Income Tax Severed Letters - 2011-07-15

Ruling

2011 Ruling 2010-0385181R3 - Payments in lieu of continued PHSP coverage

Unedited CRA Tags
5, 6

Principal Issues: Will payments in lieu of continued PHSP coverage for retirees of an employer that entered insolvency prior to 2011 be taxable?

Position: No

2011 Ruling 2010-0371661R3 - Loss Consolidation

Unedited CRA Tags
20(1)(c); 55(3)(a); 87(2.11); 87(2.1)

Principal Issues: Standard loss utilization

Position: Ruling issued.

Reasons: Meets statutory and administrative requirements.

2011 Ruling 2010-0387211R3 F - Estate Planning

Unedited CRA Tags
14(1), 14(5), 84.1(1), 85(1), 85(2), 97(2)

Principales Questions: Application of subsections 84.1(1) or 245(2).

Position Adoptée: Favourable rulings given.

Raisons: In accordance with tax policy and law.

Ministerial Correspondence

31 May 2011 Ministerial Correspondence 2011-0402691M4 - Health and Welfare Trust

Unedited CRA Tags
18(9)

Principal Issues: Correspondence requested guidance on the deductibility of an employer's contributions to a health and welfare trust.

Position: General comments provided.

19 May 2011 Ministerial Correspondence 2011-0403621M4 - Employee - Telephone Line and Internet Access Fees

Unedited CRA Tags
8(1)(i)(iii), 8(13)
  • Principal Issues: Why are the costs of a telephone line and internet access fees not deductible as home office expenses for an employee?

Position: Not considered to be "supplies consumed directly in the performance of the duties of employment".

Reasons: Previously stated position.

Technical Interpretation - External

12 July 2011 External T.I. 2010-0391621E5 - Capital Gains Distributions

Unedited CRA Tags
90(1), 12(1)(k)
Summary Under
Tax Topics - Income Tax Act - Section 90 - Subsection 90(1)
capital gains distributions by U.S. companies were dividends

Principal Issues: Whether the distributions from a United States non-diversified closed-end management investment company ("NCMIC") are treated as capital gains or dividend income.

Position: The distributions are treated as dividend income

Reasons: A distribution by a corporation to its shareholders on a pro rata basis constitutes a dividend. Thus, section 90(1), would include amounts in the income of the taxpayer.

12 July 2011 External T.I. 2011-0409221E5 - Automobile Standby charge

Unedited CRA Tags
6(1)(e); 6(2)

Principal Issues: Whether a standby charge for an employee can be reduced by the number of days for which the employee chooses to surrender both the automobile and the keys to the employer, such as for example, annual vacation, weekends or holidays?

Position: No.

Reasons: An employee is subject to the calculation of the standby charge for each day the vehicle is made available to him or her. An automobile ceases to be available for an employee for purposes of the standby charge calculation only when the employee is required by the employer to return the automobile and surrender its keys. This would not apply in a situation where an automobile is used substantially for personal use and an employee voluntarily surrenders the automobile and keys during a period of absence from work for purposes of reducing the standby charge.

11 July 2011 External T.I. 2011-0394951E5 - Windfall

Principal Issues: Can a corporation, which is in receipt of a non-taxable windfall, distribute it tax-free to its shareholder?

Position: No

Reasons: It is unlikely that a corporation is in receipt of a non-taxable windfall. With the exception of dividends paid from the capital dividend account, the receipt of a dividend is subject to tax.

11 July 2011 External T.I. 2011-0404251E5 - War victim's benefit

Unedited CRA Tags
81(1)(e)

Principal Issues: Whether amounts received for war-related injuries from the Netherlands are taxable.

Position: No

Reasons: The amounts received are excluded from taxation under section 81(1)(e).

7 July 2011 External T.I. 2010-0386871E5 - single-purpose corporations

Unedited CRA Tags
15(1)

Principal Issues: Whether the grandfathering rules as outlined in ITTN #31R could be extended to include the transfer of the shares of a single purpose corporation between spouses as a result of a divorce or a breakdown of the marriage.

Position: No.

Reasons: The CRA is not prepared to extend the scope of the grandfathering rules.

7 July 2011 External T.I. 2011-0403271E5 - Non-resident's taxable income in Canada

Unedited CRA Tags
ITA 248(1), 253, 115, 116; ITR 230
Summary Under
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Taxable Canadian Property - Paragraph (b)
gold bullion generally excluded

Principal Issues: Whether a non-resident's purchase of gold bullion in Canada would constitute a taxable Canadian Property? Whether a T2062 would be required upon disposition.

Position: No

Reasons: The gold bullion would not meet the definition as a taxable Canadian property under section 248(1).

5 July 2011 External T.I. 2010-0376541E5 - Indian Act Exemption

Unedited CRA Tags
81(1)(a)

Principal Issues: 1. Interaction between documents 2000-002453 and 2004-007417. 2. Does the CRA policy with respect to owner/operator corporations apply to Indians? 3. Would the Guidelines apply to a bonus received by an Indian owner/operator?

Position: 1. See discussion. 2. In many cases, yes. 3. See discussion.

Reasons: 1. See discussion. 2. Depends on the facts. 3. See discussion

4 July 2011 External T.I. 2010-0391461E5 - Lump Sum Spousal Support

Unedited CRA Tags
56(1)(b), 56.1(4), 60(b), 60.1(3)

Principal Issues: Is a lump sum spousal support amount paid under a separation agreement, deductible by the payer?

Position: Not in this case

Reasons: Legislation and previous positions

4 July 2011 External T.I. 2010-0384011E5 - Issuance of T2202A by a registered charity

Unedited CRA Tags
118.5(1)(a)(i) & (ii); 149(1)(f)

Principal Issues: Client is requesting official confirmation that it may issue T2202A - Tuition, Education and Textbook Amounts Certificates as outlined under IT-516R2 Tuition Tax Credit

Position: Depends

Reasons: Question of fact, legislation, and previous position

4 July 2011 External T.I. 2010-0380071E5 F - Reer au décès

Unedited CRA Tags
146(8.8); 146(8.9); 146(1.1); 146(8.1); 56(1)h); 60l); 160.2(1)
Summary Under
Tax Topics - Income Tax Act - Section 146 - Subsection 146(1.1)
factors relevant to determining financial dependence
Summary Under
Tax Topics - Income Tax Act - Section 146 - Subsection 146(1) - Benefit - Paragraph (a)
not a taxable “benefit” to non-annuitant if included in annuitant’s income under s. 146(8.8

Principales Questions: Questions concernant les REER au décès.

Position Adoptée: Commentaires généraux

30 June 2011 External T.I. 2011-0398241E5 - Attendant care income

Unedited CRA Tags
ITA: 3(a), 5(1), 9(1), 118.2(2), 118.2(3)(b); Manitoba Public Insurance Corporation Act: 131(1), 131(2)

Principal Issues: Is the spouse of a catastrophically injured person required to pay tax on money received from the injured person's personal care allowance in return for the care provided to that person in the family home?

Position: In this case, No

Reasons: In accordance with paragraph 3(a) of the Act, income of a taxpayer for a taxation year is the total of all amounts each of which is the taxpayer's income for the year (other than taxable capital gains from the disposition of property which are treated separately) from an office, employment, business or property. Generally, where a payment from an insurance company is meant to offset personal expenses to attend to a severely injured spouse's care, the payment is not included in income for income tax purposes.

27 June 2011 External T.I. 2011-0405411E5 - Meaning of Farming - Vermiculture

Unedited CRA Tags
248

Principal Issues: Does the business of raising earthworms in order to harvest worm casting for commercialization meet the definition of "farming" for the purposes of the Act.

Position: Yes.

Reasons: The definition of farming is quite broad and not an exhaustive list.

20 June 2011 External T.I. 2011-0403741E5 - Interpretations of Subsections 70(9.8) and 70(10)

Unedited CRA Tags
70(9.8), 70(10)

Principal Issues: 1) Whether paragraph 70(9.8)(a) requires that all the issued shares of a corporation (Farmco) that uses an individual's property must be owned by the individual, the individual's spouse or common-law partner, a child of the individual or a parent of the individual? 2) Whether for the purposes of paragraph 70(9.8)(a), the individual can own Farmco both directly and also indirectly through a holding company in which the individual is the sole shareholder

Position: 1) No. 2) Yes.

Reasons: 1) There is no requirement in subsection 70(9.8) that all the issued shares of a corporation must be owned by the individual, the individual's spouse or common-law partner, a child of the individual or a parent of the individual. 2) Subsection 70(10) defines a "share of the capital stock of a family farm corporation" as including shares of the capital stock or indebtedness of one or more corporations all or substantially all of the fair market value of the property of which was attributable to property described in paragraph (c).

Conference

20 May 2011 Roundtable, 2011-0404501C6 - computation of surplus

Unedited CRA Tags
Paragraph (a) of the definition of "earnings" in Reg 5907(1)
Summary Under
Tax Topics - Income Tax Regulations - Regulation 5907 - Subsection 5907(1) - Earnings
LLC earnings

Principal Issues: Should a US LLC, which has a US Corporation as its sole member and which has not checked the box to be treated as a corporation for US tax purposes, compute its earnings in accordance with subparagraph (a)(i) of the definition of "earnings" in subsection 5907(1) of the Regulations (i.e. pursuant to the income tax laws of the U.S.) or in accordance with subparagraph (a)(iii) of the definition of "earnings" in subsection 5907(1) of the Regulations (i.e. pursuant to the income tax laws of Canada)?

Position: Subparagraph (a)(i) of the definition of "earnings" in subsection 5907(1)of the Regulations applies, so that the US LLC must compute its earnings pursuant to the income tax laws of the US.

Reasons: A single member US LLC which has not checked the box to be treated as a corporation for US tax purposes is disregarded for US tax purposes. As a consequence, the income of the US LLC will be included in the computation of the income of its member (i.e. the US Corporation) for US tax purposes. This obligation to compute the income of the US LLC is sufficient to bring the US LLC within the provisions of subparagraph (a)(i) of the definition of "earnings" in subsection 5907(1) of the Regulations.

Technical Interpretation - Internal

28 June 2011 Internal T.I. 2011-0398781I7 - Municipal Councillor Meals

Unedited CRA Tags
ITA 6(1)(a); 6(1)(b); 81(3); 248(1); Ontario Municipal Act 283(5)

Principal Issues: Whether a reimbursement for a councillor's meal by the city during council meetings would be fully exempt from tax.

Position: Only 1/3 of the reimbursement would be exempt from income tax in accordance with subsection 81(3) of the Act.

Reasons: For elected municipal officers, subsection 81(3) of the Act provides an exception to the general rule that benefits or allowances paid in connection with an office or employment are taxable. IT-292 provides CRA's long standing position that where a particular Municipal Act deems a proportion of the total remuneration paid to an elected member of a municipal council to be an allowance for expenses, it is the CRA's policy that the proportion so deemed (up to one third of the total paid) will be accepted as an expense allowance. IT-292 further provides that the total of all amounts received, including the amounts that are otherwise taxable, from the municipal corporation is used to determine a councillor's exemption.

27 June 2011 Internal T.I. 2011-0403761I7 - Growing Forward

Unedited CRA Tags
248

Principal Issues: 1. Whether breeding and raising of worms to produce worm castings is farming. 2. Whether peat harvesting and the mixing of worm castings and lime with peat moss to make compost is farming.

Position: 1. In this case, yes. 2. It depends.

Reasons: 1. Position previously taken in 2001-010649 2. The harvesting of peat and the manufacturing and processing of compost, by themselves, are not generally considered to be farming activities. However, income from certain activities that, by themselves would be considered non-farming activities, could be income from a farming business if such activities are incidental to a taxpayer's farming operations and do not constitute a separate business.