the present time.

Ministerial Correspondence

14 December 2009 Ministerial Correspondence 2009-0343051M4 - TFSA and Superficial Loss

Unedited CRA Tags
54

Principal Issues: A taxpayer disposes of securities and realizes a capital loss and the taxpayer's TFSA immediately repurchases the securities. Will the taxpayer be denied the capital loss as it is a superficial loss pursuant to section 54 of the Act?

Position: Yes, it will be a superficial loss.

Reasons: A taxpayer's TFSA trust is considered an affiliated person with the taxpayer. Therefore, the situation as described will fall within the definition of "superficial loss" in section 54.

Technical Interpretation - External

17 September 2010 External T.I. 2010-0375621E5 - Shareholder loan

Unedited CRA Tags
15(2)

Principal Issues: Whether money advanced to a shareholder to pay a personal loan is included in income under 15(2) of the Act?

Position: Question of fact, but likely yes.

Reasons: The exceptions to the application of subsection 15(2) of the Act do not apply. in this specific fact situation.

15 September 2010 External T.I. 2009-0338621E5 - Social Assistance

Unedited CRA Tags
s. 56(1)(u), 110(1)(f), 233

Principal Issues: 1. Are payments made by the organization as part of its employment assistance services taxable to the payee?

Position: 1. Yes, the amounts are taxable as social assistance under paragraph 56(1)(u) and also subject to a deduction under paragraph 110(1)(f). However, where paragraph 233(2) of the Regulations applies to exempt the payer from issuing a T5007, it is the policy of the CRA to allow the payee to exclude the amount from income.

Reasons: 1. Where an amount is included under any other section of the ITA, p. 56(1)(u) is broadly worded to include payments made on a means, needs or income test basis.

15 September 2010 External T.I. 2010-0361981E5 - Issuing T2202 or T2202A

Unedited CRA Tags
118.5(1)(a)

Principal Issues: In what taxation year should the entity issue the T2202 orT2202A form if the programs are taken over different taxation years?

Position: The T2202A should reflect the amount paid by the student for the seminars attended in that taxation year.

Reasons: Prior positions

14 September 2010 External T.I. 2010-0376731E5 - Business Expense for Real Estate Agent

Unedited CRA Tags
18(1)(a), 18(1)(b), 18(1)(h), 67

Principal Issues: Can a self-employed real estate agent deduct incentives paid to buyers as a business expense?

Position: Generally yes, if paid in an arm's length situation and if all the criteria for deductibility under the Act are otherwise met.

Reasons: Similar to other incentives which qualify as marketing expenses.

14 September 2010 External T.I. 2010-0354771E5 - Employees working on ships

Unedited CRA Tags
6(1)(a), 6(6), 8(1)(h)

Principal Issues: 1. Are travel expenses deductible? 2. Can employees working on ships in the Great Lakes qualify for the special work site or remote work location exclusion?

Position: 1. Travel expenses would generally not be deductible. Question of fact but it appears that the remote work location exemption or special work site exception would not apply.

Reasons: See Response.

14 September 2010 External T.I. 2010-0378261E5 - Expropriation

Unedited CRA Tags
44

Principal Issues: Does the acquisition of a rental property for an infrastructure project qualify for the capital gain deferral under the replacement property rules in Section 44.

Position: A question of fact but probably yes.

Reasons: Taxpayer has received notification of intention to take property under statutory authority.

13 September 2010 External T.I. 2010-0374941E5 - Personal Use of an Automobile

Unedited CRA Tags
6(1); 6(2)

Principal Issues: Various scenarios regarding travel to and from home in an employer-provided automobile.

Position: Generally will be personal use except travel directly from home to a point of call other than the place of business to which the employee regularly reports, or to return home from that point.

Reasons: Travel between home and an employee's regular workplace is personal use.

13 September 2010 External T.I. 2010-0364781E5 - principal residence exemption

Unedited CRA Tags
54, 40(2)(b)

Principal Issues: Can an individual designate two different properties for different taxation years as his or her principal residence?

Position: Depends on the facts.

Reasons: If an individual meets the conditions of the term "principal residence" for each property for a particular tax year, an individual can allocate which tax years each property will be designated as his or her principal residence.

13 September 2010 External T.I. 2009-0339721E5 - Sabbatical moving expenses-allowable research cost

Unedited CRA Tags
56(1)(o)

Principal Issues: Are moving expenses under a sabbatical leave part of the allowable research expenses, as outlined in IT 75R4.

Position: Generally, no

Reasons: Part of the determination relates to whether the employer directs employee to work at new work location.

10 September 2010 External T.I. 2010-0366631E5 - 81(1)(h)

Unedited CRA Tags
81(1)(h)

Principal Issues: Whether social assistance received by (1) support home employees and (2) out-of-home respite support employees, under Alberta's Persons with Developmental Disabilities (PDD) Program are exempt from income tax under paragraph 81(1)(h)

Position: (1)The PDD program funding received by support home employees qualifies for the exemption under 81(1)(h). (2) The PDD Program funding received by respite support employees does not qualify for the exemption under 81(1)(h).

Reasons: (1) The cared-for individual resides in the support home employee's principal residence and the funding is received to cover the cared-for individual's basic needs such as food and shelter. Therefore, it is the type of social assistance payments ordinarily based on a means, needs or income test. (2) The cared-for individual does not reside in the respite employee's primary residence.

2 September 2010 External T.I. 2010-0367961E5 - Beneficial Ownership - Farm

Unedited CRA Tags
110.6(1), 110.6(1.3), 110.6(2), 248(1)

Principal Issues: Is there a change in beneficial ownership when a taxpayer transfers legal title to a property to her friend in order to avoid creditors?

Position: General answer.

Reasons: Question of fact. The transaction is already completed.

30 August 2010 External T.I. 2010-0372311E5 - Charitable gifts involving tax shelters

Unedited CRA Tags
ITA: 13(1); 13(26-31); 18(1)(b); 20(1)(a); 54; 69(1); 118.1(3); 118.1(6); 248(1); 248(35); 248(37); Regulations: 1100 (24); 1102; 3501; Schedule II - Class 43.1 and 43.2

Position: General comments provided.

13 July 2010 External T.I. 2009-0348951E5 - Taxation of payments made by union to its members

Unedited CRA Tags
56(1)(a)(ii), 248(1) "retiring allowance"

Principal Issues: Will certain payments made by a union to its members be considered to be a retiring allowance or a non-taxable payment?

Position: The payments to the members constitute a retiring allowance and are thus includable in income under paragraph 56(1)(a)(ii) of the Act.

Reasons: The payments satisfy the two-prong test established by the courts for the purpose of determining whether a payment is a retiring allowance.

15 June 2010 External T.I. 2010-0352921E5 - Transfer of securities into an RESP

Unedited CRA Tags
ITA 39(1), 40(2)(g), 146.1, 248(25), 251.1

Principal Issues: (1) Is a taxpayer required to report a capital gain incurred on a transfer of securities into a Registered Education Savings Plan ("RESP")? (2) Can a taxpayer report a capital loss incurred on a transfer of securities into an RESP?

Position: Any taxable capital gain arising on the disposition of securities to an RESP trust is required to be included in computing income. Any resultant capital loss, however, is deemed to be nil for tax purposes to the extent that it is a "superficial loss".

Reasons: Both an in-kind contribution of securities to an RESP trust and an exchange of securities for cash or other securities of equal value held by the RESP trust (i.e., a "swap") are considered a "disposition" as defined in 248(1); the proceeds of disposition of the securities is equal to their fair market value at the time of their disposition.

11 May 2010 External T.I. 2010-0360261E5 - Lottery Ticket Winnings Taxable Benefit

Unedited CRA Tags
6(1)(a);40(2)(f); 52(4)

Principal Issues: Whether a lottery ticket and the winnings from a lottery ticket, given to an employee by the employer as a reward, are taxable?

Position: Question of fact.

Reasons: An award for performance-related reasons does not qualify for CRA's current policy on gifts or awards. The taxpayer is required to include in income from office or employment the value of benefits of any kind whatever received or enjoyed in the year in respect of, in the course of, or by virtue of, an office or employment. A prize from a draw as a result of a ticket provided to the employee by the employer would not be a benefit of employment in certain circumstances such as when the draw is open to the general public, the draw is not operated or controlled by the employer, and the prize is not provided by the employer. Lottery winnings are generally not taxable as they are not considered income from a source, pursuant to 40(2)(f).

2010-036026
XXXXXXXXXX Gillian Godson
(613) 957-9229
May 11, 2010

1 December 2009 External T.I. 2008-0303791E5 - TFSA Contributions - Warrants

Unedited CRA Tags
4900(1)(e)

Principal Issues: What are the tax consequences where an "out-of-the-money" warrant is contributed to a TFSA?

Position: It is the CRA's position that the intrinsic value of a warrant is not reflective of a warrant's FMV and that a valuation method that is appropriate in the particular circumstances should be used to determine the FMV of a warrant. Property contributed to a TFSA must be contributed at its FMV and is subject to the TFSA holder's unused TFSA contribution room.

Reasons: The law and CRA's position concerning the FMV of property such as options, warrants or similar rights, where the property is contributed to a TFSA.

5 November 2009 External T.I. 2008-0305231E5 - Deliberate TFSA over-contributions

Unedited CRA Tags
Part XI.01 146.2

Principal Issues: Is an individual permitted to make deliberate TFSA over-contributions, subject only to the individual paying the applicable 1% per month over-contribution tax?

Position: No.

Reasons: Department of Finance News Release dated October 16, 2009 proposed amendments to make any income reasonably attributable to deliberate overcontributions subject to the existing TFSA advantage rules. Pursuant to these rules, the tax payable on the income will be 100%.

30 October 2009 External T.I. 2009-0305501E5 - In-Kind contributions to a TFSA

Unedited CRA Tags
4900(14)

Principal Issues: Can private corporation shares be contributed to a TFSA?

Position: Shares of a specified small business corporation, provided they are not a prohibited investment, are a qualified investment for a TFSA. In-kind contributions are permitted to TFSAs and must be at FMV and subject to the TFSA holder's unused TFSA contribution room. As per the Dept. of Finance News Release on Oct. 16, 2009, asset transfer transactions (swaps) are not permitted after the date of the news release.

Reasons: Subsection 4900(14) of the Income Tax Regulations.

30 October 2009 External T.I. 2009-0305431E5 - Contributions to TFSA - Warrants

Unedited CRA Tags
4900(1)(e)

Principal Issues: What is the fair market value of warrants that are contributed to a TFSA? Is it the warrants' intrinsic value?

Position: Question of fact.

Reasons: It is the CRA's position that an appropriate valuation method should be used in the particular circumstances to determine the fair market value of an option, warrant or similar right that is contributed to a TFSA. The intrinsic value of a warrant my not be reflective of the warrant's fair market value.

29 October 2009 External T.I. 2009-0307451E5 - Swaps between TFSAs and RRSPs

Unedited CRA Tags
207.01 146

Principal Issues: Can a taxpayer swap property between the taxpayer's TFSA and RRSP?

Position: No.

Reasons: Department of Finance News Release dated October 16, 2009.