Income Tax Severed Letters - 2010-10-22

Ruling

2010 Ruling 2009-0337671R3 - Internal reorganization - 55(3)(a)

Unedited CRA Tags
39(2); 55(3)(a); 89(1) excessive eligible dividend designation; 245(2)

Principal Issues: Internal reorganization within a related group.

Position: Favourable rulings/opinions provided.

Reasons: In compliance with the law and previous positions.

2010 Ruling 2008-0303431R3 - Merger of fee simple and leasehold interests

Unedited CRA Tags
12(1)(x); 13(5.1), (5.4); 13(21); 20(1)(m.2); 40(2)(g)(iii); 54; and 69

Principal Issues: Merger of the fee simple interest with different leasehold interests, repayment of pre-paid rent and some of the leasehold improvements.

Position: Ruling issued.

Reasons: Satisfied all statutory and administrative requirements.

Ministerial Correspondence

4 October 2010 Ministerial Correspondence 2009-0350191M4 F - Stagiaires postdoctoraux

Unedited CRA Tags
56(1)n); 6(1)a); 56(1)o)

Principales Questions: Les bourses d'études qui sont octroyées aux stagiaires postdoctoraux peuvent-elles bénéficier de l'exemption totale d'impôt applicable aux bourses d'études et de perfectionnement?

Position Adoptée: Non.

Raisons: Les stagiaires postdoctoraux ne sont pas des étudiants qui sont admissibles au crédit d'impôt pour études.

Technical Interpretation - External

13 October 2010 External T.I. 2010-0366801E5 F - Impôt minimum à reporter/réduction d'impôt

Unedited CRA Tags
153(1.1), 120.2
Summary Under
Tax Topics - Income Tax Act - Section 153 - Subsection 153(1.1)
AMT balance can be carried forward for use in s. 153(1.1) reduction

Principales Questions: L'Agence du revenu du Canada peut-elle accepter de réduire des retenues d'impôt à la source d'un particulier sur production du formulaire T1213 Demande de réduire des retenues à la source, et présentation du solde de l'impôt minimum de remplacement à reporter?

Position Adoptée: Chaque cas doit être examiné individuellement. Possiblement si un contribuable fournit des preuves raisonnables que les retenues d'impôt effectuées sur son revenu dans une année sont supérieures à la somme nécessaire pour s'acquitter de sa dette fiscale dans l'année.

Raisons: Le paragraphe 153(1.1) de la Loi de l'impôt sur le revenu confère au Ministre un pouvoir discrétionnaire d'autoriser un montant réduit d'impôt à retenir.

12 October 2010 External T.I. 2010-0371931E5 F - T5 Information Returns

Unedited CRA Tags
201 Règlements, 12(9)
Summary Under
Tax Topics - Income Tax Regulations - Regulation 201 - Subsection 201(4)
T5 slip should report Reg. 7000 interest and interest coupon payments net of previous accruals thereof

Principales Questions: Est-ce que l'ARC serait prêt à enlever l'obligation de produire des feuillets T5 dans une situation donnée?

Position Adoptée: Non.

Raisons: Pas nécessaire.

8 October 2010 External T.I. 2010-0379151E5 - Banker's Acceptance

Unedited CRA Tags
12(1)(c), 12(3), 12(4), 12(9), 20(1)(c)

Principal Issues: Tax treatment of a banker's acceptance, including a disposition.

Position: Accrued interest income taxable pursuant to paragraph 12(1)(c). Possible capital gain or loss in the case of a disposition prior to maturity.

Reasons: As provided for in the Act.

7 October 2010 External T.I. 2010-0379941E5 - Interest accrued and reported but not received

Unedited CRA Tags
12(1)(c), 12(1)(d), 20(1)(l), 20(1)(p)

Principal Issues: Can an investor claim a deduction where interest income has been accrued and reported but not received?

Position: The investor may be eligible to claim a reserve for doubtful debt or a bad debt write off.

Reasons: Paragraph 20(1)(l) of the Act allows a reasonable amount to be claimed as a reserve in respect of doubtful debts, while paragraph 20(1)(p) allows a deduction for bad debts.

7 October 2010 External T.I. 2009-0344201E5 - Canada-US Tax Convention

Unedited CRA Tags
Articles IV(7)(b), XXI, XXIX A Canada-US Tax Convention

Principal Issues: Is a US charitable organization eligible for the exemption from Canadian withholding tax provided in Article XXI of the Convention in respect of an item of income received from a Canadian-resident ULC that is fiscally transparent under the laws of the US?

Position: No

Reasons: Article IV(7)(b) applies after 2009 to deem the item of income not to be derived by the charitable organization

6 October 2010 External T.I. 2008-0302951E5 F - Stagiaires postdoctoraux

Unedited CRA Tags
56(1)n); 6(1)a); 56(1)o)
Summary Under
Tax Topics - Income Tax Act - Section 56 - Subsection 56(3) - Paragraph 56(3)(a) - Subparagraph 56(3)(a)(ii)
postdoctoral fellows are ineligible for the full scholarship exemption

Principales Questions: Les bourses d'études qui sont octroyées aux stagiaires postdoctoraux peuvent-elles bénéficier de l'exemption totale d'impôt applicable aux bourses d'études et de perfectionnement?

Position Adoptée: Non.

Raisons: Les stagiaires postdoctoraux ne sont pas des étudiants qui sont admissibles au crédit d'impôt pour études.

4 October 2010 External T.I. 2010-0371781E5 - Indian Act-Employment Income; leased labour

Unedited CRA Tags
81(1)(a)

Principal Issues: 1. Will employment income earned by Indians be exempt from tax where the employees are leased by a company to perform work on territorial lands?
2. What is the responsibility of the employer for withholdings?

Position: 1. The employment income is likely taxable in this scenario.
2. See document.

Reasons: 1. The employment income likely does not fall within the Guidelines.
2. Taxable income earned by an Indian is subject to withholdings.

4 October 2010 External T.I. 2010-0367231E5 F - Convention de partage d'une société de personnes

Unedited CRA Tags
103(1), 103(1.1)
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 103 - Subsection 103(1.1)
s. 103(1) or (1.1) could apply to allocation of ordinary income and capital gains on substantially different basis between couple and their corporation

Principales Questions: Est-ce que les dispositions 103(1) ou 103(1.1) pour modifier le partage des revenus provenant d'une SENC?

Position Adoptée: Question de fait. En l'espèce, il est possible que oui.

Raisons: Nous sommes d'avis qu'à première vue, la répartition du revenu ne tient pas compte de l'apport de chaque associé. De plus, le paragraphe 103(1) peut être invoqué si l'ensemble de tous les faits en l'espèce démontrent qu'il est raisonnable de considérer que la Convention a pour objet principal à réduire l'impôt ou à en différer le paiement en vertu de la Loi.

30 September 2010 External T.I. 2010-0373951E5 - Wind energy conversion system

Unedited CRA Tags
Class 43.2, 1100(24) - (29), 1219

Principal Issues: CCA classification of a wind energy conversion system.

Position: General comments provided
CRA PUBLICATIONS: 2007-025013, 2004-010360, 2006-016936

29 September 2010 External T.I. 2010-0368431E5 - Education Tax Credit for internships

Unedited CRA Tags
118.6(1)

Principal Issues: Does ¶7 of IT 515R2 apply to internship programs?

Position: Yes

Reasons: Legislation

29 September 2010 External T.I. 2010-0364111E5 - Tax Implications of Scholarship Program

Unedited CRA Tags
6(1)(a); 56(1)(n); 56(3); 118.5; 118.6(2); 251(1)(a); 251(1)(b); 251(2); 200(2)(a) ITR

Principal Issues: The taxability of amounts paid under an employer's scholarship program.

Position: If the amounts are paid by an arm's length employer for a post-secondary school educational program for an employee's family member, the amounts are taxable to student. If the amounts are paid by a non-arm's length employer, the same amounts are taxable to the employee.

Reasons: CRA's revised policy for employer-provided scholarship programs for arm's length scenario. CRA's original policy would be applicable for employer-provided scholarship programs for non-arm's length scenario.

28 September 2010 External T.I. 2010-0373811E5 - "Approved" Status

Unedited CRA Tags
37(1)(a)(ii); 37(7); 248(1)

Principal Issues: "Approved" status requested by XXXXXXXXXX that will assume the activities carried out by XXXXXXXXXX , conducting more than $XXXXXXXXXX in research annually.

Position: Approval recommended.

Reasons: Information submitted meets the conditions for approval, as set out in Application Policy Paper 96-10 which provides certain requirements to be met in respect of (a) SR&ED, (b) facilities and personnel (c) non-profit status (d) the public as beneficiary and (e) adequate funding for the SR&ED activities. These requirements are described, respectively, in this letter at (i) paragraphs 1, 2, 5, 6, and 7, (ii) paragraph 1, 3, 4 and 5, (iii) paragraphs 8, 9 and 10, (iv) paragraphs 2, 11, 12, 13, 14, and 15 (v) paragraphs 16 and 17.

28 September 2010 External T.I. 2010-0357141E5 F - Prix de présence et tirages

Unedited CRA Tags
9(1); 5(1); 6(1)a)
Summary Under
Tax Topics - Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a)
promotional prize as income to employee of third party
Summary Under
Tax Topics - Income Tax Act - Section 9 - Nature of Income
business income from draw won by brokerage

Principales Questions: Quel est le traitement fiscal des prix de présence et des prix provenant de tirages échelonnés qui sont versés aux propriétaires de bureaux de courtage et à leurs employés.

Position Adoptée: Lorsque les prix sont versés aux propriétaires des bureaux de courtage, les prix devront être inclus dans le calcul du revenu provenant d'une entreprise. Lorsque ce sont les employés qui reçoivent les prix, ceux-ci devront être inclus dans le calcul du revenu provenant d'un emploi.

Raisons: Les prix proviennent soit de l'exploitation d'une entreprise soit d'une charge ou d'un emploi.

27 September 2010 External T.I. 2010-0371671E5 - "Approved" status

Unedited CRA Tags
37(1)(a)(ii), 37(7), 248(1)

Principal Issues: "Approved" status requested by the XXXXXXXXXX , where the XXXXXXXXXX , a previously approved research institute for scientific research & experimental development (SR&ED), was transferred in whole to XXXXXXXXXX .

Position: Approval denied.

Reasons: From a review of the documents submitted we have noted that XXXXXXXXXX can acquire a subsidiary corporation, does not have a satisfactory provision for the distribution of assets upon dissolution, will carry on activities other than SR&ED such as giving awards and scholarships and has been making honoraria payments to board members. Accordingly, it is our view that XXXXXXXXXX does not meet the requirements for "approved" status under clauses 37(1)(a)(ii)(A) and (B) as set out in Application Policy SR&ED 96-10.

23 September 2010 External T.I. 2010-0377261E5 - Taxable Benefits - Internet and Phone Service

Unedited CRA Tags
6(1)(a)

Principal Issues: What is the taxable benefit treatment of discounted rates for Internet and phone services provided by an employer?

Position: Generally the fair market value of the benefit should be included in the taxpayer's income. Where an employee requires the services to work from home, the business use portion of the discount on services would not be a taxable benefit.

Reasons: Previous positions taken.

15 September 2010 External T.I. 2010-0362841E5 - Qualifying Home for HBTC

Unedited CRA Tags
118.05(1); 146.01

Principal Issues: Does a home where construction started in May 2008 and an occupancy permit is issued in July 2009, fulfill the definition of a qualifying home for the HBTC?

Position: Yes

Reasons: Legislation

Conference

8 June 2010 Roundtable, 2010-0363191C6 - Capital dividend account - beneficiary of a trust

Unedited CRA Tags
89(1)

Principal Issues: In a situation where a corporation is the beneficiary of a trust and where the trust receives a capital dividend in its taxation year, pays an amount with respect to that capital dividend to the corporate beneficiary during that taxation year and designates the amount in respect of the corporate beneficiary pursuant to subsection 104(20), when does the corporate beneficiary add, in its capital dividend account, the amount received from the trust and designated under subsection 104(20)?

Position: The amount designated by the trust in respect of the corporate beneficiary under subsection 104(20), and that was paid to that beneficiary at or before the end of the trust's taxation year, can be added to the corporation's capital dividend account at the end of the trust's taxation year.

Reasons: Before the end of the trust's taxation year, the condition requiring that the trust be resident in Canada throughout its taxation year during which the trust received a capital dividend would not be met. Furthermore, the trust cannot designate an amount under subsection 104(20) before the end of the year

8 June 2010 Roundtable, 2010-0362321C6 - Estate Refreeze Transaction

Unedited CRA Tags
15(1); 56(2); 69(1)(b); 246(1); 245(2); 51(2); 86(2); 85(1)(e.2

Principal Issues: The CRA has a position that an estate refreeze transaction in circumstances where the value of a corporation decreases after the implementation of an estate freeze transaction does not result in the conferral of a benefit on the common shareholders or the preferred shareholder(s) provided that the decrease in value of the corporation is not the result of the stripping of corporate assets and the fair market value of the new preferred shares is equal to the fair market value of the old preferred shares at the time of the refreeze. Question (a) Provide examples of transactions that might be considered to be the stripping of corporate assets. Question (b) In a situation where a dividend is paid, followed by a decrease in value of the corporation, whether such decrease in value would be considered to be the result of the stripping of corporate assets. Question (c) Whether the payment of a bonus or salary to a beneficiary of the freeze who is active in the business would be viewed as the stripping of corporate assets. Question (d) Whether the position be different if the bonus or salary was paid to the beneficiary of the freeze in the ordinary course of the corporation's business or in connection with a post-freeze asset sale by the corporation. Question (e) What is the effect on the shareholders involved in an estate refreeze if there has been a reduction in the corporation's value as a result of the stripping of corporate assets.

Position: General comments provided. Question (a) Dividends that would be paid by the corporation on the common shares of its capital stock and that would impair the value of the original freeze preferred shares. The payment by the corporation of a bonus or salary to the beneficiary of the freeze in connection with a post freeze asset sale by the corporation, and such a bonus or salary is not commensurate with the value of the services performed and the responsibilities assumed by the beneficiary of the freeze. Question (b) As a general comment, we would be inclined to consider that the payment of dividends by a corporation should not preclude the application of the CRA's position, provided that such dividends are paid out of the corporation's retained earnings and that they do not impair the value of the original freeze preferred shares. However, where a dividend is paid and followed shortly thereafter by a decline in value, the CRA would need to examine, on a case-by-case basis, all the facts and circumstances relating to the particular transaction before taking a final position. Question (c) No, provided that such a bonus or salary is commensurate with the value of the services performed and the responsibilities assumed by the beneficiary of the freeze. Question (d) See answer to Question (a). Question (e) The CRA would examine the potential application of subsections 15(1), 56(2), 69(1), 246(1) and/or 245(2), among others. Furthermore, in cases where the refreeze transaction is not implemented on a fair market value basis, the application of subsection 51(2), 86(2) or paragraph 85(1)e.2) would also have to be considered.

Reasons: Wording of the Act and previous positions.

Technical Interpretation - Internal

13 October 2010 Internal T.I. 2010-0378421I7 - Permanent Establishment

Unedited CRA Tags
400(2) Income Tax Regulations

Principal Issues: In the context of ITR 400, whether an employee's home office can result in a permanent establishment and whether instead if an employer rents office space from which an employee works results in a permanent establishment.

Position: Generally speaking, a home office will probably not result in a permanent establishment unless the employee has the authority to contract for his employer or has a stock of merchandise owned by his employer from which he regularly fills orders which he receives. The fact that employer rents an office space from which an employee works will likely result in a permanent establishment if the day-to-day business activities of the corporation are carried on there.

Reasons: Previous positions taken. Court Cases.

12 October 2010 Internal T.I. 2010-0355761I7 F - PCMC - Dépense courante ou en capital

Unedited CRA Tags
9(1); 18(1)b)
Summary Under
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Expenditure v. Expense - Improvements v. Repairs or Running Expense
expenditure on Canadian film production can be current expense if it is only of short-term use
Summary Under
Tax Topics - Income Tax Regulations - Regulation 1106 - Subsection 1106(1) - Excluded Production - Paragraph (b) - Subparagraph (b)(i)
dealing with a currents topic does not render a program a news program
Words and Phrases
news programming

Principales Questions: Quels sont les critères pour établir si les frais liés à une PCMC sont une dépense de nature courante ou une dépense en capital à l'égard d'un bien amortissable?

Position Adoptée: Question de fait

Raisons: La Loi ne prévoit aucun critère spécifique à cet égard.

22 September 2010 Internal T.I. 2009-0333581I7 - Information Return - T106

Unedited CRA Tags
s. 152(4), 162(7), 161(11), 233.1

Principal Issues: 1. Whether s. 152(4) applies to a s. 162(7) penalty for a first-time late-filed Form T106.
2. How interest is calculated on a s. 162(7) penalty.
3. Whether the position in E2009-031252 correct that s. 162(7) operates only where the Minister demands a person to file an information return.
4. If a person files a Form T106 late, what is the Minister's authority to assess a late filing penalty under s. 162(7), if a gross negligence penalty has not been assessed?

Position: 1. This would depend on whether a prior assessment has been raised in respect of that particular year.
2. Interest is calculated as the greater of $100 and 25 times the number of days that the information is filed late to a maximum of $2,500. The interest is payable on any unpaid penalty from the day following that on which the information return is required to be filed.
3. No.
4. There is no authority.

Reasons: 1. Under s. 152(4), the Minister may assess at any time, but consideration to the normal reassessment rules in s. 152(3.1).
2. S. 161(11)(a).
3. The position in E2009-031252 that s. 162(7) applies only where the Minister serves a reporting person with a demand to file is inaccurate. Rather, s. 162(7) applies where there has been a breach of an obligation under the Act or the Regulations.
4. Construing the filing of an information return ten years late as gross negligence may not be sustainable; accordingly, an assessment of a gross negligence penalty under s. 163(2) may not apply. If there is no s. 163(2) penalty, there is no s. 162(7) penalty.

20 September 2010 Internal T.I. 2010-0375561I7 - Support Payments - Salzmann v The Queen

Unedited CRA Tags
56(1)(b); 56.1(3); 56.1(4); 60(b), 60.1(3), 62(1).

Principal Issues: 1. In light of the decision in Salzmann v The Queen, is a lump sum paid after an order or agreement to settle previous arrears of spousal support deductible? 2. What if the taxpayer was also ordered to pay retroactive child support in addition to retroactive spousal support? Would the child support have to be fully paid before the spousal support would be deductible? 3. What if at a later date there was a second court order/written agreement that ordered the taxpayer to pay retroactive increases to the periodic spousal payments ordered in the previous court order/agreement? Would a lump sum paid to settle the retroactive increases be eligible for the support deduction?

Position: 1. No. 2. Neither amount would be deductible. 3. The portion of the lump sum attributable to the retroactive increase would not be deductible.

Reasons: 1. As stated in paragraph 22 of IT-530R, a lump sum payment required by a court order or written agreement in respect of a period prior to the date of the order or agreement would not be considered a qualifying support amount for purposes of subsection 56.1(4) and would not be reflected in the formula in paragraph 60(b) for the purpose of computing the deduction. This view is supported by the FCA case in Tossell v The Queen [2005 FCA 223]. 2. & 3. Same reason.

15 September 2010 Internal T.I. 2010-0371521I7 F - French Version of paragraph 23 in IT-419R

Summary Under
Tax Topics - Income Tax Act - Section 251 - Subsection 251(1) - Paragraph 251(1)(c)
correction of French version of "not dealing at arm's length"

Principales Questions: Whether there is an error in the french translation of paragraph 23 in IT-419R?

Position Adoptée: Yes.

Raisons: The English expression "not dealing at arm's length" was translated in French with the expression "sans lien de dépendance" which is the opposite of not dealing at arm's length. Measures were taken to rectify the error at the first opportunity.

Le 15 septembre 2010