Income Tax Severed Letters - 2011-06-24

Ministerial Correspondence

14 June 2011 Ministerial Correspondence 2011-0406101M4 - Private Health Service Plan (PHSP) premiums

Unedited CRA Tags
20.01, 241(1)

Principal Issues: Document number 2008-027377 answered the question on whether a cost-plus plan qualifies as a PHSP where it provides coverage for a sole proprietor and household members, but no employees. We stated in this document that a cost-plus plan does not constitute insurance unless the plan provides coverage for at least one employee. The same individual is questioning why another taxpayer is advertising XXXXXXXXXX that CRA allows sole proprietors with no employees to use pay as you go PHSPs, when we previously advised him this was not allowed.

Position: (1) A sole proprietor’s cost-plus plan will not qualify if there are no employees. (2) CRA cannot comment on the other taxpayer.

Reasons: (1) Paragraphs 20.01(2)(b) and (d) provide that effectively the deduction is only available if equivalent coverage is offered to arm's length employees. (2) Subsection 241(1) prevents a CRA official from discussing another taxpayer.

Technical Interpretation - External

20 June 2011 External T.I. 2011-0400311E5 - PHSP - Sole Proprietor or Corporate Employer

Unedited CRA Tags
20.01, 6(1)(a)(i), 248(1)

Principal Issues: 1 - Whether amounts paid by a sole proprietor for his or her coverage under a cost-plus plan are deductible as a business expense. 2- Whether a corporate employer may have a cost-plus plan that qualifies as a PHSP.

Position: 1- Maybe. 2- Yes.

Reasons: 1- Yes if the cost-plus plan is a PHSP and all the other conditions under subsection 20.01(1) are met. However, a cost-plus plan does not qualify as a PHSP where it provides coverage for the sole-proprietor and household members but there are no employees as it does not meet the condition of insurance. Further, the deduction is limited under subsection 20.01(2). 2- Paragraph 6 of IT-339R2

15 June 2011 External T.I. 2011-0401221E5 - Cosmetic procedures - Hair removal

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

Principal Issues: Whether severe and excessive hair growth as a result of a patient's Polycystic Ovarian Syndrome is precluded as a medical expense by virtue of subsection 1182(2.1).

Position: Question of fact, but in this case, since the procedures are a result of the medical condition of PCOS, they would appear to qualify as a medical expense if performed by a qualified medical practitioner.

Reasons: The hair removal procedures may qualify as an eligible medical expense since they appear to be necessary as a result of a medical condition and are therefore, not purely for cosmetic purposes.

9 June 2011 External T.I. 2011-0393331E5 F - Frais de déplacement - principal lieu d'affaires

Unedited CRA Tags
18(1)(h), 18(12)
Summary Under
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(h)
travel between home office used for back office and 20% of client meetings and other office was personal

Principales Questions: Est-ce que la contribuable peut déduire dans le calcul de son revenu de travailleur autonome ses frais de déplacement entre son domicile et un bureau où elle rencontre 80% de ses clients?

Position Adoptée: Question de faits, mais probablement que non.

Raisons: Paragraphe 24 du Bulletin d'interprétation IT-521.

6 June 2011 External T.I. 2011-0394771E5 - Whether parking fees would qualify for the METC

Unedited CRA Tags
118.2(2)(g) and (h)

Principal Issues: Whether parking fees can be included in transportation or travelling expenses under paragraphs 118.2(2)(g) and (h) of the Act.

Position: Yes.

Reasons: As announced at the 2010 CTF, it is our position that eligible expenses for purposes of paragraph 118.2(2)(h) include travel costs (parking, meals, hotel) incurred en route to and from the city where the treatment is received as well as during the period of treatment.

31 May 2011 External T.I. 2011-0405091E5 - Cosmetic procedures - Hair removal

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

Principal Issues: Whether severe and excessive hair growth as a result of a patient's Polycystic Ovarian Syndrome is precluded as a medical expense by virtue of subsection 1182(2.1).

Position: Question of fact, but in this case, since the procedures are a result of the medical condition of PCOS, they would appear to qualify as a medical expense if performed by a qualified medical practitioner.

Reasons: The hair removal procedures may qualify as an eligible medical expense since they appear to be necessary as a result of a medical condition and are therefore, not purely for cosmetic purposes.

27 May 2011 External T.I. 2010-0403181E5 - Medical Expenses for an Autistic Child

Unedited CRA Tags
118.2(2); 118.2(2)(r); 118.2(2)(e)

Principal Issues: (1) Whether the incremental cost of gluten-free food products for a child diagnosed with autism qualifies as a medical expense for purposes of the METC. (2) Whether the cost of sending an autistic child to a private school would qualify as a medical expense under paragraph 118.2(2)(e) of the Income tax Act.

Position: (1) No (2) No

Reasons: (1) An individual must have been certified in writing by a medical practitioner to be a person who, because of celiac disease, requires a gluten-free diet. (2) The school in question does not provide the specialized equipment, facilities or personnel for the care, or care and training, for an individual with an autistic disorder.

25 May 2011 External T.I. 2011-0403471E5 - METC - Moving Expenses

Unedited CRA Tags
118.2(2)(l.5)

Principal Issues: Whether moving expenses can be claimed by the taxpayer as medical expenses for purposes of the medical expense tax credit.

Position: It is a question of fact.

Reasons: Insufficient information to determine if the taxpayer meets the requirements of paragraph 118.2(2)(l.5) of the Act.

25 May 2011 External T.I. 2011-0402881E5 - Weight Loss Program as a medical expense

Unedited CRA Tags
118.2(2)(a); 118.2(2)(o); Regulation 5700

Principal Issues: (1) Whether a weight loss program qualifies as a medical expense. (2) Whether gym membership qualifies as a medical expense. (3) Whether exercise equipment qualifies as a medical expense

Position: (1) It is a question of fact, but in this case not likely. (2) No. (3) General information provided.

Reasons: (1) May qualify if provisions of 118.2(2)(a) are met. (2) Not allowable based on the provisions of the ITA (3) Insufficient information provided.

25 May 2011 External T.I. 2011-0399851E5 - Neocate Medical formula

Unedited CRA Tags
118.2(2); 118.2(2)(n)

Principal Issues: Whether the amounts paid by the taxpayer for Neocate infant formula qualify as a medical expense for the purposes of calculating the medical expense tax credit.

Position: No, if it is lawfully available without a prescription then it would not generally qualify as a medical expense.

Reasons: Not allowable under 118.2(2)(n) of the Income Tax Act.

25 May 2011 External T.I. 2011-0399061E5 - Medical - 24-hour Care

Unedited CRA Tags
118.2(2)(b), (b.1), (b.2), (c), (d), (e)

Principal Issues: Whether an amount paid for 24-hour respite care or 24-hour care for a disabled person provided in a home qualifies for the medical expense tax credit (METC).

Position: Yes if all the conditions of the particular provision are met as various provisions may apply. It is a question of fact if all the conditions are met and thus general comments provided.

Reasons: Wording of the provisions.

10 June 2010 External T.I. 2011-0400781E5 - German pension received by Canadian resident

Unedited CRA Tags
56(1)(a)(i), 110(1)(f)(i), Article 18(3)(c) of Canada-Germany Tax Agreement

Principal Issues: Is any relief available from double taxation in respect of a German pension

Position: Yes

Reasons: A German social security pension received by a Canadian resident is taxable in Canada, to the extent that the pension would be taxable if the taxpayer was resident in Germany. The non-taxable portion of the German pension is determined by reference to the relevant CRA news release and is deductible under subparagraph 110(1)(f)(i) in computing taxable income. A foreign tax credit is available under section 126 in respect of the German pension income received by the taxpayer and which has been subject to tax in Germany.

Conference

10 June 2011 Roundtable, 2011-0398371C6 - HWTs and Employee Life & Health Trusts

Unedited CRA Tags
144.1

Principal Issues: What is the CRA's current position with respect to revising IT-85R2? If the CRA is revising, what is the timeline? Can the CRA confirm the treatment of a trust created after 2009 that meets the conditions outlined in IT-85R2, but does not meet all of the requirements of the ELHT legislation?

Position: General comments provided.

Reasons: See response.

10 June 2011 Roundtable, 2011-0404621C6 F - Rectification order in Québec

Summary Under
Tax Topics - General Concepts - Rectification & Rescission
CRA awaiting resolution of AES and Riopel cases

Principales Questions: At the Round Table of Journées d'études fiscales of the CTF held on June 10, 2011, the CRA was asked to comment on the Quebec Court of Appeal's decision in Deputy Minister of National Revenue (Quebec) v. Services Environnementaux AES Inc. 2011 QCCA 394.

Position Adoptée: At this time, the CRA declined to comment.

Raisons: Revenue Quebec has sought leave to appeal the Quebec Court of Appeal's decision in Services Environnementaux AES Inc. to the Supreme Court of Canada. Furthermore, the Quebec Court of Appeal has recently rendered another decision on the same question in Riopel v. Canada Revenue Agency, 2011 QCCA 954 (an appeal from the decision Archambault v. Canada Revenue Agency, 2010 QCCS 1576, hereinafter the " Archambault decision"), that confirms the Services Environnementaux AES Inc. decision. The time for appealing the Archambault decision has not yet expired.

6 June 2011 Roundtable, 2011-0403081C6 - Joint venture administrative policy

Unedited CRA Tags
249(1)

Principal Issues: The CRA currently allows a joint venture to establish a fiscal period that may differ from the fiscal periods of the joint venture participants where the participants have different fiscal periods and there is a valid business reason that justifies a separate fiscal period for the joint venture. The 2011 Federal Budget proposed to limit the tax deferral opportunities for corporations (other than professional corporations) with significant interests in partnerships where the partnership fiscal period is different from the corporation's taxation year. Will the CRA continue to allow a joint venture to use its own fiscal period?

Position: No.

Reasons: Assuming the 2011 Federal Budget proposals are enacted, CRA's administrative position on joint ventures will no longer be consistent with tax policy. It would not be appropriate to allow deferral through a joint venture that is not available through a partnership. Taxpayers who enter into JV arrangements will no longer be eligible to compute income as if the joint venture had a separate fiscal period.

20 May 2011 Roundtable, 2011-0399771C6 - CDA, Innovative Installation case

Unedited CRA Tags
89(1)d) "capital dividend account"

Principal Issues: 1) Whether Innovative Installation decision applies to a specific fact situation involving a trust.

Position: 2) No

Reasons: 3) Because of the particularity of group creditor life insurance policies, we are of the opinion that this decision is limited in its application to similar situations involving this type of insurance policy. Consequently, we do not believe that it would apply to the situation described.

20 May 2011 Roundtable, 2011-0398401C6 - Grandfathering rule 112(3)

Unedited CRA Tags
112(3)

Principal Issues: Whether the grandfathering rule would apply in the situation described?

Position: Yes

Reasons: See below.

8 October 2010 Roundtable, 2010-0371911C6 F - Biens dévolus au conjoint

Unedited CRA Tags
70(5); 70(6)
Summary Under
Tax Topics - Income Tax Act - Section 70 - Subsection 70(6)
no rollover for bequested shares that had to be sold to satisfy estate debts

Principales Questions: Dans le cas où le liquidateur d'une succession vend une partie des actions qui ont été léguées par testament à la conjointe du défunt, est-ce que les actions seront admissibles au roulement prévu au paragraphe 70(6)?

Position Adoptée: En l'espèce, non.

Raisons: Pour bénéficier du roulement prévu au paragraphe 70(6), le bien du défunt doit notamment avoir été dévolu irrévocablement en faveur du conjoint dans un délai de 36 mois suivant son décès.

Technical Interpretation - Internal

15 June 2011 Internal T.I. 2011-0405501I7 F - Withholding - stock option benefits

Unedited CRA Tags
153(1)a); 153(1.01); 153(1.1); 153(1.31)
Summary Under
Tax Topics - Income Tax Act - Section 153 - Subsection 153(1) - Paragraph 153(1)(a)
withholding obligation extends to stock option benefits
Summary Under
Tax Topics - Income Tax Act - Section 153 - Subsection 153(1.1)
it is up to employer to find a solution for need to withhold from s. 7 benefits

Principales Questions: Whether the Minister is entitled to waive the withholding requirement in respect of a stock option benefit (non cash remuneration) where it is the only remuneration paid to an employee or where the remuneration paid is not sufficient to remit the required withholding?

Position Adoptée: No.

Raisons: New subsection 153(1.31) provides that the Minister does not have the discretion to waive a withholding requirement in respect of a stock option benefit solely because it is received as a non-cash remuneration.

9 June 2011 Internal T.I. 2011-0396721I7 F - Déduction - habitants de régions éloignées

Unedited CRA Tags
110.7(1)
Summary Under
Tax Topics - Income Tax Act - 101-110 - Section 110.7 - Subsection 110.7(1)
regular absences of 8 days on a 43-day cycle did not interrupt “residence” in zone
Words and Phrases
reside

Principales Questions: Dans une situation donnée, est-ce qu'un contribuable peut se prévaloir de la déduction prévue au paragraphe 110.7(1) de la Loi de l'impôt sur le revenu?

Position Adoptée: Question de fait mais il semblerait que oui dans la présente situation

Raisons: Le particulier réside dans une région visée par le Règlement de l'impôt sur le revenu et ce tout au long d'une période d'au moins six mois consécutifs. Les absences de la zone visée par le paragraphe 7303.1(1) du Règlement sont de courte durée et la fréquence des absences au cours des six mois consécutifs n'est pas élevée.