Income Tax Severed Letters - 2011-03-11

Principal Issues: Whether self-employed truckers are allowed to use the simplified method to calculate the cost of meal expenses.

Position: No.

Reasons: The simplified method cannot be used by anyone who is self-employed. They must keep receipts to support meal expenses claimed.

Principal Issues: Whether the CRA would extend the application of the exception in paragraph 55(3)(a) on an administrative basis where there is a breakdown of a common-law partnership? If the answer to the previous question is negative, whether the CRA would make a recommendation to the Minister of Finance seeking a revision to the definition of common-law partnership so that the exception in paragraph 55(3)(a) apply in such circumstances?

Position: (1) No; (2) This issue was brought to the attention of the Legislative Policy Directorate, Legislative Policy and Regulatory Affairs of the CRA. It was also suggested that the taxpayer's representative write directly to the Tax Policy Branch of the Department of Finance.

Reasons: The CRA is to administer and enforce the Act as passed by Parliament. The concern raised in this letter relates to tax policy, which is the responsibility of the Department of Finance.

Principal Issues: Does the full exemption from withholding taxes under the Canada-U.S. Tax Convention with respect to copyright royalties for the production and reproduction of motion pictures and other works for private home use, apply to the U.K., France and Thailand Tax Conventions.

Position: No

Reasons: Although the wording is similar to the other convention, the exemption under the Canada - U.S. Convention is based on its technical explanations.

Principal Issues: Whether naming rights granted in connection with a gift by a taxpayer would result in an advantage pursuant to proposed subsection 248(32), and whether the amount of such advantage, if applicable, is nil for purposes of proposed subsection 248(31).

Position: Question of fact.

Reasons: Where naming rights are provided in gratitude for a gift, the value of any advantage in respect of the gift would be determined at the time of the gift and based on the prospective economic benefit associated with the naming rights granted. If, having regard to the facts, there is no prospective economic benefit associated with the naming rights, it is our view that the amount of the advantage would be nil.

Principal Issues: At the STEP Conference Roundtable, the following question was posed: It is possible for control of a corporation to be acquired and for an amalgamation of the acquired corporation with one or more corporations to occur on the same day. Both the acquisition of control and the amalgamation results in a year end being triggered and a new taxation year. If no subsection 256(9) election is filed and the applicable amalgamation documents are silent as to the effective time of the amalgamation, would both the deemed year end resulting from the acquisition of control and the deemed year end resulting from the amalgamation occur at the same time being the commencement of the day on which these transactions occur? Clarification of our response was requested vis-à-vis the CRA's position as set out in paragraphs 10 and 11 of IT-474R2.

Position: Clarification provided.

Reasons: In accordance with the Act and our previous positions.

Principal Issues: Whether, for the farm rollovers to child, the "in-law" relationship between parents and the deceased child's spouse continues after the death of the child.

Position: No.

Reasons: CRA positions, Canadian case law and foreign case law/legislation.

Principal Issues: 1. What is the definition of a Wage Loss Replacement Plan for purposes of the Act? 2. Does the taxpayer's short term disability policy fit into the definition of a Wage Loss Replacement Plan? 3. Are payments under a short term disability plan pensionable earnings for CPP purposes?

Position: 1. See definition in letter 2. No 3. Referred to CPP/EI Rulings Division to respond directly to the taxpayer.

Reasons: 1. Generally, a WLRP is an arrangement between an employer and employees, or between an employer and a group or association of employees, under which the employees are compensated with payments on a periodic basis for the loss of employment income as a result of sickness, disability, maternity, or accident. 2. The taxpayer's short term disability policy is not an uninsured wage loss replacement plan as it is not based on insurance principles. 3. The issue is being referred to CPP/EI Rulings Division.

Principales Questions: Est-ce que des frais de pathologie payés à un médecin et des frais reliés à un rapport préliminaire d'une conseillère en génétique pour établir le risque du cancer du sein sont des frais médicaux en vertu du paragraphe 118.2(2).

Position Adoptée: Les frais de pathologie payés à un médecin semblent être des frais visés à l'alinéa 118.2(2)o). Toutefois, nous ne croyons pas que les frais reliés à un rapport préliminaire d'une conseillère en génétique soient des frais engagés pour maintenir la santé, prévenir les maladies et diagnostiquer ou traiter une blessure.

Raisons: Les frais doivent être engagés en vue de maintenir la santé, de prévenir les maladies et de diagnostiquer ou traiter une blessure.

Principal Issues: Whether amounts paid for a personal fitness trainer which has been prescribed by a physician for medical rehabilitation is an eligible medical expense for the METC.

Position: No.

Reasons: Conditions in paragraph 118.2(2)(a) are not met as the provision requires that amounts be paid to a medical practitioner, dentist or nurse or a public or licensed private hospital. One of the conditions in paragraph 118.2(2)(l.9) is that the therapy must be "administered under the general supervision of" a medical doctor, psychologist or occupational therapist. This condition is not met as a personal fitness trainer would not be considered to be administering therapy under the general supervision of a medical doctor, psychologist or occupational therapist.

Principal Issues: Whether fees paid to a surrogate to carry the embryo and deliver the baby for the biological parents qualify as eligible medical expenses of the biological parents for the purposes of the medical expenses tax credit ("METC").

Position: No.

Reasons: Such fees are not described in subsection 118.2(2). The decision in Zieber v the Queen, 2008 DTC 4175 (TCC) is not a precedent as it was under the informal procedure. Further, that case did not address amounts paid to the surrogate to carry and deliver the baby.

Principal Issues: Procedure for posting security

Position: General comments

Reasons: CRA's administrative position in IT259R4

Principal Issues: Whether the exception to the half-year rule in paragraph 1100(2)(v)of the Regulations applies to the property being leased by the corporation.

Position: It is a question of fact which depends on whether two requirements are met.

Reasons: The taxpayer must be a corporation that was throughout the year a corporation described in subsection 1100(16) of the Regulations and the taxpayer's property must be "specified leasing property". Subsection 1100(1.11) of the Regulations defines "specified leasing property" and subsection 1100(1.13) of the Regulations defines "exempt property".

Principal Issues: Whether the views expressed in documents 9610015 and 9733475 continue to be the position of the CRA with respect to the retroactive effect of the election in the post-amble of the definition "public corporation" for the purposes of the RRSP "qualified investment" rules.

Position: Yes.

Reasons: See 9610015 and 9733475.

Principal Issues: Whether a withdrawal fee charged to a TFSA arrangement per withdrawal transaction will be considered a distribution as defined in subsection 146.2(1)?

Position: No.

Reasons: It is a cost to the TFSA arrangement, such that it would not be a distribution.

Principal Issues: 1) Whether the shares of a Mortgage Investment Corporation ("MIC") are a prohibited investment for a trust governed by a Tax Free Savings Account ("TFSA"), where the holder of the TFSA owns directly or indirectly 10% or more of the shares of a MIC. 2) Whether a mortgage investment corporation can be an issuer of a TFSA?

Position: 1) Yes. 2) Provide general comments.

Reasons: 1) Pursuant to 207.01(1) of the Income Tax Act, where a TFSA holds investments in entities with which the holder of a TFSA does not deal at arm's length, including entities with which the TFSA holder has a significant interest, the investment will be a prohibited investment. 2) Wording of paragraph 146.2(1)(b).

Principal Issues: Whether an amount is a retiring allowance, if it was received by an employee upon or after termination of employment and the employee was subsequently rehired by the former employer?

Position: Yes, if there was no arrangement or assurance that the employee would be subsequently rehired.

Reasons: Interpretation of "loss of an office or employment" in the definition of "retiring allowance" pursuant to s.248(1).