Income Tax Severed Letters - 2010-12-17

Principal Issues: Is a deceased taxpayer required to report a capital gain on homes that are in the deceased taxpayer's name but occupied by her children?

Position: Question of fact based on if the taxpayer had "beneficial ownership" of the properties.

Reasons: Paragraph (e) of the definition of "disposition" in subsection 248(1) provides that a disposition does not include any transfer of the property as a consequence of which there is no change in the beneficial ownership of the property.

Principal Issues: 1. What is the process for requesting an adjustment to a year that is not statute-barred?
2. When would interest be charged on the application of a loss carry-forward?

Position: 1. If the taxation year is not statute-barred, a letter requesting the adjustment would be sufficient.
2. The impact of the loss carry-forward will be ignored until 30 days after the request has been made for the adjustment; interest will be charged from the balance-due date until then.

Reasons: 1. IC 75-7R3
2. S. 161(7)(b)(iv)

Principal Issues: What are the tax consequences when a resident of Canada gifts property situated in XXXXXXXXXX to his daughter resident of XXXXXXXXXX ?

Position: Capital gain or loss, assuming the property is capital property.

Reasons: The property is deemed to be disposed of, and acquired, at fair market value. However, we do question why the daughter sold the property very shortly after the taxpayer gifted it to her.

Principal Issues: If, as a consequence of a gift, a charity holds a beneficial interest in an alter ego trust, will the restriction in subsection 118.1(13) apply in respect of the gift?

Position: Question of fact. It depends on whether the property held by the donor was a non-qualifying security of the donor within the meaning of subsection 118.1(18).

Reasons: The restriction in subsection 118.1(13) applies in respect of a gift of a non-qualifying security of the donor.

Principal Issues: 1) (a)Whether the income earned by a trust could qualify as "rent from real or immovable properties" as defined under paragraph 122.1(1) of the Act if the trust enters into a "master lease" on a net-net-net basis pursuant to which it would lease the entire premises (which would qualify as "real or immovable property" as defined under paragraph 122.1(1)) to a third party who would operate the property as a hotel or a residential care facility?
b) Whether rent based on the percentage of the gross rents received, as opposed to rent based on profits, would qualify as "rent from real or immovable properties" pursuant to subsection 122.1(1)?
c) Whether the reference to "revenu" of the French version of the Act in paragraphs (b) and (c) of the definition "real estate investment trust' in subsection 122.1(1) refers to gross sales or rentals, as opposed to the notion of "profit" described in subsection 9(1) of the Act?
2) Whether the portion of the income of a limited partnership (of which a trust is one of the limited partners) which would constitute "rent from real or immovable properties" pursuant to subsection 122.1(1) would retain its character as "rent from real or immovable properties" when allocated to the trust assuming the said limited partnership would satisfy the conditions set out as defined in subparagraph 122.1(1)(a)(i) of the definition of "real or immovable property"?
3) Whether a trust that invests solely in mortgages relating to immovable properties situated in Canada would qualify as a REIT pursuant to subsection 122.1(1)?
4) Whether that as of October 31, 2006 a trust-on-trust structure would qualify as a REIT pursuant to subsection 122.1(1) in circumstances where the investments of the subsidiary trust would satisfy the conditions of the definition of REIT?

Position: 1 a) General comments b) generally, yes, if the gross amount would also be rent from real or immovable property to the lessee c) revenue 2) We are inclined to consider that the trust derives its revenues from the same eligible sources as the limited partnership (such as rent from real or immovable properties).3) Question of fact-general comments 4) As a result of a modification to the definition of "rent from real or immovable properties" in subsection 122.1(1), where a trust that is a beneficiary of another trust, receives a payment from the other trust's income which is derived from rent from real or immovable properties, that payment could qualify for the purposes of the REIT revenue tests in subparagraph (b) and (c) of that definition.

Reasons: 1) and 2) Interpretation of the Act. 3) Very unlikely that the requirements of paragraphs (a) and (d) of the REIT definition be met 4) Change to the definition of "rent from real or immovable properties" (2009, c. 2, s. 50(1); royal assent of Bill C-10 received on March 12, 2009).