Income Tax Severed Letters - 2011-06-03


2011 Ruling 2011-0397991R3 - Amendment to Advance Tax Ruling 2010-036966

Unedited CRA Tags
Not Applicable

Principal Issues: Amendment to Advance Tax Ruling 2010-036966

Position: Granted

Reasons: No impact on rulings given

2011 Ruling 2010-0369661R3 - Corporate Reorganization

Unedited CRA Tags
ss. 15(1); 56(2); 86(1); 86(2); 86(2.1); 245(2); and 246(1)

Principal Issues: Whether the proposed reorganization to reorganize the corporation's incestuous shareholdings from its publicly held shares results in the application of a) subsection 15(1); b) subsection 56(2); c) subsection 246(1); d) subsection 86(2) or e) subsection 245(2); and f) whether subsection 86(1) will apply to the proposed reorganization; and g) whether subsection 86(2.1) will apply to reduce the PUC of the new class of shares.

Position: a) no; b) no; c) no; d) no; e) no; f) yes; g) no

Reasons: a) The transfer of the public's interest into a separate class from the incestuously held shares will not result in the conferral of a benefit to the public; b) id.;c) id.; d) the public shareholders are not related to the incestuous shareholders e) the primary purpose of the proposed transactions is commercial and therefore there is no avoidance transaction; f) the proposed reorganization meets the statutory requirements; g) the aggregate PUC of the corporation's shares after the reorganization does not exceed the PUC of its shares before the reorganization.

2011 Ruling 2011-0403861R3 - Supplemental ruling

Unedited CRA Tags

Principal Issues: Changes to facts of ruling 2010-038062

Position: Ruling modified

Reasons: Changes do not affect validity of rulings given

2011 Ruling 2011-0406211R3 - Supplemental ruling

Unedited CRA Tags
20(1)(c); 55(3)(a)

Principal Issues: Changes to ruling 2010-036725

Position: Ruling modified

Reasons: Change in facts does not affect validity of rulings given

2011 Ruling 2010-0380621R3 - Public company spin-off butterfly

Unedited CRA Tags
55(3)(b); 55(3.02); 7(1.4)

Principal Issues: Whether proposed transaction is exempt from subsection 55(2)

Position: Yes

Reasons: Proposed transaction meets the requirements of paragraph 55(3)(b)

2010 Ruling 2010-0364681R3 - Butterfly Reorganization

Unedited CRA Tags
55(3)(b), 12(1)(a), 20(24)

Principal Issues: Whether the proposed butterfly reorganization meets the requirements of paragraph 55(3)(b).

Position: Yes

Reasons: Meets requirements of the law.

Ministerial Correspondence

16 May 2011 Ministerial Correspondence 2011-0398641M4 - Home office expenses and business losses

Unedited CRA Tags
18(12), 9, 3

Principal Issues:
1. Can home office expenses be deducted in the taxpayer's particular circumstances?
2. Can non-capital losses incurred in respect of the taxpayer's business be deducted against other sources of income for the year?

Position: 1. Question of fact, but likely yes, subject to the limitation outlined in paragraph 18(12)(b) of the Act.
2. Yes..

1. Subsection 18(12) of the Act.
2. Section 3 of the Act. See also paragraph 1 of IT-232R3.

Technical Interpretation - External

24 May 2011 External T.I. 2010-0387741E5 F - Revenu d'entreprise exploitée activement

Unedited CRA Tags
corporation renting out trailers earned other business income rather than income from property given level of services provided

Principales Questions: Une société qui exploite une entreprise au Québec et qui loue six roulottes à des entrepreneurs pour que ceux-ci y logent leurs employés génère-t-elle un revenu provenant d'une entreprise exploitée activement?

Position Adoptée: Question de fait. Mais, en l'espèce, vu l'étendu des services fournis aux locataires, nous serions d'avis que le revenu généré par la société est un revenu provenant d'une entreprise exploitée activement.

Raisons: Loi de l'impôt sur le revenu

24 May 2011 External T.I. 2010-0376751E5 - S corporation and application of Article IV(7)(b)

Unedited CRA Tags
Paragraph IV(7)(b) of the Canada U.S. Convention

Principal Issues: Situation where a U.S. individual owns two S Corporations, each of which owns part of a Canadian ULC, which is disregarded for U.S. tax purposes, and one of the S Corporations had lent money at interest to the ULC.
Would paragraph IV(7)(b) of the Convention be applicable on the interest payments from the ULC to the S corporation, denying the benefits of the Convention?

Position: Article IV(7)(b) of the Convention would not apply.

Reasons: U.S. tax treatment of the interest payment would be the same whether ULC is treated as a partnership or not in this scenario.

19 May 2011 External T.I. 2011-0405431E5 F - RPDB et feuillet T4

Unedited CRA Tags
6(1)a), 147(10.3)
T4 reporting by DPSP employer of pension adjustment
T4 reporting-treatment of DPSP benefit to s. 147(2)(k.2) persons

Principales Questions: Un employé doit-il s'imposer sur les cotisations de son employeur à un RPDB?

Position Adoptée: Non, sauf dans les cas où le paragraphe 147(10.3) s'applique.

Raisons: L'alinéa 6(1)a) exclut du calcul du revenu d'emploi les avantages qui résultent des cotisations de l'employeur à un RPDB.

19 May 2011 External T.I. 2009-0347641E5 - Subsection 41(8) of the Nova Scotia ITA

Unedited CRA Tags
41(8) Nova Scotia ITA

Principal Issues: How does the allocation need to be made between to the general partner and the limited partner of the limited partnership for the purpose of the 15% refundable Nova Scotia research and development tax credit in section 41 of the Nova Scotia ITA?

Position: The 15% refundable Nova Scotia RDTC has to be allocated between the partners in the same proportion in which the partners have agreed to share any income or loss if section 103 of the Federal ITA is not applicable in respect of the agreement to share such income or loss.

Reasons: Section 41 of the Nova Scotia ITA does not contain a similar provision to subsection 49(5).

10 May 2011 External T.I. 2010-0388751E5 - Charitable donation credit versus business expense

Unedited CRA Tags
118.1, 118.1(1), 118.1(3), 248(30) to (32), 118.1(9), 18(1)(a)

Principal Issues: Whether the donation of property by a Canadian resident individual to a U.S. charity constitutes a gift for tax purposes when the donation is required under a distributor arrangement with a U.S. company. Alternatively, whether the cost of the property would qualify for deduction as a general business expense.

Position: In this situation, it is our view that the donation of property by the individual to the U.S. charity would not constitute a gift for tax purposes. However, the cost of the donated property could be considered a general business expense.

Reasons: Common law definition of "gift" requires that the transfer of property be voluntary. Consistent with prior positions.

27 April 2011 External T.I. 2010-0368141E5 - Principal Residence - Trust & 1/2 hectare rule

Unedited CRA Tags
54 "principal residence", 40(2)(b), 70(5)

Principal Issues: With respect to determining whether the land in excess of one-half hectare was regarded as necessary to the use and enjoyment of the housing unit as a residence, can the factors utilized on the deemed disposition of the residence upon the mother's death be attributed to the same determination when the residence is disposed of by the mother's estate?

Position: Generally, no.

Reasons: The personal trust created upon the death of an individual is a separate entity from the deceased individual for tax purposes. Therefore the factors utilized upon disposal of the property by the trust are limited to those relevant to the period of time that the trust is in existence except where specifically allowed under the Act. There are no exceptions given the facts presented in this case.

27 April 2011 External T.I. 2009-0348931E5 - Payments to Employees

Unedited CRA Tags
6(1)(b)(vii), 6(3), 8(1)(n), 56(1)(n), 60(q)

Principal Issues: 1. Are sponsorships provided to students considered taxable income of the student and if so, when would the amount be required to be included in income? 2. Are meal allowances paid to employees required to travel on business time considered to be taxable income of the employee?

Position: 1. Determination of fact but likely yes. 2. Determination of fact but likely no.

Reasons: See below.

11 February 2011 External T.I. 2010-0360001E5 - Shareholder benefit - single purpose corporation

Unedited CRA Tags
corporate aircraft used by shareholder of singe-purpose corporation

Principal Issues: Does a subsection 15(1) shareholder benefit result from the personal use and enjoyment of an airplane held by a single purpose corporation?

Position: Question of fact

Reasons: We have ruled on this issue in the past. The circumstances described in the request are virtually identical to question 27 at the 2008 APFF conference.

22 December 2010 External T.I. 2010-0387601E5 - Post-Amalgamation Foreign Exchange Gains

Unedited CRA Tags
40(10); 40(11); 111(12); 87(7)

Principal Issues: Whether an amalgamated corporation will, for the purposes of subsections 40(10) and 40(11) of the ITA, be considered to have realized a gain that was deemed under subsections 111(4) and 111(12) to have been realized by a predecessor corporation.

Position: Yes

Reasons: Paragraph 87(7)(d) of the ITA applies such that the amalgamated company is considered to be the corporation that realized a gain under subsections 111(4) and 111(12).

2 December 2010 External T.I. 2010-0367561E5 - Universal Child Care Benefit

Unedited CRA Tags

Principal Issues: If the Universal Child Care Benefit is deposited directly into the child's bank account and subsequently used as contributions to a Registered Education Savings Plan, is the parent exempt from tax on that amount?

Position: No. However there is new legislation which would allow a single parent to designate that UCCB amounts be included in income of children/dependant for taxation years 2010 & subsequent years.

Reasons: Subsection 56(6) specifically requires UCCB to be taxed in hands of recipient (parent). How the parent directs the money to be used does not impact taxation of amounts.

Technical Interpretation - Internal

25 May 2011 Internal T.I. 2011-0395871I7 F - Pension alimentaire - désignation rétroactive

Unedited CRA Tags
monthly interim amounts retroactively declared to be support were “support amounts” in contrast to subsequently declared arrears support

Principales Questions: Est-ce que Madame peut déduire dans le calcul de son revenu en vertu de l'alinéa 60 b) certains montants versés à Monsieur?

Position Adoptée: Oui, pour les montants versés autres que les arrérages puisque selon les faits soumis, il semble que ces montants constituaient le versement d'une pension alimentaire au sens du paragraphe 56.1(4).
Non, pour le montant versé à titre d'arrérage de pension alimentaire.

Raisons: Analyse législative et paragraphe 22 du IT-530R.

24 May 2011 Internal T.I. 2011-0396771I7 - Payment of Patronage Dividends by Cooperatives

Unedited CRA Tags
135(4) "payment"

Principal Issues: Whether a particular transaction constitutes a "payment" for purposes of subsection 135(4).

Position: Yes, in this particular situation.

Reasons: Question of fact

18 May 2011 Internal T.I. 2010-0380391I7 F - Convention entre des co-propriétaires

Unedited CRA Tags
9(1); 40(2)
agreement of co-owners to share revenues disproportionately would be recognized if such agreement is binding

Principales Questions: Comment l'ARC traiterait une convention entre des co-propriétaires d'un triplex pour diviser le revenu locatif?

Position Adoptée: Question de fait.

Raisons: Le droit fiscal est tributaire du doit privé applicable dans une province donnée. Ainsi, dans la mesure où la convention est valide aux termes du Code civil du Québec, l'ARC devrait examiner les dispositions spécifiques pour déterminer les conséquences fiscales applicables aux Contribuables qui découlent de l'application de la Convention.

19 April 2011 Internal T.I. 2011-0398741I7 - Foreign Tax Credit on 10% additional US tax

Unedited CRA Tags
ITA: 56(1)(x), 126(7); Canada-US Treaty;

Principal Issues: Whether or not the 10% additional US tax payable on the early withdrawal from an Individual Retirement Arrangement qualifies as a non-business-income tax.

Position: Yes

Reasons: The 10% additional US tax is an income or profits tax.