Income Tax Severed Letters - 2011-06-10

Principal Issues: Are payments for certain expenses in respect of a child and arrears payments for child support payable as per a court order made after April 1997 included in the recipient's income?

Position: It is a question of fact. However, where a reimbursement is made if and when a child expense is incurred and neither constitutes an allowance nor is statutorily deemed to be one, the reimbursement would not itself qualify within the meaning of "support amount" and "child support amount" and the recipient would not be required to include these amounts in income and the payer would not be entitled to a deduction.
Where a court order is made before May 1997 and the court order is varied by a second court order made after April 1997 to change the child support amounts payable, there would be a commencement day on the day on which the first varied amount is required to be made. Where an order has a commencement day, child support amounts payable under the order on or after its commencement day are non-taxable to the recipient and non-deductible by the payer. However, this would not have any effect on payments that are set out in the second order that reflect support amounts payable under the initial order that had fallen into arrears. The arrears that are paid would still be deductible/taxable even if the arrears are paid late and as long as the payments related to periodic payments ordered by the court before May 1, 1997. On the other hand if a reduced sum is paid by the payer to obtain a release from a liability imposed by the first order in respect of arrears of maintenance payments (i.e., the reduced sum cannot be identified as amounts payable periodically under the first Order), it would not be required to be included in income of the recipient.

Reasons: The position is consistent with IT-530R.

Principales Questions: Est-ce que l'assemblée annuelle des membres de la Corporation des maîtres mécaniciens en tuyauterie du Québec (CMMTQ) et le salon professionnel MCEE dont la CMMTQ est la coorganisatrice avec d'autres organismes ou associations de secteurs d'activités complémentaires peuvent être considérés comme des congrès aux fins du paragraphe 20(10) de la Loi de l'impôt sur le revenu?

Position Adoptée: Oui, dans les deux cas.

Raisons: Selon la jurisprudence, nos positions antérieures et les critères du Bulletin d'interprétation IT-131R2.

Principal Issues: 1. Is the business income earned by a self-employed Indian storyteller and presenter exempt from tax?

Position: 1. Likely not in this situation.

Reasons: 1. Income is not situated on a reserve as the income-earning activities are not carried out on a reserve and the customers are not on a reserve.

Principal Issues: Determination of the extent to which payments for rights to manufacture and sell trademarked product by Canadian resident to non-resident person will be subject to tax under paragraph 212(1)(d) where payments are calculated (subject to a minimum amount payable) as a percentage of sales of the product and sales are made to customers inside and outside of Canada.

Position: Full amount of payment is subject to tax under Part XIII of the Act.

Reasons: The amounts will constitute royalties within the meaning of paragraph 212(1)(d) and therefore it is not necessary to allocate usage of the rights in Canada for the purposes of subparagraph 212(1)(d)(i).

Principal Issues: What is the CCA class for a self-propelled sprayer?

Position: Class 10.

Reasons: The phrase "automotive equipment" is interpreted broadly. Given the ordinary meaning of the word "automotive", it is reasonable to conclude that a self-propelled sprayer is "automotive equipment" that is described in paragraph (a) of class 10 of Schedule II of the Regulations.

Principal Issues: Whether a taxpayer may claim a capital gains reserve pursuant to subparagraph 40(1)(a)(iii) when part of the consideration received as proceeds of disposition in the form of a mortgage is transferred to a trust.

Position: No.

Reasons: The mortgage would not be considered payable to the taxpayer after the transfer.

Principal Issues: Whether a capital loss incurred on the disposition of personal use property can be carried forward to be used to reduce any capital gains on personal use properties.

Position: No.

Reasons: Any loss realized on the disposition of a "personal-use property" will be deemed to be nil under subparagraph 40(2)(g)(iii) of the Act and thus can not be carried forward to reduce any future capital gains on personal use properties.