Income Tax Severed Letters - 2011-02-04

Principal Issues: Is a third party storage facility, where inventory of a U.S. resident is stored, and from where Canadian orders are shipped, deemed not to be a permanent establishment pursuant to the paragraph 6(a) of Article V of the Canada - US Tax Convention

Position: Yes

Reasons: Such a facility is deemed by paragraph 6(a) of Article V of the Canada - US Tax Convention not to constitute a permanent establishment if it is used solely for the purpose of storage, display, or delivery of goods belonging to the U.S. resident.

Principal Issues: 1. Are gifts received from a customer subject to income tax? 2. Where the gift is donated to an employer's social committee and then awarded to another employee, is the original recipient of the gift subject to income tax on the gift? 3. Where the gift is donated to an employer's social committee and then awarded to another employee, is the person receiving the gift from the social committee subject to tax on the gift?

Position: 1. Yes 2. Yes 3. No, as long as the social committee is not funded by the employer.

Reasons: 1. Other remuneration received by virtue of employment is included in income in accordance with section 5 or 6 of the Act. 2.& 3. Gifts received by virtue of employment are included in income in accordance with section 5 or 6 of the Act even if the gifts are donated to the social committee. In accordance with CRA's administrative policy, gifts received by an employee from an employer's social committee are not a taxable benefit as long as all employees have a chance to "win" the gift and the employer does not fund the social committee for purposes of the activity awarding the gift.

Principal Issues: Whether personal loans from a company repaid with dividends each fiscal year by a shareholder, would meet the exemption under 15(2.6).

Position: Maybe

Reasons: It is a question of fact if the loans meet the criteria for repayments within one year, and are structured under bona fide terms.

Principal Issues: Whether a future income tax asset should be included in variable A of the formula in subsection 89(8). Whether a future income tax liability should be included in variable D of the formula in subsection 89(8).

Position: No to both questions.

Reasons: Wording of the Act.

Principal Issues: Can an artist claim previously unreported expenses against future income?

Position: Question of Fact

Reasons: The determination of whether a taxpayer has a business activity throughout a period without earning income in any year is an objective determination to be made from all the facts.
Where it is determined that the taxpayer's activity is a business, amendments may be made to the ten (10) prior Income Tax and Benefits Returns to include any otherwise deductable unclaimed reasonable business expenses.
Generally speaking, where reasonable business expenses are greater than income, a non-capital business loss may be created. Interpretation Bulletin IT-232, "Losses - Their Deductibility in the Loss Year or in Other Years" provides general guidance for applying the non-capital losses created in one taxation year to net business income in prior and subsequent taxation years.

Principal Issues: Whether a letter received is sufficient to confirm that a purchase of a property will be an involuntary disposition for the purposes of section 44 of the ITA.

Position: We cannot provide a binding opinion except in the form of a ruling.

Reasons: The taxpayer should contact local TSO for a review of all relevant facts and documentation.

Principal Issues: How does a general partner show no self-employed income from a [50/50] general partnership during the benefit period under the [new] initiative "Employment Insurance Benefits for Self-Employed People (EIBforSEP)"?

Position: Any such agreed allocation of partnership income is generally acceptable, subject, of course, to the anti-avoidance provisions in section 103.

Reasons: Previous files

Principal Issues: Various issues on the application of the tracking property rules.

Position: See below.

Reasons: See below.

Principal Issues: 1. Whether a post-doctoral fellowship is exempt from tax.

Position: 1. Generally, no.

Reasons: 1. In our view, post-doctoral fellows receive either employment income or research grants.

Principal Issues: 1. Would the application of subsection 104(2) of the Act to the two trusts preclude the application of subsection 70(6) to the properties transferred on a tax deferred basis to the trusts? 2. If subsection 104(2) is applied to the trusts as noted above, would only one T3 return need to be filed? 3. If a valid declaration affecting a life insurance policy on the life of the taxpayer provides that the proceeds thereof are payable to the named persons, who are the trustees of the two trusts referred to above, and directs that the insurance proceeds are to be held by the trustees, and invested and distributed in accordance with the provisions in the wills and that such proceeds are to be added to the capital of one or both, of such trusts, would the addition of the insurance proceeds into one or both of the trust funds in and of itself preclude the application of subsection 70(6) of the Act in respect of other properties transferred to the trusts?

Position: 1. It depends on the facts; 2. A T3 return must be filed for each trust; and 3. It depends on the facts in each case.

Reasons: 1. legislation; 2. legislation and administration of ITA; and 3. legislation.

Principales Questions: Comment se calcule le PBR d'une participation pour un commanditaire dans une société en commandite?

Position Adoptée: En vertu de l'alinéa 53(1)e), lors du calcul du PBR de la participation d'un associé dans une SEC, seul le revenu ou la perte de la société de personnes pour les exercices déjà terminés sera pris en compte. Par ailleurs, en vertu du sous-alinéa 53(2)c)(v), il faut déduire dans le calcul du PBR, toutes sommes reçues à un moment donné, au titre de l'attribution de sa part des bénéfices ou du capital de la société de personnes.

Raisons: Application de la Loi. Les dispositions 53(1)(e) et 53(2)(c)(v) et du paragraphe 40(3.1) de la Loi sont claires et sans ambiguïtés. Confome aux Nouvelles techniques no 5.

Principal Issues: Whether the years of service with a predecessor school board that had amalgamated to form the current new school board may be included in calculating the amount under 60(j.1)(ii)?

Position: Yes

Reasons: The service will likely fit under 60(j.1)(iv). Rulings has previously opined that there was generally no loss of employment on school board amalgamations.

Principal Issues: Taxpayer incurred losses inside his RRIF and is requesting a special ruling allowing him to deduct these losses from his taxable income.

Position: No.

Reasons: There is no provision in the Income Tax Act which allows a taxpayer to deduct losses incurred in a RRIF against taxable income.

Principal Issues: Are contributions made to an RRSP in the 89-day period immediately before an HBP withdrawal from that RRSP fully deductible if the taxpayer had at least $25,000 in that RRSP before the 89-day period? Does the spousal attribution rule in subsection 146(8.3) apply to an amount withdrawn under the HBP?

Position: Yes. No.

Reasons: Subparagraph 146(5)(a)(iv.1) only restricts the deduction if the amount remaining in an RRSP after the HBP withdrawal from that RRSP is less than the contributions made in the 89-day period immediately before the HBP withdrawal. Subsection 146(8.3) can only apply if an amount is required to be included in income under subsection 146(8) or paragraph 146(12)(b). Since eligible HBP withdrawals do not have to be included in income, attribution does not apply to these withdrawals.