Income Tax Severed Letters - 2010-10-29


2010 Ruling 2009-0349951R3 - Ptnshp contracting out pro services to ptnr corp

Unedited CRA Tags
125(7); 56(2); 96(1)

Principal Issues: Whether the active business income earned by a professional corporation carrying out services for a partnership as an independent contractor, where the sole common shareholder of the professional corporation is a partner of the partnership, would qualify for the small business deduction and not be restricted under the rules for specified partnership income or personal services business or other anti-avoidance provisions.

Position: No, provided the facts described in the ruling are accurate and proposed transactions set out in the ruling are carried out as described.

Reasons: The facts and the proposed transactions conform to the requirements set out by the ITRD for these types of proposed partnership reorganizations.

2010 Ruling 2010-0354081R3 - Partnership Reorg-Personal Services Business

Unedited CRA Tags

Principal Issues: Where a partner of a professional partnership creates a professional corporation through which professional services will be provided to the partnership, will the corporation be eligible for the small business deduction?

Position: Question of Fact. Generally yes, if certain conditions are met.

Reasons: Relevant legislation and consistent with other similar rulings.

2010 Ruling 2010-0356661R3 - Ptnshp contracting out pro services to ptnr corp.

Unedited CRA Tags
125(7); 56(2); 96(1)

Principal Issues: Whether the active business earned by a professional corporation that carries out services for a partnership as an independent contractor, where the sole common shareholder of the professional corporation is a partner of the professional corporation, would qualify for the small business deduction and not be restricted under the rules for specified partnership income or personal services business or other anti-avoidance provisions.

Position: No, provided the facts are accurate and the proposed transactions are carried out as described in the ruling.

Reasons: The facts and the proposed transactions, as described, conform to the requirements established by ITRD for these types of reorganizations.

2009 Ruling 2008-0273361R3 - Indian Band Operating a Limited Partnership

Unedited CRA Tags

Principal Issues: 1. Whether a Band's income received by it from a limited partnership will be exempt? 2. Whether interest paid by XXXXXXXXXX to XXXXXXXXXX will be deductible pursuant to paragraph 20(1)(c)? 3. Whether income paid to the members of a limited partnership will be reallocated on the basis of subsection 103(1) or (1.1).

Position: 1. Yes. 2. Yes. 3. Refused to rule.

Reasons: 1. By-laws under sections 81 and 83 of the Indian Act have been passed. 2. The income from the acquired party is not tax exempt. 3. It is a question of fact whether subsection 103(1) or (1.1) would apply and, in the particular circumstances, would depend not only on the capital invested, but on the worked performed by the general partner in managing the limited partnership.

Ministerial Correspondence

27 September 2010 Ministerial Correspondence 2010-0378021M4 - professional corporations

Principal Issues: whether optometrists are allowed to have non-voting shares of professional corporations held by family members under the Ontario Business Corporations Act.

Position: No. Referral to Minister of Government Services for Ontario.

Reasons: The law

31 August 2010 Ministerial Correspondence 2010-0375981M4 - refundable medical expense tax supplement

Unedited CRA Tags

Principal Issues: general explanation of the law regarding this refundable tax credit. Taxpayer would like the law changed so that individuals who are not in receipt of employment income or self-employment income would qualify for this credit.

Position: Referral to Department of Finance regarding taxpayer's request that the law be changed.

Reasons: N/A

9 August 2010 Ministerial Correspondence 2010-0377101M4 - Federal Transit Tax Credit

Unedited CRA Tags

Principal Issues: Would the federal transit pass tax credit include payments made in respect of a bike sharing program?

Position: No.

Reasons: The definition of "public commuter transit services" in subsection 118.02(1) of the Income Tax Act includes transportation by means of bus, ferry, subway, train, or tram. The transportation service offered by a public bike-sharing program does not qualify for the credit.

Technical Interpretation - External

26 October 2010 External T.I. 2010-0363341E5 - Related corporations

Unedited CRA Tags

Principal Issues: Where a person controls a corporation in a particular situation, could paragraph 251(5)(a) apply in that situation?

Position: No, where there is no provision stating otherwise in the Act, a group is not in position to control or does not control a corporation when a single person controls the corporation.

Reasons: The comments of the Federal Court-Trial Division in Southside Car Market Ltd. v. The Queen with respect to that principle apply even in circumstances where the shareholders are related and apply also for purposes other than the association rules.

22 October 2010 External T.I. 2010-0380821E5 - Business Investment Losses and Bad Debts

Unedited CRA Tags
20(1)(p),39(1)(c), 50(1)

Principal Issues: What is the amount of the bad debt at the end of year 1.

Position: General comments

Reasons: Insufficient information

22 October 2010 External T.I. 2010-0382581E5 - CCA for Class 14 Franchise Fees

Unedited CRA Tags
Regulation 1100(1)(c); 20(16); Regulation Schedule II Class 14

Principal Issues: How CCA is claimed for Class 14 property when a taxpayer terminates one franchise agreement but continues to be a party to another franchise agreement, both of which are Class 14 properties.

Position: The CCA is the lesser of: the aggregate of the CCA that may otherwise be claimed for each property of the class for the year (by continuing to apportion the capital cost of each agreement over the life of the agreement remaining at the time the cost was incurred); and the UCC. A terminal loss is available under subsection 20(16) only when the taxpayer no longer holds any Class 14 property.

Reasons: Regulation 1100(1)(c).

22 October 2010 External T.I. 2010-0381741E5 - Cash Purchase Tickets

Unedited CRA Tags
28(1), 76(4)

Principal Issues: Are cash purchase tickets described in subsection 76(4) of the Act inventory for the purposes of the optional inventory adjustment in paragraph 28(1)(b) of the Act or the mandatory inventory adjustment in paragraph 28(1)(c) of the Act?

Position: No.

Reasons: The law.

20 October 2010 External T.I. 2010-0382651E5 - Capital Gains Deduction

Unedited CRA Tags
110.6; 84.1; 251(2).

Principal Issues: Whether a gain on CCPC shares sold to a corporation owned 100% by the taxpayer's brother-in-law would qualify for the capital gains deduction under section 110.6 of the Act.

Position: Question of fact as it depends on the application of section 84.1 and the share and/or non-share consideration received.

Reasons: In general, section 84.1 will apply where an individual transfers shares of a corporation resident in Canada to another corporation with which the individual does not deal at arm's length.

20 October 2010 External T.I. 2010-0377821E5 - Part XIII tax on pensions, severance, annual leave

Unedited CRA Tags
2(3); 115(1)(a); 212(1(h); 212(1)(j.1); 214(1); 217; 248(1)

Principal Issues: 1- Does Part XIII tax apply to pension and severance payments paid to a non-resident by a Canadian resident? 2 - Does Part XIII tax apply to annual leave credits paid to a non-resident by a Canadian resident? 3- Is Part XIII tax paid on gross receipts or are deductions permitted?

Position: 1 - Yes; 2 - No; 3 - On gross amounts

Reasons: 1 - In accordance with paragraphs 212(1)(h) and (j.1), Part XIII tax is applicable on pension and severance payments paid by a Canadian resident to a non-resident, unless the individual qualifies for one of the listed exemptions. 2 - The annual leave credit payment is subject to income tax under paragraph 115(1)(a) of the Act and not subject to Part XIII withholding tax. 3 - In accordance with subsection 214(1) of the Act, Part XIII tax is applicable on gross amounts paid.

19 October 2010 External T.I. 2010-0369671E5 F - Révision d'une déduction pour amortissement

Unedited CRA Tags

Principales Questions: Est-il possible de demander une révision d'une déduction pour amortissement prise dans une année d'imposition antérieure lorsque le bien en question est détenu par une société de personne?

Position Adoptée: Question de fait.

Raisons: Toutes les conditions du paragraphe 10 du IC-84-1 doivent êtres respectées par tous les associés de la société de personnes.

14 October 2010 External T.I. 2010-0378631E5 - Reimbursement of Air Miles

Unedited CRA Tags
9(1); 15(1); 6(1)(a)

Principal Issues: Tax consequences when corporation reimburses a shareholder/employee for using personal Air Miles to pay for business-related travel.

Position: It is a question of fact.

Reasons: Generally a reimbursement would be deductible by the corporation and would not be taxable to the employee where it is clearly established that the employee used his personal Air Miles to pay for business travel, and the reimbursement does not exceed fair market value of the tickets obtained.

1 October 2010 External T.I. 2009-0351971E5 - Social Assistance payments

Unedited CRA Tags
56(1)(u), 110(1)(f), 118.2(3)(b), Reg 233(2)

Principal Issues: Are funds provided under a Provincial Self-Managed Care Program used to hire attendant care considered a reimbursement of medical expenses under paragraph 118.2(3)(b)?

Position: Yes.

Reasons: Paragraph 118.2(3)(b) is intended to exclude the cost of medical expenses that are paid to the taxpayer to the extent they are not included in the taxpayer's income. The word 'reimbursement' is sufficiently broad to include this type of social assistance in its meaning.

1 October 2010 External T.I. 2010-0357911E5 - Social assistance payments

Unedited CRA Tags
ITA p. 56(1)(u); ITA p.110(10)(f); Reg. s. 233

Principal Issues: What are the organization's reporting requirements under the Act for grants provided to individuals under an off-reserve Aboriginal housing program?

Position: Question of fact but, where amounts are excluded from T5007 reporting by subsection 233(2) of the Regulations, it is the practice of the CRA not to include these amounts in income.

Reasons: The payments do not appear to be a part of a series of payments.

30 September 2010 External T.I. 2010-0365391E5 - Amounts in respect of Non-resident dependants

Unedited CRA Tags

Principal Issues: Can an individual claim the Equivalent-to-spouse Tax Credit in respect of providing basic support for a parent who is a resident of a foreign country?

Position: Question of fact, but generally no.

Reasons: Parent must be resident in Canada & living with supporting individual.

29 September 2010 External T.I. 2010-0364081E5 - HRTC- Solar Batteries

Unedited CRA Tags

Principal Issues: Are the costs of installing batteries for use in solar electrical systems eligible for the home renovation tax credit?

Position: If the repairs are part of routine repairs and maintenance, normally performed on an annual or more frequent basis, the costs will not qualify for the HRTC. If the costs are restorative and not normally performed on an annual or more frequent basis, they will qualify for the HRTC.

Reasons: The definition of "qualifying expenditure".

24 September 2010 External T.I. 2010-0370841E5 - New disbursement quota rules for charities

Unedited CRA Tags
149.1(4.1), 149.1(1.1)

Principal Issues: Proposed paragraph 149.1(4.1)(d) as it applies to two hypothetical scenarios.

Position: General comments given.

Reasons: Based on the proposed amendments.

22 September 2010 External T.I. 2010-0379411E5 - Accounting for rent-to-own assets

Principal Issues: Should "rent-to-own" assets be treated as capital assets with capital cost allowance being claimed or as inventory which is expensed through the cost of goods sold.

Position: General comments provided.

Reasons: Depends on taxpayer's business.

20 September 2010 External T.I. 2010-0354201E5 - Eligible Tuition Fees

Unedited CRA Tags
118.5(1), 118.5(3)

Principal Issues: Are faculty member expenses for a Field School Program conducted overseas included as an additional program fee charged to students considered eligible tuition fees for purposes of Tuition Tax Credit under section 118.5?

Position: Question of fact but likely yes.

Reasons: Costs to make instructor available at overseas site are considered integral to the course and therefore a basic cost of instruction.

15 September 2010 External T.I. 2010-0373091E5 - PHSP

Unedited CRA Tags
6(1)(a)(i), 248(1), 118.2(2)

Principal Issues: Whether a particular plan qualifies as a PHSP

Position: Probably not.

Reasons: Conditions of PHSP are likely not met. Expenses do not appear to be restricted to eligible medical expenses pursuant to subsection 118.2(2). Element of risk may not be present where employer can terminate agreement without notice at sole discretion.

10 September 2010 External T.I. 2010-0367621E5 - Prov. allocation of ptnshp income to limited ptner

Unedited CRA Tags

Principal Issues: Whether a limited partner's allocation of partnership income to a province or provinces is based on where the partnership earned the income.

Position: Yes.

Reasons: A limited partner is considered to carry on the business of a partnership and paragraph 96(1)(f) deems a partner to have income from the same source or sources as the partnership.


8 June 2010 Roundtable, 2010-0363131C6 - 2010 STEP Conference Q13 - Gifts by Will

Unedited CRA Tags
118.1(5); 248(31)

Principal Issues: 1. How do you claim a gift made by will if the gift is not received by the charity by the due date for filing the terminal return?
2. How do you value the gift if the property changes in value between the date of death and when the property is transferred to the charity?

Position: 1. For gifts that will be received later, provide a copy of each of the following:
- the will;
- a letter from the estate to the charitable organization that will receive the gift, advising of the gift and its value; and
- a letter from the charitable organization
2. The value used to determine the eligible amount of the gift is the FMV at the time of death.

Reasons: 1. Administrative position contained in the guide, T4011, Preparing Returns for Deceased Persons 2009.
2. Pursuant to subsection 118.1(5), the gift is made at the time of death.