Income Tax Severed Letters - 2011-04-15


2011 Ruling 2011-0392261R3 - Carrying on Business in Canada

Principal Issues: Whether Canco's provision of the services described in paragraph 14 of the Ruling will result in Parent being considered to be carrying on business in Canada.

Position: No.

2011 Ruling 2010-0387971R3 - Related Foreign Entity Financing

Unedited CRA Tags
15(1), 15(2), 15(2.2), 15(9), 17(1), 17(2), 80.4(2), 91(1), 91(4), 212(2), 214(3) & 245

Principal Issues: Whether a loan from a controlled foreign affiliate to a related non-resident entity will trigger the application of subsection 15(2) and Part XIII?

Position: No.

Reasons: Subsection 15(2) does not apply to loans between non-residents because of the application of subsection 15(2.2).

2010 Ruling 2010-0383661R3 - Carrying on Business in Canada

Unedited CRA Tags
2(3)(b); 115(1);

Principal Issues: Whether the provision of services by a Canadian corporation
to the non-resident corporation will result in the non-resident corporation carrying on business in

Position: No

Reasons: Factual and legal analysis - see paragraphs 2 and 5

2010 Ruling 2010-0365861R3 - XXXXXXXXXX ATR

Unedited CRA Tags
95(2)(f.1); 20(1)(a); 20(1)(b); 247(2)

Principal Issues: (i) Whether the Pending Patent is a depreciable property or an eligible capital expenditure? (ii) Whether the payments of BCo Future Payment are deductible by Canco? (iii) Whether the payments of BCo Future Payments are subject to Canadian withholding tax?

Position: (i) No. (ii) No.

Reasons: (i) It is an interest or a right to acquire an intangible property that would be a depreciable property described in Class 44 of Schedule II when the particular patent relating to such Pending Patent is ultimately granted or issued. (ii) It relates to the acquisition of the BCo XXXXXXXXXX by Canco and should be included in the cost to Canco of such property. (iii) From the perspective of the recipients of the BCo Future Payments, the payments are royalties or similar payment based on use or production, however, they are exempt from Canadian tax under XXXXXXXXXX of the Canada-XXXXXXXXXX Treaty.

Ministerial Correspondence

1 April 2011 Ministerial Correspondence 2010-0384471M4 - medical expenses - travel

Unedited CRA Tags

Principal Issues: What medical expenses can be claimed with respect to travel for purposes of paragraph 118.2(2)(h)?

Position: Paragraph 118.2(2)(h) provides that reasonable travel expenses can be claimed if a patient must travel at least 80 km from the locality where the patient dwells to a place where medical services are provided if substantially equivalent medical services are not available in that locality; the route travelled by the patient is a reasonable direct route, having regard to the circumstances; and the patient travels to that place to obtain medical services for himself or herself and it is reasonable under the circumstances to travel to that place to obtain those services. Reasonable travel expenses include accommodation, meals, and parking while en route to the medical facility and also once the patient arrives and is receiving treatment at the medical facility such as a hospital. In addition, if a patient is an outpatient at a medical facility and is staying at a hotel, the patient can claim the cost of meals, accommodation, and parking. If the patient's medical practitioner certifies that the patient is incapable of travelling alone, the patient can also claim the cost of meals, accommodation and parking of a accompanying individual.

Reasons: Clarification of policy with respect to medical expenses - travel. See 2010 CTF Q&A on medical travel.

Technical Interpretation - External

5 April 2011 External T.I. 2010-0365781E5 - HRTC - Eligible Dwelling

Unedited CRA Tags
ITA 118.04

Principal Issues: Can an individual claim the HRTC on certain expenditures incurred in renovating his house which was owned in August 2009, but not occupied by him or his family members prior to February 1, 2010?

Position: No.

Reasons: Even though his house was owned in August 2009, it was not ordinarily inhabited by him, his current or former spouse or current or former common-law partner, or his children at any time after January 27, 2009, and before February 1, 2010. Therefore, it will not qualify as an eligible dwelling for the purposes of the HRTC. Pursuant to subsection 118.04(1), an eligible dwelling must exist at the time of the renovation or alteration in order for expenditures to qualify for the HRTC.

5 April 2011 External T.I. 2011-0394311E5 - First time Home Buyers Tax Credit

Unedited CRA Tags
118.05(1); 118.05(4); 146.01

Principal Issues: 1. Can two people purchase an otherwise qualifying home under the Home Buyers Tax Credit (HBTC) and each claim the HBTC or will they share the tax credit?
2. Does a fourplex with a Bachelor [apartment] qualify as a qualifying home for the HBTC?

Position: 1. Depends 2. A question of Fact

Reasons: Legislation

4 April 2011 External T.I. 2011-0392721E5 - Parking Expenses

Unedited CRA Tags
8(10), 8(1)(h), 8(1)(h.1)

Principal Issues: 1. Are parking expenses at different worksites a deductible employment expense?
2. What is an employer's liability when completing a T2200?

Position: 1. It is a Question of Fact.
2. While the employer is required to certify that the requisite conditions of employment have been met, the employer is not required to actually determine whether the expenses are deductible under section 8 of the Act. A completed and signed Form T2200 does not provide the employee with any assurance that such expenses will be deductible since the Act contains other criteria that the employee must also satisfy.

Reasons: 1. Paragraph 8(1)(h.1) of the Act permits a deduction for motor vehicle expenses incurred by an employee in the course of performing the duties of employment where the individual is required to carry on those duties away from the employer's place of business or in different places and is responsible for such expenses. This can only be determined on a case by case basis through a review of all relevant facts in each situation.
2.Subsection 8(10) of the Act requires the employer to certify that the conditions for claiming travel expenses are met by the employee for the particular year in order for the expenses to be deductible from employment income. However, we would expect an employer to issue a Form T2200 only where an employee has reasonable grounds to make such claims.

4 April 2011 External T.I. 2011-0392051E5 - METC - Cosmetic

Unedited CRA Tags
118.2(2), 118.2(2.1)

Principal Issues: The manner by which a determination is made whether or not an amount paid for a medical or dental service is ineligible for the METC pursuant to subsection 118.2(2.1) which excludes amounts paid for services provided purely for cosmetic purposes unless necessary for medical or reconstructive purposes. Will the CRA rely on the opinion of the medical practitioner and will a receipt indicating that the procedure was "not purely for cosmetic purposes" be sufficient evidence to make a determination?

Position: Generally, the local Tax Services Office would be responsible for making the determination based on a review of all the relevant facts of the particular situation including the opinion of a qualified medical practitioner. A general statement on a receipt indicating that the procedure was "not purely for cosmetic purposes" would not, by itself, be determinative. Additional information or explanation may be necessary in order to determine that a cosmetic procedure qualifies for the METC in a particular case.

Reasons: The CRA is responsible for the administration and enforcement of the income tax legislation. As such, the CRA must be satisfied that an amount paid for a medical or dental service is not excluded pursuant to subsection 118.2(2.1). It is a question of fact whether or not a medical or dental service is provided purely for cosmetic purposes and whether or not it is necessary for medical or reconstructive purposes.

1 April 2011 External T.I. 2008-0297541E5 - Ss. 5901(2) and the Timing of Dividends

Unedited CRA Tags
5901(2); 5907
payment after 90th day of ES dividend by FA sub to FA parent with TS who on-pays ES dividend to Canco

Principal Issues: Whether, when applicable, subsection 5901(2) of the Regulations affects both the timing and the character of a dividend.

Position: No, subsection 5901(2) of the Regulations only affects the characterization of the dividend; however, when ss. 5901(2) also applies to a dividend paid by the dividend recipient, the character of the dividend paid by the dividend recipient is determined as if it had been paid immediately after the recipient's taxation year end.

Reasons: Wording of ss. 5901(2).

4 April 2010 External T.I. 2011-0395471E5 - Book Allowances

Unedited CRA Tags
6(1)(b); 8(1)(i)(iii); 8(2); 8(10)

Principal Issues: (1) Whether a book allowance paid to an employee is a taxable benefit. (2) If the book allowance is a taxable benefit can a claim for a deduction under section 8 of the Income Tax Act

Position: (1) If it is unaccountable, Yes (2) No

Reasons: It is the law.